[Federal Register Volume 88, Number 241 (Monday, December 18, 2023)]
[Rules and Regulations]
[Pages 87502-87649]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-25514]
[[Page 87501]]
Vol. 88
Monday,
No. 241
December 18, 2023
Part II
Department of Energy
-----------------------------------------------------------------------
10 CFR Part 63
Energy Conservation Program: Energy Conservation Standards for Consumer
Furnaces; Final Rule
Federal Register / Vol. 88 , No. 241 / Monday, December 18, 2023 /
Rules and Regulations
[[Page 87502]]
-----------------------------------------------------------------------
DEPARTMENT OF ENERGY
10 CFR Part 430
[EERE-2014-BT-STD-0031]
RIN 1904-AD20
Energy Conservation Program: Energy Conservation Standards for
Consumer Furnaces
AGENCY: Office of Energy Efficiency and Renewable Energy, Department of
Energy.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: The Energy Policy and Conservation Act, as amended (``EPCA''),
prescribes energy conservation standards for various consumer products
and certain commercial and industrial equipment, including consumer
furnaces. EPCA also requires the U.S. Department of Energy (``DOE'' or
``the Department'') to determine periodically whether more stringent
standards would be technologically feasible and economically justified,
and would result in significant energy savings. In this final rule, DOE
is adopting amended energy conservation standards for consumer
furnaces, specifically non-weatherized gas furnaces and mobile home gas
furnaces. The Department has determined that the amended energy
conservation standards for the subject products would result in
significant conservation of energy, and are technologically feasible
and economically justified.
DATES:
Effective date: The effective date of this rule is February 16,
2024.
Compliance date: Compliance with the amended standards established
for the subject consumer furnaces in this final rule is required on and
after December 18, 2028.
ADDRESSES: The docket for this rulemaking, which includes Federal
Register notices, public meeting attendee lists and transcripts,
comments, and other supporting documents/materials, is available for
review at www.regulations.gov. All documents in the docket are listed
in the www.regulations.gov index. However, not all documents listed in
the index may be publicly available, such as information that is exempt
from public disclosure.
The docket web page can be found at www.regulations.gov/docket/EERE-2014-BT-STD-0031. The docket web page contains instructions on how
to access all documents, including public comments, in the docket.
FOR FURTHER INFORMATION CONTACT: Ms. Julia Hegarty, U.S. Department of
Energy, Office of Energy Efficiency and Renewable Energy, Building
Technologies Office, EE-5B, 1000 Independence Avenue SW, Washington, DC
20585-0121. Telephone: (240) 597-6737. Email:
[email protected].
Mr. Eric Stas, U.S. Department of Energy, Office of the General
Counsel, GC-33, 1000 Independence Avenue SW, Washington, DC, 20585-
0121. Telephone: (202) 586-5827. Email: [email protected].
For further information on how to review the docket, contact the
Appliance and Equipment Standards Program staff at (202) 287-1445 or by
email: [email protected].
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Synopsis of the Final Rule
A. Benefits and Costs to Consumers
B. Impact on Manufacturers
C. National Benefits and Costs
D. Conclusion
II. Introduction
A. Authority
B. Background
1. Current Standards
2. History of Standards Rulemaking for Consumer Furnaces
3. Current Standards in Canada
III. General Discussion
A. General Comments
1. Comments Regarding Authority
2. Comments Opposing the July 2022 Proposal
3. Comments Expressing Support for the July 2022 Proposal
4. Regional Standards
5. Recommendations for Analytical Changes
6. Opportunity for Public Input
7. Federal Financial Assistance
8. Standby Mode and Off Mode Power Consumption Standards
B. Product Classes and Scope of Coverage
C. Test Procedure
D. Technological Feasibility
1. General
2. Maximum Technologically Feasible Levels
E. Energy Savings
1. Determination of Savings
2. Significance of Savings
F. Economic Justification
1. Specific Criteria
a. Economic Impact on Manufacturers and Consumers
b. Savings in Operating Costs Compared to Increase in Price (LCC
and PBP)
c. Energy Savings
d. Lessening of Utility or Performance of Products
e. Impact of Any Lessening of Competition
f. Need for National Energy Conservation
g. Other Factors
2. Rebuttable Presumption
G. Compliance Date
H. Impact From Other Rulemakings
IV. Methodology and Discussion of Related Comments
A. Market and Technology Assessment
1. Scope of Coverage and Product Classes
a. General Approach
b. Through-the-Wall Units
c. Condensing and Non-Condensing Furnaces
d. Mobile Home Gas Furnaces
2. Technology Options
B. Screening Analysis
1. Screened-Out Technologies
2. Remaining Technologies
C. Engineering Analysis
1. Efficiency Analysis
a. Baseline Efficiency Level and Product Characteristics
b. Higher Efficiency Levels
2. Cost Analysis
a. Teardown Analysis
b. Cost Estimation Method
c. Manufacturing Production Costs
d. Cost-Efficiency Relationship
e. Manufacturer Markup
f. Manufacturer Interviews
g. Electric Furnaces
D. Markups Analysis
E. Energy Use Analysis
1. Building Sample
2. Furnace Sizing
3. Furnace Active Mode Energy Use
a. Adjustments to Energy Use Estimates
4. Furnace Electricity Use
F. Life-Cycle Cost and Payback Period Analysis
1. Product Cost
2. Installation Cost
a. Basic Installation Costs
b. Additional Installation Costs for Non-Weatherized Gas
Furnaces
c. Additional Installation Costs for Mobile Home Gas Furnaces
d. Contractor Survey and DOE's Sources
e. Summary of Installation Costs
3. Annual Energy Consumption
4. Energy Prices
5. Maintenance and Repair Costs
6. Product Lifetime
7. Discount Rates
8. Energy Efficiency Distribution in the No-New-Standards Case
a. Condensing Furnace Market Share in Compliance Year
b. Market Shares of Different Condensing Furnace Efficiency
Levels
c. Assignment of Furnace Efficiency to Sampled Households
9. Alternative Size Thresholds for Small Consumer Gas Furnaces
a. Accounting for Impacts of Downsized Equipment
10. Accounting for Product Switching Under Potential Standards
a. Product Switching Resulting From Amended Standards for Non-
Weatherized Gas Furnaces
b. Product Switching Resulting From Amended Standards for Mobile
Home Gas Furnaces
11. Accounting for Furnace Repair as an Alternative to
Replacement Under Potential Standards
12. Payback Period Analysis
G. Shipments Analysis
[[Page 87503]]
1. Shipments Model and Inputs
a. Historical Shipments Data
b. Shipment Projections in No-New-Standards Case
2. Impact of Potential Standards on Shipments
a. Impact of Equipment Switching
b. Impact of Repair vs. Replace
H. National Impact Analysis
1. Product Efficiency Trends
2. National Energy Savings
3. Net Present Value Analysis
I. Consumer Subgroup Analysis
1. Low-Income Households
J. Manufacturer Impact Analysis
1. Overview
2. Government Regulatory Impact Model and Key Inputs
a. Manufacturer Production Costs
b. Shipments Projections
c. Capital and Product Conversion Costs
d. Manufacturer Markup Scenarios
K. Emissions Analysis
1. Air Quality Regulations Incorporated in DOE's Analysis
L. Monetizing Emissions Impacts
1. Monetization of Greenhouse Gas Emissions
a. Social Cost of Carbon
b. Social Cost of Methane and Nitrous Oxide
2. Monetization of Other Emissions Impacts
M. Utility Impact Analysis
N. Employment Impact Analysis
V. Analytical Results and Conclusions
A. Trial Standard Levels
B. Economic Justification and Energy Savings
1. Economic Impacts on Individual Consumers
a. Life-Cycle Cost and Payback Period
b. Consumer Subgroup Analysis
c. Rebuttable Presumption Payback
2. Economic Impacts on Manufacturers
a. Industry Cash-Flow Analysis Results
b. Direct Impacts on Employment
c. Impacts on Manufacturing Capacity
d. Impacts on Subgroups of Manufacturers
e. Cumulative Regulatory Burden
3. National Impact Analysis
a. Significance of Energy Savings
b. Net Present Value of Consumer Costs and Benefits
c. Indirect Impacts on Employment
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
8. Summary of National Economic Impacts
C. Conclusion
1. Benefits and Burdens of TSLs Considered for Non-Weatherized
Gas Furnace and Mobile Home Gas Furnace AFUE Standards
2. Annualized Benefits and Costs of the Adopted Standards
VI. Procedural Issues and Regulatory Review
A. Review Under Executive Orders 12866, 13563, and 14094
B. Review Under the Regulatory Flexibility Act
C. Review Under the Paperwork Reduction Act
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
VII. Approval of the Office of the Secretary
I. Synopsis of the Final Rule
The Energy Policy and Conservation Act, Public Law 94-163, (42
U.S.C. 6291-6317, as codified) as amended (``EPCA''),\1\ authorizes DOE
to regulate the energy efficiency of a number of consumer products and
certain industrial equipment. Title III, Part B \2\ of EPCA established
the Energy Conservation Program for Consumer Products Other Than
Automobiles. (42 U.S.C. 6291-6309) These products include non-
weatherized gas furnaces (NWGFs) and mobile home gas furnaces (MHGFs),
the subject of this rulemaking. (42 U.S.C. 6292(a)(5))
---------------------------------------------------------------------------
\1\ All references to EPCA in this document refer to the statute
as amended through the Energy Act of 2020, Public Law 116-260 (Dec.
27, 2020), which reflect the last statutory amendments that impact
Parts A and A-1 of EPCA.
\2\ For editorial reasons, upon codification in the U.S. Code,
Part B was redesignated Part A.
---------------------------------------------------------------------------
Pursuant to EPCA, any new or amended energy conservation standard
must be designed to achieve the maximum improvement in energy
efficiency that DOE 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)) EPCA specifically provides that DOE must
conduct two rounds of energy conservation standard rulemakings for
NWGFs and MHGFs. (42 U.S.C. 6295(f)(4)(B) and (C)) EPCA also provides
that not later than six years after issuance of any final rule
establishing or amending a standard, DOE must publish either a notice
of determination that standards for the product do not need to be
amended, or a notice of proposed rulemaking (``NOPR'') including new
proposed energy conservation standards (proceeding to a final rule, as
appropriate). (42 U.S.C. 6295(m)) This rulemaking is being undertaken
pursuant to the statutorily-required second round of rulemaking for
NWGFs and MHGFs, and it also satisfies the statutorily-required 6-year-
lookback review.
In accordance with these and other relevant statutory provisions
discussed in this document, DOE is adopting amended energy conservation
standards for the subject consumer furnaces (i.e., NWGFs and MHGFs).
The adopted standards, which are expressed in terms of minimum annual
fuel utilization efficiency (``AFUE''), are shown in Table I.1. These
standards apply to all products listed in Table I.1 and manufactured
in, or imported into, the United States starting on December 18, 2028.
For the reasons discussed in section III.A of this document, DOE is not
adopting standby mode or off mode power consumption standards for NWGFs
and MHGFs in this final rule.
Table I.1--AFUE Energy Conservation Standards for Non-Weatherized Gas
Furnaces and Mobile Home Gas Furnaces
[Compliance Starting December 18, 2028]
------------------------------------------------------------------------
Product class AFUE (%)
------------------------------------------------------------------------
Non-Weatherized Gas Furnaces............................ 95.0
Mobile Home Gas Furnaces................................ 95.0
------------------------------------------------------------------------
A. Benefits and Costs to Consumers
Table I.2 summarizes DOE's evaluation of the economic impacts of
the adopted standards on consumers of NWGFs and MHGFs, as measured by
the average life-cycle cost (``LCC'') savings and the simple payback
period (``PBP'').\3\ The average LCC savings are positive for all
product classes, and the PBP is less than the average lifetime of both
NWGFs and MHGFs, which is estimated to be 21.5 years (see section IV.F
of this document).
---------------------------------------------------------------------------
\3\ The average LCC savings refer to consumers that are affected
by a standard and are measured relative to the efficiency
distribution in the no-new-standards case, which depicts the market
in the compliance year in the absence of new or amended standards
(see section IV.F of this document). The simple PBP, which is
designed to compare specific efficiency levels, is measured relative
to the baseline product (see section IV.F of this document).
[[Page 87504]]
Table I.2--Impacts of Adopted Energy Conservation Standards on Consumers
of Non-Weatherized Gas Furnaces and Mobile Home Gas Furnaces
------------------------------------------------------------------------
Average LCC
Furnace class savings Simple payback
(2022$) period (years)
------------------------------------------------------------------------
Non-Weatherized Gas Furnaces............ 350 7.6
Mobile Home Gas Furnaces................ 616 3.2
------------------------------------------------------------------------
DOE's analysis of the impacts of the adopted standards on consumers
is described in section IV.F of this document.
B. Impact on Manufacturers 4
---------------------------------------------------------------------------
\4\ All monetary values in this document are expressed in 2022
dollars (2022$).
---------------------------------------------------------------------------
The industry net present value (INPV) is the sum of the discounted
cash flows to the industry from the base year through the end of the
analysis period (2023-2058). The change in INPV is the present value of
all changes in industry cash flow, including changes in production
costs, conversion costs, and manufacturer profit margins. Using a real
discount rate of 6.4 percent, DOE estimates that the INPV for
manufacturers of NWGFs and MHGFs in the case without amended standards
is $1,371.8 million in 2022$. Under the adopted standards, DOE
estimates the change in INPV to range from -26.8 percent to -2.5
percent, which is a reduction of approximately -$367.3 million to -
$33.8 million. In order to bring products into compliance with amended
standards, it is estimated that industry will incur total conversion
costs of $162.0 million (which are incorporated into the calculation of
INPV).
DOE's analysis of the impacts of the adopted energy conservation
standards on manufacturers is described in sections IV.J and V.B.2 of
this document.
C. National Benefits and Costs
DOE's analyses indicate that the adopted AFUE energy conservation
standards for NWGFs and MHGFs would save a significant amount of
energy. Relative to the case without amended standards, the lifetime
energy savings for NWGFs and MHGFs purchased in the 30-year period that
begins in the anticipated year of compliance with the amended standards
(2029-2058), are estimated to amount to 4.77 quadrillion British
thermal units (``Btu''), or quads.\5\ This represents a savings of 3.2
percent relative to the energy use of these products in the case
without amended standards (referred to as the ``no-new-standards
case'').
---------------------------------------------------------------------------
\5\ The quantity refers to full-fuel-cycle (FFC) energy savings.
FFC energy savings include the energy consumed in extracting,
processing, and transporting primary fuels (i.e., coal, natural gas,
petroleum fuels), and, thus, presents a more complete picture of the
impacts of energy efficiency standards. For more information on the
FFC metric, see section IV.H.2 of this document.
---------------------------------------------------------------------------
The cumulative net present value (``NPV'') of total consumer
benefits of the amended standards for NWGFs and MHGFs ranges from $4.8
billion (at a 7-percent discount rate) to $16.3 billion (at a 3-percent
discount rate). This NPV expresses the estimated total value of future
operating-cost savings minus the estimated increased product and
installation costs for NWGFs and MHGFs purchased in years 2029 through
2058.
In addition, the adopted standards for NWGFs and MHGFs are
projected to yield significant environmental benefits. DOE estimates
that the amended standards will result in cumulative emission
reductions (over the same period as for energy savings) of 332 million
metric tons (Mt) \6\ of carbon dioxide (CO2), 4.3 million
tons of methane (CH4), 0.38 thousand tons of nitrous oxide
(N2O), and 0.9 million tons of nitrogen oxides
(NOX). The amended standards will result in cumulative
emission increases of 10.0 thousand tons of sulfur dioxide
(SO2) and 0.08 tons of mercury (Hg).\7\
---------------------------------------------------------------------------
\6\ A metric ton is equivalent to 1.1 short tons. Results for
emissions other than CO2 are presented in short tons.
\7\ DOE calculated emissions reductions relative to the no-new-
standards-case, which reflects key assumptions in the Annual Energy
Outlook 2023 (AEO2023). AEO2023 represents current Federal and State
legislation and final implementation of regulations as of the time
of its preparation. See section IV.K of this document for further
discussion of AEO2023 assumptions that effect air pollutant
emissions. The increase in emissions of some pollutants is due to an
increase in electricity consumption.
---------------------------------------------------------------------------
DOE estimates the value of climate benefits from a reduction in
greenhouse gases (GHG) using four different estimates of the social
cost of CO2 (SC-CO2), the social cost of methane
(SC-CH4), and the social cost of nitrous oxide (SC-
N2O). Together these represent the social cost of GHG (SC-
GHG). DOE used interim SC-GHG values developed by an Interagency
Working Group on the Social Cost of Greenhouse Gases (IWG).\8\ The
derivation of these values is discussed in section IV.L.1 of this
document. For presentational purposes, the climate benefits associated
with the average SC-GHG at a 3-percent discount rate are estimated to
be $17.3 billion. DOE does not have a single central SC-GHG point
estimate, and it emphasizes the importance and value of considering the
benefits calculated using all four sets of SC-GHG estimates.
---------------------------------------------------------------------------
\8\ To monetize the benefits of reducing GHG emissions this
analysis uses the interim estimates presented in the Technical
Support Document: Social Cost of Carbon, Methane, and Nitrous Oxide
Interim Estimates Under Executive Order 13990 published in February
2021 by the IWG. (February 2021 SC-GHG TSD) (Available at:
www.whitehouse.gov/wp-content/uploads/2021/02/TechnicalSupportDocument_SocialCostofCarbonMethaneNitrousOxide.pdf)
(Last accessed August 1, 2023).
---------------------------------------------------------------------------
DOE estimated the monetized net health benefits of NOX
and SO2 emissions changes, using benefit per ton estimates
from the scientific literature, as discussed in section IV.L of this
document.\9\ DOE estimated the present value of the health benefits
would be $8.7 billion using a 7-percent discount rate, and $26.6
billion using a 3-percent discount rate.\10\ DOE is currently only
monetizing (for SO2 and NOX) particulate matter
(PM2.5) precursor health benefits and (for NOX)
ozone precursor health benefits, but will continue to assess the
ability to monetize other effects such as health benefits from
reductions in direct PM2.5 emissions.
---------------------------------------------------------------------------
\9\ DOE did not monetize mercury emissions because the quantity
is very small.
\10\ DOE estimates the economic value of these emissions
reductions resulting from the considered TSLs for the purpose of
complying with the requirements of Executive Order 12866.
---------------------------------------------------------------------------
Table I.3 summarizes the monetized benefits and costs expected to
result from the amended standards for NWGFs and MHGFs. There are other
important unquantified effects, including certain unquantified climate
benefits, unquantified public health benefits from the reduction of
toxic air pollutants and other emissions, unquantified energy security
benefits, and distributional effects, among others.
[[Page 87505]]
Table I.3--Summary of Monetized Benefits and Costs of Adopted AFUE
Energy Conservation Standards for Non-Weatherized Gas Furnaces and
Mobile Home Gas Furnaces
[Trial Standard Level (TSL) 8]
------------------------------------------------------------------------
Billion 2022$
------------------------------------------------------------------------
3% discount rate
------------------------------------------------------------------------
Consumer Operating Cost Savings................ 24.8
Climate Benefits *............................. 17.3
Net Health Benefits **......................... 26.6
------------------------
Total Monetized Benefits [dagger].............. 68.7
Consumer Incremental Product Costs [Dagger].... 8.5
------------------------
Net Monetized Benefits......................... 60.2
------------------------------------------------------------------------
Change in Producer Cashflow (INPV (0.37)--(0.03)
[Dagger][Dagger]).............................
------------------------------------------------------------------------
7% discount rate
------------------------------------------------------------------------
Consumer Operating Cost Savings................ 9.3
Climate Benefits * (3% discount rate).......... 17.3
Net Health Benefits **......................... 8.7
------------------------
Total Monetized Benefits [dagger].............. 35.3
Consumer Incremental Product Costs [Dagger].... 4.5
------------------------
Net Monetized Benefits..................... 30.8
------------------------------------------------------------------------
Change in Producer Cashflow (INPV (0.37)--(0.03)
[Dagger][Dagger]).............................
------------------------------------------------------------------------
Note: This table presents the costs and benefits associated with the
subject consumer furnaces shipped in 2029-2058. These results include
benefits to consumers which accrue after 2058 from the products
shipped in 2029-2058.
* Climate benefits are calculated using four different estimates of the
social cost of carbon (SC-CO2), methane (SC-CH4), and nitrous oxide
(SC-N2O) (model average at 2.5-percent, 3-percent, and 5-percent
discount rates; 95th percentile at 3-percent discount rate) (see
section IV.L of this document). Together these represent the global SC-
GHG. For presentational purposes of this table, the climate benefits
associated with the average SC-GHG at a 3-percent discount rate are
shown; however, DOE emphasizes the importance and value of considering
the benefits calculated using all four sets of SC-GHG estimates. To
monetize the benefits of reducing GHG emissions, this analysis uses
the interim estimates presented in the Technical Support Document:
Social Cost of Carbon, Methane, and Nitrous Oxide Interim Estimates
Under Executive Order 13990 published in February 2021 by the IWG.
** Health benefits are calculated using benefit-per-ton values for NOX
and SO2. DOE is currently only monetizing (for SO2 and NOX) PM2.5
precursor health benefits and (for NOX) ozone precursor health
benefits, but will continue to assess the ability to monetize other
effects such as health benefits from reductions in direct PM2.5
emissions. See section IV.L of this document for more details.
[dagger] Total and net benefits include those consumer, climate, and
health benefits that can be quantified and monetized. For presentation
purposes, total and net benefits for both the 3-percent and 7-percent
cases are presented using the average SC-GHG with 3-percent discount
rate.
[Dagger] Costs include incremental equipment costs as well as
installation costs.
[Dagger][Dagger] Operating Cost Savings are calculated based on the LCC
analysis and national impact analysis as discussed in detail below.
See sections IV.F and IV.H of this document. DOE's national impact
analysis includes all impacts (both costs and benefits) along the
distribution chain beginning with the increased costs to the
manufacturer to manufacture the product and ending with the increase
in price experienced by the consumer. DOE also separately conducts a
detailed analysis on the impacts on manufacturers (the MIA). See
section IV.J of this document. In the detailed MIA, DOE models
manufacturers' pricing decisions based on assumptions regarding
investments, conversion costs, cashflow, and margins. The MIA produces
a range of impacts, which is the rule's expected impact on the INPV.
The change in INPV is the present value of all changes in industry
cash flow, including changes in production costs, capital
expenditures, and manufacturer profit margins. Change in INPV is
calculated using the industry weighted average cost of capital value
of 6.4 percent that is estimated in the MIA (see chapter 12 of the
final rule technical support document (``TSD'') for a complete
description of the industry weighted average cost of capital). For
NWGFs and MHGFs, those values are -$367 million to -$34 million. DOE
accounts for that range of likely impacts in analyzing whether a TSL
is economically justified. See section V.C of this document. DOE is
presenting the range of impacts to the INPV under two manufacturer
markup scenarios: the Preservation of Gross Margin scenario, which is
the manufacturer markup scenario used in the calculation of Consumer
Operating Cost Savings in this table, and the Tiered scenario, which
models a reduction of manufacturer markups due to reduced product
differentiation as a result of amended standards. DOE includes the
range of estimated INPV in the above table, drawing on the MIA
explained further in section IV.J of this document, to provide
additional context for assessing the estimated impacts of this final
rule to society, including potential changes in production and
consumption, which is consistent with the Office of Management and
Budget's (OMB) Circular A-4 and E.O. 12866. If DOE were to include the
INPV into the net benefit calculation for this final rule, the net
benefits would range from $59.83 billion to $60.17 billion at 3-
percent discount rate and would range from $30.43 billion to $30.77
billion at 7-percent discount rate. Parentheses ( ) indicate negative
values.
[[Page 87506]]
The benefits and costs of the adopted standards can also be
expressed in terms of annualized values. The monetary values for the
total annualized net benefits are: (1) the reduced consumer operating
costs, minus (2) the increase in product purchase prices and
installation costs, plus (3) the value of climate and health benefits
of emission reductions, all annualized.\11\
---------------------------------------------------------------------------
\11\ To convert the time-series of costs and benefits into
annualized values, DOE calculated a present value in 2029, the year
used for discounting the NPV of total consumer costs and savings.
For the benefits, DOE calculated a present value associated with
each year's shipments in the year in which the shipments occur
(e.g., 2030), and then discounted the present value from each year
to 2029. Using the present value, DOE then calculated the fixed
annual payment over a 30-year period, starting in the compliance
year, that yields the same present value.
---------------------------------------------------------------------------
The national operating cost savings are domestic private U.S.
consumer monetary savings that occur as a result of purchasing the
covered products and are measured for the lifetime of NWGFs and MHGFs
shipped in 2029-2058. The health benefits associated with reduced
emissions achieved as a result of the adopted standards are also
calculated based on the lifetime of NWGFs and MHGFs shipped in 2029-
2058. Total benefits for both the 3-percent and 7-percent cases are
presented using the average GHG social costs with 3-percent discount
rate.\12\ Estimates of total benefits are presented for all four SC-GHG
discount rates in section V.B of this document.
---------------------------------------------------------------------------
\12\ As discussed in section IV.L.1 of this document, DOE agrees
with the IWG that using consumption-based discount rates (e.g., 3
percent) is appropriate when discounting the value of climate
impacts. Combining climate effects discounted at an appropriate
consumption-based discount rate with other costs and benefits
discounted at a capital-based rate (i.e., 7 percent) is reasonable
because of the different nature of the types of benefits being
measured.
---------------------------------------------------------------------------
Table I.4 presents the total estimated monetized benefits and costs
associated with the adopted standard, expressed in terms of annualized
values. The results under the primary estimate are as follows.
Using a 7-percent discount rate for consumer benefits and costs and
health effects from changes in NOX and SO2
emissions, and the 3-percent discount rate case for climate benefits
from reduced GHG emissions, the estimated cost of the standards adopted
in this rule is $511 million per year in increased equipment costs,
while the estimated annual benefits are $1,054 million in reduced
equipment operating costs, $1,021 million in climate benefits, and $987
million in net health benefits. In this case, the net benefit amounts
to $2,551 million per year.
Using a 3-percent discount rate for all benefits and costs, the
estimated cost of the adopted standards is $500 million per year in
increased equipment costs, while the estimated annual benefits are
$1,467 million in reduced operating costs, $1,021 million in climate
benefits, and $1,574 million in net health benefits. In this case, the
net benefit amounts to $3,561 million per year.
Table I.4--Annualized Monetized Benefits and Costs of Adopted Standards for Non-Weatherized Gas Furnaces and
Mobile Home Gas Furnaces
[TSL 8]
----------------------------------------------------------------------------------------------------------------
Million 2022$/year
-----------------------------------------------
Low-net- High-net-
Primary benefits benefits
estimate estimate estimate
----------------------------------------------------------------------------------------------------------------
3% discount rate
----------------------------------------------------------------------------------------------------------------
Consumer Operating Cost Savings................................. 1,467 1,528 1,440
Climate Benefits *.............................................. 1,021 1,003 1,028
Net Health Benefits **.......................................... 1,574 1,546 1,585
Total Monetized Benefits [dagger]........................... 4,061 4,077 4,053
Consumer Incremental Product Costs [Dagger]..................... 500 520 489
Net Monetized Benefits.......................................... 3,561 3,557 3,564
Change in Producer Cashflow (INPV [Dagger][Dagger])............. (27)-(2) (27)-(2) (27)-(2)
----------------------------------------------------------------------------------------------------------------
7% discount rate
----------------------------------------------------------------------------------------------------------------
Consumer Operating Cost Savings................................. 1,054 1,094 1,051
Climate Benefits * (3% discount rate)........................... 1,021 1,003 1,028
Health Benefits **.............................................. 987 972 994
Total Monetized Benefits [dagger]............................... 3,062 3,069 3,073
Consumer Incremental Product Costs [Dagger]..................... 511 528 501
Net Monetized Benefits.......................................... 2,551 2,541 2,572
----------------------------------------------------------------------------------------------------------------
Change in Producer Cashflow (INPV [Dagger][Dagger])............. (27)-(2) (27)-(2) (27)-(2)
----------------------------------------------------------------------------------------------------------------
Note: This table presents the costs and benefits associated with the subject consumer furnaces shipped in 2029-
2058. These results include consumer, health, and climate benefits which accrue after 2058 from the products
shipped in 2029-2058.
* Climate benefits are calculated using four different estimates of the global SC-GHG (see section IV.L of this
document). For presentational purposes of this table, the climate benefits associated with the average SC-GHG
at a 3-percent discount rate are shown; however, DOE emphasizes the importance and value of considering the
benefits calculated using all four sets of SC-GHG estimates. To monetize the benefits of reducing GHG
emissions, this analysis uses the interim estimates presented in the Technical Support Document: Social Cost
of Carbon, Methane, and Nitrous Oxide Interim Estimates Under Executive Order 13990 published in February 2021
by the IWG.
**Health benefits are calculated using benefit-per-ton values for NOX and SO2. DOE is currently only monetizing
(for SO2 and NOX) PM2.5 precursor health benefits and disbenefits and (for NOX) ozone precursor health
benefits, but will continue to assess the ability to monetize other effects such as health benefits from
reductions in direct PM2.5 emissions. See section IV.L of this document for more details.
[dagger] Total benefits for both the 3-percent and 7-percent cases are presented using the average SC-GHG with 3-
percent discount rate.
[Dagger] Costs include incremental equipment costs as well as installation costs.
[[Page 87507]]
[Dagger][Dagger] Operating Cost Savings are calculated based on the LCC analysis and national impact analysis as
discussed in detail below. See sections IV.F and IV.H of this document. DOE's national impact analysis
includes all impacts (both costs and benefits) along the distribution chain beginning with the increased costs
to the manufacturer to manufacture the product and ending with the increase in price experienced by the
consumer. DOE also separately conducts a detailed analysis on the impacts on manufacturers (the MIA). See
section IV.J of this document. In the detailed MIA, DOE models manufacturers' pricing decisions based on
assumptions regarding investments, conversion costs, cashflow, and margins. The MIA produces a range of
impacts, which is the rule's expected impact on the INPV. The change in INPV is the present value of all
changes in industry cash flow, including changes in production costs, capital expenditures, and manufacturer
profit margins. The annualized change in INPV is calculated using the industry weighted average cost of
capital value of 6.4 percent that is estimated in the manufacturer impact analysis (see chapter 12 of the
final rule TSD for a complete description of the industry weighted average cost of capital). For NWGFs and
MHGFs, those values are -$27 million to -$2 million. DOE accounts for that range of likely impacts in
analyzing whether a TSL is economically justified. See section V.C of this document. DOE is presenting the
range of impacts to the INPV under two manufacturer markup scenarios: the Preservation of Gross Margin
scenario, which is the manufacturer markup scenario used in the calculation of Consumer Operating Cost Savings
in this table, and the Tiered scenario, where DOE assumed amended standards would result in a reduction of
product differentiation and a compression of the markup tiers. DOE includes the range of estimated annualized
change in INPV in the above table, drawing on the MIA explained further in section IV.J of this document, to
provide additional context for assessing the estimated impacts of this final rule to society, including
potential changes in production and consumption, which is consistent with OMB's Circular A-4 and E.O. 12866.
If DOE were to include the INPV into the annualized net benefit calculation for this final rule, the
annualized net benefits would range from $3,534 million to $3,559 million at 3-percent discount rate and would
range from $2,524 million to $2,549 million at 7-percent discount rate. Parentheses ( ) indicate negative
values.
DOE's analysis of the national impacts of the adopted standards is
described in sections IV.H, IV.K, and IV.L of this document.
D. Conclusion
DOE concludes that the standards adopted in this final rule
represent the maximum improvement in energy efficiency that is
technologically feasible and economically justified, and would result
in the significant conservation of energy. Specifically, with regards
to technological feasibility, products achieving these standard levels
are already commercially available for all product classes covered by
this final rule. As for economic justification, DOE's analysis shows
that the benefits of the standards exceed, to a great extent, the
burdens of the standards.
Using a 7-percent discount rate for consumer benefits and costs and
NOX and SO2 emissions reduction benefits, and a
3-percent discount rate case for GHG social costs, the estimated cost
of the standards for NWGFs and MHGFs is $511 million per year in
increased product costs, while the estimated annual benefits are $1,054
million in reduced product operating costs, $1,021 million in climate
benefits, and $987 million in health benefits. The net benefit amounts
to $2,551 million per year. DOE notes that the net benefits are
substantial even in the absence of the climate benefits,\13\ and DOE
would adopt the same standards in the absence of such benefits.
---------------------------------------------------------------------------
\13\ The information on climate benefits is provided in
compliance with Executive Order 12866.
---------------------------------------------------------------------------
The significance of energy savings offered by a new or amended
energy conservation standard cannot be determined without knowledge of
the specific circumstances surrounding a given rulemaking.\14\ For
example, some covered products and equipment have most of their energy
consumption occur during periods of peak energy demand. The impacts of
these products on the energy infrastructure can be more pronounced than
products with relatively constant demand. Accordingly, DOE evaluates
the significance of energy savings on a case-by-case basis.
---------------------------------------------------------------------------
\14\ Procedures, Interpretations, and Policies for Consideration
in New or Revised Energy Conservation Standards and Test Procedures
for Consumer Products and Commercial/Industrial Equipment, 86 FR
70892, 70901 (Dec. 13, 2021).
---------------------------------------------------------------------------
As previously mentioned, the standards are projected to result in
estimated national energy savings of 4.77 quad (full-fuel-cycle
(``FFC'')), the equivalent of the primary annual energy use of 51
million homes. Based on these findings, DOE has determined that the
energy savings from the standard levels adopted in this final rule are
``significant'' within the meaning of 42 U.S.C. 6295(o)(3)(B). A more
detailed discussion of the basis for these conclusions is contained in
the remainder of this document and the accompanying technical support
document (``TSD'').
II. Introduction
The following section briefly discusses the statutory authority
underlying this final rule, as well as some of the relevant historical
background related to the amended standards for consumer NWGFs and
MHGFs.
A. Authority
EPCA authorizes DOE to regulate the energy efficiency of a number
of consumer products and certain industrial equipment. Title III, Part
B of EPCA established the Energy Conservation Program for Consumer
Products Other Than Automobiles. (42 U.S.C. 6291-6309) These products
include the consumer furnaces that are the subject of this document.
(42 U.S.C. 6292(a)(5)) EPCA prescribed energy conservation standards
for these products (42 U.S.C. 6295(f)(1) and (2)), and directs DOE to
conduct future rulemakings to determine whether to amend these
standards. (42 U.S.C. 6295(f)(4)) EPCA further provides that, not later
than six years after the issuance of any final rule establishing or
amending a standard, DOE must publish either a notice of determination
that standards for the product do not need to be amended, or a NOPR
including new proposed energy conservation standards (proceeding to a
final rule, as appropriate). (42 U.S.C. 6295(m)(1))
The energy conservation program under EPCA consists essentially of
four parts: (1) testing, (2) labeling, (3) the establishment of Federal
energy conservation standards, and (4) certification and enforcement
procedures. Relevant provisions of the EPCA specifically include
definitions (42 U.S.C. 6291), coverage (42 U.S.C. 6292), test
procedures (42 U.S.C. 6293), labeling provisions (42 U.S.C. 6294),
energy conservation standards (42 U.S.C. 6295), and the authority to
require information and reports from manufacturers (42 U.S.C. 6296).
Federal energy efficiency requirements for covered products
established under EPCA generally supersede State laws and regulations
concerning energy conservation testing, labeling, and standards. (42
U.S.C. 6297(a)-(c)) DOE may, however, grant waivers of Federal
preemption in limited instances for particular State laws or
regulations, in accordance with the procedures and other provisions set
forth under EPCA. (42 U.S.C. 6297(d))
Subject to certain statutory criteria and conditions, DOE is
required to develop test procedures that are reasonably designed to
produce test results that measure the energy efficiency, energy use, or
estimated annual operating cost of each covered product during a
representative average use cycle and that are not unduly burdensome to
conduct. (42 U.S.C. 6293(b)(3), 6295(o)(3)(A), and 6295(r))
Manufacturers of covered products must use the prescribed Federal test
procedure as the basis for: (1) certifying to DOE that their products
comply with
[[Page 87508]]
the applicable energy conservation standards adopted pursuant to EPCA
and (2) making representations regarding the energy use or efficiency
of those products. (42 U.S.C. 6293(c) and 6295(s)) Similarly, DOE must
use these test procedures to determine whether the products comply with
the relevant energy conservation standards promulgated under EPCA. (42
U.S.C. 6295(s)) The DOE test procedures for consumer furnaces appear at
title 10 of the Code of Federal Regulations (CFR), part 430, subpart B,
appendix N.
DOE must follow specific statutory criteria for prescribing new or
amended energy conservation standards for covered products, including
consumer furnaces. Any new or amended standard for a covered product
must be designed to achieve the maximum improvement in energy
efficiency that the Secretary of Energy determines is technologically
feasible and economically justified. (42 U.S.C. 6295(o)(2)(A) and
6295(o)(3)(B)) Furthermore, DOE may not adopt any standard that would
not result in the significant conservation of energy. (42 U.S.C.
6295(o)(3))
Moreover, DOE may not prescribe a standard: (1) for certain
products, including NWGFs and MHGFs, if no test procedure has been
established for the product, or (2) if DOE determines by rule that the
standard is not technologically feasible or economically justified. (42
U.S.C. 6295(o)(3)(A)-(B)) In deciding whether a proposed standard is
economically justified, DOE must determine whether the benefits of the
standard exceed its burdens. (42 U.S.C. 6295(o)(2)(B)(i)) DOE must make
this determination after receiving comments on the proposed standard,
and by considering, to the greatest extent practicable, the following
seven statutory factors:
(1) The economic impact of the standard on manufacturers and on
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 of, initial charges for, or maintenance expenses
of, the covered products which are likely to result from the imposition
of the standard;
(3) The total projected amount of energy (or as applicable, water)
savings likely to result directly from the imposition of the standard;
(4) Any lessening of the utility or the performance of the covered
products likely to result from the imposition of the standard;
(5) The impact of any lessening of competition, as determined in
writing by the Attorney General, that is likely to result from the
imposition of the standard;
(6) The need for national energy and water conservation; and
(7) Other factors the Secretary of Energy (Secretary) considers
relevant.
(42 U.S.C. 6295(o)(2)(B)(i)(I)-(VII))
Further, EPCA establishes a rebuttable presumption that a standard
is economically justified if the Secretary finds that the additional
cost to the consumer of purchasing a product complying with an energy
conservation standard level will be less than three times the value of
the energy savings during the first year that the consumer will receive
as a result of the standard, as calculated under the applicable test
procedure. (42 U.S.C. 6295(o)(2)(B)(iii))
EPCA also contains what is known as an ``anti-backsliding''
provision, which prevents the Secretary from prescribing any amended
standard that either increases the maximum allowable energy use or
decreases the minimum required energy efficiency of a covered product.
(42 U.S.C. 6295(o)(1)) Also, the Secretary may not prescribe an amended
or new standard if the Secretary finds (and publishes such finding)
that interested persons have established by a preponderance of the
evidence that the standard is likely to result in the unavailability in
the United States in any covered product type (or class) of performance
characteristics (including reliability), features, sizes, capacities,
and volumes that are substantially the same as those generally
available in the United States at the time of the Secretary's finding.
(42 U.S.C. 6295(o)(4))
Additionally, EPCA specifies requirements when promulgating an
energy conservation standard for a covered product that has two or more
subcategories that warrant separate product classes and energy
conservation standards with a different level of energy efficiency or
energy use than that which would apply for such group of covered
products which have the same function or intended use. DOE must specify
a different standard level for a type or class of products that has the
same function or intended use if DOE determines that products within
such group: (A) consume a different kind of energy from that consumed
by other covered products within such type (or class); or (B) have a
capacity or other performance-related feature which other products
within such type (or class) do not have and such feature justifies a
higher or lower standard. (42 U.S.C. 6295(q)(1)) In determining whether
a performance-related feature justifies 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 such higher or lower level was established. (42 U.S.C.
6295(q)(2))
Pursuant to amendments contained in the Energy Independence and
Security Act of 2007 (EISA 2007), Public Law 110-140, DOE may consider
the establishment of a regional energy conservation standard for
furnaces (except boilers). (42 U.S.C. 6295(o)(6)) Specifically, in
addition to a base national standard for a product, DOE may establish
for furnaces a single more-restrictive regional standard. (42 U.S.C.
6295(o)(6)(B)) The region must include only contiguous States (with the
exception of Alaska and Hawaii, which may be included in a region with
which they are not contiguous), and each State may be placed in only
one region (i.e., an entire State cannot simultaneously be placed in
two regions, nor can it be divided between two regions).\15\ (42 U.S.C.
6295(o)(6)(C)) Further, DOE can establish the additional regional
standard for furnaces only: (1) where doing so would produce
significant energy savings in comparison to a single national standard;
(2) if the regional standard is economically justified; and (3) after
considering the impact of such standard on consumers, manufacturers,
and other market participants, including product distributors, dealers,
contractors, and installers. (42 U.S.C. 6295(o)(6)(D))
---------------------------------------------------------------------------
\15\ DOE notes that the regional standards provision at 42
U.S.C. 6295(o)(6) also applies to central air conditioners and heat
pumps, products for which the statute permits either one or two
regional standards. This is in contrast to furnaces, for which EPCA
permits only one regional standard. As a result, the statute
frequently employs plural language in these provisions.
---------------------------------------------------------------------------
Finally, pursuant to the amendments contained in EISA 2007, any
final rule for new or amended energy conservation standards promulgated
after July 1, 2010, is required to address standby mode and off mode
energy use. (42 U.S.C. 6295(gg)(3)) Specifically, when DOE adopts a
standard for a covered product after that date, it must, if justified
by the criteria for adoption of standards under EPCA (42 U.S.C.
6295(o)), incorporate standby mode and off mode energy use into a
single standard, or, if that is not feasible, adopt a separate standard
for such energy use for that product if doing so would be consistent
with section 6295(o). (42 U.S.C. 6295(gg)(3)(A)-(B)) DOE's current test
procedures for consumer furnaces address standby mode and off mode
[[Page 87509]]
energy use for all covered consumer furnaces. DOE's energy conservation
standards address standby mode and off mode energy use only for non-
weatherized oil-fired and electric furnaces. 10 CFR 430.32(e)(1)(iii).
In the NOPR published in the Federal Register on July 7, 2022 (``the
July 2022 NOPR''), DOE proposed to specify new energy conservation
standards to address the standby mode and off mode energy use of NWGFs
and MHGFs. 87 FR 40590, 40706. However, for the reasons discussed in
section III.A.8 of this document, DOE has concluded that it would not
be consistent with section 6295(o) to adopt standby mode and off mode
energy standards for NWGFs and MHGFs in this final rule. DOE will
continue to investigate and analyze appropriate standby mode and off
mode energy consumption standards for these products in a future
rulemaking.
B. Background
1. Current Standards
The most recent energy conservation standards for NWGFs and MHGFs
were adopted in a final rule published in the Federal Register on
November 19, 2007 (``November 2007 Final Rule''), in which DOE
prescribed amended energy conservation standards for consumer furnaces
manufactured on or after November 19, 2015. 72 FR 65136. The November
2007 Final Rule revised the energy conservation standards to 80-percent
AFUE for NWGFs, to 81-percent AFUE for weatherized gas furnaces, to 80-
percent AFUE for MHGFs, and to 82-percent AFUE for non-weatherized oil-
fired furnaces.\16\ 72 FR 65136, 65169. Based on market assessment and
the standard levels under consideration (and that were ultimately
adopted), the November 2007 Final Rule established standards without
regard to the certified input capacity of a furnace. Id.
---------------------------------------------------------------------------
\16\ Although the November 2007 Final Rule did not explicitly
state the standards for oil-fired furnaces were applicable only to
non-weatherized oil-fired furnaces, the NOPR that preceded the final
rule made clear that DOE did not perform analysis of and was not
proposing standards for weatherized oil-fired furnaces or mobile
home oil-fired furnaces. 71 FR 59203, 52914 (Oct. 6, 2006). Thus,
the proposed standards that were ultimately adopted in the November
2007 Final Rule only applied to non-weatherized oil-fired furnaces.
---------------------------------------------------------------------------
Following a series of publications described in section II.B.2 of
this document and discussed in further detail in the July 2022 NOPR
(see 87 FR 40590, 40601-40602 (July 7, 2022)), required compliance with
the standards established in the November 2007 Final Rule for these
products began on November 19, 2015. The standards currently applicable
to all consumer furnaces, including the two product classes for which
DOE is amending standards in this final rule, are set forth in DOE's
regulations at 10 CFR 430.32(e)(1)(ii). Table II.1 presents the
currently applicable standards for NWGFs and MHGFs and the date on
which compliance with that standard was required.
Table II.1--Current Federal Energy Conservation Standards for Non-
Weatherized Gas Furnaces and Mobile Home Gas Furnaces
------------------------------------------------------------------------
Minimum annual
fuel
Product class utilization Compliance
efficiency date
(%)
------------------------------------------------------------------------
Non-weatherized Gas..................... 80 11/19/2015
Mobile Home Gas......................... 80 11/19/2015
------------------------------------------------------------------------
2. History of Standards Rulemaking for Consumer Furnaces
Given the somewhat complicated interplay of recent DOE rulemakings
and statutory provisions related to consumer furnaces, DOE provides the
following regulatory history as background leading to this document.
Amendments to EPCA in the National Appliance Energy Conservation Act of
1987 (``NAECA''), Public Law 100-12, established EPCA's original energy
conservation standards for furnaces, consisting of the minimum AFUE
levels for mobile home furnaces \17\ and for all other furnaces except
``small'' gas furnaces. (42 U.S.C. 6295(f)(1)-(2)) The original
standards established a minimum AFUE of 75 percent for mobile home
furnaces and 78 percent for all other furnaces. Pursuant to 42 U.S.C.
6295(f)(1)(B), in a final rule published in the Federal Register on
November 17, 1989 (``the November 1989 Final Rule''), DOE adopted a
mandatory minimum AFUE level for ``small'' furnaces. 54 FR 47916. The
standards established by NAECA and the November 1989 Final Rule for
``small'' gas furnaces are still in effect for mobile home oil-fired
furnaces, weatherized oil-fired furnaces, and electric furnaces.
---------------------------------------------------------------------------
\17\ DOE notes that prior to June 15, 1976, prefabricated homes
that were built in a factory were commonly referred to as ``mobile
homes,'' as reflected in the terminology used in EPCA. However, such
dwellings built after that date came to be known as ``manufactured
homes'' and have to meet specific construction standards required by
the U.S. Department of Housing and Urban Development (HUD) Code. (24
CFR part 3280) DOE's mobile home furnace standards apply to furnaces
designed for and intended to be used in both mobile and manufactured
homes that meet DOE's ``mobile home furnace'' definition at 10 CFR
430.2.
---------------------------------------------------------------------------
Pursuant to EPCA, DOE was required to conduct two rounds of
rulemaking to consider amended energy conservation standards for
furnaces. (42 U.S.C. 6295(f)(4)(B) and (C)) In satisfaction of this
first round of amended standards rulemaking under 42 U.S.C.
6295(f)(4)(B), as noted previously, DOE published the November 2007
Final Rule that revised these standards for most furnaces, but left
them in place for two product classes (i.e., mobile home oil-fired
furnaces and weatherized oil-fired furnaces).\18\ The standards amended
in the November 2007 Final Rule were to apply to furnaces manufactured
or imported on and after November 19, 2015; this compliance date was
consistent with the 8-year statutory lead time provided under 42 U.S.C.
6295(f)(4)(B). 72 FR 65136 (Nov. 19, 2007). The energy conservation
standards in the November 2007 Final Rule consist of a minimum AFUE
level for each of the six classes of furnaces. Id. at 72 FR 65169. As
previously noted, based on the market analysis for the November 2007
Final Rule and the standards established under that rule, the November
2007 Final Rule
[[Page 87510]]
eliminated the distinction between furnaces based on their certified
input capacity (i.e., the standards applicable to ``small'' furnaces
were established at the same level and as part of their appropriate
class of furnace generally). Id.
---------------------------------------------------------------------------
\18\ The November 2007 Final Rule adopted amended standards for
``oil-fired furnaces'' generally. However, on July 28, 2008, DOE
published a final rule technical amendment in the Federal Register
that clarified that the amended standards adopted in the November
2007 Final Rule for oil-fired furnaces did not apply to mobile home
oil-fired furnaces and weatherized oil-fired furnaces; rather they
were only applicable for non-weatherized oil-fired furnaces. 73 FR
43611, 43613.
---------------------------------------------------------------------------
On June 27, 2011, DOE published a direct final rule (``DFR'') in
the Federal Register (``June 2011 DFR'') revising the energy
conservation standards for residential furnaces pursuant to the
voluntary remand in State of New York, et al. v. Department of Energy,
et al. 76 FR 37408 (June 27, 2011). In the June 2011 DFR, DOE
considered the amendment of the same six product classes considered in
the November 2007 Final Rule analysis plus electric furnaces. Id. at 76
FR 37445. The June 2011 DFR amended the existing AFUE energy
conservation standards for NWGFs, MHGFs, and non-weatherized oil
furnaces, and amended the compliance date (but left the existing
standards in place) for weatherized gas furnaces.\19\ Id. at 76 FR
37410. The existing AFUE standards were left in place for three classes
of consumer furnaces (i.e., weatherized oil-fired furnaces, mobile home
oil-fired furnaces, and electric furnaces). The June 2011 DFR also
established electrical standby mode and off mode energy conservation
standards for NWGFs (including mobile home furnaces), non-weatherized
oil furnaces (including mobile home furnaces), and electric furnaces.
DOE confirmed the standards and compliance dates promulgated in the
June 2011 DFR in a notice of effective date and compliance dates
published in the Federal Register on October 31, 2011. 76 FR 67037.
---------------------------------------------------------------------------
\19\ For NWGFs and MHGFs, the standards were amended to a level
of 80-percent AFUE nationally with a more-stringent 90-percent AFUE
requirement in the Northern region. For non-weatherized oil-fired
furnaces, the standard was amended to 83-percent AFUE nationally. 76
FR 37408, 37410 (June 27, 2011).
---------------------------------------------------------------------------
Compliance with the energy conservation standards promulgated in
the June 2011 DFR was to be required on May 1, 2013, for non-
weatherized furnaces and on January 1, 2015, for weatherized furnaces.
76 FR 37408, 37547-37548 (June 27, 2011); 76 FR 67037, 67051 (Oct. 31,
2011). The amended energy conservation standards and compliance dates
in the June 2011 DFR superseded those standards and compliance dates
promulgated by the November 2007 Final Rule for NWGFs, MHGFs, and non-
weatherized oil furnaces. Similarly, the amended compliance date for
weatherized gas furnaces in the June 2011 DFR superseded the compliance
date in the November 2007 Final Rule.
Following DOE's adoption of the June 2011 DFR, the American Public
Gas Association (``APGA'') filed a petition for review with the United
States Court of Appeals for the District of Columbia Circuit (``D.C.
Circuit'') to invalidate the DOE rule as it pertained to NWGFs.
Petition for Review, American Public Gas Ass'n, et al. v. U.S. Dep't of
Energy, et al., No. 11-1485 (D.C. Cir. filed Dec. 23, 2011).\20\ The
parties to the litigation engaged in settlement negotiations which
ultimately led to filing of an unopposed motion on March 11, 2014,
seeking to vacate DOE's rule in part and to remand to the agency for
further rulemaking. On April 24, 2014, the Court granted a motion that
approved a settlement agreement that was reached between DOE and APGA,
in which DOE agreed to a partial vacatur and remand of the NWGFs and
MHGFs portions of the June 2011 DFR in order to conduct further notice-
and-comment rulemaking. Accordingly, the Court's order vacated the June
2011 DFR in part (i.e., those portions relating to NWGFs and MHGFs) and
remanded to the agency for further rulemaking.
---------------------------------------------------------------------------
\20\ After APGA filed its petition for review on December 23,
2011, various entities subsequently intervened.
---------------------------------------------------------------------------
As part of the settlement, DOE agreed to use best efforts to issue
a notice of proposed rulemaking within one year of the remand, and to
issue a final rule within the later of two years of the issuance of
remand, or one year of the issuance of the proposed rule, including at
least a 90-day public comment period. Due to the extensive and recent
rulemaking history for residential furnaces, as well as the associated
opportunities for notice and comment described previously, DOE forwent
the typical earlier rulemaking stages (e.g., framework document,
preliminary analysis) and instead published a NOPR in the Federal
Register on March 12, 2015 (``March 2015 NOPR''). 80 FR 13120. DOE
concluded that there was a sufficient recent exchange of information
between interested parties and DOE regarding the energy conservation
standards for residential furnaces such as to allow for this proceeding
to move directly to the NOPR stage. Moreover, under 42 U.S.C. 6295(p)
and 5 U.S.C. 553(b) and (c), EPCA requires that DOE publish only a
notice of proposed rulemaking and accept public comments before
amending energy conservation standards in a final rule (i.e., DOE is
not required by statute to conduct any earlier rulemaking stages).\21\
---------------------------------------------------------------------------
\21\ This aligns with the direction provided in the final rule
published in the Federal Register on December 13, 2021, regarding
the procedures, interpretations, and policies for consideration in
new or revised energy conservation standards and test procedures for
consumer products and commercial/industrial equipment (December 2021
Final Rule). 86 FR 70892, 70922.
---------------------------------------------------------------------------
In the March 2015 NOPR, DOE proposed adopting a national standard
of 92-percent AFUE for all NWGFs and MHGFs. 80 FR 13120, 13198 (March
12, 2015). In response, while some stakeholders supported the national
92-percent AFUE standard, others opposed the proposed standards and
encouraged DOE to withdraw the March 2015 NOPR.
Multiple parties suggested that DOE should create a separate
product class for furnaces based on input capacity and set lower
standards for ``small furnaces'' in order to mitigate some of the
negative impacts of the proposed standards. Among other reasons,
commenters suggested that such an approach would reduce the number of
low-income consumers switching to electric heat due to higher
installation costs, because those consumers typically have smaller
homes in which a furnace with a lower input capacity would be installed
and, therefore, would not be impacted if a condensing standard were
adopted only for higher-input-capacity furnaces. To explore the
potential impacts of such an approach, DOE published a notice of data
availability (``NODA'') in the Federal Register on September 14, 2015
(``September 2015 NODA''). 80 FR 55038. The September 2015 NODA
contained analysis that considered thresholds for defining the small
NWGF product class from 45 thousand British thermal units per hour
(``kBtu/h'') to 65 kBtu/h certified input capacity and maintaining a
non-condensing 80-percent AFUE standard for that product class, while
increasing the standard to a condensing level (i.e., either 90-percent,
92-percent, 95-percent, or 98-percent AFUE) for large NWGFs. Id. at 80
FR 55042. The results indicated that life-cycle cost savings increased
and that the share of consumers with net costs decreased as a result of
an 80-percent AFUE standard for a small NWGF product class. Id. at 80
FR 55042-55044. It also showed that national energy savings increased
because fewer consumers switched to electric heat.\22\ Id. at 80 FR
55038, 55044.
---------------------------------------------------------------------------
\22\ In terms of full-fuel-cycle energy, switching from gas to
electricity increases energy use because of the losses in thermal
electricity generation.
---------------------------------------------------------------------------
Therefore, DOE published a supplemental notice of proposed
rulemaking (``SNOPR'') in the Federal
[[Page 87511]]
Register on September 23, 2016 (``September 2016 SNOPR'') that proposed
separate standards for small and large NWGFs.\23\ 81 FR 65720. For
NWGFs with input capacities of 55 kBtu/h or less, DOE proposed to
maintain the standard at 80-percent AFUE. Id. at 81 FR 65852. For all
other NWGFs and for all MHGFs, DOE proposed a standard of 92-percent
AFUE. Id. As was the case in the September 2015 NODA, a small NWGF
product class was shown to reduce the number of consumers experiencing
net costs due to higher installation costs for condensing furnaces or
switching to electric heat. In the September 2016 SNOPR, DOE initially
determined that the combination of a 55 kBtu/h product class threshold
and a 92-percent AFUE standard for all NWGFs above that size
appropriately balanced the costs and benefits. DOE also noted in that
SNOPR that a 60 kBtu/h threshold may also be economically justified
based on the analysis, and sought further comment regarding the
particular size threshold proposed. 81 FR 65720, 65755 (Sept. 23,
2016).
---------------------------------------------------------------------------
\23\ DOE initially provided 60 days for comment on the SNOPR,
and subsequently reopened the comment period an additional 30 days.
81 FR 87493 (Dec. 5, 2016).
---------------------------------------------------------------------------
In addition, for the March 2015 NOPR and September 2016 SNOPR, DOE
analyzed energy conservation standards for the standby mode and off
mode energy use of NWGFs and MHGFs, as required by EPCA. (42 U.S.C.
6295(gg)(3); 80 FR 13120, 13198; 81 FR 65720, 65759-65760) In both the
March 2015 NOPR and the September 2016 SNOPR, DOE proposed a maximum
energy use of 8.5 watts (``W'') in both standby mode and off mode for
NWGFs and MHGFs. 80 FR 13120, 13198 (March 12, 2015) and 81 FR 65720,
65852 (Sept. 23, 2016).
On January 15, 2021, in response to a petition for rulemaking \24\
submitted by the American Public Gas Association, Spire, Inc., the
Natural Gas Supply Association, the American Gas Association, and the
National Propane Gas Association (the ``Gas Industry Petition''), DOE
published a final interpretive rule (``January 2021 Final Interpretive
Rule'') \25\ in the Federal Register, determining that, in the context
of residential furnaces, commercial water heaters, and similarly
situated products/equipment, use of non-condensing technology (and
associated venting) constitutes a performance-related ``feature'' under
EPCA that cannot be eliminated through adoption of an energy
conservation standard. 86 FR 4776. Correspondingly, on the same day,
DOE published in the Federal Register a notification withdrawing the
March 2015 NOPR and the September 2016 SNOPR for NWGFs and MHGFs,
because DOE determined that those rulemaking documents were
inconsistent with its revised interpretation. 86 FR 3873 (Jan. 15,
2021).
---------------------------------------------------------------------------
\24\ DOE published the Gas Industry Petition in the Federal
Register for comment on November 1, 2018. 83 FR 54838.
\25\ DOE published a proposed interpretive rule (``July 2019
Proposed Interpretive Rule'') in the Federal Register for comment on
July 11, 2019. 84 FR 22011. DOE also published a supplemental
proposed interpretive rule (``September 2020 Supplemental Proposed
Interpretive Rule'') in the Federal Register for comment on
September 24, 2020. 85 FR 60090.
---------------------------------------------------------------------------
The interpretation adopted by the January 2021 Final Interpretive
Rule reflected a significant departure from DOE's previous and long-
standing interpretation (reflected in practice through decades of
rulemaking and explicitly discussed in the December 2021 Final
Interpretive Rule, with examples) that the type of technology (e.g.,
non-condensing technology (and associated venting)) used to generate a
furnace's heat did not provide a distinct consumer utility as would
constitute a performance-related ``feature'' pursuant to 42 U.S.C.
6295(o)(4) that DOE may not eliminate by way of an energy conservation
standard. The January 2021 Final Interpretive Rule justified this
change by focusing on: (1) the potential space constraints arising from
switching from non-condensing furnaces (and associated venting) to
condensing furnaces (and associated venting) in replacement
applications, including certain situations where such changes may not
be possible; (2) the potential need for significant and unwelcome
physical modifications to a home or business (e.g., by adding new
venting into the living/commercial space or decreasing closet or other
storage/retail space), thereby impacting consumer utility, and (3) a
policy decision to remain neutral regarding competing energy sources in
the marketplace and maintaining a broader range of consumer choice for
the relevant appliances across fuel types. 86 FR 4776, 4816 (Jan. 15,
2021). (See the January 2021 Final Interpretive Rule for a more
complete discussion of DOE's rationale for its changed interpretation.)
The anticipated result of DOE's change in interpretation was that the
Department would set separate product classes and standards for
condensing and non-condensing furnaces in its ongoing furnaces energy
conservation standards rulemaking.
On January 20, 2021, the President issued Executive Order 13990,
``Protecting Public Health and the Environment and Restoring Science to
Tackle the Climate Crisis.'' 86 FR 7037 (Jan. 25, 2021). Section 1 of
that order lists several policies related to the protection of public
health and the environment, including reducing greenhouse gas emissions
and bolstering the Nation's resilience to climate change. Id. at 86 FR
7037. Section 2 of the order also asks all agencies to review
``existing regulations, orders, guidance documents, policies, and any
other similar agency actions (``agency actions'') promulgated, issued,
or adopted between January 20, 2017, and January 20, 2021, that are or
may be inconsistent with, or present obstacles to, [these policies].''
Id. Agencies are then directed, as appropriate and consistent with
applicable law, to consider suspending, revising, or rescinding these
agency actions and to immediately commence work to confront the climate
crisis. Id. In light of the requirements under the EPCA, and in a
manner consistent with E.O. 13990, DOE undertook a re-evaluation of the
final interpretation and withdrawal of proposed rulemakings published
in the Federal Register on January 15, 2021, and DOE published a
proposed interpretive rule in the Federal Register on August 27, 2021,
to once again address this matter. 86 FR 48049.
Following the re-evaluation of the January 2021 Final Interpretive
Rule and consideration of public comments, DOE published a final
interpretive rule in the Federal Register on December 29, 2021
(``December 2021 Final Interpretive Rule''),\26\ that returns to DOE's
previous and long-standing interpretation (in effect prior to the
January 2021 Final Interpretive Rule).\27\ 86 FR 73947. Residential
furnaces were one of the two primary focuses of the December 2021 Final
Interpretive Rule (along with commercial water heaters), and in that
document, DOE offered an extensive explanation for why it does not view
non-condensing technology and associated venting to be a performance-
related feature warranting
[[Page 87512]]
a separate product class for such furnaces. As noted previously, in the
December 2021 Final Interpretive Rule, DOE also included examples in
other rules that are consistent with DOE's previous and long-standing
interpretation. As DOE explained, non-condensing technology is not a
performance-related feature because it does not affect the consumer
utility of the product (i.e., providing heat, irrespective of venting
type). DOE noted the availability of technological alternatives for
difficult installation situations and explained that it would properly
account for the costs of such installations when considering a
standard's economic justification. DOE has considered concerns
regarding specific installation circumstances in the context of this
product-specific rulemaking. See 86 FR 73947 (Dec. 29, 2021).
---------------------------------------------------------------------------
\26\ DOE published a proposed interpretive rule (``August 2021
Proposed Interpretive Rule'') in the Federal Register for comment on
August 27, 2021. 86 FR 48049.
\27\ Prior to the January 2021 Final Interpretive Rule, DOE had
not had a formal interpretation of EPCA's ``features'' provision at
42 U.S.C. 6295(o)(4), but instead, it had examined the consumer
utility of potential appliance features in the context of individual
energy conservation standards rulemakings. These rulemakings, which
outline relevant DOE precedent prior to the January 2021 Final
Interpretive Rule, are presented in some detail in the December 2021
Final Interpretive Rule (see 86 FR 73947, 73952-73958 (Dec. 29,
2021)).
---------------------------------------------------------------------------
In conducting its review of the January 2021 Final Interpretive
Rule under the requirements of EPCA and in a manner consistent with
E.O. 13990, DOE ultimately arrived at a different determination in the
December 2021 Final Interpretive Rule, based on a policy that
emphasizes furtherance of the congressional purpose of improving the
energy efficiency of covered products and equipment. DOE reasoned that
maintaining less-efficient technologies which do not provide distinct
consumer utility is contrary to the purposes of EPCA ``to conserve
energy supplies through energy conservation programs, and, where
necessary, the regulation of certain energy uses'' (42 U.S.C. 6201(4))
and ``to provide for improved energy efficiency of . . . major
appliances, and certain other consumer products'' (42 U.S.C. 6201(5)).
Such purposes are further reflected in the specific provisions of EPCA
granting DOE authority to prescribe energy conservation standards
designed to achieve the maximum improvement in energy efficiency, which
are technologically feasible and economically justified. (42 U.S.C.
6295(o)(2)(A)). As discussed more fully in the December 2021 Final
Interpretive Rule, DOE concluded that the concerns motivating its
changed interpretation reflected in the January 2021 Final Interpretive
Rule (i.e., space constraints/difficult installation situations, the
potential for unwanted physical modifications, and maintaining consumer
choice of appliances across fuel types) could be addressed by other
means. DOE found that these issues could be resolved through available
technological solutions or by switching to an appliance using
alternative technologies (e.g., a heat pump). 86 FR 73947, 73960 (Dec.
29, 2021). DOE further concluded that the potential for fuel switching
is likely to be limited and that there will continue to be a range of
product availability across fuel types. Id. at 86 FR 73964.
Given the binary nature of the question at hand--whether non-
condensing technology (and associated venting) is or is not a
``feature'' under 42 U.S.C. 6295(o)(4)--DOE did not identify any other
policy alternatives on this matter. DOE further notes that it does not
anticipate any strong reliance interests associated with the rescinded
January 2021 Final Interpretive Rule, given that it was rescinded less
than a year after its issuance and the fact that it was never applied
in the context of any energy conservation standards rulemaking for a
specific appliance.\28\
---------------------------------------------------------------------------
\28\ A number of States and municipalities filed a legal
challenge to the January 2021 Final Interpretive Rule in the U.S.
Circuit Court of Appeals for the Second Circuit on March 16, 2021.
State of New York, et al. v. U.S. Dep't of Energy, No. 21-602 (2d
Cir. filed March 16, 2021).
---------------------------------------------------------------------------
On July 7, 2022, DOE published the July 2022 NOPR in the Federal
Register. 87 FR 40590. Consistent with the December 2021 Final
Interpretive Rule, in conducting the analysis for the July 2022 NOPR,
DOE did not consider identifying separate product classes based on
condensing technologies and associated venting systems when analyzing
potential energy conservation standards. Based on the results of the
NOPR analysis, DOE proposed amended AFUE standards at 95-percent AFUE
for both NWGFs and MHGFs, as well as an 8.5 W energy use standard for
standby mode and off mode energy consumption. 87 FR 40590, 40706 (July
7, 2022). Additionally, on August 30, 2022, DOE published in the
Federal Register a Notice of Data Availability (NODA) (August 2022
NODA) announcing an extension of the comment period, making available a
revised version of the LCC spreadsheet supporting the July 2022 NOPR,
and announcing a public meeting webinar on September 6, 2022, to assist
stakeholders with operation of the LCC spreadsheet. 87 FR 52861.
DOE received 3,636 comments in response to the July 2022 NOPR and
August 2022 NODA from the interested parties listed in Table II.2.
(Note that of these total comments, 3,552 comments were ``form letter''
email submissions contained in docket entry EERE-2014-BT-STD-0031-0348.
Additionally, several commenters submitted more than one comment to the
docket.)
---------------------------------------------------------------------------
\29\ Although the stakeholders who authored the comments EERE-
2014-BT-STD-0031-0330, EERE-2014-BT-STD-0031-0345, EERE-2014-BT-STD-
0031-0356, and EERE-2014-BT-STD-0031-0362 refer to themselves as the
``Joint Requestors,'' Atmos Energy was not listed as a contributor
to EERE-2014-BT-STD-0031-0330. Therefore, to distinguish the groups
of authors, the authors of EERE-2014-BT-STD-0031-0330 are herein
referred to as the ``Joint Gas Commenters.''
Table II.2--July 2022 NOPR Comments
----------------------------------------------------------------------------------------------------------------
Comment number in
Commenter(s) Abbreviation the Docket Commenter type
----------------------------------------------------------------------------------------------------------------
Eduardo Veiga.......................... Veiga.................... 326 Individual.
Scott Willis........................... Willis................... 327 Individual.
Johanna E. Neumann..................... Neumann.................. 328 Individual.
Anonymous 1............................ Anonymous 1.............. 329 Individual.
American Public Gas Association; Joint Gas Commenters \29\ 330 Utilities and Utility
American Gas Association; Spire Inc.; Trade Associations.
Spire Missouri Inc.; Spire Alabama
Inc.; National Propane Gas Association.
A. Kessler Consulting, LLC............. A. Kessler Consulting.... 331 Industry Representative.
Natalie Guarin......................... Guarin................... 332 Individual.
Hayes Arnold........................... Arnold................... 333 Individual.
Christina Haag......................... Haag..................... 334 Individual.
Adelita G. Cantu....................... Cantu.................... 335 Individual.
Kim Marcellini......................... Marcellini............... 336 Individual.
Kaitlynn Liset......................... Liset.................... 338 Individual.
Raelene Shippee-Rice................... Shippee-Rice............. 339 Individual.
[[Page 87513]]
Lee's Air, Plumbing, & Heating......... Lee's Air, Plumbing, & 342 Industry Representative.
Heating.
Natural Gas Supply Association......... NGSA..................... 343 Utility Trade
Association.
Manufactured Housing Institute......... MHI...................... 344; 363; 365 Trade Association.
American Public Gas Association; Joint Requesters......... 345; 356; 362 Utilities and Utility
American Gas Association; Spire Inc.; Trade Associations.
Spire Missouri Inc.; Spire Alabama
Inc.; National Propane Gas
Association; Atmos Energy.
Anonymous 2............................ Anonymous 2.............. 346 Individual.
Ohio Partners for Affordable Energy.... OPAE..................... 347 Efficiency Advocate.
Individual Commenters.................. Individual Commenters.... 348 Individual.
Todd Snyder............................ Snyder................... 349 Individual.
Middle Tennessee Natural Gas Utility MTNGUD................... 350 Utility.
District.
Watertown Municipal Utilities.......... WMU...................... 351 Utility.
Southwest Gas Corporation.............. Southwest Gas Corporation 353 Utility.
Consumer Energy Alliance............... Consumer Energy Alliance. 354 Efficiency Advocate.
Lake Apopka Natural Gas District....... LANGD.................... 355 Utility.
Christopher Lish....................... Lish..................... 358 Individual.
National Caucus of Environmental National Caucus of 359 State/Local Government
Legislators. Environmental Officials.
Legislators.
Theodore Trampe........................ Trampe................... 361 Individual.
Consumer Federation of America......... CFA...................... 363 Consumer Advocate.
Edison Electric Institute.............. Edison Electric Institute 363; 4099 Trade Association.
Environment America.................... Environment America...... 363 Efficiency/Environmental
Advocate.
National Consumer Law Center........... NCLC..................... 363 Consumer Advocate.
Natural Resources Defense Council...... NRDC..................... 363 Efficiency/Environmental
Advocate.
Philadelphia Solar Energy Association.. PSEA..................... 363 Efficiency/Environmental
Advocate.
Physicians for Social Responsibility... Physicians for Social 363 Consumer Advocate.
Responsibility.
Evergreen Action....................... Evergreen Action......... 364 Environmental Advocate.
Mark Strauch........................... Mark Strauch............. 366 Individual.
Municipal Gas Authority of Georgia..... Georgia Gas Authority.... 367 Utility.
Northwest Energy Efficiency Alliance... NEEA..................... 368 Efficiency/Environmental
Advocates.
Competitive Enterprise Institute, Joint Market and Consumer 369, 373 Other Stakeholders.
Consumers' Research, Center for the Organizations.
American Experiment, JunkScience.com,
Project 21, Caesar Rodney Institute,
Rio Grande Foundation, Committee for a
Constructive Tomorrow, FreedomWorks
Foundation, Heartland Institute,
Thomas Jefferson Institute,
Independent Women's Forum, Independent
Women's Voice, and Institute for
Energy Research.
National Comfort Products.............. NCP...................... 370 Manufacturer.
Green & Healthy Homes Initiative....... GHHI..................... 363; 371 Efficiency/Environmental
Advocates.
Distribution Contractors Association... DCA...................... 372 Trade Association.
Napoleon (aka Wolf Steel Limited)...... Napoleon................. 374 Manufacturer.
Pennsylvania Department of State Agencies........... 375 State Agencies.
Environmental Protection; State of
Nevada; New Jersey Board of Public
Utilities; New York State Energy
Research and Development Authority;
Washington State Department of
Commerce; Colorado Energy Office; New
Mexico Energy, Minerals, and Natural
Resources Department; California
Energy Commission; Vermont Department
of Public Service; Hawai'i State
Energy Office.
The Heartland Institute................ The Heartland Institute.. 376 Other Stakeholder.
Carrier Global Corporation............. Carrier.................. 377 Manufacturer.
The Manufactured Housing Institute; The Coalition............ 378 Trade Associations.
National Apartment Association;
National Association of Home Builders;
National Leased Housing Association;
National Multifamily Housing Council.
New York State Energy Research and NYSERDA.................. 379 State Agency.
Development Authority.
The Natural Gas Association of Georgia. NGA of Georgia........... 380 Utility Trade
Association.
[[Page 87514]]
The Appliance Standards Awareness Joint Efficiency 381 Efficiency/Environmental
Project; American Council for Energy- Commenters. Advocates.
Efficient Economy, CLASP, Consumer
Federation of America, Government of
the District of Columbia--Department
of Energy & Environment, National
Consumer Law Center; Natural Resources
Defense Council; Northeast Energy
Efficiency Partnerships; Southwest
Energy Efficiency Project.
California Energy Commission........... CEC...................... 382 State Agency.
The National Consumer Law Center on NCLC et al............... 383 Consumer Advocates.
behalf of its low-income clients:
Alliance for Affordable Energy;
Pennsylvania Utility Law Project;
Consumer Federation of America;
Southface; Massachusetts Energy
Directors' Association; Green Energy
Consumers Alliance; Georgia Watch;
North Carolina Justice Center; Texas
Legal Services Center; Consumers
Council of Missouri; Wildfire; Renew
Missouri; Virginia Citizens Consumer
Council.
Heating, Air-conditioning & HARDI.................... 384 Trade Association.
Refrigeration Distributors
International.
Gas Analytic & Advocacy Services....... GAS...................... 385 Other Stakeholder.
Weil-McLain; Williamson-Thermoflo; The Marley Companies..... 386 Manufacturers.
Marley Engineered Products, LLC;
Patterson-Kelley, LLC.
American Public Gas Association........ APGA..................... 387 Utility Trade
Association.
Center for Climate and Energy Climate Commenters....... 388 Efficiency/Environmental
Solutions; Institute for Policy Advocates.
Integrity, New York University School
of Law; Montana Environmental
Information Center; Natural Resources
Defense Council; Sierra Club; Union of
Concerned Scientists.
Lennox International Inc............... Lennox................... 389 Manufacturer.
Jack Spencer and Kevin Dayaratna, Ph.D. Spencer and Dayaratna.... 390 Other Stakeholder.
American Gas Association American; AGA et al................ 391 Manufacturers, Trade
Pipeline Contractors Association; Associations, and Other
American Public Gas Association; Stakeholders.
American Society of Gas Engineers;
American Supply Association; Arkansas
Gas Association; Consumer Energy
Alliance; Distribution Contractors
Association; Hearth, Patio & Barbecue
Association; Hispanics in Energy;
Louisiana Gas Association;
Manufactured Housing Institute;
National Apartment Association;
National Association of Home Builders;
National Leased Housing Association;
National Multifamily Housing Council;
National Propane Gas Association;
National Utility Contractors
Association; Natural Gas Supply
Association; Northeast Gas
Association; Plastics Pipe Institute;
Plumbing-Heating-Cooling Contractors
Association; Rinnai America
Corporation; Thermo Products LLC; U.S.
Chamber of Commerce; Utility Workers
Union of America, AFL-CIO; Williams
Furnace Co. dba Williams Comfort
Products or Williams.
American Coke and Coal Chemicals The Associations......... 392 Trade Associations.
Institute; American Gas Association;
American Public Gas Association;
Independent Petroleum Association of
America; National Mining Association;
Plumbing-Heating-Cooling Contractors--
National Association; U.S. Chamber of
Commerce.
Climate Smart Missoula; Environmental Climate Smart Missoula et 393 Efficiency/Environmental
Defense Fund; Elevate Energy; Energy al. Advocates.
Efficiency Alliance of New Jersey;
Campaign for 100% Renewable Energy;
Evergreen Action; Green Energy
Consumers Alliance; Green & Healthy
Homes Initiative; Keystone Energy
Efficiency Alliance; Montana
Environmental Info Center; New
Buildings Institute; New York
Geothermal Energy Organization;
Climate & Clean Energy Program;
Rewiring America; RMI; Sealed; Sierra
Club; Union of Concerned Scientists;
Urban Green Council; Utah Clean Energy.
Rheem Manufacturing Company............ Rheem.................... 394 Manufacturer.
National Propane Gas Association....... NPGA..................... 395 Utility Trade
Association.
[[Page 87515]]
ACTION-Housing Inc.; Audubon Mid- ACTION-Housing Inc. et 396 Other Stakeholders.
Atlantic; Clean Air Council; Community al.
Action Association of Pennsylvania;
Conservation Voters of Pennsylvania;
Energy Coordinating Agency;
Environmental Justice Center of
Chestnut Hill United Church;
Evangelical Environmental Network;
Green Building United; Green & Healthy
Homes Initiative; Housing Alliance of
Pennsylvania; Keystone Energy
Efficiency Alliance; National Housing
Trust; PA Jewish Earth Alliance;
PennEnvironment; Pennsylvania Council
of Churches; Pennsylvania Interfaith
Power and Light; Pennsylvania Utility
Law Project; Performance Systems
Development; Philadelphia Energy
Authority; Philadelphia Solar Energy
Association; Physicians for Social
Responsibility Pennsylvania;
Schuylkill Community Action; Vote
Solar; Working for Justice Ministry.
Black Hills Energy..................... Black Hills Energy....... 397 Utility.
Air Condition Contractors of America... ACCA..................... 398 Trade Association.
Allergy & Asthma Network; Alliance of Climate and Health 399 Efficiency/Environmental
Nurses for Healthy Environments; Coalition. Advocates.
American Geophysical Union; American
Lung Association; American Public
Health Association; American Thoracic
Society; Asthma and Allergy Foundation
of America; Children's Environmental
Health Network; Climate for Health/
ecoAmerica; National Carbon Monoxide
Awareness Association; Oregon
Physicians for Social Responsibility;
Physicians for Social Responsibility;
Physicians for Social Responsibility
Florida; Physicians for Social
Responsibility Pennsylvania; Texas
Physicians for Social Responsibility;
Washington Physicians for Social
Responsibility.
Pacific Gas and Electric Company, San The CA IOUs.............. 400 Utilities.
Diego Gas and Electric, and Southern
California Edison; collectively
referred to as ``the California
Investor-Owned Utilities''.
Sierra Club and Earthjustice........... Sierra Club et al........ 401 Efficiency/Environmental
Advocates.
Avangrid; Consolidated Edison; The Joint Utilities...... 402 Utilities.
Eversource; Exelon; Liberty Utilities;
National Grid; Unitil; PG&E
Corporation; Xcel.
Plumbing-Heating-Cooling Contractors-- PHCC..................... 403 Trade Association.
National Association.
Plastics Pipe Institute................ PPI...................... 404 Trade Association.
American Gas Association............... AGA...................... 405 Utility Trade
Association.
Nortek Global HVAC, LLC................ Nortek................... 406 Manufacturer.
National Grid.......................... National Grid............ 407 Utility.
Offices of the Attorney General for the Attorneys General........ 408 State/Local Government
States of Illinois, Maine, Maryland, Agencies.
Minnesota, Nevada, New Jersey, New
Mexico, New York, Oregon, and Vermont,
Washington, The Commonwealth of
Massachusetts, the District of
Columbia, and the City of New York.
State of Washington, Department of State of Washington...... 409 State Agency.
Commerce.
Mortex Products, Inc................... Mortex................... 410 Manufacturer.
Johnson Controls....................... JCI...................... 411 Manufacturer.
Trane Technologies..................... Trane.................... 412 Manufacturer.
Spire Inc.; Spire Alabama Inc.; Spire Spire.................... 413; 4099 Utilities.
Missouri Inc..
Air-Conditioning, Heating, & AHRI..................... 414 Trade Association.
Refrigeration Institute.
Atmos Energy Corporation............... Atmos Energy............. 415 Utility.
Daikin Comfort Technologies Daikin................... 416 Manufacturer
Manufacturing, L.P..
----------------------------------------------------------------------------------------------------------------
A parenthetical reference at the end of a comment quotation or
paraphrase provides the location of the item in the public record.\30\
To the extent that interested parties have provided written comments
that are substantively consistent with any oral comments provided
during the public meetings held on August 3, 2022,\31\ or September 6,
2022,\32\ DOE cites the written comments throughout this final rule.
---------------------------------------------------------------------------
\30\ The parenthetical reference provides a reference for
information located in the docket of DOE's rulemaking to develop
energy conservation standards for NWGFs and MHGFs. (Docket No. EERE-
2014-BT-STD-0031, which is maintained at www.regulations.gov) The
references are arranged as follows: (commenter name, comment docket
ID number, page of that document).
\31\ The transcript for the August 3, 2022, public meeting can
be found at Docket No. EERE-2014-BT-STD-0031-0363, which is
maintained at www.regulations.gov.
\32\ The transcript for the September 6, 2022, public meeting
can be found at Docket No. EERE-2014-BT-STD-0031-4099, which is
maintained at www.regulations.gov.
---------------------------------------------------------------------------
3. Current Standards in Canada
Although climate and fuel prices differ between the United States
and Canada and will yield different results
[[Page 87516]]
in terms of costs and benefits of the standard, there are similarities
in the equipment and venting materials used in both the United States
and Canada with respect to NWGFs. Because the stock of buildings using
NWGFs in Canada has many similarities to the stock using NWGFs in
northern parts of the United States, the Canadian experience in terms
of installation of condensing furnaces has relevance to the United
States. As such, multiple stakeholders discussed the Canadian standards
in their comments on the July 2022 NOPR, and DOE references these
standards several times later in this document. Further, as discussed
in section V.C.1 of this document, the standard levels adopted for
NWGFs by this final rule align with the Canadian regulations.
Consumer furnaces are a regulated product in Canada and are subject
to energy efficiency regulations. On December 24, 2008, Natural
Resources Canada published regulations in the Canada Gazette, Part II
amending the energy efficiency regulations for consumer furnaces, among
other appliances and equipment.\33\ The revised regulation, required on
or after December 31, 2009, sets a minimum efficiency of 90-percent
AFUE for gas furnaces. This standard is applicable to gas furnaces,
other than those with an integrated cooling component that are outdoor
or through-the-wall gas furnaces, that have an input rate no greater
than 65.92 kilowatts (``kW'') (225,000 Btu/h), and that use single-
phase electric current.
---------------------------------------------------------------------------
\33\ See Canada Gazette, Part II, Vol. 142, No. 26, pp. 2512-
2570. (Available at: www.gazette.gc.ca/rp-pr/p2/2008/2008-12-24/pdf/g2-14226.pdf) (Last accessed Feb. 15, 2022)
---------------------------------------------------------------------------
On June 12, 2019, Natural Resources Canada published regulations in
the Canada Gazette, Part II amending the energy efficiency regulations
for consumer furnaces, among other appliances and equipment.\34\ In
addition to the definition of ``gas furnaces,'' Natural Resources
Canada added a separate definition for ``gas furnaces for relocatable
buildings'' (e.g., MHGFs). The revised regulation, which applies to
covered gas furnaces (excluding gas furnaces for relocatable building,
replacement gas furnaces, outdoor furnaces with an integrated cooling
component, and through-the wall furnaces with an integrated cooling
component) manufactured for sale or import into the Canadian market on
or after July 3, 2019, sets a minimum efficiency of 95-percent AFUE.
Furthermore, the revised regulation also sets a minimum efficiency of
80-percent AFUE for gas furnaces for relocatable buildings.\35\
---------------------------------------------------------------------------
\34\ See Canada Gazette, Part II, Vol. 153, No. 12, pp. 2423-
2517. (Available at www.gazette.gc.ca/rp-pr/p2/2019/2019-06-12/pdf/g2-15312.pdf) (Last accessed Feb. 15, 2022)
\35\ ``Gas furnace for relocatable buildings'' is defined in
that regulation as a gas furnace that is intended for use in a
temporary modular building that can be relocated from one site to
another and is marked for use in relocatable buildings.
---------------------------------------------------------------------------
III. General Discussion
DOE developed this final rule after considering comments, data, and
information from interested parties that represent a variety of
interests. The following discussion addresses issues raised by these
commenters regarding rulemaking timing and process, product classes and
scope of coverage, the test procedure, technological feasibility,
significance of energy savings, economic justification, the compliance
date, and impacts from other rulemakings.
A. General Comments
This section summarizes general comments received from interested
parties regarding rulemaking timing and process.
1. Comments Regarding Authority
The Marley Companies commented that the regulation of multiple
levels of components (e.g., motors and furnace fans, which are
themselves covered products under EPCA) internal to an appliance limits
the utility of the appliance, because the specifications for such
components (necessary for compliance with DOE energy conservation
standards for those components as covered products) place constraints
on the covered product's design and operation. (The Marley Companies,
No. 386 at pp. 7-9) The Marley Companies argued that changes to the
efficiency of a component, prescriptive requirements, and test
procedures are all cumulatively subject to the 6-year window between
standards provided to manufacturers per 42 U.S.C. 6295(m)(4)(B), so
according to the commenter, any change to the standard for a covered
product, to the standard for an internal component of that product, or
to the test procedure should preclude further regulation of that
product for six years pursuant to 42 U.S.C. 6295(m)(4)(B). (Id. at p.
7) Further, Marley asserted that the cumulative impact of multiple
component efficiency regulations within a regulated appliance is that
the operating range of the entire product is reduced. (Id.) The Marley
Companies commented that the definition of ``energy conservation
standard'' includes a reference to 42 U.S.C. 6295(r), which discusses
the inclusion in standards of test procedures and other requirements,
and, therefore, the term ``standard'' includes test procedures used to
determine the efficiency of covered products. (Id. at p. 9) The Marley
Companies commented that 42 U.S.C. 6293(e)(4) conveys that Congress
realized and stated in EPCA that test procedures should not be altered
at the same time as appliance level efficiencies, and, therefore, the
Marley Companies asserted that Congress established that any change in
an efficiency of any component, combination of components, or the
entire covered product, as well as any required construction change
through prescriptive requirements and any change in the test procedure
used to determine efficiency, would reset the 6-year timeframe
established by 42 U.S.C. 6295(m)(4)(B). (Id. at p. 9) In contrast,
Sierra Club et al. commented that DOE correctly interprets furnaces and
furnaces fan as two separate products for the purposes of the ``6-year
lock-out'' provision at 42 U.S.C. 6295(m)(4)(B). (Sierra Club et al.,
No. 401 at p. 3)
There are two products that can be found as a component of a
consumer furnace and which are separately regulated by DOE: consumer
furnace fans and certain types of electric motors. In response to
comments from Marley Companies and the Sierra Club, DOE notes that
consumer furnaces, consumer furnace fans, and electric motors are all
separately covered products under EPCA. (42 U.S.C. 6292(a)(5); 42
U.S.C. 6295(f)(4)(D); 42 U.S.C. 6311(1)(A)) As such, DOE considers
their timelines separately in the context of the requirement
established by 42 U.S.C. 6295(m)(4)(B) that a manufacturer ``shall not
be required to apply new standards to a product with respect to which
other new standards have been required during the prior 6-year
period.'' \36\ The 6-year period applies to covered products
individually, and ECPA does not provide exceptions to the review
requirements when related products or components have overlapping
review timeframes. Furthermore, DOE notes that 42 U.S.C. 6295(m)
applies to energy conservation standards, not test
[[Page 87517]]
procedures. Under this provision, DOE is directed to amend energy
conservation standards for a covered product if such standards would be
technologically feasible, economically justified, and result in
significant conservation of energy. (42 U.S.C. 6295(m)(1)(B); 42 U.S.C.
6295(o)) As such, DOE does not agree with the Marley Companies'
contention that this statutory provision applies more broadly to test
procedure changes, and the Department has concluded that the Marley
Companies have advanced an incorrect reading of 42 U.S.C. 6295(r) to
support their point. That provision of EPCA simply acknowledges that
most energy conservation standards (i.e., performance-based ones) will
require an accompanying test procedure and may necessitate additional
ancillary requirements to facilitate compliance. Further, 42 U.S.C.
6295(r) specifically refers to test procedures prescribed in accordance
with 42 U.S.C. 6293. As such, there simply is no statutory basis for
applying the 6-year timeframe, which applies to standards prescribed
under 42 U.S.C. 6295(m), to test procedures prescribed under 42 U.S.C.
6293.\37\
---------------------------------------------------------------------------
\36\ DOE notes that EPCA set a deadline of December 31, 2013,
for the Department to prescribe an energy conservation standard or
energy use standard for electricity used for purposes of circulating
air through ductwork (colloquially referred to as ``furnace fans'').
(42 U.S.C. 6295(f)(4)(D)) EPCA likewise set deadlines for the
Department to set standards for certain motors, including a five-
years lead time for compliance. (42 U.S.C. 6313(b)(4)(B)) These
deadlines are independent of the standard-setting provisions for
consumer furnaces at 42 U.S.C. 6295(f) and the six-year-lookback
provisions at 42 U.S.C. 6295(m).
\37\ For example, DOE previously published in the Federal
Register a direct final rule establishing new energy conservation
standards for consumer furnaces on June 27, 2011 (76 FR 37408), and
then published in the Federal Register a final rule amending the
test procedure for consumer furnaces on January 15, 2016 (81 FR
2628). DOE previously published in the Federal Register a final rule
amending the test procedure for furnace fans on January 3, 2014 (79
FR 500), and then published in the Federal Register a final rule
establishing new energy conservation standards for furnace fans on
July 3, 2014 (79 FR 38130).
---------------------------------------------------------------------------
NPGA stated that DOE has failed to provide a fair and transparent
rulemaking process. (NPGA, No. 395 at p. 3) NPGA and AGA both commented
that they believe the proposal to be unlawful because DOE is not
authorized to create design standards for furnaces, but NPGA and AGA
suggested that is what the proposed rule effectively does. (NPGA, No.
395 at p. 9; AGA, No. 405 at pp. 50-51) NPGA stated that the proposal
sets a de facto standard for building design by requiring the
alteration of building venting systems. (NPGA, No. 395 at p. 22)
Additionally, NPGA and AGA stated that the necessity to include
condensing technology, as well as other associated design elements,
including new venting, electric fans, and a condensate drainage system,
is effectively enforcing a design requirement. (NPGA, No. 395 at pp. 9-
10; AGA, No. 405 at pp. 50-51) AGA further commented that Congress's
decision to exclude furnaces from the list of products for which DOE
can include design requirements, as outlined in 42 U.S.C. 6291(6)(B),
demonstrates that DOE may not develop design requirements for furnaces.
(AGA, No. 405 at pp. 50-52)
In response, DOE is not creating a prescriptive design requirement
for consumer furnaces in this final rule. In its definition of ``energy
conservation standard'' at 42 U.S.C. 6291(6), EPCA provides that a
performance standard is one which prescribes a minimum level of energy
efficiency or a maximum quantity of energy use for a covered product,
determined in accordance with test procedures developed under 42 U.S.C.
6293. (42 U.S.C. 6291(6)(A)) In this case, the standards adopted in
this final rule are set in terms of AFUE, which is a performance metric
and is determined through testing consumer furnaces under the
applicable DOE test procedure, as discussed in section III.C of this
document. DOE does not mandate any specific design for achieving
compliance with the amended standard, as would constitute a design
requirement under 42 U.S.C. 6291(6)(B). Thus, the final rule complies
with the statutory requirements for setting a performance standard
under EPCA. The possibility that some technologies may not be
sufficient to achieve compliance is true for any performance standard,
and does not transform a performance standard into a de facto design
requirement. DOE acknowledges that the NWGFs and MHGFs that currently
achieve 95-percent AFUE do employ condensing technology. However, the
performance-based standards adopted in this final rule do not preclude
new or alternative heat exchanger designs, venting systems, or
materials from being used in future furnace product designs, which may
provide additional avenues (alone or in combination) for increasing
furnace AFUE. In addition, this final rule provides a five-year lead
time before compliance with the amended standards is required, so
further innovation may be possible during that time. DOE's approach has
been explained at length and in detail in both the July 2022 NOPR and
this final rule, as well as the TSDs accompanying those documents.
2. Comments Opposing the July 2022 Proposal
This section summarizes comments opposing the July 2022 proposal.
Several commenters stated that DOE should withdraw the proposed
rule. (Georgia Gas Authority, No. 367 at p. 1; MHI, No. 365 at p. 1;
DCA, No. 372 at p. 2; The Heartland Institute, No. 376 at p. 1; HARDI,
No. 384 at p. 2; Nortek, No. 406 at pp. 5-6) Plastics Pipe Institute
commented that it opposes the proposed rule due to negative impacts on
consumers (including senior and low-income households), small
businesses, the overall gas furnace market, and the gas industry.
(Plastics Pipe Institute, No. 404 at p. 1) Spire commented that the
proposed standards place undue burden on consumers because many homes
are not set up so as to be compatible with condensing gas furnaces.
(Spire, No. 413 at pp. 20-21) The Heartland Institute commented that
this rule is unnecessary. (The Heartland Institute, No. 376 at pp. 1-2)
HARDI stated disagreement with the methodology and conclusions used to
support the proposed standards. (HARDI, No. 384 at p. 2) A number of
individuals urged DOE to reject the proposed rule on gas-burning
residential furnaces because of considerations such as individual
preferences, higher upfront costs, and higher maintenance costs.
(Veiga, No. 326 at p. 1; Willis, No, 327 at p. 1; Anonymous 1, No. 329
at p. 1) PHCC commented that it does not support the proposed standards
for NWGFs and MHGFs, as there are parts of the NOPR that are overly
optimistic, do not reflect current market conditions, make inaccurate
assumptions, minimize installation issues for condensing-type products,
and would generally create negative impacts for manufacturers and
consumers. (PHCC, No. 403 at p. 1) Strauch recommended that both
condensing and non-condensing furnaces remain available on the market.
(Strauch, No. 366 at p. 2) Spencer and Dayaratna stated that the
standards proposed in the July 2022 NOPR are unnecessary because
condensing furnaces are readily available in the marketplace and have
already achieved significant market penetration. (Spencer and
Dayaratna, No. 390 at p. 10)
The Heartland Institute expressed concern that the proposed
standard would negatively impact energy consumption, emissions, and the
economy. (The Heartland Institute, No. 376 at p. 1) The Heartland
Institute further stated that there is a lack of economic
justification. (Id. at p. 2) Additionally, the Heartland Institute
argued that, while the highest-efficiency products may produce long-run
savings for consumers under ideal laboratory settings, these gains from
an increased efficiency are often not replicated in the real world.
(Id. at p. 1) Atmos Energy similarly commented that the technical
analyses do not reasonably consider economic impacts, particularly
those on affordability and the potential disruption to highly-effective
energy
[[Page 87518]]
conservation programs. (Atmos Energy, No. 415 at p. 2)
As discussed in section II.A of this document, EPCA provides DOE
with the authority to regulate the energy efficiency of a number of
consumer products, including NWGFs and MHGFs, which are a subset of
consumer furnaces. (42 U.S.C. 6292(a)(5)) EPCA prescribed energy
conservation standards for these products (42 U.S.C. 6295(f)(1) and
(2)) and directs DOE to conduct future rulemakings to determine whether
to amend these standards (42 U.S.C. 6295(f)(4) and 42 U.S.C.
6295(m)(1)). Any such new standards for NWGFs and MHGFs must, under 42
U.S.C. 6295(o)(2)(A), be designed to achieve the maximum improvement in
energy efficiency that is technologically feasible and economically
justified. DOE's analyses supporting its conclusion that it has met
these criteria for the standards adopted in this final rule are
presented in section IV and section V of this document, respectively.
Atmos Energy disagreed that the proposed standards would
``represent the maximum improvement in energy efficiency that is
technologically feasible and economically justified,'' alleging that
DOE's underlying technical analyses do not reasonably consider relevant
economic impacts. (Atmos Energy, No. 415 at p. 2) Atmos Energy also
disagreed with the July 2022 NOPR's tentative conclusion that the
benefits of the proposed standards greatly exceed the burdens. (Id.)
Atmos Energy commented that DOE should improve the accuracy of its
analysis by tailoring its consideration of consumer behavior, life-
cycle evaluations, and costs. (Id. at p. 5) Atmos Energy further
commented that the proposed rule uses unsupported and broad assumptions
that are not reflective of actual consumer behavior and information.
(Id.) Similarly, the Coalition commented that DOE has failed to
adequately consider the cost impacts of the proposed standards and has
failed to properly assess the balancing of benefits and burdens. (The
Coalition, No. 378 at p. 5) Spencer and Dayaratna stated that the
standards proposed in the July 2022 NOPR do not meet the ``economically
justified'' criteria for prescribing new or amended standards. (Spencer
and Dayaratna, No. 390 at pp. 1-2) Specifically, Spencer and Dayaratna
stated that the analysis in the July 2022 NOPR is questionable
regarding all seven of the factors set by EPCA. (Id.) Spencer and
Dayaratna suggested that DOE did not present sufficient rationale for
factors 5 (i.e., the effect of any lessening of competition, as
determined in writing by the Attorney General, that is likely to result
from the standard) and 6 (i.e., the need for national energy and water
conservation). (Id.) AGA commented that the NOPR suffers from many
evidentiary shortcomings that fail to meet the statutory requirement
that energy conservation standards must be ``supported by substantial
evidence'' on the record. (AGA, No. 405 at pp. 29-30) AGA commented
that the NOPR's conclusion that the proposed standards would be
economically justified and technically feasible relies on unexplained
assumptions and conclusions. (Id.) AGA asserted that the NOPR
fundamentally fails to adhere to the Process Rule,\38\ and specifically
found fault with DOE's LCC model and the lack of sufficient time for
public comment. (Id. at pp. 21-23) AGA commented that particularly in
the LCC model, the qualitative and quantitative analytical methods are
not fully documented for the public and do not produce results that can
be explained and reproduced. (Id.) AGA commented that these issues
prevent stakeholders from evaluating compliance with other aspects of
EPCA's and the Process Rule's requirements, and the commenter
encouraged DOE to correct these deficiencies. (Id.) Trampe commented
that he does not support the proposed 95-percent AFUE standard, and
that the standard should be maintained at 80-percent AFUE. (Trampe, No.
361 at p. 1)
---------------------------------------------------------------------------
\38\ The ``Process Rule'' refers to 10 CFR part 430, subpart C,
appendix A, ``Procedures, Interpretations, and Policies for
Consideration of New or Revised Energy Conservation Standards and
Test Procedures for Consumer Products and Certain Commercial/
Industrial Equipment''.
---------------------------------------------------------------------------
Lennox suggested that DOE should reconsider whether a 92-percent
AFUE standard is an appropriate minimum efficiency level for NWGFs.
(Lennox, No. 389 at p. 2) Lennox also commented that, based on DOE's
analysis, AFUE levels above 95 percent are not economically justified
and have significant negative consumer impacts. (Id.)
In regard to the proposed MHGF standards, Nortek and JCI commented
that they do not support the proposed 95-percent AFUE standard for
MHGFs. (Nortek, No. 406 at p. 2; JCI, No. 411 at p. 1) Nortek commented
that DOE should maintain the 80-percent AFUE requirement for MHGFs.
(Nortek, No. 406 at pp. 5-6) JCI added that the 95-percent AFUE
standard for MHGFs would impose costs on consumers with, on average,
lower household incomes. (JCI, No. 411 at p. 1) JCI recommended that
DOE should exclude MHGFs from this rulemaking and gather additional
data on that product class, particularly in replacement applications.
(Id.) AHRI also stated that DOE should reconsider active mode energy
conservation standards for MHGFs. (AHRI, No. 414-2 at p. 2) Mortex
commented that it too does not believe that DOE's proposed 95-percent
AFUE standard is economically justified for MHGFs, and that DOE should
retain the current standard for MHGFs. (Mortex, No. 410 at p. 1) In
support of its recommendation, Mortex pointed to the two-tiered
standards that Canada has developed for furnaces, with a 95-percent
AFUE level for most residential gas furnaces and 80-percent AFUE level
for gas furnaces in relocatable buildings and replacements in
manufactured housing. (Mortex, No. 410 at p. 4) Mortex recommended this
structure as a model for DOE to utilize. (Id.) MHI commented that the
current MHGF AFUE standards strike a balance between energy savings and
affordability, and the commenter urged DOE to withdraw the NOPR or
replace the proposed 95-percent AFUE level for MHGF with a standard at
80-percent AFUE for gas furnaces used in manufactured homes. (MHI, No.
365 at pp. 2-3)
As discussed in section II.A of this document, EPCA provides
specific statutory criteria for amending energy conservation standards.
EPCA generally requires a public notice-and-comment process (see 42
U.S.C. 6295(p)), which affords members of the public the opportunity to
comment on the rulemaking, and DOE makes all relevant documents
publicly available at www.regulations.gov. As part of the process for
this rulemaking, DOE convened two public meetings, including one aimed
at helping stakeholders understand its analytical models, to ensure the
transparency of its process. Additionally, DOE carefully considers the
benefits and burdens of amended standards to determine whether the
amended standards are the maximum standard levels that are
technologically feasible and economically justified, and would conserve
a significant amount of energy, as required by EPCA (see 42 U.S.C.
6295(o)(2)-(3)). Section IV of this document outlines DOE's approach to
analyzing various potential amended standard levels, and section V of
this document provides the results of those analyses, as well as a
detailed explanation of DOE's weighing of the benefits and burdens and
the rationale for the amended standards adopted by this final rule. As
detailed in those sections, DOE has determined that its rulemaking
process for the subject
[[Page 87519]]
furnaces has satisfied the applicable requirements of EPCA and the
Process Rule and that the adopted standards are supported by
substantial evidence in the record. Further, DOE notes that the webinar
held on September 6, 2022, provided further opportunity for
clarification regarding the LCC model and extended the comment period
to provide sufficient time to provide written comments.
Plastics Pipe Institute expressed concern with the precedent that
would accompany this rule change, adding that it would open the door
for future restrictions on natural gas. (Plastics Pipe Institute, No.
404 at p. 3) In response, DOE notes that the amended energy
conservation standards for NWGFs and MHGFs do not prohibit the sale and
use of gas-fired furnaces, nor do they restrict the use of natural gas,
but instead, they improve the energy efficiency of those gas-burning
products.
3. Comments Expressing Support for the July 2022 Proposal
This section summarizes comments expressing support for the July
2022 proposal.
DOE received comments from the OPAE, NCEL, State of Washington,
NEEA, the Joint Utilities, the National Grid, Climate Smart Missoula et
al., Evergreen Action, the CA IOUs, the PSEA, the NCLC et al., and the
NRDC expressing support for the proposed energy conservation standards
for NWGFs and MHGFs. (OPAE, No. 347 at p. 1; NCEL, No. 359 at p. 1;
State of Washington, No. 409 at pp. 1-2; NEEA, No. 368 at pp. 1-2; the
Joint Utilities, No. 402 at p. 1; National Grid, No. 407 at p. 1;
Climate Smart Missoula et al., No. 393 at pp. 1-2; Evergreen Action,
No. 364 at p. 1; The CA IOUs, No. 400 at p. 1; PSEA, Public Meeting
Webinar Transcript, No. 363 at p. 37; NCLC et al., No. 383 at p. 9;
NRDC, Public Meeting Webinar Transcript, No. 363 at p. 30;) GHHI, the
Attorneys General, and Sierra Club et al. further encouraged DOE to
adopt the proposed efficiency standards for consumer gas furnaces.
(GHHI, No. 371 at p. 1; Attorneys General, No. 408 at pp. 1-2; Sierra
Club et al., No. 401 at p. 1) The Joint Efficiency Commenters added
that they strongly support DOE's proposed standards for minimum
efficiency of NWGFs and MHGFs and standby mode and off mode power
consumption. (Joint Efficiency Commenters, No. 381 at p. 1) The CA IOUs
further explained that the proposed rule would allow consumers to have
greater access to energy-efficient products that are technologically
feasible and economically justified. (The CA IOUs, No. 400 at p. 1)
Daikin stated that despite some concerns regarding the accuracy of some
portions of the TSD concerning costs due to the confidential nature of
some manufacturer cost data, the company generally finds that DOE's
analysis is reasonable in most areas based on the data that is publicly
available. (Daikin, No. 416 at p. 3) The Joint Utilities stated that
they support common-sense, cost-saving improvements to existing
efficiency standards coupled with programs to provide the financial
resources to enable customers to make the transition to higher-
efficiency furnace products and minimize the impact of upfront costs.
(The Joint Utilities, No. 402 at p. 1) National Grid stated that
Federal energy conservation standards ensure that the benefits of
efficiency gains can reach all customer segments, including renters who
often do not make decisions about appliances. (National Grid, No. 407
at p. 1) The State of Washington added that it understands the cost
savings and emissions benefits that more efficient standards can
provide. (State of Washington, No. 409 at pp. 1-2)
DOE also received over 3,000 submissions of a form letter
encouraging DOE to enact strong efficiency standards for furnaces that
phase out the least-efficient furnace models. (Individual Commenters,
No. 348 at pp. 1-3552) The commenters stated that heating homes should
not produce pollution, and they stated that outdated and inefficient
gas furnaces are emitting millions of tons of avoidable climate
emissions and other harmful pollutants. (Id.) A number of other
individual commenters expressed similar views. (Neumann, No. 328 at p.
1; Guarin, No. 332 at p. 1; Haag, No. 334 at p. 1; Cantu, No. 335 at p.
1; Marcellini, No. 336 at p. 1; Liset, No. 338 at p. 1; Snyder, No. 349
at p. 1; Lish, No. 358 at p. 1) In addition to expressing support for
the standards via the form letter, Guarin, Haag, Cantu, Marcellini,
NCEL, and Liset all commented that by requiring furnaces to use about
15-percent less energy, the proposed standard would cut 373 million
metric tons of carbon emissions and 833 thousand tons of NOX
over 30 years of sales, as outlined in the July 2022 NOPR. (Guarin, No.
332 at p. 1; Haag, No. 334 at p. 1; Cantu, No. 335 at p. 1; Marcellini,
No. 336 at p. 1; NCEL, No. 359 at p. 1; Liset, No. 338 at p. 1) These
commenters added that the proposed standard would help with breathing
since it would reduce needless greenhouse gas emissions. (Guarin, No.
332 at p. 1; Haag, No. 334 at p. 1; Cantu, No. 335 at p. 1; Marcellini,
No. 336 at p. 1; Liset, No. 338 at p. 1) The CA IOUs similarly stated
that this standard will significantly improve ambient and indoor air
quality in the United States. (The CA IOUs, No. 400 at p. 2)
Other commenters similarly discussed the beneficial impacts that
the proposed standards would have on health and the environment. Arnold
asked DOE to help work toward a cleaner and more sustainable future by
increasing the efficiency standards for furnaces. (Arnold, No. 333 at
p. 1) Shippee-Rice urged DOE to enact these ``long overdue'' standards,
stating that doing so will decrease pollutants that threaten human,
animal, and plant health. Shippee-Rice also noted that this proposed
standard will help to decrease the harmful effects of current climate
change dangers. (Shippee-Rice, No. 339 at p. 1) Daikin agreed with
DOE's initiatives to address emission reductions and set higher
standards with climate change, decarbonization, and electrification in
mind. (Daikin, No. 416 at pp. 2-3) Lee's Air, Plumbing & Heating
commented that a higher standard would eliminate pollution and wasted
energy. (Lee's Air, Plumbing & Heating, No. 342 at p. 1) The Physicians
for Social Responsibility commented that pollutants from gas furnaces
may be back-drafted into homes when indoor air pressure is reduced.
Alternatively, they stated that pollutants can be vented out into the
surrounding community. The commenter added that those pollutants from
gas appliances can lead to the development of childhood asthma,
increase susceptibility to other respiratory infections, decrease
general cognitive and neurological functioning, and exacerbate
cardiovascular disease. The commenter also stated that these pollutants
can cause community-wide harm, particularly among low-income
communities and communities of color. (The Physicians for Social
Responsibility, Public Meeting Webinar Transcript, No. 363 at pp. 5-6)
The commenter further argued that the proposed standards can help lower
utility bills, which on its own can positively impact consumers'
health. The commenter concluded that higher efficiency standards will
reduce the health effects from air pollution and limit the impacts of
climate change such as extreme heat, population displacement, and
injuries and fatalities due to natural disasters. (Id. at p. 7)
Evergreen Action noted that residential heating is the biggest utility
in most U.S. households. Evergreen Action stated that gas heating
appliances account for two-thirds of on-site household greenhouse gas
emissions, and that gas
[[Page 87520]]
furnaces are a significant source of NOX. (Evergreen Action,
No. 364 at p. 1) Climate Smart Missoula et al. also stated that
furnaces have lifespans of 20 years or more and suggested that adopting
updated standards will lead to benefits for consumers' pocketbooks, as
well as the planet, through emission reduction. (Climate Smart Missoula
et al., No. 393 at p. 2) Environment America commented that the
proposed standards would reduce pollution that causes climate change
and negatively impacts health. (Environment America, Public Meeting
Webinar Transcript, No. 363 at pp. 18-19) Environment America suggested
that, based on the reduced energy use and emissions, along with reduced
annual home heating bills, DOE should finalize the proposed standards.
(Id.) The National Caucus of Environmental Legislators recommended that
DOE not to give in to industry-delaying tactics because action has been
delayed and stymied numerous times in the past 30 years. They further
commented in support of the proposal to increase the efficiency level
of gas furnaces to 95-percent AFUE. (National Caucus of Environmental
Legislators, No. 359 at p. 1)
NEEA supported DOE's finding in the July 2022 NOPR that
implementing a 95-percent AFUE standard for NWGFs and MHGFs would lead
to significant, cost-effective energy savings. (NEEA, No. 368 at pp. 1-
2) NEEA stated that the consumer furnace market is ready for a furnace
standard set at a condensing level, as evidenced by the market maturity
and the lack of insurmountable barriers. (Id. at pp. 2-3) NEEA noted
that condensing furnaces make up the majority of sales in the Northwest
and their market share is growing. (Id.) NEEA stated that a study
commissioned by NEEA and other stakeholders demonstrated the lack of
barriers as would prevent a condensing furnace installation. (Id.)
Additionally, NEEA commented that a 5-year transition time would allow
sufficient time for manufacturers to convert their production and close
the remaining sales gap. (Id.)
Daikin commented that it believes the results of DOE's analysis
would not substantially change even if DOE were provided additional
data, and, therefore, it expressed support for the proposed 95-percent
standard for NWGFs. (Daikin, No. 416 at p. 3) Carrier and Trane also
expressed support for the 95-percent AFUE standard for NWGF, and Trane
added that this level will provide significant CO2 savings.
(Carrier, No. 377 at p. 1; Trane, No. 412 at p. 1) AHRI stated that DOE
has conducted sufficient analysis to amend active mode energy
conservation standards for NWGFs and recommended that DOE finalize this
rulemaking to bring resolution to the process and to bring certainty to
the marketplace. (AHRI, No. 414-1 at p. 1) The CEC commented that it
supports DOE's proposed standard for consumer furnaces at 95-percent
AFUE and 8.5 W, and that DOE should finalize these standards. (CEC, No.
382 at pp. 1-2) AHRI and Rheem agreed with DOE's conclusion that a 98-
percent AFUE standard would be unreasonable and not economically
justified for NWGFs. (AHRI, No. 414-1 at pp. 1-2; Rheem, No. 394 at p.
2)
The State Agencies supported the proposed TSL 8 standard and
methodology and encouraged DOE to adopt the rule. (State Agencies, No.
375 at pp. 1-2) The State Agencies further commented that the proposed
TSL 8 standard is technologically achievable, beneficial to American
consumers' physical and financial health, and is an important step in
reducing emissions. (Id. at p. 1) NYSERDA supported DOE's proposal to
adopt TSL 8 for MHGFs and NWGFs and recommended that DOE consider an
even more stringent standard at 96-percent AFUE for NWGF. (NYSERDA, No.
379 at pp. 1-2) NYSERDA further commented that TSL 8 leads to
significant energy and economic savings over the lifetime of the
equipment. (Id.) The NCLC et al. and the Joint Efficiency Commenters
also stated that the proposed TSL 8 efficiency levels promise
substantial financial benefits to consumers and added that these
financial benefits are especially promising for low-income consumers.
(NCLC et al., No. 383 at p. 4; Joint Efficiency Commenters, No. 381 at
p. 2) The NCLC commented that low-income rental properties are more
likely to have less-efficient furnaces and to pass the associated
larger energy bills on to tenants. (NCLC, Public Meeting Webinar
Transcript, No. 363 at pp. 8-10) NCLC noted that this could amount to
$2,000 to $3,000 in incremental costs for tenants over the life of the
furnace. (Id. at p. 9) The commenter also stated that low-income
consumers have the fewest resources to address the harms of rising
temperatures and would be further adversely impacted. The NCLC
commented that this presents an equity issue and accordingly concluded
that DOE should adopt a strong furnace efficiency standard. (Id. at p.
10)
The Philadelphia Solar Energy Association commented in support of
the proposed standards, stating that high-efficiency furnaces help low-
income consumers in Philadelphia reduce their energy costs, as well as
indoor air pollution from atmospheric furnaces. (Philadelphia Solar
Energy Association, Public Meeting Webinar Transcript, No. 363 at p.
37)
The Joint Efficiency Commenters stated that DOE should not adopt
TSL 7 as an alternative to TSL 8, adding that the percentage of low-
income consumers benefitting from the potential standards is
significantly greater at TSL 8 compared to TSL 7. (Joint Efficiency
Commenters, No. 381 at p. 2)
In response to the July 2022 NOPR, The NCLC et al. commented that
if the standard is set too high, many consumers will be saddled with
purchasing expensive products where energy savings do not outweigh
initial costs. However, the NCLC et al. commented that, if the standard
is set too low, then the percentage of customers who end up with higher
LCC will increase. (NCLC et al., No. 383 at p. 6) Therefore, the NCLC
et al. commented that DOE should not reject a standard because some
consumers will experience net costs over the life of the product. (Id.)
NCLC et al. noted that, at TSL 8, the average net benefits are more
significant than the average net costs for NWGFs. (Id.)
As discussed in section II.A of this document, DOE is directed by
EPCA to conduct periodic rulemakings to determine whether to amend the
standards for various products, including consumer furnaces. (42 U.S.C.
6295(f)(4) and 42 U.S.C. 6295(m)(1)) The standards adopted by this
final rule, which include the same AFUE levels as those proposed in the
July 2022 NOPR, adhere to the requirements of EPCA in that they are
designed to achieve the maximum improvement in energy efficiency that
DOE determines is technologically feasible and economically justified.
(42 U.S.C. 6295(o)(2)(A) and 42 U.S.C. 6295(o)(3)(B)) The analytical
results showing both the benefits and burdens of the standards, along
with DOE's rationale for adopting these amended standards, are
discussed in section V of this document.
4. Regional Standards
Nortek, AHRI, and MHI encouraged DOE to consider regional standards
that align with the U.S. Department of Housing and Urban Development
(``HUD'') zones. (Nortek, No. 406 at p. 6; AHRI, No. 414-2 at pp. 3-4;
MHI, No. 365 at pp. 1-2) MHI commented that the HUD code for
manufactured homes prescribes energy efficiency features that are
specific to the region where the home will be sited. (MHI, No. 365 at
pp. 1-2) MHI suggested that consulting with
[[Page 87521]]
HUD will assist DOE in understanding how furnace standards impact
consumer access to affordable housing, including manufactured housing.
(Id.) PHCC commented that DOE's early efforts for this consumer furnace
rulemaking considered creating regional standards to establish a
pathway for higher-efficiency products that could not be justified on a
national scale due to differences in usage and energy consumption of
different climate zones. (PHCC, No. 403 at pp. 1-2) Trampe commented
that the entire United States should not have to follow the same
standard and added that what applies in Minnesota may not apply in
Kansas, Tennessee, Texas, or other States. (Trampe, No. 361 at p. 1)
Nortek pointed to NRCan's standards, which were set at 95-percent AFUE
for NWGFs and 80-percent AFUE for MHGFs in 2019. Nortek noted that the
climate in Canada has more severe winters than many parts of the United
States. Nortek also stated that setting standards at a condensing level
disproportionately impacts southern homeowners because most
manufactured homes are in the South where mild winters allow furnaces
to run for only 3 months a year. (Nortek, No. 406 at pp. 3-4) Like
Nortek, the Heartland Institute also discussed regional differences,
stating that in Northern States, such as Minnesota or Wisconsin, most
residential natural gas furnaces already meet 95-percent AFUE. In
Southern States, such as Texas, Georgia, and Florida, a smaller
percentage of homeowners have adopted higher-efficiency furnace models.
The Heartland Institute further offered that condensing models are
already installed in regions where furnaces are heavily used, which
mitigates the need for this mandate. (The Heartland Institute, No. 376
at p. 2) JCI commented that it believes a regional standard with a
condensing level for the Northern region and a non-condensing level for
the Southern region would be more economically justified and would
align with the existing central air conditioning/heat pump standards.
JCI commented that, in southern installations, the additional
installation cost would result in a negative LCC using the amended
values JCI supplied for manufacturer production costs (``MPCs''). (JCI,
No. 411 at p. 2)
Conversely, Daikin commented that there are logistical and
operational challenges associated with regional standards; therefore,
Daikin supported a national energy conservation standard, stating that
it does not support TSL 4. (Daikin, No. 416 at p. 2) Similarly, Rheem
commented that DOE should maintain a single, nationwide and capacity-
wide standard for NWGFs to avoid costly supply and inventory planning
problems for manufacturers, distributors, and contractors. (Rheem, No.
394 at p. 3) The CFA commented that DOE should consider a uniform
standard, arguing that certain furnaces no longer need to be exempted
from the standard. (CFA, Public Meeting Webinar Transcript, No. 363 at
p. 22)
In response, DOE's analyses of each considered efficiency level
accounts for regional differences (e.g., in terms of climate data,
shipments) when appropriate, as discussed throughout this document. For
the July 2022 NOPR and for this final rule, in addition to considering
uniform national standard, DOE included consideration of a potential
regional standard (i.e., TSL 4; see section V.A of this document)
consisting of efficiency levels at 95-percent AFUE for the Northern
region and 80-percent AFUE for the rest of the country, for both NWGFs
and MHGFs. However, as discussed in section V of this document, DOE
conducts a walk-down analysis to determine the TSL that represents the
maximum improvement in energy efficiency that is technologically
feasible and economically justified, as required under EPCA. In this
final rule, DOE has found that a national standard for both NWGFs and
MHGFs corresponding to 95-percent AFUE (i.e., TSL 8) meets those
statutory criteria, and, therefore, DOE is adopting a national standard
rather than regional standards.
5. Recommendations for Analytical Changes
Atmos Energy commented that DOE should supplement its technical
analysis in accordance with consumer welfare recommendations identified
by the National Academy of Science peer review report before proceeding
with a final rule, arguing that this would increase the accuracy of the
technical analysis and have a material impact on the final standards.
(Atmos Energy, No. 415 at p. 5) AGA commented that DOE should follow,
or at a minimum respond to, the National Academies of Sciences,
Engineering, and Medicine's (NAS) Recommendations (the NAS Report) on
its process. (AGA, No. 405 at pp. 25-27) AGA stated that DOE should
revisit the proposed rule to address NAS's recommendations and allow
stakeholders an opportunity to comment on the revisions. (Id.) APGA
stated that many months after the NAS Report, DOE does not reflect the
NAS findings in the NOPR but merely states that DOE ``is in the process
of evaluating the resulting report.'' (APGA, No. 387 at p. 56) APGA
pointed out that the residential furnace rulemaking was one of the
three rulemakings studied in depth by the NAS committee. (Id.) APGA
noted that NAS came to conclusions about consumer behavior that are
extremely critical to the NOPR. APGA cited the NAS Report's
recommendation that ``[f]or some commercial goods in particular, there
should be a presumption that the market actors behave rationally unless
DOE can provide evidence or argument to the contrary.'' (Id.)
In response, DOE notes that the rulemaking process for energy
conservation standards for covered products and equipment are outlined
in appendix A to subpart C of 10 CFR part 430, and DOE periodically
examines and revises these provisions in separate rulemaking
proceedings. DOE notes that discussion of the recommendations of the
NAS report, which pertain to the processes by which DOE analyzes energy
conservation standards, will be addressed as part of a separate notice-
and-comment process.
Rheem commented that DOE should consider a simplified analysis and
reproducible model for future rulemakings. (Rheem, No. 394 at p. 2)
Specifically, Rheem encouraged DOE to adopt a consistent and
predictable approach to quantifying energy savings to ensure the
recommendations will result in the estimated savings. (Id.) GAS argued
that ``Uncertainties . . . include numerous variables contained within
DOE's overly complex `determination' apparatus,'' and that DOE has
failed to ``use transparent and robust analytical methods.'' (GAS, No.
385 at pp. 4-5) AHRI suggested that, for future rulemakings, DOE should
modify the way that it analyzes consumer economic impact to look at the
probability that individual consumers will benefit from standards
rather than whether the aggregate benefit is positive and stated that
these changes would be best accomplished in an open review process.
(AHRI, No. 414-1 at p. 2)
Although DOE understands the desire for simplicity, the Department
notes that its analysis is informed by the Process Rule and includes a
number of modifications in response to comments from interested parties
on prior notices, which recommended that DOE consider a variety of
additional factors when evaluating the impacts of potential standards.
These additional considerations, while adding complexity to the
analysis, are responsive to commenters and increase the granularity of
results. A simplified analysis would run counter to those
[[Page 87522]]
recommendations,\39\ which have proven to have merit. In response to
AHRI's comment that consumer impacts should be assessed individually,
DOE notes that as discussed in section IV.F of this document, the LCC
includes a Monte Carlo analysis that allows DOE to assess impacts on a
wide range of installations. DOE uses this information to assess and
consider how consumers would likely be impacted by potential standards.
DOE also conducts a consumer subgroup analysis (described in section
IV.I of this document) that evaluates the economic impacts of standards
on specific groups. DOE further notes that its analysis is designed to
be reproducible to interested parties, and DOE provides a range of
statistics, including the percentage of consumers that will be
negatively and positively impacted by an amended energy conservation
standard. Therefore, for this final rule, DOE continued to conduct the
energy savings and economic rulemakings using largely the same
methodologies used in the July 2022 NOPR of this rulemaking, which are
generally consistent with those used for prior rulemakings.
---------------------------------------------------------------------------
\39\ For example, sections 12 through 16 of the Process Rule
outlines factors to be considered in the process for developing
energy conservation standards, including delineating several factors
relating to identification of candidate standard levels and other
factors to be considered in the selection of proposed standards, as
well as the subsequent selection of a final standard. These
analyses, along with the accompanying sensitivity analyses, are
necessary to ensure the robustness of the Energy Conservation
Standards amendment process.
---------------------------------------------------------------------------
ACCA suggested that DOE should focus its attention on efficiency
improvements, such as installing heating, ventilation, and air-
conditioning (HVAC) systems according to the industry's recommended
standards (including proper equipment sizing, duct re-design and
sealing, and appropriate refrigerant charge levels), that would reduce
peak electricity demand without requiring revised installation or
design standards. (ACCA, No. 398 at p. 2)
As discussed in section IV.F.4 of this document, DOE's analysis
accounts for the electricity consumption of NWGFs and MHGFs. Although
reducing peak electricity demand can be a benefit of energy
conservation standards, as discussed in section II.A of this document,
EPCA provides specific factors that DOE must consider when establishing
or amending energy conservation standards. One of these factors is the
total projected energy savings that would result from the standard (see
42 U.S.C. 6295(o)(2)(B)(i)(III)), and DOE includes impacts on
electricity consumption when evaluating the projected energy savings.
DOE follows the statutory obligations laid out in EPCA when evaluating
the potential for energy savings, technological feasibility, and
economic justification.
6. Opportunity for Public Input
MTNGUD, Watertown Municipal Utilities, and LANGD recommended that
DOE hold a workshop to further discuss this rulemaking. (MTNGUD, No.
350 at pp. 1-2; WMU, No. 351 at p. 1; LANGD, No. 355 at p. 2) MTNGUD
and LANGD specifically noted that at the workshop, DOE should further
discuss its LCC analysis with stakeholders in order to achieve a common
understanding, and these parties added that the LCC is a central part
of the proposed standard. (MTNGUD, No. 350 at p. 1; WMU, No. 351 at p.
2; Consumer Energy Alliance, No. 354 at p. 1, LANGD, No. 355 at p. 2)
MTNGUD, Watertown Municipal Utilities, and Joint Requesters stated that
holding a workshop and extending the associated comment period would be
in accordance with the objectives of the Process Rule. (MTNGUD, No. 350
at pp. 1-2; WMU, No. 351 at pp. 1-2; Joint Requesters, No. 356 at pp.
1-4) Joint Requesters requested another webinar to cover comments and
questions related to DOE's LCC model that were not addressed during the
webinar held on September 6, 2022. (Joint Requesters, No. 362 at p. 2)
Additionally, the Consumer Energy Alliance urged that an extension of
the comment period by DOE and hosting the requested workshop would
allow for sufficient time for all stakeholders to analyze the NOPR so
as to develop meaningful comments. (Consumer Energy Alliance, No. 354
at pp. 1-2)
MTNGUD, Watertown Municipal Utilities, Consumer Energy Alliance,
and LANGD also encouraged DOE to extend the comment period at least 45
days after the workshop to give commenters additional time to
effectively comment on the July 2022 NOPR. (MTNGUD, No. 350 at p. 2;
WMU, No. 351 at p. 2; Consumer Energy Alliance, No. 354 at 2; LANGD,
No. 355 at p. 2) LANGD and Watertown Municipal Utilities stated that
more time is needed to evaluate the impacts on low-income households,
seniors, and energy insecure consumers. (LANGD, No. 355 at p. 1; WMU,
No. 351 at p. 1) Consumer Energy Alliance commented that the proposal
and supporting documents are highly technical and voluminous, so it
will take additional time to sufficiently analyze everything DOE has
issued, adding that DOE's proposal will impact millions of consumers
while also raising complex legal, regulatory, economic, and technical
issues. (Consumer Energy Alliance, No. 354 at p. 1) Consumer Energy
Alliance further commented that stakeholders should have a sufficient
opportunity to evaluate the various issues raised in the NOPR,
including how such issues may impact the stakeholders' members/
customers. (Id.) Consumer Energy Alliance requested that an extension
of the comment period be granted by DOE, and the commenter argued that
hosting the requested workshop would allow for sufficient time for all
stakeholders to analyze the NOPR and develop meaningful comments. (Id.
at p. 2)
Several parties requested an extension of at least 60 days to
sufficiently analyze the NOPR and the related documents. (Joint
Commenters, No. 330 at p. 1; NGSA, No. 343, at p. 1; MHI, No. 344, at
p. 1). They stated that DOE did not follow the Process Rule, and that
the 60-day comment period made meaningful comment impossible. (Joint
Commenters, No. 330 at p. 1; NPGA, No. 395 at pp. 26-27) Similarly,
LANGD and the Consumer Energy Alliance commented that the 60-day
comment period does not allow for a meaningful opportunity to verify
DOE's analysis and provide substantive comments to aid in a productive
rulemaking process. (LANGD, No. 355 at p. 1; Consumer Energy Alliance,
No. 354 at p. 1) APGA and AGA noted that the Administrative Procedure
Act (APA) requires that agencies provide a ``meaningful'' opportunity
for comment. (APGA, No. 387 at p. 65; AGA, No. 405 at p. 24) APGA
commented that DOE has violated the APA due to the deviation from past
public comment periods and the complexities of the models in this
rulemaking. (APGA, No. 387 at p. 65) APGA stated that DOE's
justifications for fewer days to comment are unavailing, and that it
appears DOE is rushing to judgment by denying APGA and other
stakeholders a reasonable process to comment. (APGA, No. 387 at p. 67)
AGA also commented that stakeholders have been denied a meaningful
opportunity to evaluate the NOPR. (AGA, No. 405 at pp. 24-25)
Conversely, AHRI stated that by holding the webinar focused on the
LCC model on September 6, 2022 and extending the comment period for the
July 2022 NOPR, DOE provided all commenters with sufficient opportunity
to review its models and make thoughtful comments. (AHRI, No. 414-1 at
p. 1) Sierra Club et al. commented that the deviations from the Process
Rule are justified in light of the long
[[Page 87523]]
delay on these standards, which is in violation of the statutory
deadline for this action and the schedule to which DOE agreed as part
of a settlement agreement. (Sierra Club et al., No. 401 at p. 1)
In response, DOE conducts all appliance standards rulemakings in
accordance with its authority under EPCA, which involves making its
analyses publicly available and providing the public an opportunity to
comment on the rulemaking. (42 U.S.C. 6295(m)(2)) As explained in the
July 2022 NOPR, DOE initially found it necessary and appropriate to
provide a 60-day comment period given the overdue statutory deadline
and because the analytical methods used for the NOPR were similar to
those used in previous rulemaking notices regarding the subject
furnaces. 87 FR 40590, 40607 (July 7, 2022). DOE held a public meeting
webinar to discuss the July 2022 NOPR on August 3, 2022. Subsequently,
as stakeholders requested, DOE held a second public meeting webinar on
September 6, 2022 focused on helping stakeholders understand and
operate the Department's analytical models. DOE also extended the
comment period by 30 days, which totaled 90 days for stakeholders to
provide input. 87 FR 52861 (August 30, 2022). As mentioned, interested
parties such as AHRI and Sierra Club, et al. attested to the adequacy
of the comment opportunity which DOE provided. (AHRI, No. 414-1, at p.
1; Sierra Club et al., No. 401, at p. 1) As a result, DOE concludes
that stakeholders have had ample time and opportunity to provide input
on the rulemaking analyses and process related to the amended energy
conservation standards for NWGFs and MHGFs.
7. Federal Financial Assistance
The Attorneys General commented that with new Federal funding
available under the Infrastructure Investment and Jobs Act and the
Inflation Reduction Act, the transition to more-efficient space heating
will be cost-effective and affordable. (Attorneys General, No. 408 at
p. 2) The Attorneys General added that the multibillion-dollar
Congressional investment in weatherization, energy efficiency, and
beneficial electrification programs will help alleviate equipment cost
concerns for low- to moderate-income households and small businesses.
(Id.) Similarly, Trane commented that aid should be provided through
the Inflation Reduction Act to homeowners to offset any costs incurred
from this standard due to increased purchase and installation costs.
(Trane, No. 412 at pp. 1-2) Trane further stated that this assistance
could help with the necessary advancements in venting technology that
will accompany the standard. (Id.)
The Joint Utilities commented that they believe DOE can help
Americans achieve meaningful cost savings while benefitting the
environment by establishing rebates and incentive programs that could
be used to support State-regulated efficiency and rebate programs.
Furthermore, the Joint Utilities stated that this would assist electric
and natural gas customers by reducing the upfront costs of achieving
greater home heating efficiency. (The Joint Utilities, No. 402 at p. 1)
DOE agrees that Federal funding, specifically funding available
through the Inflation Reduction Act, may be able to assist in the
transition to more-efficient space heating. However, DOE also notes
that such funding is separate from this rulemaking process and has yet
to be fully implemented. Consequently, while DOE agrees that the costs
of more-efficient furnaces could be reduced for certain consumers, DOE
did not include impacts of any Federal funding in its reference case
analysis. However, as discussed in section IV.F.10 of this document,
DOE performed a sensitivity analysis in which tax credits significantly
reduce the cost of a heat pump system as an alternative space-heating
option, thereby incentivizing some consumers to switch from gas
furnaces to heat pumps. The results of this sensitivity analysis are
available in appendices 8J and 10E of the final rule TSD. Additionally,
any potential incentives for more-efficient gas furnaces would only
improve the consumer benefits as determined in the final rule analysis.
Therefore, as discussed in section V of this document, DOE concludes
that the amended standards are justified, and this decision is not
dependent on whether additional Federal subsidies or investments are
available.
8. Standby Mode and Off Mode Power Consumption Standards
As discussed in section II.A of this document, EPCA requires any
final rule for new or amended energy conservation standards promulgated
after July 1, 2010, to address standby mode and off mode energy use.
(42 U.S.C. 6295(gg)(3))
``Standby mode'' and ``off mode'' energy use are defined in the DOE
test procedure for residential furnaces and boilers (i.e., ``Uniform
Test Method for Measuring the Energy Consumption of Consumer Furnaces
Other Than Boilers,'' 10 CFR part 430, subpart B, appendix N). In that
test procedure, DOE defines ``standby mode'' as any mode in which the
furnace is connected to a mains power source and offers one or more of
the following space heating functions that may persist: (a) To
facilitate the activation of other modes (including activation or
deactivation of active mode) by remote switch (including thermostat or
remote control), internal or external sensors, and/or timer; and (b)
Continuous functions, including information or status displays or
sensor based functions. 10 CFR part 430, subpart B, appendix N, section
2. ``Off mode'' for consumer furnaces is defined as a mode in which the
furnace is connected to a mains power source and is not providing any
active mode or standby mode function, and where the mode may persist
for an indefinite time. The existence of an off switch in off position
(a disconnected circuit) is included within the classification of off
mode. 10 CFR part 430, subpart B, appendix N, section 2. An ``off
switch'' is defined as the switch on the furnace that, when activated,
results in a measurable change in energy consumption between the
standby and off modes. 10 CFR part 430, subpart B, appendix N, section
2. As discussed previously, DOE does not currently prescribe standby
mode or off mode standards for NWGFs and MHGFs.
In the July 2022 NOPR, DOE analyzed new standby mode and off mode
power standards for NWGFs and MHGFs and proposed that the maximum
allowable standby mode and off mode power consumption should be 8.5 W
for NWGFs and MHGFs. 87 FR 40590, 40592 (July 7, 2022). Table IV.5 of
the July 2022 NOPR shows the standby mode and off mode efficiency
levels that DOE analyzed, along with a description of the design
options anticipated to be used to achieve each efficiency level above
baseline. The baseline efficiency level was determined to be 11 W, and
it corresponds to the use of a linear power supply and a 40VA linear
transformer (LTX). Other technology options that were analyzed to
achieve efficiency levels above baseline include a low-loss LTX (``LL-
LTX'') and two types of switching mode power supply (SMPS). 87 FR
40590, 40619 (July 7, 2022).
In response to DOE's proposed technology options and watt levels
associated with each efficiency level for standby mode and off mode
standards, Carrier commented that it agreed with DOE's statement that
most furnaces use 40VA transformers, and further described that 40VA
transformers provide power to sensors and components in the furnace, as
well as a
[[Page 87524]]
variety of external devices. (Carrier, No. 377 at p. 2) Carrier also
commented that it does not believe the use of an SMPS will lower the
transformer size without limiting the external devices and sensors that
can be powered by the furnace, which would impact consumer experience
and product performance. The commenter stated that DOE only considered
thermostats, but noted that there are other devices that could be
powered by the transformer. (Carrier, No. 377 at pp. 2-3) Carrier
encouraged DOE to defer the standby mode and off mode power standards,
asserting that the 8.5W level has the potential to reduce the utility
of consumer furnaces, and therefore would not meet the requirements of
42 U.S.C. 6295(o)(2)(B)(iv). (Carrier, No. 377 at pp. 1-2) Carrier
asserted that its analysis found that a maximum standby watt limit of
8.5 is achievable in only their furnaces with the lowest AFUE
efficiency and least features. (Carriers, No. 377 at p. 2) Carrier
argued that products that incorporate a 20VA transformer do not meet
DOE's screening criteria of product utility or availability, nor will
they have the ability to support the safety sensors that will or could
be required in the future such as those that may be needed due to the
Consumer Protection Safety Commission's stated intention to establish a
requirement for carbon monoxide sensors on furnaces. (Carrier, No. 377
at p. 3) Carrier explained that efficiency level (EL) 1 is the only
feasible technology option to support the safety sensors that will be
required in the future. (Carrier, No. 377 at pp. 3-4) Carrier explained
that potential requirements for new safety sensors would mean that a
standard lower than 11 W could create an adverse impact on product
utility. (Carrier, No. 377 at pp. 3-4) Carrier asserted that
contractors would need to install larger transformers to maintain
utility, which defeats the purpose of having a standby power limit and
adds additional installation complexity. (Carrier, No. 377 at pp. 2-3)
Therefore, Carrier commented that it opposed DOE's proposed 8.5W
standby mode and off mode power standard for NWGFs. (Carrier, No. 377
at pp. 1-2) Carrier explained that it conducted an analysis of standby
mode and off mode power on their furnaces and found that the limit of
8.5W is achievable for their lower-efficiency furnaces, but not for
their mid-tier and deluxe furnaces without lessening the utility.
(Carrier, No. 377 at p. 2) Overall, Carrier recommended that DOE defer
standby mode and off mode power standards until further testing and
analysis is conducted. (Carrier, No. 377 at pp. 3-4)
Trane also commented that DOE's assumption that furnaces would
transition to a 20VA transformer at standby mode and off mode ELs 2 and
3 is inaccurate, because the transformer supplies power not only to the
furnace but also to the attached air conditioner or heat pump, as well
as the thermostat and other accessories. (Trane, No. 412 at p. 2) Trane
commented that setting the standard at 8.5W would result in
manufacturers adding transformers to supply power to the needed
features; therefore, Trane recommended maintaining a standard of 11W.
(Id.)
Lennox stated that 40VA transformers are utilized to provide
adequate low voltage power for components and accessory items. (Lennox,
No. 389 at pp. 4-5) Lennox commented that it offers transformers
ranging up to 70VA to accommodate situations where several accessories
are included in the HVAC system. (Lennox, No. 389 at p. 4) Lennox
argued that DOE's assumption of a unit with SMPS having a transformer
sized at 20VA is incorrect, since a 20VA transformer often does not
provide sufficient power capability to drive the internal components
necessary for all furnace/air conditioner/heat pump functions and a
thermostat. (Lennox, No. 389 at p. 4) Lennox explained that SMPS are
currently used in Lennox products controls, and the company is not
aware of ways to further reduce standby mode and off mode power
consumption. (Id.) Lennox also stated that the proposed standby mode
and off mode standard level would inhibit implementation of additional
safety features. (Lennox, No. 389 at pp. 3-4)
Lennox commented that the 8.5W limit for consumer furnaces will
prevent advances in communicating controls, installation and diagnostic
features, and zoning. (Lennox, No. 389 at p. 4) Lennox further stated
that programs, including ENERGY STAR, are considering measures that
would require these monitoring, diagnostic, and prognostic features
that would require additional standby power, but would save more energy
overall. (Id.) The commenter argued that future innovations and safety
requirements (e.g., thermostats, WiFi controls, extra power supplies)
may force the power usage to rise above the 11W limit. (Lennox, No. 389
at p. 6) Lennox commented that DOE should not mandate standby mode and
off mode power levels with de minimis energy savings that prevent the
integration of controls and other features that enable significantly
larger energy savings at the furnace and HVAC systems level. (Lennox,
No. 389 at pp. 4-5) Lennox commented that DOE should not only
reconsider the proposed standby mode and off mode standard of 8.5W but
should also consider whether an 11W baseline would be sufficient.
(Lennox, No. 389 at p. 6) Lennox further commented that the analysis
for DOE's proposed standard for standby mode and off mode also does not
consider system level impacts. (Lennox, No. 389 at p. 5)
Nortek commented that DOE should not implement a standby mode and
off mode standard lower than 11W. (Nortek, No. 406 at pp. 1-2) Nortek
commented that they do not support DOE's proposed standard of 8.5 W for
standby mode and off mode, as it would limit necessary innovation in
furnace controls, programming and usage displays, thermostats, and
other devices. (Nortek, No. 406 at p. 1)
Rheem commented that DOE should adjust its proposed standby mode
and off mode energy standards for NWGF. Rheem asserted that 8.5W may be
overly limiting due to the previously mentioned shift toward smart
products, and the shift to low global warming potential (GWP)
refrigerants that require additional power for supporting communication
and safety controls. The commenter warned that reductions in standby
wattage limits potential diagnostic and installation functionality,
advancements which could also result in energy savings. (Rheem, No. 394
at p. 1) Rheem commented that DOE should maintain a baseline standby
mode and off mode power level of 11W, as would allow future
improvements such as safety and communicating controls to be
incorporated into future furnace designs. (Rheem, No. 394 at p. 2)
Daikin commented that it does not support DOE's proposed 8.5W
standard for standby mode and off mode. (Daikin, No. 416 at p. 1)
Daikin also stated that DOE has significantly underestimated the
incremental MPCs for each of the standby mode and off mode efficiency
levels, and that the cost increase for a Low-Loss Linear Transformer is
more likely to be five to ten times higher than DOE's estimate. (Id. at
p. 4) Daikin noted that many manufacturers offer a 70VA transformer as
an accessory or service part to provide adequate low voltage power to
all system components, and that manufacturers would likely need to
limit accessory items to meet the proposed standby mode/off mode
standards. (Id. at p. 5) Daikin recommended that DOE establish a
standby mode and off mode criteria of 15W for condensing NWGFs with
[[Page 87525]]
communicating features, multiple heating stages, ultra-low
NOX, an electrically commutated (ECM) motor, and controls
associated with alternate refrigerants. (Daikin, No. 416 at p. 6)
AHRI explained that a maximum level of 8.5W of standby power would
limit necessary innovation in furnaces and related connected devices
powered through the furnace and could possibly prohibit significant
energy-saving features. (AHRI, No. 414-1 at p. 2) AHRI stated that DOE
should reconsider the standby mode and off mode energy standards
proposed for NWGFs, as well as the max-tech level based upon the use of
a 20VA low-loss linear transformer (``LL-LTX'') and SMPS. (AHRI, No.
414-1 at p. 3)
AHRI also noted that the NAS Peer Review Report \40\ mentions the
need to not stifle innovation, particularly regarding connected
products. (AHRI, No. 414-1 at p. 2) AHRI stated that if the standby
mode and off mode standards for furnaces are set too low, then
connected products such as thermostats and Wi-Fi controls will use add-
on power supplies, mentioning that such auxiliary power supplies are
already available on the market. (AHRI, No. 414-1 at p. 3) AHRI
expressed concern that the current baseline value of 11W may need to be
adjusted in the future to remove the effects of safety and other
control measures. (AHRI, No. 414-1 at p. 3)
---------------------------------------------------------------------------
\40\ National Academies of Sciences, Engineering, and Medicine,
Review of Methods Used by the U.S. Department of Energy in Setting
Appliance and Equipment Standards. (2021) Washington, DC: The
National Academies Press. pp. 2-3; 111-113. doi.org/10.17226/25992.
---------------------------------------------------------------------------
AHRI likewise stated that DOE should reconsider the standby mode
and off mode energy standards proposed for MHGFs, referencing the
comments it submitted for NWGFs. Specifically, AHRI stated that the
proposed maximum of 8.5 watts would stifle innovation and could reduce
energy savings from connected products, and is inadequate to power
safety and communication controls necessary for consumer utility.
(AHRI, No. 414-2 at p. 3) Mortex commented that DOE's proposed 8.5W
limit for standby mode and off mode would not be adequate to power
safety and communicating controls necessary for consumer utility and
that 11W should be retained. (Mortex, No. 410 at p. 4)
JCI commented that the 8.5W limit for standby mode and off mode
power of NWGFs and MHGFs is too restrictive due to the additional
requirements associated with the new A2L refrigerant requirement and
other future communication and monitoring advancements. (JCI, No. 411
at p. 3)
Several commenters argued that furnaces will need to incorporate
safety sensors for controlling components such as carbon monoxide,
carbon dioxide, refrigerant leak detectors and/or low GWP along with
other changes in the future, and they noted that such functionalities
must be accounted for in meeting the currently proposed limit for
standby mode and off mode power. (Lennox, No. 389 at pp. 4-5; Rheem,
No. 394 at pp. 1-2; Carrier, No. 377 at pp. 3-4; Daikin, No. 416 at pp.
5-6; AHRI, No. 414-1 at pp. 2-3)
Daikin, Lennox, Trane and AHRI listed numerous components that are
powered by transformers in consumer furnaces. The combined list of
components includes: integrated furnace control board, indoor and
outdoor air conditioning/heat pump (AC/HP) fan motors, gas valves,
combustion air inducers, thermostats, ultraviolet (UV) germicidal
lights, humidifiers, AC/HP outdoor control board, AC/HP defrost
controls, AC/HP heat pump reversing valve, indoor air circulating
blowers, indoor and outdoor electronic expansion valves, condensate
pumps, communicating controls that aid in proper commissioning, AC/HP
IoT devices, system performance monitoring and reporting,
identification of faults, zoning systems consumer interface,
temperature sensors, air pressure sensors, refrigerant pressure
sensors, gas pressure sensors, proprietary diagnostic sensors,
refrigerant leak detection systems for A2L refrigerants, carbon
monoxide (CO) sensors, CO2 sensors, and dual fuel HPs that
require more power. (Daikin, No. 416 at p. 6; Lennox, No. 389 at pp. 4-
5; Trane, No. 412 at p. 2; AHRI, No. 414-1 at pp. 2-3) AHRI stated that
it is impossible at this time to determine the power draw from these
components that may be added to furnaces in the future and suggested
that DOE reevaluate these proposed standards for NWGFs in the next
round of standards. (AHRI, No. 414-1 at p. 3) Trane argued that a 20VA
transformer is inadequate to power all these items. (Trane, No. 412 at
p. 2) Daikin recommended taking these future requirements into account,
as these standards will not come into effect until after the new A2L
refrigerant is required. (Daikin, No. 416 at pp. 5-6)
The CA IOUs commented that they analyzed the dataset of ten
consumer furnaces shared by AHRI in which they found that 50 percent of
the furnaces with AFUEs of 97 or higher would not meet the proposed
standby mode and off mode requirement. They further stated that 70
percent would meet a standard of 9 W and that 100 percent would meet a
standard of 10 W. (The CA IOUs, No. 400 at p. 3)
The CA IOUs requested that DOE confirm that the proposed standby
mode and off mode energy conservation standard would not significantly
reduce the market availability of the most efficient consumer furnaces
and would preserve design flexibility for future products. The CA IOUs
suggested that these design flexibilities could include diagnostic
features to verify installation and monitor ongoing performance or
additional safety features or reduce consumer costs through higher
operational energy savings. The CA IOUs suggested that DOE should
consider a separate standby mode and off mode adder for furnaces with
higher energy efficiency than baseline furnaces. (The CA IOUs, No. 400
at p. 3)
The CA IOUs commented in support of a standby mode and off mode
energy conservation standard; however, they stated that, in their
experience, products with higher operational efficiencies sometimes
have higher standby mode and off mode energy requirements. (The CA
IOUs, No. 400 at pp. 2-3) They commented that, as an example, furnace
fans with ECMs have higher standby mode energy consumption compared
with furnaces fans outfitted with lower efficiency motors. (Id.)
CEC commented that consumer products in the marketplace already
meet the proposed DOE standard of 8.5W in standby mode. The commenter
conducted an analysis on AHRI's condensing data set, which showed 74
percent of condensing furnaces as using an ECM motor, and only 8
percent of those furnaces were shown to have a standby energy
consumption greater than 8.5W. CEC stated that the average of this data
was 6.1W and that the median was 5.7W for condensing furnaces with ECM
motors. Therefore, CEC claimed that the 8.5W limit is both realistic
and leaves room for additional functionality to be added. (CEC, No. 382
at p. 3)
NYSERDA expressed support for DOE's proposed standards for standby
mode and off mode power consumption and agreed with DOE's findings that
more-efficient transformers are realistic and attainable. (NYSERDA, No.
379 at pp. 7-8) NYSERDA also noted that the sample of condensing
furnaces from the data set provided by AHRI to DOE in 2018 \41\
supports DOE's proposed standby mode and off mode power
[[Page 87526]]
standards. (NYSERDA, No. 379 at p. 8) According to NYSERDA, the
majority of models tested at the time had standby mode and off mode
power efficiencies at or below the proposed standard levels, thereby
demonstrating the proposed standards to be technologically feasible and
readily available. (Id.)
---------------------------------------------------------------------------
\41\ The comment submitted by AHRI was in response to a separate
proceeding, and can be found at: www.regulations.gov/document/EERE-2018-BT-PET-0017-0002.
---------------------------------------------------------------------------
After considering this feedback, DOE understands that typical and
baseline levels of power consumption of NWGFs and MHGFs in standby mode
or off mode are likely to increase in the future as manufacturers
continue to build increasingly complex controls into consumer furnaces,
and that many of the likely changes are related to features such as
safety sensors or to other improvements in functionality that would
provide utility for the consumer. In addition, DOE understands that
manufacturers may be introducing more sophisticated controls for
furnaces that are intended to get paired with central heat pumps in the
field, whose operation can be optimized for efficient performance. DOE
takes Carrier's point that such innovations could contribute to the
overall utility or performance of the covered product, an important
consideration when assessing the economic justification of a potential
standard (see 42 U.S.C. 6295(o)(2)(B)(i)(IV)). However, DOE further
notes that this one EPCA factor in isolation is not dispositive of a
potential standard's economic justification or lack thereof, but
instead, the Department must weigh all seven factors under 42 U.S.C.
6295(o)(2)(B)(i) before setting any standby mode and off mode power
standards.
Based on the totality of these comments, DOE has found that there
is some degree of uncertainty that exists with respect to the
appropriateness of the standby mode/off mode efficiency levels analyzed
in the July 2022 NOPR--particularly for products that are in
development but also possibly in some products already on the market.
Consequently, DOE has determined that it lacks the necessary
information to set appropriate standby mode and off mode standards
pursuant to 42 U.S.C. 6295(gg)(3) at this time. Particularly since some
of the functionalities at issue could have significant safety or
energy-savings benefits, DOE does not wish to stymie such developments
through well-intentioned but ultimately counterproductive standby mode/
off mode standards. Instead, DOE needs to have a better understanding
of the legitimate power consumption needs of the subject furnaces when
operating in these modes. The Department has concluded that it does not
currently have the requisite evidence to support standby mode and off
mode standards under the applicable statutory criteria in 42 U.S.C.
6295(o)(2)(B)(i). Therefore, DOE is not adopting the standby mode/off
mode power standards for NWGFs/MHGFs proposed in the July 2022 NOPR at
this time, but instead, the Department will continue to investigate
these issues and may consider such standards in a future rulemaking. In
summary, based on the stakeholder feedback received, DOE concludes that
more data is necessary to determine the appropriate baseline level for
standby mode and off mode energy usage to allow for safety features,
features that reduce active mode energy use, or other features that
would provide additional functionality for consumers.
In response to the July 2022 NOPR, Daikin commented that it does
not support DOE's proposed standby mode and off mode standard because
the consumer life-cycle savings are negligible, the energy savings
potential is extremely small, the burden on manufacturers is high, and
there is a need to address low-voltage power supply for components in
the future. (Daikin, No. 416 at p. 4) Similarly, PHCC commented that
standby mode and off mode energy use cannot be considered in comparison
to the overall energy consumption of the equipment because those
potential savings are de minimis. (PHCC, No. 403 at p. 2)
Daikin disagreed with DOE's statement that current mounting
brackets are sufficient to support the slight increase in size and
weight of an LL-LTX. The commenter asserted that, according to ASTM
D4728 (Standard Test Method for Random Vibration Testing of Shipping
Containers and Systems), even small increases in mass can cause breaks,
cracks, and deformation that mandate strengthening supports and
brackets. Finally, Daikin stated that such modifications would lead to
significant cost increases. (Daikin, No. 416 at p. 4)
As discussed previously in this section, DOE is not finalizing its
previous proposal to set new standby mode and off mode power standards
for NWGFs and MHGFs in this final rule. However, DOE will continue to
monitor the standby mode and off mode power consumption of the subject
consumer furnaces and may address such standards in a future
rulemaking. The Department may consider these comments further at that
time, as appropriate.
B. Product Classes and Scope of Coverage
When evaluating and establishing energy conservation standards for
a type (or class) of covered products, DOE divides covered products
into product classes by the type of energy used, or by capacity or
other performance-related features which other products within such
type (or class) do not have and that justify differing standards. In
making a determination whether a performance-related feature justifies
a different standard, DOE must consider such factors as the utility of
the feature to the consumer and other factors DOE determines are
appropriate. (42 U.S.C. 6295(q))
In this rule, DOE is only analyzing a subset of consumer furnace
classes. DOE agreed to the partial vacatur and remand of the June 2011
direct final rule (DFR), specifically as it related to energy
conservation standards for NWGFs and MHGFs in the settlement agreement
to resolve the litigation in American Public Gas Ass'n v. U.S. Dept. of
Energy (No. 11-1485, D.C. Cir. Filed Dec. 23, 2011). 80 FR 13120,
13130-13132 (March 12, 2015). Therefore, in this rule, DOE is only
amending the energy conservation standards for NWGFs and for MHGFs. See
section IV.A.1 of this document for a more detailed discussion of the
product classes analyzed in this final rule.
C. Test Procedure
EPCA sets forth generally applicable criteria and procedures for
DOE's adoption and amendment of test procedures. (42 U.S.C. 6293)
Manufacturers of covered products must use these test procedures to
certify to DOE that their product complies with energy conservation
standards and to quantify the efficiency of their product. (42 U.S.C.
6295(s)) DOE's current energy conservation standards for consumer
furnaces are expressed in terms of AFUE. (See 10 CFR 430.32(e)(1)) AFUE
is an annualized fuel efficiency metric that accounts for fossil fuel
consumption in active, standby, and off modes. The existing DOE test
procedure for determining the AFUE of consumer furnaces is located at
10 CFR part 430, subpart B, appendix N. The DOE test procedure for
consumer furnaces was originally established by a May 12, 1997, final
rule, which incorporates by reference the American Society of Heating,
Refrigerating and Air-Conditioning Engineers (ASHRAE)/American National
Standards Institute (ANSI) Standard 103-1993, Method of Testing for
Annual Fuel Utilization Efficiency of Residential Central Furnaces and
Boilers (1993). 62 FR 26140, 26157.
Since the initial adoption of the consumer furnaces test procedure,
DOE has undertaken a number of additional
[[Page 87527]]
rulemakings related to that test procedure, including ones to account
for measurement of standby mode and off mode energy use (see 75 FR
64621 (Oct. 20, 2010); 77 FR 76831 (Dec. 31, 2012)) and to supply
necessary equations related to optional heat-up and cool-down tests
(see 78 FR 41265 (July 10, 2013)).
Most recently, DOE published a final rule in the Federal Register
on January 15, 2016, that further amended the test procedure (TP) for
consumer furnaces (January 2016 TP Final Rule). 81 FR 2628. The
revisions included:
1. Clarification of the electrical power term ``PE'';
2. Adoption of a smoke stick test for determining use of minimum
default draft factors;
3. Allowance for the measurement of condensate under steady-state
conditions;
4. Reference to manufacturer's installation and operation manual
and clarifications for when that manual does not specify test set-up;
5. Specification of duct-work requirements for units that are
installed without a return duct; and
6. Revision of the requirements regarding AFUE reporting precision.
81 FR 2628, 2629-2630.
As such, the most current version of the test procedure (published
in January 2016) has now been in place for several years.
Daikin commented that the test procedure should add clarity for the
terms ``electrical auxiliaries'' and ``single auxiliary.'' (Daikin, No.
416 at p. 6) In response, DOE notes that amendments to the test
procedure, including associated terminology, are not in scope for this
analysis of amended energy conservation standards. However, DOE may
consider this issue further in its next review of the consumer furnaces
test procedure, which would occur in a separate test procedure
rulemaking proceeding.
D. Technological Feasibility
1. General
In each energy conservation standards rulemaking, DOE conducts a
screening analysis based on information gathered on all current
technology options and prototype designs that could improve the
efficiency of the products or equipment that are the subject of the
rulemaking. As the first step in such an analysis, DOE develops a list
of technology options for consideration in consultation with
manufacturers, design engineers, and other interested parties. DOE then
determines which of those means for improving efficiency are
technologically feasible. DOE considers technologies incorporated in
commercially-available products or in working prototypes to be
technologically feasible. See 10 CFR part 430, subpart C, appendix A
(Process Rule), sections 6(b)(3)(i) and 7(b)(1).
After DOE has determined that particular technology options are
technologically feasible, it further evaluates each technology option
in light of the following additional screening criteria: (1)
practicability to manufacture, install, and service; (2) adverse
impacts on product utility or availability; (3) adverse impacts on
health or safety, and (4) unique-pathway proprietary technologies.
Sections 6(b)(3)(ii)-(v) and 7(b)(2)-(5) of the Process Rule. Section
IV.B of this document discusses the results of the screening analysis
for NWGFs and MHGFs, particularly the designs DOE considered, those it
screened out, and those that are the basis for the standards considered
in this rulemaking. For further details on the screening analysis for
this rulemaking, see chapter 4 of the final rule TSD.
2. Maximum Technologically Feasible Levels
When DOE proposes to adopt an amended standard for a type or class
of covered product, it must determine the maximum improvement in energy
efficiency or maximum reduction in energy use that is technologically
feasible for such product. (42 U.S.C. 6295(p)(1)) Accordingly, in the
engineering analysis, DOE determined the maximum technologically
feasible (``max-tech'') improvements in energy efficiency for NWGFs and
MHGFs, using the design parameters for the most efficient products
available on the market or in working prototypes. The max-tech levels
that DOE determined for this rulemaking are described in section IV.C
of this final rule and in chapter 5 of the final rule TSD.
E. Energy Savings
1. Determination of Savings
For each trial standard level (TSL), DOE projected energy savings
from application of the TSL to NWGFs and MHGFs purchased in the 30-year
period that begins in the expected first year of compliance with the
amended standards (2029-2058).\42\ The savings are measured over the
entire lifetime of products purchased in the 30-year analysis period.
DOE quantified the energy savings attributable to each TSL as the
difference in energy consumption between each standards case and the
no-new-standards case. The no-new-standards case represents a
projection of energy consumption that reflects how the market for a
product would likely evolve in the absence of amended energy
conservation standards.
---------------------------------------------------------------------------
\42\ DOE also presents a sensitivity analysis that considers
impacts for products shipped in a 9-year period.
---------------------------------------------------------------------------
DOE used its national impact analysis (NIA) spreadsheet models to
estimate national energy savings (NES) from potential amended standards
for NWGFs and MHGFs. The NIA spreadsheet model (described in section
IV.H of this document) calculates energy savings in terms of site
energy, which is the energy directly consumed by products at the
locations where they are used. For electricity, DOE reports national
energy savings in terms of primary (source) energy savings, which is
the savings in the energy that is used to generate and transmit the
site electricity. For natural gas, the primary energy savings are
considered to be equal to the site energy savings. To calculate the
primary energy impacts, DOE derives annual conversion factors from the
model used to prepare the Energy Information Administration's (EIA)
most recent Annual Energy Outlook (AEO) currently AEO2023. DOE also
calculates NES in terms of FFC energy savings. The FFC metric includes
the energy consumed in extracting, processing, and transporting primary
fuels (i.e., coal, natural gas, petroleum), and, thus, presents a more
complete picture of the impacts of energy conservation standards.\43\
DOE's approach is based on the calculation of an FFC multiplier for
each of the energy types used by covered products or equipment. For
more information on FFC energy savings, see section IV.H.2 of this
document.
---------------------------------------------------------------------------
\43\ The FFC metric is discussed in DOE's statement of policy
and notice of policy amendment. 76 FR 51282 (August 18, 2011), as
amended at 77 FR 49701 (August 17, 2012).
---------------------------------------------------------------------------
2. Significance of Savings
To adopt any new or amended standards for a covered product, DOE
must determine that such action would result in significant energy
savings. (42 U.S.C. 6295(o)(3)(B))
The significance of energy savings offered by a new or amended
energy conservation standard cannot be determined without knowledge of
the specific circumstances surrounding a given rulemaking. For example,
some covered products and equipment have most of their energy
consumption occur during periods of peak energy demand. The impacts of
these products on the
[[Page 87528]]
energy infrastructure can be more pronounced than products with
relatively constant demand. Accordingly, DOE evaluates the significance
of energy savings on a case-by-case basis, taking into account the
significance of cumulative FFC national energy savings, the cumulative
FFC emissions reductions, and the need to confront the global climate
crisis, among other factors.
The standard levels adopted in this final rule are projected to
result in national energy savings of 4.77 quad (FFC) over 30 years of
shipments, with GHG emissions savings equivalent to the energy use of
42 million homes in one year.\44\ Based on the amount of FFC savings,
the corresponding reduction in emissions, and need to confront the
global climate crisis, DOE has determined (based on the methodology
described in section IV.E of this document and the analytical results
presented in section V.B.3.a of this document) that there is
substantial evidence that the energy savings from the standard levels
adopted in this final rule are ``significant'' within the meaning of 42
U.S.C. 6295(o)(3)(B).
---------------------------------------------------------------------------
\44\ Equivalencies based on: www.epa.gov/energy/greenhouse-gas-equivalencies-calculator (last accessed Sept. 15, 2023).
---------------------------------------------------------------------------
APGA commented that the purpose of EPCA is to reduce energy
consumption. APGA stated that the energy savings for the proposed TSL 8
(of 5.48 quad) was significantly higher than all other TSLs except TSL
9. APGA stated that the analysis is extremely complex, but even with
that complexity, the estimated savings represents just 3.5 percent
relative to the energy use of these products in the no-new-standards
case. APGA also added that DOE's estimates of energy savings are
tainted based on flawed modeling in the LCC analysis. (APGA, No. 387 at
p. 28)
DOE addresses APGA's comments with regard to the modeling
assumptions in the LCC analysis in section IV.F of this document. With
regard to the significance of savings, DOE is not required to consider
the percentage of savings when considering significance. In particular,
42 U.S.C. 6295(o)(2)(B)(i)(III) refers to the total projected amount of
energy savings, not the percentage savings. While those percentage
savings have previously been considered as a test when overall energy
savings are small, in this case, overall energy savings are quite
large, particularly when aggregated over the 30-year analysis period.
Therefore, DOE continues to maintain that the energy savings estimated
for this final rule of 4.77 quads are significant.
The DCA commented that the unpredictable nature of renewable energy
sources, such as solar and wind, demonstrate that these energy sources
alone will not meet current and future demand. (DCA, No. 372 at pp. 1-
2) The DCA commented that the United States will not be able to achieve
its clean energy ambitions without substantial growth of natural gas
production and a large expansion of natural gas distribution pipelines.
(Id.) The DCA commented that natural gas enables the use of renewable
energy sources. (Id. at p. 2)
With respect to DCA's comment regarding the mix of fuels needed to
meet future energy demand, DOE notes that the EIA's AEO2023 projects
natural gas to account for 35 percent of all domestic energy production
in 2050.\45\ AEO's projections of future energy systems in the U.S. are
based on a robust and comprehensive macroeconomic model, taking into
account a wealth of factors and data, and those projections are the
best available to DOE.
---------------------------------------------------------------------------
\45\ Energy Information Administration, Annual Energy Outlook
2023, Table 1 (available at: www.eia.gov/outlooks/aeo/tables_ref.php).
---------------------------------------------------------------------------
F. Economic Justification
1. Specific Criteria
As noted previously, EPCA provides seven factors to be evaluated in
determining whether a potential energy conservation standard is
economically justified. (42 U.S.C. 6295(o)(2)(B)(i)(I)-(VII)) The
following sections discuss how DOE has addressed each of those seven
factors in this rulemaking.
a. Economic Impact on Manufacturers and Consumers
In determining the impacts of potential amended standards on
manufacturers, DOE conducts a manufacturer impact analysis (``MIA''),
as discussed in section IV.J of this document. DOE first uses an annual
cash-flow approach to determine the quantitative impacts. This step
includes both a short-term assessment--based on the cost and capital
requirements during the period between when a regulation is issued and
when entities must comply with the regulation--and a long-term
assessment over a 30-year period. The industry-wide impacts analyzed
include: (1) INPV, which values the industry on the basis of expected
future cash flows; (2) cash flows by year; (3) changes in revenue and
income; and (4) other measures of impact, as appropriate. Second, DOE
analyzes and reports the impacts on different types of manufacturers,
including impacts on small manufacturers. Third, DOE considers the
impact of standards on domestic manufacturer employment and
manufacturing capacity, as well as the potential for standards to
result in plant closures and loss of capital investment. Finally, DOE
takes into account cumulative impacts of various DOE regulations and
other regulatory requirements on manufacturers.
For individual consumers, measures of economic impact include the
changes in LCC and PBP associated with new or amended standards. These
measures are discussed further in the following section. For consumers
in the aggregate, DOE also calculates the national net present value of
the consumer costs and benefits expected to result from particular
standards. DOE also evaluates the LCC impacts of potential standards on
identifiable subgroups of consumers that may be affected
disproportionately by a standard.
b. Savings in Operating Costs Compared To Increase in Price (LCC and
PBP)
EPCA requires DOE to consider the savings in operating costs
throughout the estimated average life of the covered product in the
type (or class) compared to any increase in the price of, or in the
initial charges for, or maintenance expenses of, the covered product
that are likely to result from a standard. (42 U.S.C.
6295(o)(2)(B)(i)(II)) DOE conducts this comparison in its LCC and PBP
analysis.
The LCC is the sum of the purchase price of a product (including
its installation) and the operating cost (including energy,
maintenance, and repair expenditures) discounted over the lifetime of
the product. The LCC analysis requires a variety of inputs, such as
product prices, product energy consumption, energy prices, maintenance
and repair costs, product lifetime, and discount rates appropriate for
consumers. To account for uncertainty and variability in specific
inputs, such as product lifetime and discount rate, DOE uses a
distribution of values, with probabilities attached to each value.
The PBP is the estimated amount of time (in years) it takes
consumers to recover the increased purchase cost (including
installation) of a more-efficient product through lower operating
costs. DOE calculates the PBP by dividing the change in purchase cost
due to a more-stringent standard by the change in annual operating cost
for the year that standards are assumed to take effect.
The LCC and PBP analyses focus on consumers who will purchase the
covered products in the first year of
[[Page 87529]]
compliance with new or amended standards. The LCC savings for the
considered efficiency levels are calculated relative to the case that
reflects projected market trends in the absence of new or amended
standards. DOE's LCC and PBP analysis is discussed in further detail in
section IV.F of this document.
c. Energy Savings
Although significant conservation of energy is a separate statutory
requirement for adopting an energy conservation standard, EPCA requires
DOE, in determining the economic justification of a standard, to
consider the total projected energy savings that are expected to result
directly from the standard. (42 U.S.C. 6295(o)(2)(B)(i)(III)) As
discussed in section IV.H of this document, DOE uses the NIA
spreadsheet models to project national energy savings.
d. Lessening of Utility or Performance of Products
In establishing product classes, and in evaluating design options
and the impact of potential standard levels, DOE evaluates potential
standards that would not lessen the utility or performance of the
considered products. (42 U.S.C. 6295(o)(2)(B)(i)(IV)) Based on data
available to DOE, the standards adopted in this document would not
reduce the utility or performance of the products under consideration
in this rulemaking.
e. Impact of Any Lessening of Competition
EPCA directs DOE to consider the impact of any lessening of
competition, as determined in writing by the Attorney General, that is
likely to result from a standard. (42 U.S.C. 6295(o)(2)(B)(i)(V)) It
also directs the Attorney General to determine the impact, if any, of
any lessening of competition likely to result from a standard and to
transmit such determination to the Secretary within 60 days of the
publication of a proposed rule, together with an analysis of the nature
and extent of the impact. (42 U.S.C. 6295(o)(2)(B)(ii)) To assist the
Department of Justice (DOJ) in making such a determination, DOE
transmitted copies of its proposed rule and the NOPR TSD to the
Attorney General for review, with a request that the DOJ provide its
determination on this issue. In its assessment letter responding to
DOE, DOJ concluded that the proposed energy conservation standards for
NWGFs and MHGFs are unlikely to substantially lessen competition in any
particular product or geographic market. DOJ added that in the course
of its review, it was told that the MHGF market may be more highly
concentrated than DOE's analysis suggests. DOJ stated that given the
necessarily short time-frame for its review, it is not in a position to
confirm the level of concentration increase that may be caused by the
rule, but it encouraged DOE to closely examine and consider potential
competitive issues that commenters may raise with respect to this
rulemaking. The Department is publishing the Attorney General's
assessment at the end of this final rule. DOE notes that it has
carefully considered the issues mentioned by DOJ in arriving at the
standards adopted in this final rule.
NGA of Georgia stated that the NOPR analysis indicated that nearly
32 percent of current furnaces in Georgia would be converted to an
alternate fuel source under the proposed standard, which would have
implications for the competitive balance of natural gas utilities,
contractors that specialize in gas piping and appliances, and
manufacturers that only make gas equipment or venting. (NGA of Georgia,
No. 380 at p. 3) GAS asserted that DOE has ignored anti-competitive
effects of its energy conservation standards rulemakings. (GAS, No. 385
at p. 6) APGA commented that the rulemaking record created by DOE does
not do a good job of quantifying the impact on competition, and noted
that APGA addressed the competition issue in comments to the Department
of Justice dated August 19, 2022. (APGA, No. 387 at pp. 64-65) APGA
asserted that establishing a 95-percent AFUE standard could have a
profound impact on competition, as consumers may shift to alternative
methods of home heating equipment due to the higher up-front cost of a
95-percent AFUE furnace (compared to a 90-percent AFUE furnace). (APGA,
No. 387 at p. 65) Spencer and Dayaratna asserted that the proposed
standard ``would effectively remove a technology from the marketplace
and reduce competition.'' (Spencer and Dayaratna, No. 390 at p. 2) They
claim that the proposed standard will remove an entire technology from
the market, limiting the incentive for condensing furnace manufacturers
to lower prices or to increase efficiency further. (Id. at 3) Mortex
submitted written comments specific to competition in the MHGF
marketplace, asserting that one MHGF manufacturer is dominant and sells
both to mobile home manufacturers and into the replacement market.
Additionally, Mortex raised concerns about the availability of 20''
wide and 24'' deep MHGFs if DOE adopts a condensing standard and the
financial impacts that lessened competition in the MHGF market could
have on low-income consumers. (Mortex, No. 410 at pp. 3-4) In addition
to dimensional differences between MHGFs and NWGFs, JCI stated that
there are product configuration differences (i.e., MHGFs typically
utilize a downflow configuration and NWGFs typically utilize an upflow
configuration). JCI raised concerns about the availability of downflow
condensing MHGFs. JCI questioned the feasibility of retrofitting an
upflow MHGF into a manufactured home constructed to make use of a
downflow furnace. Specifically, JCI asserted that the costs of
reconfiguring ductwork, filling voids, and making other necessary
structural changes would prevent such a change. (JCI, No. 411 at pp. 2-
3)
In response to stakeholders' comments and DOJ's comment regarding
the MHGF industry, DOE reviewed the manufacturer landscape of NWGFs and
the manufacturer landscape of MHGFs separately. In the NWGF market, DOE
notes that the 10 original equipment manufacturers (OEMs) of non-
condensing NWGFs also manufacture condensing NWGFs that meet or exceed
the adopted level (95-percent AFUE). Additionally, DOE identified three
OEMs that only manufacture condensing NWGFs. These three NWGF OEMs also
all offer models that meet or exceed the adopted level. Thus, a variety
of companies already participate in the condensing NWGF market. Given
that the number of competitors is not decreased at the adopted levels,
DOE does not anticipate lessening of competition in the NWGF market.
Compared to the NWGF market, the MHGF market is smaller (i.e., lower
annual shipments) and is served by fewer OEMs. DOE estimates that NWGFs
account for approximately 97 percent of shipments covered by this
rulemaking (around 3.1 million units in 2029) and that MHGFs account
for the remaining 3 percent of shipments (around 0.1 million units in
2029). In the July 2022 NOPR, DOE identified seven OEMs of MHGFs. For
this final rule, DOE further researched the furnace market and
refreshed its database of model listings to include the most up-to-date
information on NWGF and MHGF models currently available on the market.
Through its review of the updated product database and other public
sources, DOE determined that one MHGF OEM no longer offers products
covered by this rulemaking. At the time of the July 2022 NOPR, this
[[Page 87530]]
OEM offered one condensing MHGF model, which has since been
discontinued. Therefore, through its careful review of the MHGF market,
DOE has determined that six OEMs manufacture MHGFs for the U.S. market.
Of these six OEMs, one OEM only manufactures non-condensing MHGFs, two
OEMs only manufacture condensing MHGFs, and the remaining three OEMs
manufacture both non-condensing and condensing MHGFs. All five OEMs of
condensing MHGFs offer models that meet or exceed the adopted level
(95-percent AFUE). Furthermore, all OEMs of condensing MHGFs offer
downflow condensing models. Given the existing availability of downflow
condensing models, DOE finds that a market shift to condensing furnaces
would not eliminate downflow configurations from the market. Similarly,
DOE found a range of condensing MHGF models that fit into compact
footprints. The availability of such models from Burnham Holdings
(Thermo Pride) and Madison Industries (Nortek) suggest there is no
technical constraint to offering condensing MHGFs that fit a compact
footprint. DOE recognizes that one manufacturer dominates the MHGF
space in sales volume, and the remaining competitors have small market
shares. As a result, the MHGF market is concentrated. However, DOE does
not expect the adopted standard would significantly alter the level of
concentration. DOE notes that consumers have access to a range of
alternate heating solutions and that those alternatives limit price
increases in a market where one manufacturer already dominates the
space. As discussed earlier in this section, in a September 6, 2022,
letter written in response to the NOPR, DOJ stated that ``[b]ased on
our review of the information currently available, we do not believe
that the proposed energy conservation standards for consumer furnaces
are likely to substantially lessen competition in any particular
product or geographic market.''
f. Need for National Energy Conservation
DOE also considers the need for national energy and water
conservation in determining whether a new or amended standard is
economically justified. (42 U.S.C. 6295(o)(2)(B)(i)(VI))
Spencer and Dayaratna asserted that DOE's NOPR fails to establish
the need for national energy conservation as would justify the proposed
standard under 42 U.S.C. 6295(o)(2)(B)(i)(VI). These commenters argued
that there is not a current and pressing problem concerning
conservation, as the United States is in a time of energy abundance
(citing EIA estimates of U.S. oil and gas reserves equating to nearly
100 years of supply, uranium reserves, as well as the potential for new
energy discoveries such as oil shale). Spencer and Dayaratna also
challenged the proposed standards' anticipated reductions in toxic air
emissions as a weak reason for showing the need for national energy
conservation; the commenters argued that air pollutant concentration
levels have declined significantly since 1990, so with the air clean
and getting cleaner, they asserted that the costs and benefits of the
regulation are outweighed by its impacts on consumer choice, family
finances, and broad inconvenience. (Spencer and Dayaratna, No. 390 at
pp. 4-6)
DOE disagrees with this comment from Spencer and Dayaratna. DOE
finds this comment to start from the flawed premise that further
improvements in energy efficiency and reduced emissions are unnecessary
or would not provide substantial benefits to consumers and the Nation.
As discussed in section I.C of this final rule, the amended standards
for the subject consumer furnaces are expected to save 4.77 quad of
energy over 30 years and the cumulative NPV of total consumer benefits
of the amended standards for NWGFs and MHGFs ranges from $4.8 billion
(at a 7-percent discount rate) to $16.3 billion (at a 3-percent
discount rate) over the same time period. In DOE's view, the presence
of an abundant energy supply neither precludes DOE's approach nor
justifies the approach suggested by the commenters, which would result
in waste of significant amounts of energy when more-efficient options
are technologically feasible and economically justified.
Likewise, DOE does not agree that the Nation and its citizens
(particularly children) would not benefit from the reduction in toxic
air emissions associated with the amended energy conservation standards
for the subject consumer furnaces. Despite the Nation's substantial
progress in reducing emissions in recent years, DOE does not believe
that further efforts in terms of environmental and human health
protection are unnecessary. DOE maintains that environmental and public
health benefits associated with the more efficient use of energy are
important to take into account when considering the need for national
energy conservation. The adopted standards are likely to result in
environmental benefits in the form of reduced emissions of air
pollutants and greenhouse gases (GHGs) associated with energy
production and use. DOE conducts an emissions analysis to estimate how
potential standards may affect these emissions, as discussed in section
IV.K of this document; the estimated emissions impacts are reported in
section V.B.6 of this document. DOE also estimates the economic value
of emissions reductions resulting from the considered TSLs, as
discussed in section IV.L of this document. These positive economic and
health benefits are set forth in detail in section V.B.6 of this
document.
Furthermore, DOE notes that the energy savings from the adopted
standards are likely to provide improvements to the security and
reliability of the Nation's energy system. Reductions in the demand for
electricity also may result in reduced costs for maintaining the
reliability of the Nation's electricity system. DOE conducts a utility
impact analysis to estimate how standards may affect the Nation's
needed power generation capacity, as discussed in section IV.M of this
document.
g. Other Factors
In determining whether an energy conservation standard is
economically justified, DOE may consider any other factors that the
Secretary deems to be relevant. (42 U.S.C. 6295(o)(2)(B)(i)(VII)) To
the extent DOE identifies any relevant information regarding economic
justification that does not fit into the other categories described
previously, DOE could consider such information under ``other
factors.''
Spencer and Dayaratna stated that one other factor to consider is
how the proposed standard meaningfully advances EPCA's intent, given
the abundant energy sources that the United States enjoys today that
were not contemplated in 1975. (Spencer and Dayaratna, No. 390 at p.
11) They add that given the change in the value proposition for energy
efficiency since 1975, setting efficiency standards no longer has the
same impact on energy availability as it did during times of perceived
energy scarcity, concluding that the proposed standards do not
meaningfully advance the intent of EPCA and do not justify the
restrictions that they state the proposed rule will impose on consumer
choice. (Id. at p. 11-12)
DOE's response here is similar to that made in the preceding
section in response to Spencer and Dayaratna's argument regarding
establishing the need for national energy conservation. Again, DOE
disagrees with the commenters' assertion that an abundant energy supply
somehow ends DOE's statutory mandate to pursue further
[[Page 87531]]
improvements in energy efficiency and reduced emissions, despite the
fact that such actions would provide substantial benefits to consumers
and the Nation. Additionally, the consideration of total projected
energy savings is only one of the seven factors enumerated in EPCA. (42
U.S.C. 6295(o)(2)(B)(i)). Energy savings have value both in times of
scarcity and abundance, and particularly in light of the EPCA
amendments in recent years mandating review of existing conservation
standards on a six-year cycle,\46\ it is apparent that Congress intends
for DOE to continue to pursue energy efficiency gains that meet the
applicable statutory criteria--even in times of energy abundance. As
discussed in section I.C of this final rule, the amended standards for
the subject consumer furnaces are expected to save 4.77 quad of energy
over 30 years and the cumulative NPV of total consumer benefits of the
amended standards for NWGFs and MHGFs ranges from $4.8 billion (at a 7-
percent discount rate) to $16.3 billion (at a 3-percent discount rate)
over the same period. DOE has determined that the full measure of
anticipated energy and cost savings from amended energy conservation
standards for the subject furnaces are unlikely to be realized in the
absence of amended standards. Furthermore, as discussed in section
III.F.1.f of this document, DOE maintains that environmental and public
health benefits associated with the more efficient use of energy are
important to take into account. Again, in DOE's view, the presence of
an abundant energy supply neither precludes DOE's approach nor
justifies the approach suggested by the commenters, which would result
in waste of significant amounts of energy when more-efficient options
are technologically feasible and economically justified.
---------------------------------------------------------------------------
\46\ See amendments to EPCA contained in the Energy Independence
and Security Act of 2007 (EISA 2007), Public Law 110-140 (enacted
Dec. 19, 2007), and in the American Energy Manufacturing Technical
Corrections Act (AEMTCA), Public Law 112-210 (enacted Dec. 18,
2012).
---------------------------------------------------------------------------
2. Rebuttable Presumption
As set forth in 42 U.S.C. 6295(o)(2)(B)(iii), EPCA creates a
rebuttable presumption that an energy conservation standard is
economically justified if the additional cost to the consumer of a
product that meets the standard is less than three times the value of
the first year's energy savings resulting from the standard, as
calculated under the applicable DOE test procedure. DOE's LCC and PBP
analyses generate values used to calculate the effect potential amended
energy conservation standards would have on the payback period for
consumers. These analyses include, but are not limited to, the three-
year payback period contemplated under the rebuttable-presumption test.
In addition, DOE routinely conducts an economic analysis that considers
the full range of impacts to consumers, manufacturers, the Nation, and
the environment, as required under 42 U.S.C. 6295(o)(2)(B)(i). The
results of this analysis serve as the basis for DOE's evaluation of the
economic justification for a potential standard level (thereby
supporting or rebutting the results of any preliminary determination of
economic justification). The rebuttable presumption payback calculation
is discussed in section IV.F of this final rule.
G. Compliance Date
In the July 2022 NOPR, DOE discussed in some detail the relevant
provisions of EPCA related to calculation of the requisite lead time
between publication of a final rule and compliance with amended
standards, and the Department ultimately proposed a five-year lead time
for compliance with any amended energy conservation standards for NWGFs
and MHGFs. 87 FR 40590, 40611 (July 7, 2022). Additionally, as
explained in the July 2022 NOPR, furnaces and furnace fans are separate
products under EPCA, and, therefore, the required six-year period under
42 U.S.C. 6295(m)(4)(B) is not relevant because it applies only in the
context of standards directly pertinent to the product in question. As
such, the energy conservation standards for furnace fans are not a
consideration when applying the six-year spacing period to new or
amended standards for furnaces. Id. at 87 FR 40611-40612. DOE did not
receive any comments related to the proposed five-year lead time for
compliance presented in the July 2022 NOPR and is adopting a five-year
lead time in this final rule.
H. Impact From Other Rulemakings
Veiga commented that home appliances have energy-efficiency
standards that collectively make homes more expensive. (Veiga, No. 326
at p. 1) Lennox commented that DOE needs to consider the total
cumulative regulatory burden for consumer furnaces, as there are
multiple concurrent DOE, Environmental Protection Agency (EPA), and
other regulatory actions undergoing updates. (Lennox, No. 389 at p. 8)
Lennox stated that the NOPR's cumulative regulatory burden analysis was
inadequate and did not include all relevant regulations. The commenter
provided the following list of relevant regulations: ``2023 DOE Energy
Conservation Standards (``ECS'') change for central air conditioners;
2023 DOE Energy Conservation Standard change for commercial air
conditioners; 2023 DOE ECS change for commercial warm air furnaces
(``CWAFs''); EPA phase-down to lower GWP refrigerants to meet the
American Innovation and Manufacturing (``AIM'') Act objectives;
National and Regional Cold Climate Heat Pump Specifications; 2025 DOE
ECS change for Three-Phase, Below 65,000 Btu/h; DOE Test procedure for
VRF [Variable Refrigerant Flow] Systems; EPA Energy Star 6.0+ for
Residential HVAC; EPA Energy Star 4.0 for Light Commercial HVAC, and
DOE ECS changes for electric motors, commercial fans and blowers,
furnace fans, oil and weatherized gas furnaces, and walk-in coolers and
freezers''. (Id.) Lennox stated that the significant cumulative
regulatory burdens are stressing technical and laboratory resources
within the industry. (Id. at p. 9)
Many of the rules listed by Lennox are not finalized. Regulations
that are not yet finalized are not considered in cumulative regulatory
burden, as the timing, cost, and impacts of unfinalized rules are
speculative. However, to aid stakeholders in identifying potential
cumulative regulatory burden, DOE does list rulemakings that have
proposed rules, which have tentative compliance dates, compliance
levels, and compliance cost estimates. In addition, the commercial fans
and blowers, furnace fans, and oil and weatherized gas furnaces, and
air-cooled unitary air conditioners rulemakings identified by Lennox
have not yet been proposed. The walk-in coolers and freezer (``WICF'')
rulemaking was not proposed at the time of the July 2022 NOPR. A
proposed rule for WICFs has since been published, and DOE added the
WICF ECS NOPR rulemaking to its list of appliance standards that could
contribute to cumulative regulatory burden in section V.B.2.e of this
document. 88 FR 60746 (Sept. 5, 2023). The expanded scope electric
motors (ESEMs) rulemaking was also still in development at the time of
the July 2022 NOPR.\47\ In the ESEM rulemaking, DOE is considering
including expanded scope electric motors including certain permanent
split capacitor (PSC) motors that exceed 0.25 horsepower and are
single-speed. DOE understands that the
[[Page 87532]]
vast majority of furnace fans used in MHGFs use either electrically
commutated motors (i.e., ``ECMs'' which are also referred to as BPM
motors in this rulemaking) or are multiple-speed PSC motors, both of
which are out of the preliminary scope of the ESEM rulemaking. Thus,
furnace fans used in MHGFs are not likely to be impacted by the ESEM
rulemaking. In addition, DOE does not expect that any potential
efficiency standard for ESEMs would impact NWGFs because the furnace
fans used in those products use BPM motors, for which standards were
not analyzed in the ESEMs rulemaking.
---------------------------------------------------------------------------
\47\ See Docket EERE-2020-BT-STD-0007. DOE initially used the
term small, non-small electric motors (SNEMs) to designate ESEMs.
---------------------------------------------------------------------------
As discussed in section IV.C.2.c. of this document, the MHGF MPCs
that were developed for this analysis were normalized to represent the
cost of the furnace units with furnace fans that include improved PSC
motors \48\ at all ELs. Using the same furnace fan motor at all ELs
ensures that the incremental costs between ELs are proportional only to
the addition of the specific technologies associated with achieving
each next-higher EL. Thus, should a baseline technology for SNEMs be
finalized that is higher than the assumed improved PSC motors, this new
technology would be implemented at each efficiency level. Any changes
in furnace fan motor costs would impact the cost of each efficiency
level for MHGFs equally. Therefore, while DOE acknowledges the
potential for a small increase in MPCs for MHGFs as a result of the
SNEMs rulemaking (if finalized), DOE expects that the incremental costs
of MHGFs between ELs would not be impacted. Similarly, installed costs
for consumers would likely increase slightly due to the increased motor
cost, but an equivalent impact would be expected across all efficiency
levels. Additionally, an increase in furnace fan motor efficiency would
decrease the total electrical energy consumption of each MHGF in the
field, but it is not expected to impact the performance of the overall
furnace as measured by AFUE, and, therefore, the efficiency levels
included in this analysis would not be impacted. Therefore, the
conclusion of economic justification for the amended standards adopted
in this final rule would be unchanged by a potential new standard for
SNEMs.
---------------------------------------------------------------------------
\48\ In this analysis, DOE uses ``improved PSC motors'' to refer
to PSC motors with at least three airflow-control settings.
---------------------------------------------------------------------------
In the analysis of cumulative regulatory burden, DOE considers
Federal, product-specific regulations that have compliance dates within
three years of one another. The compliance date for this final rule is
in 2029. The compliance dates for the central air conditioners in 2023,
commercial unitary air conditioners standards in 2023, commercial warm
air furnace standards in 2023, VRF system test procedures in 2024, and
the ``air-cooled, three-phase equipment with cooling capacity less than
65,000 Btu/h'' in 2025 occur outside the cumulative regulatory burden
timeframe and are not explicitly considered in the selection of the
adopted standard. The EPA ENERGY STAR programs for residential HVAC and
light commercial HVAC, as well as the ENERGY STAR Cold Climate Heat
Pump Controls Verification Procedure, are voluntary programs and are
not considered in DOE's analysis of cumulative regulatory burden. See
section V.B.2.e of this document or chapter 12 of the final rule TSD
for additional information on cumulative regulatory burden.
HARDI commented that the proposed standards also do not meet the
requirements under the Regulatory Flexibility Act, as DOE only assessed
the impact on four small manufacturers, but not on distributors,
contractors, or manufacturers of furnace supplies. HARDI stated that
there are a number of small businesses that serve as furnace suppliers.
(HARDI, No. 384 at pp. 3-4) NGA of Georgia similarly stated that the
proposal fails to capture the negative effects on small businesses that
manufacture venting and accessories for non-condensing furnaces. (NGA
of Georgia, No. 380 at p. 2)
In response, DOE conducted an initial regulatory flexibility
analysis in support of the July 2022 NOPR. See 87 FR 40590, 40698-40701
(July 7, 2022). However, NGA of Georgia and HARDI have misinterpreted
the requirements of the Regulatory Flexibility Act, which requires an
agency to perform a regulatory flexibility analysis of small entity
impacts when a rule directly regulates the small entities, rather than
a broader array of entities which may be indirectly impacted. This
final rule regulates manufacturers of consumer furnaces, not the other
types of businesses to which NGA of Georgia and HARDI refer. The
impacts on small manufacturers of the subject consumer furnaces are
presented in the final regulatory flexibility analysis, found in
section VI.B of this document.
IV. Methodology and Discussion of Related Comments
This section addresses the analyses DOE has performed for this
rulemaking with regard to NWGFs and MHGFs. Separate subsections address
each component of DOE's analyses. Comments on the methodology and DOE's
responses are presented in each section.
DOE used several analytical tools to estimate the impact of the
standards considered in this document on consumers and manufacturers.
The first tool is a spreadsheet that calculates the LCC savings and PBP
of potential amended or new energy conservation standards. The national
impacts analysis uses a second spreadsheet set that provides shipments
projections and calculates national energy savings and net present
value of total consumer costs and savings expected to result from
potential energy conservation standards. DOE uses the third spreadsheet
tool, the Government Regulatory Impact Model (GRIM), to assess
manufacturer impacts of potential standards. These three spreadsheet
tools are available on the DOE website for this rulemaking:
www1.eere.energy.gov/buildings/appliance_standards/standards.aspx?productid=59&action=viewlive. Additionally, DOE used
output from the latest version of the EIA's Annual Energy Outlook for
the emissions and utility impact analyses.
A. Market and Technology Assessment
DOE develops information in the market and technology assessment
that provides an overall picture of the market for the products
concerned, including the purpose of the products, the industry
structure, manufacturers, market characteristics, and technologies used
in the products. This activity includes both quantitative and
qualitative assessments, based primarily on publicly-available
information. The subjects addressed in the market and technology
assessment for this rulemaking include: (1) a determination of the
scope of the rulemaking and product classes; (2) manufacturers and
industry structure; (3) existing efficiency programs; (4) shipments
information; (5) market and industry trends, and (6) technologies or
design options that could improve the energy efficiency of NWGFs and
MHGFs. The key findings of DOE's market assessment are summarized in
the following sections. See chapter 3 of the final rule TSD for further
discussion of the market and technology assessment.
1. Scope of Coverage and Product Classes
a. General Approach
EPCA defines a ``furnace'' as a product which utilizes only single-
phase electric current, or single-phase electric current or DC current
in conjunction with natural gas, propane, or home heating oil, and
which:
[[Page 87533]]
(1) Is designed to be the principal heating source for the living
space of a residence;
(2) Is not contained within the same cabinet with a central air
conditioner whose rated cooling capacity is above 65,000 Btu per hour;
(3) Is an electric central furnace, electric boiler, forced-air
central furnace, gravity central furnace, or low pressure steam or hot
water boiler; and
(4) Has a heat input rate of less than 300,000 Btu per hour for
electric boilers and low pressure steam or hot water boilers and less
than 225,000 Btu per hour for forced-air central furnaces, gravity
central furnaces, and electric central furnaces.
(42 U.S.C. 6291(23))
DOE has incorporated this definition into its regulations in the
Code of Federal Regulations (CFR) at 10 CFR 430.2.
EPCA's definition of a ``furnace'' covers the following types of
products: (1) gas furnaces (non-weatherized and weatherized); (2) oil-
fired furnaces (non-weatherized and weatherized); (3) mobile home
furnaces (gas and oil-fired); (4) electric resistance furnaces; (5) hot
water boilers (gas and oil-fired); (6) steam boilers (gas and oil-
fired), and (7) combination space/water heating appliances (water-
heater/fancoil combination units and boiler/tankless coil combination
units). As discussed in section II.B.2 of this document, DOE agreed to
the partial vacatur and remand of the June 2011 DFR, specifically as it
related to energy conservation standards for NWGFs and MHGFs in the
settlement agreement to resolve the litigation in American Public Gas
Ass'n v. U.S. Dept. of Energy (No. 11-1485, D.C. Cir. Filed Dec. 23,
2011). For a more complete discussion of the history of this litigation
and its impacts on this rulemaking, see 80 FR 13120, 13130-13132 (March
12, 2015). Therefore, in this rulemaking, DOE is only amending the
energy conservation standards for these two product classes of
residential furnaces (i.e., NWGFs and MHGFs).
When evaluating and establishing energy conservation standards, DOE
divides covered products into product classes by the type of energy
used. DOE will also establish separate product classes if a group of
products has a capacity or other performance-related feature that other
products within such type do not have and such feature justifies a
different standard. (42 U.S.C. 6295(q)) In determining whether a
performance-related feature justifies a different standard, DOE
considers such factors as the utility to the consumers of the feature
and other factors DOE determines are appropriate.
At various rulemaking stages, interested parties have raised
concerns pertaining to potential impacts of a nation-wide standard
corresponding to condensing efficiency levels for NWGFs and MHGFs on
certain consumers as a result of either increased installation costs
(due to the increased cost of the condensing furnace itself and/or
related venting modifications) or switching to electric heat
(potentially resulting in higher monthly bills). In response to these
concerns, DOE first published the September 2015 NODA, which contained
analyses examining the potential impacts of a separate product class
for furnaces with a lower input capacity, one of the statutory bases
for establishing a separate product class. Such an approach was
suggested by stakeholders as a potential way to reduce negative impacts
on some furnace consumers while maintaining the overall economic and
environmental benefits of amended standards for consumer furnaces. 80
FR 55038, 55038-55039 (Sept. 14, 2015). In response to the September
2015 NODA, DOE received further comments from several stakeholders
recommending that DOE establish separate product classes based on
furnace capacity in order to preserve the availability of non-
condensing NWGFs for buildings with lower heating loads, thereby
helping to alleviate the negative impacts of the proposed standards.
DOE responded to these comments in the since withdrawn September 2016
SNOPR, in which DOE tentatively concluded that the establishment of a
small furnace class would have merit. Accordingly, after considering
the energy savings and economic benefits of several potential input
capacity thresholds, DOE proposed to establish a separate product class
for small NWGFs, defined as those furnaces with a certified input
capacity of less than or equal to 55 kBtu/h, and DOE proposed to retain
a minimum standard of 80-percent AFUE for this class. 81 FR 65720,
65752 and 65837 (Sept. 23, 2016).
For the July 2022 NOPR analysis, DOE again considered whether a
``small furnace'' product class would be justified for NWGFs and MHGFs
and evaluated several input capacity thresholds, including the 55 kBtu/
h threshold that was proposed in the withdrawn September 2016 SNOPR,
along with several others. However, DOE did not propose to divide
furnace product classes by capacity. 87 FR 40590, 40665 and 40706 (July
7, 2022).
NCP commented that 95-percent AFUE standards for large NWGFs and
80-percent AFUE for small NWGFs will lead to significant energy savings
while reducing the number of consumers that would experience net costs.
NCP pointed to the withdrawn September 2016 SNOPR as rationale for
splitting NWGFs into these two groups, where large NWGFs with input
capacities greater than 55 kBtu/h have a 95-percent AFUE standard and
small NWGFs with input capacities less than 55 kBtu/h have a standard
of 80 percent. (NCP, No. 370 at pp. 2-3) PHCC commented that after the
litigation against these regional standards, several stakeholders came
to the consensus that there should be a category of small capacity non-
condensing furnaces, as well as a category of larger-capacity
condensing furnaces. PHCC commented that the industry submitted a
proposal regarding this issue, but that the NOPR does not place much
value on this proposal. (Id.)
For the current final rule analysis, DOE again considered whether a
``small furnace'' product class is justified for NWGFs and MHGFs and
evaluated several input capacity thresholds, including at 55 kBtu/h.
DOE analyzed a range of potential input capacity cut-offs and
considered the benefits and burdens of each. As discussed in section
V.C.1 of this document, after considering the benefits and burdens of
the various approaches, DOE is finalizing its proposal to adopt a
single standard level for NWGFs and a single standard level MHGFs that
cover all capacities within the scope of each class.
b. Through-the-Wall Units
In response to the July 2022 NOPR, NCP commented that if DOE
concludes that the separate levels for large and small NWGFs are not
justified, there should be a separate class for space-constrained
through-the-wall units to accommodate unique conditions for multi-
family buildings. (NCP, No. 370 at p. 3) NCP noted that space-
constrained through-the-wall systems are often 55 kBtu/h or less, and
are installed in unique, often more expensive ways. NCP asserted that
multi-family buildings with space-constrained through-the-wall HVAC
systems have their condensate stacks plumbed to grade for drainage of
the air conditioning portion of the unit in cooling mode and are not
set up for condensate removal during heating in cold ambient
conditions. NCP commented that the modifications necessary for
condensing furnaces would not be feasible in new or existing multi-
family constructions. (Id. at pp. 2-3) Additionally, NCP stated that
while it makes space-constrained through-the-wall HVAC systems at 95-
percent
[[Page 87534]]
AFUE, such systems are relatively early in their commercialization
phase and cannot be used in all applications. Also, NCP commented that
these systems are a relatively new technology that originated in 2015-
2016. Since 2016, NCP noted that it has encountered several challenges
with this technology, including freezing in low temperatures and high
wind conditions. (Id. at p. 3)
Napoleon commented that DOE should align its standards for new
installations with NRCAN's standards and create a separate category for
``through the wall'' furnaces. Napoleon suggested that DOE should
require a minimum efficiency of 90-percent AFUE for these products
because of their cabinet size limitations. (Napoleon, No. 374 at p. 2)
Napoleon stated that it is not reasonable to require the same
efficiency from ``through the wall furnaces with integrated cooling
module'' products as other products that have larger cabinets because
these products would likely not have the ability to produce the higher
airflows that are necessary for higher efficiencies. (Id.)
In response, DOE notes that through-the-wall furnaces are currently
included within the broader consumer furnace product classes to the
extent that they meet the definitions for consumer furnaces discussed
in section IV.A.1.a of this document. As discussed in section III.B of
this document, when evaluating and establishing energy conservation
standards, DOE may establish separate standards for a group of covered
products (i.e., establish a separate product class) if DOE determines
that separate standards are justified based on the type of energy used,
or if DOE determines that a product has a capacity or other
performance-related feature that other products within such type (or
class) do not have and such feature justifies a different standard. In
making a determination of whether a performance-related feature
justifies a different standard, DOE must consider factors such as the
utility to the consumer of the feature and other factors DOE determines
are appropriate. (42 U.S.C. 6295(q)(1)) Historically, DOE has viewed
utility as an aspect of the product that is accessible to the layperson
and is based on user operation and interaction with the product.
DOE has identified through-the-wall furnaces rated above 96 percent
AFUE that have the same dimensions as comparable non-condensing (i.e.,
80 percent AFUE) through-the-wall furnaces and that are marketed for
the same applications.\49\ Therefore, DOE concludes that 80-percent
AFUE units could be readily replaced with 95-percent AFUE units (i.e.,
the minimum efficiency level adopted in this final rule) because
substitutes are available on the market having the same cabinet size.
Regarding NCP's concerns about the technical challenges associated with
condensate drainage and freezing, DOE notes that while certain multi-
family applications may be difficult, there are installation methods to
avoid freezing such as using heat tape. As discussed in section
IV.F.2.b of this document, DOE accounted for additional costs for
condensate drainage in these difficult installations. Consequently, DOE
is not creating a separate product class for through-the-wall furnaces.
---------------------------------------------------------------------------
\49\ See app.salsify.com/catalogs/73d44623-0667-454c-a453-3b3faaf8d4d1/products/P-S26A-F12A-A and app.salsify.com/catalogs/73d44623-0667-454c-a453-3b3faaf8d4d1/products/P-C50A-F18A-A (last
accessed May 31, 2023).
---------------------------------------------------------------------------
c. Condensing and Non-Condensing Furnaces
In response to the July 2022 NOPR, APGA, AGA, and NPGA all stated
that DOE's failure to establish a separate product class for non-
condensing residential natural gas furnaces is a violation of EPCA.
(APGA, No. 387 at pp. 42-45; AGA, No. 405 at pp. 46-49; NPGA, No. 395
at p. 19) APGA expressed that it disagreed with the NOPR's conclusion
to set standards at condensing levels because the legal interpretation
upon which the NOPR relies to avoid EPCA's Unavailability Provisions is
unreasonable and contrary to law. APGA instead argued that, if
standards specific to condensing products are justified, DOE should
recognize that the compatibility of a NWGF with existing atmospheric
venting systems is a ``performance-related feature'' that requires
separate standards for condensing and non[hyphen]condensing furnaces.
(APGA, No. 387 at pp. 42-45) APGA further cited EPCA provisions
requiring that the standards not deprive purchasers of ``product
choices and characteristics, features, sizes, etc.,'' and that energy
savings are achieved ``without sacrificing the utility or convenience
of appliances to consumers.'' (APGA, No. 387 at p. 42-45) AGA commented
that the new proposed rule wrongfully asserts that the differing
constraints and functionality between condensing and non-condensing
appliances do not constitute performance-related features. AGA further
urged DOE to correct its ``flawed interpretation'' of EPCA to treat
condensing and non-condensing products as being in the same class.
(AGA, No. 405 at pp. 32-38) AGA encouraged DOE to follow its past
practices by continuing to recognize non-condensing furnaces that
function in homes constrained by existing exhaust and plumbing systems
as a separate class from condensing products. (AGA, No. 405 at pp. 46-
49) NPGA stated that there have been other instances of DOE creating
separate product classes where standards would otherwise deprive
purchasers of products that could not be installed without the need to
change the space provided for an appliance and cited these as precedent
for separate non-condensing and condensing product classes (e.g.,
``space-constrained'' central air conditioners, package terminal air
conditioners (PTACs), and ventless clothes dryers). (NPGA, No. 395 at
pp. 21-22) NPGA stated that the NOPR sets a de facto standard for
building design by requiring the alteration of building venting
systems, which is beyond the scope of DOE's statutory authority. (NPGA,
No. 395 at p. 22) NPGA suggested that the proposed standard will make
furnaces incompatible with millions of homes without substantial
renovations. (NPGA, No. 395 at pp. 9-10)
Spire commented that DOE should recognize that the compatibility of
a product with existing atmospheric venting systems is a ``performance-
related feature,'' which would require separate standards for
condensing and non-condensing products if standards specific to
condensing products are justified. (Spire, No. 413 at p. 21) Spire and
AGA formally requested that any final rule in this proceeding include a
written finding that interested persons have established that the
proposed standards are likely to result in the unavailability in the
United States of residential furnaces with ``performance
characteristics (including reliability, features, sizes, capacities,
and volumes) that are substantially the same as those generally
available in the United States.'' (Spire, No. 413 at p. 20; AGA, No.
405 at pp. 49-50)
HARDI commented that the proposed standards will have an adverse
impact on consumers in terms of utility. (HARDI, No. 384 at p. 4) HARDI
stated its opposition to DOE's decision to revert to its prior
interpretation related to non-condensing technology (and associated
venting), as expressed in the December 2021 Final Interpretive Rule.
(Id.) HARDI commented that, for many existing homes and some new
construction applications, condensing furnaces provide negative utility
for consumers because the venting system will need to be changed,
which, in turn,
[[Page 87535]]
changes the living spaces; HARDI stated that this could negatively
impact consumers. HARDI also commented that non-condensing furnaces
prevent the consumer from needing heat tape and other freeze-mitigation
equipment, and added that the need to constantly heat the venting
system would be impractical for consumers who only use heating
equipment part-time. (HARDI, No. 384 at pp. 4-5)
The Joint Market and Consumer Organizations also commented that
they oppose the elimination of non-condensing products and stated that
EPCA prohibits any new or amended standard if the Secretary finds, by a
preponderance of evidence, that it is ``likely to result in the
unavailability in the United States. . . of 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 Finding.'' \50\ (Joint Market and
Consumer Organizations, No. 373 at p. 3) The Joint Market and Consumer
Organizations stated that this provision can be interpreted to disallow
natural gas furnace standards so stringent that they effectively force
non-condensing versions off the market in favor of condensing furnaces
with very different characteristics that make them incompatible with
some homes. (Id. at p. 3) AGA, Spire, and the Marley Companies also
stated a belief that EPCA 42 U.S.C. 6295(o)(4) prohibits the
elimination of non-condensing fuel-fired appliances. (AGA No. 405 at
pp. 49-50; Spire, No. 413 at pp. 2-5; The Marley Companies, No. 386 at
p. 5) Spire commented that the proposed standards would ultimately
require efficiencies that only condensing furnaces can achieve and
claimed that the proposed rulemaking would also violate EPCA 42 U.S.C.
6295(o)(2). (Spire, No. 413 at pp. 2-5) Spire also noted that the
Unavailability Provision of EPCA cannot be avoided by simply adjusting
installation costs within the economic analysis. (Spire, No. 413 at pp.
20-21) The Marley Companies commented that non-condensing products
utilizing natural draft venting provide advantages and must remain
available for several reasons related to product continuity, utility,
and availability. (The Marley Companies, No. 386 at p. 5)
---------------------------------------------------------------------------
\50\ The commenter included a citation to 42 U.S.C. 6295(o)(4)
for the referenced provision.
---------------------------------------------------------------------------
With respect to product availability, the Marley Companies
commented that many residential applications cannot support upgrading
the existing venting system as would be required for non-natural draft
venting or higher-efficiency products. (The Marley Companies, No. 386
at p. 5) PHCC commented that it opposes the elimination of non-
condensing products due to venting issues, difficult installations, and
some questions PHCC has regarding the accuracy of DOE's analysis.
(PHCC, No. 403 at p. 6) The Coalition commented that the need to use
condensing furnaces will require physical design changes of some
housing types that can become more problematic in multifamily and
entry-level homes. (The Coalition, No. 378 at p. 4) The Coalition added
that condensing furnaces typically require larger cabinets, different
and larger venting/combustion air intake systems, and condensate drain
systems. (Id.) APGA and Spire commented they have demonstrated that
condensing products are incompatible with many existing buildings in
which non-condensing natural gas furnaces are installed. (APGA, No. 387
at p. 43-45; Spire, No. 413 at p. 3)
In response, when evaluating and establishing energy conservation
standards, DOE is required to establish product classes based on: (1)
the type of energy used; and (2) capacity or other performance-related
feature which other products within such type (or class) do not have
and that DOE determines justify a different standard. In making a
determination of whether a performance-related feature justifies a
different standard, the Department must consider factors such as the
utility to the consumer of the feature and other factors DOE determines
are appropriate. (42 U.S.C. 6295(q))
With respect to commenters' statements that category I venting
itself is a performance-related feature that justifies a separate
product class, DOE first notes that venting, like a gas burner or heat
exchanger, is one of the basic components found in every gas-fired
furnace (condensing or noncondensing). As such, assuming venting is a
performance-related feature, it's a feature that all gas-fired furnaces
possess. As a result, it cannot be the basis for a product class. See
42 U.S.C. 6295(q)(1)(B). Thus, in order to meet the product class
requirements in 42 U.S.C. 6295(q)(1)(B), APGA and other commenters are
requesting DOE determine that a specific type of venting is a
performance-related feature.
In response, DOE first notes that almost every component of a
covered product could be broken down further by any of a number of
factors. For example, heat exchangers, which are used in a variety of
covered products, could be divided further by geometry or material;
refrigerator compressors could be further divided by single-speed or
variable-speed, and air-conditioning refrigerants could be further
divided by global warming potential. As a general matter, energy
conservation standards save energy by removing the least-efficient
technologies and designs from the market. For example, DOE set energy
conservation standards for furnace fans at a level that effectively
eliminated permanent split capacitor (PSC) motors from several product
classes, but which could be met by brushless permanent magnet (BPM)
motors, which are more efficient. 79 FR 38130 (July 3, 2014). As
another example, DOE set energy conservation standards for microwave
oven standby mode and off mode at a level that effectively eliminated
the use of linear power supplies, but which could be met by switch-mode
power supplies, which exhibit significantly lower standby mode and off
mode power consumption. 78 FR 36316 (June 17, 2013). The energy-saving
purposes of EPCA would be completely frustrated if DOE were required to
set standards that maintain less-efficient covered products and
equipment in the market based simply on the fact that they use a
specific type of (less efficient) heat exchanger, motor, power supply,
etc.
As discussed in the December 2021 final interpretive rule, DOE
believes that a consumer would be aware of performance-related features
of a covered product or equipment and would recognize such features as
providing additional benefits during operation of the covered product
or equipment. 86 FR 73955. Using the previous example of furnace fan
motors, if an interested person had wanted to preserve furnace fans
with PSC motors in the market, they would have had to show that furnace
fans with PSC motors offered some additional benefit during operation
as compared to furnace fans with BPM motors. Refrigerator-freezers, on
the other hand, are an example of where DOE determined that a specific
type of performance-related feature offered additional benefit during
operation. Some refrigerator-freezers have automatic icemakers.
Additionally, some automatic icemakers offer through-the-door ice
service, which provides consumers with an additional benefit during
operation. As such, DOE further divided refrigerator-freezers into
product classes based on the specific type of automatic icemaker (i.e.,
whether the automatic icemaker offers through-the-door ice service).
See 10 CFR 430.32(a).
[[Page 87536]]
Commenters have not pointed to any additional benefits during
operation offered by furnaces that use category I venting as compared
to furnaces that use other types of venting. Instead, these commenters
generally cite compatibility with existing venting and other economic
considerations as reasons why category I venting should be considered a
performance-related feature for the purposes of EPCA's product class
provision. unavailability provision.
As stated previously, DOE's performance-related feature analysis is
not based on considerations (including design parameters) that do not
provide the consumer additional benefit during operation. Nor does it
account for costs that anyone, including the consumer, manufacturer,
installer, or utility companies, may bear. DOE has reasoned that this
approach is consistent with EPCA's requirement for a separate and
extensive analysis of economic justification for the adoption of any
new or amended energy conservation standard (see 42 U.S.C.
6295(o)(2)(A)-(B) and (3)). Specifically with regard to venting, DOE
has determined that differences in cost or complexity of installation
between different methods of venting (e.g., a condensing furnace versus
a non-condensing furnace) do not make specific methods of venting a
performance-related feature under 42 U.S.C. 6295(o)(4), as would
justify separating the products/equipment into different product/
equipment classes under 42 U.S.C. 6295(q)(1). 86 FR 73947, 73951 (Dec.
29, 2021). Accordingly, because DOE views the issues related to
condensing vs. noncondensing technology (and associated methods of
venting) to be matters of cost, the Department finds it appropriate
under the statute to address these issues through the rulemaking's
economic analysis. 86 FR 73947, 73951 (Dec. 29, 2021). This
interpretation is consistent with EPCA's requirement for a separate and
extensive analysis of economic justification for the adoption of any
new or amended energy conservation standard (see 42 U.S.C. 6295(o)(2)-
(3); 42 U.S.C. 6313(a)(6)(A)-(C); 42 U.S.C. 6316(a)). Comments on the
July 2022 Furnaces NOPR have provided no new arguments or other
information that were not already considered as part of the December
2021 Final Interpretive Rule. As such, DOE continues to find that there
is no basis for altering the Department's approach regarding the
establishment of product classes for this rulemaking.
DOE has found in its analysis of installation costs (as discussed
in further detail in section IV.F.2 of this document) that thanks to
various technological solutions, virtually all homes can accommodate a
condensing furnace, although some small percentage may face significant
installation costs. DOE accounts for these costs in its economic
analysis. In all cases, consumers have a variety of choices to meet
their space-heating needs, and the standards promulgated in this final
rule do not eliminate any ``performance-related features.''
Thus, for the reasons previously explained, DOE declines the
requests of AGA and Spire that in this final rule the agency include a
written finding that interested persons have established by a
preponderance of the evidence that the proposed standards are likely to
result in the unavailability in the U.S. of residential furnaces with
performance characteristics (including reliability), features, sizes,
capacities, and volumes that are substantially the same as those
generally available in the United States on the date any such rule
issues, because that burden of proof has not been met in the present
case. See 42 U.S.C. 6295(o)(4). For similar reasons, DOE declines
Spire's request that DOE recognize that the compatibility of a product
with existing atmospheric venting systems is a ``performance-related
feature'' that would require separate standards for condensing and non-
condensing products. Because DOE has determined that non-condensing
technology (and associated venting) does not constitute a performance-
related feature for consumer furnaces, such actions would not be
appropriate pursuant to EPCA.
As DOE has stated previously, EPCA directs DOE to regulate the
energy efficiency of a multitude of disparate covered products and
equipment that are not always directly comparable. Consequently,
consideration of class-setting and performance-related features tends
to be product-specific. NPGA's assertion that DOE's proposed furnace
standards would amount to a de facto building design standard is
incorrect and a mischaracterization of DOE's rulemaking, as is its
contention that furnace installation costs are different in nature from
those of other appliances. Installation costs are always unique to
location, and DOE has a well-developed methodology for estimation of
installation costs that has been used for many years (see chapter 8 and
appendix 8D of the final rule TSD). DOE has concluded that in most
cases, a condensing furnace may be installed with reasonable
installation costs, and there would almost always be a technological
solution to accomplish that (e.g., such as through use of DuraVent
FasNSeal or a draft inducer paired with a chimney liner). In cases
where the consumer perceives such costs to be too high, the consumer
may opt to convert to another type of space-heating appliance (e.g., a
heat pump or electric resistance heating).
As mentioned, NPGA has pointed to other DOE rulemakings involving
space-constrained products and equipment (e.g., central air
conditioners, package terminal air conditioners (PTACs), and ventless
clothes dryers) as analogous to consumer furnaces. AGA similarly
mentioned DOE's prior furnace fans rulemaking as analogous. However,
the present case of non-condensing gas-fired residential furnaces is
distinguishable from these other products cited by these commenters for
the reasons that follow.
Regarding ventless clothes dryers, DOE established separate product
classes because some clothes dryers had a performance-related feature
(ventless operation) that other clothes dryers (vented) did not, and
such feature justified a different standard. As stated previously,
condensing and non-condensing gas furnaces both require venting. As
such, establishing separate product classes for vented and ventless
clothes dryers is simply not analogous to establishing separate product
classes for gas furnaces based on specific types of venting.
With regard to compact clothes dryers, the ``compact'' delineation
relates directly to the size and capacity of the product--two
attributes explicitly listed in the ``features'' provision. (See 42
U.S.C. 6295(o)(4)) This difference in size and capacity is recognized
by the consumer in operation of the product (i.e., by limiting the
amount of wet clothes which can be processed per cycle). Moreover, DOE
determined that compact-size clothes dryers have inherently different
energy consumption than standard-size clothes dryers. 76 FR 22454,
22485 (April 21, 2011). Consistent with the specific recognition that
size and capacity are relevant features, DOE has routinely set product
classes based on size or capacity, including standards for consumer
water heaters, 10 CFR 430.32(d), which separate standards by storage
volume and input capacity; standards for room air conditioners, 10 CFR
430.32(b), which distinguish several product classes by cooling
capacity; and standards for dishwashers and clothes washers, 10 CFR
430.32(f) and (g), respectively, which both distinguish between
standard and compact products.
In establishing a separate product class for space-constrained
central air conditioners, DOE recognized the space constraints faced by
these products and
[[Page 87537]]
that the efficiency of such products is limited by physical dimensions
that are rigidly constrained by the intended application. 76 FR 37408,
37446 (June 27, 2011). Space-constrained central air conditioners have
an indoor or outdoor unit that is limited in size due to the location
in which the unit operates. As a result, space-constrained central air
conditioners lack the flexibility of other central air conditioners to
increase the physical size of the unit, thereby limiting the ability of
space-constrained units to achieve improved efficiency through use of a
larger coil. Id. In establishing standards for space-constrained
central air conditioners, DOE discussed the expense of modifying an
exterior opening to accommodate a larger unit, but such discussion did
not abrogate DOE's determination that space-constrained central air
conditioners provide centralized air conditioning in locations with
space constraints that would preclude the use of other types of central
air conditioners. Id. In contrast, the subject non-condensing
residential furnaces are not significantly different in overall
footprint, size, or heating capacity from their condensing counterparts
\51\ (although the composition of the venting used may be different),
and the energy efficiency differences are a result of the technology
used, a design parameter that is dictated by considerations other than
size.
---------------------------------------------------------------------------
\51\ DOE surveyed the dimensions of consumer furnaces and found
the height and diameter dimensions comparable. See chapter 5 of the
TSD.
---------------------------------------------------------------------------
With regard to the equipment classes for PTACs, in its prior
rulemaking, DOE found that the size of the heat exchanger directly
affects the energy efficiency of the equipment. 73 FR 58772, 58782
(Oct. 7, 2008). Like space-constrained central air conditioners, the
location of operation of a PTAC directly influences the size of the
equipment, which impacts the size of the heat exchanger and has a
corresponding direct effect on the energy efficiency of the equipment.
Id. DOE acknowledged the potentially high costs that would be
associated with installing a non-standard sized PTAC in an existing
building due to the need to increase the wall opening (i.e., the wall
sleeve) in which a replacement PTAC is installed. Id. As explained in a
subsequent rulemaking for PTACs, DOE further clarified that it accounts
for installation costs in the life-cycle cost (LCC) and payback period
(PBP) analyses used to evaluate increased standard levels, which is a
separate and distinct consideration from whether separate product
classes are justified. 80 FR 43162, 43167 (July 21, 2015).
Consideration of installation costs in the LCC and PBP analysis used
for evaluating an increased energy conservation standard level is
consistent with the application of 42 U.S.C. 6295(o)(4) and 6295(q)(1)
adopted in the December 2021 Final Interpretive Rule.
The furnace fan product classes also are not analogous to
residential furnaces that rely on non-condensing technology. Furnace
fans are electrically powered devices used in consumer products for the
purpose of circulating air through ductwork. 10 CFR 430.2. A furnace
fan operates to allow the furnace in which it is installed to function.
The references to condensing and non-condensing in the furnace fan
product classes do not reflect a difference in utility between
condensing and non-condensing furnaces, but rather reflect the
differences between the operation of a furnace fan installed in a
condensing furnace as compared to a furnace fan installed in a non-
condensing furnace. In establishing the energy conservation standards
for furnace fans, DOE differentiated between furnace fan product
classes based on internal structure and application-specific design
differences that impact furnace fan energy consumption. 79 FR 38130,
38142 (July 3, 2014). The internal structures differ for a furnace fan
installed in a condensing furnace, as compared to a furnace fan
installed in a non-condensing furnace. The presence of an evaporator
coil or secondary heat exchanger, as in a condensing furnace,
significantly impacts the internal structure of an HVAC product, and in
turn, the energy performance of the furnace fan integrated in that HVAC
product. Id. These differences result in different energy use profiles
for furnace fans suitable for installation in condensing furnaces, as
compared to furnace fans suitable for installation in non-condensing
furnace, which justifies the separate product classes.
Overall, the examples of ventless dryers, space-constrained air
conditioners, PTACs, and furnace fans involved subsets of the product
or equipment type in question that had different physical and energy-
consumption characteristics and that were designed to address specific
applications. DOE determined that these situations met the applicable
statutory requirements and, accordingly, warranted separate product/
equipment classes. In contrast, the consumer furnaces rulemaking
involves products of essentially the same size that could operate in
any space-heating application. Maintaining a separate product class for
non-condensing furnaces would allow the less-efficient furnaces to
remain available not only to consumers facing difficult installation
situations, but to all consumers. Establishment of a separate product
class for non-condensing furnaces would run counter to EPCA's purposes
to ``conserve energy supplies'' and for ``improved energy efficiency of
. . . major appliances.'' (42 U.S.C. 6201(4) and (5))
NPGA, PHCC, the Coalition, Marley Companies, Spire, HARDI, and AGA
have not provided estimates as to the number of installation situations
they would consider to be problematic, instead choosing to focus on the
qualitative impact of what DOE assesses to be a relatively small number
of cases. DOE disagrees with AGA's assertion that the Department has
not properly accounted for the necessary changes related to venting of
consumer furnaces or common venting of multiples appliances, including
consumer water heaters. Further details regarding DOE's estimates of
total installation costs are provided in section IV.F.2 of this
document and in chapter 8 and appendix 8D of the final rule TSD.
d. Mobile Home Gas Furnaces
In response to the July 2022 NOPR, AHRI commented that several
design differences between MHGFs and NWGFs make it possible for DOE to
establish different AFUE standards for MHGFs and NWGFs without
meaningful risk that MHGFs would be used outside of mobile homes or
create a ``loophole'' for NWGFs. (AHRI, No. 414-2 at pp. 2-3) AHRI
stated that MHGFs are specialized products meant to be operated only in
mobile home applications under the U.S. Department of Housing and Urban
Development (``HUD'') code, adding that no interior air is used for the
combustion process and that non-condensing MHGFs are mostly all
downflow. (AHRI, No. 414-2 at p. 2)
Nortek encouraged DOE to withdraw the NOPR and consult with HUD,
MHI, and the Manufactured Housing Consensus Committee (MHCC) in setting
standards for MHGFs. (Nortek, No. 406 at p. 6) Nortek commented that it
does not find a problem with different standard levels for manufactured
housing and NWGFs because physical size differences prevent MHGFs from
being installed in NWGF applications. Additionally, Nortek mentioned
that the new M1 \52\ labeling requirements state that equipment
designed for
[[Page 87538]]
manufactured housings must be labelled ``for installation only in HUD
manufactured home[s]. . . .'' Nortek also stated that there are
application differences between MHGFs and NWGFs (e.g., downflow versus
upflow); therefore, Nortek is not concerned that manufactured home gas
furnaces will be utilized in other residential applications if the
minimum efficiency levels differ. (Nortek, No. 406 at pp. 4-5) JCI
similarly commented that there are dimensional and configuration
differences between MHGFs and NWGFs (upflow airflow versus downflow
airflow). JCI provided an example, where the MHGF is 23 inches (in.)
deep by 76 in. high by 19.5 in. wide and has a downflow configuration,
but the NWGF is 29 in. deep by 33 in. high and between 14.5 in. and
24.5 in. wide for various configurations. JCI asserted that NWGFs could
not reasonably be applied in mobile home applications without
overcoming significant structural barriers and voiding the warranty.
(JCI, No. 411 at pp. 2-3) Mortex added that the typical downflow
furnace footprint for MHGFs is 24 in. deep by 20 in. wide, which is
very different from standard residential furnaces that tend to be 29
in. deep by 17, 21, or 24 in. wide. (Mortex, No. 410 at p. 2)
---------------------------------------------------------------------------
\52\ The commenter was referring to DOE's test method for
measuring the energy consumption of central air conditioners and
heat pumps, located at 10 CFR part 430, subpart B, appendix M1.
---------------------------------------------------------------------------
The CA IOUs commented that a review of manufacturer literature on
MHGFs suggests that the proposed standard level will not increase
product size or adversely affect the range of available input
capacities. (The CA IOUs, No. 400 at p. 2) Additionally, Sierra Club et
al. commented that nothing in EPCA obligates DOE to seek input or
approval from the Department of Housing and Urban Development or the
Manufactured Housing Consensus Committee. Sierra Club et al. commented
that any assertions to the contrary ignore DOE's obligation under EPCA
to review and update its existing standards for mobile home gas
furnaces. (Sierra Club et al., No. 401 at p. 3)
DOE is aware of the different applications served by MHGFs and
NWGFs and agrees with stakeholders that there are specific requirements
that must be met for classification as an MHGF and that some MHGFs have
a different footprint than is typical of NWGFs.\53\ Because NWGFs and
MHGFs are separate product classes, they have been analyzed separately
for this final rule. However, as discussed in section V.A DOE groups
products into TSLs because use of TSLs allows DOE to identify and
consider manufacturer cost interactions between the product classes, to
the extent that there are such interactions, and national-level market
cross-elasticity from consumer purchasing decisions that may change
when different standard levels are set. In the present case, DOE
evaluated similar levels in each TSL for NWGFs and MHGFs and considered
the TSL as a whole, but also weighed the merits of the adopted 95-
percent AFUE levels for each class separately. Therefore, while DOE is
cognizant of interactions between the classes, the primary motivation
for adopting 95-percent AFUE for MHGFs was not to avoid a ``loophole''
whereby NWGF consumers would choose to install MHGFs if they were
available at lower efficiencies and costs. Rather, it was because the
95-percent AFUE level is technologically feasible and economically
justified for both NWGFs and MHGFs. See section V of this document for
further discussion on the selection of the final standard levels for
this final rule.
---------------------------------------------------------------------------
\53\ However, DOE has also identified MHGFs that are essentially
identical to a corresponding NWGF model and require only a
conversion kit to be installed as an MHGF.
---------------------------------------------------------------------------
In response to comments regarding consultation with HUD, MHI, and
MHCC, DOE notes that all stakeholders, including trade associations,
have the opportunity to provide DOE with comments, data, and other
input through both the public webinars and written comment periods
throughout the duration of the rulemaking. DOE takes all input received
into consideration in the analysis for amending standards, and
therefore does not consult with individual groups in its rulemaking
process.
2. Technology Options
In the market analysis and technology assessment for the July 2022
NOPR, DOE identified 12 technology options that would be expected to
improve the AFUE efficiency of NWGFs and MHGFs, as measured by the DOE
test procedure: (1) using a condensing secondary heat exchanger; (2)
increasing the heat exchanger surface area; (3) heat exchanger baffles;
(4) heat exchanger surface feature improvements; (5) two-stage
combustion; (6) step-modulating combustion; (7) pulse combustion; (8)
premix burners; (9) burner de-rating; (10) insulation improvements;
(11) off-cycle dampers; and (12) direct venting. (In the July 2022
NOPR, DOE also considered three technology options that could
potentially reduce the standby mode and off mode energy consumption of
NWGFs and MHGFs. However, for the reasons explained in section III.A.8
of this document, DOE has determined that it cannot establish standby
mode and off mode standards that meet the criteria of EPCA at this
time, so such technologies and standards are not considered further in
this final rule.) 87 FR 40590, 40615 (July 7, 2022). DOE did not
identify any additional technology options between the publication of
the July 2022 NOPR and this final rule. A detailed discussion of each
technology option identified is contained in chapter 3 of the final
rule TSD.
DOE considered each technology further in the screening analysis
(see section IV.B of this document or chapter 4 of the final rule TSD)
to determine which could be considered further in the analysis and
which should be eliminated.
B. Screening Analysis
DOE uses the following five screening criteria to determine which
technology options are suitable for further consideration in an energy
conservation standards rulemaking:
(1) Technological feasibility. Technologies that are not
incorporated in commercial products or in commercially viable, existing
prototypes will not be considered further.
(2) Practicability to manufacture, install, and service. If it is
determined that mass production of a technology in commercial products
and reliable installation and servicing of the technology could not be
achieved on the scale necessary to serve the relevant market at the
time of the projected compliance date of the standard, then that
technology will not be considered further.
(3) Impacts on product utility. If a technology is determined to
have a significant adverse impact on the utility of the product to
subgroups of consumers, or 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 be considered further.
(4) Safety of technologies. If it is determined that a technology
would have significant adverse impacts on health or safety, it will not
be considered further.
(5) Unique-pathway proprietary technologies. If a technology has
proprietary protection and represents a unique pathway to achieving a
given efficiency level, it will not be considered further, due to the
potential for monopolistic concerns.
10 CFR part 430, subpart C, appendix A, sections 6(b)(3) and 7(b).
[[Page 87539]]
In sum, if DOE determines that a technology, or a combination of
technologies, fails to meet one or more of the listed five criteria, it
will be excluded from further consideration in the engineering
analysis. The reasons for eliminating any technology are discussed in
the following sections.
The subsequent sections include DOE's evaluation of each technology
option against the screening analysis criteria, and whether DOE
determined that a technology option should be excluded (``screened
out'') based on the screening criteria. DOE did not receive any
comments pertaining to the screening analysis in response to the July
2022 NOPR.
1. Screened-Out Technologies
For this analysis of amended AFUE standards, DOE has screened out
the following technologies: pulse combustion and burner de-rating. Each
of these will be discussed in turn.
Pulse combustion furnaces use self-sustaining pressure waves to
draw a fresh fuel-air mixture into the combustion chamber, heat it by
way of compression, and then ignite it using a spark. This technology
option was screened out due to past reliability and safety issues,
which have resulted in manufacturers generally not considering pulse
combustion as a viable option to improve efficiency. In addition,
furnace manufacturers can achieve similar or greater efficiencies
through the use of other technologies that do not operate with positive
pressure in the heat exchanger, such as those relying on induced draft.
DOE also screened out burner de-rating. Burner de-rating reduces
the burner firing rate while maintaining the same heat exchanger
geometry/surface area and fuel-air ratio, which increases the ratio of
heat transfer surface area to energy input, which increases efficiency.
This technology option was screened out because it reduces the burner
firing rate while maintaining the same heat exchanger geometry/surface
area and fuel-air ratio, resulting in less heat being provided to the
user than is provided using conventional burner firing rates.
It is noted that in earlier rulemaking analyses (e.g., for the
since withdrawn September 2016 SNOPR), DOE had screened out premix
burners from further analysis because premix burners had not yet been
successfully incorporated into a consumer furnace design, raising
concerns about the technological feasibility of premix burners in
furnaces. Incorporating this technology into furnaces on a large scale
at that time would have required further research and development due
to the technical constraints imposed by current furnace burner and heat
exchanger design. However, in conducting the market and technology
assessment and screening analysis for the July 2022 NOPR, DOE
identified NWGF furnaces with premix burners on the market and,
therefore, did not screen this technology option out of its analysis,
because the technological feasibility and practicability to manufacture
such designs has been demonstrated. However, DOE notes that the premix
burner designs observed on the market were implemented in ultra low
NOX \54\ models, indicating that the development of premix
burner designs has been primarily driven by NOX
requirements. The efficiencies of these models are the same as those
achieved by more conventional non-premix burner designs used in
furnaces. Therefore, while the use of premix burners was not screened
out, it was not considered a primary driver for improving efficiency.
---------------------------------------------------------------------------
\54\ ``Ultra low NOX'' furnaces produce no more than
14 nanograms of NOX per Joule.
---------------------------------------------------------------------------
The technology options assumed to be implemented to achieve each
efficiency level are discussed further in section IV.C.1 of this finale
rule. Chapter 4 of the TSD includes additional information on the
screening analysis.
2. Remaining Technologies
Through a review of each technology, DOE concludes that all of the
other identified technologies listed in section IV.A.2 met all five
screening criteria to be examined further as design options in DOE's
final rule analysis. In summary, DOE did not screen out the following
technology options to improve AFUE: (1) condensing secondary heat
exchanger; (2) increased heat exchanger face area; (3) heat exchanger
baffles; (4) heat exchanger surface feature improvements; (5) two-stage
combustion; (6) step-modulating combustion; (7) insulation
improvements; (8) off-cycle dampers; (9) direct venting; and (10)
premix burners.
DOE has determined that these technology options are
technologically feasible because they are being used or have previously
been used in commercially-available products or working prototypes. DOE
also finds that all of the remaining technology options meet the other
screening criteria (i.e., practicable to manufacture, install, and
service and do not result in adverse impacts on consumer utility,
product availability, health, or safety, and do not involve a
proprietary technology that is a unique pathway to meeting a given
efficiency level). For additional details, see chapter 4 of the final
rule TSD.
C. Engineering Analysis
The purpose of the engineering analysis is to establish the
relationship between the efficiency and cost of NWGFs and MHGFs. There
are two elements to consider in the engineering analysis: (1) the
selection of efficiency levels to analyze (i.e., the ``efficiency
analysis'') and (2) the determination of product cost at each
efficiency level (i.e., the ``cost analysis''). In determining the
performance of higher-efficiency products, DOE considers technologies
and design option combinations not eliminated by the screening
analysis. For each product class, DOE estimates the baseline cost,\55\
as well as the incremental cost for the product at efficiency levels
above the baseline efficiency. The output of the engineering analysis
is a set of cost-efficiency ``curves'' that are used in downstream
analyses (i.e., the LCC and PBP analyses and the NIA).
---------------------------------------------------------------------------
\55\ The baseline cost reflects the expenses associated with a
baseline model. DOE defines a ``baseline model'' as a model in each
product class that represents the characteristics of products
typical of that class (e.g., capacity, physical size) and that has
an efficiency equal to the current Federal energy conservation
standard.
---------------------------------------------------------------------------
The methodology for the efficiency analysis and the cost analysis
is described in detail in the sections that immediately follow
(sections IV.C.1 and IV.C.2, respectively, of this document). DOE uses
its methodology, which consists of the engineering analysis and mark-
ups analysis (see section IV.D of this document), to determine the
final price of the furnace to the consumer for several reasons. The
sales prices of furnaces currently seen in the marketplace, which
include both an MPC and various mark-ups applied through the
distribution chain, are not necessarily indicative of what the sales
prices of those furnaces would be following the implementation of a
more-stringent energy conservation standard. At a given efficiency
level, MPC depends in part on the production volume. In general, for
efficiency levels above the current baseline efficiency, the price to
the consumer at that level may be high relative to what it would be
under a more-stringent standard, due to the increase in production
volume (and, thus, improved economies of scale and purchasing power for
furnace components), which would occur at that level if a Federal
standard made it the new baseline efficiency.
DOE notes that the engineering analysis incorporated both
condensing furnaces without ``premium'' features
[[Page 87540]]
and condensing furnaces are more likely to be equipped with ``premium''
features in today's market. One would expect increased designs (and/or
sales) with minimal ``premium'' features to cater to cost-sensitive
consumers, as compared to the current market, and perhaps redesigns
where possible, to minimize costs. In its analysis of AFUE levels, DOE
sought to minimize or normalize the presence of additional designs or
features that do not affect AFUE, as additional designs or features can
increase costs while not affecting the measured AFUE efficiency. In
other words, DOE's analysis of the cost-efficiency relationship is for
a product that provides only the basic utility (i.e., heat) without
other special features that consumers may find beneficial (e.g., sound
reduction or humidity control). Although it may be possible to identify
prices for products without premium features, simply aggregating a
collection of current furnace sales price information could lead to a
higher consumer price than would be expected under an amended-standards
scenario, as many condensing products available on the market today are
bundled with ``premium'' features, but under an amended-standards
scenario, condensing products without as many ``premium'' features may
become more common so to provide consumers with a lowest-cost option
with only essential functionality. This approach aligns with feedback
received during manufacturer interviews that manufacturers would
continue to differentiate between premium and value units to best serve
all segments of the market, and would invest in optimizing the cost of
certain product offerings for consumers that are highly sensitive to
the upfront cost. Therefore, DOE concluded that increasing AFUE energy
conservation standards would not necessarily increase the presence of
``premium'' features on furnaces in the market.
DOE's analysis and decision are based, in part, on the aggregated
data generated during the engineering analysis. The process by which
the aggregated data have been generated is discussed in this document
and is the result of the engineering analyses described in chapter 5 of
the final rule TSD. The primary inputs to the engineering analysis are
data from the market and technology assessment, input from
manufacturers, furnace specifications, and production cost estimates
developed based on teardown analysis and consultation with
manufacturers. DOE's treatment of confidential business information is
governed by the Freedom of Information Act (FOIA) and 10 CFR 1004.11 (5
U.S.C. 552(b)(4)) Accordingly, bills of materials (BOMs) are generated
by a DOE contractor using the manufacturer-specific and product-
specific data to estimate the industry-aggregate MPCs. DOE's contractor
conducts interviews with manufacturers under non-disclosure agreements
(``NDAs'') to determine whether the MPCs developed by the analysis
reflect the industry average manufacturing costs. In addition, because
the cost estimation methodology uses data supplied by manufacturers
under the NDAs (such as raw material and purchased part prices), the
resulting individual model cost estimates themselves cannot be
published and are not released outside the aggregated form to DOE or
its National Labs. This approach allows manufacturers to provide candid
and detailed feedback under NDA, thereby improving the quality of the
analysis. DOE notes that manufacturers that participated in
manufacturer interviews had access to the raw material and purchased-
part price data underlying the MPC estimates for those models at the
time the interviews were conducted. The data resulting from the
engineering analysis and which DOE has used as inputs to its modeling
were published in the July 2022 NOPR and available to the public for
review and comment. 87 FR 40590, 40621 (July 7, 2022).
1. Efficiency Analysis
DOE typically uses one of two approaches to develop energy
efficiency levels for the engineering analysis: (1) relying on observed
efficiency levels in the market (i.e., the efficiency-level approach),
or (2) determining the incremental efficiency improvements associated
with incorporating specific design options to a baseline model (i.e.,
the design-option approach). Using the efficiency-level approach, the
efficiency levels established for the analysis are determined based on
the market distribution of existing products (in other words, based on
the range of efficiencies and efficiency level ``clusters'' that
already exist on the market). Using the design option approach, the
efficiency levels established for the analysis are determined through
detailed engineering calculations and/or computer simulations of the
efficiency improvements from implementing specific design options that
have been identified in the technology assessment. DOE may also rely on
a combination of these two approaches. For example, the efficiency-
level approach (based on actual products on the market) may be extended
using the design option approach to interpolate to define ``gap fill''
levels (i.e., to bridge large gaps between other identified efficiency
levels) and/or to extrapolate to the ``max-tech'' level (particularly
in cases where the ``max-tech'' level exceeds the maximum efficiency
level currently available on the market).
For the AFUE engineering analysis, DOE generally employed an
efficiency level approach, which identified the intermediate efficiency
levels (i.e., levels between baseline and max-tech) for analysis based
on the most common efficiency levels on the market. One exception is
that DOE analyzed a 90-percent AFUE level for NWGFs and MHGFs despite
relatively few models at that level, as it would serve as a minimum
condensing level.
a. Baseline Efficiency Level and Product Characteristics
For each product/equipment class, DOE generally selects a baseline
model as a reference point for each class, and measures anticipated
changes to the product resulting from potential energy conservation
standards against the baseline model. The baseline model in each
product/equipment class represents the characteristics of a product/
equipment typical of that class (e.g., capacity, physical size).
Generally, a baseline model is one that just meets current energy
conservation standards, or, if no standards are in place, the baseline
is typically the most common or least-efficient unit on the market.
DOE selected baseline units for the NWGF and MHGF product classes
that include characteristics typical of the least-efficient
commercially-available consumer furnaces. The baseline unit in each
product class represents the basic characteristics of products in that
class. Baseline units serve as reference points, against which DOE
measures changes resulting from potential amended energy conservation
standards. Additional details on the selection of baseline units are in
chapter 5 of the final rule TSD.
Table IV.1 presents the baseline AFUE levels identified for each
product class of furnaces addressed by this rulemaking. The baseline
AFUE levels are the same as the current Federal minimum AFUE standards
for the subject furnaces, as established by the November 2007 Final
Rule. 10 CFR 430.32(e)(1)(ii); 72 FR 65136, 65169 (Nov. 19, 2007).
[[Page 87541]]
Table IV.1--Baseline Residential Furnace AFUE Efficiency Levels
------------------------------------------------------------------------
Product class AFUE (percent)
------------------------------------------------------------------------
Non-Weatherized Gas Furnaces............................ 80
Mobile Home Gas Furnaces................................ 80
------------------------------------------------------------------------
b. Higher Efficiency Levels
As part of DOE's analysis, the maximum available efficiency level
is the highest efficiency unit currently available on the market. DOE
also defines a ``max-tech'' efficiency level to represent the maximum
possible efficiency for a given product. Tables IV.2 and IV.3 show the
efficiency levels DOE selected for analysis of amended AFUE standards
for NWGFs and MHGFs, respectively, up to the maximum available
efficiency level, along with a description of the typical technological
change at each level. Since the July 2022 NOPR, DOE has identified new
models of NWGFs certified in DOE's Compliance Certification Database
(CCD) \56\ with efficiencies up to 99-percent AFUE and of MHGFs
certified with efficiencies up to 97-percent AFUE. However, there is
only one model of NWGF at 99-percent AFUE, at only one input size.
Several other models from the same model family do not achieve 99-
percent AFUE. Therefore, at the time of this final rule analysis, it is
unclear whether 99 percent would be an appropriate max-tech level for
all NWGFs that is achievable across a range of input capacities, and,
as a result, DOE maintained the same maximum efficiency level for NWGFs
as in the July 2022 NOPR (i.e., 98-percent AFUE). Similarly, there are
only two input capacities of MHGFs that would exceed a 97-percent
efficiency level, and these models are from the same model line, but
several other models at other input capacities within that same model
line do not achieve 97-percent AFUE. Therefore, it is at present
uncertain as to whether 97-percent AFUE would be an appropriate max-
tech level for all MHGFs, so DOE maintained the same maximum efficiency
level for MHGFs as in the July 2022 NOPR (i.e., 96-percent AFUE).
Therefore, the maximum efficiency level analyzed for both NWGFs and
MHGFs has been maintained at a level representing the highest-
efficiency models available on the market when DOE began this analysis
as outlined in chapter 3 of the final rule TSD.
---------------------------------------------------------------------------
\56\ U.S. Department of Energy Compliance Certification
Management System (``CCMS'') (available at www.regulations.doe.gov/certification-data/) (last accessed March 22, 2023).
Table IV.2--AFUE Efficiency Levels for Non-Weatherized Gas Furnaces
------------------------------------------------------------------------
AFUE
Efficiency level (EL) (%) Technology options
------------------------------------------------------------------------
0--Baseline..................... 80 Baseline.
1............................... 90 EL 0 + Secondary condensing
heat exchanger.
2............................... 92 EL 1 + Increased heat
exchanger area.
3............................... 95 EL 2 + Increased heat
exchanger area.
4--Max-Tech..................... 98 EL 3 + Increased heat
exchanger area + Step-
modulating combustion +
Constant-airflow BPM blower
motor.
------------------------------------------------------------------------
Table IV.3--AFUE Efficiency Levels for Mobile Home Gas Furnaces
------------------------------------------------------------------------
AFUE
Efficiency level (EL) (%) Technology options
------------------------------------------------------------------------
0--Baseline..................... 80 Baseline.
1............................... 90 EL 0 + Secondary condensing
heat exchanger.
2............................... 92 EL 1 + Increased heat
exchanger area.
3............................... 95 EL 2 + Increased heat
exchanger area.
4--Max-Tech..................... 96 EL 3 + Increased heat
exchanger area.
------------------------------------------------------------------------
2. Cost Analysis
The cost analysis portion of the engineering analysis is conducted
using one or a combination of cost approaches. The selection of cost
approach depends on a suite of factors, including the availability and
reliability of public information, characteristics of the regulated
product, and the availability and timeliness of purchasing the product
on the market. The cost approaches are summarized as follows:
Physical teardowns: Under this approach, DOE physically
dismantles a commercially available product, component-by-component, to
develop a detailed bill of materials for the product.
Catalog teardowns: In lieu of physically deconstructing a
product, DOE identifies each component using parts diagrams (available
from manufacturer websites or appliance repair websites, for example)
to develop the bill of materials for the product.
Price surveys: If neither a physical nor catalog teardown
is feasible (e.g., for tightly integrated products such as fluorescent
lamps, which are infeasible to disassemble and for which parts diagrams
are unavailable), cost-prohibitive, or otherwise impractical (e.g.,
large commercial boilers), DOE conducts price surveys using publicly-
available pricing data published on major online retailer websites and/
or by soliciting prices from distributors and other commercial
channels.
In the present case, DOE conducted its cost analysis using a
combination of physical and catalog teardowns to assess how
manufacturing costs change with increased product efficiency. Products
were selected for physical teardown analysis that have characteristics
of typical products on the market at a representative input capacity of
80,000 Btu/h (determined based on market data and discussions with
manufacturers). Selections spanned the range of efficiency levels
analyzed and included most manufacturers. The teardown analysis allowed
the creation of detailed BOMs for each product torn down, which
included all components and processes used to manufacture the products.
DOE used the BOMs from the teardowns as inputs to calculate the MPCs
for products at various efficiency levels spanning the full range of
[[Page 87542]]
efficiencies from the baseline to the maximum technology achievable
level.
During the development of the since-withdrawn March 2015 NOPR,
interviews were held with NWGF and MHGF manufacturers to gain insight
into the residential furnace industry, and to request feedback on the
engineering analysis. In advance of the July 2022 NOPR, a second round
of interviews was held in 2021, in part to gain additional insight for
updating the cost analysis to reflect current conditions. DOE used the
information gathered from these interviews, along with the information
obtained through the teardown analysis, to develop its updated MPC
estimates. For this final rule, DOE updated its analysis to incorporate
the most recent input data (e.g., raw materials, purchased components,
labor) in its BOMs (and, correspondingly, in the MPC estimates derived
from those BOMs). DOE performed an additional 23 physical teardowns for
the July 2022 NOPR. DOE also incorporated additional physical teardowns
from previous analyses into the analysis for this rulemaking when the
designs and components of those units reflect those observed in
products currently available on the market. For additional detail about
the models used for teardowns, see chapter 5 of the final rule TSD.
To account for manufacturers' non-production costs and profit
margin, DOE applies a non-production cost multiplier (the manufacturer
mark-up) to the MPC. The resulting manufacturer selling price (``MSP'')
is the price at which the manufacturer distributes a unit into
commerce. DOE initially developed an average manufacturer mark-up by
examining the annual Securities and Exchange Commission (``SEC'') 10-K
\57\ reports filed by publicly-traded manufacturers primarily engaged
in consumer furnace manufacturing and whose product range includes
NWGFs and MHGFs. DOE refined its understanding of manufacturer mark-ups
by using information obtained during manufacturer interviews. The
manufacturer mark-ups were used to convert the MPCs into MSPs. Further
information on this analytical methodology is presented in the
following subsections.
---------------------------------------------------------------------------
\57\ U.S. Securities and Exchange Commission's Electronic Data
Gathering, Analysis, and Retrieval system (EDGAR) database.
(Available at: www.sec.gov/edgar/search/) (Last accessed Feb. 4,
2022).
---------------------------------------------------------------------------
a. Teardown Analysis
To assemble BOMs and to calculate manufacturing costs for the
different components in residential furnaces, multiple units were
disassembled into their base components, and DOE estimated the
materials, processes, and labor required to manufacture each individual
component, a process referred to as a ``physical teardown.'' Using the
data gathered from the physical teardowns, each component was
characterized according to its weight, dimensions, material, quantity,
and the manufacturing processes used to fabricate and assemble it.
For supplementary catalog teardowns, product data were gathered,
such as dimensions, weight, and design features from publicly-available
information, such as manufacturer catalogs. Such ``virtual teardowns''
allowed DOE to estimate the major physical differences between a
product that was physically disassembled and a similar product that was
not. For this final rule, data from physical and virtual teardowns of
residential furnaces were used to calculate industry MPCs in the
engineering analysis.
The teardown analysis allowed DOE to identify the technologies that
manufacturers typically incorporate into their products, along with the
efficiency levels associated with each technology or combination of
technologies. The end result of each teardown is a structured BOM that
incorporates all materials, components, and fasteners (classified as
either raw materials or purchased parts and assemblies), and
characterizes the materials and components by weight, manufacturing
processes used, dimensions, material, and quantity. The BOMs from the
teardown analysis were then used as inputs to calculate the MPC for
each product that was torn down. The MPCs resulting from the teardowns
were then used to develop an industry average MPC for each efficiency
level of each product class analyzed.
As discussed in section IV.C.2.c of this document, DOE also
performed several physical and catalog teardowns of units at input
capacities other than the representative input capacity (i.e., 40, 60,
100, and 120 kBtu/h in addition to 80 kBtu/h). These teardowns allowed
DOE to develop cost-efficiency curves for NWGFs and MHGFs at different
input capacities. For more detailed information on the teardown
analysis, see chapter 5 of the final rule TSD.
b. Cost Estimation Method
The costs of individual models are estimated using the content of
the BOMs (i.e., relating to materials, fabrication, labor, and all
other aspects that make up a production facility) to generate MPCs. The
resulting MPCs include costs such as overhead and depreciation, in
addition to materials and labor costs. DOE collected information on
labor rates, tooling costs, raw material prices, and other factors to
use as inputs into the cost estimates. For purchased parts, DOE
estimates the purchase price based on volume-variable price quotations
and detailed discussions with manufacturers and component suppliers.
For parts fabricated in-house, the prices of the underlying ``raw''
metals (e.g., tube, sheet metal) are estimated on the basis of five-
year averages to smooth out spikes in demand. Other raw materials, such
as plastic resins and insulation materials, are estimated on a current-
market basis. The costs of raw materials are determined based on
manufacturer interviews, quotes from suppliers, and secondary research.
Past results are updated periodically and/or inflated to present-day
prices using indices from resources such as MEPS Intl.,\58\
PolymerUpdate,\59\ the U.S. geologic survey (``USGS''),\60\ and the
Bureau of Labor Statistics (``BLS'').\61\ The cost of transforming the
intermediate materials into finished parts is estimated based on
current industry pricing.
---------------------------------------------------------------------------
\58\ For more information on MEPS Intl, please visit
www.mepsinternational.com/gb/en (last accessed March 21, 2023).
\59\ For more information on PolymerUpdate, please visit
www.polymerupdate.com (last accessed March 21, 2023).
\60\ For more information on USGS metal price statistics, please
visit www.usgs.gov/centers/national-minerals-information-center/commodity-statistics-and-information (last accessed March 21, 2023).
\61\ For more information on the BLS producer price indices,
please visit www.bls.gov/ppi/ (last accessed March 21, 2023).
---------------------------------------------------------------------------
c. Manufacturing Production Costs
DOE estimated the MPC at each efficiency level considered for each
product class, from the baseline through the max-tech, and then
calculated the fractions of the MPC (in percentages) attributable to
each cost component (i.e., materials, labor, depreciation, and
overhead). These percentages were used to validate analytical inputs by
comparing them to manufacturers' actual financial data published in
annual reports, along with feedback obtained from manufacturers during
interviews. DOE uses these production cost percentages in the MIA (see
section IV.J of this document).
Tables IV.4 and IV.5 present DOE's estimates of the MPCs by AFUE
efficiency level at the representative input capacity (80 kBtu/h) for
both NWGFs and MHGFs. The MPCs at each efficiency level incorporate the
design characteristics of NWGFs and MHGFs shown in Tables IV.2 and
IV.3. DOE
[[Page 87543]]
observed in its market analysis that products are available on the
market with a mix of blower motor technologies, including constant
torque brushless permanent magnet (``BPM'') motors, constant airflow
BPM motors, and (for MHGFs), PSC motors. To account for the variety of
blower motors available on the market, DOE developed cost adjustment
factors (``adders'') for each type of blower motor and at each input
capacity analyzed (i.e., 40, 60, 80, 100, and 120 kBtu/h) to normalize
the blower costs between the individual units torn down and across
efficiency levels and allow for estimation of the cost differences
between models with different blower technologies. DOE normalized the
costs of the blower assemblies in its teardown models, and then used
these adders in its LCC analysis to account for the distribution of
blower motor technologies expected to be sold on the market (see
section IV.F of this document). For NWGFs, DOE used constant-torque BPM
motors as the baseline design option for all efficiency levels except
the max-tech level, which was always assumed to use a constant airflow
BPM motor. All MHGFs were modeled with improved PSC motors as the
normalized design option. These adders are discussed in more detail in
chapter 5 of the TSD accompanying this rule.
Similarly, in its market analysis and teardown analysis, DOE
observed models with single-stage, two-stage, and modulating operation.
Therefore, DOE normalized its engineering analysis costs to reflect
single-stage designs (with the exception of max-tech NWGFs, which were
all assumed to use modulating designs) but also developed a cost adder
for two-stage and modulating combustion systems (as compared to single-
stage models) that was used in the LCC analysis to account for the
distribution of models with two-stage and modulating combustion. The
cost to change from a single-stage to a two-stage combustion system
includes the cost of a two-stage gas valve, a two-speed inducer
assembly, upgraded pressure switch/tubing assembly, and additional
controls and wiring. Similarly, the cost to change from a single-stage
to a modulating combustion system includes the cost of a modulating gas
valve, an upgraded inducer assembly, upgraded pressure switch/tubing
assembly, and additional controls and wiring. These cost adders are
discussed in more detail in chapter 5 of the TSD. DOE similarly
normalized the costs, when necessary, to account for the presence any
premium controls or features that would increase cost but are not
needed for improving efficiency.
For MHGFs, DOE performed physical teardowns of several MHGF models
and compared them to NWGF teardowns from a common manufacturer and
similar design, in order to determine the typical design differences
between the two product classes. (A detailed description of the typical
differences between MHGF and NWGF is provided in chapter 5 of the final
rule TSD.) Using this information, DOE then developed cost adders to
reflect the cost difference between NWGF and MHGF models, and applied
this cost adder to the NWGF MPCs in order to estimate the MPCs of MHGFs
at each of the MHGF efficiency levels.
Table IV.4 presents the MPCs for NWGFs with a constant-torque BPM
and single-stage combustion (except for the max-tech level which, as
previously noted, includes a constant airflow BPM and modulating
combustion). Table IV.5 presents the MPCs for MHGFs with an improved
PSC and single-stage combustion. DOE has determined that these designs
are likely the most representative of furnaces on the current market,
although DOE recognizes there are some exceptions. As discussed in this
section, DOE has observed that a variety of blower motor technologies
and burner system stages exist on the market, so DOE developed adders
to translate MPCs across various technologies.
Table IV.4--Manufacturer Production Cost for Non-Weatherized Gas Furnaces at the Representative Input Capacity
of 80 kBtu/h
----------------------------------------------------------------------------------------------------------------
Incremental
Efficiency cost above
Efficiency level level (AFUE) MPC (2022$) baseline
(%) (2022$)
----------------------------------------------------------------------------------------------------------------
Baseline........................................................ 80 335 ..............
EL1............................................................. 90 420 85
EL2............................................................. 92 428 93
EL3............................................................. 95 444 109
EL4............................................................. 98 572 216
----------------------------------------------------------------------------------------------------------------
Table IV.5--Manufacturer Production Cost for Mobile Home Gas Furnaces at the Representative Input Capacity of 80
kBtu/h
----------------------------------------------------------------------------------------------------------------
Incremental
Efficiency cost above
Efficiency level level (AFUE) MPC (2022$) baseline
(%) (2022$)
----------------------------------------------------------------------------------------------------------------
Baseline........................................................ 80 360 ..............
EL1............................................................. 90 441 81
EL2............................................................. 92 450 90
EL3............................................................. 95 466 106
EL4............................................................. 96 471 111
----------------------------------------------------------------------------------------------------------------
JCI commented that DOE should work with MHI and HUD to get cost and
buyer data for MHGF replacements and reevaluate whether a 95-percent
AFUE standard is appropriate based on those findings. (JCI, No. 411 at
p. 2)
In response, DOE notes that it conducted the engineering analysis
for this final rule using a combination of physical and catalog
teardowns. As discussed in section IV.C.2 of this document, DOE only
relies on price
[[Page 87544]]
surveys as the basis for the engineering analysis if neither physical
nor catalog teardowns are feasible, or if these options are cost-
prohibitive and otherwise impractical. The resulting MPCs do not
include manufacturer mark-ups and will not reflect prices seen by
consumers. DOE estimates and applies additional markups to its MPCs, as
discussed in sections IV.C.2.e and IV.D of this document. Additionally,
as described in section IV.D of this document, under a more-stringent
standard, the mark-ups incorporated into the sales price may also
change relative to current mark-ups. Therefore, DOE has concluded that
using prices of furnaces as currently seen in the marketplace, as JCI
suggested, would not be an accurate method of estimating future furnace
prices following an amended standard and, in turn, validating DOE's
approach of conducting an engineering analysis and mark-ups analysis
for this final rule.
Daikin commented that there is a higher burden on manufacturers
than DOE estimated because DOE does not consider that NWGFs with higher
AFUE take more time to assemble due to: (1) more components, (2) higher
complexity, (3) tighter assembly requirements, and (4) more end-of-line
testing. (Daikin, No. 416 at p. 3)
JCI commented that the DOE fan energy rating (FER) rule and recent
supply chain issues have increased MHGF MPCs by more than 42 percent
between 2018 and 2021, and by 36 percent for NWGFs. (JCI, No. 411 at p.
2)
Lennox commented that it found that DOE's MPCs generally reflect
the correct costs in 2020, except for the difference between EL 2 at
92-percent AFUE and EL 3 at 95-percent AFUE, which it believes to be
too low. (Lennox, No. 389 at p. 7) Lennox stated that this cost
difference should be increased by 50 to 70 percent. (Id.) Lennox
further commented that inflation has increased these costs more than 15
percent since 2020. (Id.)
In response to Daikin, DOE notes that its estimates for labor costs
associated with higher-efficiency NWGFs are based on available industry
data, as well as manufacturer feedback received during confidential
interviews. Increased assembly and fabrication time, different
components and processes, and all other change associated with higher
efficiency levels for NWGFs are accounted for and reflected in the cost
estimates for labor and, in turn, the overall MPC estimates. In
addition, DOE agrees with JCI and Lennox that furnace MPCs have
increased in recent years, and notes that the MPCs developed for this
NOPR are higher than those in the NOPR, primarily due to changes in
component and raw material prices.
In the July 2022 NOPR, DOE requested comment on the designs of the
secondary heat exchanger (including any recent design changes), as well
as the cost of AL29-4C stainless steel. 87 FR 40590, 40705 (July 7,
2022). In response, Lennox stated that it regards AL29-4C stainless
steel, which is used in Lennox condensing furnaces, as the standard for
secondary heat exchangers due to its corrosive-resistant properties.
(Lennox, No. 389 at p. 7) As discussed in chapter 5 of the TSD
accompanying this final rule, DOE did assume AL29-4C is used in the
construction of secondary heat exchangers for condensing furnaces.
Because no additional comments were received, DOE did not make any
changes to its cost models for condensing furnace heat exchangers
compared to what was used for the July 2022 NOPR analysis, other than
updating prices to reflect the most recent five-year average materials
prices available.
Chapter 5 of the final rule TSD presents more information regarding
the development of DOE's estimates of the MPCs.
d. Cost-Efficiency Relationship
DOE created cost-efficiency curves representing the cost-efficiency
relationships for the product classes that it examined (i.e., NWGFs and
MHGFs). To develop the cost-efficiency relationships for NWGFs at the
representative capacity (80 kBtu/h), DOE calculated a market-share
weighted average MPC for each efficiency level analyzed, based on the
units torn down at that efficiency level. As discussed in section
IV.C.2.a of this document, DOE performed several physical and catalog
teardowns across a range of input capacities in order to develop cost-
efficiency curves for NWGFs and MHGFs that are representative of the
various input capacities available on the market. These cost-efficiency
curves were then used in the downstream analyses. The cost-efficiency
curves developed for input capacities other than the representative
input capacity are presented in chapter 5 of the final rule TSD. As
discussed in section IV.C.2.c of this document, DOE used information
from teardowns of MHGF and NWGF to developed cost adders for MHGF as
compared to NWGF, which were applied to the NWGF MPCs to estimate the
MPCs of MHGFs at each of the MHGF efficiency levels. Additional details
on how DOE developed the cost-efficiency relationships and related
results are available in chapter 5 of the final rule TSD.
As displayed in Tables IV.4 and IV.5 of this document, the results
show that the cost-efficiency relationships for NWGFs and MHGFs are
nonlinear. For both product classes, the cost increase between the non-
condensing (80-percent AFUE) and condensing (90-percent AFUE)
efficiency levels is due to the addition of a secondary heat exchanger,
so there is a large step in both AFUE and MPC. For NWGFs, a significant
cost increase also occurs between the 95-percent and 98-percent AFUE
levels due to the addition of modulating combustion components paired
with a constant airflow BPM indoor blower motor at 98-percent AFUE.
e. Manufacturer Markup
DOE calculates the manufacturer selling price (MSP) by multiplying
the MPC and the manufacturer markup. The MSP is the price the
manufacturer charges its direct customer (e.g., a wholesaler). The MPC
is the cost for the manufacturer to produce a single unit of product,
accounting for material, labor, depreciation and overhead costs
associated with the manufacturing facility. The manufacturer markup is
a multiplier that accounts for manufacturers' production costs and
revenue attributable to the product.
DOE initially developed an average manufacturer mark-up by
examining the annual Securities and Exchange Commission (``SEC'') 10-K
reports filed by publicly-traded manufacturers primarily engaged in
consumer furnace manufacturing and whose product range includes NWGFs
and MHGFs. DOE refined its understanding of manufacturer mark-ups by
using information obtained during manufacturer interviews. For
additional detail on DOE's methodology to determine the no-new-
standards case manufacturer markup, see chapter 5 and chapter 12 of the
final rule TSD.
f. Manufacturer Interviews
Throughout the rulemaking process, DOE sought feedback and insight
from interested parties that would improve the information used in its
analyses. DOE first interviewed NWGF and MHGF manufacturers as a part
of the manufacturer impact analysis for the since-withdrawn March 2015
NOPR. During these interviews, DOE sought feedback on all aspects of
its analyses for residential furnaces. DOE discussed the analytical
assumptions and estimates, cost estimation method, and cost-efficiency
curves with consumer furnace manufacturers. Subsequently, in
[[Page 87545]]
2021, DOE conducted a second series of interviews to obtain feedback on
the updates to the cost analyses from the additional teardowns
performed for the July 2022 NOPR. DOE considered all the information
manufacturers provided while refining its cost estimates (and
underlying data) and analytical assumptions. In order to avoid
disclosing sensitive information about individual manufacturers'
products or manufacturing processes, DOE incorporated equipment and
manufacturing process figures into the analyses as averages. Additional
information on manufacturer interviews can be found in chapter 12 of
the final rule TSD.
g. Electric Furnaces
In addition to NWGFs and MHGFs, DOE also estimated the MPCs of
electric furnaces. This analysis was performed to develop accurate
electric furnace cost data as an input to the product switching
analysis (see section IV.F.10 of this document for additional
information). To estimate the MPCs of electric furnaces, DOE used
information obtained from the teardowns of three modular blower units,
as well as a teardown of an electric heat kit assembly, which were all
originally used as inputs to the engineering analysis performed for the
2014 furnace fans rulemaking.\62\
---------------------------------------------------------------------------
\62\ Modular blower units with electric heat kits are also
referred to as ``electric furnaces.''
---------------------------------------------------------------------------
The MPCs of electric furnaces were developed by calculating a
market share-weighted MPC of the three modular blower units that were
torn down, and then adding the MPC of the electric heat kit to the
market share-weighted modular blower MPC. The MPC of the electric heat
kit was scaled appropriately in order to approximate the MPCs of
different input capacity electric furnaces. Similar to the engineering
analysis performed for NWGFs, DOE estimated the MPCs of electric
furnaces at input capacities of 40, 60, 80, 100, and 120 kBtu/h. All
material prices have been updated since the July 2022 NOPR to reflect
recent changes in the market. These MPCs are presented in Table IV.6.
Table IV.6--Electric Furnace MPCs
------------------------------------------------------------------------
Input capacity (kBtu/h) MPC (2022$)
------------------------------------------------------------------------
40...................................................... 324
60...................................................... 358
80...................................................... 391
100..................................................... 405
120..................................................... 439
------------------------------------------------------------------------
Further details regarding the methodology used to estimate electric
furnace MPCs are provided in chapter 5 of the final rule TSD.
D. Markups Analysis
The markups analysis develops appropriate markups (e.g.,
manufacturer markups, retailer markups, distributor markups, contractor
markups) in the distribution chain and sales taxes to convert the MPC/
MSP estimates derived in the engineering analysis to consumer prices,
which are then used in the LCC and PBP analysis. The markups are
multiplicative factors applied to MPCs and MSPs. At each step in the
distribution channel, companies mark up the price of the product to
cover business costs and generate a profit margin. Before developing
markups, DOE defines key market participants and identifies
distribution channels.
For consumer furnaces, the main parties in the distribution chain
are: (1) manufacturers; (2) wholesalers or distributors; (3) retailers;
(4) mechanical contractors; (5) builders; (6) manufactured home
manufacturers, and (7) manufactured home dealers/retailers. See chapter
6 and appendix 6A of the final rule TSD for a more detailed discussion
about parties in the distribution chain.
For the final rule, DOE maintained the same approach as in the
NOPR. DOE characterized two distribution channel market segments to
describe how NWGF and MHGF products pass from the manufacturer to
residential and commercial consumers: \63\ (1) replacements and new
owners \64\ and (2) new construction.
---------------------------------------------------------------------------
\63\ DOE estimates that five percent of NWGFs are installed in
commercial buildings. See section IV.G of this document for further
discussion.
\64\ New owners are new furnace installations in buildings that
did not previously have a NWGF or MHGF or existing NWGF or MHGF
owners that are adding an additional consumer furnace. They
primarily consist of households that add or switch to NWGFs or MHGFs
during a major remodel.
---------------------------------------------------------------------------
The NWGF and MHGF replacement/new owners market distribution
channel is primarily characterized as follows:
Manufacturer [rarr] Wholesaler [rarr] Mechanical Contractor [rarr]
Consumer
Based on a 2023 BRG report,\65\ 2019 Clear Seas Research HVAC
contractor survey,\66\ and Decision Analyst's 2022 American Home
Comfort Study,\67\ DOE determined that the retail distribution channel
(including internet sales) has been growing significantly in the last
five years (previously it was negligible). Based on these sources, DOE
estimated that 15 percent of the replacement market distribution
channel for NWGF and 20 percent for MHGF (including mobile home
specialty retailer/dealer) will be going through this market channel as
follows (including some consumers that purchase directly and then have
contractors install it): \68\
---------------------------------------------------------------------------
\65\ BRG Building Solutions, The North American Heating &
Cooling Product Markets (2023 Edition). (Available at
www.brgbuildingsolutions.com/reports-insights) (Last accessed August
1, 2023).
\66\ Clear Seas Research, 2019 Unitary Trends. (Available at
clearseasresearch.com/?attachment_id=2311) (Last accessed August 1,
2023).
\67\ Decision Analyst, 2022 American Home Comfort Studies.
(Available at www.decisionanalyst.com/syndicated/homecomfort/) (Last
accessed August 1, 2023).
\68\ The Do-It-Yourself (DIY) market is very small (only
represents about 1-2 percent of the whole gas furnace market) and is
not analyzed by DOE in this analysis.
Manufacturer [rarr] Retailer [rarr] Mechanical Contractor [rarr]
---------------------------------------------------------------------------
Consumer
Manufacturer [rarr] Mobile Home Specialty Retailer/Dealer [rarr]
Consumer
The NWGF new construction distribution channel is characterized as
follows, where DOE assumes that for 50 percent of installations, a
larger builder has an in-house mechanical contractor:
Manufacturer [rarr] Wholesaler [rarr] Mechanical Contractor [rarr]
Builder [rarr] Consumer
Manufacturer [rarr] Wholesaler [rarr] Builder [rarr] Consumer
The MHGF new construction distribution channel is characterized as
follows:
Manufacturer [rarr] Mobile Home Manufacturer [rarr] Mobile Home Dealer
[rarr] Consumer
For replacements, new owners, and new construction, DOE also
considered the national accounts or direct-from-manufacturer
distribution channel, where the manufacturer, through a wholesaler,
sells directly to a consumer.\69\
---------------------------------------------------------------------------
\69\ The national accounts channel where the buyer is the same
as the consumer is mostly applicable to NWGFs installed in small to
mid-size commercial buildings, where on-site contractors purchase
equipment directly from wholesalers at lower prices due to the large
volume of equipment purchased, and perform the installation
themselves. Overall, DOE's analysis assumes that approximately 7
percent of NWGFs installed in the residential and commercial sector
use national accounts, based on the fraction of small to mid-sized
commercial buildings with NWGFs relative to residential buildings
with NWGFs in the 2023 BRG report.
---------------------------------------------------------------------------
Manufacturer [rarr] Wholesaler (National Account) [rarr] Consumer
[[Page 87546]]
At each step in the distribution channel, companies mark up the
price of the product to cover costs. DOE developed baseline and
incremental mark-ups for each participant in the distribution chain to
ultimately determine the consumer purchase cost. Baseline mark-ups are
applied to the price of products with baseline efficiency, while
incremental mark-ups are applied to the difference in price between
baseline and higher-efficiency models (the incremental cost increase).
The incremental mark-up is typically less than the baseline mark-up and
is designed to maintain similar per-unit operating profit before and
after new or amended standards.\70\
---------------------------------------------------------------------------
\70\ Because the projected price of standards-compliant products
is typically higher than the price of baseline products, using the
same mark-up for the incremental cost and the baseline cost would
result in higher per-unit operating profit. While such an outcome is
possible, DOE maintains that in markets that are reasonably
competitive, it is unlikely that standards would lead to a
sustainable increase in profitability in the long run.
---------------------------------------------------------------------------
To estimate average baseline and incremental mark-ups, DOE relied
on several sources, including: (1) the 2017 Annual Wholesale Trade
Survey \71\ (for wholesalers and distributors); (2) U.S. Census Bureau
2017 Economic Census data \72\ on the residential and commercial
building construction industry (for builders, mechanical contractors,
and mobile home manufacturers); (3) SEC 10-K reports \73\ from Home
Depot and Lowe's and 2017 Annual Retail Trade Survey \74\ (for
retailers); (4) 2017 Economic Census and other sources (for mobile home
dealers and retailers). In addition, DOE used the 2005 Air Conditioning
Contractors of America's (``ACCA'') Financial Analysis on the Heating,
Ventilation, Air-Conditioning, and Refrigeration (``HVACR'')
contracting industry \75\ to disaggregate the mechanical contractor
mark-ups into replacement and new construction markets and the HARDI
2013 Profit Report \76\ to derive regional-to-national wholesaler
markup ratio. DOE also used various sources for the derivation of the
mobile home dealer mark-ups (see chapter 6 of the final rule TSD).
---------------------------------------------------------------------------
\71\ U.S. Census Bureau, 2017 Annual Wholesale Trade Survey.
(Available at www.census.gov/data/tables/2017/econ/awts/) (Last
accessed August 1, 2023).
\72\ U.S. Census Bureau, 2017 Economic Census Data. (Available
at www.census.gov/econ/) (Last accessed August 1, 2023).
\73\ U.S. Securities and Exchange Commission, SEC 10-K Reports
(available at www.sec.gov/) (last accessed August 1, 2023).
\74\ U.S. Census Bureau, 2017 Annual Retail Trade Survey Data
(available at www.census.gov/programs-surveys/arts.html) (last
accessed August 1, 2023).
\75\ Air Conditioning Contractors of America (ACCA), Financial
Analysis for the HVACR Contracting Industry (2005). (Available at
www.acca.org/store) (Last accessed August 1, 2023).
\76\ Heating, Air Conditioning & Refrigeration Distributors
International (HARDI), 2013 HARDI Profit Report. (Available at
www.hardinet.org/) (Last accessed August 1, 2023).
---------------------------------------------------------------------------
Typically, contractors will mark up equipment and labor
differently, with the labor mark-up being greater than the equipment
mark-up. For the purposes of the analysis, DOE is treating the furnace
installation work, including the equipment and labor components, as one
job, and assumes that the mechanical contractors use the same mark-up
to account for overhead and profit of the entire job. However, the
determination of that overall markup accounts for the different
components of the job. After reviewing the available 2017 economic
census data,\77\ DOE adjusted the mechanical contractor mark-up to take
into account that a fraction of the fringe costs related to the direct
construction labor are part of the labor cost. This better matches the
approach used in RS Means \78\ and other cost books \79\ on how the
overall contractor mark-up is determined. Based on this methodology,
the average baseline mark-up for mechanical contractors is 1.47 for
replacements and 1.39 for new construction, while the incremental mark-
up for mechanical contractors is 1.27 for replacements and 1.20 for new
construction. The overall baseline mark-up is 2.85 for NWGFs and 2.49
for MHGFs, while the incremental mark-up is 2.09 for NWGFs and 1.91 for
MHGFs. See chapter 6 and appendix 6A of the final rule TSD for more
details.
---------------------------------------------------------------------------
\77\ U.S. Census Bureau, 2017 Economic Census Data. (Available
at www.census.gov/econ/) (Last accessed August 1, 2023).
\78\ RS Means Company Inc., 2023 RS Means Mechanical Cost Data.
Kingston, MA (2023). (Available at www.rsmeans.com/products/books/)
(Last accessed August 1, 2022).
\79\ Craftsman Book Company, 2023 National Construction
Estimator, CA (2023). (Available at craftsman-book.com/books-and-software/shop-by-type/shop-estimating-books) (Last accessed August
1, 2023).
---------------------------------------------------------------------------
In addition to the mark-ups, DOE obtained State and local taxes
from data provided by the Sales Tax Clearinghouse.\80\ These data
represent weighted average taxes that include county and city rates.
DOE derived shipment-weighted average tax values for each region
considered in the analysis.
---------------------------------------------------------------------------
\80\ Sales Tax Clearinghouse Inc., State Sales Tax Rates Along
with Combined Average City and County Rates (June 14, 2023).
(Available at www.thestc.com/STrates.stm) (Last accessed August 1,
2023).
---------------------------------------------------------------------------
DOE acknowledges that there is uncertainty regarding the
appropriate mark-ups to use, so the Department conducted a sensitivity
analysis in which the same average mark-up is applied to baseline and
higher-efficiency products. Appendix 8N of the final rule TSD describes
this analysis and how the associated LCC results differ from the
results using the incremental mark-up approach. The relative comparison
of the different efficiency levels remains similar, however, and the
proposed energy conservation standard level remains economically
justified regardless of which mark-up scenario is utilized.
Lennox commented that the assumption that the incremental markup
would be lower for condensing than for non-condensing furnace standard
levels is incorrect, as the installed cost difference between EL 2 and
EL 3 is less than the difference between the MPC and MSP for these two
levels. (Lennox, No. 389 at p. 2) Lennox further asserted that the
incremental markup should be consistent for condensing and non-
condensing levels. (Id.)
DOE clarifies that the incremental mark-up is used for efficiency
levels above the baseline, applied to those costs above the baseline
cost. In the case of consumer furnaces, all condensing furnaces have an
efficiency above the baseline, and, therefore, they all share the same
incremental mark-up factor (absolute mark-up will vary based on the
incremental cost). Baseline, non-condensing furnaces are characterized
with a baseline mark-up only. Chapter 6 of the final rule TSD provides
details on DOE's development of markups for NWGFs and MHGFs.
E. Energy Use Analysis
The purpose of the energy use analysis is to determine the annual
energy consumption of NWGFs and MHGFs at different efficiencies in
representative U.S. single-family homes, multi-family residences,
mobile homes, and commercial buildings, and to assess the energy
savings potential of increased furnace efficiency. The energy use
analysis estimates the range of energy use of NWGFs and MHGFs in the
field (i.e., as they are actually used by consumers). The energy use
analysis provides the basis for other analyses DOE performed,
particularly assessments of the energy savings and the savings in
consumer operating costs that could result from adoption of amended or
new standards.
DOE estimated the annual energy consumption of NWGFs and MHGFs at
specific energy efficiency levels across a range of climate zones,
building characteristics, and heating applications. The annual energy
consumption includes the natural gas,
[[Page 87547]]
liquid petroleum gas (LPG), and electricity used by the furnace.
Chapter 7 of the final rule TSD provides details on DOE's energy
use analysis for NWGFs and MHGFs.
1. Building Sample
To determine the field energy use of NWGFs and MHGFs used in
residential housing units and commercial buildings, DOE established a
sample of households using EIA's 2020 Residential Energy Consumption
Survey (RECS 2020) \81\ and sample of commercial buildings using EIA's
2018 Commercial Building Energy Consumption Survey (CBECS 2018), which
were the most recent such surveys that were available at that time.\82\
The RECS and CBECS data provide information on the vintage of the home
or building, as well as heating energy use in each housing unit or
building. DOE used the housing and building samples not only to
determine existing furnace's annual energy consumption, but also as the
basis for conducting the LCC and PBP analyses. RECS and CBECS includes
weights for each housing unit or commercial building in order to
produce housing and commercial building population estimates to
represent all housing units and commercial buildings, including those
not in the survey sample. DOE used these RECS and CBECS weights along
with furnace shipments data and furnace sample criteria to develop the
projected furnace sample shipment weights in 2029, the first year of
compliance with any amended or new energy conservation standards for
NWGFs and MHGFs, used in the analysis. To characterize future new homes
and buildings, DOE used a subset of housing units and commercial
buildings in RECS and CBECS that were built after 2000.
---------------------------------------------------------------------------
\81\ Energy Information Administration (EIA), 2020 Residential
Energy Consumption Survey (RECS). (Available at: www.eia.gov/consumption/residential/) (Last accessed August 1, 2023).
\82\ U.S. Department of Energy: Energy Information
Administration, Commercial Buildings Energy Consumption Survey
(2018). (Available at: www.eia.gov/consumption/commercial/) (Last
accessed August 1, 2023).
---------------------------------------------------------------------------
APGA argued that with DOE's usage of EIA's RECS 2015, DOE is
imputing to over 120 million households characteristics based upon a
survey of a few hundred. APGA further argued that RECS surveys are
suspect because they rely on respondents knowing precisely the
appliance that heats their house and for how long that has been. (APGA,
No. 387 at p.11) DOE notes that this characterization is incorrect.
RECS 2015 is based on a nationally representative sample of 5,686
households, not a few hundred. RECS 2020 had 18,496 respondents
complete the survey. Furthermore, EIA employs a number of different
data collection modes, including in-person interviews with detailed
measurements of the housing unit, as well as collecting fuel billing
and delivery data from energy suppliers. There are a number of cross-
checks and quality control steps to ensure the robustness of the
survey, as detailed in the RECS technical documentation.
APGA claimed that DOE relied on stale data from EIA's RECS 2015 in
the NOPR. APGA argued that DOE should incorporate RECS 2020 data and
run its analysis again, allowing public comment in a supplemental NOPR.
(APGA, No. 387 at p. 61)
In response, DOE notes that the energy use analysis relies on the
energy consumption and expenditures microdata from RECS, which at the
time of the NOPR analysis were not yet published for RECS 2020. Only
the preliminary housing characteristics statistics tables from RECS
2020 were available at the time of the NOPR analysis. However, it is
common practice for DOE to include updated data in its analyses when
they become available. The RECS 2020 final version of the microdata
(including energy consumption and expenditures data) have since been
published, and DOE has updated its analysis for the final rule to
include the latest RECS 2020 data. DOE has also updated its analysis
for the final rule to include the latest CBECS 2018 data. See appendix
7A of the final rule TSD for details regarding the sample.
JCI commented that manufactured home applications are not
specifically addressed in RECS data after 1974. The commenter asserted
that manufactured home applications are instead categorized in single-
family homes. JCI argued that replacements in manufactured homes are,
therefore, not accurately represented in DOE's analysis, and that
manufactured homes would be disproportionately negatively impacted by a
95-percent AFUE standard. (JCI, No. 411 at p. 2)
In response, DOE clarifies that RECS does include survey responses
from households in manufactured homes. They are labeled as ``mobile
homes'' and are included in DOE's analysis. These are the households
that would be representative of MHGF installations and energy
consumption.
The CA IOUs cited the U.S. Energy Information Administration's 2015
Residential Energy Consumption Survey to report that only 26 percent of
mobile homes use natural gas and propane MHGFs for space heating, while
55 percent of mobile homes use electricity for space heating. (The CA
IOUs, No. 400 at p. 2) In response, DOE notes that in the NOPR, it used
2015 RECS data directly, and, therefore, this breakdown of energy usage
was reflected in DOE's NOPR analysis, and the current breakdown of
energy use from 2020 RECS data is reflected in DOE's final rule
analysis.
2. Furnace Sizing
DOE assigned an input capacity for the existing NWGF or MHGF of
each housing unit or building based on an algorithm that correlates the
calculated design heating load served by the furnace with furnace
shipments data by input capacity. DOE used ACCA's Manual J \83\ and
Manual N \84\ calculation methods to more accurately determine the
design heating load requirements for each sampled housing unit or
building based primarily on RECS 2020 and CBECS 2018 building
characteristics (including heated square footage, the outdoor design
temperature for heating,\85\ wall type, insulation type, year built,
roof type, number of floors, availability of an attic, basement, or
crawlspace, etc.). The ACCA Manual J and Manual N process is the most
widely accepted method to calculate heating and cooling requirements
for a house by using well-documented values and building codes, based
on experimental data and extreme conditions (worst-case assumptions).
DOE distributed the input capacities based on shipments data by input
capacity bins provided by AHRI from 1995-2014,\86\ HARDI shipments data
by capacity and region from 2013-2022,\87\ BRG report shipments data by
capacity from 2014-2022,\88\ and manufacturer
[[Page 87548]]
input from manufacturer interviews. The shipments data by input
capacity were further disaggregated into 5-kBtu/h bins based on a set
of non-repetitive or unique models from DOE's 2023 Compliance
Certification Management System database for furnaces \89\ and from
AHRI's 2023 residential furnace certification directory.\90\ The
households' calculated design heating load values are then rank ordered
to match actual shipments distributions to determine the assigned
furnace input capacity. DOE assumed that for the new furnace
installation, the output capacity would remain similar to the output
capacity for the existing furnace.
---------------------------------------------------------------------------
\83\ Air Conditioning Contractors of America Association (ACCA).
Manual J--Residential Load Calculation (available at: www.acca.org/standards/technical-manuals/manual-j) (last accessed August 1,
2023).
\84\ Air Conditioning Contractors of America Association (ACCA).
Manual N--Commercial Load Calculation (available at: www.acca.org/standards/technical-manuals/manual-n) (last accessed August 1,
2023).
\85\ This is the dry-bulb design temperature that is expected to
be exceeded ninety-nine percent of the time.
\86\ AHRI, Attachment A: Percentage of Residential Gas Furnace
Shipments by Input Ranges, 20 Year Average (1995-2014) (October 14,
2015) (available at: www.regulations.gov/comment/EERE-2014-BT-STD-0031-0181) (last accessed August 1, 2023).
\87\ Heating, Air-conditioning and Refrigeration Distributors
International (HARDI), DRIVE portal (HARDI Visualization Tool
managed by D+R International until 2022), proprietary Gas Furnace
Shipments Data from 2013-2022 provided to Lawrence Berkeley National
Laboratory (LBNL).
\88\ BRG Building Solutions, The North American Heating &
Cooling Product Markets (2023 Edition) (available at:
www.brgbuildingsolutions.com/reports-insights) (last accessed August
3, 2023).
\89\ U.S. Department of Energy, Compliance Certification
Management System (available at: www.regulations.doe.gov/certification-data/) (last accessed August 1, 2023).
\90\ AHRI, Directory of Certified Product Performance:
Residential Furnaces (available at: www.ahridirectory.org/Search/QuickSearch?category=8&searchTypeId=3&producttype=32) (last accessed
August 1, 2023).
---------------------------------------------------------------------------
This sizing methodology takes into account the actual field
conditions where some households have a greater oversizing factor than
recommended by ACCA, which could occur due to old furnaces being
replaced by a much more efficient furnace and/or improvements to the
building shell since the last furnace installation. For example, this
methodology, applied to both NWGFs and MHGFs, allows for older, less-
insulated homes to be assigned larger furnaces compared to similar
newly-built homes. This methodology also accounts for regional
differences in building shells, which show that, on average, southern
homes are not as well insulated as northern homes. Regional differences
in design heating load are also captured in the sizing methodology by
using the outdoor design temperature that best matches the household
location and climate characteristics.
DOE also accounted for the air conditioning sizing when determining
the input capacity size of the furnace. DOE acknowledges that
currently, there are few low-input-capacity furnace models with large
furnace fans. For some installations, particularly in the South, a
large furnace fan is required to meet the cooling requirements. DOE
accounted for the fact that some furnace installations in the South
have a larger input capacity than determined by the design heating load
calculations by calculating the size of the furnace fan required to
meet the cooling requirements of the household by using the AHRI
shipments data by input capacity \91\ and the HARDI furnace shipments
by input capacity and region.\92\ DOE notes that this will primarily
affect furnaces located in warmer areas of the country (with higher
cooling loads), which potentially leads to a higher amount of
oversizing than is assumed in the analysis for these households. DOE
notes that the Federal furnace fan standards that took effect in July
2019 require fan motor designs that can more efficiently adjust the
amount of air depending on both heating and cooling requirements. Thus,
the size of the furnace fan (and the furnace capacity) will be able to
better match both the heating and cooling requirements of the house.
DOE acknowledges that, in the future, there might be greater
availability of small furnaces with larger furnace fans, but for this
final rule, DOE made a conservative assumption that larger furnace
input capacities will be necessary to satisfy these cooling
requirements because smaller capacity furnaces with larger fans are not
commonly available in the market. If smaller capacity furnaces with
larger fans become more common, the costs to replace these furnaces
would be lower, increasing the net consumer benefits. See chapter 7 and
appendix 7B of the final rule TSD for further detail.
---------------------------------------------------------------------------
\91\ AHRI, Attachment A: Percentage of Residential Gas Furnace
Shipments by Input Ranges, 20 Year Average (1995-2014) (Oct. 14,
2015) (available at: www.regulations.gov/comment/EERE-2014-BT-STD-0031-0181) (last accessed August 1, 2023).
\92\ Heating, Air-conditioning and Refrigeration Distributors
International (HARDI), DRIVE portal (HARDI Visualization Tool
managed by D+R International until 2022), proprietary Gas Furnace
Shipments Data from 2013-2022 provided to Lawrence Berkeley National
Laboratory (LBNL).
---------------------------------------------------------------------------
3. Furnace Active Mode Energy Use
To estimate the annual energy consumption in active mode of
furnaces meeting the considered efficiency levels, DOE first calculated
the annual housing unit or building heating load using the RECS 2020
and CBECS 2018 estimates of housing unit or building furnace annual
energy consumption,\93\ the existing furnace's estimated capacity and
efficiency (AFUE), and the heat generated from the electrical
components. The analysis assumes that some homes have two or more
furnaces, with the heating load split evenly between them. DOE also
took into account any secondary heating that might be present,
utilizing the same fuel as the NWGF or MHGF, by reducing the heating
load covered by the NWGF or MHGF. The estimation of furnace capacity is
discussed in the previous section. The AFUE of the existing furnaces
was estimated using the furnace vintage (the year of installation)
provided by RECS or CBECS and historical data on the market share of
furnaces by AFUE by region (see appendix 7B of the final rule TSD). DOE
then used the housing unit or building heating load to calculate the
burner operating hours at each considered efficiency level, which were
then used to calculate the fuel and electricity consumption based on
the DOE consumer furnace test procedure.
---------------------------------------------------------------------------
\93\ EIA estimated the equipment's annual energy consumption
from the household's or buildings utility bills using conditional
demand analysis. To learn more, see www.eia.gov/consumption/residential/data/2020/pdf/2020%20RECS%20CE%20Methodology_Final.pdf.
(Last accessed August 1, 2023).
---------------------------------------------------------------------------
a. Adjustments to Energy Use Estimates
DOE adjusted the energy use estimates in RECS 2020 (for the year
2020) and in CBECS 2018 (for the year 2018) to ``normal'' weather using
long-term heating degree-day (HDD) data for each geographical
region.\94\ For this final rule, DOE then applied an HDD correction
factor from AEO2023 \95\ that accounts for projected population
migrations across the Nation and continues any realized historical
changes in HDD at the State level.
---------------------------------------------------------------------------
\94\ National Oceanic and Atmospheric Administration (NOAA),
NNDC Climate Data Online (available at: www.ncdc.noaa.gov/cdo-web/search) (last accessed August 1, 2023).
\95\ U.S. Department of Energy, Energy Information
Administration, Annual Energy Outlook 2023 (available at:
www.eia.gov/outlooks/aeo/) (last accessed August 1, 2023).
---------------------------------------------------------------------------
DOE also accounted for changes in building shell efficiency between
2020 (for RECS 2020) or 2018 (for CBECS 2018) and the compliance year
by applying the shell integrity indexes associated with AEO2023. The
indexes consider projected improvements in building shell efficiency
due to improvements in home insulation and other thermal efficiency
practices. EIA provides separate indexes for new buildings and existing
buildings for a given year, for both residential homes and commercial
buildings. For the year 2029, the factor applied for homes is 0.91 for
residential replacements and 0.77 for residential new construction
relative to the 2022 building shell efficiency. The factor applied for
commercial building replacements depend on building type and Census
Division, ranging from 0.82 to 0.97 relative to the 2018 building shell
efficiency. For new construction commercial buildings, the factor used
ranged from 0.31 to 0.86, depending on building type and Census
Division relative to the 2020 building shell
[[Page 87549]]
efficiency. See chapter 7 of the final rule TSD for more details.
Building codes and building practices vary widely across the U.S.
For example, as of August 2023, more than half of the States were still
under the 2009 International Energy Conservation Code (``IECC'') or
older codes instead of the 2015 IECC, 2018 IECC, or 2021 IECC.\96\
EIA's building shell index for new construction takes into account
regional differences in building codes and building practices by
including both homes that meet IECC requirements and homes that are
built with the most efficient shell components, as well as non-
compliant homes that fail to meet IECC requirements. The building shell
index also accounts for the impact of incentive programs in improving
building shell efficiency. It is uncertain how these building codes and
building practices will change over time, so EIA uses technical and
economic factors to project change in the building shell integrity
indexes. For new home construction, EIA determined the building shell
efficiency by using the relative costs and energy bill savings in
conjunction with the building shell attributes. For commercial
buildings, the shell efficiency factors vary by building type and
region, and they take into account significant improvements to the
commercial building shell, particularly in new commercial buildings.
---------------------------------------------------------------------------
\96\ DOE Building Energy Codes Program, Status of State Energy
Code Adoption (available at: www.energycodes.gov/status) (last
accessed August 1, 2023).
---------------------------------------------------------------------------
AHRI stated that DOE did not consider changes to Manufactured
Housing Efficiency Standards in its analysis of proposed efficiency
standards for MHGFs, adding that the new standards were promulgated by
DOE in May 2022 and will take effect on May 31, 2023. AHRI commented
that the new requirements will enhance the thermal efficiency of the
building envelope of new manufactured homes, which will in turn reduce
the heating demand for furnaces. AHRI added that the reduced heating
demand for furnaces will then reduce the cost justification (in
particular, LCC savings) for the proposed standards. Additionally, AHRI
stated that DOE cannot double-count energy savings produced by a more-
efficient building envelope and from improved furnace efficiency.
(AHRI, No. 414-2 at pp. 1-3) Along these same lines, MHI commented that
it does not think DOE considered the increased energy efficiency caused
by the May 2022 ECS Final Rule for manufactured housing in its
technical models. (MHI, No. 365 at p. 3)
Mortex similarly commented that the standards for manufactured
homes will lead to less usage and average input of furnaces, which
weakens the cost justification for amending the furnaces standard. The
commenter stated that these standards will reduce heating season gas
demand and energy usage by approximately 15 percent, which means that
there will be fewer energy savings to offset the increased up-front
costs if a 95-percent AFUE furnace. (Mortex, No. 410 at p. 3)
Mortex further commented that this rulemaking double-counts energy
savings between this rulemaking and the manufactured housing
rulemaking. The company also pointed to the manufactured housing
rulemaking and the tiered approach such that requirements for single-
section manufactured homes imposed less of a cost than requirements for
multi-section manufactured homes in consideration of affordability of
housing for mobile home residents. Mortex commented that such
considerations should also be taken into account by DOE in the
rulemaking for MHGFs. (Mortex, No. 410 at p. 3)
In response, DOE notes that the NOPR analysis was performed using
AEO2022, which was developed before promulgation of the May 2022 final
rule for manufactured housing (87 FR 32728). AEO projections only
include the impacts of finalized regulations and, thus, do not include
DOE's May 2022 manufactured housing rule. However, it is common
practice for DOE to include updated data in its analyses when they
become available. For the final rule, DOE used the latest AEO2023
building shell efficiency projections, which take into account all
finalized rules in 2022, including the May 2022 final rule for
manufactured housing, as well as other incentives to improve building
shell efficiency. These projections result in a decrease in the
estimated space heating energy use in the final rule. The updated
analysis eliminates any potential double-counting. DOE's conclusion of
economic justification for MHGFs from the NOPR remains unchanged. With
respect to affordability, DOE notes that smaller-capacity furnaces,
which would be used in smaller mobile homes, have lower incremental
costs.
Sierra Club et al. mentioned that the rule for energy efficiency
standards for new manufactured homes was based in part on the
requirements of the 2021 IECC, though DOE declined to consider IECC
requirements in setting minimum efficiency levels for heating
appliances installed in such homes due to the coverage of these
products under EPCA's appliance efficiency standards program. 87 FR
32728, 32774 (May 31, 2022). Sierra Club et al. stated that another
stakeholder's comments on the NOPR--claiming that DOE is extending the
IECC's requirements to mobile home gas furnaces--have an unclear basis.
(Sierra Club et al., No. 401 at pp. 2-3)
In response, DOE acknowledges that coverage under EPCA for MHGFs is
under consumer furnaces provisions of EPCA and not under the
manufactured housing rulemaking. DOE agrees with Sierra Club et al.
that it is not extending IECC requirements. Instead, DOE is
independently evaluating the technological feasibility and economic
justification of amended energy conservation standards for MHGFs by
conducting its own analysis.
4. Furnace Electricity Use
DOE's analysis of furnace electricity consumption takes into
account the electricity used by the furnace's electrical components
(e.g., blower, draft inducer, and ignitor). DOE determined furnace fan
electricity consumption using field data on static pressures of duct
systems and furnace fan performance data from manufacturer literature.
As noted in section IV.C of this document, the furnace designs used in
DOE's analysis incorporate furnace fans that meet the energy
conservation standards for those covered products that took effect in
2019.\97\ DOE accounted for furnace fan energy use during heating mode,
as well as for the difference in furnace fan electricity use between a
baseline furnace (80-percent AFUE) and a more-efficient furnace during
cooling and continuous fan circulation. DOE also accounted for
increased furnace fan energy use in condensing furnaces to produce the
equivalent airflow output compared to a similar non-condensing furnace,
since condensing furnaces tend to have a more restricted airflow path
than non-condensing furnaces due to the presence of a secondary heat
exchanger. To calculate electricity consumption for the inducer fan,
ignition device, gas valve, and controls, DOE used the calculation
described in DOE's furnaces test procedure,\98\ as well as in DOE's
2023 unique furnace model dataset and manufacturer product literature.
The electricity consumption of condensing furnaces also reflects the
use of condensate pumps and heat tape.
---------------------------------------------------------------------------
\97\ See 10 CFR 430.32(y).
\98\ Found in 10 CFR part 430, subpart B, appendix N, section
10.
---------------------------------------------------------------------------
[[Page 87550]]
DOE accounts for the increased electricity use of condensing
furnaces in heating, cooling, and continuous fan circulation due to
larger internal static pressure (a more restricted airflow path due to
the presence of a secondary heat exchanger). DOE notes that the furnace
fan energy conservation standards that took effect in 2019 (for both
non-condensing and condensing NWGFs \99\) can be met using constant-
torque BPM motors, which do not require increasing the size of an
undersized duct since the speed of the motor is kept constant with
increased static pressure. DOE also accounts for higher energy use for
a fraction of installations that include a constant airflow BPM
(variable speed motor) that can increase the speed of the motor to
compensate for high static pressures. See appendix 7C of the final rule
TSD for more details.
---------------------------------------------------------------------------
\99\ The furnace fan energy conservation standards relevant to
condensing and non-condensing MHGFs can be met using improved PSC
motors and, therefore, these considerations do not apply.
---------------------------------------------------------------------------
As stated previously, a condensing furnace uses more electricity
than an equivalent non-condensing furnace but uses significantly less
natural gas or LPG. DOE accounted for the additional heat released by
the furnace fan motor, which must be compensated by the central air
conditioner during the cooling season, based on analysis in the October
2022 Preliminary Analysis for consumer furnace fans.\100\ DOE also
accounted for additional electricity use by the furnace fan during
continuous fan operation.
---------------------------------------------------------------------------
\100\ U.S. Department of Energy--Office of Energy Efficiency and
Renewable Energy, Energy Conservation Program for Consumer Products:
Technical Support Document: Energy Efficiency Standards for Consumer
Products: Consumer Furnace Fans (October 2022) (available at:
www.regulations.gov/document/EERE-2021-BT-STD-0029-0014) (last
accessed August 1, 2023).
---------------------------------------------------------------------------
F. Life-Cycle Cost and Payback Period Analysis
DOE conducted LCC and PBP analyses to evaluate the economic impacts
on individual consumers of potential energy conservation standards for
NWGFs and MHGFs. The effect of new or amended energy conservation
standards on individual consumers usually involves a reduction in
operating cost and an increase in purchase cost. DOE used the following
two metrics to measure consumer impacts:
Life-Cycle Cost (LCC) is the total consumer expense of an
appliance or product over the life of that product, consisting of total
installed cost (manufacturer selling price, distribution chain markups,
sales tax, and installation costs) plus operating costs (expenses for
energy use, maintenance, and repair). To compute the operating costs,
DOE discounts future operating costs to the time of purchase and sums
them over the lifetime of the product.
Payback Period (PBP) is the estimated amount of time (in
years) it takes consumers to recover the increased purchase cost
(including installation) of a more-efficient product through lower
operating costs. DOE calculates the PBP by dividing the change in
purchase cost at higher efficiency levels by the change in annual
operating cost for the year that amended or new standards are assumed
to take effect.
For any given efficiency level, DOE measures the change in LCC
relative to the LCC in the no-new-standards case, which reflects the
estimated efficiency distribution of NWGFs and MHGFs in the absence of
new or amended energy conservation standards. In contrast, the PBP for
a given efficiency level is measured relative to the baseline product.
For each considered efficiency level in each product class, DOE
calculated the LCC and PBP for a nationally representative set of
housing units and, for NWGFs, also commercial buildings. As stated
previously, DOE developed household samples from 2020 RECS and CBECS
2018. For each sample household, DOE determined the energy consumption
of the furnace and the appropriate natural gas, LPG, and electricity
price. By developing a representative sample of households, the
analysis captured the variability in energy consumption and energy
prices associated with the use of NWGFs and MHGFs.
Inputs to the LCC calculation include the installed cost to the
consumer, operating expenses, the lifetime of the product, and a
discount rate. Inputs to the calculation of total installed cost
include the cost of the product--which includes MPCs, manufacturer
markups, product price projections, wholesaler and contractor markups,
and sales taxes (where appropriate)--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, and discount rates. Inputs to the
payback period calculation include the installed cost to the consumer
and first year operating expenses. DOE created distributions of values
for installation cost, repair and maintenance, product lifetime, and
discount rates with probabilities attached to each value, to account
for their uncertainty and variability. In addition, DOE established the
efficiency in the no-new-standards case using a distribution of furnace
efficiencies.
In regard to DOE's cost calculations, GAS commented that DOE is
defying its own intent to use ``transparent and robust analytical
methods.'' Instead, GAS commented, DOE games its analytical methods
through undue complexity to declare some level of (usually minimal)
positive LCC savings necessary to clear the low hurdle rate established
by EPCA. GAS commented that DOE ``grossly inflates'' its LCC savings
estimates by opaque methodologies that defy independent validation.
(GAS, No. 385 at pp. 4-5)
Trampe commented that a long-term study is needed where total costs
(initial and maintenance) of furnaces with different efficiencies are
compared. The commenter added that this study should cover different
States and temperatures. Trampe stated that HVAC installers, repairers,
distributors, and manufacturers can provide their input on what these
total costs would be. (Trampe, No. 361 at p. 1)
In response, DOE conducts all appliance standards rulemakings
through the public notice-and-comment process, in which all members of
the public are given the opportunity to comment on the rulemaking, and
all documents are made publicly available at www.regulations.gov.
Additionally, all benefits and burdens of the rulemaking are carefully
considered by DOE. Section IV.F of this document explains DOE's
rationale regarding cost impacts and LCC models. As part of this
rulemaking, DOE also hosted a number of public meetings, including one
focused on its analytical models, in order to increase the transparency
of its process. DOE currently works with manufacturers to determine
appropriate costs, as Trampe suggested. Although predicted future and
long-term costs are calculated and considered, a long-term study
regarding total costs of furnaces at various efficiencies will not be
conducted as part of this rulemaking because DOE has determined that
its current methodology captures the elements which the commenter
suggests. However, because DOE consistently strives to improve its
analytical processes, the Department may consider Trampe's comment as a
topic for possible continued future research.
The computer model DOE uses to calculate the LCC relies on a Monte
Carlo simulation to incorporate uncertainty and variability into the
analysis. The Monte Carlo simulations randomly sample input values from
the probability distributions and NGWF and
[[Page 87551]]
MHGF user samples. For this rulemaking, the Monte Carlo approach is
implemented in MS Excel together with the Crystal Ball\TM\ add-on.\101\
Details regarding the various inputs to the model are discussed in the
subsections below. The model calculated the LCC and PBP for products at
each efficiency level for 10,000 furnace installations per simulation
run. The analytical results include a distribution of 10,000 data
points showing the range of LCC savings for a given efficiency level
relative to the no-new-standards case efficiency distribution. In
performing an iteration of the Monte Carlo simulation for a given
consumer, product efficiency is chosen based on its probability. If the
chosen product efficiency is greater than or equal to the efficiency of
the standard level under consideration, the LCC calculation reveals
that a consumer is not impacted by the standard level. By accounting
for consumers who are projected to purchase more-efficient furnaces
than the baseline furnace in the no-new-standards case, DOE avoids
overstating the potential benefits from increasing product efficiency.
DOE calculated the LCC and PBP for consumers of NWGFs and MHGFs as if
each were to purchase a new product in the first year of required
compliance with new or amended standards. Any amended standards apply
to NWGFs and MHGFs manufactured five years after the date on which any
new or amended standard is published in the Federal Register. (42
U.S.C. 6295(f)(4)(C)) Therefore, DOE used 2029 as the first year of
compliance with any amended standards for NWGFs and MHGFs.
---------------------------------------------------------------------------
\101\ Crystal Ball\TM\ is a commercially-available software tool
to facilitate the creation of these types of models by generating
probability distributions and summarizing results within Excel
(available at: https://www.oracle.com/middleware/technologies/crystalball.html) (last accessed Aug. 3, 2023).
---------------------------------------------------------------------------
DOE recognizes the uncertainties associated with some of the
parameters used in the analysis. To assess these uncertainties, DOE has
performed sensitivity analyses for key parameters such as energy
prices, condensing furnace market penetration, consumer discount rates,
lifetime, installation costs, downsizing criteria, and product
switching criteria. DOE notes that the analysis is based on a Monte
Carlo simulation approach, which uses the Crystal Ball\TM\ add-on as a
tool to more easily apply probability distributions to various
parameters in the analysis. See appendix 8B of the final rule TSD and
relevant analytical sections of this document for further details about
uncertainty, variability, and sensitivity analyses in the LCC analysis.
DOE's LCC analysis results at a given efficiency level account for
the households that will not install condensing NWGFs unless the
standard is changed, based on the no-new-standards case efficiency
distribution described in section IV.F.8 of this document. This
approach reflects the fact that some consumers may purchase products
with efficiencies greater than the baseline levels.
DOE's analysis models the expected product lifetime, not the
expected period of homeownership. DOE recognizes that the lifetime of a
gas furnace and the residence time of the purchaser may not always
overlap. However, EPCA requires DOE to consider the savings in
operating costs throughout the estimated average life of the covered
product compared to any increase in the price of, or in the initial
charges for, or maintenance expenses of, the covered product that are
likely to result from a standard. (42 U.S.C. 6295(o)(2)(B)(i)(II)) In
the context of this requirement, the expected product lifetime, not the
expected period of homeownership, is the appropriate modeling period
for the LCC, as energy cost savings will continue to accrue to the new
owner/occupant of a home after its sale. If some of the price premium
for a more-efficient furnace is passed on in the price of the home,
there would be a reasonable matching of costs and benefits between the
original purchaser and the home buyer. To the extent this does not
occur, the home buyer would gain at the expense of the original
purchaser.
As discussed in section IV.F.10 of this document, in its LCC
analysis, DOE considered the possibility that some consumers may switch
to alternative heating systems under a standard that requires
condensing technology in its LCC analysis. The LCC analysis showed that
some consumers who switch end up with a reduction in the LCC relative
to their projected purchase in the no-new-standards case.
As part of the determination of whether a potential standard is
economically justified, EPCA directs DOE to consider, to the greatest
extent practicable, the savings in operating costs throughout the
estimated average life of the covered product in the type (or class)
compared to any increase in the price of, or in the initial charges
for, or maintenance expenses of, the covered products which are likely
to result from imposition of the standard. (42 U.S.C.
6295(o)(2)(B)(i)(II)) EPCA does not expressly limit consideration of
the covered product or covered products likely to result under an
amended standard to the covered product type (or class) (i.e., no
prohibition on consideration of the potential for product switching due
to new or amended standards). EPCA indicates that the timeframe of the
LCC analysis is based on the estimated average life of the covered
product subject to the standard under consideration for amendment.
(Id.) However, the use of ``covered products'' in the plural for what
is to be considered as resulting from an amended standard suggests that
DOE could consider covered products other than that subject to the
standard. In the present case, DOE has found it unnecessary to decide
whether EPCA allows DOE to consider the benefits from this standard
rule on consumers of other covered products (e.g., electric heat
pumps). However, in this analysis, DOE has accounted for the expected
effect that these standards will have on consumers' decisions to switch
from home heating via a gas-fired furnace to home heating via electric
alternatives. As explained in detail below, were DOE not to consider
the potential for consumers switching products in response to an
amended standard, the analysis would not capture what could be expected
to occur in actual practice. Given that understanding, DOE performed a
sensitivity analysis with and without product switching for the LCC
analysis (presented in section V.B.1.a of this document and in appendix
8J of the final rule TSD) and for the NIA as well (presented in
sections V.B.3.a and V.B.3.b of this document and in appendix 10E of
the final rule TSD). The economic justifications for the considered
energy conservation standards for NWGFs and MHGFs are similar with
either no product switching or with product switching, and the relative
comparison between the TSLs remains similar.
EPCA also establishes, as noted in section III.F.2 of this
document, 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. (42 U.S.C.
6295(o)(2)(B)(iii)) As with the LCC analysis, accounting for the
potential for switching in the PBP analysis provides a payback that is
representative across consumers.
Table IV.7 summarizes the approach and data DOE used to derive
inputs to the LCC and PBP calculations. The
[[Page 87552]]
subsections that follow provide further discussion. Details of the
spreadsheet model, and of all the inputs to the LCC and PBP analyses,
are contained in chapter 8 of the final rule TSD and its appendices.
Table IV.7--Summary of Inputs and Methods for the LCC and PBP Analysis *
------------------------------------------------------------------------
Inputs Source/method
------------------------------------------------------------------------
Product Cost................. Derived by multiplying MPCs by
manufacturer, wholesaler, and contractor
mark-ups and sales tax, as appropriate.
Used historical data to derive a price
scaling index to forecast product costs.
Installation Costs........... Baseline installation cost determined
with data from 2022 RS Means. Assumed
variation in cost with efficiency level.
Annual Energy Use............ Total annual energy use based on the
annual heating load, derived from the
building samples. Electricity
consumption based on field energy use
data.
Variability: Based on the RECS 2020 and
CBECS 2018.
Energy Prices................ Natural Gas: Based on EIA's Natural Gas
Navigator data for 2022 and RECS 2020
and CBECS 2018 billing data.
Propane: Based on EIA's State Energy Data
System (``SEDS'') for 2021.
Electricity: Based on EIA's Form 861 data
for 2022 and RECS 2020 and CBECS 2018
billing data.
Variability: State energy prices
determined for residential and
commercial applications.
Marginal prices used for natural gas,
propane, and electricity prices.
Energy Price Trends.......... Based on AEO2023 price projections.
Repair and Maintenance Costs. Based on 2023 RS Means data and other
sources. Assumed variation in cost by
efficiency.
Product Lifetime............. Based on shipments data, multi-year RECS,
American Housing Survey, American Home
Comfort Survey data. Mean lifetime of
21.5 years.
Discount Rates............... Residential: approach involves
identifying all possible debt or asset
classes that might be used to purchase
the considered appliances, or might be
affected indirectly. Primary data source
was the Federal Reserve Board's Survey
of Consumer Finances.
Commercial: Calculated as the weighted
average cost of capital for businesses
purchasing NWGFs. Primary data source
was Damodaran Online.
Compliance Date.............. 2029.
------------------------------------------------------------------------
* Note: References for the data sources mentioned in this table are
provided in the sections following the table or in chapter 8 of the
final rule TSD.
A number of commenters expressed opposition to the proposed rule
based on the LCC and PBP results. AGA et al. stated that under DOE's
proposal in the July 2022 NOPR, approximately 40 percent of NWGFs would
be eliminated from the market, and consumers would have to either
upgrade existing venting systems or switch to an electric furnace,
which the commenters say will have higher operating costs and require
upgrades to home or business electrical systems. (AGA et al., No. 391
at p. 1) AGA et al. also stated that consumers, where it is
economically appropriate for new homes or renovations, are already
installing condensing furnaces and other high-efficiency units
throughout the United States, and these commenters suggested that this
high level of voluntary adoption demonstrates that DOE's proposal is
``redundant.'' (AGA et al., No. 391 at p. 2)
LANGD and Georgia Gas Authority commented that in its current form,
the proposed standard will negatively impact nearly 1 in 6 customers of
non-weatherized gas furnaces, including 1 in 5 senior-only households,
1 in 7 low-income households, and 1 in 5 small business consumers.
(LANGD, No. 355 at p. 1; Georgia Gas Authority, No. 367 at p. 2) LANGD
further stated that there are other ways to achieve lower emissions,
improved energy efficiency, and reduced bills than those proposed in
the NOPR. (LANGD, No. 355 at pp. 1-2)
The Coalition commented that the added costs associated with a 95-
percent AFUE unit would be more than three times the value of their
first-year energy savings, adding that some homeowners may never recoup
the added upfront costs. The Coalition further commented that these
calculations can be even more complicated in the rental housing
environment where there can be a disconnect between who pays the
upfront equipment cost and who pays the expenses for utilities. (The
Coalition, No. 378 at pp. 5-6)
Atmos Energy commented that DOE should improve the accuracy of its
analysis by tailoring its consideration of consumer behavior, life-
cycle evaluations, and costs. Atmos Energy further commented that the
proposed rule uses unsupported and broad assumptions that are not
reflective of actual consumer behavior and information. (Atmos Energy,
No. 415 at p. 5) Atmos Energy also commented that the consequences of
this proposed rule would hit especially hard in their service
territory. The commenter stated that in Louisiana, Mississippi, and
Texas alone, more than 1.5 million households live below 150 percent of
the Federal poverty line. In addition, Atmos Energy stated that Texas
households that fall between 100 and 150 percent of the Federal poverty
level experience an average energy burden (i.e., cost of energy as a
percentage of income) of 8 percent, while Texans living below the
Federal poverty level experience an average energy burden of 16
percent. In Louisiana and Mississippi, Atmos Energy stated that it
serves 361,000 households that fall below the Federal poverty line,
commenting that these households spend approximately $350 more on
energy each year than the national average with an estimated average
energy burden of 22 percent. (Atmos Energy, No. 415 at p. 4)
Black Hills Energy stated that approximately 40 percent of non-
weatherized natural gas furnaces shipped to customers annually are non-
condensing furnaces. The commenter stated that the proposed rule would
eliminate non-condensing furnaces and that neither updates to venting
for a condensing furnaces nor updates to electrical systems for an
electric furnaces are pro-consumer. Additionally, Black Hills Energy
stated, that electric furnaces may have a higher operating cost. (Black
Hills Energy, No. 397 at pp. 1-2) Black Hills Energy stated that the
proposed rule is unnecessary because those for whom a condensing
furnace is beneficial are choosing those furnaces, but the option for a
non-condensing furnace should not be taken away from those for whom a
conversion
[[Page 87553]]
is difficult due to issues of affordability. (Black Hills Energy, No.
397 at p. 2) Plastics Pipe Institute similarly commented that consumers
are already installing higher-efficiency condensing furnaces throughout
the country, and, therefore, the proposed rule is unnecessary.
(Plastics Pipe Institute, No. 404 at p. 2) A. Kessler opposed the
proposed rule, arguing that a condensing furnace is not economically
justified for some households, such as a townhome with a commonly
vented water heater or a two-story home with a poured concrete
foundation with brick exterior walls. (A. Kessler, No. 331 at pp. 2-4)
In response, DOE acknowledges that for certain installations, there
are significant costs. This is accounted for in the full distribution
of LCC results, including consumers that experience net costs, and is
part of the evaluation of economic justification as discussed in
section V.C of this document. DOE also considered the impacts to low-
income consumers, as described in sections IV.I.1 and V.B.1.b of this
document. Additionally, DOE acknowledges that some consumers are
already purchasing higher-efficiency condensing furnaces, and this
market share is accounted for in the analysis, resulting in a
percentage of consumers who are not impacted by the amended standard.
The development of the distribution of efficiency in the no-new-
standards case is discussed in further detail in section IV.F.8 of this
document.
AGA stated that DOE should revise its analysis to ensure that
impacts are not inappropriately affected by the inclusion of buildings
that are designed for condensing equipment and for which consumers
already have condensing furnaces. (AGA, No. 405, pp. 86-87)
In response, DOE clarifies that consumers who are not impacted by a
standard in the LCC analysis, because they are already purchasing a
higher-efficiency furnace, do not factor into the average LCC savings.
The average LCC savings only reflect impacted consumers. The percentage
of consumers not impacted by a standard is shown separately from the
percentages of consumers negatively impacted and positively impacted
under the new-standards case in the LCC spreadsheet.
AGA stated that even with some sensitivity analysis, establishing
averages in terms of furnace costs, installation costs, annual
maintenance costs, energy consumption, etc., is not appropriate for
this type of DOE consumer covered product. (AGA, No. 405 at p. 88) In
response, DOE notes the commenter is mischaracterizing the analysis.
DOE uses a distribution of installation costs, equipment capacity,
maintenance cost, and energy consumption as part of the LCC analysis
and does not really on average values for these inputs.
AGA commented that DOE's modeling approach is fundamentally flawed,
being shaped by random numbers producing inconsistent results and, in
some cases, profoundly different economic analyses. (AGA, No. 405 at
pp. 73-74) In response, DOE notes that it has conducted a number of
sensitivity scenario analyses, all of which vary key input parameters,
and the results of the analyses do not alter DOE's conclusion of
economic justification.
In contrast, other commenters agreed with DOE's analysis that the
proposed standard level for NWGFs and MHGFs is economically justified,
based on the LCC and PBP results.
NYSERDA offered that based on their analysis of the active models
of the six major furnace manufacturers identified in chapter 3 of the
NOPR TSD, a wide variety of models would continue to be available
across a range of input capacities if the AFUE level were to be set at
96 percent. NYSERDA added that at this AFUE level, a broad range of
residential applications would continue to be served, and consumers
would not suffer from a deficit of market options. (NYSERDA, No. 379 at
p. 2) NYSERDA stated that 30 percent of NWGF models would not be
compliant if an AFUE level were to be set at 96 percent instead of 95
percent, but the commenter opined that manufacturers would have enough
time over the five years following the initial rule to redesign and
preserve many of those models. (Id.) NYSERDA commented that DOE's
update to the standards for the subject consumer furnaces would result
in significant consumer benefits. NYSERDA further commented that the
current LLC analysis, while robust, may overstate costs and
underestimate benefits. (NYSERDA, No. 379 at p. 3) More specifically,
NYSERDA commented that the composite effect of low heating energy use,
low burner operating hours, and short equipment lifetime could affect
LCC savings significantly. (NYSERDA, No. 379 at p. 5)
NYSERDA commented that there are real-world mitigating factors that
are not factored into LCC analysis but are nonetheless likely to arise.
As examples of some of these potential factors, the commenters pointed
to limited warranties that do not completely cover an early failure,
renters being responsible for equipment operation and building owners
being responsible for the upfront purchase, future natural gas costs
that may differ from EIA gas forecasts, and consumers opting for an
alternative heating source to avoid high-cost gas furnaces. (NYSERDA,
No. 379 at p. 5)
Daikin commented that DOE's proposed 95-percent AFUE standard has
the shortest rebuttable payback period of the ELs considered,
regardless of the standard type considered. (Daikin, No. 416 at p. 2)
On this point, DOE clarifies that the 95-percent AFUE level has the
shortest simple payback period, relative to the baseline model and
assuming a national standard, of the condensing ELs considered.
NPGA commented that no deliberate attempts appear to have been made
by DOE to address consumer choice and tradeoffs as recommended in the
NAS report. (NPGA, No. 395 at p. 13)
DOE notes that discussion of the recommendations of the NAS report
will be addressed as part of a separate notice-and-comment process, and
not on an individual rulemaking-by-rulemaking basis.
NPGA commented that the Monte Carlo analysis as implemented in the
LCC and PBP analyses do not meet the requirements of the Office of
Management and Budget Circular A-4 for Regulatory Analysis. (NPGA, No.
395 at p. 14) The commenter argued that DOE does not evaluate variables
in the simulation for independence and fails to use the functionality
of the Crystal Ball Microsoft Excel add-in to quantify relationships
among correlated variables. (NPGA, No. 395 at p. 15) NPGA commented
that DOE does not implement correlation of any distributional inputs,
therefore presuming that all such inputs are independent random
variables. NPGA asserted that DOE's approach is not reasonable to
represent actual consumers. NPGA further stated that the TSD does not
suggest that DOE conducted a systematic analysis of correlated
variables, as would be implied by the Circular A-4 guidance. (NPGA, No.
395 at p. 15) NPGA listed the following input variable pairs as likely
correlated distributional input variables affecting LCC savings:
furnace maintenance failure year and repair cost, furnace lifetime and
EL design complexity, and EL design complexity and repair cost. (NPGA,
No. 395 at pp. 15-16)
In response, DOE notes that multiple variables are correlated in
the analysis. For example, installation costs depend on installation
location and other housing characteristics. There is also a
relationship between design options,
[[Page 87554]]
lifetime, and maintenance and repair costs. As discussed in chapter 8
and appendix 8F of the final rule TSD, repair costs do vary by failure
year, and this is captured in the analysis. Annualized maintenance and
repair costs also differ between non-condensing and condensing furnace.
For other variables, DOE does not have enough information regarding any
correlation. See appendix 8B for a description of the correlated
variables. Thus, NPGA's assertion that DOE does not implement
correlation of variables is incorrect.
NPGA commented that the NOPR does not provide evidence to suggest
the use of the techniques in Circular A-4 for developing expert
judgment estimates. (NPGA, No. 395 at p. 16)
NPGA commented that DOE frequently mixes the objectives of modeling
input diversity and uncertainty within a single distribution. (NPGA,
No. 395 at p. 16) In response, DOE notes that this mischaracterizes the
analysis. DOE uses probability distributions for a number of input
variables that are reasonably expected to exhibit natural variation and
diversity in practice (e.g., lifetime, repair cost, installation
costs). These probability distributions are modeling diversity. In
contrast, DOE addresses input uncertainty primarily with the use of
sensitivity scenarios. To determine whether the conclusions of the
analysis are robust, DOE performed several sensitivity scenarios with
more extreme versions of these input variables (including high/low
economic growth and energy price scenarios, alternative price trend
scenarios, alternative mean lifetime scenarios, alternative product
switching scenarios, an alternative venting technology scenario, and
scenarios with different Monte Carlo sampling). The relative comparison
of potential standard levels in the analysis remains the same
throughout these sensitivity scenarios, confirming that the conclusion
of economic justification is robust despite some input uncertainty.
NPGA stated that DOE does not employ Oracle guidance in
implementing the Crystal Ball software in the analysis. (NPGA, No. 395
at p. 16) According to NPGA, DOE only provides rudimentary flow
diagrams of its Crystal Ball LCC savings and payback spreadsheet.
(NPGA, No. 395 at p. 17) NPGA stated that DOE also does not provide a
record on how it arrived at model design or how alternative model
designs were considered. (NPGA, No. 395 at p. 17) In response, DOE
clarifies that the use of Crystal Ball is to generate the sequence of
random numbers necessary to build the 10,000 samples utilized in the
LCC analysis. All other calculations are contained in the LCC
spreadsheet, which has been extensively documented and discussed at
length with interested parties through various iterations of notice-
and-comment, as well as informal workshops. Every calculation dependent
on a random value is outlined in the LCC spreadsheet, including all the
probability distributions relevant to the calculation. The LCC
spreadsheet includes flow diagrams of all worksheets and outlines the
dependencies of all calculations.
NPGA stated that DOE does not assess validity in terms of
reasonableness or validity of ``outlier'' consumer cases. (NPGA, No.
395 at p. 18) NPGA further commented that DOE does not apply
manufacturer and consumer outcome data or implement methods or proxy
calculations for validating its LCC and PBP calculations. (NPGA, No.
395 at p. 18) NPGA stated that DOE failed to analyze key options for
modeling and data inputs. (NPGA, No. 395 at p. 18) NPGA stated that
DOE's current process for supporting its LCC savings and payback
analysis discounts the potential value of subject matter experts
participating in the design, implementation, testing, and validation of
its LCC savings and payback calculations. (NPGA, No. 395 at p. 18)
DOE has requested, repeatedly, data and input from interested
parties and has incorporated many such pieces of information and data
into its analysis. When such data are provided, they are incorporated
into the analysis to the maximum extent possible. DOE does not discount
the value of commenters' expert judgement, but DOE also relies on
concrete data whenever possible to inform the analysis. With respect to
outlier results, DOE notes that the full distribution of results,
including median results, are available in the LCC spreadsheet.
NPGA recommended that DOE should test extreme conditions and
compare the model to any similar models. (NPGA, No. 395 at pp. 18-19)
NPGA added that stakeholders have offered to provide calculations based
on simpler approaches. (NPGA, No. 395 at p. 19) In response, DOE's
development of the LCC model is based on many prior comments over the
years recommending the inclusion of various effects and other
considerations. The increasing complexity of the model is due, in part,
to DOE's responsiveness to these prior comments from previous notices.
Additionally, DOE considers the distribution of potential impacts
across a range of conditions, which is why many input variables are
characterized by probability distributions (whenever possible) and the
LCC analyzes a sample of 10,000 households.
AGPA asserted that DOE fails to deal with outlier data points in a
reasonable manner. According to the commenter, extreme values should be
eliminated from an analysis, but DOE has failed to make such an
adjustment. (APGA, No. 387 at p. 17)
AHRI stated that DOE should utilize median values (as opposed to
mean values) for future LCC analyses, stating that this method will
remove the impacts of outlier buildings. However, AHRI acknowledged
that switching from mean to median leaves DOE's conclusions for this
rulemaking essentially unchanged. (AHRI, No. 414-2 at pp. 3-4)
In response, DOE provides a full range of statistics in the LCC
spreadsheet, including median values and results at various
percentiles. DOE also provides a distribution of impacts, including
consumers with a net benefit, net cost, and not impacted by the rule.
DOE further notes that the evaluation of economic justification would
be the same using either average or median LCC savings. Therefore,
individual LCC results at the ends of the distribution are not
distorting DOE's evaluation.
The Marley Companies claimed that DOE recognizes there is
uncertainty in the model, but only accounts for uncertainty in some
parts of the model, thereby discrediting the variation in the
information used to perform calculations. The commenter further claimed
that DOE fails to use documented variation in both the RECS and CBECS
data sets and uses ``representative capacities'' in product categories
instead of the well-documented range of input capacities in each
product category. (The Marley Companies, No. 386 at p. 2)
The Marley Companies further asserted that any life-cycle cost
modeling must, at a minimum, include the variation in the CBECS and
RECS data sets, consistently relate all references to the specific
geographic information of the home or building modeled, and utilize
both the variation and average of the energy usage identified in the
national energy surveys noted in the 2015 RECS comparison with other
studies. The commenter asserted that DOE must provide the impact to the
results using different sources of information than RECS and CBECS, as
well as provide realistic modeling by accounting for documented
uncertainties and variation in the inputs to the analysis. (The Marley
Companies, No. 386 at pp. 3-5)
[[Page 87555]]
APGA claimed that DOE's analysis does not merely fail to address
uncertainty in many cases in which uncertainty is known to exist; there
are key cases in which DOE's model uses a single parameter input (as
opposed to a distribution of inputs) and, thus, fails to address both
the known variability of that input and any uncertainty as to what the
range and distribution of that input should be. (APGA. No. 387 at p.
12)
In response, DOE acknowledges that the summary statistics published
by RECS and CBECS include documented statistical uncertainties;
however, DOE's analysis uses the individual household microdata
directly. These are survey responses from individual households.
Accordingly, the standard errors published for RECS and CBECS do not
directly apply. The average LCC savings, based on these microdata,
include a full distribution of results, as presented in chapter 8 of
the final rule TSD and the LCC spreadsheet. These results are based on
a similar averaging and sampling weights as in the RECS and CBECS
summary statistics. The LCC results at several different percentiles
are available.
DOE further notes that there will always be natural variation in
RECS and CBECS editions because they are snapshots in time, and many
aspects of energy consumption change with time. It is normal and
expected for RECS and CBECS results to change with each edition, and
DOE utilizes the most recent data set whenever possible so as to be as
representative as possible. RECS and CBECS remain, by far, the most
comprehensive and statistically representative surveys of energy
consumption in residential and commercial buildings available for the
U.S., and the commenters have failed to provide any alternative data
sources that are of comparable quality. RECS and CBECS are the highest
quality data sources available to DOE. DOE does correlate a number of
inputs to individual building characteristics from RECS and CBECS as
part of its energy use analysis, including heating load, building shell
indices, installation costs, and no-new-standards case efficiency
probability.
DOE develops probabilities for as many inputs to the LCC analysis
as possible, to reflect the distribution of impacts as comprehensively
as possible. For example, DOE develops probabilities for building
sampling, installation costs, lifetime, discount rate, and efficiency
distribution, among other inputs. If there are insufficient data with
respect to a specific input parameter to create a robust probability
distribution, DOE will utilize a single input parameter. Such approach
is neither arbitrary nor capricious; it is informed by the available
data.
Finally, DOE developed a number of sensitivity scenarios for the
NOPR and this final rule to specifically address the potential
uncertainty in some key input parameters, as raised in prior comments.
DOE has been responsive to these comments and has provided a wealth of
additional sensitivity scenarios to demonstrate that its conclusions of
economic justification are robust.
NPGA commented that representation in variability and uncertainty
is not fully considered by DOE around installation costs of propane
furnaces in replacement applications that require venting changes.
(NPGA, No. 395 at p. 14)
Atmos Energy commented that DOE should more accurately and
justifiably consider the variability and uncertainty around
installation costs of natural gas furnaces, adding that this is
particularly important in furnace replacement applications requiring a
shift in venting systems from atmospheric to power venting. The
commenter added that the consequences of required venting changes to
other appliances should also be more accurately and justifiably
considered. Atmos Energy also stated that this suggestion would be
consistent with National Academy of Science peer review report's
recommendation. (Atmos Energy, No. 415 at p. 6)
In response, DOE notes that its installation cost estimates do
include a number of input parameters characterized by probability
distributions, including for propane furnaces. DOE further emphasizes
that a significant number of factors are considered in replacement
applications, as discussed in section IV.F.2 of this document. DOE has
been responsive to prior comments and has enhanced the installation
cost estimates, including the installation of new venting, a number of
times based on these comments.
Southwest Gas Corporation commented that for the vast majority of
Southwest customers who reside in a hot/dry climate, where the forced
air system is used primarily for cooling, the payback period is
estimated to range 20 to 23 years, beyond the useful life of the
furnace of 18 years. (Southwest, No. 353 at p. 1)
MHI commented that consumers in southern climates will be
disproportionately impacted by the proposed standards for MHGFs. MHI
argued that, in places where heating requirements are minimal, high-
efficiency furnaces make little economic sense, with longer payback
periods. The commenter further asserted that southern consumers would
likely move away from the gas furnace market, thereby shrinking the
market and creating more challenges for manufactured homeowners who
often rely on gas heating. (MHI, No. 365 at p. 4)
Georgia Gas Authority argued that consumers in Southern States,
like Georgia, Florida, Alabama, and Texas, require much less home
heating, making higher efficiency gas furnaces uneconomical. (Georgia
Gas Authority, No. 367 at p. 3)
NGA argued that DOE's model understates the number of customers
negatively impacted by the standard. (NGA of Georgia, No. 380 at p. 2)
NGA stated that with the majority of Georgians receiving negative or
neutral payback from this standard, it believes that DOE has violated
factor (ii) of 42 U.S.C. 6295(o)(2)(B). (Id.)
HARDI commented that the payback period determined by DOE does not
hold true for Southern States, such that the standards should not be
updated nationwide. However, HARDI also commented that it opposes the
development of regional standards for consumer furnaces, as Northern
States are already trending towards high-efficiency products. (HARDI,
No. 384 at p. 3)
The Coalition commented that in some areas (particularly the
South), it will take years if not decades for owners to recoup the
added costs of 95-percent AFUE furnaces through long-term energy
savings, adding that furnaces run a maximum of three months a year in
many southern climates. (The Coalition, No. 378 at p. 5)
ACCA stated that DOE's analysis overlooked regional burdens,
especially in the Southern U.S. (ACCA, No. 398 at p. 3)
Daikin commented that DOE's payback analysis does not specify the
impacts on particular regions, specifically the South, which has a
lower heating load and longer payback periods. Daikin noted that the
analysis still shows a national average benefit, but that southern
areas are likely better suited for heat pump applications. (Daikin, No.
416 at p. 3)
AGA commented that the NOPR fails to address significant regional
differences in costs and benefits that will disproportionately impact
millions of Americans. Fuel switching has a disproportionate impact on
projected LCC savings for consumers in the South. (AGA, No. 405 at pp.
81-82)
In response, DOE notes that the analysis considers all households,
including households in the Southern
[[Page 87556]]
U.S. This analysis allows DOE to meet its statutory obligation under
EPCA when determining the economic justification of a potential
standard to assess the savings in operating costs throughout the
estimated average life of the covered product in the type (or class)
compared to any increase in the price of, or in the initial charges
for, or maintenance expenses of, the covered product which are likely
to result from a new or amended standard. (42 U.S.C.
6295(o)(2)(B)(i)(II)) DOE acknowledges that the impact of amended
energy conservation standards for the subject furnaces on consumers,
including the payback period, can vary from household to household and
in different regions of the country. Some consumers may experience a
net benefit and some may experience a net cost. This distribution of
impacts is accounted for in the analysis and is part of the LCC
results. DOE further acknowledges that some percentage of consumers
will experience a net cost in the new-amended-standards case when
weighing costs and benefits as part of its evaluation of economic
justification, as discussed in further detail in section V.C of this
document. The full range of statistics, including simple payback
period, is available in the LCC spreadsheet (specifically in the
``Statistics'' and ``Forecast Cells'' worksheets). The LCC results are
also presented by region in chapter 8 of the final rule TSD.
DOE finds without merit NGA's argument that because some percentage
of consumers at either a national or regional level would experience a
net LCC cost or an extended payback period, the Department has violated
its obligations under 42 U.S.C. 6295(o)(2)(B)(i)(II).\102\ The statute
directs DOE to consider economic justification of a potential standard
by determining whether its benefits exceed its burdens, by, to the
greatest extent practicable, considering seven enumerated factors (see
42 U.S.C. 6295(o)(2)(B)(i)(I)-(VII)). Consumer impacts are just one of
the factors DOE must weigh when considering a potential standard.
Furthermore, DOE assesses impacts of potential standards at a national
level, so impacts at a State or regional level will not automatically
trigger a determination that a potential standard lacks economic
justification in the manner NGA suggests.
---------------------------------------------------------------------------
\102\ DOE notes that NGA's comment specifically referenced 42
U.S.C. 6295(o)(2)(B)(ii), which pertains to the U.S. Attorney
General's obligation to determine, in writing, whether a proposed
energy conservation standard would result in a lessening of
competition in the relevant market. Because NGA's comment focuses on
consumer impacts, DOE has concluded that the statutory provision in
the comment was cited in error, but instead, DOE presumes that NGA
intended to cite 42 U.S.C. 6295(o)(2)(B)(i)(II), the provision
related to consumer impacts. DOE has responded to that comment
accordingly. DOE further notes that the U.S. Department of Justice
did conduct the requisite anti-competitive review for this
rulemaking pursuant to 42 U.S.C. 6295(o)(2)(B)(ii), as discussed in
section III.F.1.e of this document.
---------------------------------------------------------------------------
Under EPCA, DOE may consider adopting an additional, regional
standard for consumer furnaces that is more stringent than the national
standard. (42 U.S.C. 6295(o)(6)(B)(ii)) In order to establish a
regional standard, DOE would have to, among other things, determine
that a regional standard would save significant additional energy as
compared to a single, base national standard and be economically
justified. (42 U.S.C. 6295(o)(6)(D)). DOE did consider a regional
standard in one of its TSLs (TSL 4), but as explained in section V.C of
this document, DOE has found that a national standard for both NWGFs
and MHGFs corresponding to 95-percent AFUE (i.e., TSL 8) represents the
maximum improvement in energy efficiency that is technologically
feasible and economically justified. (42 U.S.C. 6295(o)(2)(A)). DOE did
not consider adopting a more stringent, regional standard in addition
to the base national standard of 95-percent AFUE.
NPGA stated that DOE's LCC analysis and proposed minimum efficiency
rule failed to include a separate breakout of category I non-
weatherized residential propane furnaces from the currently grouped
analysis of efficiency levels (EL) for categories I, III, and IV.
(NPGA, No. 395 at p. 21) NPGA stated that the proposal would deprive
consumers of the utility of simple, lower-cost furnace replacements.
NPGA added that replacement may not always be easily accomplished due
to housing structural design and may compromise consumer safety. (Id.)
As discussed in sections II.B.2 and IV.A.1.c of this document, DOE
published a final interpretive rule in the Federal Register on December
29, 2021, returning to DOE's long-standing interpretation (from which
the January 2021 Final Interpretive Rule departed). 86 FR 73947.
Accordingly, for purposes of the analyses conducted for this final
rule, DOE did not analyze separate equipment classes for non-condensing
and condensing furnaces nor for separate categories of venting.
However, the costs and requirements associated with different venting
categories are included in DOE's analysis, and any changes in venting
in the new-amended-standards case are included in the LCC impacts.
PHCC commented that Tables V.5 and V.6 of the NOPR should consider
consumers who have existing high-efficiency products and replace them
with new high-efficiency products. (PHCC, No. 403 at p. 6)
In response, DOE clarifies that the average LCC savings and
percentage of consumers with a net cost, as presented in Table V.6 of
the NOPR, does include consumers who replace an existing high-
efficiency product with a new high-efficiency product. Those consumers
are not impacted by the standard. Table V.5 presents results for each
TSL assuming that all consumers use products at that efficiency level.
The approach in Table V.5 is done for the purposes of presenting
typical average costs at each efficiency level for an average
household, whereas Table V.6 incorporates distributional impacts and
the existing market share of consumers already utilizing higher-
efficiency equipment.
AGA argued that the LCC model's cost savings relies on unreasonable
and unsupported assumptions about what share of the market non-
condensing furnaces would hold without the proposed rule's
requirements. (AGA, No. 405 at p. 91)
In response, DOE's estimated market share of condensing and non-
condensing furnaces in the LCC is based on historical shipment data
provided by industry stakeholders or market research firms. DOE
includes an increasing penetration of condensing furnaces in the no-
new-standards case, based on recent trends. DOE disagrees with AGA's
assertion that utilizing such industry data in the LCC analysis is
unreasonable or unsupported.
NPGA stated that DOE's economic analysis fails to take into account
additional costs and circumstances specifically related to propane.
(NPGA, No. 395 at p. 2) More specifically, NPGA argued that DOE did not
directly calculate the specific costs and benefits to propane consumers
from its proposed minimum efficiency standards. (NPGA, No. 395 at p.
23) NPGA commented that by aggregating consumer costs and benefits of
all gas furnaces, the analysis is biased by the natural gas consumer
market share. NPGA stated that the analysis does not account for the
large presence of consumer propane market households in rural areas.
(Id.) NPGA added that DOE did not account for the unique costs related
to fuel switching from propane to electric space heating. (Id.) NPGA
stated that the lack of representation of propane customers in the
simulation results is a fundamental problem, noting that eleven States
and the District of Columbia had no propane customers in the LCC. (Id.
at p. 24)
[[Page 87557]]
In response, DOE notes that the analysis takes into account the
energy price for propane and uses a representative building sample of
homes using a NWGF with propane based on RECS 2020 for the residential
sample and CBECS 2018 for the commercial sample. RECS and CBECS, while
representative, have an upper limit on the number of households and
buildings that were surveyed. The eleven States identified by the
commenter and DC comprise a very small fraction of the national
population, and natural survey sampling can produce the results seen in
the LCC. DOE notes that the national fraction of propane customers for
NWGFs and MHGFs is appropriately accounted for in the analysis, even if
some low-population States are under-sampled by RECS and CBECS. This
does not invalidate the conclusions of the analysis. For installation
costs, DOE used the latest information available in terms of piping and
propane tank requirements. For this final rule, updated the energy
prices using the latest EIA data and AEO2023 energy price trends. In
addition, DOE used the latest RECS 2020 and CBECS 2018 samples. In
terms of installation costs, DOE updated its propane-related
installation costs as highlighted in chapter 8 and appendices 8D and 8J
of the final rule TSD.
Lennox commented that they found that DOE has taken the necessary
steps to improve the analysis of amended AFUE standards for consumer
furnaces under EPCA but recommended that DOE should further assess the
economic justification of these standards while minimizing negative
consumer impacts. (Lennox, No. 389 at p. 2) In response, DOE has
continued to refine its analysis and updated using the latest data, as
described in this document and in the final rule TSD.
Atmos Energy commented that DOE should account for the savings
among the choices of a baseline natural gas furnace against the
proposed TSLs or the savings that could accrue from continuing to own a
baseline product versus purchasing TSL efficiency products. Atmos
Energy added that these savings are crucial for estimating the benefits
of appliance replacement programs, adding that such savings analyses
will better illuminate potential consumer impacts. (Atmos Energy, No.
415 at p. 6) In response, DOE notes that it does estimate the impacts
of purchasing higher-efficiency furnaces against the impacts of
replacing existing furnace efficiencies that would have been purchased
in the absence of a new energy conservation standard. This is already
captured in the LCC analysis, and indeed, some percentage of consumers
would accrue economic savings from continuing to own, or from buying as
a replacement, a lower-efficiency furnace, as compared to a furnace at
the adopted standard level. This is reflected in the percentage of
consumers experiencing a net cost, as presented in section V.B of this
document, and it is considered as part of DOE's evaluation of economic
justification.
Atmos Energy commented that DOE should separately assess natural
gas and propane when calculating LCC, adding that the LCC of the
proposed rule would be more accurate if natural gas and propane
products were evaluated separately. (Atmos Energy, No. 415 at p. 7)
Atmos Energy further commented that propane is more costly than natural
gas, stating that aggregating these two products introduces an
unsupported bias against natural gas into the consumer LCC savings and
payback analysis and skews the outcome of the comparative cost of fuel-
switching. (Atmos Energy, No. 415 at p. 7) In response, DOE accounts
for both propane and natural gas consumers of furnaces in its analysis.
However, since a potential standard is established at the product class
level, the LCC results are aggregated up to this level.
PHCC commented that that the calculations regarding the annual
benefit for DOE's proposed standby mode and off mode standards for
NWGFs and MHGFs are unclear, as estimates show a $26 annual benefit
(with a two-year payback period) in some places and a $2.60 annual
benefit (with a two-year payback period) in others. PHCC claimed that
their calculations related to the annual benefit of the proposed
standby mode and off mode standards yielded $3.29 (assuming 2.5 kw, 24
hours a day, 365 days a year, and 15 cents per kWh). (PHCC, No. 403 at
p. 3)
Similarly, Daikin commented that the anticipated energy savings
associated with standby mode and off mode are very small, adding that
the incremental annual savings between TSL 1 ($1.44/yr.) and TSL 3
($2.40/yr.) would equate to only $0.96. Daikin further stated that
DOE's analysis overstates the annual electricity consumption of
auxiliary components by using 6680 hours for standby mode operation and
73.48 kWh of energy per year, which does not include weighting for two-
stage products with fewer operating hours. (Daikin, No. 416 at p. 5)
As discussed previously in section III.A.8 of this document, DOE is
not finalizing its previous proposal to set new standby mode and off
mode power standards for NWGFs and MHGFs in this final rule. However,
DOE will continue to monitor the standby mode and off mode power
consumption of consumer furnaces and may address such standards in a
future rulemaking. The Department may consider these comments at that
time, as appropriate.
1. Product Cost
To calculate consumer product costs, DOE multiplied the MPCs
developed in the engineering analysis by the markups described
previously (along with sales taxes). DOE used different markups for
baseline products and higher-efficiency products because DOE applies an
incremental markup to the increase in MSP associated with higher-
efficiency products.
For the default price trend for residential furnaces, DOE derived
an experience rate based on an analysis of long-term historical data.
As a proxy for manufacturer price, DOE used Producer Price Index (PPI)
data for warm-air furnace equipment from the Bureau of Labor Statistics
from 1990 through 2022.\103\ An inflation-adjusted PPI was calculated
using the implicit price deflators for gross domestic product (GDP) for
the same years. To calculate an experience rate, DOE performed a least-
squares power-law fit on the inflation-adjusted PPI versus cumulative
shipments of residential furnaces, based on a corresponding series for
total shipments of residential furnaces (see section IV.G of this
document for discussion of shipments data). Using the most recent data
available, DOE fitted a power-law function to the deflated warm air
furnace PPI and cumulative furnace shipments time series data between
1990 and 2018. The resulting power-law model has an R-square of 84
percent, indicating that the model explains 84 percent of the
variability of the observations around the mean. DOE then derived a
price factor index, with the price in 2022 equal to 1, to forecast
prices in 2029 for the LCC and PBP analyses, and, for the NIA, for each
subsequent year through 2058. The index value in each year is a
function of the experience rate and the cumulative production through
that year. To derive the latter, DOE combined the historical shipments
data with projected shipments in the no-new-standards case determined
for the NIA (see section IV.H of this document).
---------------------------------------------------------------------------
\103\ U.S. Department of Labor, Bureau of Labor Statistics,
Produce Price Indices Series ID PCU333415333415C (available at:
www.bls.gov/ppi/) (last accessed August 1, 2023).
---------------------------------------------------------------------------
DOE's learning curve methodology was developed by examining the
[[Page 87558]]
literature on accounting for technological change and empirical studies
of energy technology learning rates.\104\ DOE utilized the most
extensive time series data available specific to residential furnaces.
---------------------------------------------------------------------------
\104\ Taylor, M. and K.S. Fujita, Accounting for Technological
Change in Regulatory Impact Analyses: The Learning Curve Technique,
Lawrence Berkeley National Laboratory, Report No. LBNL-6195E (2013).
(Available at: eta-publications.lbl.gov/sites/default/files/lbnl-6195e_.pdf) (Last accessed August 1, 2023).
---------------------------------------------------------------------------
Furnace prices can be affected by a variety of factors, and the
cost of commodity materials is one of them. The nominal commodity PPI
data for copper wire and cable, iron and steel, and aluminum wire and
cable indicate that the nominal indices rose substantially between the
early 2000s and 2011, which is primarily attributed to an increasing
demand for such commodities from rapid industrialization in China,
India, and other emerging economies. During the same period, the
nominal warm air furnace PPI increased by 16 percent. However, these
commodity indices have trended downward from 2011-2020, and the nominal
warm air furnace PPI has steadily trended upward during this period.
Based on these observations, DOE contends that even though the warm air
furnace PPI, to a certain extent, is influenced by commodity indices,
other factors impact furnace prices. In addition, due to the long-term
nature of DOE's analysis, it would be inappropriate to make assumptions
based on recent, short-term trends only.
The learning curve methodology implemented in this rule is based on
sound economic theory, empirical evidence, and historical data. Based
on the historical PPI data, the cost of commodity materials can only
partially explain the furnace price trend, particularly when
considering the recent trend observed in commodity and furnace price
indices. The experience curve model that DOE developed, using the most
recent data available, shows strong explanatory power and high
statistical significance.
DOE acknowledges that the prices of non-condensing and condensing
furnaces may not change at the same rate and that using a trend for all
NWGFs and MHGFs to represent the price trend of condensing furnaces may
underestimate the future changes in the cost of condensing furnaces.
DOE also acknowledges that an increase in production and innovation due
to a condensing standard could result in a decline in the cost of
condensing furnaces. However, DOE could not find detailed data that
would allow for a price trend projection for condensing NWGFs and MHGFs
that may differ from non-condensing NWGFs and MHGFs. Thus, for this
final rule, DOE used the same price trend projection for condensing and
non-condensing NWGFs and MHGFs.
NYSERDA recommended that DOE also should consider furnace shipments
to Canada when estimating learning rates for condensing furnaces, since
the vast majority of condensing furnaces sold in Canada are the same
models sold in the U.S. NYSERDA further urged DOE to consider how the
recent Canadian furnace standard may impact the North American furnace
market so as to result in additional price learning and less costly
condensing equipment for consumers in U.S. and Canada. (NYSERDA, No.
379 at p. 9) However, NYSERDA expect that DOE's 4.3 percent and 7.1
percent price learning rates are more conservative than what would take
place in the real world once an amended standard were to take effect.
(Id.)
NYSERDA also commented that the Heating, Refrigeration and Air
Conditioning Institute (HRAI) of Canada reported that over 845,000
residential furnaces were shipped to Canada between 2020 and the first
quarter of 2022. The commenter added that nearly 400,000 condensing
furnaces are now being shipped into Canada annually, stating that the
value is approximately 12 percent of annual U.S. furnace shipments.
NYSERDA further commented that the Canadian condensing furnace market
is increasing, with approximately 8.5 million Canadian homes currently
relying on furnaces for heating. Furthermore, the commenter stated that
it has found that the vast majority of furnaces sold in Canada are the
same models sold in the U.S., and, as such, NYSERDA concluded that a
higher learning rate factor should be considered in appendix 8C of the
TSD. (NYSERDA, No. 379 at pp. 9-10)
In response, DOE notes that if DOE included historical furnace
shipments to Canada when developing learning rates, it would also need
to include projected furnace shipments to Canada during the analysis
period to project future prices, resulting in approximately the same
price trend as a function of time. Furthermore, DOE analyzes
sensitivity scenarios using alternative price trends, including a
higher learning rate and a constant price trend, in appendix 8C of the
final rule TSD. Consequently, in light of these considerations, DOE has
decided to retain the same evaluation of economic justification for all
sensitivity scenarios, as was done in the July 2022 NOPR.
Joint Efficiency Commenters stated that DOE may be overestimating
the future cost of condensing furnaces by not applying a learning rate
associated with condensing technology. These commenters further stated
that price trends associated with condensing technology will likely be
different than the overall furnace price trends. (Joint Efficiency
Commenters, No. 381 at p. 4)
In contrast, Lennox commented that price trends are indeed similar
for both condensing and non-condensing consumer furnaces, as Lennox
offers both technologies with premium features. Lennox commented that
the trends increase the most for premium products, and the trends are
similar for base and mid-level products. (Lennox, No. 389 at p. 6)
As noted previously, DOE was not able to disaggregate non-
condensing and condensing furnaces in developing future price trends
based on the available data. DOE acknowledges the input from Lennox
supporting the use of the same trend for all furnaces.
Lennox further stated that costs and prices for all furnaces have
increased significantly as a result of the pandemic, supply chain
issues, and inflationary pressures. (Lennox, No. 389 at p. 6)
Similarly, HARDI commented that supply chain and workforce issues since
the beginning of the pandemic have dramatically changed the pricing of
products, as would change the results of DOE's analysis, which the
commenter faulted as based on pre-pandemic data. (HARDI, No. 384 at p.
3) PHCC commented that DOE's estimated equipment costs for gas furnaces
are too low due to material cost and supply chain issues. (PHCC, No.
403 at p. 5) In response, DOE notes that its analysis adjusts costs and
prices using updated price indices to reflect the changing dollar
value, including the broader impact of inflation. DOE assumes that
current supply chain issues will not persist out to 2029 and beyond,
given that such issues are already in the process of resolving and
current supply chains are not as constrained as they were during the
pandemic.
JCI pointed to several regulatory and market-related cost increases
that impact mobile homes and mobile home HVAC products. As examples,
the commenter noted the July 2014 furnace fan ECS rulemaking that
eliminated PSC motors, recent inflation as a result of the COVID-19
pandemic that disproportionately impacted the MHGF industry, the
January 2017 ECS rulemaking for CACs and heat pumps, and the IECC
Construction Code
[[Page 87559]]
mandate for manufactured homes. (JCI, No. 411 at pp. 1-2) JCI commented
that the 2021 IECC Construction Code and the CAC/HP ECS rulemaking
mandate will contribute additional cost increases, which JCI asserted
will have the further effect of reducing mobile home ownership. (JCI,
No. 411 at p. 2)
MHI also commented that, in May 2022, DOE finalized an energy rule
that required manufactured homes to comply with the 2021 IECC but not
the product standards within the 2021 IECC. (MHI, Public Meeting
Webinar Transcript, No. 363 at pp. 25-26) MHI commented that DOE's
proposed furnace standards align with the 2021 IECC, which the
commenter argued did not consider homes that are built in a factory and
transported to the site. (Id.) MHI stated that enforcing the IECC would
require manufacturers to have to redesign current manufactured housing
floor plans. (Id.)
In response, DOE notes that the purported mobile home cost
increases, unrelated to the furnaces rulemaking, will not impact the
LCC results. Because these costs are already present in the no-new-
standards case, there is no incremental cost to include in the amended
standards case. The impact of cost increases for rules on manufactured
homes or other equipment are captured as part of the analyses for those
separate rulemakings. DOE further notes that the July 2014 final rule
for furnace fans did not eliminate PSC motors for furnace fans in
MHGFs. Finally, DOE reiterates that it adjusts costs and prices using
price indices to reflect the changing dollar value, including the
broader impact of inflation. DOE has also evaluated the cost of
installing furnaces in new manufactured housing construction as part of
the LCC analysis, which in many cases is less expensive (as summarized
in section IV.F.2.e of this document) due to the materials required.
Given this context, DOE's expectation is that redesign costs are likely
to be minimal.
Lennox commented that condensing furnace products are mature
products that constitute the majority of the current market. Therefore,
Lennox recommended that DOE should reassess the ``learning curve'' for
these products, as the commenter opined that the Department is
overstating the degree to which a ``learning curve'' could lead to
significant reduction in MPCs. (Lennox, No. 389 at p. 3) NYSERDA
commented that it expects that the final furnaces standard will provide
market certainty to streamline the manufacturing process to only
condensing equipment and added that this is expected to decrease the
marginal production costs in the medium- to long-run due to economies
of scale and technological improvements. (NYSERDA, No. 379 at p. 11)
Regarding the points involving learning curve-related prices
declines raised by Lennox and NYSERDA, DOE notes that it has evaluated
several price trend scenarios, including a constant price scenario, as
part of its analysis (see appendix 8C of the final rule TSD for further
details). The conclusions of the analysis remain the same regardless of
the price trend scenario.
A detailed discussion of DOE's derivation of the experience rate is
provided in appendix 8C of the final rule TSD.
2. Installation Cost
The installation cost is the cost to the consumer of installing the
furnace, in addition to the cost of the furnace itself. Installation
cost includes all labor, overhead, and any materials costs associated
with the replacement of an existing furnace or the installation of a
furnace in a new home, as well as delivery of the new furnace, removal
of the existing furnace, and any applicable permit fees. Higher-
efficiency furnaces may require a consumer to incur additional
installation costs. DOE's analysis of installation costs estimated
specific installation costs for each sample household based on building
characteristics given in RECS 2020 (updated from RECS 2015 in the
NOPR). For this final rule, DOE used 2023 RS Means data for the
installation cost estimates, including labor
costs.105 106 107 108 DOE's analysis of installation costs
accounted for regional differences in labor costs by aggregating city-
level labor rates from RS Means into the 50 distinct States plus
Washington, DC to match RECS 2020 and CBECS 2018 data.
---------------------------------------------------------------------------
\105\ RS Means Company Inc., RS Means Mechanical Cost Data.
Kingston, MA (2023) (available at: www.rsmeans.com/products/books/2023-cost-data-books) (last accessed August 1, 2023).
\106\ RS Means Company Inc., RS Means Residential Repair &
Remodeling Cost Data. Kingston, MA (2023) (available at:
www.rsmeans.com/products/books/2023-cost-data-books) (last accessed
August 1, 2023).
\107\ RS Means Company Inc., RS Means Plumbing Cost Data.
Kingston, MA (2023) (available at: www.rsmeans.com/products/books/2023-cost-data-books) (last accessed August 1, 2023).
\108\ RS Means Company Inc., RS Means Electrical Cost Data.
Kingston, MA (2023) (available at: www.rsmeans.com/products/books/2023-cost-data-books) (last accessed August 1, 2023).
---------------------------------------------------------------------------
DOE conducted a detailed analysis of installation costs for all
potential installation cases, including when a non-condensing gas
furnace is replaced with a non-condensing gas furnace, and when a non-
condensing gas furnace is replaced with a condensing gas furnace. For
the latter, particular attention was paid to venting issues in
replacement applications, including adding a new flue venting (PVC),
combustion air venting (PVC), concealing vent pipes, addressing an
orphaned water heater (by updating flue vent connectors, vent resizing,
or chimney relining), as well as condensate removal. DOE also included
additional installation costs (``adders'') for new construction
installations. These are described below.
HARDI commented that increased installation costs should be
considered in this analysis despite DOE's statement that installation
and retrofit requirements are not to be used in determining product
utility for a class. (HARDI, No. 384 at p. 5)
In response, DOE notes that a variety of installation factors are
included in the analysis, as described extensively in the paragraphs
that follow, which generally increase the installation cost of higher-
efficiency furnaces. Even though installation costs do not form a basis
for the development of product classes, DOE does include all relevant
installation costs to estimate the total economic impacts on consumers.
ACCA stated that data from a 2016 survey of over 700 of ACCA's
members showed that installing a condensing furnace costs $569 more
than installing a non-condensing furnace, so the commenter concluded
that DOE's cost assumptions inadequately reflect the true cost to
consumers. (ACCA, No. 398 at p. 2)
DOE clarifies that in the final rule analysis, on average for
replacement installations, the incremental installation cost is $490
for condensing NWGFs relative to non-condensing NWGFs, while the total
installed costs for ranges between $654 and $914, which is consistent
with ACCA's survey results.
APGA commented that DOE understates the cost difference between
condensing and non-condensing furnaces because DOE is not reporting
real consumer prices. (APGA, No. 387 at pp. 50-53) APGA explained that
a website sponsored by a team of industry experts in the HVAC industry
report that the installed cost of a condensing NWGF is three times more
than a non-condensing NWGF at the current standard: an ``80AFUE,
Variable Speed Furnace'' is $1,320 less than a ``95AFUE 2-Stage,
Variable Speed Furnace.'' (Id.) APGA noted that DOE's LCC model,
however, provides that the difference in the average installed cost of
a condensing furnace and a non-condensing furnace is only $417. (Id.)
[[Page 87560]]
Thus, APGA stated that DOE's view of the additional cost of an
installed furnace complying with the proposed standard is inconsistent
with reality. (Id.)
In response, DOE emphasizes that it has conducted an extensive
engineering tear-down cost analysis, as well as a manufacturer and
distribution channel mark-up analysis, to estimate final consumer
prices. These prices reflect an amended-standards scenario in which a
given efficiency level is the new minimally compliant, baseline level.
These products may not fully correspond to products in the market today
sold and marketed as a ``premium'' product, and therefore the prices
are not necessarily comparable. DOE further notes that the vast
majority of consumer furnaces are sold through a distribution channel
involving a contractor, not via a retail outlet. Therefore prices seen
on a website are unlikely to be representative of typical prices
ultimately paid for by consumers.
NPGA commented that merging product installed costs with changes in
building structural elements required for a change in venting systems
goes beyond the scope of minimum efficiency standards for a covered
product as outlined in EPCA. (NPGA, No.395 at p. 21) In response, DOE
notes that the installation cost analysis considers all relevant costs
associated with the installation of furnaces, as required by EPCA, in
order to estimate representative impacts to consumers.
a. Basic Installation Costs
DOE's analysis estimated basic installation costs for replacement,
new owner, and new home applications. These costs, which apply to both
condensing and non-condensing gas furnaces, include furnace set-up and
transportation, gas piping, ductwork, electrical hook-up, permit and
removal/disposal fees, and, where applicable, additional labor hours
for an attic installation.
DOE's installation costs account for cases where significant
ductwork redesign is required, including when furnaces with variable-
speed motors are utilizing undersized ducts. DOE notes that this cost
is applicable to variable-speed motors installed in either condensing
or non-condensing furnaces. Variable-speed furnace blowers will try to
maintain the same air flow at high static pressure (especially if the
variable-speed blower is designed with a high cut-off or no cut-off
static pressure),\109\ which could lead to noise issues in smaller
ducts due to the increased speed of moving the air. However, the
Federal furnace fan standard that took effect in 2019 requires
constant-torque furnace fans (with X13 motors) for NWGFs, which have
similar performance curves as PSC motors.\110\
---------------------------------------------------------------------------
\109\ Newer variable-speed motors are designed with lower cut-
off static pressures to deal with this issue. In addition, the
installer can easily decrease the airflow to address the issue by
changing the airflow speed control setting (tap) on the furnace
motor.
\110\ For further details, see the TSD for the July 2014 final
rule for furnace fans. (Available at: www.regulations.gov/document/EERE-2010-BT-STD-0011-0111) (Last accessed August 1, 2023).
---------------------------------------------------------------------------
DOE notes that asbestos presents a safety hazard that must be
properly abated for all retrofit installations where it is present. As
explained previously, DOE recognizes that potential ductwork
modifications typically occur due to the furnace fan requirements and
not necessarily due to the installation of a condensing furnace. DOE
included the cost of asbestos abatement for a fraction of both non-
condensing and condensing NWGF installations. See appendix 8D of the
final rule TSD for more details.
b. Additional Installation Costs for Non-Weatherized Gas Furnaces
For replacement applications, DOE included a number of adders for a
fraction of the sample households. For non-condensing gas furnaces,
these additional costs included updating flue vent connectors, vent
resizing, and chimney relining. For condensing gas furnaces, DOE
included adders for flue venting (PVC), combustion air venting (PVC),
concealing vent pipes, addressing an orphaned water heater (by updating
flue vent connectors, vent resizing, or chimney relining), and
condensate removal.
Replacement Installations: Non-Condensing to Non-Condensing Non-
Weatherized Gas Furnace
For non-condensing non-weatherized gas furnace replacements, DOE
added additional costs to a small fraction of installations that
involve updating flue vent connectors, vent resizing, and chimney
relining. These costs are most commonly applied to older furnace
installations, such as natural draft furnace installations, furnaces
not installed according to the current codes, and furnace installations
that do not meet manufacturers' installation requirements. In total,
these costs for vent resizing or chimney relining are applied to less
than eight percent of non-condensing to non-condensing furnace
replacement installations in 2029, with an average cost of $990. In
addition, DOE estimated that 23 percent of installations of non-
condensing to non-condensing furnace replacement installations in 2029
would require updating flue vent connectors, with an average cost of
$328.
Replacement Installations: Non-Condensing to Condensing Non-Weatherized
Gas Furnace
DOE assumed that condensing furnaces that replace non-condensing
furnaces do not utilize the existing venting system, but instead
require new, dedicated plastic venting that meets all applicable
building codes and manufacturer instructions. In determining these
installation costs, DOE takes into account vent length, vent diameter,
vent termination, the potential need to create openings in walls or
floors for the vent system, additional vent costs for housing units
with shared walls, vent resizing in the case of an orphaned water
heater, and concealment work cost increases in some installations.
Appendix 8D in the TSD for this final rule describes the
methodology used to determine the installation costs for all of the
issues described in the paragraphs that follow.
NGA of Georgia stated that because furnace replacements will have
to undergo structural modifications and contractors will have to devise
custom installation plans and procure materials after surveying the
home, installations will take a few days rather than simply changing
out the unit. Furthermore, the commenter stated that the longer
installations will force homeowners to endure cold conditions longer,
and to risk home damage in the form of freezing pipes, and they may be
forced to endure the expense of a hotel room during the installation.
NGA of Georgia stated that DOE's analysis did not adequately consider
these additional costs or the environmental impact of attempting to
heat homes with electric room heaters during construction. (NGA of
Georgia, No. 380 at p. 2) In response, DOE notes that its analysis
thoroughly accounts for any potential vent or duct-work redesign.
However, for most homes, installation is unlikely to take several days,
even in the case of replacing a non-condensing furnace with a
condensing furnace. DOE acknowledges that some fraction of replacements
are emergency replacements, as described previously, with increased
labor costs due to the emergency nature of the work during possibly
challenging winter conditions. Accordingly, DOE also accounts for the
cost of temporary space heating during the replacement of the furnace.
[[Page 87561]]
ACCA stated that DOE's analysis overlooked the increased costs and
extent of venting modifications and electrical upgrades necessary for
condensing furnaces. (ACCA, No. 398 at p. 3)
In response, DOE emphasizes that its analysis includes an extensive
list of factors impacting the installation cost of venting, as
discussed in this section and in chapter 8 of the final rule TSD.
Several of these factors were previously suggested by commenters and
incorporated into the analysis. ACCA did not provide any further
details on additional venting modifications that should have been
considered. With respect to electrical upgrades, those are accounted
for in the analysis, including the potential requirement to upgrade the
electrical panel.
AGA asserted that the imposition of standards that non-condensing
products cannot achieve would raise significant practical, economic,
and legal issues. Furthermore, AGA claimed that the economic analysis
in the NOPR fails to properly account for the necessary engineering
relative to venting consumer furnaces or common venting of multiple
appliances, including consumer water heaters. According to the
commenter, the modifications required to alter existing buildings to
accommodate the use of condensing products are far more complicated,
extensive, and burdensome than the NOPR assumes. (AGA, No. 405 at p.
39)
In response, DOE has already included a variety of factors in its
installation cost estimates, including costs related to updating flue
venting, accommodating the venting of multiple appliances such as water
heaters, and any necessary building modifications to accommodate new
venting outlets. The commenter has not provided any additional,
specific factors for DOE to consider, other than to assert that DOE's
estimates are incorrect. Furthermore, the experience of replacing non-
condensing furnaces with condensing furnaces in several jurisdictions
(e.g., Canada) has shown that such installations can be achieved
without excessively burdensome or costly modifications.
AGA argued that DOE has potentially overestimated the cost of
venting for non-condensing furnaces. The commenter claimed that DOE's
method for calculating labor overestimates time spent on tasks because
it includes an average unit of type for each individual part instead of
acknowledging that tasks can be completed concurrently. (AGA, No. 405
at pp. 88-89)
On this topic, DOE clarifies that for non-condensing furnaces,
there are several potential scenarios. In a replacement scenario, if
the existing venting is in good condition, no additional installation
costs are required, and the venting system can be used as-is. Costs for
installing venting for non-condensing furnaces are only applicable if
the existing venting has reached the end of its lifetime (in older
homes), based on the estimated equipment age derived from RECS data and
historical shipments, or in new construction. Therefore, DOE's
estimated costs for installing venting for non-condensing furnaces are
not necessarily applicable in all situations. Regarding labor cost
estimates, these are based on data from industry reference manuals and
input from HVAC consultants and apply to both non-condensing and
condensing installations. DOE estimates the time spent for typical
tasks and multiplies this time by a labor rate. The overall labor time
for a given installation will vary based on the specifics of the
installation, as described in further detail in chapter 8 and appendix
8D of the final rule TSD.
AGA recommended that DOE undertake additional evaluation of
installation costs and annual maintenance costs of non-weatherized
residential and manufactured home gas furnaces to ensure a complete LCC
and payback period analysis. Specifically, AGA recommended a
comprehensive analysis of the average installed replacement cost of an
80 kBtu/hour, 80-percent AFUE non-condensing residential non-
weatherized natural gas furnace. (AGA, No. 405 at p. 87)
In response, DOE notes that it already conducts such an analysis.
There are a range of input capacities considered as part of the LCC
analysis, including 80 kBtu/hour furnaces.
AGA commented that DOE may have overestimated the length of pipe,
which makes up half the cost of a new 4'' vent. AGA stated that for
buildings where the furnace was installed in the basement, the DOE
calculations appear to fit a typical 2-story home where the average
vent length is 26 feet. However, for buildings where the furnace is in
the attic, the average length is 10 feet, so DOE's analysis would
result in venting extending up to 15 feet beyond the roof surface.
(AGA, No. 405 at p. 89)
In response, DOE clarifies that its installation cost methodology
does not assume a fixed vent length for each home or building in the
LCC. The length of the vent varies and is dependent on the
characteristics of that specific building. For example, the vent length
depends on the furnace location in the house, the ceiling height, and
the number of floors above the furnace, among other factors. The
analysis accounts for attic installations and does not assume
excessively long vent lengths beyond the roof.
In contrast, the Joint Efficiency Commenters stated that DOE may be
overestimating the installation costs of condensing NWGFs in certain
scenarios. (Joint Efficiency Commenters, No. 381 at p. 4)
In response, DOE has included a number of factors that may impact
the installation costs of condensing NWGFs, partly based on prior
comments. There is no indication that these costs are systematically
overestimated, and the commenter has not provided any data with which
to update the analysis.
Joint Efficiency Commenters stated that they are not aware of any
issues regarding the size or installation of condensing MHGFs in new or
replacement applications. These commenters further stated that these
issues have been thoroughly evaluated and adequately addressed. (Joint
Efficiency Commenters, No. 381 at p. 5) Similarly, NCLC stated that
installing condensing MHGFs in manufactured homes will not present
unique, significant, or insurmountable challenges. (NCLC, No. 383 at p.
7) DOE agrees.
Joint Efficiency Commenters stated that DOE extensively evaluated
installation scenarios and costs for consumer furnaces in the NOPR
analysis and expressed their belief that these thorough evaluations are
comprehensive and reasonable for condensing furnace installations.
(Joint Efficiency Commenters, No. 381 at pp. 5-6) DOE agrees.
OPAE commented that a Cleveland-based heating and weatherization
contractor for one of their member agencies who has been working in the
low-income weatherization program for over 30 years, stated that he has
not found a home where he could not install a condensing furnace.
Additionally, OPAE stated that for most cases where venting changes may
be difficult, manufacturers are developing solutions to use an existing
chimney as a chase-way for the condensing furnace's intake and exhaust
pipes and other category I appliance ventilation. Furthermore, OPAE
stated that these methods usually remove any impediment to installing a
condensing furnace in situations that currently provide challenges.
(OPAE, No. 347 at p. 1) DOE agrees that solutions exist for such
situations, as described by the commentator and as evidenced in other
jurisdictions (e.g., Canada). Moreover, DOE accounts for increased
installation costs in these situations.
[[Page 87562]]
NYSERDA recommended that DOE should investigate the economics of
newer venting technologies. The commenter added that newer venting
technologies enable reuse of existing vents or masonry chimneys,
thereby allowing condensing furnaces and water heaters with atmospheric
combustion to share the same vent. NYSERDA further remarked that this
technology could reduce total installation costs for consumers and
improve LCC savings. (NYSERDA, No. 379 at p. 6)
NCLC et al. commented that DOE has not fully considered venting
technologies that could bring down the assumed installation costs in
settings where installing a condensing furnace may present challenges
and added costs. (NCLC et al., No. 383 at p. 7)
In response, DOE notes that it did investigate new venting
technologies in a sensitivity scenario for the July 2022 NOPR, and does
so again for the final rule (see appendix 8L of the final rule TSD).
The LCC impacts are very similar to the reference case, and DOE's
evaluation of economic justification remains the same.
NGA of Georgia stated that the proposed rule would eliminate the
ability to common vent multiple gas appliances. The commenter also
stated that this would prevent the use of gas appliances in older
homes, multi-family developments, row homes, and townhomes.
Furthermore, NGA of Georgia stated that because of this, water heaters
may need to be changed out when the furnace is replaced, even if the
water heater is still working. (NGA of Georgia, No. 380 at p. 2)
APGA claimed that DOE does not account correctly for ``orphaned''
non-condensing gas water heaters. In those situations, APGA asserted
that additional costs should be considered for updating flue vent
connectors, vent resizing, or chimney relining. Where costs are
relatively higher to address an orphaned water heater, the costs of
venting should be higher there as well. APGA argued that DOE
understates additional venting installation costs in multi-family
buildings, townhomes, and row houses. AGA also argued that other
homeowner obstacles are unaccounted for entirely, including: zoning
variances required when venting is too close to a property line;
building code restrictions; historic building limitations; and concerns
about venting near places of congregation such as decks. (APGA, No. 387
at pp. 54-55)
In response, DOE acknowledges that common vents may need to be
replaced and includes those costs in its analysis where applicable,
including updating flue connectors, vent resizing, or chimney relining.
However, DOE finds that these obstacles can be overcome, given that
these buildings already have an existing furnace exhaust vent. Full
details of the installation cost methodology are provided in appendix
8D of the final rule TSD. DOE additionally includes situations in which
the water heater is replaced as well, instead of updating the venting
to permit continued use of the existing gas appliance. These costs are
all included as part of the LCC analysis.
ACCA stated that DOE's analysis overlooked potential building code
restrictions for apartments, condominiums, and/or row houses/townhomes.
(ACCA, No. 398 at p. 3)
DOE is not aware of any physical limitations or building code
issues that would preclude the installation of a condensing NWGF in
multi-family buildings, townhomes, and row houses. Condensing NWGFs
have been successfully installed in multi-family buildings, townhomes
and row houses in jurisdictions requiring condensing furnaces (e.g.,
Canada, which has very similar building codes as the U.S.) and in
regions with active efficiency and weatherization programs. The
analysis includes additional costs, where necessary, to capture the
increased complexity of such installations.
PHCC commented that installation labor costs in DOE's NOPR are not
near today's contractor rates, and that DOE's residential and
commercial rates are low, which will impact the economic model
calculations. (PHCC, No. 403 at p. 5) In response, DOE notes that its
analysis uses the latest RSMeans data to estimate labor rates, which
are the best data available to the Department. No other sources of
contractor rate data were submitted to DOE.
Similarly, Daikin commented that there are existing applications
(such as placement of furnaces in cold spaces such as attics and crawl
spaces) that will incur additional burden as a result of a condensing
standard. (Daikin, No. 416 at p. 2) In response, DOE accounts for such
applications as described subsequently in this document and in chapter
8 of the final rule TSD.
Plastics Pipe Institute commented that if DOE eliminates non-
condensing furnaces as a viable option, consumers will have to update
their existing venting systems to accommodate a new natural gas
furnace. (Plastics Pipe Institute, No. 404 at p. 2) Plastics Pipe
Institute added that this conversion will lead to higher operating
costs and will require electrical upgrades, inevitably increasing the
cost of heating. (Id.)
In response, DOE acknowledges that the installation of a condensing
furnace may require an update to the venting system and includes these
additional costs in the analysis. DOE also accounts for households that
may require a new electrical connection.
(a) Flue Venting
DOE assumed that condensing furnaces do not utilize the existing
venting system but instead require new, dedicated plastic venting that
meets all applicable building codes and manufacturer instructions.
Accordingly, DOE determined whether a condensing furnace is
horizontally or vertically vented based on the shortest vent length.
DOE's analysis estimated that 70 percent of condensing furnaces will be
installed with a horizontal vent.
DOE assumed that vent length varies depending on where a suitable
wall is located relative to the furnace. In addition, when applicable,
DOE accounts for use of a snorkel termination to meet minimum
clearances to sidewalks, average snow accumulation level, overhangs,
and air intake sources, including operable doors and windows, building
corners, and gas meter vents. In DOE's analysis, snorkel termination is
more frequently needed in situations where the furnace is below the
snow line (such as in basements or crawl spaces). DOE assumed that the
replacement furnace would remain in the same location as the existing
furnace and accounted for the new vent length and other changes, such
as wall knockouts, to install new venting. In some installations, it
might be easier and cheaper to change the furnace location, but this
would require both gas line extensions and ductwork modifications,
which were not modeled in DOE's installation cost analysis. DOE
accounted for additional vent length for housing units with shared
walls. DOE also accounted for the cost of vent resizing in the case of
an orphaned water heater and the cost of concealment work in some
installations.
The vent pipe length limitations depend on a number of factors,
including number of elbows, vent diameter, horizontal vs. vertical
length, as well as combustion fan size. A review of several
manufacturer installation manuals shows that the maximum vent lengths
range from 30 to 130 ft., depending primarily on the vent diameter. For
a fraction of installations, DOE increased the vent diameter in order
to be able to extend the vent length according to manufacturer
specifications.
[[Page 87563]]
(b) Common Venting Issues (Including Orphaned Water Heaters)
Common venting provides a single exhaust flue for multiple gas
appliances. In some cases, a non-condensing NWGF is commonly vented
with a gas-fired water heater. When the non-condensing NWGF is replaced
with a condensing NWGF, the new condensing furnace and the existing
water heater can no longer be commonly vented due to different venting
requirements,\111\ and the water heater becomes ``orphaned.'' The
existing vent may need to be modified to safely vent the orphaned water
heater, while a new vent is installed for the condensing NWGF. DOE
accounted for a fraction of installations that would require chimney
relining or vent resizing for the orphaned water heater, including
updating flue vent connectors, resizing vents, or relining chimneys
when applicable based upon the age of the furnace and the home.
---------------------------------------------------------------------------
\111\ The ANSI Z223.1/NFPA 54 Natural Fuel Gas Code (NFGC)
venting requirements refer to category I, II, III, and IV gas
appliances. Category I gas appliances, such as natural draft gas
water heaters, exhaust high-temperature flue gases and are vented
using negative static pressure vents designed to avoid excessive
condensate production in the vent. Category IV gas appliances, such
as condensing furnaces, exhaust low temperature flue gases and are
vented using positive static pressure corrosion-resistant vents. Due
to the different venting requirements, the NFGC does not allow
common venting of condensing and non-condensing appliances. The 2021
Edition is available at www.nfpa.org/codes-and-standards/all-codes-and-standards/list-of-codes-and-standards/detail?code=54 (last
accessed August 1, 2023).
---------------------------------------------------------------------------
DOE accounted for the probability that in some cases, replacing a
non-condensing furnace with a condensing furnace may require
significant modifications to the existing vent system for the commonly-
vented gas water heater. DOE accounted for costs related to updating
the vent connector, relining the chimney, and resizing the vent, which
would satisfy the installation requirements of the Natural Fuel Gas
Code. DOE has determined that a potential option would be to install
either a storage or tankless power-vented water heater to avoid the
cost of a chimney or metal flue vent modification just for the gas
water heater, or to switch to an electric storage water heater. DOE
recognizes that the frequency of chimney relining and vent resizing may
decrease slightly due to the increase in adoption of high-efficiency
gas water heaters. However, DOE did not find any additional information
or data \112\ to project the market share of high-efficiency water
heaters in 2029 or the decrease in the fraction of installations with
common vents. Therefore, DOE did not consider the power-vented gas
storage or other higher-efficiency water heater options. Instead, DOE
either added additional installation costs associated with venting a
category I water heater, such that the orphaned water heater could be
vented through the chimney, or accounted for the installation of an
electric storage water heater as an alternative. For new owners and new
construction installations, DOE applied a venting cost differential if
the owner/builder was planning to install a commonly-vented non-
condensing furnace and water heater.
---------------------------------------------------------------------------
\112\ Data from the consumer water heater NOPR were used in this
analysis. 88 FR 49058 (July 28, 2023).
---------------------------------------------------------------------------
DOE acknowledges that multi-family buildings may require additional
measures to replace non-condensing furnaces with condensing furnaces.
Such measures include the vent length, existing common vents, and
horizontal venting. For this final rule, DOE assigned additional
venting installation costs (on average $241) for a quarter of
replacement installations \113\ in multi-family buildings to account
for modifying the existing vent systems to accommodate a condensing
furnace installation.
---------------------------------------------------------------------------
\113\ This fraction accounts for buildings without common
venting; buildings where all/most furnaces are replaced at the same
time (many rentals/homeowners association (HOA) situations); smaller
multi-family units/smaller number of floors; and situations where
disconnecting one furnace from the common vent does not impact the
common venting for remaining furnaces. This fraction is also based
on 2020 RECS data regarding the number of apartments/units and the
number of stories per multi-family building.
---------------------------------------------------------------------------
(c) New Venting Technologies
To address certain difficult installation situations, new venting
technologies are being developed to vent a condensing residential
furnace and an atmospheric combustion water heater through the same
vent by reusing the existing metal vent or masonry chimney with a new
vent cap and appropriate liner(s).114 115 In 2015, the
FasNSeal 80/90 venting system was introduced commercially by M&G
DuraVent, a new venting system that uses a unique, pipe-within-a-pipe
design to vent a condensing furnace and a natural draft water
heater.\116\ FasNSeal 80/90 is UL-approved. An additional venting
solution known as EntrainVent is available as a pre-commercial
prototype by Oak Ridge National Laboratory.\117\ DOE conducted a
sensitivity analysis to estimate the impact of such technologies on the
installation cost of a condensing NWGF, but did not include the
technologies in the primary analysis.
---------------------------------------------------------------------------
\114\ Oak Ridge National Laboratory, Condensing Furnace Venting
Part 1: The Issue, Prospective Solutions, and Facility for
Experimental Evaluation (October 2014) (available at: web.ornl.gov/sci/buildings/docs/Condensing-Furnace-Venting-Part1-Report.pdf)
(last accessed August 1, 2023).
\115\ Oak Ridge National Laboratory, Condensing Furnace Venting
Part 2: Evaluation of Same-Chimney Vent Systems for Condensing
Furnaces and Natural Draft Water Heaters (February 2015) (available
at: web.ornl.gov/sci/buildings/docs/Condensing-Furnace-Venting-Part2-Report.pdf) (last accessed August 1, 2023).
\116\ M&G DuraVent's FasNSeal 80/90 Combination Cat I and Cat IV
gas vent system is UL listed to applicable portions of ULC S636/
UL1738, UL1777, and UL441 (available at: www.duravent.com/fasnseal-80-90/) (last accessed August 1, 2023).
\117\ Oak Ridge National Laboratory, Condensing Furnace Venting
Part 2: Evaluation of Same-Chimney Vent Systems for Condensing
Furnaces and Natural Draft Water Heaters (February 2015) (available
at: web.ornl.gov/sci/buildings/docs/Condensing-Furnace-Venting-Part2-Report.pdf) (last accessed August 1, 2023).
---------------------------------------------------------------------------
DOE recognizes that there are currently limitations to DuraVent's
new FasNSeal 80/90 venting technology related to venting in masonry
chimneys and that currently there are limited field performance
data.\118\ Because of the uncertainty regarding applicability of
FasNSeal 80/90 and other new venting technologies, DOE only considered
using this option in a sensitivity analysis. DOE conducted two
additional sensitivity analyses: (1) the FasNSeal 80/90 option is
applied to installations that can currently meet the FasNSeal 80/90
installation requirements (metal vents only); and (2) all new venting
technology options are applied to installations that could meet the
respective installation requirements (metal vents and masonry chimney
installations, including installations with more horizontal sections).
---------------------------------------------------------------------------
\118\ Oak Ridge National Laboratory, Furnace and Water Heater
Venting Field Demonstration (May, 2019) (available at: www.ornl.gov/publication/furnace-and-water-heater-venting-field-demonstration)
(last accessed August 1, 2023).
---------------------------------------------------------------------------
(d) Combustion Air Venting
DOE's analysis accounts for the additional cost associated with
direct vent installations that use combustion air intake. Direct vent
or sealed combustion is not required for condensing installations, but
it is recommended for any condensing furnace to utilize ``sealed
combustion.'' All condensing furnaces come with this feature (which
requires an opening for the intake combustion air pipe/vent).
Condensing furnaces will often be installed as direct vent furnaces
since it
[[Page 87564]]
offers significant energy savings \119\ and safety \120\
advantages.121 122
---------------------------------------------------------------------------
\119\ A non-direct vent furnace increases the air infiltration
that the house experiences since for every cubic foot of air that
leaves the house, another cubic foot of air comes in. Thus, a direct
vent furnace avoids using heated indoor air for combustion.
\120\ By separating the combustion air from indoor household
air, the furnace is not affected by other home appliances in a tight
home. A direct vent furnace reduces the danger of any potential
backdrafts (pulling exhaust gases down the chimney), as well as
reducing the danger of foreign gases in the combustion air. For
example, a furnace could be damaged by vapors from laundry products,
as these vapors can mix with indoor combustion air to corrode
furnace components.
\121\ DOE, Technology Fact Sheet. Combustion Equipment Safety:
Provide Safe Installation for Combustion Appliances (October 2000)
(DOE/GO-102000-0784) (available at: www1.eere.energy.gov/buildings/publications/pdfs/building_america/26464.pdf) (last accessed August
1, 2023).
\122\ DOE, Furnace and Boilers (available at: www.energy.gov/energysaver/home-heating-systems/furnaces-and-boilers) (last
accessed August 1, 2023).
---------------------------------------------------------------------------
DOE's analysis assumes that two-thirds of condensing furnaces will
be installed with the direct vent feature, based on a consultant report
(see appendix 8D of the final rule TSD for further details). Typically,
the combustion air intake pipe will go in the same direction of the
flue vent or can be in a concentric vent.
(e) Condensate Withdrawal
DOE accounted for the cost of condensate removal for condensing
NWGF installations, including, when applicable, a condensate drain,
condensate pump, freeze protection (heat tape),\123\ drain pan,
condensate neutralizer, and an additional electric outlet for the
condensate pump.
---------------------------------------------------------------------------
\123\ Heat tape is also referred to as heating cable and
provides electric heating.
---------------------------------------------------------------------------
DOE acknowledges that condensate management can be costly for some
installations (e.g., multi-family units) and very difficult in rare
cases. DOE's current installation cost approach accounts for these
costs. However, DOE added a sensitivity analysis with additional
condensate costs.
The use of heat tape to prevent condensate pipes from freezing is
standard installation practice 124 125 DOE's analysis
accounts for the use of heat tape typical in unconditioned attic
installations, which are more likely to face freezing conditions. DOE
acknowledges that other unconditioned locations could also face
freezing, but it is far less common.\126\ DOE also included heat tape
to installations in additional non-conditioned spaces such as crawl
spaces, non-conditioned basements, and garages that are in regions that
could be exposed to freezing conditions. DOE accounted for the
additional installation cost and energy use of the heat tape.
Additionally, because it is recommended practice that heat tape be
plugged into a ground fault circuit interrupter (GFCI) circuit, DOE
included the cost of adding a GFCI circuit for the fraction of
households that do not have one available. DOE also conducted a
sensitivity analysis with an additional fraction of installations
necessitating the use of heat tape.
---------------------------------------------------------------------------
\124\ ICP, Installation Instructions for Condensate Freeze
Protection Kit (2012) (available at: www.icptempstarparts.com/mdocs-posts/naha00201hh-condensate-freeze-protection-kit-installation-instructions/) (last accessed August 1, 2023).
\125\ Bryant, Installation Instructions: Condensate Drain
Protection (2008) (available at: www.questargas.com/ForEmployees/qgcOperationsTraining/Furnaces/Bryant_355AAV.pdf) (last accessed
August 1, 2023).
\126\ Brand, L. and W. Rose, Strategy Guideline: Accurate
Heating and Cooling Load Calculations. Partnership for Advanced
Residential Retrofits (October 2012) (available at: www.nrel.gov/docs/fy13osti/55493.pdf) (last accessed August 1, 2023).
---------------------------------------------------------------------------
To address situations where condensate must be treated before
disposal (e.g., due to a local regulation), DOE assumed that a fraction
of installations require condensate neutralizer for condensate
withdrawal. As discussed in appendix 8D of the TSD for this final rule,
the fraction of installations that require condensate neutralizer used
in the analysis is representative of the current use. DOE includes the
cost of using non-corrosive drains for an additional fraction of
installations. Additionally, DOE conducted a sensitivity analysis
assuming a high fraction of installations use condensate neutralizer or
are installed with a non-corrosive drain.
Napoleon stated that the proposals in the July 2022 NOPR will have
negative economic and safety impacts on consumers in replacement
scenarios. The commenter stated that increasing the minimum efficiency
will require the furnaces to be condensing, and it is not practical to
use the condensate removal system for an air conditioner (typically
located in unconditioned space outside the building structure) to
remove condensate from a condensing furnace when it could be subject to
freezing temperatures. Napoleon also stated that installing a plumbed
drain will be a significant cost for the consumer and may not even be
feasible, and the commenter further added that installing such plumbing
could be cost-prohibitive and force property owners to attempt to
perpetually repair their existing products, thereby leading to a safety
hazard. Therefore, Napoleon recommended that 80-percent AFUE furnaces
must remain available for the replacement market because, according to
the commenter, they are the only cost-effective and safe option for
consumers. (Napoleon, No. 374 at p. 1-2)
In response, DOE notes that the analysis does consider appropriate
additional costs to remove condensate for condensing furnaces, as
described above, in accordance with all manufacturer instructions and
local requirements. The analysis accounts for situations in which
additional freeze protection is required, imposing additional costs on
the installation. DOE acknowledges that in some cases the costs to
address condensate withdrawal may be significant, but these are already
captured by the analysis and included in the distribution of impacts.
(f) Difficult Installations
DOE considered the potential need for additional vent length to
reach a suitable location on an outside wall where the vent termination
could be located, as well as the potential need for wall penetrations
and/or concealing of flue vents in conditioned spaces.
DOE used the best available information and data to characterize
the likely nature and cost of installations of a condensing furnace as
a replacement for a non-condensing furnace in its consumer sample. DOE
estimates that 39 percent of replacements in residential applications
could be labeled as ``difficult'' installations,\127\ with an average
incremental installation cost of $867 relative to the baseline 80-
percent AFUE NWGF (compared to an incremental cost of $247 for all
other replacement installations).
---------------------------------------------------------------------------
\127\ DOE considered an installation to be ``difficult'' if
there is an orphaned water heater, a long PVC vent connection though
multiple walls, or in households with condensate issues (e.g., ones
requiring heat tape or a condensate pump).
---------------------------------------------------------------------------
DOE sought any information or data regarding potential physical
limitations when installing a new condensing furnace. In consumer \128\
and contractor \129\ surveys, relocation was not mentioned as an issue
for furnace installation.\130\ DOE recognizes that in some cases,
homeowners could elect to relocate their furnace when replacing a non-
condensing NWGF with a condensing NWGF, especially if the
[[Page 87565]]
relocation is part of a planned remodel of the home. In such cases, the
cost of relocation is likely to be comparable to the costs that DOE
estimated for difficult installations.
---------------------------------------------------------------------------
\128\ Decision Analyst, Homeowner ``Spotlight'' Report:
Equipment Switching, Repair Profile and Energy Efficiency (August
2011) (available at: www.decisionanalyst.com/) (last accessed August
1, 2023).
\129\ Decision Analyst, Contractor ``Spotlight'' Report: Energy
Efficiency and Installation Profile (August 2011) (available at:
www.decisionanalyst.com/) (last accessed August 1, 2023).
\130\ This finding is supported by an expert consultant (EER
Consulting).
---------------------------------------------------------------------------
GAS commented that by not drawing a regulatory distinction between
condensing and non-condensing appliances, DOE ignores the well-
documented ``problematic designs'' faced by consumers forced into
replacing non-condensing appliances into structures that were not
designed for condensing appliances. (GAS, No. 385 at p. 3)
The Coalition also commented as to the construction and
configuration challenges that come with converting to a condensing
furnace. The Coalition stated that insufficient exterior wall clearance
for venting would be an obstacle, and that altering the venting might
also necessitate replacement of the gas hot water heater. (The
Coalition, No. 378 at p. 5) Also, the Coalition argued that plumbing
issues would lead to considerable expense, and the cost impact of
changing out flues and adding combustion air ducts would impact fire-
rated floor assemblies. Finally, the Coalition commented that these
issues of converting to a condensing furnace would potentially result
in the displacement of residents, interruption of resident quality of
life, disruption to property operation, and significant costs. (Id.)
As DOE has discussed here and in further detail in chapter 8 and
appendix 8D of the final rule TSD, the analysis accounts for some
situations in which there are high costs associated with the
replacement of a non-condensing furnace with a condensing furnace,
including interior wall displacement, vent or equipment relocation, and
condensate withdrawal management. Those impacts are included in the
distribution of LCC results. Furthermore, DOE has concluded that any
disruptions associated with installation of a more-efficient furnace
are likely to be temporary and of limited duration. Because such
disruptions are temporary, they would not have a significant effect on
the results of the analyses or DOE's conclusions.
(g) Emergency Replacements
DOE acknowledges that installation costs could increase for
condensing furnaces in an unplanned emergency situation for the reasons
that follow. Decision Analyst's 2022 American Home Comfort Study (AHCS)
\131\ reported that unplanned replacements accounted for one-third of
gas furnace installations. For this final rule, DOE included labor
costs for unplanned replacements to account for additional contractor
labor needed to finish the installation, factoring in the difficulty of
accessing the roof during periods of snow or ice accumulation. In
addition, to address periods without heat during the replacement, DOE
considered the costs of the temporary use of small electric resistance
space heaters or secondary/back-up heaters.
---------------------------------------------------------------------------
\131\ Decision Analysts, 2022 American Home Comfort Studies
(available at: www.decisionanalyst.com/syndicated/homecomfort/)
(last accessed August 1, 2023).
---------------------------------------------------------------------------
(h) Incremental Installation Cost for Condensing Furnaces
DOE estimated that the incremental retrofit installation cost for
condensing furnaces was $539. For new construction and new owners, the
incremental installation cost was estimated to be, on average, -
$708.\132\ Since 26 percent of shipments were estimated to be in the
new construction and new owners market, based on the projected growth
in new housing units and historical shipments (see chapter 9 of the
final rule TSD), the resulting average incremental installation cost
was $218. The incremental installation cost estimates reflect labor
cost and installation material cost data from 2023 RS Means.
---------------------------------------------------------------------------
\132\ DOE calculated that, on average, condensing NWGF
installation costs are lower in the new construction market compared
to non-condensing NWGFs, since high-efficiency NWGFs can be vented
either horizontally or vertically (whichever is most cost-
effective), and, therefore, a vertical buildout with roof
penetration is not required. See appendix 8D of the TSD for this
final rule for more details regarding new construction installation
costs.
---------------------------------------------------------------------------
In response to the July 2022 NOPR, the DCA commented that DOE does
not need to force the installation of condensing furnaces by
terminating the types of furnaces that can be easily installed without
retrofitting. The DCA further commented that this proposed rulemaking
would eliminate the 40 percent of non-weatherized natural gas furnaces
that are non-condensing. (DCA, No. 372 at p. 2) Daikin commented that
in 2019, the standard in Canada was set to condensing standard of 95-
percent AFUE, so presumably, that country must have found ways to
overcome these installation challenges. (Daikin, No. 416 at p. 2)
Similarly, the Watertown Municipal Utilities stated that close to 75
percent of the homes and businesses in its service area currently use
non-condensing furnaces, and the commenter argued that retrofitting
existing homes will increase monthly expenses for the average consumer.
(WMU, No. 351 at p. 1)
The Coalition commented that replacing non-condensing units with
condensing units might require substantial retrofitting and/or property
modifications. (The Coalition, No. 378 at p. 4) The Coalition commented
that the cost of retrofitting could be prohibitive or even impossible.
(Id.) The Coalition added that this would result in some owners
switching to less-efficient forms of heating that defeat the purpose of
the proposed standards. (Id.)
In response, DOE has conducted an extensive analysis of potential
retrofit costs as detailed in this section, including replacement
situations involving significant additional installation costs. These
``difficult'' installations are accounted for in the distribution of
results (see section IV.F.2.b.f of this document). DOE has further
evaluated the potential for some consumers to switch to alternative
forms of space-heating as described in more detail in section IV.F.10
of this document.
(i) New Construction or New Owner Installations
It is common practice in new construction, when possible, to avoid
vertical venting in order to limit roof penetrations and reduce
potential liability issues (e.g., water leakage through new roof
penetrations).\133\ Condensing furnaces have the flexibility of being
vented either horizontally or vertically. When presented with this
option in new construction, it is reasonable to conclude that most
designers, architects, builders, contractors, and/or homeowners would
opt for the most cost-effective installation. Current building
practices are likely to evolve as the market changes in response to any
amended energy conservation standards for the subject furnaces.
---------------------------------------------------------------------------
\133\ Lekov A., V. Franco, G. Wong-Parodi, J. McMahon, P. Chan,
Economics of residential gas furnaces and water heaters in U.S. new
construction market, Energy Efficiency (September 2010) Volume 3,
Issue 3, pp. 203-222 (available at: link.springer.com/article/10.1007/s12053-009-9061-y) (last accessed August 1, 2023).
---------------------------------------------------------------------------
For new owner and new construction installations, DOE applied an
incremental venting cost if the owner/builder had been planning to
install a commonly-vented non-condensing furnace and water heater.
c. Additional Installation Costs for Mobile Home Gas Furnaces
DOE included the same basic installation costs for MHGFs as
described previously for NWGFs. DOE also included costs for venting and
condensate removal. Protection from
[[Page 87566]]
freezing (heat tape), a condensate pipe, condensate neutralizer, and an
additional electrical connection are accounted for in the cost of
condensate removal, where applicable.
DOE notes that MHGFs are usually installed in tight spaces and
often require space modifications if the replacement furnace dimensions
are different from those of the existing furnace. DOE notes that most
of the MHGF models at the adopted standard level of 95-percent AFUE are
similar in size to the existing non-condensing MHGFs. However, some
condensing furnaces in the manufacturer literature are wider and
shorter than existing non-condensing furnaces. Accordingly, DOE
increased the installation costs for a fraction of installations to
address the impacts related to space constraints or condensate
withdrawal that may be encountered when a condensing MHGF replaces an
older manufactured-home-specific furnace. DOE also adjusted the
installation cost for the dedicated vent system for condensing MHGFs by
including an additional cost to remove the old venting system.
Manufactured home designs must be approved by an accepted third-party
inspection agency, as required by the U.S. Department of Housing and
Urban Development, to ensure compliance with the HUD Code (24 CFR
3282.203), which requires sealed combustion system appliances. MHGFs
cannot be commonly vented with other gas-fired equipment (such as a
gas-fired water heater) (24 CFR 328.709). Further, manufacturers are
required to have an inspection agent, and each home must be inspected
by the inspection agent in at least one phase of production, and the
manufacturer must self-certify each section of the home as in
compliance with the HUD code (24 CFR 3282.204 and 3282.205). DOE also
adjusted the condensate withdrawal installation costs to account for a
fraction of installations that encounter difficulty installing the
condensate drain.
In regard to space constraints and installation, DOE received
several comments in response to the July 2022 NOPR. HARDI commented
that EPCA prevents DOE from finalizing a rule that would outlaw
equipment with certain size requirements. HARDI commented that size is
not limited to the equipment itself, but any encroachment on the
consumer's living space. (HARDI, No. 384 at p. 5) PHCC commented that
venting poses a major challenge to installation, which will affect the
installation costs. PHCC further stated that potential venting issues
include excessive vent lengths, significant building modifications,
drainage issues, or nuisance condensing vent plumes. (PHCC, No. 403 at
p. 3) CEC commented that although some owners of manufactured homes may
be concerned about potential space and cost constraints related to the
proposed standards for MHGFs, updating their heating system with an
efficient furnaces or electric heat pumps is feasible, both technically
and economically. (CEC, No. 382 at p. 2)
In response, DOE notes that the LCC includes costs related to
additional venting requirements, condensate removal, and any
modifications to address any space constraints for replacement
installations of MHGFs. There is no technical limitation preventing the
installation of a condensing MHGF, and all relevant costs are included
in the analysis. Alternatively, consumers could switch to an appliance
which utilizes a different technology (e.g., a heat pump). For these
reasons, DOE has concluded that the approach adopted in this final rule
is consistent with the requirements of EPCA.
MHI commented that condensing furnaces require different venting
and combustion air intake designs as compared to non-condensing
furnaces, as well as the addition of condensate drain systems. (MHI,
No. 365 at p. 2) Also, MHI noted that condensing furnaces would require
manufactured home designers to change the typical floor plans of their
designs, adding costs to this process that will be passed down to the
consumer. (Id.) MHI commented that the impacts of changing the typical
floor plan of a manufactured home in order to accommodate a condensing
furnace are not fully captured in the July 2022 NOPR, and these impacts
are particularly harmful for manufactured housing consumers, especially
in southern climates. (Id.)
MHI commented that the proposed standards for MHGF would increase
construction costs for new manufactured homes by approximately $1300.
(Id.) Nortek commented that condensing furnaces cost approximately
$1300 more than non-condensing furnaces, and that they require
significantly different venting/combustion air in-take/condensate
drainage systems. According to the commenter, these changes would lead
to additional cost and floorplan design changes for manufactured homes.
(Nortek, No. 406 at p. 4) In response, DOE's analysis includes all
costs necessary to install a condensing MHGF in new construction,
including venting costs and condensate removal. However, DOE's
analysis, based on the best available evidence, does not indicate that
incremental costs for installation of a condensing MHGF are as high as
$1300.\134\
---------------------------------------------------------------------------
\134\ On average, DOE's analysis indicates that the incremental
totaled installed cost of an AFUE 95 percent MHGF, compared to an
AFUE 80 percent MHGF, is only $188 (averaged over replacement
installations and new construction and including both equipment and
installation costs). Further details can be found in chapter 8 and
appendix 8D of the final rule TSD.
---------------------------------------------------------------------------
MHI commented that owners of manufactured homes typically have more
budgetary restrictions than other consumers, as their median annual
household income is well below the national average. MHI argued that
manufactured homeowners, who would be unlikely to see cost savings from
condensing furnaces for many years, would face significant budgetary
burdens. (MHI, No. 365 at p. 3) In response, DOE notes that its
analysis captures the discount rate that is applicable to owners of
manufactured homes, based on their household income, and which reflects
their access to capital and budgetary constraints.
MHI estimated that certain floorplans of manufactured housing would
incur up to $7000 to comply with the requirements of the May 2022 final
rule for manufactured housing. (MHI, No. 365 at p. 3) Similarly, Nortek
commented that DOE's final rule to establish energy conservation
standards for manufactured housing will also impose costs on
manufactured homeowners, and that DOE's analytical models do for the
furnaces rule not consider these costs.(Nortek, No. 406 at pp. 2-3)
In response, DOE notes that the impacts of the May 2022 final rule
for manufactured housing were considered as part of that rule and are
not relevant in this rulemaking.
MHI commented that the proposed standards for MHGFs will negatively
impact the manufactured home resale and replacement market. The
commenter argued that about one-third of manufactured homes use natural
gas for heating, and that the cost to replace a non-condensing gas
furnace with a condensing one could be burdensome to the consumer due
to increased cost, the need to increase the cabinet size, and changes
to venting. (MHI, No. 365 at pp. 3-4) MHI also noted that there are a
limited number of furnace manufacturers that manufacture condensing
furnaces for use in manufactured homes. (Id. at 3) MHI commented that
furnace replacements that would typically cost around $3,000 now would
cost $10,000 or more under DOE's proposal, which the commenters
asserted that many manufactured
[[Page 87567]]
homeowners would not be able to afford. (MHI, Public Meeting Webinar
Transcript, No. 363 at p. 28) MHI also stated that these impacts would
be disproportionately felt by homeowners in Southern States. (Id.) MHI
also asserted that this rulemaking would require redesigns of
manufactured homes subject to the National Home Construction and Safety
Standards Act, as any changes to a home's design, manufacture, or
installation must be reviewed and approved by HUD. (MHI, No. 365 at p.
2)
Mortex commented that DOE's incremental cost from non-condensing to
condensing furnaces is much lower than MHI's estimate, which is
conservative. (Mortex, No. 410 at p. 2) Mortex estimated that the
incremental cost to consumers to move from a non-condensing to a
condensing MHGF is between $1700 and $2100. (Id.) Mortex further
commented that the average savings estimated by DOE would be eliminated
if the incremental cost was adjusted, meaning that there would be no
payback for manufactured homeowners. Mortex further commented that
southern consumers would be even less likely to experience life cycle
cost savings. (Mortex, No. 410 at pp. 2-3)
AHRI expressed its concern regarding DOE's results for TSL 8. AHRI
stated that MHI has estimated that the incremental cost of a condensing
furnace is $1,300, as opposed to the $315 estimated by DOE, adding that
the LCC savings from a condensing furnace disappear when any cost
approaching MHI's estimated value is used. (AHRI, No. 414-2 at p. 3)
JCI commented that it disagrees with the costs and benefits assumed
for MHGFs in DOE's analysis, arguing in particular that the replacement
market is not accurately reflected. (JCI, No. 411 at p. 3)
In response to these comments, DOE disagrees with these cost
estimates and notes that no persuasive evidence was submitted to
substantiate these estimates. DOE has performed a detailed cost
analysis and has determined that the potential benefits outweigh the
costs, including the costs to replace a non-condensing MHGF with a
condensing MHGF (including adjusting cabinet size and venting). DOE
disagrees that a more-efficient MHGF will negatively impact the resale
value of a manufactured home, as a more efficient MHGF will have lower
operating costs, which is more attractive to potential buyers.
Furthermore, DOE notes that potential investments made by manufactured
housing OEMs are outside the scope of this rulemaking. DOE must follow
specific statutory criteria for prescribing new or amended energy
conservation standards for covered products, such as the subject
consumer furnaces. Pursuant to EPCA, DOE's analysis considers the
economic impact of the standard on consumers and manufacturers of the
products subject to the standard (i.e., manufacturers of NWGFs and
MHGFs). (42 U.S.C. 6295(o)(2)(B)(i)(I)) The LCC analysis is focused on
consumers of MHGFs and the costs to purchase the covered product (see
42 U.S.C. 6295(o)(2)(B)(i)(II)), not the costs to purchase a
manufactured home. With respect to manufacturers, since manufactured
housing OEMs are not manufacturers of the products subject to the
standard, DOE does not explicitly analyze those investments in its MIA.
Furthermore, DOE did not include the manufactured housing rulemaking in
its cumulative regulatory burden analysis for this rulemaking as none
of the MHGF OEMs identified produce manufactured homes subject to the
May 2022 final rule for manufactured housing.
JCI also commented that manufactured homeowners often have
electrical limitations due to remote locations and limited electrical
capacity, meaning that it would be more challenging for these consumers
to switch to other methods of heating such as electric furnaces and
heat pumps. (JCI, No. 411 at p. 2) JCI stated this means that
manufactured homeowners would be more likely to incur the higher costs
for condensing furnaces. (Id.) JCI stated that this is because electric
mobile home furnaces and heat pumps require electric resistance backup
heating which have additional power/kW requirements which can greatly
exceed those of a gas furnace especially in colder, northern climates
(i.e., approximately 15 amps for the gas furnace vs 90 amps for the
electric furnace). (Id.) JCI further noted that electric furnaces
require 240 V, while gas furnaces require 120 V, which is more common.
(Id.) Finally, JCI stated that southern areas are better suited for
heat pump loads, with backup heat required for anomaly events. JCI
commented that these requirements add cost for manufactured homeowners,
increasing with colder temperatures. (Id.)
In response, DOE acknowledges that there may be additional
electrical connection costs when replacing a non-condensing furnace
with a condensing furnace and has included such costs in the analysis.
In contrast, NCLC et al. stated that installing condensing furnaces
in manufactured homes will not present unique, significant, or
insurmountable challenges, adding that the Low-income Energy
Affordability Network has always been able to find condensing furnaces
that fit into the available space when upgrading from non-condensing
furnaces. (NCLC et al., No. 383 at p. 7) DOE agrees with this comment.
The CA IOUs agreed with DOE that the average cost of a condensing
MHGF in a new mobile home is comparable to a non-condensing MHGF
because the price increase of the product is offset by lower
installation costs for a condensing MHGF for most installations. (The
CA IOUs, No. 400 at p. 2) Additionally, the CA IOUs noted that the
National Consumer Law Center contacted two programs that retrofit
mobile homes to improve efficiency (Action for Boston Community
Development and Action Inc., Gloucester, Massachusetts) which indicated
that the proposal would not be burdensome for MHGF replacements. (Id.)
d. Contractor Survey and DOE's Sources
DOE notes that its focus for installation costs is to estimate the
incremental cost between different efficiency levels. DOE used the
results of a contractor survey previously submitted to DOE in order to
validate its estimates of the average total installed cost for
condensing furnaces in replacement applications, as well as the average
incremental installation cost. DOE examined the ACCA/AHRI/PHCC survey
of contractors but was unable to use the data directly in the LCC
analysis because only aggregate values were reported. The ACCA/AHRI/
PHCC survey results are binned in wide bins of $250, and the sample is
heavily weighted towards the North (339 responses in the North and 181
in the South). As noted previously, installation costs vary widely for
different contractors and areas of the country. The installation costs
in the Northern region will tend to be much higher than those reported
in the rest of the country (as defined in the LCC analysis). For this
final rule, DOE revised its installation cost methodology to account
for various factors affecting both non-condensing and condensing NWGFs,
such as: the cost of ductwork upgrades; baseline electrical
installation costs; additional labor required for baseline
installations; the cost of relining, resizing, and/or other adjustments
of metal venting for baseline installations; premium installation costs
for emergency replacements; and other premium installation costs for
comfort-related features (e.g., advanced thermostats, zoning,
hypoallergenic filters, humidity
[[Page 87568]]
controls). For this final rule, DOE also compared its average estimates
to the AHRI/ACCA/PHCC contractor survey report and other sources such
as Home Advisor,\135\ ImproveNet,\136\ Angie's List,\137\
HomeWyse,\138\ Cost Helper,\139\ Fixr,\140\ CostOwl,\141\ and Gas
Furnace Guide,\142\ and also consulted with RS Means staff. In
addition, DOE was able to obtain installation costs disaggregated for
households installing only a furnace versus installing both a furnace
and air conditioner from the 2016 AHCS. For this final rule, the
average incremental installation cost for a condensing NWGF in a
retrofit installation was $539 (in 2022$), which is consistent with the
AHRI/ACCA/PHCC contractor survey and data provided by SoCalGas, as well
as the other sources previously listed. Therefore, DOE concludes that
the industry-supplied data support its installation cost methodology.
---------------------------------------------------------------------------
\135\ Home Advisor, How Much Does a New Gas Furnace Cost?
(available at: www.homeadvisor.com/cost/heating-and-cooling/gas-furnace-prices/) (last accessed August 1, 2023).
\136\ See www.improvenet.com/ (last accessed August 1, 2023).
\137\ Angie's List, How Much Does it Cost to Install a New
Furnace (available at: www.angieslist.com/articles/how-much-does-it-cost-install-new-furnace.htm) (last accessed August 1, 2023).
\138\ HomeWyse, Cost to Install a Furnace (available at:
www.homewyse.com/services/cost_to_install_furnace.html) (last
accessed August 1, 2023).
\139\ Cost Helper, How Much Does a Furnace Cost? (available at:
home.costhelper.com/furnace.html) (last accessed August 1, 2023).
\140\ FIXr, Gas Central Heating Installation Cost (available at:
www.fixr.com/costs/gas-central-heating-installation) (last accessed
August 1, 2023).
\141\ CostOwl.com, How much Does a New Furnace Cost? (available
at: www.costowl.com/home-improvement/hvac-furnace-replacement-cost.html) (last accessed August 1, 2023).
\142\ Gas Furnace Guide, Gas Furnace Prices and Installation
Cost Comparison (available at: www.gasfurnaceguide.com/compare/)
(last accessed August 1, 2023).
---------------------------------------------------------------------------
e. Summary of Installation Costs
Table IV.8 shows the fraction of installations impacted and the
average cost for each of the installation cost adders in replacement
applications (not including new owners). The estimates of the fraction
of installations impacted were based on the furnace location (primarily
derived from information in RECS 2020) and a number of other sources
that are described in chapter 8 of the final rule TSD.
Table IV.8--Additional Installation Costs for Non-Weatherized Gas Furnaces and Mobile Home Gas Furnaces in
Replacement Applications
----------------------------------------------------------------------------------------------------------------
NWGFs MHGFs
---------------------------------------------------------------
Replacement Replacement
Installation cost adder installations Average cost installations Average cost
impacted (2022$) impacted (2022$)
(percent) (percent)
----------------------------------------------------------------------------------------------------------------
Non-Condensing Furnaces
----------------------------------------------------------------------------------------------------------------
Updating Vent Connector......................... 23 $328 .............. ..............
Updating Flue Vent *............................ 8 990 100 $233
----------------------------------------------------------------------------------------------------------------
Condensing Furnaces
----------------------------------------------------------------------------------------------------------------
New Flue Venting (PVC).......................... 100 308 100 58
Combustion Air Venting (PVC).................... 62 324 100 58
Concealing Vent Pipes........................... 5 603 .............. ..............
Orphaned Water Heater........................... 7 806 .............. ..............
Condensate Removal.............................. 100 92 100 163
Multi-Family Adder.............................. 2 241 .............. ..............
Mobile Home Adder............................... .............. .............. 25 127
----------------------------------------------------------------------------------------------------------------
* For a fraction of installations, this cost includes the commonly-vented water heater vent connector, chimney
relining, and vent resizing. For mobile home gas furnaces, DOE assumed that flue venting has to be upgraded
for all replacement installations.
Table IV.9 shows the estimated fraction of new home installations
impacted and the average cost for each of the adders.
Table IV.9--Additional Installation Costs for Non-Weatherized Gas Furnaces and Mobile Home Gas Furnaces in New
Construction and New Owner Applications
----------------------------------------------------------------------------------------------------------------
NWGFs MHGFs
---------------------------------------------------------------
New New
Installation cost adder installations Average cost installations Average cost
impacted (2022$) impacted (2022$)
(percent) (percent)
----------------------------------------------------------------------------------------------------------------
Non-Condensing Furnaces
----------------------------------------------------------------------------------------------------------------
New Flue Vent (Metal) *......................... 100 $1,835 100 $263
----------------------------------------------------------------------------------------------------------------
Condensing Furnaces
----------------------------------------------------------------------------------------------------------------
New Flue Venting (PVC).......................... 100 190 100 52
Combustion Air Venting (PVC).................... 66 358 100 52
Concealing Vent Pipes *......................... 1 206 .............. ..............
Orphaned Water Heater........................... 46 1,380 .............. ..............
[[Page 87569]]
Condensate Removal.............................. 100 56 100 53
----------------------------------------------------------------------------------------------------------------
* Applied to new owner installations only.
3. Annual Energy Consumption
For each sampled residential furnace installation, DOE determined
the energy consumption for a NWGF or MHGF at different efficiency
levels using the approach described previously in section IV.E of this
document.
Higher-efficiency furnaces reduce the operating costs for a
consumer, which can lead to greater use of the furnace. A direct
rebound effect occurs when a product that is made more efficient is
used more intensively, such that the expected energy savings from the
efficiency improvement may not fully materialize. At the same time,
consumers benefit from increased utilization of products due to
rebound. Overall consumer surplus (taking into account additional costs
and benefits) is generally understood to increase from rebound. DOE
examined a 2009 review of empirical estimates of the rebound effect for
various energy-using products.\143\ This review concluded that the
econometric and quasi-experimental studies suggest a mean value for the
direct rebound effect for household heating of around 20 percent. DOE
also examined a 2012 ACEEE paper \144\ and a 2013 paper by Thomas and
Azevedo.\145\ Both of these publications examined the same studies that
were reviewed by Sorrell, as well as Greening et al.,\146\ and
identified methodological problems with some of the studies. The
studies believed to be most reliable by Thomas and Azevedo show a
direct rebound effect for heating products in the 1-percent to 15-
percent range, while Nadel concludes that a more likely range is 1 to
12 percent, with rebound effects sometimes higher for low-income
households who could not afford to adequately heat their homes prior to
weatherization. Based on DOE's review of these recent assessments, DOE
used a 15-percent rebound effect for NWGFs and MHGFs. This rebound is
the same as assumed in EIA's National Energy Modeling System (NEMS) for
residential space heating.\147\ However, for commercial applications
DOE applied no rebound effect, consistent with other recent energy
conservation standards rulemakings.148 149 150
---------------------------------------------------------------------------
\143\ Steven Sorrell, et al., Empirical Estimates of the Direct
Rebound Effect: A Review, 37 Energy Policy 1356-71 (2009) (available
at: www.sciencedirect.com/science/article/pii/S0301421508007131)
(last accessed August 1, 2023).
\144\ Steven Nadel, ``The Rebound Effect: Large or Small?''
ACEEE White Paper (August 2012) (available at: www.aceee.org/files/pdf/white-paper/rebound-large-and-small.pdf) (last accessed August
1, 2023).
\145\ Brinda Thomas and Ines Azevedo, Estimating Direct and
Indirect Rebound Effects for U.S. Households with Input-Output
Analysis, Part 1: Theoretical Framework, 86 Ecological Econ. 199-201
(2013) (available at: www.sciencedirect.com/science/article/pii/S0921800912004764) (last accessed August 1, 2023).
\146\ Lorna A. Greening, et al., Energy Efficiency and
Consumption--The Rebound Effect--A Survey, 28 Energy Policy 389-401
(2002) (available at: www.sciencedirect.com/science/article/pii/S0301421500000215) (last accessed August 1, 2023).
\147\ See: www.eia.gov/outlooks/aeo/nems/documentation/residential/pdf/m067(2020).pdf (last accessed August 1, 2023).
\148\ DOE. Energy Conservation Program for Certain Industrial
Equipment: Energy Conservation Standards for Small, Large, and Very
Large Air-Cooled Commercial Package Air Conditioning and Heating
Equipment and Commercial Warm Air Furnaces; Direct final rule. 81 FR
2419 (Jan. 15, 2016) (available at: www.regulations.gov/document/EERE-2013-BT-STD-0021-0055) (last accessed August 1, 2023).
\149\ DOE. Energy Conservation Program: Energy Conservation
Standards for Residential Boilers; Final rule. 81 FR 2319 (Jan. 15,
2016) (available at: www.regulations.gov/document/EERE-2012-BT-STD-0047-0078) (last accessed August 1, 2023).
\150\ DOE. Energy Conservation Program: Energy Conservation
Standards for Commercial Packaged Boilers; Final Rule. 85 FR 1592
(Jan. 10, 2020) (available at: www.regulations.gov/document/EERE-2013-BT-STD-0030-0099) (last accessed August 1, 2023).
---------------------------------------------------------------------------
The LCC analysis considers increases in product and installation
costs as well as decreases in operating costs, as directed by EPCA. In
this analysis, DOE did not include the rebound effect in the LCC for
the reasons that follow. Some households may increase their furnace use
in response to increased efficiency, and as a result, not all
households will realize the LCC savings represented in section V.B of
this document. At the same time, those consumers will also experience a
welfare gain from the increased utilization of the equipment, which has
economic value. DOE includes rebound in the NIA for a conservative
estimate of national energy savings and the corresponding impact to
consumer NPV. See section IV.H of this document for further details.
EPCA requires that in its evaluation of proposed energy
conservation standards, DOE must consider the savings in operating
costs throughout the estimated average life of the covered product in
the type (or class) compared to any increase in the price of, or in the
initial charges for, or maintenance expenses of, the covered products
which are likely to result from the imposition of the standard. (42
U.S.C. 6295(o)(2)(B)(i)(II)) That is, DOE must consider the savings
resulting from operating a covered product that the consumer would
purchase under the proposed standard and the costs that the consumer
would realize from operating such a product, as compared to the costs
that the consumer would realize from operating a product under the
current standard. This consideration is to inform the determination of
whether an amended standard would be economically justified.
EPCA directs DOE to consider ``savings in operating costs'' with no
reference as to how DOE is to consider any potential increase in value
provided to the consumer under a proposed standard. (See 42 U.S.C.
6295(o)(2)(B)(i)(II)) In evaluating potential changes in the operating
costs, DOE has considered the useful output of a furnace provided to
the consumer. The rebound effect reflects a benefit directly realized
by the consumer in the form of increased comfort. Were DOE to adopt an
approach that did not include a value for the additional comfort
provided by a more-efficient furnace, the economic benefits from the
proposed standard would have been underestimated. DOE's evaluation of
the economic impact of a proposed standard would include the cost of
additional fuel consumption resulting from the rebound effect, but
would fail to recognize the additional welfare provided directly to the
consumer from a NWGF or MHGF that
[[Page 87570]]
complies at the proposed efficiency level.
In addition to the consideration required by 42 U.S.C.
6295(o)(2)(B)(i)(II), EPCA directs DOE to consider the economic impact
of the standard on manufacturers and on the consumers of the products
subject to such standard. (42 U.S.C. 6295(o)(2)(B)(i)(I)) The economic
impact is not narrowly defined to include only costs related to energy
consumption. The occurrence of a rebound effect demonstrates that
consumers value the additional output (i.e., heat) as they are paying
for the additional heat, and resulting increase in comfort, reflected
in their energy bills. To quantify the effects of rebound, DOE
estimates the economic and energy savings impact in the NIA. See
chapter 10 of the final rule TSD for more details.
4. Energy Prices
A marginal energy price reflects the cost or benefit of adding or
subtracting one additional unit of energy consumption. Because marginal
electricity price more accurately captures the incremental savings
associated with a change in energy use from higher efficiency, it
provides a better representation of incremental change in consumer
costs than average electricity prices. Therefore, DOE applied average
electricity prices for the energy use of the product purchased in the
no-new-standards case, and marginal electricity prices for the
incremental change in energy use associated with the other efficiency
levels considered.
DOE derived average monthly marginal residential and commercial
electricity, natural gas, and LPG prices for each State using data from
EIA.151 152 153 DOE calculated marginal monthly regional
energy prices by: (1) first estimating an average annual price for each
region; (2) multiplying by monthly energy price factors, and (3)
multiplying by seasonal marginal price factors for electricity, natural
gas, and LPG. The analysis used historical data up to 2022 for
residential and commercial natural gas and electricity prices and
historical data up to 2021 for LPG prices. Further details may be found
in chapter 8 of the final rule TSD.
---------------------------------------------------------------------------
\151\ U.S. Department of Energy-Energy Information
Administration, Form EIA-861M (formerly EIA-826) detailed data
(2022) (available at: www.eia.gov/electricity/data/eia861m/) (last
accessed August 1, 2023).
\152\ U.S. Department of Energy-Energy Information
Administration, Natural Gas Navigator (2022) (available at:
www.eia.gov/naturalgas/data.php) (last accessed August 1, 2023).
\153\ U.S. Department of Energy-Energy Information
Administration, 2021 State Energy Data System (SEDS) (2021)
(available at: www.eia.gov/state/seds/) (last accessed August 1,
2023).
---------------------------------------------------------------------------
DOE compared marginal price factors developed by DOE from the EIA
data to develop seasonal marginal price factors for 23 gas tariffs
provided by the Gas Technology Institute for the 2016 residential
boilers energy conservation standards rulemaking.\154\ DOE found that
the winter price factors used by DOE are generally comparable to those
computed from the tariff data, indicating that DOE's marginal price
estimates are reasonable at average usage levels. The summer price
factors are also generally comparable. Of the 23 tariffs analyzed,
eight have multiple tiers, and of these eight, six have ascending rates
and two have descending rates. The tariff-based marginal factors use an
average of the two tiers as the commodity price. A full tariff-based
analysis would require information about the household's total baseline
gas usage (to establish which tier the consumer is in), and a weight
factor for each tariff that determines how many customers are served by
that utility on that tariff. These data are generally not available in
the public domain. DOE's use of EIA State-level data effectively
averages overall consumer sales in each State, and so incorporates
information from all utilities. DOE's approach is, therefore, more
representative of a large group of consumers with diverse baseline gas
usage levels than an approach that uses only tariffs.
---------------------------------------------------------------------------
\154\ Gas Technology Institute (GTI) provided a reference
located in the docket of DOE's 2016 rulemaking to develop energy
conservation standards for residential boilers. (Docket No. EERE-
2012-BT-STD-0047-0068) (available at: www.regulations.gov/document/EERE-2012-BT-STD-0047-0068) (last accessed August 1, 2023).
---------------------------------------------------------------------------
DOE notes that within a State, there could be significant variation
in the marginal price factors, including differences between rural and
urban rates. In order to take this into account, DOE developed price
factors for each individual household and building using the annual
RECS 2020 and CBECS 2018 energy cost and energy use data. These data
are then normalized to match the average State price factors, which are
equivalent to a consumption-weighted average price across all
households in the State. For more details on the comparative analysis
and energy price analysis, see appendix 8E of the final rule TSD.
To estimate energy prices in future years, DOE multiplied the 2022
energy prices by the projection of annual average price changes for
each of the nine Census Divisions from the Reference case in AEO2023,
which has an end year of 2050.\155\ To estimate price trends after
2050, DOE used the average annual rate of change in prices from 2045
through 2050. DOE also conducted sensitivity analyses using lower and
higher energy price projections. The impact of these alternative
scenarios is shown in appendix 8K of the final rule TSD.
---------------------------------------------------------------------------
\155\ U.S. Department of Energy-Energy Information
Administration, Annual Energy Outlook 2023 (available at:
www.eia.gov/outlooks/aeo/) (last accessed August 1, 2023).
---------------------------------------------------------------------------
NCLC and Joint Efficiency Commenters stated that DOE may be
underestimating future costs of natural gas and, therefore, the energy
savings from installing a more efficient furnace. (NCLC, No. 383 at pp.
6-7; Joint Efficiency Commenters, No. 381 at p. 3) In contrast, AGA
claimed that DOE continues to utilize energy price projections with an
upward bias, consistently overestimates future natural gas costs, and
should utilize price distributions instead of a mean. (AGA, No. 405 at
pp. 90-91) In response, DOE notes that projected energy price trends
from AEO are the best available to DOE at the time of the analysis, and
DOE does not have any persuasive evidence to suggest these projected
energy prices are underestimated. There is no other data set on energy
prices of which DOE is aware that is as comprehensive or nationally
representative as that from EIA. Furthermore, AEO provides a projection
of future energy prices based on comprehensive macroeconomic modeling.
Near-term projections of energy prices (as used in the LCC) tend to be
similar to today's prices. The analysis does not use a single mean
value, but rather the energy prices vary by State according to the
input data. Finally, DOE conducts sensitivity analyses using high/low
economic growth scenarios from AEO, which have higher/lower energy
price trends.
NYSERDA agreed that actual prices deviating from forecasted prices
in a given year would not significantly change the analysis, especially
over a 30-year time frame, but recommended that DOE develop and publish
forecast accuracy estimates for energy price projections. (NYSERDA, No.
379 at p. 10) In response, DOE acknowledges the uncertainty in energy
price projections, but calculating formal uncertainty parameters based
on historical editions of AEO is not necessarily informative, due to
the constantly evolving models and input data sets. Prior forecast
accuracy is not necessarily reflective of current models. Instead, DOE
addresses energy price projection uncertainty with
[[Page 87571]]
the use of sensitivity scenarios, in particular the high- and low-
economic-growth sensitivity scenarios. These utilize alternative
economic growth cases in AEO, as well as alternative energy price
projections. The conclusions of the analysis remain the same regardless
of the scenario.
APGA commented that, given the need to greatly expand electricity
infrastructure to meet electrification and clean electricity goals, it
is dubious that AEO2021 relied on in the NOPR predicts residential
electricity prices declining over the next 30 years. (APGA, No. 387 at
p. 60) In response, DOE notes that the analysis has been updated with
AEO2023, which projects increasing electricity prices in years beyond
2030.
5. Maintenance and Repair Costs
Repair costs are associated with repairing or replacing product
components that have failed in an appliance; maintenance costs are
associated with maintaining the operation of the product.
DOE estimated maintenance costs for residential furnaces at each
considered efficiency level using a variety of sources, including 2023
RS Means,\156\ manufacturer literature, and information from expert
consultants. DOE estimated the frequency of annual maintenance using
data from RECS 2020 and the 2022 American Home Comfort Study.\157\ DOE
accounted for the likelihood that condensing furnaces require more
maintenance and repair than non-condensing furnaces by adding costs to
check the secondary heat exchanger and condensate system (including
regular replacement of the condensate neutralizer fill material). For
repair costs, DOE included repair of the ignition, gas valve, controls,
and inducer fan, as well as the furnace fan blower. For condensing
repair costs, DOE assumed higher material repair costs for the
ignition, gas valve, controls, inducer fan, and furnace fan blower, as
well as replacing or repairing the condensate pump, if applicable. To
determine the service lifetime of various components, DOE used a Gas
Research Institute (``GRI'') study.\158\ For the considered standby
mode and off mode standards, DOE assumed that no additional maintenance
or repair is required.
---------------------------------------------------------------------------
\156\ RS Means Company Inc., RS Means Facilities Maintenance &
Repair Cost Data (2023) (available at: www.rsmeans.com/) (last
accessed August 1, 2023).
\157\ Decision Analysts, 2022 American Home Comfort Study
(available at: www.decisionanalyst.com/Syndicated/HomeComfort/)
(last accessed August 1, 2023).
\158\ Jakob, F.E., J.J. Crisafulli, J.R. Menkedick, R.D.
Fischer, D.B. Philips, R.L. Osbone, J.C. Cross, G.R. Whitacre, J.G.
Murray, W.J. Sheppard, D.W. DeWirth, and W.H. Thrasher, Assessment
of Technology for Improving the Efficiency of Residential Gas
Furnaces and Boilers, Volume I and II--Appendices (September 1994)
Gas Research Institute, Report No. GRI-94/0175 (available at:
www.gti.energy/software-and-reports/) (last accessed August 1,
2023).
---------------------------------------------------------------------------
In order to validate DOE's approach, DOE did a review of
maintenance and repair costs available from a variety of sources,
including online resources. Overall, DOE found that the maintenance and
repair cost estimates applied in its analysis fall within the typical
range of published maintenance and repair charges.
For more details on DOE's methodology for calculating maintenance
and repair costs, including all online resources reviewed, see appendix
8F of the TSD for this final rule.
6. Product Lifetime
Product lifetime is the age at which an appliance is retired from
service. DOE conducted an analysis of furnace lifetimes based on the
methodology described in a recent journal paper.\159\ For this
analysis, DOE relied on RECS 1990, 1993, 2001, 2005, 2009, 2015, and
2020.\160\ DOE also used the U.S. Census's biennial American Housing
Survey (``AHS''), from 1974-2021, which surveys all housing, noting the
presence of a range of appliances.\161\ DOE used the appliance age data
from these surveys, as well as the historical furnace shipments, to
generate an estimate of the survival function. The survival function
provides a lifetime range from minimum to maximum, as well as an
average lifetime. DOE estimates the average product lifetime to be 21.5
years for NWGFs and MHGFs. This estimate is consistent with the range
of values identified in a literature review, which included values from
16 years to 23.6 years.
---------------------------------------------------------------------------
\159\ Lutz, J., A. Hopkins, V. Letschert, V. Franco, and A.
Sturges, Using national survey data to estimate lifetimes of
residential appliances, HVAC&R Research (2011) 17(5): p. 28.
(Available at www.tandfonline.com/doi/abs/10.1080/10789669.2011.558166) (last accessed August 1, 2023).
\160\ U.S. Department of Energy: Energy Information
Administration, Residential Energy Consumption Survey (``RECS''),
Multiple Years (1990, 1993, 1997, 2001, 2005, 2009, 2015, and 2020).
(Available at www.eia.gov/consumption/residential/) (last accessed
August 1, 2023).
\161\ U.S. Census Bureau: Housing and Household Economic
Statistics Division, American Housing Survey, Multiple Years (1974,
1975, 1976, 1977, 1978, 1979, 1980, 1981, 1983, 1985, 1987, 1989,
1991, 1993, 1995, 1997, 1999, 2001, 2003, 2005, 2007, 2009, 2011,
2013, 2015, 2017, 2019, and 2021). (Available at www.census.gov/programs-surveys/ahs/) (last accessed August 1, 2023).
---------------------------------------------------------------------------
To better account for differences in lifetime due to furnace
utilization, DOE determined separate lifetimes for the North and rest
of country (as identified in the shipments analysis) but only based on
the difference in operating hours in the two regions. DOE assumed that
equipment operated for fewer hours will have a longer service lifetime.
DOE developed regional lifetime estimates by using regional shipments,
RECS survey data, and AHS survey data and applying the methodology
described above. More specifically, these data include AHRI shipments
in the North and rest of country regions from 2010-2015,\162\ 2020 RECS
data,\163\ and 2015-2021 AHS data survey data.\164\ DOE also
incorporated lifetime data from Decision Analysts AHCS from 2006, 2008,
2010, 2013, 2016, 2019, and 2022.\165\ The average lifetime used in
this final rule is 22.5 years in the North and 20.2 years in the rest
of country for both NWGFs and MHGFs (national average is 21.5 years).
Consumer furnaces located in the North are generally higher capacity to
meet the higher heating load, and, thus, can have lower operating
hours. Additionally, furnace replacements in the rest of country are
more likely to be linked to a paired central air conditioner. For these
reasons, the consumer furnace lifetimes in the two regions differ
slightly. DOE also conducted sensitivity analyses using a median
lifetime of 16 years (low lifetime scenario) and 27 years (high
lifetime scenario) for NWGFs and MHGFs (see appendix 8G in the TSD for
this final rule).
---------------------------------------------------------------------------
\162\ Air-Conditioning, Heating, and Refrigeration Institute,
Non-Condensing and Condensing Regional Gas Furnace Shipments for
2010-2015, Confidential Data Provided to Navigant Consulting (Nov.
26, 2016).
\163\ U.S. Department of Energy: Energy Information
Administration, Residential Energy Consumption Survey (``RECS'')
(2020). (Available at www.eia.gov/consumption/residential/) (last
accessed August 1, 2023).
\164\ U.S. Census Bureau: Housing and Household Economic
Statistics Division, American Housing Survey, Multiple Years (2015-
2021). (Available at www.census.gov/programs-surveys/ahs/) (last
accessed August 1, 2023).
\165\ Decision Analysts, 2006, 2008, 2010, 2013, 2016, 2019, and
2022 American Home Comfort Studies. (Available at
www.decisionanalyst.com/Syndicated/HomeComfort/) (last accessed
August 1, 2023).
---------------------------------------------------------------------------
There is significant variation in the distribution of furnace
lifetime, and DOE uses a Weibull distribution to account for this
distribution of product failure. DOE accounts for this variation by
projecting energy cost savings and health benefits through the final
year of furnace lifetime for all products shipped in 2058 (i.e.,
through 2113).
[[Page 87572]]
Chapter 8 of the TSD for this final rule provides further details
on the methodology and sources DOE used to develop furnace lifetimes.
AGPA claimed that a more complex condensing furnace with more parts
that could break down will have a shorter life. APGA asserted that
appliance manufacturers have explained to DOE that condensing natural
gas appliances are more complex than their baseline counterparts, so
the likelihood that the condensing appliance will fail is greater than
with a non-condensing appliance. (APGA, No. 387 at pp. 49-50)
As described in more detail in appendix 8G of the final rule TSD,
the historical lifetime data do not show any indication that condensing
furnace lifetimes are significantly different from non-condensing
furnaces. The historical data cover a time period during which
condensing furnaces gained more significant market share. As described
in section IV.F.5 of this document, DOE included additional repair and
maintenance costs for condensing furnaces to account for the increased
complexity of these products, which would cover minor component
failures that do not necessitate replacing the furnace.
APGA asserted that DOE made an absurd conclusion that the average
lifetime used in this NOPR is 22.5 years in the North and 20.2 years in
the rest of country for both NWGFs and MHGFs. APGA claims that where
furnaces run longer and harder in the North, product lifetime should be
shorter rather than longer. (APGA, No. 387 at p. 50)
In response, DOE notes that although the heating load is higher in
the North compared to the rest of country, furnace sizing is also
typically much higher. As a result, burner operating hours are not
necessarily higher in the North than the rest of country, due to the
increased capacity, and, thus, the furnace is not necessarily ``working
harder'' in the North as the commenter claims. Furthermore, furnaces in
the rest of country are more likely to be paired with an air
conditioner, and, thus, the air handler can have significantly higher
operating hours than in the North. Therefore, the fact that the
lifetime is slightly lower in the rest of country is a reasonable
result. DOE also notes that, with a slightly shorter lifetime in the
rest of country, which typically has lower furnace operating costs
compared to the North, DOE's estimates of LCC savings are, therefore,
more conservative than if DOE had assumed a higher lifetime for the
rest of country.
AGA argued that DOE's economic analysis is highly sensitive to
equipment lifetime assumptions, but the assumed consumer furnace
lifetime used in that analysis is neither reasonable nor justified.
More specifically, AGA asserted that the LCC spreadsheet incorrectly
assumes that all consumer gas furnaces have the same lifetime
regardless of energy efficiency. According to the commenter, since
condensing furnaces are subject to condensing, acidic water vapor,
contain more parts, and are generally more complex, it is unreasonable
to assume condensing furnaces would not have a shorter lifetime than
non-condensing furnaces. Indeed, AGA argued that the shorter lifespan
of condensing products is well documented by actual data and studies
that the NOPR fails to confront. AGA presented an analysis using DOE's
LCC model spreadsheet that seeks to demonstrate that even modest
changes in assumed equipment lifetime produce significant changes in
the life-cycle cost savings. (AGA, No. 405 at pp. 67-70)
In response, DOE conducted an analysis of the available data on
furnace lifetime, including both condensing and non-condensing
furnaces. As discussed in further detail in appendix 8G of the final
rule TSD, DOE found no data to support a shorter lifetime for
condensing furnaces, despite their generally more complex nature. DOE
further notes that it presented sensitivity scenarios with alternative
lifetime estimates in the NOPR TSD and does so again for the final rule
TSD (see appendix 8G). With a shorter lifetime assumption, the average
LCC savings are obviously not as large as DOE's reference case.
However, LCC savings at the adopted standard level remain positive,
with a similar percentage of consumers experiencing net cost, and the
relative comparison between the potential standard levels remain the
same. Therefore, DOE's conclusions regarding the economic justification
for the rule remain unchanged, even under these scenarios with
alternative lifetimes.
APGA argued that including distant benefits beyond 2058 is contrary
to the statute and that DOE should limit its evaluation of savings in
operating costs to the period of the estimated average life of the
covered product. (APGA, No. 387 at p. 15) In response, DOE clarifies
that the LCC analysis only considers the costs and operating savings
throughout the estimated average life of the covered product. This is
explicitly in line with the direction of the statute. (42 U.S.C.
6295(o)(2)(B)(i)(II)) The commenter appears to be conflating the LCC
with national impact analysis (NIA), which additionally considers the
aggregated national impact of products shipped over a 30 year period
(2029-2058), in order to evaluate the total projected energy savings
and net present value of the rule. (42 U.S.C. 6295(o)(2)(B)(i)(III))
Products shipped in that final year will accrue costs and savings
beyond 2058. Both the LCC and NIA are considered as part of the
evaluation of economic justification of potential standards.
MHI asserted that DOE's assumption that the lifetime of a MHGF is
the same as the lifetime of a manufactured home is incorrect, as the
useful life of manufactured homes is increasing and is now equivalent
to site-built housing for properly maintained homes. Therefore, MHI
argued that manufactured homeowners will incur substantial costs when
replacing their furnace that may be prohibitively expensive. MHI
further argued that this could lead consumers to continue servicing old
equipment rather than making improvements, which would negate any
energy savings the potential standards under consideration might bring,
as well as potentially increasing the risk of air quality concerns such
as carbon monoxide exposure. (MHI, No. 365 at p. 4)
In response, DOE notes that its estimate of MHGF lifetime is
approximately 21 years on average, which is the same as for NWGFs. It
is not directly tied to the future life expectancy of a manufactured
home. Additionally, DOE accounts for increased installation costs when
replacing an existing MHGF in a manufactured home with a higher-
efficiency MHGF. This accounts for the situation described by the
commenter in which the useful life of the manufactured home is longer
and the MHGF is replaced. DOE also acknowledges that some consumers may
choose to continue servicing an existing MHGF rather than replace it,
and includes this effect in its repair vs. replace methodology. This
will reduce energy savings to some degree, although eventually, the
MHGF will ultimately need to be replaced. Finally, DOE assumes that any
licensed professional servicing an existing MHGF will correct any leaks
or potential safety issues and will not allow any unsafe operation of a
MHGF to persist.
7. Discount Rates
In the calculation of LCC, DOE applies discount rates appropriate
to households and commercial buildings to estimate the present value of
future operating cost savings. The discount rate used in the LCC
analysis represents the rate from an individual consumer's perspective.
DOE estimated a distribution of discount rates for NWGFs and MHGFs
based on consumer
[[Page 87573]]
financing costs and the opportunity cost of consumer funds for
residential applications and cost of capital for commercial
applications.
DOE applies weighted average discount rates calculated from
consumer debt and asset data, rather than marginal or implicit discount
rates.\166\ DOE notes that the LCC does not analyze the appliance
purchase decision, so the implicit discount rate is not relevant in
this model. The LCC analysis estimates net present value over the
lifetime of the product, so the appropriate discount rate will reflect
the general opportunity cost of household funds, taking this time scale
into account. Given the long time horizon modeled in the LCC, the
application of a marginal interest rate associated with an initial
source of funds is inaccurate. Regardless of the method of purchase,
consumers are expected to continue to rebalance their debt and asset
holdings over the LCC analysis period, based on the restrictions
consumers face in their debt payment requirements and the relative size
of the interest rates available on debts and assets. DOE estimates the
aggregate impact of this rebalancing using the historical distribution
of debts and assets. For commercial applications, DOE's method views
the purchase of a higher-efficiency appliance as an investment that
yields a stream of energy cost savings. DOE derived the discount rates
for the LCC analysis by estimating the cost of capital for companies or
public entities that purchase consumer boilers. For private firms, the
weighted-average cost of capital (WACC) is commonly used to estimate
the present value of cash flows to be derived from a typical company
project or investment. Most companies use both debt and equity capital
to fund investments, so their cost of capital is the weighted average
of the cost to the firm of equity and debt financing, as estimated from
financial data for publicly-traded firms in the sectors that purchase
consumer boilers. As discount rates can differ across industries, DOE
estimates separate discount rate distributions for a number of
aggregate sectors with which elements of the LCC building sample can be
associated.
---------------------------------------------------------------------------
\166\ The implicit discount rate is inferred from a consumer
purchase decision between two otherwise identical goods with
different first cost and operating cost. It is the interest rate
that equates the increment of first cost to the difference in net
present value of lifetime operating cost, incorporating the
influence of several factors: transaction costs; risk premiums and
response to uncertainty; time preferences; interest rates at which a
consumer is able to borrow or lend. The implicit discount rate is
not appropriate for the LCC analysis because it reflects a range of
factors that influence consumer purchase decisions, rather than the
opportunity cost of the funds that are used in purchases.
---------------------------------------------------------------------------
To establish residential discount rates for the LCC analysis, DOE
identified all relevant household debt or asset classes in order to
approximate a consumer's opportunity cost of funds related to appliance
energy cost savings. DOE estimated the average percentage shares of the
various types of debt and equity by household income group using data
from the Federal Reserve Board's triennial Survey of Consumer Finances
\167\ (SCF) for 1995, 1998, 2001, 2004, 2007, 2010, 2013, 2016, and
2019. Using the SCF and other sources, DOE developed a distribution of
rates for each type of debt and asset by income group to represent the
rates that may apply in the year in which amended or new standards
would take effect. DOE assigned each sample household a specific
discount rate drawn from one of the distributions. DOE assigned each
sample household a specific discount rate drawn from one of the
distributions.
---------------------------------------------------------------------------
\167\ The Federal Reserve Board, Survey of Consumer Finances
(1995, 1998, 2001, 2004, 2007, 2010, 2013, 2016, and 2019)
(available at: www.federalreserve.gov/econres/ scfindex.htm) (last
accessed August 1, 2023).
---------------------------------------------------------------------------
DOE notes that the interest rate associated with the specific
source of funds used to purchase a furnace (i.e., the marginal rate) is
not the appropriate metric to measure the discount rate as defined for
the LCC analysis. The marginal interest rate alone would only be the
relevant discount rate if the consumer were restricted from re-
balancing their debt and asset holdings (by redistributing debts and
assets based on the relative interest rates available) over the entire
time period modeled in the LCC analysis. The LCC is not analyzing a
marginal decision; rather, it estimates net present value over the
lifetime of the product, so, therefore, the discount rate needs to
reflect the opportunity cost of both the money flowing in (through
operating cost savings) and out (through upfront cost expenditures) of
the net present value calculation. In the context of the LCC analysis,
the consumer is not only discounting based on their opportunity cost of
money spent today, but instead, they are additionally discounting the
stream of future benefits. A consumer might pay for an appliance with
cash, thereby forgoing investment of those funds into one of the
interest earning assets to which they might have access. Alternatively,
a consumer might pay for the initial purchase by going into debt,
subject to the cost of capital at the interest rate relevant for that
purchase. However, a consumer will also receive a stream of future
benefits in terms of annual operating cost savings that they could
either put towards paying off that or other debts, or towards assets,
depending on the restrictions they face in their debt payment
requirements and the relative size of the interest rates on their debts
and assets. All of these interest rates are relevant in the context of
the LCC analysis, as they all reflect direct costs of borrowing, or
opportunity costs of money either now or in the future. Additionally,
while a furnace itself is not a readily tradable commodity, the money
used to purchase it and the annual operating cost savings accruing to
it over time flow from and to a household's pool of debt and assets,
including mortgages, mutual funds, money market accounts, etc.
Therefore, the weighted-average interest rate on debts and assets
provides a reasonable estimate for a household's opportunity cost (and
discount rate) relevant to future costs and savings. The best proxy for
this re-optimization of debt and asset holdings over the lifetime of
the LCC analysis is to assume that the distribution of debts and assets
in the future will be proportional to the distribution of debts and
assets historically. Given the long time horizon modeled in the LCC,
the application of a marginal rate alone would be inaccurate. DOE's
methodology for deriving residential discount rates is in line with the
weighted-average cost of capital used to estimate commercial discount
rates. The average rate in this final rule analysis across all types of
household debt and equity and across all income groups, weighted by the
shares of each type, is 4.0 percent for NWGFs and 4.5 percent for
MHGFs.
To establish commercial discount rates for the small fraction of
NWGFs installed in commercial buildings, DOE estimated the weighted-
average cost of capital using data from Damodaran Online.\168\ The
weighted-average cost of capital is commonly used to estimate the
present value of cash flows to be derived from a typical company
project or investment. Most companies use both debt and equity capital
to fund investments, so their cost of capital is the weighted average
of the cost to the firm of equity and debt financing. DOE estimated the
cost of equity using the capital asset pricing model, which assumes
that the cost of equity for a particular company is proportional to the
systematic risk faced by that company. DOE's commercial discount rate
approach is based on the
[[Page 87574]]
methodology described in a LBNL report, and the distribution varies by
business activity.\169\ The average rate for NWGFs used in commercial
applications in this final rule analysis, across all business activity,
is 6.7 percent.
---------------------------------------------------------------------------
\168\ Damodaran Online, Data Page: Costs of Capital by Industry
Sector (2022) (available at: pages.stern.nyu.edu/~adamodar/) (last
accessed August 1, 2023).
\169\ Fujita, K. Sydny. Commercial, Industrial, and
Institutional Discount Rate Estimation for Efficiency Standards
Analysis: Sector-Level Data 1998-2022. 2023. (Available at: eta-publications.lbl.gov/publications/commercial-industrial-and-2) (last
accessed August 1, 2023).
---------------------------------------------------------------------------
See chapter 8 and appendix 8H of the final rule TSD for further
details on the development of consumer and commercial discount rates.
8. Energy Efficiency Distribution in the No-New-Standards Case
To accurately estimate the share of consumers that would be
affected by a potential energy conservation standard at a particular
efficiency level, DOE's LCC analysis considered the projected
distribution (i.e., market shares) of product efficiencies under the
no-new-standards case (i.e., the case without amended or new energy
conservation standards) in the compliance year (2029). This approach
reflects the fact that some consumers may purchase products with
efficiencies greater than the baseline levels, such that even in a no-
new-standards case, consumers will be purchasing higher-efficiency
furnaces.
To estimate the effect of a potential standard, DOE must estimate
not only the expected market share of products at varying efficiencies,
but also estimate how such products will be used--that is, in what
buildings. The base case reflects three analytical steps: (1) an
estimate of the buildings likely to use furnaces, (2) an estimate of
the efficiency of the furnaces that would be sold absent the rule; and
(3) the matching of particular furnace efficiencies with particular
building types.
Each building in the sample was assigned a furnace efficiency
sampled from the no-new-standards-case efficiency distribution for the
appropriate product class, either NWGFs or MHGFs. In assigning furnace
efficiencies, DOE determined that, based on the presence of well-
understood market failures (discussed at the end of this section), a
random assignment of efficiencies, with some modifications discussed
below, best accounts for consumer behavior in the consumer furnaces
market. Random assignment of efficiencies reflects the full range of
consumer behaviors in this market, including consumers who make
economically beneficial decisions and consumers that, due to market
failures, do not make such economically beneficial decisions.
The LCC Monte Carlo simulations draw from the efficiency
distributions and randomly assign an efficiency to the consumer
furnaces purchased by each sample household and commercial building in
the no-new-standards case. The resulting percentage shares within the
sample match the market shares in the efficiency distributions. But, as
mentioned previously, DOE considered available data in determining
whether any modifications should be made to the random assignment
methodology, as discussed in the following sections.
a. Condensing Furnace Market Share in Compliance Year
To estimate the efficiency distribution of NWGFs and MHGFs in 2029,
DOE considered the market trends regarding increased sales of high-
efficiency furnaces (including any available incentives). DOE relied on
data provided by AHRI on historical shipments for each product class.
DOE reviewed AHRI data from 1992 and 1994-2003 (which includes both
NWGF and MHGF shipments data), detailing the market shares of non-
condensing \170\ and condensing (90-percent AFUE and greater) furnaces
by State.\171\ AHRI also provided data for non-condensing and
condensing furnace shipments by region for 2004-2009 \172\ and
nationally for 2010-2014.\173\ AHRI additionally submitted proprietary
data including shipments of condensing and non-condensing furnaces in
the North and rest of country regions from 2010 to 2015.\174\ DOE also
obtained 2013-2022 HARDI shipments data by efficiency for most
States.\175\ AHRI and HARDI data capture different fractions of the
market. Using the shipments data from AHRI and HARDI, DOE derived
historical trends for each State. DOE used the HARDI State-level data
(2013-2022) to project the trends and to estimate the condensing
furnace market share in 2029. This excludes years with a Federal tax
incentive 176 177 in order to better reflect the trends of
the current market. The maximum share of condensing furnace shipments
for each region was assumed to be 95 percent, in order to reflect a
small fraction of the market that would continue to install non-
condensing furnaces. See chapter 8 and appendix 8I of the TSD for this
final rule for further information on the derivation of the efficiency
distribution projections.
---------------------------------------------------------------------------
\170\ The market share of furnaces with AFUE between 80 and 90
percent is well below 1 percent due to the very high installed cost
of 81-percent AFUE furnaces, compared with condensing designs, and
concerns about safety of operation. AHRI also provided national
shipments data (not disaggregated by region) by efficiency for 1975,
1978, 1980, 1983-1991, and 1993.
\171\ Air-Conditioning, Heating, and Refrigeration Institute
(formerly Gas Appliance Manufacturers Association), Updated
Shipments Data for Residential Furnaces and Boilers (April 25, 2005)
(available at www.regulations.gov/document/EERE-2006-STD-0102-0138)
(last accessed August 1, 2023).
\172\ Air-Conditioning, Heating, and Refrigeration Institute,
Non-Condensing and Condensing Regional Gas Furnace Shipments for
2004-2009 Data Provided to DOE (July 20, 2010).
\173\ Air-Conditioning, Heating, and Refrigeration Institute,
Non-Condensing and Condensing Gas Furnace Shipments for 2010-2014.
(Available at www.regulations.gov/document/EERE-2014-BT-STD-0031-0052) (last accessed August 1, 2023).
\174\ Air-Conditioning, Heating, and Refrigeration Institute,
Non-Condensing and Condensing Regional Gas Furnace Shipments for
2010-2015, Confidential Data Provided to Navigant Consulting (Nov.
26, 2016).
\175\ Heating, Air-conditioning and Refrigeration Distributors
International (HARDI), DRIVE portal (HARDI Visualization Tool
managed by D+R International until 2022), proprietary Gas Furnace
Shipments Data from 2013-2022 provided to Lawrence Berkeley National
Laboratory (LBNL).
\176\ DOE did not use the data for 2008-2011 because these data
appear to be influenced by incentives. AHRI also stated the period
from 2008 through 2011 was an outlier. (AHRI, No. 303 at pp. 23-25).
\177\ The Energy Policy Act of 2005 established the tax credit
for energy improvements to existing homes. The credit was originally
limited to purchases made in 2006 and 2007, with an aggregate cap of
$500 for all qualifying purchases made in these two years combined.
For improvements made in 2009 and 2010, the cap was increased to
$1,500. This coincides with a sharp increase in condensing furnace
shipments. This credit has since been renewed several times, but the
credit was reduced to its original form and original cap of $500
starting in 2011. More information is available at www.energy.gov/savings/dsire-page (last accessed August 1, 2023).
---------------------------------------------------------------------------
APGA argued that DOE used insufficient shipments data to estimate
the share of condensing furnaces in the country, relying only on data
from 2010-2014, and as a result, there is considerable reason to doubt
the results of the analysis. (APGA, No. 387 at p. 13) In response, DOE
notes that the commenter misunderstands the analysis. As detailed
above, DOE utilizes significantly more historical shipment data than
only 2010-2014, data which are disaggregated by efficiency in order to
estimate the current and projected market share of condensing furnaces
in the no-new-standards case. In particular, DOE includes shipment data
by efficiency up to 2022 in its analysis.
b. Market Shares of Different Condensing Furnace Efficiency Levels
DOE used data on the shipments by efficiency from the 2013-2022
HARDI shipments to disaggregate the condensing furnace shipments among
[[Page 87575]]
the different condensing efficiency levels. Based on stakeholder input,
DOE assumed that the fraction of furnace shipments of 95-percent or
higher AFUE would be double in the new construction market. DOE also
assumed that the fraction of furnace shipments of 95-percent or higher
AFUE would be higher in the North compared to the South, because the
threshold for ENERGY STAR designation in the North is 95-percent AFUE
compared to 90-percent AFUE in the South. The resulting distributions
were then used to assign the new furnace AFUE for each sampled
household or building in the no-new-standards case, both in the
replacement and new construction markets, and in each of the 50 States
and Washington, DC.
The estimated market shares by region (North and rest of country)
and market segment (replacement and new construction) for the no-new-
standards case for NWGFs and MHGFs in 2029 are shown in Tables IV.11
and IV.12 of this document, respectively. DOE estimated that the
national market share of condensing products would be 61 percent in
2029 for NWGFs, and 34 percent for MHGFs. See chapter 8 and appendix 8I
of the final rule TSD for further information on the derivation of the
efficiency distributions.
Table IV--10 AFUE Efficiency Distribution in the No-New-Standards Case for Non-Weatherized Gas Furnaces
----------------------------------------------------------------------------------------------------------------
2029 Market share (percent)
Efficiency, AFUE (percent) ---------------------------------------------------------------
North, repl North, new South, repl South, new
----------------------------------------------------------------------------------------------------------------
Residential Market
----------------------------------------------------------------------------------------------------------------
80.............................................. 25.0 15.9 67.8 33.9
90.............................................. 0.4 0.2 0.1 0.1
92.............................................. 17.9 19.9 10.6 23.5
95.............................................. 55.3 62.4 20.2 39.4
98.............................................. 1.4 1.5 1.3 3.2
----------------------------------------------------------------------------------------------------------------
Commercial Market
----------------------------------------------------------------------------------------------------------------
80.............................................. 22.3 11.8 67.5 34.0
90.............................................. 1.7 0.0 0.0 0.0
92.............................................. 17.8 17.6 11.9 17.0
95.............................................. 58.3 70.6 20.6 44.7
98.............................................. 0.0 0.0 0.0 4.3
----------------------------------------------------------------------------------------------------------------
All
----------------------------------------------------------------------------------------------------------------
80.............................................. 24.8 15.6 67.8 33.9
90.............................................. 0.5 0.2 0.1 0.1
92.............................................. 17.8 19.7 10.7 23.2
95.............................................. 55.5 63.1 20.2 39.6
98.............................................. 1.4 1.4 1.2 3.2
----------------------------------------------------------------------------------------------------------------
Note: ``Repl'' means ``replacement,'' and ``New'' means ``new construction.''
Table IV--11 AFUE Efficiency Distribution in the No-New-Standards Case for Mobile Home Gas Furnaces
----------------------------------------------------------------------------------------------------------------
2029 Market share (percent)
Efficiency, AFUE (percent) ---------------------------------------------------------------
North, repl North, new South, repl South, new
----------------------------------------------------------------------------------------------------------------
80.............................................. 58.2 57.2 83.7 85.2
90.............................................. 0.0 0.0 0.0 0.0
92.............................................. 9.4 9.1 5.5 4.8
95.............................................. 31.3 32.2 8.7 8.7
96.............................................. 1.1 1.5 2.0 1.3
----------------------------------------------------------------------------------------------------------------
Note: ``Repl'' means ``replacement,'' and ``New'' means ``new construction.''
MHI argued that manufactured homes already offer high-efficiency
options, and that over 30 percent of manufactured homes meet or exceed
EnergyStar Standards (MHI, No. 365 at p. 2)
The DCA commented that consumers are already installing higher-
efficiency furnaces across the country. (DCA, No. 372 at p. 1) NYSERDA
similarly stated that the proposed standard's efficiency levels are
already being met by a significant share of the New York market.
(NYSERDA, No. 379 at p. 1) CEC commented that furnaces capable of
meeting the proposed standards are already commercially available on
the market, and that condensing furnaces have been required in Canada
for over a decade. (CEC, No. 382 at p. 2)
In response, DOE acknowledges that some consumers are already
purchasing furnaces at an efficiency level equal to or greater than the
standard level proposed in the NOPR and accounts for these consumers in
the analysis. Such consumers are not impacted by the rule and are not
included in the estimate of average LCC savings. As the commenters
suggest, the availability of these high-efficiency furnaces on the
market demonstrates their technological feasibility in the context of
DOE's
[[Page 87576]]
consideration of amended energy conservation standards for NWGFs and
MHGFs pursuant to EPCA at a national level.
c. Assignment of Furnace Efficiency to Sampled Households
For this final rule, DOE continued to assign furnace efficiency to
households in the no-new-standards case in two steps, first at the
State level, then at the building-specific level. However, DOE's
approach was modified to include other household characteristics. The
market share of each efficiency level at the State level is based on
historical shipments data (from the 2013-2022 HARDI data) and an
estimated projection of trends between 2022 and the compliance year.
The furnace efficiency distribution is then allocated to specific RECS
households or CBECS, according to the market shares generated for each
State. In some States, the market share of condensing furnaces is very
high, and, therefore, most households in that State in the LCC analysis
will be assigned a condensing furnace in the no-new-standards case. If
a household is assigned a condensing furnace in the no-new-standards
case, the replacement furnace is assumed to be condensing as well.
To assign the efficiency at the building-specific level, DOE
carefully considered any available data that might improve assignment
of furnace efficiency in the LCC analysis. First, DOE examined the
2013-2022 HARDI data of gas furnace input capacity by efficiency level
and region. DOE did not find a significant correlation between input
capacity and condensing furnace market share in a given region, a
correlation that might be expected a priori since buildings with larger
furnace input capacity are more likely to be larger and have greater
energy consumption. DOE next considered the GTI data submitted to DOE
for 21 Illinois households, which included the efficiency of the
furnace (AFUE), size of the furnace (input capacity), square footage of
the house, and annual energy use.\178\ Recognizing the relatively small
sample size, DOE notes that these data exhibit no significant
correlations between furnace efficiency and other household
characteristics (with most furnace installations in this sample being
non-condensing furnaces with high energy use). DOE also considered
other data of furnace efficiency compared to household characteristics
for other parts of the country, including the NEEA Database and permit
data (see appendix 8I of the TSD for this final rule for more details).
These data also suggest little to no correlation between furnace
efficiency and household characteristics or economic factors. Finally,
DOE considered the 2019 AHCS survey data.\179\ This survey includes
questions to recent purchasers of HVAC equipment regarding the
perceived efficiency of their equipment (Standard, High, and Super-High
Efficiency), as well as questions related to various household and
demographic characteristics. From these data, DOE did find a
statistically significant, albeit weak, correlation: Households with
larger square footage exhibited a slightly higher fraction of High or
Super-High efficiency equipment installed. Specifically, the lower
third of the square footage bins was five percent less likely to
install higher efficiency units as compared to the middle third of the
square footage bins, while the upper third of square footage bins was
five percent more likely to do so than the middle square footage bin.
Therefore, DOE used the AHCS data to adjust its furnace efficiency
distributions as follows: (1) the market share of condensing equipment
for households under 1,500 sq. ft. was decreased by five percentage
points; and (2) the market share of condensing equipment for households
above 2,500 sq. ft. was increased by five percentage points; however,
DOE continued to maintain the same aggregate State-level efficiency
distribution. For example, if a given State has a condensing market
share of 50 percent based on the shipments data, the probability of any
one household in that State being assigned a condensing furnace in the
no-new-standards case is 50 percent. However, if the household is
larger than 2,500 sq. ft., that probability increases to 55 percent
instead. This adjustment preferentially assigns condensing furnaces
within a given State to larger households (with presumably larger
energy consumption) in the no-new-standards case, and preferentially
assigns non-condensing furnaces to smaller households. This adjustment
results in a more conservative estimate of potential energy savings.
---------------------------------------------------------------------------
\178\ Gas Technology Institute (GTI), Empirical Analysis of
Natural Gas Furnace Sizing and Operation, GTI-16/0003 (November
2016) (available at: www.regulations.gov/document/EERE-2014-BT-STD-0031-0309) (last accessed August 1, 2023).
\179\ Decision Analysts, 2019 American Home Comfort Studies
(available at: www.decisionanalyst.com/Syndicated/HomeComfort/)
(last accessed August 1, 2023).
---------------------------------------------------------------------------
Beyond this adjustment of the probability distribution, which is
bounded by the shipments data, the assignment of furnace efficiency to
a given household is performed according to the random-assignment
method described in this section.
While DOE acknowledges that economic factors may play a role when
consumers, commercial building owners, or builders decide on what type
of furnace to install, assignment of furnace efficiency for a given
installation, based solely on economic measures such as life-cycle cost
or simple payback period most likely would not fully and accurately
reflect actual real-world installations. There are a number of market
failures discussed in the economics literature, as discussed in the
July 2022 NOPR and summarized below, that illustrate how purchasing
decisions with respect to energy efficiency are unlikely to be
perfectly correlated with energy use, as described subsequently. DOE
maintains that the method of assignment, which is in part random, is a
reasonable approach. It simulates behavior in the furnace market, where
market failures result in purchasing decisions not being perfectly
aligned with economic interests, and it does so more realistically than
relying only on apparent cost-effectiveness criteria derived from the
limited information in CBECS or RECS. DOE further emphasizes that its
approach does not assume that all purchasers of furnaces make
economically irrational decisions (i.e., the lack of a correlation is
not the same as a negative correlation). As part of the random
assignment, some homes or buildings with large heating loads will be
assigned higher-efficiency furnaces, and some homes or buildings with
particularly low heating loads will be assigned baseline furnaces,
which aligns with the available data. By using this approach, DOE
acknowledges the uncertainty inherent in the data and minimizes any
bias in the analysis by using random assignment, as opposed to assuming
certain market conditions that are unsupported by the available
evidence.
The following discussion provides more detail about the various
market failures that affect consumer furnace purchases. First,
consumers are motivated by more than simple financial trade-offs. There
are consumers who are willing to pay a premium for more energy-
efficient products because they are environmentally conscious.\180\
There are also several behavioral factors that can influence the
purchasing decisions
[[Page 87577]]
of complicated multi-attribute products, such as furnaces. For example,
consumers (or decision makers in an organization) are highly influenced
by choice architecture, defined as the framing of the decision, the
surrounding circumstances of the purchase, the alternatives available,
and how they are presented for any given choice scenario.\181\ The same
consumer or decision maker may make different choices depending on the
characteristics of the decision context (e.g., the timing of the
purchase, competing demands for funds), which have nothing to do with
the characteristics of the alternatives themselves or their prices.
Consumers or decision makers also face a variety of other behavioral
phenomena including loss aversion, sensitivity to information salience,
and other forms of bounded rationality.\182\ Thaler, who won the Nobel
Prize in Economics in 2017 for his contributions to behavioral
economics, and Sunstein point out that these behavioral factors are
strongest when the decisions are complex and infrequent, when feedback
on the decision is muted and slow, and when there is a high degree of
information asymmetry.\183\ These characteristics describe almost all
purchasing situations of appliances and equipment, including furnaces.
The installation of a new or replacement furnace is done very
infrequently, as evidenced by the mean lifetime of 21.5 years for NWGFs
and MHGFs. Additionally, it would take at least one full heating season
for any impacts on operating costs to be fully apparent. Further, if
the purchaser of the furnace is not the entity paying the energy costs
(e.g., a building owner and tenant), there may be little to no feedback
on the purchase. Additionally, there are systematic market failures
that are likely to contribute further complexity to how products are
chosen by consumers, as explained in the following paragraphs. The
first of these market failures--the split-incentive or principal-agent
problem--is likely to affect furnaces more than many other types of
appliances. The principal-agent problem is a market failure that
results when the consumer that purchases the equipment does not
internalize all of the costs associated with operating the equipment.
Instead, the user of the product, who has no control over the purchase
decision, pays the operating costs. There is a high likelihood of
split-incentive problems in the case of rental properties where the
landlord makes the choice of what furnace to install, whereas the
renter is responsible for paying energy bills. In the LCC sample, 18.1
percent of households with a NWGF and 19.8 percent of households with a
MHGF are renters. These fractions are significantly higher for low-
income households (see section IV.I.1 of this document). In new
construction, builders influence the type of furnace used in many homes
but do not pay operating costs. Finally, contractors install a large
share of furnaces in replacement situations, and they can exert a high
degree of influence over the type of furnace purchased.
---------------------------------------------------------------------------
\180\ Ward, D.O., Clark, C.D., Jensen, K.L., Yen, S.T., &
Russell, C.S. (2011): ``Factors influencing willingness-to pay for
the ENERGY STAR[supreg] label,'' Energy Policy, 39 (3), 1450-1458
(available at: www.sciencedirect.com/science/article/abs/pii/S0301421510009171) (last accessed August 1, 2023).
\181\ Thaler, R.H., Sunstein, C.R., and Balz, J.P. (2014).
``Choice Architecture'' in The Behavioral Foundations of Public
Policy, Eldar Shafir (ed).
\182\ Thaler, R.H., and Bernartzi, S. (2004). ``Save More
Tomorrow: Using Behavioral Economics in Increase Employee Savings,''
Journal of Political Economy 112(1), S164-S187. See also Klemick,
H., et al. (2015) ``Heavy-Duty Trucking and the Energy Efficiency
Paradox: Evidence from Focus Groups and Interviews,'' Transportation
Research Part A: Policy & Practice, 77, 154-166 (providing evidence
that loss aversion and other market failures can affect otherwise
profit-maximizing firms).
\183\ Thaler, R.H., and Sunstein, C.R. (2008). Nudge: Improving
Decisions on Health, Wealth, and Happiness. New Haven, CT: Yale
University Press.
---------------------------------------------------------------------------
In addition to the split-incentive problem, there are other market
failures that are likely to affect the choice of furnace efficiency
made by consumers. For example, emergency replacements of essential
equipment such as a furnace in the heating season are strongly biased
toward like-for-like replacement (i.e., replacing the non-functioning
equipment with a similar or identical product). Time is a constraining
factor during emergency replacements, and consumers may not consider
the full range of available options on the market, despite their
availability. The consideration of alternative product options is far
more likely for planned replacements and installations in new
construction.
Additionally, Davis and Metcalf \184\ conducted an experiment
demonstrating that the nature of the information available to consumers
from EnergyGuide labels posted on air conditioning equipment results in
an inefficient allocation of energy efficiency across households with
different usage levels. Their findings indicate that households are
likely to make decisions regarding the efficiency of the climate-
control equipment of their homes that do not result in the highest net
present value for their specific usage pattern (i.e., their decision is
based on imperfect information and, therefore, is not necessarily
optimal). Also, most consumers did not properly understand the labels
(specifically whether energy consumption and cost estimates were
national averages or specific to their State). As such, consumers did
not make the most informed decisions.
---------------------------------------------------------------------------
\184\ Davis, L.W., and G.E. Metcalf (2016): ``Does better
information lead to better choices? Evidence from energy-efficiency
labels,'' Journal of the Association of Environmental and Resource
Economists, 3(3), 589-625 (available at: www.journals.uchicago.edu/doi/full/10.1086/686252) (last accessed August 1, 2023).
---------------------------------------------------------------------------
In part because of the way information is presented, and in part
because of the way consumers process information, there is also a
market failure consisting of a systematic bias in the perception of
equipment energy usage, which can affect consumer choices. Attari et
al.\185\ show that consumers tend to underestimate the energy use of
large energy-intensive appliances (such as central air conditioners),
but overestimate the energy use of small appliances. Therefore, it is
possible that consumers systematically underestimate the energy use
associated with furnaces, resulting in less cost-effective furnace
purchases.
---------------------------------------------------------------------------
\185\ Attari, S.Z., M.L. DeKay, C.I. Davidson, and W. Bruine de
Bruin (2010): ``Public perceptions of energy consumption and
savings.'' Proceedings of the National Academy of Sciences 107(37),
16054-16059 (available at: www.pnas.org/content/107/37/16054) (last
accessed August 1, 2023).
---------------------------------------------------------------------------
These market failures affect a sizeable share of the consumer
population. A study by Houde \186\ indicates that there is a
significant subset of consumers that appear to purchase appliances
without taking into account their energy efficiency and operating costs
at all.
---------------------------------------------------------------------------
\186\ Houde, S. (2018): ``How Consumers Respond to Environmental
Certification and the Value of Energy Information,'' The RAND
Journal of Economics, 49 (2), 453-477 (available at:
onlinelibrary.wiley.com/doi/full/10.1111/1756-2171.12231) (last
accessed August 1, 2023).
---------------------------------------------------------------------------
There are market failures relevant to furnaces installed in
commercial applications as well. It is often assumed that because
commercial and industrial customers are businesses that have trained or
experienced individuals making decisions regarding investments in cost-
saving measures, some of the commonly observed market failures present
in the general population of residential customers should not be as
prevalent in a commercial setting. However, there are many
characteristics of organizational structure and historic circumstance
in commercial settings that can lead to underinvestment in energy
efficiency.
First, a recognized problem in commercial settings is the
principal-agent problem, where the building owner (or building
developer) selects the equipment and the tenant (or subsequent building
owner) pays for
[[Page 87578]]
energy costs.187 188 Indeed, more than a quarter of
commercial buildings in the CBECS 2018 sample are occupied at least in
part by a tenant, not the building owner (indicating that, in DOE's
experience, the building owner likely is not responsible for paying
energy costs). Additionally, some commercial buildings have multiple
tenants. There are other similarly misaligned incentives embedded in
the organizational structure within a given firm or business that can
impact the choice of a furnace. For example, if one department or
individual within an organization is responsible for capital
expenditures (and therefore equipment selection) while a separate
department or individual is responsible for paying the energy bills, a
market failure similar to the principal-agent problem can result.\189\
Additionally, managers may have other responsibilities and often have
other incentives besides operating cost minimization, such as
satisfying shareholder expectations, which can sometimes be focused on
short-term returns.\190\ Decision-making related to commercial
buildings is highly complex and involves gathering information from and
for a variety of different market actors. It is common to see
conflicting goals across various actors within the same organization,
as well as information asymmetries between market actors in the energy
efficiency context in commercial building construction.\191\
---------------------------------------------------------------------------
\187\ Vernon, D., and Meier, A. (2012). ``Identification and
quantification of principal-agent problems affecting energy
efficiency investments and use decisions in the trucking industry,''
Energy Policy, 49, 266-273.
\188\ Blum, H. and Sathaye, J. (2010). ``Quantitative Analysis
of the Principal-Agent Problem in Commercial Buildings in the U.S.:
Focus on Central Space Heating and Cooling,'' Lawrence Berkeley
National Laboratory, LBNL-3557E (available at: escholarship.org/uc/item/6p1525mg) (last accessed August 1, 2023).
\189\ Prindle, B., Sathaye, J., Murtishaw, S., Crossley, D.,
Watt, G., Hughes, J., and de Visser, E. (2007). ``Quantifying the
effects of market failures in the end-use of energy,'' Final Draft
Report Prepared for International Energy Agency (Available from
International Energy Agency, Head of Publications Service, 9 rue de
la Federation, 75739 Paris, Cedex 15 France).
\190\ Bushee, B.J. (1998). ``The influence of institutional
investors on myopic R&D investment behavior,'' Accounting Review,
305-333. DeCanio, S.J. (1993). ``Barriers Within Firms to Energy
Efficient Investments,'' Energy Policy, 21(9), 906-914 (explaining
the connection between short-termism and underinvestment in energy
efficiency).
\191\ International Energy Agency (IEA). (2007). Mind the Gap:
Quantifying Principal-Agent Problems in Energy Efficiency. OECD Pub.
(available at www.iea.org/reports/mind-the-gap) (last accessed
August 1, 2023).
---------------------------------------------------------------------------
Second, the nature of the organizational structure and design can
influence priorities for capital budgeting, resulting in choices that
do not necessarily maximize profitability.\192\ Even factors as simple
as unmotivated staff or lack of priority-setting and/or a lack of a
long-term energy strategy can have a sizable effect on the likelihood
that an energy-efficient investment will be undertaken.\193\ U.S. tax
rules for commercial buildings may incentivize lower capital
expenditures, since capital costs must be depreciated over many years,
whereas operating costs can be fully deducted from taxable income or
passed through directly to building tenants.\194\
---------------------------------------------------------------------------
\192\ DeCanio, S.J. (1994). ``Agency and control problems in
U.S. corporations: the case of energy-efficient investment
projects,'' Journal of the Economics of Business, 1(1), pp. 105-124.
Stole, L.A., and Zwiebel, J. (1996). ``Organizational design and
technology choice under intrafirm bargaining,'' The American
Economic Review, 195-222.
\193\ Rohdin, P., and Thollander, P. (2006). ``Barriers to and
driving forces for energy efficiency in the non-energy intensive
manufacturing industry in Sweden,'' Energy, 31(12), 1836-1844.
Takahashi, M. and Asano, H. (2007). ``Energy Use Affected by
Principal-Agent Problem in Japanese Commercial Office Space
Leasing,'' In Quantifying the Effects of Market Failures in the End-
Use of Energy. American Council for an Energy-Efficient Economy.
February 2007.
Visser, E. and Harmelink, M. (2007). ``The Case of Energy Use in
Commercial Offices in the Netherlands,'' In Quantifying the Effects
of Market Failures in the End-Use of Energy. American Council for an
Energy-Efficient Economy. February 2007.
Bjorndalen, J. and Bugge, J. (2007). ``Market Barriers Related
to Commercial Office Space Leasing in Norway,'' In Quantifying the
Effects of Market Failures in the End-Use of Energy. American
Council for an Energy-Efficient Economy. February 2007.
Schleich, J. (2009). ``Barriers to energy efficiency: A
comparison across the German commercial and services sector,''
Ecological Economics, 68(7), pp. 2150-2159.
Muthulingam, S., et al. (2013). ``Energy Efficiency in Small and
Medium-Sized Manufacturing Firms,'' Manufacturing & Service
Operations Management, 15(4), pp. 596-612 (finding that manager
inattention contributed to the non-adoption of energy efficiency
initiatives).
Boyd, G.A., Curtis, E.M. (2014). ``Evidence of an `energy
management gap'in U.S. manufacturing: Spillovers from firm
management practices to energy efficiency,'' Journal of
Environmental Economics and Management, 68(3), pp. 463-479.
\194\ Lovins, A. (1992). Energy-Efficient Buildings:
Institutional Barriers and Opportunities (available at: rmi.org/insight/energy-efficient-buildings-institutional-barriers-and-opportunities/) (last accessed August 1, 2023).
---------------------------------------------------------------------------
Third, there are asymmetric information and other potential market
failures in financial markets in general, which can affect decisions by
firms with regard to their choice among alternative investment options,
with energy efficiency being one such option.\195\ Asymmetric
information in financial markets is particularly pronounced with regard
to energy efficiency investments.\196\ There is a dearth of information
about risk and volatility related to energy-efficiency investments, and
energy efficiency investment metrics may not be as visible to
investment managers,\197\ which can bias firms towards more certain or
familiar options. This market failure results not because the returns
from energy efficiency as an investment are inherently riskier, but
because information about the risk itself tends not to be available in
the same way it is for other types of investment, like stocks or bonds.
In some cases, energy efficiency is not a formal investment category
used by financial managers, and if there is a formal category for
energy efficiency within the investment portfolio options assessed by
financial managers, they are seen as weakly strategic and not seen as
likely to increase competitive advantage.\198\ This information
asymmetry extends to commercial investors, lenders, and real-estate
financing, which is biased against new and perhaps unfamiliar
technology (even though it may be economically beneficial).\199\
Another market failure known as the first-mover disadvantage can
exacerbate this bias against adopting new technologies, as the
successful integration of new technology in a particular context by one
actor generates
[[Page 87579]]
information about cost-savings, and other actors in the market can then
benefit from that information by following suit; yet because the first
to adopt a new technology bears the risk but cannot keep to themselves
all the informational benefits, firms may inefficiently underinvest in
new technologies.\200\
---------------------------------------------------------------------------
\195\ Fazzari, S.M., Hubbard, R.G., Petersen, B.C., Blinder,
A.S., and Poterba, J.M. (1988). ``Financing constraints and
corporate investment,'' Brookings Papers on Economic Activity,
1988(1), 141-206.
Cummins, J.G., Hassett, K.A., Hubbard, R.G., Hall, R.E., and
Caballero, R.J. (1994). ``A reconsideration of investment behavior
using tax reforms as natural experiments,'' Brookings Papers on
Economic Activity, 1994(2), 1-74.
DeCanio, S.J., and Watkins, W.E. (1998). ``Investment in energy
efficiency: do the characteristics of firms matter?'' Review of
Economics and Statistics, 80(1), 95-107.
Hubbard R.G. and Kashyap A. (1992). ``Internal Net Worth and the
Investment Process: An Application to U.S. Agriculture,'' Journal of
Political Economy, 100, 506-534.
\196\ Mills, E., Kromer, S., Weiss, G., and Mathew, P.A. (2006).
``From volatility to value: analysing and managing financial and
performance risk in energy savings projects,'' Energy Policy, 34(2),
188-199.
Jollands, N., Waide, P., Ellis, M., Onoda, T., Laustsen, J.,
Tanaka, K., and Meier, A. (2010). ``The 25 IEA energy efficiency
policy recommendations to the G8 Gleneagles Plan of Action,'' Energy
Policy, 38(11), 6409-6418.
\197\ Reed, J.H., Johnson, K., Riggert, J., and Oh, A.D. (2004).
``Who plays and who decides: The structure and operation of the
commercial building market,'' U.S. Department of Energy Office of
Building Technology, State and Community Programs (available at:
www1.eere.energy.gov/buildings/publications/pdfs/commercial_initiative/who_plays_who_decides.pdf) (last accessed
August 1, 2023).
\198\ Cooremans, C. (2012). ``Investment in energy efficiency:
do the characteristics of investments matter?'' Energy Efficiency,
5(4), 497-518.
\199\ Lovins 1992, op. cit. The Atmospheric Fund. (2017). Money
on the table: Why investors miss out on the energy efficiency market
(available at: taf.ca/publications/money-table-investors-energy-
efficiency-market/) (last accessed August 1, 2023).
\200\ Blumstein, C. and Taylor, M. (2013). Rethinking the
Energy-Efficiency Gap: Producers, Intermediaries, and Innovation.
Energy Institute at Haas Working Paper 243 (available at:
haas.berkeley.edu/wp-content/uploads/WP243.pdf) (last accessed
August 1, 2023).
---------------------------------------------------------------------------
In sum, the commercial and industrial sectors face many market
failures that can result in an under-investment in energy efficiency.
This means that discount rates implied by hurdle rates \201\ and
required payback periods of many firms are higher than the appropriate
cost of capital for the investment.\202\ The preceding arguments for
the existence of market failures in the commercial and industrial
sectors are corroborated by empirical evidence. One study in particular
showed evidence of substantial gains in energy efficiency that could
have been achieved without negative repercussions on profitability, but
the investments had not been undertaken by firms.\203\ The study found
that multiple organizational and institutional factors caused firms to
require shorter payback periods and higher returns than the cost of
capital for alternative investments of similar risk. Another study
demonstrated similar results with firms requiring very short payback
periods of 1-2 years in order to adopt energy-saving projects, implying
hurdle rates of 50 to 100 percent, despite the potential economic
benefits.\204\ A number of other case studies similarly demonstrate the
existence of market failures preventing the adoption of energy-
efficient technologies in a variety of commercial sectors around the
world, including office buildings,\205\ supermarkets,\206\ and the
electric motor market.\207\ The existence of market failures in the
residential and commercial sectors is well supported by the economics
literature and by a number of case studies. If DOE developed an
efficiency distribution that assigned furnace efficiency in the no-new-
standards case solely according to energy use or economic
considerations such as life-cycle cost or payback period, the resulting
distribution of efficiencies within the building sample would not
reflect any of the market failures or behavioral factors above. Thus,
DOE concludes such a distribution would not be representative of the
consumer furnace market. Further, even if a specific household/
building/organization is not subject to the market failures above, the
purchasing decision of furnace efficiency can be highly complex and
influenced by a number of factors not captured by the building
characteristics available in the RECS or CBECS samples. These factors
can lead to households or building owners choosing a furnace efficiency
that deviates from the efficiency predicted using only energy use or
economic considerations such as life-cycle cost or payback period (as
calculated using the information from RECS 2020 or CBECS 2018).
---------------------------------------------------------------------------
\201\ A hurdle rate is the minimum rate of return on a project
or investment required by an organization or investor. It is
determined by assessing capital costs, operating costs, and an
estimate of risks and opportunities.
\202\ DeCanio 1994, op. cit.
\203\ DeCanio, S.J. (1998). ``The Efficiency Paradox:
Bureaucratic and Organizational Barriers to Profitable Energy-Saving
Investments,'' Energy Policy, 26(5), 441-454.
\204\ Andersen, S.T., and Newell, R.G. (2004). ``Information
programs for technology adoption: the case of energy-efficiency
audits,'' Resource and Energy Economics, 26, 27-50.
\205\ Prindle 2007, op. cit.; Howarth, R.B., Haddad, B.M., and
Paton, B. (2000). ``The economics of energy efficiency: insights
from voluntary participation programs,'' Energy Policy, 28, 477-486.
\206\ Klemick, H., Kopits, E., Wolverton, A. (2017). ``Potential
Barriers to Improving Energy Efficiency in Commercial Buildings: The
Case of Supermarket Refrigeration,'' Journal of Benefit-Cost
Analysis, 8(1), 115-145.
\207\ de Almeida, E.L.F. (1998). ``Energy efficiency and the
limits of market forces: The example of the electric motor market in
France'', Energy Policy, 26(8), 643-653; Xenergy, Inc. (1998).
United States Industrial Electric Motor Systems Market Opportunity
Assessment. (Available at: www.energy.gov/sites/default/files/2014/04/f15/mtrmkt.pdf) (Last accessed August 1, 2023).
---------------------------------------------------------------------------
DOE further notes that, in certain States, the current market is
heavily weighted toward either baseline furnace efficiency or a
condensing furnace efficiency. Therefore, most consumers in these
States are either similarly impacted (for States with predominantly
non-condensing furnaces) or minimally impacted (for States with
predominantly condensing furnaces). This result is merely a reflection
of the available market data. Therefore, any variation to DOE's
efficiency assignment methodology would not produce substantially
differing results than presented in this rule for these States, as most
consumers would continue to be assigned the same efficiency regardless
of the details of the methodology.
APGA commented that in the NOPR, despite intense criticisms and
detailed evidentiary showings, DOE has continued to justify its
approach on the theory that consumers do not act rationally, such that
random assignment is as valid as using actual consumer choice data.
APGA argued that although DOE acknowledges ``that economic factors may
play a role'' when consumers decide on what type of furnace to install,
DOE persists in maintaining that market failures render random
assignment just as valid an approach. APGA argued that much of DOE's
recitation on market failure misses the mark and lacks reference to
current studies of how residential furnaces are purchased. APGA further
argued that DOE relies upon ``inexplicit consumer patterns on all sorts
of purchases.'' Although APGA noted that DOE's statement that it
``intends to investigate this issue further . . . [to] improve its
assignment of furnace efficiency in its analyses,'' the commenter urged
DOE to do so before acting on the subject NOPR because it argued that
the agency's methodology does not produce results that accurately
reflect the market. (APGA, No. 387 at pp. 25-27) Similarly, AGA argued
that DOE's economic analysis suffers from a critical defect in the
economic criteria of how gas furnace efficiencies are assigned to
consumers in the no-new-standards case or ``base case.'' The commenter
took issue with DOE's use of so-called ``random assignment'' to
determine which consumers in the base case would be assigned specific
furnace efficiencies and whether they install condensing or non-
condensing furnaces. AGA claimed that DOE is assuming that consumers
completely disregard economics when selecting a gas furnace, arguing
that random assignment leads to an overstatement of benefits associated
with the proposed rulemaking and an underestimation of the total costs.
According to AGA, this defect in the development of the base case
renders all of DOE's subsequent analyses of any proposed standard
levels void and unusable. (AGA, No. 405 at pp. 54-57)
Spire argued that DOE's analysis of 10,000 trial cases does not
represent the real world, where--as regional market share data for
residential furnaces demonstrates--consumers generally purchase
condensing gas furnaces when it is economically beneficial to do so and
generally decline to purchase condensing gas furnaces where there are
installation problems, insufficient economic returns, or insufficient
resources for the initial investment required. Spire asserted that
DOE's trial cases represent an alternative universe in which consumers
choose their gas furnaces with no consideration of the economic
consequences of those decisions. (Spire, No. 413 at p. 7) Spire
asserted that DOE's use of random
[[Page 87580]]
assignment implies that consumer purchasing decisions are never
influenced by the economics of potential efficiency investments.
(Spire, No. 413 at p. 39)
NPGA commented that a key error in the economic analysis is the use
of a ``random assignment'' process. NPGA stated that the examples of
exceptions to the general rule of rational economic behavior relied
upon in the rule are misplaced and do not justify ignoring that
consumers do indeed act rationally in their own economic interest.
(NPGA, No. 395 at pp. 11-12) Atmos Energy argued that DOE's economic
analysis approach of using a random assignment of consumers across
design options considered in the life-cycle analysis has no technical
basis or justification. The company further commented that this results
in an inaccurate overstatement of efficiency standards' potential to
produce economic benefits for consumers. Atmos Energy argued that the
use of random assignment results in consumers selecting furnaces that
are suboptimal among available furnace options and artificially
inflates the potential savings of the rule. (Atmos Energy, No. 415 at
pp. 5-6)
Spire further argued that base-case investments should
disproportionately include investments with attractive economic
outcomes; that rule-outcome investments should disproportionately
include investments with unattractive economic outcomes, and,
therefore, the average economic outcome for base-case investments would
be better (and the average for rule-outcome investments would be worse)
than the average of all potential investments in standards-compliant
products. Spire further argued that purchasers of gas furnaces have a
significant preference for economically beneficial investments, as
evident from the fact that the market share for furnaces compliant with
the proposed standard level is dramatically higher than average in
colder regions where the economic benefits of more-efficient gas
furnaces tend to be greatest and is dramatically lower than average in
warmer regions where those benefits tend to be lowest. Spire went on to
claim that DOE's LCC analysis is based on a ``random assignment''
methodology that ``assigns'' particular efficiency investments to the
``base'' or ``standards'' case randomly, an approach that effectively
assumes that purchasers of residential furnaces have no preference for
economically beneficial efficiency investments--and no aversion to
economically unfavorable investments. (Spire, No. 413 at pp. 22-23)
These commenters significantly mischaracterize the Department's
analysis in this area. Most fundamentally, DOE does not assume that
consumers act irrationally. As stated above, the use of a random
assignment of furnace efficiency is a methodological approach that
reflects the full range of consumer behaviors in this market, including
consumers who make economically beneficial decisions and consumers who,
due to market failures, do not or cannot make such economically
beneficial decisions, both of which occur in reality. As explained in
the proposed rule and previously, DOE begins its assignment of furnaces
in the no-new standards case based on two empirical constraints: (1)
historical shipment data, by State demonstrating regional variation,
with some regions (e.g., the North) having a higher market share of
condensing furnaces; and (2) survey data demonstrating a correlation
(albeit small) between home size and installed furnace efficiency.
Within those constraints, DOE then models consumer behavior, consistent
with the economics literature discussed previously, to reflect neither
purely rational nor purely irrational decision-making. This approach
presents a close approximation of the current market reality.
The alternative approach advanced by these commenters assumes
consumer behavior that is not evidenced by the scientific literature
surveyed above or by any data submitted in the course of this
rulemaking. The commenters' approach depends on the assumption, for
example, that homeowners know--as a rule--the efficiency of their
homes' insulation and windows, such that they always make heating
investments accordingly. Similarly, the commenters' approach assumes
that, faced with a furnace failure, homeowners will always select as a
replacement the most efficient available model. DOE's approach, by
contrast, recognizes that assumptions like these hold for some
consumers some of the time--but not all consumers and not at all times.
As part of the random assignment, some households or buildings with
large heating loads will be assigned higher-efficiency furnaces, and
some households or buildings with particularly low heating loads will
be assigned baseline furnaces--i.e., the economically rational
investments. For example, at the adopted standard level, approximately
19 percent of NWGF consumers experience a net cost. These are consumers
who would not financially gain from a more-efficient furnace and have a
non-condensing furnace in the no-new-standards case, reflecting an
economically optimal investment. Similarly, at the adopted standard
level, approximately 45 percent of NWGF consumers are not impacted by
the rule, as they already purchase higher-efficiency furnaces. Many of
these consumers experience lifetime savings compared to a baseline
furnace, and the adoption of higher efficiency furnaces in the no-new-
standards case again reflects an economically optimal investment.
However, as DOE has noted, there is a complex set of behavioral
factors, with sometimes opposing effects, affecting the furnace market.
It is impractical to model every consumer decision incorporating all of
these effects at this extreme level of granularity given the limited
available data. Given these myriad factors, DOE estimates the resulting
distribution of such a model, if it were possible, would be very
scattered with high variability. It is for this reason DOE utilizes a
random distribution (after accounting for market share constraints) to
approximate these effects. The methodology is not an assertion of
economic irrationality, but instead, it is a methodological
approximation of complex consumer behavior. The analysis is neither
biased toward high or low energy savings. The methodology does not
preferentially assign lower-efficiency furnaces to households in the
no-new-standards case where savings from the rule would be greatest,
nor does it preferentially assign lower-efficiency furnaces to
households in the no-new-standards case where savings from the rule
would be smallest. Some consumers were assigned the furnaces that they
would have chosen if they had engaged in the kind of perfect economic
thinking upon which the commenters have focused. Others were assigned
less-efficient furnaces even where a more-efficient furnace would
eventually result in life-cycle savings, simulating scenarios where,
for example, various market failures prevent consumers from realizing
those savings. Still others were assigned furnaces that were more
efficient than one would expect simply from life-cycle costs analysis,
reflecting, say, ``green'' behavior, whereby consumers ascribe
independent value to minimizing harm to the environment.
DOE cites the available economic literature of which it is aware on
this subject, supporting the existence of the various market failures
which would give rise to such a distribution, and has repeatedly
requested more data or studies on this topic. There are no studies DOE
is aware of specific to how consumer furnaces are purchased. Commenters
have failed to provide any
[[Page 87581]]
specific external data, information, or studies that could be
incorporated into the analysis, but instead, they claim that DOE is
assuming consumers are all making irrational decisions, which is
incorrect and a mischaracterization of the analysis. DOE continues to
evaluate the literature on this subject and is not aware of any new
data or studies that contradict DOE's analysis. DOE also notes that in
a separate comment regarding the usage of RECS, APGA acknowledges that
households may not have perfect information regarding their own
furnace. (APGA, No. 387 at p. 11)
Finally, DOE's analysis does incorporate and reflect regional
market share data and reflects this larger correlation. For States with
a large majority of consumers already purchasing more-efficient
furnaces per the available market data (e.g., in colder regions), the
analysis assigns a correspondingly large majority of households with an
efficient furnace at or above the adopted efficiency level in the no-
new-standards case. The analysis also includes a greater probability
that new construction is assigned higher-efficiency furnaces in the no-
new-standards case, given the typically lower installation costs in new
construction; however, this probability is constrained by actual market
share data.
In response to Spire's assertion that most investments in the no-
new-standards case should include those with attractive economic
outcomes and most outcomes as a result of the standard should be biased
toward unattractive outcomes, DOE firmly disagrees. This assertion
presupposes that any energy conservation standard would primarily
result in unattractive outcomes by definition. The logical extension of
this assertion is that the current furnace market already allocates
furnace efficiencies in a nearly optimum manner, and, therefore, there
is little to no benefit from an energy conservation standard. As DOE
has presented, there is a wealth of academic literature clearly
demonstrating that this view of the market is incorrect, as there are a
number of identified market failures and other behaviors that prevent
some consumers from maximizing their economic outcome in the absence of
new energy conservation standards, and, therefore, the allocation of
furnace efficiency among households is not economically optimal in the
real world. Systematically biasing the analysis to preferentially
produce unfavorable results due to an energy conservation standard, as
the commenter suggests, has no basis in any of the available data or
literature. DOE also notes that the acknowledgement of market failures
and the resulting distribution of energy efficiency in the no-new-
standards case is commonplace in DOE's analyses for other energy
conservation standards rulemakings.
DOE has further confirmed its determination that the proposed TSL
is economically justified through additional analysis of the
anticipated life-cycle costs. First, DOE presents total life-cycle
costs at each efficiency level, averaged over all households, in
section V.B of this document. This effectively compares costs for an
average household in the sample, not an extreme outlier household. DOE
also makes available total life-cycle costs for households at the 25th,
50th, 75th, and 95th percentile of the total life-cycle cost
distribution in the LCC spreadsheet. Regardless of which value is
considered, the total life-cycle cost of a furnace at the adopted
standard level is lower than the total life-cycle cost of a baseline
furnace or any lower-efficiency furnace. The claim that outlier results
distort DOE's conclusions can also be refuted by considering the median
LCC savings instead of the mean LCC savings, which are robust against
outlier results. The median LCC savings at the adopted standard level
across the entire NWGF sample, which accounts for the existing
distribution of furnace efficiency in the market, remain positive. If
DOE were to exclude outlier results from the average LCC savings (e.g.,
both the top and bottom 10 percent of results), the average LCC savings
would remain positive. If DOE were to adopt an even more conservative
estimate and bias the results by excluding only the most favorable
outcomes (e.g., the top 10 percent) but maintain the least favorable
outcomes, the average LCC would still remain positive, and DOE's
conclusions would remain the same. Finally, none of these results
include the estimated climate and health benefits, which as discussed
in section V.C of this document are significant and only further
reinforce the benefits of the rule.
Spire stated that the results of the LCC analysis are
disproportionately impacted by a relatively small percentage of
individual trial cases, due to the efficiency assignment methodology,
thereby producing unreasonable impacts that bias the conclusions of the
analysis. (Spire, No. 413 at pp. 25-34)
In response, DOE acknowledges that there are some LCC trials with
very high LCC savings as part of the distribution of impacts. There are
similarly some LCC trials with very high net LCC costs. However, when
evaluating the median LCC impacts instead of the average LCC impacts,
the effects of outlier results are minimized. The median LCC savings
remain positive at the adopted standard level. The median LCC savings
are available in the LCC spreadsheet and presented in chapter 8 of the
final rule TSD. Although the absolute magnitude of total savings would
decrease if such extreme trial cases were excluded, the conclusions of
the analysis would remain the same.
APGA claimed that DOE's method of randomly assigning furnace
efficiencies eliminates from the no-new-standards case those instances
where consumers would elect the most efficient product that costs the
least, which inflates LCC benefits when compared to the standards case.
Without random assignment, APGA claims that the estimated LCC benefits
decline significantly because the consumer will rationally take the
lower cost furnace that also brings higher energy efficiency regardless
of a new standard. APGA further argued that outlier cases control LCC
outcomes, even though those outlier cases are the most likely to be
avoided by rational consumer behavior. APGA claimed that the analysis
fails to reflect the market share of natural gas customers by State or
Census Division. (APGA, No. 387 at pp. 22-33) Spire argued that DOE's
analysis inappropriately credits standards with the benefits of
efficiency investments in which a higher-efficiency product selected as
a result of a standard is the low-cost option in terms of initial costs
and would provide additional economic benefits (in the form of
operating cost savings) from day one. Because consumers would naturally
select this result, Spire argued that DOE's modeling approach produces
spurious regulatory benefits. (Spire, No. 413 at p. 27)
In response, DOE notes that the commenters are once again
mischaracterizing the Department's analysis. First, the costs estimated
in the analysis for higher-efficiency products reflect DOE's projection
that such products are at the new baseline efficiency, produced in
volume, and no longer offered as a ``premium'' product. As such, costs
may deviate from those seen in the market today or in the no-new-
standards case. In some regions, the market share of higher-efficiency
products remains low, and they are generally perceived as a more
premium product, with higher total installed costs. This will impact
the existing market share by efficiency. If these higher-efficiency
products become the new baseline, as DOE analyzes in the standards
cases, their costs generally will be lower than seen in the market
[[Page 87582]]
today. The costs developed in section IV.C of this document account for
higher-efficiency products becoming the new baseline, produced at
greater volume. The comparison made by the commenters does not account
for this subtlety. Second, DOE notes that the assignment methodology is
bounded by the available shipment data by efficiency, and, therefore,
the market share of non-condensing/condensing furnaces reflects market
data. Total installed costs for higher-efficiency products are
generally lower in new construction, as discussed in section IV.F.2 of
this document. However, in some States, the market share and estimated
total shipments of condensing furnaces are lower than the estimated new
construction; therefore, according to the data, some non-condensing
furnaces must be installed in new construction. Thus, this market share
constraint requires that some installations in new construction be
assigned a baseline furnace even though a higher-efficiency furnace
would cost less. Because such market shares are based upon real world
data, this is not a spurious assumption on DOE's part, and such
approach does not produce spurious regulatory benefits. This is a
factual result based on the available data and representative of the
market as it is, which is indicative of some of the market failures DOE
has identified. Nevertheless, if DOE were to exclude all these trial
results from the average LCC savings, the result would remain positive,
and DOE's conclusions from the analysis would remain the same. Thus,
the claim that outlier results control LCC outcomes--and, therefore,
the justification for the rule--is incorrect. Finally, regarding the
share of natural gas customers, DOE samples households and commercial
buildings in RECS and CBECS that utilize natural gas furnaces. RECS and
CBECS are large, nationally representative surveys with a
representative sample of natural gas customers. DOE is not aware of any
evidence to suggest these national surveys are systematically biased
with respect to natural gas customers.
APGA argued that DOE has not addressed prior stakeholder analyses
(e.g., the GTI analysis) directly but only cataloged the stakeholder
criticisms in defending its ``random assignment'' methodology. (APGA,
No. 387 at p. 25) Those analyses, however, were based on LCC results
presented as part of the 2015 NOPR and 2016 SNOPR, both of which were
withdrawn and replaced by the 2022 NOPR. DOE is responding to all
relevant comments, but comments related to the detailed results of the
withdrawn analyses are no longer applicable.
Spire further argued that, for example, in a region in which 90
percent of consumers are already utilizing a furnace with an efficiency
at or above the adopted standard level, the remaining 10 percent of
consumers should disproportionately include the worst economic outcomes
in the region as a result of the standard. (Spire, No. 413 at pp. 35-
36) Again, DOE firmly disagrees with this assertion. Spire's assertion
ignores the wealth of well-documented market failures and other
behaviors that can explain why some of the remaining 10 percent of
consumers may have favorable outcomes as a result of the energy
conservation standard. There is no compelling evidence or data of which
DOE is aware that would necessitate proactively biasing results toward
unfavorable outcomes, as suggested by the commenter. Furthermore, DOE's
assignment methodology already includes adjustments based on household
square footage and based on new construction vs. replacement
installations.
Spire argued that economic theory provides no basis to disregard
fact. On this point, Spire asserted that if random assignment came
close to representing the market as it is, the regional market share
for condensing furnaces would not range from 5 percent to 95 percent in
the replacement market (and 6 percent to 97 percent in the new
construction market), with an obvious correlation to regional length
and depth of the heating season. Spire further argued that if random
assignment provided a reasonable simulation of base case purchasing
behavior, there would not be a statistically significant correlation
between the average regional LCC outcomes and regional market shares
for condensing furnaces. (Spire, No. 413 at p. 42)
In response, DOE agrees that economic factors may play a role in
purchasing decisions, but the commenter is mischaracterizing both the
Department's analysis and its efficiency assignment methodology. DOE
does not dispute that heating-degree days likely play a role in
consumers choosing furnace efficiency, and, as stated previously, the
Department incorporates this effect into the analysis at the State/
regional level based on current market share data (i.e., actual
purchasing decisions). The efficiency assignment methodology is
randomized as a last step, within a given State/region, to approximate
a range of real-world effects and behaviors. Thus, the larger
correlation based on region is taken into account. Consequently, at the
next stage in the assignment methodology, the impact of large regional
climate differences is no longer relevant, as most of those consumers
experience a similar climate. Furthermore, the commenter did not
acknowledge the role of historical incentive and rebate programs that
have shaped consumer behavior and significantly increased the market
share of higher-efficiency furnaces in some colder regions, beyond what
consumers were adopting without those programs. Due to the bias toward
like-for-like replacements, the estimated future market share in these
regions is expected to remain dominated by higher-efficiency furnaces,
but this market share is likely higher than what would have resulted
had these past incentive and rebate programs not occurred. Therefore,
the apparent correlation of efficiency with region would likely not be
as evident without these programs.
APGA argued that DOE's inconsistent treatment of consumer behavior
is arbitrary and capricious. On the one hand, APGA asserted that by
using random assignment to predict consumer furnace selection, DOE
assumes consumers to be ``virtual zombies.'' On the other hand, when it
comes to fuel switching, APGA asserted that DOE assumes consumers to be
rational and prescient by selecting the lowest cost option. (APGA, No.
387 at p. 24) Spire similarly commented that paradoxically, DOE employs
a random assignment methodology that assumes that consumers never
consider the economic consequences of choices between gas furnaces, but
then included a fuel switching analysis that assumes consumers who do
not (randomly) select a standards-compliant gas furnace on their own
would always consider economics in deciding whether to switch from a
gas appliance to an electric appliance. (Spire, No. 413 at pp. 49-50)
AGA also argued that the assignment of furnace efficiency in the no-
new-standards case does not adhere to the model logic related to
consumer fuel switching to electricity, which assumes consumers
consider economics when choosing to switch. Furthermore, AGA stated
that some of the critical inputs in that model are derived from survey
data which indicates that consumers do consider economics when making
purchasing decisions. (AGA, No. 405 at pp. 54-57) Along these same
lines, NPGA commented that DOE contradicts itself by assuming consumers
will not act in their own self-interest when purchasing a gas furnace
but will when switching from gas
[[Page 87583]]
furnaces to electric alternatives. (NPGA, No. 395 at p. 2)
In response, DOE notes that the commenters are significantly
misrepresenting the Department's analysis. As discussed in this
section, DOE's approach for assigning efficiency in the no-new-
standards case does not assume that purchasers of furnaces all make
economically irrational decisions (i.e., the lack of a correlation is
not the same as a negative correlation). The use of a random assignment
of furnace efficiency is merely a methodological approach that reflects
the full range of consumer behaviors in this market, including
consumers who make economically beneficial decisions and consumers
that, due to market failures, do not make such economically beneficial
decisions, both of which occur in reality. The Department's product
switching analysis was incorporated into the analysis to address prior
comments from stakeholders specifically regarding price-sensitive
consumers opting to switch to alternative electric heating options in
response to increased NWGF costs as discussed in section IV.F.10 of
this document. DOE has conducted a fuel-switching analysis in this rule
as a form of sensitivity analysis. That is, DOE has modeled the
economic impacts of the rule assuming both no fuel switching and the
maximum level of fuel switching reasonably foreseeable. To model that
maximum level of fuel switching, DOE has assumed that consumers would
act based solely on costs. DOE uses a simplified decision model based
only on costs, in this very specific instance, to estimate the impact
of product switching. The percentage of consumers who engage in product
switching based on this simplified decision model is intended as an
estimate of the maximum fuel switching reasonably likely to result from
the rule. In any event, as discussed further below, the proportion of
consumers expected to switch fuels is small, and any further
refinements to DOE's modeling would be expected to lead to similar
conclusions. That is, a further refined model, which incorporated the
market failures likely to prevail in the market for fuel switching,
would be unlikely to produce meaningfully different results. Given the
limited purpose for which DOE has considered product switching, DOE has
not found it necessary to further refine its assumptions about product-
switching consumer behavior. Furthermore, DOE presents results both
with and without incorporating this effect, as an upper and lower
bound, and DOE's conclusions remain the same under both sets of
results. The two approaches (assignment of efficiency in the no-new-
standards case and estimating product switching) are not incompatible
and are not inconsistent with each other. They simply reflect different
levels of modeling approximation on different consumer samples. Further
discussion of the product switching methodology is presented in section
IV.F.10 of this document.
NPGA stated that consumers will often voluntarily choose to install
condensing furnaces, without mandatory standards, when it makes
economic sense. (NPGA, No. 395 at p. 11) The commenter further stated
that this is evident in the fact that high-efficiency gas furnaces have
a much higher market share where the economic benefits of such furnaces
are greatest. (NPGA, No. 395 at pp. 11-12) In response, DOE agrees and
incorporates the existing market share of condensing furnaces by State
in its analysis. In States with a very high fraction of consumers with
condensing furnaces at the adopted efficiency level or above in the
current market (typically States with colder winters where the benefits
of such furnaces are higher), most consumers in those States are not
impacted by the rule and do not factor into the standards-case
analysis. However, as noted previously, incentive and rebate programs
have increased the market share of condensing furnaces beyond what
consumers had been previously adopting, even in colder regions.
Spire commented that the issue of efficiency assignment in the no-
new-standards case was raised in American Public Gas Ass'n v. U.S.
Dept. of Energy, 22 F.4th 1018 (D.C. Cir. 2022) (APGA v. DOE)--a
challenge to DOE's commercial packaged boiler standards--and the Court
found that DOE had failed to respond to the ``substantial concerns''
about this ``crucial part of its analysis'' and that its ``failure to
engage the arguments raised before it . . . bespeaks a failure to
consider an important aspect of the problem.'' Id., 22 F.4th at 1027-
28. Spire claimed that the furnaces NOPR exhibits the same failing.
(Spire, No. 413 at pp. 34-35)
In response, DOE disagrees with Spire's assertion that it has
failed to adequately explain the choices made in its LCC analysis or
has failed to provide sufficient opportunity for comment on those
matters. Instead, DOE has extensively discussed the rationale and
evidentiary basis for its LCC analysis in this both the July 2022 NOPR,
as well as this final rule. DOE's detailed explanation has focused on
the presence of numerous market failures that cause consumers to
purchase commercial packaged boilers that do not maximize LCC savings.
Furthermore, DOE provided and sought public comment on its thorough
explanation in the July 2022 Furnaces NOPR as to why the assignment of
efficiencies in the no-new-standards case, which is in part random, is
a reasonable approach that simulates behavior in the furnace market,
where market failures frequently result in purchasing decisions not
being perfectly aligned with economic interests. 87 FR 40590, 40640-
40643 (July 7, 2022).
AGA presented an analysis using DOE's LCC spreadsheet and claimed
that it demonstrates that DOE's method of randomly assigning furnace
efficiencies in its base case is improper. AGA further argued that its
analysis demonstrates that any market failure results in greater
adoption of high-efficiency equipment than would be expected by
economics alone. AGA concluded that DOE, therefore, overstates the
benefits of the proposed standards by assuming consumers do not
consider economics at all when selecting furnaces. (AGA, No. 405 at pp.
59-67)
In response, as discussed above, DOE notes that this is a
mischaracterization of the analysis. DOE does not assume consumers
never consider the economics of the purchase. DOE acknowledges that
there are several market failures in the furnace market affecting some
consumers, while other consumers are making economically beneficial
decisions. Indeed, the existence of consumers experiencing a net cost
in the standards case is an illustration of this. Such consumers are
assigned a baseline efficiency furnace in the no-new-standards case and
do not benefit from a higher efficiency furnace, reflecting an
economically beneficial decision in the no-new-standards case.
Similarly, some consumers are already purchasing a higher-efficiency
furnace because it is beneficial to them and as a result are not
impacted in the standards case. The characterization of the analysis as
assuming all consumers are irrational is incorrect.
AGA's analysis of the NOPR results is flawed in several respects.
Their analysis identifies a relationship that is known and discussed in
the TSD, namely that regions with a higher current market share of
condensing furnaces are more likely to be colder and, thus, have higher
space-heating energy consumption. Therefore, it is no surprise that LCC
savings for households or buildings in those regions that have not yet
adopted condensing
[[Page 87584]]
furnaces are likely to be higher. Similarly, regions with a lower
current market share of condensing furnaces are more likely to be
warmer, and consumers there may have negative LCC savings in the
standards case. The analysis incorporates these regional market share
trends as part of the efficiency assignment methodology. The commenter
is attempting to highlight these relationships in the LCC, which is a
reflection of the current market, as evidence that DOE cannot assume
consumers never consider the economics of their purchasing decisions.
However, this is a mischaracterization, and DOE is not making an
assumption that consumers never consider the economics of their
purchasing decision. The efficiency assignment is a methodological
simplification that takes into account existing market trends, such as
the regional trends identified by the commenter, and acknowledges a
range of consumer behaviors and market failures. The LCC produces
relationships in the results that AGA's own analysis shows are
reasonable and expected, given the current market shares of condensing
and non-condensing furnaces.
AGA noted that there are examples in the LCC where the total
installed cost of a non-condensing furnace is higher than the total
installed cost of a condensing furnace for an individual household or
building, and yet DOE's methodology assigns a non-condensing furnace in
the no-new-standards case to this household or building. AGA argues
this is an illogical scenario that ignores consumer rationality and
biases the overall results to overly favorable outcomes. (AGA, No. 405
at pp. 57-58) APGA pointed to the inclusion of LCC trials where a
higher efficiency furnace costs less than a baseline furnace, but for
which the LCC assigns a baseline furnace in the no-new-standards case,
as unreasonably inflating LCC benefits. (APGA, No. 387 at pp. 22-23)
Spire also commented that the LCC includes LCC trials where the higher-
efficiency furnace is the lower-cost option, but it argued that the LCC
erroneously assigns benefits to such trial cases by assigning a
baseline furnace in the no-new-standards case. (Spire, No. 413 at pp.
27-28)
In response, DOE acknowledges that there are scenarios in which the
total installed cost is lower for higher-efficiency condensing
furnaces. This situation primarily occurs in new construction, where a
new vent is required for all installations, and condensing furnaces can
often take advantage of a shorter vent length that is incorporated into
the construction design from the beginning. This scenario can also
occur in replacement installations where the existing vent has reached
the end of its life and requires replacement, even when replacing a
non-condensing furnace with another non-condensing furnace. With
respect to the LCC assigning a non-condensing furnace in some of these
instances, DOE once again notes that the efficiency assignment
methodology is constrained by the State-level shipments market share
data. For example, in States with a low current market share of
condensing furnaces, the methodology will be constrained to assign
mostly non-condensing furnaces in the no-new-standards case, reflecting
the current market, and, therefore, some new construction will be
assigned non-condensing furnaces in the no-new-standards case. The
commenters argue that this is an illogical outcome, but the methodology
is simply reflecting the reality of the current market. This situation
can also occur in replacement installations due to, for example,
familiarity bias on the part of the consumer or contractor, biasing
replacements to familiar technology options even if a lower cost option
is available. However, the percentage of individual LCC trial outcomes
where this situation occurs is limited to only a few percent in the
final rule analysis, predominately in new construction. Even if DOE
were to exclude these individual outcomes as extreme outlier results,
the LCC analysis would demonstrate economic justification, as seen from
the median LCC savings (as opposed to the average), available in the
LCC spreadsheet and in chapter 8 of the final rule TSD. The median LCC
savings are robust to outlier results, and they remain positive at the
adopted standard level. Additionally, excluding these individual
outcomes as extreme outlier results would not substantially change the
percent of consumers with a net cost and would not alter the conclusion
of economic justification.
PHCC commented that DOE should reconsider its assumptions regarding
consumer awareness of products, as the studies used for reference are
20-30 years old, and trends for LED lighting that indicate that
consumers choose higher levels of performance in cases of lower cost
and lower maintenance. (PHCC, No. 403 at p. 3) In response, DOE notes
that it cites the relevant available literature, which is still
applicable to consumers of furnaces even if published 20-30 years ago.
DOE also cites studies performed with respect to appliances and HVAC
equipment, which are more relevant than studies related to lighting.
The lighting market and associated technology are very different than
the furnaces market.
PHCC commented that DOE's conclusion that commercial customers will
not value higher efficiency because typically owners do not pay
operating bills or consider operating costs as write-offs is
inaccurate. Because their clients seek out best-case operating
expenses, owners seek to offer high-quality facilities in order to give
themselves an advantage in the market. PHCC further commented that
write-offs are not desirable, as owners benefit from keeping their
income and paying taxes in full rather than overspending. The commenter
stated that there are contractors who have successfully marketed high-
efficiency equipment. (PHCC, No. 403 at pp. 3-4) In response, DOE
clarifies that it does not assert that commercial customers will not
value higher-efficiency equipment. DOE merely notes that there are
market failures prevalent in the commercial sector, similar to the
residential sector, that may cause some commercial customers to
undervalue the benefits of higher-efficiency equipment. DOE agrees that
some commercial customers will highly value the benefits of efficient
furnaces, and the efficiency assignment methodology approximates this
range in commercial customer behavior.
Sierra Club and Earth Justice commented that the claims of internal
inconsistency posed by some commenters ignores that the DOE's method of
modeling the base-case furnace efficiency distribution reflects
available data showing only a modest correlation between high-
efficiency furnace installations and applications where those high-
efficiency products are more likely to be cost-effective. (Sierra Club
and Earth Justice, No. 401 at pp. 1-2) DOE agrees with the comment in
support of the agency's approach.
NYSERDA expressed support for DOE's methodology and approaches
presented in the NOPR, particularly around random distribution. NYSERDA
disagreed with commenters who argue that the random nature of DOE's LCC
distributions is problematic. NYSERDA further stated that using a
random distribution in the no-new-standards case to model the
assignment of furnace efficiency is a valid method, driven by the best
available data. NYSERDA emphasized that DOE used AHRI and HARDI data to
accurately capture the existing market distributions of furnaces at
different efficiency levels, informing the efficiency distributions in
the no-
[[Page 87585]]
new-standards case. NYSERDA further noted that DOE includes a
correlation of efficiency with household square footage, using
available data to inform the structure of the probabilistic
distribution. Consequently, NYSERDA concludes that the stochastic
approach is valid and viable. (NYSERDA, No. 379 at pp. 11-12) DOE
agrees with this comment.
Similarly, Joint Efficiency Commenters stated that DOE's assignment
of efficiency levels in the no-new-standards case reasonably reflects
actual consumer behavior and is more representative than assigning
efficiencies based solely on cost-effectiveness. Joint Efficiency
Commenters noted that there are various market failures, as well as
aspects of consumer preference, that significantly impact how products
are chosen by consumers, including misaligned incentives for rental
properties, the influence of contractors during replacement
installations, and the very infrequent nature of furnace replacements
impacting information transparency with respect to costs. (Joint
Efficiency Commenters, No. 381 at pp. 6-7) DOE agrees.
9. Alternative Size Thresholds for Small Consumer Gas Furnaces
DOE analyzed potential separate energy conservation standards for
small and large NWGFs and MHGFs, with varying capacity thresholds for a
small NWGF or MHGF. The examined thresholds had a maximum input rate
that ranged from less than or equal to 40 kBtu/h to 100 kBtu/h, which
were assessed in 5 kBtu/h increments.
DOE assigned an input capacity to existing furnaces based on data
from RECS 2020 and CBECS 2018. It is common industry practice to
oversize furnaces to ensure that they can meet the house heating load
in extreme temperature conditions. Under a scenario which envisions a
separate energy conservation standard for small NWGFs and MHGFs set at
a level which does not require condensing technology, DOE expects that
some consumers who would otherwise install a typically oversized
furnace \208\ may choose to downsize in order to be able to purchase a
less-expensive, non-condensing furnace.
---------------------------------------------------------------------------
\208\ By typical oversizing, DOE refers to a value of 1.7, as
specified in ASHRAE 103, ``Method of Testing for Annual Fuel
Utilization Efficiency of Residential Central Furnaces and
Boilers,'' which is incorporated by reference in the DOE residential
furnace and boiler test procedure at 10 CFR part 430, subpart B,
appendix N.
---------------------------------------------------------------------------
DOE identified households from the NWGF and MHGF sample that might
downsize at each of the considered standard levels. In identifying
these households, DOE first determined whether a household would
install a non-condensing furnace with an input capacity greater than
the small furnace size limit in the no-new-standards case, based on the
assigned input capacity (which reflects historical oversizing) and
efficiency. DOE relied on the ASHRAE 103-1993 test procedure, ``Method
of Testing for Annual Fuel Utilization Efficiency of Residential
Central Furnaces and Boilers,'' (incorporated by referenced in the DOE
residential furnace and boiler test procedure) \209\ to estimate that
the typical oversize factor used to size furnaces was 70 percent (i.e.,
the furnace capacity is 70-percent greater than required to heat the
home under heating outdoor design temperature (``ODT'') conditions). If
the input capacity of the furnace determined using a reduced oversize
factor of 10 to 40 percent is less than or equal to the input capacity
limit for small furnaces, DOE assumed that the consumer would downsize
his or her furnace. DOE believes that an oversize factor of 10-40
percent is realistic because ACCA recommends a maximum oversize factor
of 40 percent.\210\ Note that the 10 percent is the maximum downsizing,
but in many cases, the actual downsizing is less because the resulting
input capacity is rounded up to the nearest input capacity bin in 5
kBtu/h increments, and the unit is downsized up to the maximum small
furnace size limit criteria.
---------------------------------------------------------------------------
\209\ 10 CFR part 430, subpart B, appendix N.
\210\ ACCA recommends oversizing by a maximum of 40 percent.
ACCA. See Manual S--Residential Equipment Selection (2nd Edition).
(Available at https://www.acca.org/standards/technical-manuals/manual-s) (Last accessed August 1, 2023)
---------------------------------------------------------------------------
DOE has found that the available data regarding oversizing of
furnaces in the existing stock indicate that an average oversizing in
past installations of 70 percent is likewise reasonable.\211\ DOE
acknowledges that the oversizing varies among furnace installations,
and, thus, DOE assigned an oversizing factor to each household based on
the furnace sizing methodology described in section IV.E.2 of this
document (which rank ordered the estimated design heating load and
matched to furnace shipments by input capacity). The actual oversizing
factor in the analysis for a given existing household or building
varies from 0 percent to 275 percent (85 percent on average).
---------------------------------------------------------------------------
\211\ City of Fort Collins, Evaluation of New Home Energy
Efficiency: Summary Report (June 2002) (available at: www.fcgov.com/utilities/img/site_specific/uploads/newhome-eval.pdf) (last accessed
August 1, 2023).
Pigg, Scott, What you need to know about residential furnaces,
air conditioners and heat pumps if you're NOT an HVAC professional
(Feb. 2017) (available at: www.duluthenergydesign.com/Content/Documents/GeneralInfo/PresentationMaterials/2017/Day2/What-You-Need-Pigg.pdf) (last accessed August 1, 2023). Energy Center of
Wisconsin, Electricity Use by New Furnaces: A Wisconsin Field Study
(2003) (available at: www.proctoreng.com/dnld/WIDOE2013.pdf) (last
accessed August 1, 2023). Burdick, Arlan, Strategy Guideline:
Accurate Heating and Cooling Load Calculations. Ibacos, Inc. (June
2011) (available at: www.nrel.gov/docs/fy11osti/51603.pdf) (last
accessed August 1, 2023). Ecovent, When Bigger is not Better (August
2014) (available at: docplayer.net/13225631-When-bigger-isn-t-better.html) (last accessed August 1, 2023). Energy Center of
Wisconsin, Central Air Conditioning in Wisconsin (May 2008)
(available at: www.focusonenergy.com/sites/default/files/centralairconditioning_report.pdf) (last accessed August 1, 2023).
Washington State University, Efficient Home Cooling (2003)
(available at: www.energy.wsu.edu/documents/AHT_Energy%20Efficient%20Home%20Cooling.pdf) (last accessed August
1, 2023).
---------------------------------------------------------------------------
DOE continues to expect that in the case of an energy conservation
standard that allows small furnaces to use non-condensing technology,
some consumers would have a financial incentive to downsize their
furnace. Even without oversizing, a furnace installation should be
designed to handle dry-bulb temperatures that will occur 99 percent of
the time. Therefore, handling nearly all extreme conditions is already
accounted for when selecting the unit, so a 10-40 percent oversizing
should provide ample allowance for the most extreme conditions that
might occur. Thus, DOE reasons that there would be no loss of utility
or comfort under the Department's approach. DOE acknowledges that there
could be cases where downsizing might not be advantageous. Therefore,
for this final rule, DOE assumed that not all consumers would downsize
when the oversize factor of 10-40 percent is less than or equal to the
assumed input capacity limit for small furnaces. In addition, DOE
conducted several sensitivity analyses of its downsizing methodology,
assuming no downsizing as well as higher and lower levels of
downsizing. See appendix 8M of the final rule TSD for further details.
PHCC commented that current furnace models (both condensing and
non-condensing) will have problems with oversizing, as excessive
temperature rise can be detrimental to the life of the furnace, and
that selecting excessive fan speed to compensate for the excess
temperature rise will produce very drafty conditions. The commenter
further stated that professional contractors have been accurately
sizing equipment, despite ACCA references to limit oversizing to 40
percent. Finally,
[[Page 87586]]
although PHCC acknowledged that the exact furnace size required for a
space is not always available, the commenter stated that contractors
will select the next incremental size and be reluctant to select
equipment below the ``design day capacity,'' as weather and needs vary.
(PHCC, No. 403 at p. 4)
DOE acknowledges that complex factors are relevant when contractors
size equipment. However, as discussed previously, DOE has found
multiple sources of data to indicate an average oversizing factor in
historical installations and has used those data in the analysis.
PHCC commented that DOE's assumption that consumers have financial
incentive to downsize products indicates that costs are a concern for
them and that consumers are aware of the economic impacts of furnace
sizing. (PHCC, No. 403 at p. 4)
In response, DOE acknowledges that the initial total installed cost
of a consumer furnace may result in a consumer making an alternative
choice instead of a like-for-like replacement. For potential standard
levels that include a capacity cutoff, below which the standard is not
amended, DOE estimates some fraction of consumers would instead opt to
purchase a slightly lower capacity furnace at a lower efficiency
instead of a higher capacity furnace at the new efficiency level. DOE's
analysis similarly accounts for consumers who may choose to extend the
life of their existing furnace with additional repairs, or switch to an
electric space heat alternative altogether. All of these potential
options are accounted for in the analysis, as discussed in further
detail in chapter 8 of the final rule TSD.
For this final rule, DOE analyzed the potential for similar
separate energy conservation standards for small and large MHGFs as it
did for NWGFs.
a. Accounting for Impacts of Downsized Equipment
The estimated degree of downsizing anticipated in the case of a
non-condensing standard for small NWGFs and MHGFs is presented in Table
IV.14 under the criteria of various ``small furnace'' definitions. For
further details regarding this downsizing methodology, see appendix 8M
of the TSD for this final rule. This appendix also presents sensitivity
analysis results.
Table IV.11--Share of LCC Sample Households Meeting Small Furnace Definition in 2029
----------------------------------------------------------------------------------------------------------------
NWGFs MHGFs
------------------------------------------------------------
With separate With separate
Small furnace definition Without small furnace Without small furnace
amended standard and amended tandard and
standards downsizing standards with downsizing
(percent) (percent) (percent) (percent)
----------------------------------------------------------------------------------------------------------------
<=40 kBtu/h........................................ 3.0 13.6 5.6 14.6
<=45 kBtu/h........................................ 4.4 16.7 9.7 18.4
<=50 kBtu/h........................................ 6.2 19.7 12.7 21.9
<=55 kBtu/h........................................ 7.4 21.4 13.8 23.6
<=60 kBtu/h........................................ 18.8 29.5 29.0 35.2
<=65 kBtu/h........................................ 20.3 31.5 32.8 39.0
<=70 kBtu/h........................................ 30.4 38.7 43.6 48.5
<=75 kBtu/h........................................ 41.5 47.1 59.6 63.3
<=80 kBtu/h........................................ 54.6 57.5 82.9 84.4
<=85 kBtu/h........................................ 56.4 59.4 85.9 87.3
<=90 kBtu/h........................................ 63.7 65.8 92.0 92.4
<=95 kBtu/h........................................ 63.7 66.2 92.0 92.5
<=100 kBtu/h....................................... 81.7 82.2 98.7 98.7
----------------------------------------------------------------------------------------------------------------
10. Accounting for Product Switching Under Potential Standards
During the development of the 2006 NOPR for consumer furnaces,
manufacturers commented that when presented with potential standards
for non-weatherized gas furnaces set at a level effectively requiring
condensing technology, they expect consumers to switch to heat pumps or
repair their existing equipment due to the increased cost of condensing
non-weatherized gas furnaces. 71 FR 59204, 59230-59231 (Oct. 6, 2006).
During the development of the 2011 direct final rule for consumer
furnaces, some commenters again stated that a furnace standard set at a
level effectively requiring condensing furnaces would cause some
consumers to switch from gas furnaces to electric resistance heating or
heat pumps. 76 FR 37408, 37483 (June 27, 2011). For the 2011 direct
final rule, DOE did not explicitly quantify this potential for product
switching, assuming that such switching was likely minimal in response
to standards. Id. at 76 37483-37484. As part of the development of the
March 2015 NOPR during informal workshops, some commenters again stated
that consumers might switch to alternative electric heating systems due
to a standard set at a level effectively requiring condensing furnaces.
As noted previously, DOE recognizes that consumers may elect to
switch from one heating source to another. Those consumer choices are
affected by many factors. As commenters to this proposed rule and prior
rules have noted, one such factor is the furnace efficiency standard
itself. Accordingly, in this rulemaking, DOE has considered the
potential for a standard level to impact the choice between various
types of heating products, for residential new construction, new
owners, and the replacement of existing products. Because home builders
are sensitive to the initial cost of heating equipment, a standard
level that significantly increases purchase price may induce some
builders to switch to a different heating product than they would have
otherwise installed in the no-new-standards case. Such an amended
standard level may also induce some homeowners to replace their
existing furnace at the end of its useful life with a different type of
heating product. The central assumption is that, for consumers to
switch, the total installed cost of the alternative heating equipment
would be less than the cost of a new consumer furnace at the amended
standard level (operating costs may or may not be higher).
[[Page 87587]]
In conducting this analysis, DOE has remained focused on the
covered products subject to this rulemaking--consumer furnaces. That
is, this analysis is intended to inform DOE's assessment of whether the
standard level proposed is ``economically justified'' ``for [the] type
(or class) of covered product.'' 42 U.S.C. 6295(o)(2)(A).
To assess the effect of fuel switching, DOE modeled the proposed
standard under two scenarios. The first scenario assumed no switching
at all; that is, it assumed that consumers faced with negative LCCs as
a result of the standard would nevertheless make those investments (the
zero-switching scenario). Under the second scenario, DOE assumed that
every consumer for whom switching would be economically justified
(according to simplified assumptions, detailed below), would do so (the
maximum-switching scenario). These scenarios are intended to bookend
the range of reasonably plausible switching results foreseeable as a
result of this rule.
The assumptions underlying the maximum-switching scenario are
intentionally simplified. The purpose of this scenario is not to model
consumers' actual expected behavior, but rather to estimate an outer
bound for the possible range of responses. Accordingly, DOE has not
attempted to incorporate into this model the market inefficiencies and
consumer biases known to shape consumers' actual purchasing decisions.
Instead, by assuming perfect economic rationality, this model produces
an estimate of the most switching reasonably foreseeable as a result of
this rule.
The results of these two estimates confirm DOE's conclusion that
the proposed standard level is economically justified. That is, whether
DOE assumes that no consumers will switch fuels as a result of the rule
or assumes that the maximum reasonably foreseeable number of consumers
will do so, the rule is economically justified. The analysis underlying
that conclusion is explained further below.
a. Product Switching Resulting From Amended Standards for Non-
Weatherized Gas Furnaces
In order to estimate the impact of potential product switching
resulting from amended standards, DOE developed a consumer choice model
to estimate the switching response of builders and homeowners in
residential installations to potential amended AFUE standards for
NWGFs. (Potential product switching for MHGFs is discussed in the
following subsection.) However, the potential consumer switching
response is highly uncertain, as this represents a significant change
in residential heating equipment. Given this uncertainty, DOE chose to
bound the range of potential impacts by analyzing several scenarios,
including a scenario with no product switching, scenarios with a
moderate amount of product switching, and an additional scenario with a
much higher percentage of consumers switching to heat pump systems due
to the potential availability of tax credits. By analyzing this range
of scenarios, DOE can determine whether the potential for product
switching affects its evaluation of economic justification.
For the purposes of the reference case analysis, DOE assumed a
moderate level of product switching. DOE analyzed product switching
scenarios that represent the most common combinations of space
conditioning and water heating products. The model considers three
options available for each sample home when installing a heating
product: (1) a NWGF that meets a particular standard level, (2) a heat
pump, or (3) an electric furnace. In addition, for situations in which
installation of a condensing furnace would leave an ``orphaned'' gas
water heater requiring costly re-venting, the model allows for the
option to purchase an electric water heater as an alternative. For
option 2, DOE took into consideration the age of the existing central
air conditioner, if one exists, by including its residual value in the
choice model. If an existing air conditioner is not very old, it is
unlikely that the consumer would opt to install a heat pump, which can
also provide cooling.
The consumer choice model calculates the PBP between the higher-
efficiency NWGF in each standards case compared to the electric heating
options using the total installed cost and first-year operating cost
for each sample household or building. The operating costs take into
account the space-heating load and the water heating load for each
household, as well as the energy prices over the lifetime of the
available product options.\212\ DOE accounted for any additional
installation costs to accommodate a new product. DOE also accounted for
the cooling load of each relevant household that might switch from a
NWGF and central air conditioners (``CAC'') to a heat pump. For
switching to occur, the total installed cost of the electric option
must be less than the NWGF standards case option.
---------------------------------------------------------------------------
\212\ Electric furnaces are estimated to have the same lifetime
as NWGFs (21.5 years); however, heat pumps have an estimated average
lifetime of 19 years. To ensure comparable accounting, DOE
annualized the installed cost of a second heat pump and multiplied
the annualized cost by the difference in lifetime between the heat
pump and a NWGF.
---------------------------------------------------------------------------
DOE used updated CAC and heat pump prices from the 2016 CAC and
heat pump direct final rule,\213\ assuming implementation of the CAC/HP
minimum standards scheduled to take effect in 2023. 82 FR 1786 (Jan. 6,
2017). These heat pump prices include the manufacturer production
costs, shipping costs, markups, and installation costs determined in
the 2016 final rule. These costs were updated to 2022$ and the
installation costs were updated using the same labor costs as discussed
in section IV.F.2 of this document. DOE additionally updated the
decreasing price trend for heat pumps derived in the 2016 final rule
with the latest price data available. This trend suppresses the cost of
heat pumps over time for the analysis period in this rulemaking. The
consumer choice model assumes that if a consumer switches to a heat
pump, it is to a minimally compliant heat pump (SEER 14). If consumers
were to instead install higher efficiency heat pumps, this would
generally increase heat pump installation costs, lowering the rate of
equipment switching. DOE estimated the price of electric furnaces in
the engineering analysis (see section IV.C of this document). For water
heaters, DOE used efficiency and consumer prices for models that meet
the amended energy conservation standards that took effect on April 16,
2015. 10 CFR 430.32(d). DOE estimated the price of gas and electric
storage water heaters based on the 2010 heating products final rule. 75
FR 20112 (April 16, 2010).\214\ For situations where a household with a
NWGF might switch to an electric space-heating appliance, DOE
determined the total installed cost of the electric heating options,
including a separate circuit up to 100 amps that would need to be
installed to power the electric resistance heater within an electric
furnace or heat pump, as well as the cost of upgrading the electrical
service panel for a fraction of households.
---------------------------------------------------------------------------
\213\ U.S. Department of Energy-Office of Energy Efficiency and
Renewable Energy, Residential Central Air Conditioners and Heat
Pumps Technical Support Document (available at: www.regulations.gov/document/EERE-2014-BT-STD-0048-0098) (last accessed August 1, 2023).
\214\ U.S. Department of Energy-Office of Energy Efficiency and
Renewable Energy, Heating Products Final Rule (available at:
www.regulations.gov/document?D=EERE-2006-STD-0129-0005) (last
accessed August 1, 2023).
---------------------------------------------------------------------------
For the purposes of the reference case analysis, the consumer
choice model
[[Page 87588]]
needs to be calibrated to an available data point. The decision
criterion in DOE's model was based on proprietary survey data from
Decision Analyst, collected from five separate surveys conducted
between 2006 and 2022.\215\ Each survey involved approximately 30,000
homeowners. For a representative sample of consumers, the surveys
identified consumers' willingness to purchase more-efficient space-
conditioning systems. The surveys asked respondents the maximum price
they would be willing to pay for a product that was 25 percent more
efficient than their existing product, which DOE assumed is equivalent
to a 25-percent decrease in annual energy costs. From these data, as
well as RECS billing data to determine average annual space-heating
energy costs, DOE determined that consumers considering replacing their
gas furnace would require, on average, a payback period of 3.5 years or
less in order to purchase a condensing furnace rather than switch to an
electric space-heating option. This resulting payback period
requirement is very short, consistent with other studies discussed in
section IV.F.8.c of this document that found consumers and
organizations often have very short payback period requirements,
despite the longer-term economic benefits, thereby leading to
suboptimal allocation of energy efficiency as a decisional factor. This
relatively low payback period requirement means that consumers are
quite sensitive to first costs, and as such, this will tend to dominate
the switching criterion.
---------------------------------------------------------------------------
\215\ Decision Analysts, 2006, 2008, 2010, 2013, 2016, 2019, and
2022 American Home Comfort Studies (available at:
www.decisionanalyst.com/Syndicated/HomeComfort/) (last accessed
August 1, 2023). Non-proprietary data of a similar nature were not
available.
---------------------------------------------------------------------------
The consumer choice model calculates the PBP between the condensing
NWGF in each standards case compared to the electric heating options
using the total installed cost and first-year operating cost as
estimated for each sample household or building. For switching to
occur, the total installed cost of the electric option must be less
than the NWGF standards case option. The model assumes that a consumer
will switch to an electric heating option if the PBP of the condensing
NWGF relative to the electric heating option is greater than 3.5 years
or the PBP relative to the electric heating option is negative.\216\ In
the case of switching to an electric heating option, the model selects
the most economically beneficial product. For the proposed energy
conservation standard, the switching fraction of NWGF consumers is 8.9
percent, and the switching fraction of MHGF consumers is 8.5 percent.
---------------------------------------------------------------------------
\216\ The PBP is negative when the electric heating option has
lower operating cost compared to the condensing NWGF option.
---------------------------------------------------------------------------
This consumer model may overestimate the level of product switching
that would occur, as not every consumer is likely to run through this
PBP calculation to determine whether to switch or not. Familiarity bias
and like-for-like replacement bias may reduce the impact of product
switching. However, as previously mentioned, DOE developed several
scenarios in order to place upper and lower limits on this effect,
including a scenario in which no product switching occurs and a
scenario with significantly more product switching. Analyzing all these
scenarios allows DOE to account for the identified uncertainty in this
consumer response.
DOE acknowledges that the consumer survey data it used to determine
the switching criterion do not directly address the consumer choice to
switch heating fuels, but because the data reflect a trade-off between
first cost and ongoing savings, it is reasonable to expect that the
payback criterion is broadly reflective of the potential consumer
behavior regarding switching. Furthermore, the fuel switching results
from DOE's analysis match the overall findings from the GTI Fuel
Switching Study (see appendix 8J of the final rule TSD), which surveyed
both contractors and home builders.
In addition to the primary estimate, DOE conducted sensitivity
analyses using higher and lower levels of switching, as well as a
scenario with no switching. The sensitivity analyses use payback
periods that are one year higher or lower than 3.5 years (i.e., 2.5
years and 4.5 years). DOE also analyzed a scenario in which potential
tax credits (up to $2,000) significantly reduce the cost of installing
a heat pump system, thereby incentivizing even more consumers to switch
from non-weatherized gas furnaces to heat pumps. This scenario
represents an upper bound on the fraction of consumers switching to
alternative heating equipment in response to amended energy
conservation standards for NWGFs.\217\
---------------------------------------------------------------------------
\217\ DOE notes that any product switching that may occur in the
absence of amended energy conservation standards due to tax credits
is discussed in section IV.G of this document. Such switching would
not be relevant in the LCC analysis as those consumers would switch
in the no-new-standards case and thus not be part of the furnaces
LCC sample anymore.
---------------------------------------------------------------------------
The relative comparison of the standard levels analyzed for NWGFs
remains similar, regardless of the switching scenario (including the
scenario with no switching), as shown in appendix 8J of the final rule
TSD. The average LCC savings and percentage of consumers experiencing a
net cost vary between the different switching scenarios; however, at
the adopted standard level, the average LCC savings are positive, and
the percentage of consumers experiencing a net cost is below 25 percent
in all scenarios. Therefore, DOE's evaluation of economic justification
for NWGFs does not depend on the specific details or assumptions
regarding product switching, and DOE would come to the same conclusions
regarding economic justification even if the impacts of the fuel
switching analysis were not included.
In response to the NOPR, APGA commented that DOE's statutory
interpretation that the incorporation of the results of fuel switching
into the LCC analysis is permissible is contrary to clear intent of
Congress. (APGA, No. 387 at pp. 19-20) APGA further commented that it
is unlawful for DOE to compel fuel switching in a rule and that
Congress intentionally designed EPCA to be fuel neutral--and
specifically between gas furnaces and electric alternatives. APGA
argued that EPCA requires DOE to consider the possibility of fuel
switching and set a standard that ``is not likely to result in a
significant shift from gas heating to electric resistance heating with
respect to either residential construction or furnace replacement.''
APGA claimed that DOE allows fuel switching in some cases and not in
others--for example depending on degree. APGA disagreed with DOE's
interpretation given a plain reading of the statute and upon the
strength of the legislative history. (APGA, No. 387 at pp. 36-39)
AGA similarly stated that it is improper for DOE to include LCC
savings associated with fuel switching in the energy saving and
economic justification of a consumer natural gas furnace standard.
(AGA, No. 405 at pp. 74-77) AGA further argued, similarly to APGA, that
the proposed rule would unlawfully compel many consumers to switch from
gas to electric appliances. AGA argued that when Congress gave the
Department authority to establish new standards for furnaces, it
specified that those standards must not be ``likely to result in a
significant shift from gas heating to electric resistance heating with
respect to either residential construction or furnace replacement,''
and, therefore, the legislative history demonstrates that Congress did
not intend for energy conservation standards to allow DOE to favor one
fuel
[[Page 87589]]
over another or limit consumer choice. (AGA, No. 405 at pp. 102-103)
AGA argued that Congress designed the energy conservation standard
program to be fuel-neutral and prevent fuel switching. (AGA, No. 405 at
p. 105)
HARDI commented that the NOPR did not meet the requirements
outlined by EPCA, stating that the statute prescribes that standards
cannot ``result in a significant shift from gas heating,'' and that the
fuel-switching analysis does not demonstrate this requirement has been
met. (HARDI, No. 384 at pp. 3-4)
NPGA stated that because the proposed minimum efficiency level can
only be achieved using condensing technology that requires a condenser
and venting configurations that differ from atmospherically drafted
furnaces, the proposal exceeds authority under EPCA, unlawfully compels
fuel switching from gas furnaces to electric alternatives, and imposes
design requirements. (NPGA, No. 395 at p. 2) NPGA further stated that
Congress gave DOE authority to promulgate standards, but such standards
must not be ``likely to result in a significant shift from gas heating
to electric resistance heating with respect to either residential
construction or furnace replacement.'' NPGA commented that the proposed
standard is contrary to this requirement because it is so uneconomical
that it is predicted to force consumers from gas furnaces to electric
alternatives, such as electric resistance heating or heat pumps. (NPGA,
No. 395 at p. 4) NPGA cited Senate and Congressional reports from 1986
and 1987 discussing the standards to be set for small gas furnaces, in
order to show that Congress did not want to set standards for small gas
furnaces that would impact competition between fuel sources and cause a
significant switch to electric resistance heating. (NPGA, No. 395 at
pp. 4-8) NPGA commented that contrary to the intent of Congress, DOE's
proposal embraces fuel switching, biases against gas in favor of
electricity, and harms an important industry vital to consumer
wellbeing. (NPGA, No. 395 at pp. 8-9) The Heartland Institute expressed
concern that consumers will switch from natural gas to less-efficient
electricity or heat their homes in a dangerous or more inefficient
manner, stating that this is unlawful and that EPCA is designed to be
fuel-neutral. (Heartland Institute, No. 376 at pp. 1-2) The Georgia Gas
Authority commented that the lack of economic justification and the
effect of driving consumers towards fuel-switching makes the proposed
rule unlawful under EPCA. (Georgia Gas Authority, No. 367 at p. 2)
Spire commented that DOE's fuel switching analysis is inconsistent with
EPCA's statutory scheme because it fails to provide comparisons between
the cost of furnaces with the required efficiency improvements and the
value of the operating cost savings those efficiency improvements would
provide as a result of the standard. (Spire, No. 413 at pp. 45-46)
Spire also commented that the proposed standards promote
electrification rather than conserve energy through efficiency in gas
products, thereby conflicting with EPCA and being inconsistent with the
overall statutory scheme. (Spire, No. 413 at pp. 2, 43-49) Finally,
Spire commented that the fuel-switching analysis occurs in instances
without new standards, and that the fuel-switching numbers provided
include those instances. (Spire, Public Meeting Webinar Transcript, No.
4099 at p. 15)
The following paragraphs explain DOE's rationale as to why the
Department's amended standard and fuel switching analysis are
appropriate and are consistent with EPCA.
First, DOE has concluded that the amended standards it is adopting
for NWGFs and MHGFs are performance-based energy conservation standards
that meet all relevant statutory requirements. As explained in section
II.B of this document, DOE has determined that non-condensing
technology and associated venting do not constitute a performance-
related ``feature'' under 42 U.S.C. 6295(o)(4), consistent with the
Department's December 2021 Final Interpretive Rule. Consequently, DOE
is not making any covered product with a performance-related feature
unavailable as a result of this rulemaking. These furnace standards are
AFUE-based standards, which reflect efficiencies that are achieved by
furnaces currently on the market. Although such levels are typically
achieved by use of condensing technology, DOE does not mandate any
specific technology or design to be used for meeting the standard,
thereby allowing manufacturers maximum flexibility in terms of
incorporating future technological advancements they deem appropriate.
In the end, DOE has determined that the adopted furnace standards would
result in the maximum energy savings that are technologically feasible
and economically justified. Because these standards have been set in
accordance with the applicable statutory criteria, DOE finds Spire's
and NPGA's assertions that DOE has exceeded its statutory authority to
be without merit. So, too, DOE finds without merit Spire's comments
that these standards seek to promote electrification rather than to
improve the energy efficiency of gas furnaces or that DOE's rule
evidences a bias against gas. Consistent with EPCA's mandate, DOE has
established product classes for each fuel source--gas, oil, and
electricity--and set standards for those classes based on the criteria
EPCA requires, i.e., to achieve the maximum improvement in energy
efficiency which the Secretary determines is technologically feasible
and economically justified. (42 U.S.C. 6295(o)(2)(A))
Second, DOE has concluded that an analysis of potential fuel
switching effects is appropriate and consistent with EPCA. Initially,
DOE notes that its analysis of fuel switching in the context of
furnaces was initiated at the request of commenters who urged the
Department to analyze such effects. As discussed previously, even in
the absence of standards, consumers of HVAC appliances have a number of
choices in terms of product selection in the current marketplace. For
example, some number of consumers voluntarily switch their home heating
system in any given year to a heat pump from a gas furnace, and some
number of consumers switch from a gas furnace to an electric furnace.
Understanding such routine changes is necessary for DOE to properly
analyze the base case in any standards rulemaking, particularly as it
relates to annual product shipments. DOE sees no reason why such real-
world effects should be ignored in the standards cases. Instead, the
failure to properly account for such effects would be inconsistent with
EPCA's direction to consider whether the standard is economically
justified, accounting for, among other things, future product
shipments. (See 42 U.S.C. 6295(o)(2)(B)(i)(I) and (III)) Consistent
with that recognition, DOE has analyzed potential changes in consumer
behavior in a number of other rulemakings--and without controversy in
terms of the permissibility under EPCA of considering such effects. DOE
has analyzed the impacts of a potential standard on out-of-scope
products as well as cross-elasticities between different product
classes in other rulemakings.\218\ DOE cautions that any primary
analysis that refuses to acknowledge the potential for fuel switching
(product switching) ignores reality, so DOE has continued to include
the fuel switching model as part of its analysis, in order to provide
the most accurate assessment of the costs and benefits of this
rulemaking. However, as
[[Page 87590]]
discussed in the paragraph that follows, DOE has performed sensitivity
analyses which assessed the effects of DOE's proposed standards if
there were to be no fuel switching (see appendix 8J of the final rule
TSD).
---------------------------------------------------------------------------
\218\ For example, general service fluorescent lamps, motors,
and clothes washers.
---------------------------------------------------------------------------
DOE's sensitivity analysis shows that the rule would be
economically justified even if consumers were assumed to forgo
economically beneficial opportunities to switch from gas furnaces to
electric heat pumps. For example, with the reference case switching
assumptions, DOE estimates that 18.7 percent of NWGF consumers would
experience a net cost with average LCC savings of $350. Assuming no
switching, DOE estimates that 21.6 percent of consumers would
experience a net cost with an overall average LCC savings of $164
across all consumers. In either case, DOE considers the amended
standard level to be economically justified. Thus, even if EPCA
required the Department to ignore the likely real-world effects of its
standards, and instead compelled an analysis that assumed consumers
would eschew all fuel-switching, the resulting analysis would produce
the same results: the standards adopted for gas-fired furnaces by this
rule would still be the standards that achieve the maximum improvement
in energy efficiency and that are technologically feasible and
economically justified.
The amended standards plainly do not compel fuel switching. DOE's
rule does not ban gas furnaces, and the Department has concluded that
there are technological solutions available to allow continued
installation of gas-fired furnaces for virtually all installation
scenarios, as discussed in section IV.F.2 of this document.
Consequently, DOE's rule does not compel any consumer to convert to an
electric space-heating product, and consumers continue to have a
variety of choices to suit their needs. DOE does acknowledge (and
accounts for in its analysis) that in certain difficult installation
situations with higher costs, consumers may choose to change their HVAC
equipment to a product using a different fuel type, but as previously
discussed, DOE expects this percentage to be small. Furthermore, newer
technology options such as DuraVent FasNSeal may further reduce the
prevalence and cost of such problematic installations. Although gas
industry commenters have made numerous qualitative arguments regarding
such installations, they have provided no data to demonstrate the
quantitative impacts or to show that DOE's estimates are incorrect. DOE
also finds no basis to support the Heartland Institute's assertion that
consumers who choose to change their home heating product would face
safety challenges or encounter a lack of energy-efficient alternatives;
DOE's energy conservation standards for any of its covered space-
heating products set minimum energy efficiency requirements for those
products, and there are typically a variety of even more efficient
products available on the market. DOE further has found that there are
trained and qualified personnel available to adequately install and
service such products, thereby alleviating any potential safety or
reliability concerns.
Finally, DOE clarifies the concept of fuel neutrality. Contrary to
commenters' arguments, EPCA does not contain a general fuel-neutrality
provision. In addition, in several specific provisions, EPCA requires
particular consideration of fuel switching and the utility consumers
derive from different fuels. DOE has adhered to these requirements of
EPCA, as applicable. The Department has made clear in other rules that
``DOE does not agree that EPCA, as amended, mandates fuel neutral
energy conservation standards.'' See Full-Fuel-Cycle Final Statement of
Policy, 76 FR 51281, 51284 (August 18, 2011). In that document, DOE
confirmed that it will continue to consider comparable products that
use different fuels in separate classes as required by 42 U.S.C.
6295(q)(1). Id.
As explained in DOE's August 2021 proposed interpretive rule, fuel
switching is a natural part of market operation for the subject
appliances, and it may occur even in the absence of amended energy
conservation standards. The Department has recognized that ``fuel
switching occurs frequently and most certainly in the context of new
energy conservation standards.'' 86 FR 48049, 40856 (August 27, 2021).
Installation costs may influence consumer decisions regarding fuel
choice, and at any time, a segment of consumers may choose replacement
products that rely on a different fuel source than that of the unit
being replaced. Id. Because fuel switching may be impacted by the
adoption of standards, when conducting an energy conservation standards
rulemaking, the Department routinely accounts for potential fuel
switching in its consumer choice model, which is one part of its full
suite of analyses. Accordingly, ``[a]lthough DOE typically analyzes
fuel-switching effects, the agency is generally free to set an
appropriate level under the applicable statutory criteria regardless of
any ancillary fuel switching effects.'' Id. Consequently, to the extent
EPCA imposes a general principle of fuel-neutrality, DOE has understood
that principle to be ``violate[d]'' only by ``a degree of fuel
switching that is much greater than typically found in DOE energy
conservation standards rulemakings.'' Id.
The specific provision to which gas industry commenters cite in
support of their fuel-neutrality argument is not applicable to this
rulemaking. Specifically, commenters rely on a provision requiring DOE
to determine that a particular energy conservation standard not
``result in a significant shift from gas heating to electric resistance
heating with respect to either residential construction or furnace
replacements'' (see 42 U.S.C. 6295(f)(1)(B)(iii)). However, commenters
ignore the limited applicability of that provision. That limitation is
one of three requirements applicable to DOE's issuance of an energy
conservation standard for small furnaces (i.e., less than 45,000 BTUs)
(see 42 U.S.C. 6295(f)(1)(B)(i)), for which DOE was required to
establish standards no later than January 1, 1989 (see Id. at 42 U.S.C.
6295(f)(1)(B)). DOE discharged that obligation by rulemaking in 1989.
See Energy Conservation Program for Consumer Products: Energy
Conservation Standards for Two Types of Consumer Products, 54 FR 47916
(Nov. 17, 1989). The statutory provision to which commenters point
demonstrates that Congress knew how to address concerns about fuel
neutrality, doing so explicitly at the relevant place in the statute;
Congress did not choose to adopt fuel neutrality provisions in other,
broader provisions of EPCA's rulemaking authority.
The commenters seek to expand the reach of that provision to all
subsequent furnace rulemakings. As explained subsequently, neither the
language of the statute nor the legislative history support such a
broad expansion of this fuel-neutrality limitation.
Congress did not place this fuel neutrality requirement in a
provision of EPCA applicable to all rulemakings or even in a separate
provision applicable to all furnace rulemakings. Instead, this specific
limitation was included in a grant of authority for a single rulemaking
to be completed by January 1, 1989, establishing an energy conservation
standard for furnaces (other than furnaces designed solely for
installation in mobile homes) having an input of less than 45,000 Btu
per hour and manufactured on or after January 1, 1992. (42 U.S.C.
6295(f)(1)(B)(i)) The statute further provided that DOE's final rule
must be set at an AFUE between 71 percent and 78 percent. (42 U.S.C.
6295(f)(1)(B)(ii)) Congress set specific
[[Page 87591]]
AFUE levels for most consumer furnaces by statute. (See Id. at 42
U.S.C. 6295(f)(1) and (2)) For this specific small furnaces rulemaking,
however, Congress granted DOE discretion, but nevertheless imposed
unusually prescriptive guidelines. Those specific guidelines make sense
against a backdrop of otherwise congressionally mandated standards.
However, they are entirely inconsistent with the general rulemaking
authority Congress conferred upon the Department to set new or amended
standards for covered products. The previous subsection makes this
plain. Subsection (f)(1)(B)(ii) mandates that a January 1, 1989,
regulation for ``such furnaces''--i.e., small furnaces manufactured
after January 1, 1992--must set an AFUE between 71 and 78 percent. (Id.
at 42 U.S.C. 6295(f)(1)(B)(ii)) But that provision is obviously
inapplicable to all future furnace rulemakings. In its 1989 regulation,
DOE established a standard for the small furnaces to which these
provisions apply with an AFUE of 78 percent. In 2007, pursuant to
EPCA's requirement that DOE consider amended standards for consumer
furnaces, DOE promulgated amended standards for furnaces--including
both these small furnaces and furnaces of other sizes--which raised the
AFUE standard to 80-percent AFUE for NWGFs, to 81-percent AFUE for
weatherized gas furnaces, to 80-percent AFUE for MHGFs, and to 82-
percent AFUE for non-weatherized oil-fired furnaces. Such a rule would
have been impossible if the efficiency range specified by 42 U.S.C.
6295(f)(1)(B)(ii)--71-78 percent AFUE--applied to that rulemaking. Of
course, it did not, because 42 U.S.C. 6295(f)(1)(B)(ii) applied only to
the Department's initial small-furnace rulemaking in 1989. Commenters
never explain why subsection (f)(1)(B)(iii)--proscribing a significant
shift to electric resistance heating--should apply to future
rulemakings while subsection (f)(1)(B)(ii) should not.
Further, even if applicable to this rulemaking, the specific
prohibition of 42 U.S.C. 6295(f)(1)(B)(iii) would have far less effect
here than commenters assert. That section prevented DOE from setting a
standard that would likely result in a significant shift from gas
heating to ``electric resistance heating.'' Although that statutory
requirement to avoid a shift to electric resistance heating was limited
to the past rulemaking conducted under 42 U.S.C. 6295(f)(1)(B)(iii),
DOE has concluded that the current rulemaking is also unlikely to drive
a shift to electric resistance heating. To the extent the standard at
issue here may result in a shift, it is far more likely to result in a
shift from gas heating to electric heat pumps, a different technology
with very different characteristics. At the time these particular
statutory provisions were adopted, electric heat pumps were not as
common with low market share in regions traditionally heated by
furnaces, but in the intervening years, the heat pump market has seen
considerable development. Heat pumps are far more efficient than
electric resistance heating and can be more energy efficient than gas-
fired furnaces. It would pervert EPCA's energy-savings purpose to infer
from a prohibition on setting a standard likely to result in an
inefficient shift an additional, a textual prohibition on setting a
standard likely to result in an efficient one.
Although the relevant statutory text is clear and controls, DOE
nonetheless examined the legislative history to confirm its reading of
the text, particularly since certain commenters advanced a contrary
reading based at least in part on legislative history. This inquiry
confirmed DOE's understanding of the statutory text and likewise
confirmed that the contrary reading espoused by those commenters is
incorrect, for the reasons discussed subsequently. The legislative
history that commenters cite supports the Department's interpretation.
In one set of remarks regarding amendments to EPCA, Senator Bennett
Johnston, Chairman of the Senate Committee on Energy and Natural
Resources, stated:
We were concerned that if the Secretary establishes a standard
for small gas furnaces at 78 percent, as originally proposed, the
first cost differential between electric resistance heat and natural
gas will increase to the point where builders will not even consider
gas heat, particularly in southern areas where heating is a minor
part of the overall residential energy requirement. With regard to
the first cost, according to AGA, a 71-percent efficient gas furnace
costs $475. Electric-resistance-heating equipment costs on an
average $350, a difference of $125. By contrast, a 78-percent
efficient gas furnace entails additional installation and duct work
cost estimated conservatively at $150 to $200. Thus, the builder
could save some $500 per living unit by choosing electric resistance
heat over a 78-percent efficient gas furnace.
One of the main goals of this legislation is to encourage energy
conservation without unduly altering the economics of fuel choices.
This goal will be impaired unless the standard for small gas
furnaces is set so as to avoid raising the cost of these furnaces to
the point where builders are forced to select electric resistance
heat instead of a gas furnace purely on the basis of first cost.
That is why I added language in our Energy and Natural Resources
Committee report making it clear that the Secretary must pay due
consideration to the need for utilities to continue to compete
fairly when DOE considers setting the standard for small gas
furnaces. I made it clear the committee was concerned that setting a
standard for small gas furnaces at or near the 78-percent level
mandated in the bill for larger gas furnaces would increase the
first cost of the small gas furnace sufficiently to induce a
significant switch to electric resistance heating.
The report language goes on to say that the bill will, upon a
sufficient showing, * * * forbid a standard for small gas furnaces
being set at a level that would increase the price to the point that
the product would be noncompetitive, resulting in minimal demand for
the product.\219\
---------------------------------------------------------------------------
\219\ 132 Cong. Rec. 31328 (Oct. 15, 1986) (emphasis added).
---------------------------------------------------------------------------
In Senate Report No. 99-497, the report states in relevant part:
In addition, the Committee agreed to adopt specific report
language clarifying its intent with respect to small furnaces; those
having an input of less than 45,000 Btu's per hour.
The Committee did not establish an initial standard for small
gas furnaces in the statute and instead directed the DOE to
establish the standard by rule at an annual fuel utilization
efficiency of not less than 71 percent and not more than 78 percent.
The Committee was concerned that setting a standard for small gas
furnaces, at or near 78 percent (the level for larger gas furnaces),
would increase their initial price. Because of the competition
between small gas furnaces and electric resistance heating in some
areas of the Nation, such a price increase for small gas furnaces
could induce builders or consumers to switch to electric resistance
heating. No specific standard for electric resistance heating is
included in this bill.
Section 325(j) provides several safeguards against a standard
for small gas furnaces being set at a level that results in a buying
preference or significant switching from gas heating to electric
resistance heating. The Secretary must consider the impact of any
lessening of competition that is likely to result from the
establishment of a standard for small furnaces. He must consider the
economic impact of the standard on manufacturers and consumers. In
addition, the Secretary must consider the total projected amount of
energy savings likely to result from the establishment or revision
of a standard for small furnaces.
Finally, section 325(j)(4) forbids a standard being set so as to
result in the unavailability in the United States in any covered
product type (or class) of performance charact[e]ristics, such as
size or capacity. This paragraph, upon a sufficient showing, would
forbid a standard for small gas furnaces being set at a level that
would increase the price to the point that the product would be
noncompetitive and that would result in minimal demand for the
product.'' \220\ Language from Senate Report
[[Page 87592]]
No. 100-6 similarly reflects Congress's specific focus on small gas
furnaces: ``On page 23, lines 13 through 18, the Committee modified
the language of the bill amending section 325(f)(1)(B) of EPCA to
include an additional clause (iii). The purpose of the new clause is
to clarify that, in setting an energy conservation standard for
small gas furnaces (those having an input of less than 45,000 Btu's
per hour), the Secretary of Energy shall, in a manner which is
otherwise consistent with this Act, establish the standard at a
level between 71 percent and 78 percent AFUE `which the Secretary
determines is not likely to result in a significant shift from gas
heating to electric resistance heating with respect to either
residential construction or furnace replacement.
---------------------------------------------------------------------------
\220\ S. Rep. No. 99-497, at 5 (1986) (emphasis added).
---------------------------------------------------------------------------
The Committee did not establish an initial standard for small
gas furnaces in the statute and instead directed the DOE to
establish the standard by rule at an annual fuel utilization
efficiency of not less than 71 percent and not more than 78 percent.
The Committee was concerned that setting a standard for small gas
furnaces, at or near 78 percent (the level for larger gas furnaces),
would increase their initial price. Because of the competition
between small gas furnaces and electric resistance heating in some
areas of the Nation, such a price increase for small gas furnaces
could induce builders or consumers to switch to electric resistance
hearing. No specific standard for electric resistance heating is
included in this bill.
Section 325(j) provides additional safeguards against a standard
for small gas furnaces being set at a level that results in a buying
preference or significant switching from gas heating to electric
resistance heating (see section-by-section analysis).\221\
---------------------------------------------------------------------------
\221\ S. Rep. No. 100-6, at 5-6 (emphasis added).
Although the legislative history reveals a broader statement \222\
by one individual member of Congress, once again Senator Bennett
Johnston, its breadth is an outlier which contrasts with his own later
statements and committee report language which demonstrates a focus on
the small furnaces standard. The grants of rulemaking authority at 42
U.S.C. 6295(f)(4) and 42 U.S.C. 6295(m)(1), on which this rulemaking
relies, do not limit the Department's discretion in the manner of 42
U.S.C. 6295(f)(1)(B)(iii). As relevant here, rather, the Department's
discretion under those provisions is constrained by the generally
applicable limits found in 42 U.S.C. 6295(m), (o), (p), and (q). Those
provisions disallow establishment of a standard likely to result in the
unavailability of a feature (see 42 U.S.C. 6295(o)(4)), and require
establishment of a separate standard for any covered products that
``consume a different kind of energy from that consumed by other
covered products within'' the regulated type of products (42 U.S.C.
6295(q)(1)(A)). The standards established by this final rule comport
with these statutory requirements.
---------------------------------------------------------------------------
\222\ At 133 Cong. Rec. 545 (Jan. 6, 1987), Senator Johnston
states, ``One very sensitive aspect of this bill has been to
minimize the effect it might have on the intense competition between
the electric and gas industries. We don't want the bill to have the
effect of creating a significant bias against any fuel--be it oil,
gas, or electricity--so as to favor one over the other.''
---------------------------------------------------------------------------
AGA stated that it is improper for DOE to consider fuel switching
as one of the benefits of the proposed standards. To be consistent with
EPCA's text, purpose, structure, and intent, AGA argued instead that
the purported savings due to fuel switching must be subtracted from the
analysis of whether the standards would be economically justified.
(AGA, No. 405 at p. 105) In response, DOE notes that the impacts of
fuel switching are not necessarily benefits. There are differences in
costs and energy consumption compared to the no-new-standards case, and
DOE is merely accounting for these differences in the sensitivity
analysis described in this section. DOE has evaluated a variety of
fuel-switching scenarios (including a scenario with no switching). The
relative comparison of the standard levels analyzed for NWGFs remains
similar, regardless of the switching scenario. The results for all
scenarios are found in appendices 8J and 10E of the final rule TSD.
Therefore, DOE's evaluation of economic justification for NWGFs does
not depend on the specific details or assumptions regarding product
switching, and DOE comes to the same conclusions even if the impacts of
fuel switching are not included.
AGA argued that DOE also fails to acknowledge that with a
condensing furnace, consumers will use more electricity, counteracting
the fuel savings. AGA asserted that DOE should recognize that fuel
switching, under the proposed rule, would increase overall energy
consumption, which runs counter to the objectives of an energy
conservation standard. (AGA, No. 405 at pp. 74-77) In response, DOE
finds AGA's claim to be incorrect and without merit. DOE's analysis
does account for the slight increase in electricity consumption for
condensing furnaces compared to non-condensing furnaces, as presented
in section IV.E.4 of this document, and the estimated energy savings of
the rule incorporate this impact. DOE also accounts for the increase in
electricity consumption if a consumer switches to a heat pump or
electric furnace. These effects are incorporated in both the LCC
analysis and national impact analysis. However, the energy savings from
reduced natural gas consumption vastly outweigh the slight increase in
electricity consumption. Furthermore, DOE fully accounts for these
impacts in all fuel-switching scenarios. Even in scenarios where some
fraction of consumers switch to an electric heating alternative, the
energy savings from reduced natural gas consumption vastly outweigh the
increase in electricity consumption. It would run counter to the
purposes of EPCA to forgo such energy savings unnecessarily.
Spire commented that forced transition to electric alternatives
would increase energy consumption. (Spire, No. 413 at pp. 5-14) In
response, DOE accounts for the increased electricity consumption as a
result of product switching to electric alternatives in its analysis.
APGA commented that DOE's analysis fails to appropriately account
for the increased emissions from the electricity sector that results
from increased electrical energy consumption caused by fuel switching.
(APGA, No. 387 at p. 29) AGA commented that DOE should fully examine
the impacts fuel switching would have on the entire energy system,
including utilities and end-use residential consumers. According to the
commenter, fuel switching can impact existing and future natural gas
utility and electricity consumers, so, therefore, the Department should
thoroughly examine how fuel switching would impact future electricity
generation, transmission, or distribution infrastructure requirements.
(AGA, No. 405 at pp. 105-106) In response, DOE emphasizes that the
impacts of fuel switching are incorporated in all parts of its analysis
(as part of the reference new-standards scenario). This includes the
impacts on end-use residential consumers, electric utilities, natural
gas utilities, and emissions reductions or increases. The results do
account for increased emissions from the electricity sector. The
utility impact analysis specifically accounts for the effects of fuel
switching.
APGA opined that the estimates of potential switching in the TSD
remain low, especially given financial incentives just passed by
Congress in the Inflation Reduction Act, various initiatives of DOE to
support low-income households, and numerous State initiatives.
According to APGA, another reason that DOE's estimate of fuel switching
is low is that DOE continues to underestimate the cost of difficult
retrofits. The commenter reasoned that additional fuel switching to
electric appliances decreases energy savings under DOE's analysis.
(APGA, No. 387 at pp. 33-34) As discussed more fully
[[Page 87593]]
subsequently, DOE has amended its shipments projection to account for
existing policy initiatives with known impacts (see section IV.G.2 of
this document), which has resulted in adjustments to the no-new-
standards shipments projection. For the final rule, the shipments
projected in 2050 are approximately 3 percent lower than was estimated
in the NOPR. With respect to costs, DOE estimates its installation
costs based on the best available data and information submitted by
commenters, as discussed in section IV.F.2 of this document. DOE has
evaluated all relevant information and data and has not identified any
data that contradict its cost estimates. DOE concludes that its
installation cost estimates are reasonable and representative and,
therefore, that the resulting fuel-switching impacts are reasonable and
representative. Finally, DOE accounts for all energy consumption
differences compared to the no-new-standards case. In fuel-switching
scenarios where some fraction of consumers switch to an electric
heating alternative, the energy savings from reduced natural gas
consumption vastly outweigh the increase in electricity consumption.
Spire claimed that DOE employs a fuel-switching analysis that
assumes that consumers facing higher initial costs will engage in fuel-
switching and does not consider the economic outcome of an investment
in a standards-compliant furnace. Spire further argued that this is
statutorily prohibited, as it is not fuel-neutral and is not comparing
directly within classes because the technology is changing (non-
condensing to electric). Spire claimed that DOE's fuel-switching
analysis seeks to justify standards imposing economically unjustified
efficiency by driving consumers to choose alternatives to gas furnaces.
(Spire, No. 413 at pp. 43-44) In response, DOE finds that Spire is
incorrect in its characterization of the analysis. The analysis
considers the economic outcome of an investment in a standards-
compliant furnace. Only a small fraction of consumers then opt for an
electric alternative after this consideration. Even in the absence of
amended standards, some portion of consumers with furnaces will choose
to convert their home's heating system to a heat pump, changes which
reflect consumer choice and the availability of alternative space-
heating appliances in the marketplace. As commenters acknowledge,
amended standards are likely to have some effect on such consumer
purchasing decisions, so it would be inappropriate for DOE to fail to
analyze these effects in both the no-new-standards case and standards
cases. Furthermore, DOE evaluates a range of sensitivity scenarios with
respect to fuel-switching assumptions, including a scenario with no
fuel switching. The relative comparison of the standard levels analyzed
for NWGFs remains similar, regardless of the switching scenario. The
results for all scenarios are found in appendices 8J and 10E of the
final rule TSD. Therefore, DOE's evaluation of economic justification
for NWGFs does not depend on the specific details or assumptions
regarding product switching, and DOE would reach the same conclusions
even if the impacts of fuel switching are not included. To be clear,
contrary to the assertions of Spire and others, justification for the
amended standards set by DOE in this final rule does not hinge on fuel-
switching results.
Spire commented that DOE's analysis does not appear to account for
base case fuel switching (i.e., fuel switching that would occur in the
absence of new standards). (Spire, No. 413 at p. 50) In response, DOE
notes that this assertion is incorrect. As previously mentioned, DOE
incorporates existing market trends, including a shift to heat pumps
and other heating alternatives in the absence of new standards, in its
shipments projection and national impact analysis (see section IV.G of
this document for further discussion). The LCC analysis specifically
analyzes existing furnace consumers and the impacts on them due to a
standard. Consumers that have already switched in the absence of a
standard are not part of the LCC analysis, as they are not directly
impacted by the rule; however, the reduction of future furnace
shipments due to product switching will reduce overall energy savings
in the national impact analysis, and that is accounted for in the
analysis.
Spire further argued that DOE's assumptions appear to be designed
to maximize LCC savings rather than to simulate actual consumer
purchasing behavior. (Spire, No. 413 at p. 51) In response, DOE notes
that this is a significant mischaracterization of the analysis. The
incorporation of product switching is intended to capture a potential
effect raised in previous comments. DOE evaluated a variety of fuel-
switching scenarios (including a scenario with no switching). The
relative comparison of the standard levels analyzed for NWGFs remains
similar, regardless of the switching scenario. The results for all
scenarios are found in appendices 8J and 10E of the final rule TSD.
Therefore, DOE's evaluation of economic justification for NWGFs does
not depend on the specific details or assumptions regarding product
switching, and DOE reaches the same conclusions even if the impacts of
fuel switching are not included.
Spire argued that DOE's fuel-switching analysis understates the
adverse impacts of fuel switching resulting from the standards by
significantly understating the costs associated with switching to heat
pumps and ignoring the extent to which high initial costs and
installation constraints can be expected to drive fuel-switching
consumers to the worst option from an energy conservation perspective:
electric resistance heating. (Spire, No. 413 at p. 15) Spire further
argued that DOE arbitrarily limits the fuel-switching options to heat
pumps and electric furnaces, ignoring the fact that baseboard heating
is readily available, easy to install, and has extremely low initial
costs. (Spire, No. 413 at p. 52)
In response, DOE notes that its estimates of heat pump costs are
based on the 2016 final rule technical support document for central air
conditioners and heat pumps and adjusted to 2022$. These are the most
recently published estimates by DOE. Heat pump costs are unlikely to
have changed significantly in the intervening years, other than due to
the dollar value (which was accounted for). DOE's current analysis is
consistent with the prior analysis specific to heat pumps. DOE further
notes that the product-switching analysis considers alternative heating
options that work with the existing ducted HVAC system. For a stand-
alone gas furnace, the only other option is an electric furnace (i.e.,
electric resistance heating). For a system that includes both an air
conditioner and a furnace, a heat pump becomes another comparable
option. DOE also considers switching options related to a water heater
that formerly shared an exhaust vent with a NWGF. Switching from a NWGF
to electric baseboard heating requires extensive electrical work in all
rooms of a home and a likely upgrade of the electrical panel, which
likely costs several thousands of dollars. DOE disagrees that this is a
low-cost option and estimates that very few consumers, if any, would
switch to this option as a result of amended energy conservation
standards, given the availability of other lower-cost alternatives.
Additionally, DOE does not consider electric resistance space heaters
as a viable space-heating alternative to a NWGF, because such heaters
provide only localized heating utility as opposed to whole-home
heating.
[[Page 87594]]
Spire argued that fuel switching substantially increases overall
carbon emissions and claimed that DOE is understating the adverse
energy consumption and emissions impacts due to product switching.
(Spire, No. 413 at pp. 5-6) In response, DOE notes that these
assertions are incorrect and a mischaracterization of the analysis.
Product switching does not substantially increase carbon emissions, and
DOE evaluates a full range of energy savings and emissions impacts for
all the switching sensitivity scenarios (including a scenario with no
switching). The national impact analysis results for all scenarios are
presented in appendix 10E of the final rule TSD. Although incorporating
product switching decreases national energy savings (due to increased
electricity consumption), in all scenarios, the rule will result in
significant energy savings and emissions reductions compared to the no-
new-standards case. The energy savings from reduced natural gas
consumption vastly outweigh the increase in electricity consumption,
when addressed on a comparable FFC basis.
APGA stated that a 95-percent AFUE furnace costs nearly three times
as much as an 80-percent AFUE natural gas furnace and that an average
air-source heat-pump system could cost $5,000 to $10,000 to install,
which the commenter claimed is several times more than a gas furnace.
(APGA, No. 387 at p. 65) APGA further commented that the heat pumps and
central air conditioners test procedure final rule that the July 2022
NOPR cited for its product prices did not clearly explain how the
prices were developed. APGA questioned whether DOE used a different
methodology to predict the future prices of heat pumps, and the
commenter stated that these matters should be clearly explained in the
final rule. (APGA, No. 387 at p. 53) DOE has described how it estimated
furnace costs previously in significant detail. With respect heat
pumps, as noted, DOE utilized the estimated costs published in the
January 2017 direct final rule for central air conditioners and heat
pumps. 82 FR 1786 (Jan. 6, 2017). The heat pump product switching
analysis is only relevant for households with an existing air
conditioning system, because adding an air conditioner or heat pump
requires significant additional installation costs, as well as space
requirements (including adding a concrete pad). Households without an
existing air conditioning system are unlikely to switch to a heat pump
in response to an amended standard for consumer furnaces, whereas
households with an existing (and aging) air conditioning system might
opt to switch to a heat pump for both their heating and cooling needs.
PHCC commented that DOE's assumption that heat pump equipment costs
will go down is incorrect, as material prices have increased due to the
COVID-19 pandemic and resulting supply chain issues. PHCC further
stated that heat pump costs are too low as estimated in the NOPR, and
that the costs for adding power capacity and estimates of the number of
homes that require additional power capacity are also too low. (PHCC,
No. 403 at p. 5) In response, DOE acknowledges the supply chain issues
that were prevalent during the COVID-19 pandemic; however, DOE
estimates that by the first year of compliance (i.e., 2029) these
constraints will no longer be relevant. DOE has also adjusted all cost
estimates to $2022 to reflect recent inflation trends. Lastly, no
additional data were submitted to support further adjustment of the
number of homes that require additional power capacity.
PHCC expressed uncertainty as to whether DOE's updates related to
heat pumps and to its fuel-switching analysis are sufficient, including
whether the Department considered the impacts on the recent proposal to
require a new refrigerant. (PHCC, No. 403 at pp. 4-5) In response, DOE
notes that it incorporates the latest refrigerant requirements for heat
pumps in its fuel-switching estimates.
PHCC commented that the fuel-switching and repair information in
Tables V.3 and V.4 of the NOPR are understated. (PHCC, No. 403 at p. 6)
In response, DOE notes that the commenter did not provide any
meaningful information or data to update or improve the analysis. DOE's
analysis is based on the best available data and information, including
that submitted by commenters. DOE has evaluated all relevant
information and data and has not identified any data that contradicts
its estimates. Therefore, DOE concludes that its estimate of the
percentage of consumers switching to an electric heating alternative or
opting for extended repair are reasonable and representative.
NGA of Georgia commented that the proposed rule will create a
competitive disadvantage because the high initial cost of the
installation requirements for condensing furnaces will cause consumers
to switch from natural gas to less-efficient home heating alternatives
such as oil, kerosene, and electric resistance furnaces. (NGA of
Georgia, No. 380 at p. 3) In response, DOE disagrees that consumers
will likely switch to oil or kerosene alternatives, as there are
significantly higher operating and installation costs for those fuels.
For example, as projected in AEO2023, the cost of fuel oil per MMBtu is
more than double that of natural gas. Therefore, DOE does not include
these fuels in its fuel-switching estimates. With respect to electric
furnaces, DOE already accounts for a fraction of consumers that opt to
switch to an electric furnace and includes these impacts in its
analysis.
The Georgia Gas Authority stated that the residential customers
served by its members continue to choose the non-condensing furnace as
the most economical and energy-efficient option. The commenter stated
that this is evidenced by the number of non-condensing furnaces
financed through the Georgia Gas Authority's on-bill financing program
and the responses of HVAC contractors interviewed throughout the
various regions their members serve. According to the commenter, the
interviewed HVAC contractors indicated that the unavailability of non-
condensing furnaces would cause widespread fuel switching to electric
heating. Furthermore, the Georgia Gas Authority stated that many
natural gas customers would face higher monthly energy costs without
any improved energy efficiencies by switching to electric appliances.
(The Georgia Gas Authority, No. 367 at p. 2) In response, DOE estimates
the total costs and benefits associated with existing non-condensing
furnace consumers moving to a condensing furnace. DOE's analysis is
national in scope but captures regional variability. DOE's analyses
show that a majority of consumers, nationally, are expected to receive
a net LCC benefit under this rulemaking, and DOE disagrees with the
commenter that most consumers would switch to an electric alternative.
In particular, the availability of condensing furnaces will change in
the new-standards case, and, therefore, it is highly unlikely that
consumers will switch to electric alternatives due to the
unavailability of products. Furthermore, DOE's analysis estimates that
only a modest fraction of consumers would switch to an electric
alternative. The full impacts of this switch, including all operating
costs and energy consumption impacts, are accounted for in DOE's
analysis and evaluation of economic justification.
The DCA also commented that this proposed rulemaking would lead to
customers switching to electric furnaces. The commenter further added
that this switch would lead to higher operating costs and necessitate
upgrades to electrical systems. (DCA, No. 372 at
[[Page 87595]]
p. 2) In response, DOE has evaluated this possibility of consumers
switching to electric furnaces as part of the fuel-switching analysis,
including the impacts of potentially higher operating costs and the
need for upgrades to electrical systems.
Edison Electric Institute commented that the fuel-switching
analysis should account for the other standards that have been
implemented for related products such as heat pumps. (Edison Electric
Institute, Public Meeting Webinar Transcript, No. 363 at p. 85) Edison
Electric Institute similarly commented that the fuel-switching model
should include technologies such as oil furnaces or other technologies
besides electric heating systems. (Edison Electric Institute, Public
Meeting Webinar Transcript, No. 4099 at p. 18) In response, DOE notes
that the fuel-switching analysis does account for relevant and up-to-
date standards for heat pumps. DOE further estimates that switching
from gas-fired to oil-fired furnaces is highly unlikely, given the
installation costs necessary to do so and significantly higher fuel oil
prices. As a general matter, there has been an overall market shift
away from oil-fired furnaces.
HARDI commented that DOE's analysis fails to adequately measure the
impact of the NOPR. Specifically, HARDI commented that the LCC model
and its fuel-switching analysis contain incorrect assumptions that will
make it more difficult for distributors to predict the market changes
and warehouse the appropriate inventory. (HARDI, No. 384 at p. 2) In
response, DOE notes that in the standards case, the market for furnaces
will be more predictable in terms of furnace efficiency options. DOE
acknowledges the uncertainty in how consumers may respond in terms of
product switching, which is why there are several product switching
sensitivity scenarios, but in all cases, DOE concludes that the rule is
economically justified.
Sierra Club and Earthjustice commented that the modeling of
consumers' decisions to switch to electric space-heating appliances in
response to amended consumer furnace standards is solidly grounded in
the available data. (Sierra Club and Earthjustice, No. 401 at p. 2)
Sierra Club and Earthjustice further commented that industry
stakeholders misapprehend DOE's objective in modeling consumer
decisions about fuel switching. These commenters stated, as long-term
industry trends suggest, some portion of consumers will switch to heat
pumps no matter what standard DOE selects. Further, Sierra Club and
Earthjustice stated that the amended standard would not be driving the
broader shift to electric heating appliances, but it may encourage
customers to invest in cost-effective electric alternatives to consumer
furnaces. These organizations commented that the base-case efficiency
and consumer fuel-switching analysis serve different roles in the
analysis of impact. (Sierra Club and Earthjustice, No. 401 at p. 2) In
response, DOE clarifies that there are indeed separate aspects to fuel
switching addressed in the analysis. To the extent that the existing
NWGF market is shifting to electric heating alternatives, such as heat
pumps, in the absence of any amended energy conservation standard for
NWGFs, that is reflected in the no-new-standards case shipments
projection, as discussed in more detail in section IV.G of this final
rule. The second aspect of fuel switching is in response to an amended
energy conservation standard for NWGFs. DOE agrees with Sierra Club and
Earth Justice that an amended energy conservation standard will not
drive a significantly broader shift to electric heating alternatives.
As explained previously, the estimated fraction of consumers that
switch to an electric heating alternative in response to an amended
energy conservation standard for NWGFs is expected to be modest.
Joint Efficiency Commenters stated that DOE's sensitivity analyses
demonstrate that the proposed standards are cost-effective even with
alternative assumptions for key parameters. These groups further
commented that, while higher product switching was found to result in
greater LCC savings and a lower simple payback period, assuming no
product switching still resulted in positive LCC savings for the
proposed standard level. (Joint Efficiency Commenters, No. 381 at pp.
4-5) DOE agrees.
b. Product Switching Resulting From Amended Standards for Mobile Home
Gas Furnaces
As in the NOPR analysis, DOE has included product switching in its
analysis for MHGFs for this final rule, including a variety of
sensitivity scenarios. The MHGF product-switching methodology is
similar to the product-switching methodology for NWGFs, except that the
model does not assume any switching from gas storage water heaters to
electric storage water heaters, since MHGFs and gas storage water
heaters do not share common vents. See appendix 8J of the TSD for this
final rule for more details regarding the product-switching model for
MHGFs.
The relative comparison of the standard levels analyzed for MHGFs
in this final rule remains similar, regardless of the switching
scenario (including the scenario with no switching), as presented in
appendix 8J of the final rule TSD. The average LCC savings and
percentage of consumers experiencing a net cost vary between the
different switching scenarios. However, at the adopted standard level,
the average LCC savings are positive, and the percentage of consumers
experiencing a net cost is below 25 percent in all scenarios.
Therefore, DOE's evaluation of economic justification demonstrates that
MHGFs are not significantly impacted by the specific details or
assumptions regarding product switching.
MHI suggested that the standards proposed in the July 2022 NOPR
could lead consumers to adopt less-efficient, and sometimes dangerous,
heating methods. (MHI, No. 344 at p. 1) JCI similarly commented that
DOE should evaluate whether the proposed MHGF standards would drive
homeowners to unsafe heating alternatives such as portable space
heaters. (JCI, No. 411 at p. 2) In response, DOE has not found data to
suggest that MHGF standards would drive homeowners to unsafe heating
alternatives such as portable space heaters. In addition, DOE notes
that the commenters did not provide, and that DOE was unable to
identify, data to support the claim that consumers would switch to
dangerous heating methods in response to an amended efficiency standard
for the subject furnaces. While homeowners of manufactured homes could
purchase multiple portable space heaters to fulfill their heating needs
throughout the winter in various rooms, switching to portable electric
resistance heating would substantially increase operating costs for
most consumers to maintain the same level of comfort and increase
monthly utility bills for most owners of manufactured homes. DOE
believes this occurrence will be rare because homeowners are unlikely
to forgo the use of heat throughout the winter, are unlikely to choose
unsafe heating alternatives where warnings regarding their constant use
are readily available and apparent, and are sensitive to monthly
expenses on utility bills. Thus, DOE believes any occurrences of the
type posited by MHA and JCI would be rare in practice. DOE has
identified and evaluated the likely heating alternatives for consumers
of MHGFs, based on existing and safe products on the market, in its
switching analysis.
[[Page 87596]]
11. Accounting for Furnace Repair as an Alternative to Replacement
Under Potential Standards
For this final rule, DOE added a repair option into its consumer
choice model. Because repair is likely to be considered first by
consumers facing furnace replacement, DOE evaluated this option before
the product switching options.
To estimate the fraction of consumers in a standards case that
would choose to repair their existing furnace rather than replace it or
switch to an alternative product, DOE used a price elasticity
parameter, which relates the incremental total installed cost to total
gas furnace shipments, and an efficiency elasticity parameter, which
relates the change in the operating cost to gas furnace shipments. Both
types of elasticity relate changes in demand to changes in the
corresponding characteristic (price or efficiency). A regression
analysis estimated these terms separately from each other and found
that the price elasticity of demand for several appliances is on
average -0.45.\223\ Thus, for example, a price increase of 10 percent
would result in a shipment decrease of 4.5 percent, all other factors
held constant. The same regression analysis found that the efficiency
elasticity is estimated to be on average 0.2 (i.e., a 10-percent
efficiency improvement, equivalent to a 10-percent decrease in
operating costs, would result in a shipments increase of 2 percent, all
else being equal). From these two parameters, DOE derived a probability
that a given household will not purchase a furnace, which is
interpreted as the household repairing rather than replacing the
furnace. The regression analysis included a range for the elasticity
parameters. The price elasticity parameter was adjusted by income such
that the higher elasticity was assigned to lower-income households and
the lower elasticity was assigned to higher-income households,
resulting in a greater probability of repairing existing equipment for
lower-income households. Households that are designated as doing a
repair rather than replacement are not considered in the subsequent
switching analysis. DOE also conducted sensitivity analyses using
higher and lower rates of repair. See appendix 8J of the TSD for this
final rule for more details on the repair vs. replace consumer choice
model for NWGFs and MHGFs.
---------------------------------------------------------------------------
\223\ Fujita, S., Estimating Price Elasticity Using Market-Level
Appliance Data. LBNL-188289 (August 2015) (available at: eta-publications.lbl.gov/sites/default/files/lbnl-188289.pdf) (last
accessed August 1, 2023).
---------------------------------------------------------------------------
HARDI commented that the proposed standards would increase repairs
of older equipment, which would make it more challenging to stock
repair parts, make these repairs more expensive, and take longer due to
more product shipments. Finally, HARDI argued that many consumers would
still opt for these higher repair costs rather than replace their
furnace due to the increased cost of a new, standards-compliant unit.
(HARDI, No. 384 at pp. 2-3) ACCA also stated its expectation that the
proposals in the July 2022 NOPR would result in a significant increase
in homeowners opting to repair their existing equipment rather than
working with a licensed professional to replace it. (ACCA, No. 398 at
p. 3)
In response, DOE acknowledges that some consumers may opt to extend
the lifetime of an existing lower-efficiency furnace rather than
replace it, and the Department includes this effect in its analysis as
part of its repair vs. replace methodology. Incorporating this effect
into DOE's analysis reduces the total energy savings expected as a
result of the standards. However, DOE estimates that only a few percent
of consumers will opt for an extended repair, which will only delay the
replacement by a few years given that the furnace will ultimately need
to be replaced (see results presented in section V.B of this document).
DOE's shipments projection accounts for these extended repair
situations. With respect to the availability of non-condensing furnace
replacement parts, DOE acknowledges that as the share of non-condensing
furnaces in the building stock decreases over time, the availability of
replacement parts will decrease as well, but the Department expects
that manufacturers will have both an economic incentive to continue to
make such parts available, as well as a desire to maintain good
relations with their customer base.
PHCC expressed disagreement with DOE's conclusion that new
standards will not cause consumers to repair products or use alternate
heating methods. The commenter surmised that DOE's rationale relates to
contractors not doing much of this type of repair work in the market
now, but PHCC argued that the relatively low rate of repair is likely
tied to consumers currently having other non-condensing furnace
options. PHCC pointed to the air-conditioning industry, where repairs
increased when refrigerant requirements changed. Finally, the commenter
argued that low- and fixed-income consumers would be impacted by these
increased costs, and that these costs should be considered as a part of
the LCC and PBP analysis. (PHCC, No. 403 at p. 5)
In response, DOE clarifies that it does include repair and
maintenance costs as part of the analysis, differentiated by efficiency
level. DOE also considers that a fraction of consumers may choose to
repair a furnace, rather than replace it, at the end of its lifetime,
in response to an amended energy conservation standard, as described
previously. DOE also clarifies that it considered the possibility that
consumers may adopt alternative heating methods in response to an
amended energy conservation standard for consumer furnaces, as
described in section IV.F.10 of this document.
12. Payback Period Analysis
The payback period is the amount of time (expressed in years) it
takes the consumer to recover the additional installed cost of more-
efficient products, compared to baseline products, through energy cost
savings. 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 for each efficiency level are the
change in total installed cost of the product and the change in the
first-year annual operating expenditures relative to the baseline. The
PBP calculation uses the same inputs as the LCC analysis when deriving
first-year operating costs, except that discount rates are not needed.
As noted previously in section III.F.2 of this document, EPCA
establishes a rebuttable presumption that a standard is economically
justified if the Secretary finds that the additional cost to the
consumer of purchasing a product complying with an energy conservation
standard level will be less than three times the value of the first
year's energy savings resulting from the standard, as calculated under
the applicable test procedure. (42 U.S.C. 6295(o)(2)(B)(iii)) For each
considered efficiency level, DOE determined the value of the first
year's energy savings by calculating the energy savings in accordance
with the applicable DOE test procedure, and multiplying those savings
by the average energy price projection for the year in which compliance
with the amended standards would be required.
APGA argued that since the product switching decision criterion is
based on a simple payback period calculation, the inclusion of product
switching biases the average PBPs to be more attractive than they
should be. (APGA, No. 387 at pp. 57-58) In response, DOE notes that it
has performed a sensitivity scenario
[[Page 87597]]
with no product switching, including calculating the resulting PBPs,
and the conclusions of economic justification remain the same
regardless of whether product switching is included or not.
G. Shipments Analysis
1. Shipments Model and Inputs
DOE uses projections of annual product shipments to calculate the
national impacts of potential amended or new energy conservation
standards on energy use, NPV, and future manufacturer cash flows.\224\
The shipments model takes an accounting approach, tracking market
shares of each product class and the vintage of units in the stock.
Stock accounting uses product shipments as inputs to estimate the age
distribution of in-service product stocks for all years. The age
distribution of in-service product stocks is a key input to
calculations of both the NES and NPV, because operating costs for any
year depend on the age distribution of the stock.
---------------------------------------------------------------------------
\224\ DOE uses data on manufacturer shipments as a proxy for
national sales, as aggregate data on sales are lacking. In general,
one would expect a close correspondence between shipments and sales.
---------------------------------------------------------------------------
DOE developed shipment projections based on historical data and an
analysis of key market drivers for each product. DOE estimated NWGF and
MHGF shipments by projecting shipments in three market segments: (1)
replacement of existing consumer furnaces; (2) new housing; and (3) new
owners in buildings that did not previously have a NWGF or MHGF or
existing NWGF or MHGF owners that are adding an additional consumer
furnace.\225\ DOE also considered whether standards that require more
efficient consumer furnaces would have an impact on consumer furnace
shipments, as discussed in section IV.G.2 of this final rule.
---------------------------------------------------------------------------
\225\ The new owners primarily consist of households that add or
switch to NWGFs or MHGFs during a major remodel. Because DOE
calculates new owners as the residual between its shipments model
compared to historical shipments, new owners also include shipments
that switch away from NWGFs or MHGFs.
---------------------------------------------------------------------------
An anonymous commenter stated that with recent shortages, it has
been hard to find air-conditioner or furnace units that meet the ultra-
low NOX requirement in areas that require them. (Anonymous
2, No. 346 at p. 1) The anonymous commenter further recommended that
more resources should be made available to manufacturers so that
availability is no longer an issue. (Id.) The same anonymous commenter
also stated that heat pumps alleviate the issue of not having available
resources to meet ultra-low NOX requirements. (Id.) The same
anonymous commenter referenced a blog from Lee's Air, Plumbing, and
Heating that may serve as a resource for helping residential homeowners
upgrade old furnaces to ultra-low NOX systems. (Id.) In
response, DOE acknowledges recent supply chain constraints but assumes
that all such constraints will be resolved by the first year of
compliance (2029), as such constraints were heavily tied to the COVID-
19 pandemic. DOE assumes that current supply chain issues will not
persist out to 2029 and beyond, given that such issues are already in
the process of resolving and current supply chains are not as
constrained as they were during the pandemic.
The Georgia Gas Authority stated that over the past 15 years, the
average residential natural gas consumption per customer has dropped
from 72 MMBtu per year to 65 MMBtu per year. The Georgia Gas Authority
commented that condensing units are currently 50 percent of the market
and 60 percent of shipped NWGFs. (Georgia Gas Authority, No. 367 at p.
2)
Citing a report from the Bonneville Power Administration, NEEA
stated that 65 percent of gas furnace sales in the Northwest in 2020
were at an efficiency of 95 percent AFUE or higher. Similarly, NEEA
added that less than one-third of gas furnaces sales in the Northwest
are non-condensing, and that this figure has been stable and declining
from 2016 to 2020. (NEEA, No. 368 at p. 3)
The Heartland Institute commented that condensing furnaces capture
more than half the market, with six in ten NWGFs shipped being
condensing models. Accordingly, the commenter argued that the proposed
standards for NWGFs and MHGFs are not needed. (Heartland Institute, No.
376 at p. 2)
APGA asserted that growth in the market share for condensing
furnaces is likely to be higher than DOE's estimate and undermines
DOE's economic justification for further market intervention in the
form of new standards. (APGA, No. 387 at pp. 7-8)
In contrast, NYSERDA further commented that DOE's condensing
furnace national projections are lower than as described in the 2021
HARDI data for the Northeast and New York, which shows 76 percent and
64 percent of natural gas furnace shipments as being condensing
systems, respectively. (Id.) NYSERDA also commented that HARDI sales
data for New York show that over 50 percent of furnaces sold in the
Northeast and over 45 percent of those sold in New York are at 96-
percent AFUE. (NYSERDA, No. 379 at p. 2)
DOE acknowledges the increasing market saturation of condensing
furnaces and has included this trend as part of the shipments analysis
based on historical shipments data. These data do indicate a high
fraction of condensing furnaces in the Northeast.
Evergreen Action commented that condensing furnaces represent about
half of the new purchases on the current market; the other half of
purchases are made by landlords or builders who are not responsible for
the utility bills, or by homeowners who are making a quick decision
when replacing a broken furnace. (Evergreen Action, No. 364 at p. 1) In
response, although DOE acknowledges that a mix of landlords or
homeowners purchase consumer furnaces, the Department bases its
shipments projection on historical shipment and saturation data. DOE
further notes that these observations regarding landlords and builders,
as well as homeowners making quick replacement decisions, are
consistent with DOE's discussion of market failures in section IV.F.8
of this document.
Nortek commented that the proposed furnace standards could lead the
already relatively small retail market for MHGFs to shrink, which could
cause companies to stop making them. The commenter further stated that
this could reduce competition and, in turn, cause problems for
manufactured homeowners who would have to turn to more expensive
alternatives. (Nortek, No. 406 at p. 6)
Mortex commented that DOE's shipments estimates for MHGFs are too
high, and estimating that these values should be closer to 36,000
(consistent with 2021 shipments). In contrast to DOE's projection of
increasing shipments, Mortex forecasted that shipments of MHGFs will
decline, reaching 19,000 by 2040. (Mortex, No. 410 at p. 2)
As discussed in the subsections that fellow, DOE's shipments
projections for MHGFs are based on historical shipment data submitted
to DOE by manufacturers and trade associations and historical and
projected manufactured housing data (existing and new construction), as
described in chapter 9 and appendix 9A of the final rule TSD. Projected
housing trends are based on AEO2023. These data indicate that MHGF
shipments are unlikely to decrease to the level suggested by Mortex,
primarily due to replacements needed for existing manufactured homes.
AGA inquired about how the modeled market correlates to the 2020
RECS data, pointing out that the modeled market
[[Page 87598]]
share of the Pacific Region in 2029 differs from the 2020 RECS data.
(AGA, Public Meeting Transcript, No. 363 at p. 55) In response, DOE
clarifies that it includes market share trends into its analysis, such
that the market shares projected for 2029 will not exactly match 2020
market shares. Furthermore, RECS data represent the market share of the
existing stock, whereas the market share for 2029 represents new
shipments of consumer furnaces.
a. Historical Shipments Data
DOE assembled historical shipments data for NWGFs and MHGFs from
Appliance Magazine for 1954-2012,\226\ AHRI from 1996-2022,\227\ HARDI
from 2013-2022,\228\ and BRG from 2000-2022.\229\ DOE also used the
1992 and 1994-2003 shipments data by State provided by AHRI \230\ and
2004-2009 and 2010-2015 shipments data by North and rest of country
regions provided by AHRI,\231\ as well as HARDI shipments data that is
disaggregated by region and most States to disaggregate shipments by
region. DOE also used CBECS 2018 data and BRG shipments data to
estimate the commercial fraction of shipments. Disaggregated shipments
for MHGFs are not available, so DOE disaggregated MHGF shipments from
the total by using a combination of data from the U.S. Census
232 233 American Housing Survey (AHS),\234\ and RECS.\235\
---------------------------------------------------------------------------
\226\ Appliance Magazine. Appliance Historical Statistical
Review: 1954-2012 (2014).
\227\ Air-Conditioning, Heating, & Refrigeration Institute,
Furnace Historical Shipments Data. (1996-2022) (Available at:
www.ahrinet.org/resources/statistics/historical-data/furnaces-historical-data) (last accessed August 1, 2023).
\228\ Heating, Air-conditioning and Refrigeration Distributors
International (HARDI). DRIVE portal (HARDI Visualization Tool
managed by D+R International until 2022), proprietary Gas Furnace
Shipments Data from 2013-2022 proprietary Gas Furnace Shipments Data
from 2013-2022 provided to Lawrence Berkeley National Laboratory
(LBNL).
\229\ BRG Building Solutions. The North American Heating &
Cooling Product Markets (2023 Edition) (available at:
www.brgbuildingsolutions.com/reports-insights) (last accessed August
1, 2023).
\230\ Air-Conditioning, Heating, and Refrigeration Institute
(formerly Gas Appliance Manufacturers Association). Updated
Shipments Data for Residential Furnaces and Boilers, April 25, 2005
(available at: www.regulations.gov/document/EERE-2006-STD-0102-0138)
(last accessed August 1, 2023).
\231\ Air-Conditioning, Heating, and Refrigeration Institute.
Non-Condensing and Condensing Regional Gas Furnace Shipments for
2004-2009 and 2010-2015 Data Provided to DOE contractors, July 20,
2010, and November 26, 2016.
\232\ U.S. Census Bureau, Manufactured Homes Survey: Annual
Shipments to States from 1994-2022 (available at: www.census.gov/data/tables/time-series/econ/mhs/shipments.html) (last accessed Aug.
1, 2023).
\233\ U.S. Census Bureau, Manufactured Homes Survey: Historical
Annual Placements by State from 1980-2013 (available at:
www.census.gov/data/tables/time-series/econ/mhs/historical-annual-placements.html) (last accessed August 1, 2023).
\234\ U.S. Census Bureau--Housing and Household Economic
Statistics Division, American Housing Survey, multiple years from
1973-2021 (available at: www.census.gov/programs-surveys/ahs/data.html) (last accessed August 1, 2023).
\235\ Energy Information Administration (EIA). Residential
Energy Consumption Survey (RECS), multiple years from 1979-2020
(available at: www.eia.gov/consumption/residential/) (last accessed
August 1, 2023).
---------------------------------------------------------------------------
b. Shipment Projections in No-New-Standards Case
As stated previously, DOE estimated NWGF and MHGF shipments by
projecting shipments in three market segments: (1) replacement of
existing furnaces; (2) new housing; and (3) new owners in buildings
that did not previously have a NWGF or MHGF or existing NWGF or MHGF
owners that are adding an additional consumer furnace. These
projections reflect equipment switching that is occurring without
standards and additions to homes without central heating.
To project furnace replacement shipments, DOE developed retirement
functions from furnace lifetime estimates and applied them to the
existing products in the housing stock, which are tracked by vintage.
DOE calculated replacement shipments using historical shipments and the
lifetime estimates (average 21.5 years). In addition, DOE adjusted
replacement shipments by taking into account demolitions, using the
estimated changes to the housing stock from AEO2023.
To project shipments to the new housing market, DOE utilized a
forecast of new housing construction and historic saturation rates of
furnaces in new housing. DOE used the AEO2023 housing starts and
commercial building floor space projections and data from U.S. Census
Characteristics of New Housing,236 237 Home Innovation
Research Labs Annual Builder Practices Survey,\238\ RECS 2020, AHS
2021, and CBECS 2018 to estimate new construction saturations. DOE also
estimated future furnace saturation rates in new single-family housing
based on a weighted average of values from the U.S. Census Bureau's
Characteristics of New Housing from 1990 through 2022.\239\
---------------------------------------------------------------------------
\236\ U.S. Census. Characteristics of New Housing from 1999-2022
(available at: www.census.gov/construction/chars/) (last accessed
August 1, 2023).
\237\ U.S. Census. Characteristics of New Housing (Multi-Family
Units) from 1973-2022 (available at: www.census.gov/construction/chars/mfu.html) (last accessed August 1, 2023).
\238\ Home Innovation Research Labs (independent subsidiary of
the National Association of Home Builders (NAHB). Annual Builder
Practices Survey (2015-2019) (available at: www.homeinnovation.com/trends_and_reports/data/new_construction) (last accessed August 1,
2023).
\239\ U.S. Census Bureau, Characteristics of New Housing
(available at: www.census.gov/construction/chars/) (last accessed
August 1, 2023).
---------------------------------------------------------------------------
To project shipments to the new-owner market, DOE estimated the new
owners based on the residual shipments from the calculated replacement
and new construction shipments compared to historical shipments over
five years (2016-2020 for this final rule). DOE compared this with data
from Decision Analysts' 2002 to 2019 American Home Comfort Study,\240\
2023 BRG data,\241\ and AHRI's estimated shipments in 2000,\242\ which
showed similar historical fractions of new owners. DOE assumed that the
new-owner fraction would be the 10-year average in 2029 and then
decrease to zero by the end of the analysis period (2058). If the
resulting fraction of new owners is negative, DOE assumed that it was
primarily due to equipment switching or non-replacement and added this
number to replacements (thus reducing the replacements value).
---------------------------------------------------------------------------
\240\ Decision Analysts, 2002, 2004, 2006, 2008, 2010, 2013,
2016, 2019, and 2022 American Home Comfort Study (available at:
www.decisionanalyst.com/Syndicated/HomeComfort/) (last accessed
August 1, 2023).
\241\ BRG Building Solutions. The North American Heating &
Cooling Product Markets (2023 Edition) (available at:
www.brgbuildingsolutions.com/reports-insights) (last accessed August
1, 2023).
\242\ AHRI (formerly GAMA), Furnace and Boiler Shipments data
provided to DOE for Furnace and Boiler ANOPR (Jan. 23, 2002).
---------------------------------------------------------------------------
Table IV.12 shows the fraction of shipments for the replacement,
new construction, and new owner markets in 2029. For NWGFs in
residential applications, 59 percent of shipments are projected to be
in the North and 41 percent in the rest of the country. For NWGFs in
commercial applications, 51 percent of shipments are projected to be in
the North and 49 percent in the rest of the country. For MHGFs, 70
percent of shipments are projected to be in the North and 30 percent in
the rest of the country. See chapter 9 of the final rule TSD for more
details on the shipments analysis.
[[Page 87599]]
Table IV--12 Total and Fraction of Non-Weatherized Gas Furnaces and Mobile Home Gas Furnaces Shipments by Market Segment (Replacements, New
Construction, and New Owners) in 2029
--------------------------------------------------------------------------------------------------------------------------------------------------------
North Rest of country Total
Product class Market segment -------------------------------------------------------------------
Million % Million % Million %
--------------------------------------------------------------------------------------------------------------------------------------------------------
NWGF (Residential).............................. Replacements *.................... 1.412 82 0.948 79 2.360 81
New Construction.................. 0.316 18 0.255 21 0.571 19
-------------------------------------------------------------------
Total.......................... 1.728 100 1.202 100 2.930 100
--------------------------------------------------------------------------------------------------------------------------------------------------------
NWGF (Commercial)............................... Replacements *.................... 0.057 74 0.052 72 0.109 73
New Construction.................. 0.020 26 0.020 28 0.040 27
-------------------------------------------------------------------
Total.......................... 0.077 100 0.072 100 0.149 100
--------------------------------------------------------------------------------------------------------------------------------------------------------
MHGF............................................ Replacements *.................... 0.050 70 0.020 64 0.070 68
New Construction.................. 0.021 30 0.011 36 0.032 32
-------------------------------------------------------------------
Total.......................... 0.071 100 0.031 100 0.102 100
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Includes new owners.
Note: percentages may not add up to 100 percent due to rounding
Regarding the proposed California 2016 Air Quality Management Plan
(AQMP),\243\ which targets ozone-depleting NOX emissions,
DOE notes that the proposed control measure has two components: (1)
implementing the existing Rule 1111 \244\ emission limit of
NOX for residential space heaters; and (2) incentivizing the
replacement of older space heaters with more efficient low-
NOX products, and/or ``green technologies'' such as solar
heating or heat pumps. Incentivizing heat pumps is only one of the
proposed approaches to reduce NOX emissions that were
offered in the plan, but it is unclear how this would trigger actual
market and/or policy changes in the future. Current requirements in
many parts of California for low-NOX and ultra-low-
NOX furnaces could also increase the cost of these furnaces,
but it is currently unclear if it will be enough to drive shipments
towards other heating options (including heat pumps). Thus, it is very
uncertain to what extent installations of heat pumps would increase.
---------------------------------------------------------------------------
\243\ South Coast Air Quality Management District. 2016 Air
Quality Management Plan (AQMP) (available at: www.aqmd.gov/home/air-quality/clean-air-plans/air-quality-mgt-plan/final-2016-aqmp) (last
accessed Feb. 15, 2022).
\244\ See www.aqmd.gov/docs/default-source/rule-book/reg-xi/rule-1111.pdf (last accessed May 31, 2023).
---------------------------------------------------------------------------
For the NOPR, assumptions regarding future policies encouraging
electrification of households were speculative at that time, so such
policies were not incorporated into the shipments projection. For the
final rule, DOE accounted for the 2022 update to Title 24 in California
\245\ and also the decision of the California Public Utilities
Commission to eliminate ratepayer subsidies for the extension of new
gas lines beginning in July 2023. Together, these policies are expected
to lead to the eventual phase-out of NWGFs and MHGFs in new single-
family homes in California. The California Air Resources Board has
adopted a 2022 State Strategy for the State Implementation Plan that
would effectively ban sales of new gas furnaces beginning in 2030.\246\
However, because a final decision on a rule would not happen until
2025, DOE did not include this latter policy in its analysis for the
final rule.
---------------------------------------------------------------------------
\245\ The 2022 update includes heat pumps as a performance
standard baseline for water heating or space heating in single-
family homes, as well as space heating in multi-family homes. Under
the California Code, builders will need to either include one high-
efficiency heat pump in new constructions or subject those buildings
to more-stringent energy efficiency standards.
\246\ See https://ww2.arb.ca.gov/resources/documents/2022-state-
strategy-state-implementation-plan-2022-state-sip-
strategy#:~:text=The%202022%20State%20SIP%20Strategy,all%20nonattainm
ent%20areas%20across%20California (last accessed August 1, 2023).
---------------------------------------------------------------------------
DOE understands that ongoing electrification policies at the
Federal, State, and local levels are likely to encourage installation
of heat pumps in some new homes and adoption of heat pumps in some
homes that currently use NWGFs and MHGFs. However, there are many
uncertainties about the timing and effects of these policies that make
it difficult to fully account for their likely impact on NWGF and MHGF
market shares in the time frame for this analysis (i.e., 2029 through
2058). Nonetheless, DOE has modified some of its projections to attempt
to account for impacts that are most likely in the relevant time frame.
The assumptions are described in chapter 9 and appendix 9A of the final
rule TSD. The changes result in a decrease of NWGF and MHGF shipments
in the no-new-standards case in 2029 compared to the NOPR analysis,
with a corresponding decrease in estimated energy savings resulting
from the standards. DOE acknowledges that electrification policies may
result in a larger decrease in shipments of NWGFs and MHGFs than
projected in this final rule, especially if stronger policies are
adopted in coming years. However, this would occur in the no-new-
amended-standards case and, thus, would only reduce the energy savings
estimated in this rule. For example, if incentives and rebates shifted
five percent of shipments in the no-new-amended-standards case from
NWGFs to heat pumps, then the energy savings estimated and associated
monetized benefits for NWGFs in this rule would decline by
approximately five percent. The estimated consumer impacts are likely
to be similar, however, except that the percentage of consumers with no
impact at a given efficiency level would increase. Nor does DOE expect
that a modest shift in shipments would have a significant effect on
manufacturers. DOE notes that the economic justification for the rule
would be unlikely to significantly change even if DOE were to include
these larger impacts of incentives and rebates in the no-new-standards
case, although the absolute magnitude of the savings might decline.
Regarding this aspect of the July 2022 NOPR, Lennox commented that
Resolution 22-14 (i.e., the 2022 State SIP Strategy in California), the
New York State scoping plan, and the incentives and tax credits for
electric HVAC in the Inflation Reduction Act
[[Page 87600]]
will contribute to additional shifting towards electrification for
heating and cooling. The commenter asserted that DOE should consider
these factors in the shipment estimates and related analysis for
consumer furnaces. (Lennox, No. 389 at p. 3)
In response, as noted in the previous discussion, DOE has accounted
for some policies encouraging the electrification of homes, such as the
2022 update to Title 24 in California. The shipments analysis reflects
these initiatives. With respect to the California 2022 State Strategy
for the State Implementation Plan, a rule specific to NWGFs and MHGFs
is not yet final and remains uncertain at this time. Similarly, the
specific implementation of any incentives or rebates as part of the New
York State Scoping Plan and Inflation Reduction Act remain speculative
at this time. Therefore, DOE did not incorporate either of these
initiatives in the shipments projections for this rulemaking. As DOE
has noted, however, the economic justification for the rule would be
unlikely to change significantly, even if DOE were to include these
larger impacts of incentives and rebates in the no-new-standards case,
although the absolute magnitude of the savings might decline.
Rheem commented that it does not agree with DOE's shipment
projections that predict a 30-percent increase in furnace sales between
2035 and 2050, arguing that they are inaccurate because of the Federal
and State-level policy trends toward electric appliances which is
largely buoyed by manufacturers. (Rheem, No. 394 at p. 2) In response,
DOE clarifies that at the proposed standard levels in the NOPR, total
furnace shipments (NWGFs and MHGFs) only increased by approximately 15
percent between 2035 and 2050, not 30 percent. DOE notes, however, that
it has revised its shipments projection to reflect Federal, State, and
local-level initiatives currently in effect, as described previously,
which results in a smaller increase in furnace sales. Accordingly, for
the final rule shipments projection, total furnace shipments (NWGFs and
MHGFs) are expected to increase by approximately 5 percent between 2035
and 2050.
Atmos Energy commented that the proposed rule would likely reduce
the effectiveness of existing rebate programs, arguing that it would
undermine the overall goals of the energy efficiency program. The
commenter added that the proposed rule would reduce the pool of
customers able to take advantage of available incentive programs.
(Atmos Energy, No. 415 at p. 4) Atmos Energy further stated that it
currently offers conservation and energy efficiency programs in its
Louisiana, Mississippi, Colorado, and Mid-Tex divisions, adding that it
provides financial incentives to purchase high-efficiency natural gas
equipment, smart thermostats, and home weatherization upgrades. Atmos
Energy stated that in 2020, 1.39 million therms of natural gas were
conserved and 8,117 tons of CO2 emissions were avoided
annually as a result of energy efficiency programs. (Atmos Energy, No.
415 at p. 5) In response, DOE acknowledges that rebate programs
incentivizing the purchase of higher efficiency condensing furnaces
will no longer be needed after energy conservation standards for
consumer furnaces come into effect.
2. Impact of Potential Standards on Shipments
a. Impact of Equipment Switching
DOE applied the consumer choice model described in section IV.F.10
of this document to estimate the impact on NWGF and MHGF shipments of
product switching that may be incentivized by potential standards. The
options available to each sample household or building are to purchase
and install: (1) the NWGF or MHGF that meets a particular standard
level, (2) a heat pump, or (3) an electric furnace.\247\
---------------------------------------------------------------------------
\247\ DOE also accounted for situations when installing a
condensing furnace could leave an ``orphaned'' gas storage water
heater that would require expensive re-sizing of the vent system.
Rather than incurring this cost, the consumer could choose to
purchase an electric storage water heater along with a new furnace.
---------------------------------------------------------------------------
As applied in the LCC and PBP analyses, the consumer choice model
considers product prices in the compliance year and energy prices over
the lifetime of products installed in that year. The shipments model
considers the switching that might occur in each year of the analysis
period (2029-2058). To do so, DOE estimated the switching in the first
year of the analysis period (2029) and derived trends from 2029 to
2058. First, DOE applied the NWGF and MHGF product price trend
described in section IV.F.1 of this document to project prices in 2058.
DOE used the appropriate energy prices over the lifetime of products
installed in each year. Although the inputs vary, the decision criteria
were the same in each year. For each considered standard level, the
number of NWGFs or MHGFs shipped in each year is equal to the base
shipments in the no-new-standards case minus the number of NWGF or MHGF
buyers who switch to either a heat pump or an electric furnace. The
shipments model also tracks the number of additional heat pumps and
electric furnaces shipped in each year.
b. Impact of Repair vs. Replace
As discussed in section IV.F.11 of this document, for this final
rule, DOE estimated a fraction of both NWGF and MHGF replacement
installations that choose to repair their equipment, rather than
replace their equipment or switch to a heat pump or electric furnace,
in the new standards case. The approach captures not only a decrease in
NWGF and MHGF replacement shipments, but also the energy use from
continuing to use the existing furnace and the cost of the repair. For
purposes of this analysis, DOE assumes that the demand for space
heating is inelastic and, therefore, that no modeled household or
commercial building will forgo either repairing or replacing their
equipment (either with a new NWGF of MHGF or a suitable space-heating
alternative). While DOE recognizes that edge cases exist, DOE believes
that its analytical assumption of inelasticity is representative of the
vast majority of households.
For details on DOE's shipments analysis, product and fuel
switching, and the repair option, see chapter 9 of the final rule TSD.
H. National Impact Analysis
The NIA assesses the national energy savings (NES) and the NPV from
a national perspective of total consumer costs and savings that would
be expected to result from new or amended energy conservation standards
at specific efficiency levels.\248\ (``Consumer'' in this context
refers to consumers of the product being regulated.) DOE calculates the
NES and NPV for the potential standard levels considered based on
projections of annual product shipments, along with the annual energy
consumption and total installed cost data from the energy use and LCC
analyses.\249\ For the present analysis, DOE projected the energy
savings, operating cost savings, product costs, and NPV of consumer
benefits over the lifetime of NWGFs and MHGFs sold from 2029 through
2058.
---------------------------------------------------------------------------
\248\ The NIA accounts for impacts in the 50 States and U.S.
territories.
\249\ For the NIA, DOE adjusts the installed cost data from the
LCC analysis to exclude sales tax, which is a transfer.
---------------------------------------------------------------------------
DOE evaluates the impacts of new or amended standards by comparing
a case without such standards with standards-case projections. The no-
new-standards case characterizes energy use and consumer costs for each
product class in the absence of new or amended energy conservation
standards. For this
[[Page 87601]]
projection, DOE considers historical trends in efficiency and various
forces that are likely to affect the mix of efficiencies over time. DOE
compares the no-new-standards case with projections characterizing the
market for each product class if DOE adopted new or amended standards
at specific energy efficiency levels (i.e., the TSLs or standards
cases) for that class. For the standards cases, DOE considers how a
given standard would likely affect the market shares of products with
efficiencies greater than the standard. In the standards cases, a small
fraction of households will replace the furnace a second time within
the 30-year analytical period of the NIA. For these households, the
installation cost adders for going from a non-condensing furnace to a
condensing furnace are not applied in the standards cases for the
second replacement, as the household will already have a condensing
furnace.
DOE uses a spreadsheet model to calculate the energy savings and
the national consumer costs and savings from each TSL. AEO2023 is the
source of the energy price trends as well as other inputs to the NIA
such as projected housing starts and new commercial building floor
space, heating and cooling degree day projections, and building shell
efficiency projections. Interested parties can review DOE's analyses by
changing various input quantities within the spreadsheet. The NIA
spreadsheet model uses typical values (as opposed to probability
distributions) as inputs.
Table IV.13 summarizes the inputs and methods DOE used for the NIA
analysis for the final rule. Discussion of these inputs and methods
follows the table. See chapter 10 of the final rule TSD for further
details.
Table IV.13--Summary of Inputs and Methods for the National Impact
Analysis
------------------------------------------------------------------------
Inputs Method
------------------------------------------------------------------------
Shipments.................... Annual shipments from shipments model.
Compliance Date of Standard.. 2029.
Efficiency Trends............ No-new-standards case: Based on
historical data.
Standard cases: Roll-up in the compliance
year (except for EL 1, 90-percent AFUE
for NWGFs as described below) and then
DOE estimated growth in shipment-
weighted efficiency in all the standards
cases, except max-tech.
Annual Energy Consumption per Annual weighted-average values are a
Unit. function of energy use at each TSL.
Incorporates projection of future energy
use based on AEO2023 projections for HDD/
cooling degree days (CDD) and building
shell efficiency index.
Total Installed Cost per Unit Annual weighted-average values are a
function of cost at each TSL.
Incorporates projection of future
product prices based on historical data.
Repair and Maintenance Cost Annual weighted-average values vary by
per Unit. efficiency level.
Energy Price Trends.......... AEO2023 projections (to 2050) and
extrapolation thereafter. Natural gas
and electricity marginal prices based on
EIA and RECS 2020 and CBECS 2018 billing
data.
Energy Site-to-Primary and A time-series conversion factor based on
FFC Conversion. AEO2023.
Discount Rate................ Three and seven percent.
Present Year................. 2023.
------------------------------------------------------------------------
1. Product Efficiency Trends
A key component of the NIA is the trend in energy efficiency
projected for the no-new-standards case and each of the standards
cases. Section IV.F.8 of this document describes how DOE developed an
energy efficiency distribution for the no-new-standards case (which
yields a shipment-weighted average efficiency) for each of the
considered product classes for the year of anticipated compliance with
an amended or new standard (2029). To project the trend in efficiency
absent amended standards for NWGFs and MHGFs over the entire shipments
projection period, DOE extrapolated the historical trends in efficiency
that were described in section III.F.8 of this document. These trends
are based on industry shipment data from AHRI and HARDI and include a
near 100-percent saturation of condensing furnaces in the North region.
For this final rule, DOE estimated that the national market share of
condensing products would grow from 61 percent in 2029 to 71 percent by
2058 for NWGFs, and from 34 percent to 48 percent for MHGFs during
those same years. The market shares of the different condensing
efficiency levels (i.e., 90-, 92-, 95-, and 98-percent AFUE for NWGFs
and 92-, 95-, and 96-percent AFUE for MHGFs) are maintained in the same
proportional relationship as in 2029. The approach is further described
in appendix 8I and chapter 10 of the final rule TSD.
For the standards cases, DOE used a ``roll-up'' scenario to
establish the shipment-weighted efficiency for the year that standards
are assumed to become effective (2029). In this scenario, the market
shares of products in the no-new-standards case that do not meet the
standard under consideration would ``roll up'' to meet the new standard
level, and the market share of products above the standard would remain
unchanged. In the standards case with a 90-percent AFUE national
standard, DOE estimated that many consumers will purchase a 92-percent
AFUE NWGF rather than a 90-percent AFUE furnace because the extra
installed cost is minimal, and the market has already moved
significantly toward the 92-percent AFUE level. To develop standards-
case efficiency trends after 2029, DOE estimated growth in shipment-
weighted efficiency in the standards cases, except in the max-tech
standards case.
2. National Energy Savings
The national energy savings analysis involves a comparison of
national energy consumption of the considered products between each
potential standards level (TSL) case and the case with no new or
amended energy conservation standards. DOE calculated the national
energy consumption by multiplying the number of units (stock) of each
product (by vintage or age) by the unit energy consumption (also by
vintage). DOE calculated annual NES based on the difference in national
energy consumption for the no-new-standards case and for each higher-
efficiency standards case. DOE estimated energy consumption and savings
based on site energy and converted the electricity consumption
[[Page 87602]]
and savings to primary energy (i.e., the energy consumed by power
plants to generate site electricity) using annual conversion factors
derived from AEO2023. For natural gas and LPG, DOE assumed that site
energy consumption is the same as primary energy consumption.
Cumulative energy savings are the sum of the NES for each year over the
timeframe of the analysis.
The per-unit annual energy use is adjusted with the building shell
improvement index, which results in a decline of three percent in the
heating load from 2029 to 2058, and the climate index, which results in
a decline of nine percent in the heating load.
DOE incorporated a rebound effect for NWGFs and MHGFs by reducing
the site energy savings (and the associated FFC energy savings) in each
year by 15 percent. However, for commercial applications, DOE applied
no rebound effect in order to be consistent with other recent standards
rulemakings (see section IV.F.3 of this document).
In the standards cases, there are fewer shipments of NWGFs or MHGFs
compared to the no-new-standards case because of product switching and
repair vs. replaced, but there are additional shipments of heat pumps,
electric furnaces, and electric water heaters. DOE incorporated the
per-unit annual energy use of the heat pumps and electric furnaces that
was calculated in the LCC and PBP analyses (based on the specific
sample households that switch to these products) into the NIA model.
NYSERDA expressed support for DOE's methodology and approaches used
for this NOPR, particularly around the rebound effect, stating that it
is consistent with documented behaviors. The commenter further stated
agreement with DOE's use of the 15-percent estimate for rebound effect.
(NYSERDA, No. 379 at pp. 11-12) DOE agrees and maintains a 15-percent
rebound effect estimate for the final rule.
NYSERDA recommended that DOE should qualitatively discuss the
indirect rebound effect in the rebound section of the TSD. (NYSERDA,
No. 379 at p. 13)
In response, DOE acknowledges that indirect rebound (increased
energy consumption by consumers in other areas due to the monetary
savings from efficiency standards) may be a factor warranting
consideration in the context of amended energy conservation standards
for the subject furnaces, but quantifying such a macroeconomic effect
is particularly challenging and subject to inherently large
uncertainties. However, regardless of the specific magnitude of this
effect, DOE notes that it is very likely to be welfare-increasing even
if energy savings are reduced.\250\
---------------------------------------------------------------------------
\250\ For example, see www.journals.uchicago.edu/doi/abs/10.1093/reep/rev017?journalCode=reep (last accessed August 1, 2023).
---------------------------------------------------------------------------
In the standards cases, there are fewer shipments of NWGFs or MHGFs
compared to the no-new-standards case because of product switching and
product repairs, but there are also additional shipments of heat pumps,
electric furnaces, and electric water heaters. DOE incorporated the
per-unit annual energy use of the heat pumps and electric furnaces that
was calculated in the LCC and PBP analyses (based on the specific
sample households that switch to these products) into the NIA model.
In 2011, in response to the recommendations of a committee on
``Point-of-Use and Full-Fuel-Cycle Measurement Approaches to Energy
Efficiency Standards'' appointed by the National Academy of Sciences,
DOE announced its intention to use FFC measures of energy use and
greenhouse gas and other emissions in the national impact analyses and
emissions analyses included in future energy conservation standards
rulemakings. 76 FR 51281 (August 18, 2011). After evaluating the
approaches discussed in the August 18, 2011 announcement, DOE published
a statement of amended policy in which DOE explained its determination
that EIA's National Energy Modeling System (NEMS) is the most
appropriate tool for its FFC analysis and its intention to use NEMS for
that purpose. 77 FR 49701 (August 17, 2012). NEMS is a public domain,
multi-sector, partial equilibrium model of the U.S. energy sector \251\
that EIA uses to prepare its Annual Energy Outlook. The FFC factors
incorporate losses in production and delivery in the case of natural
gas (including fugitive emissions) and additional energy used to
produce and deliver the various fuels used by power plants. The
approach used for deriving FFC measures of energy use and emissions is
described in appendix 10A of the final rule TSD.
---------------------------------------------------------------------------
\251\ For more information on NEMS, refer to The National Energy
Modeling System: An Overview 2023, DOE/EIA-0581(2023) (available at:
www.eia.gov/forecasts/aeo/index.cfm) (last accessed August 1, 2023).
---------------------------------------------------------------------------
3. Net Present Value Analysis
The inputs for determining the NPV of the total costs and benefits
experienced by consumers are: (1) total annual installed cost; (2)
total annual operating costs (energy costs and repair and maintenance
costs), and (3) a discount factor to calculate the present value of
costs and savings. DOE calculates net savings each year as the
difference between the no-new-standards case and each standards case in
terms of total savings in operating costs versus total increases in
installed costs. DOE calculates operating cost savings over the
lifetime of each product shipped during the projection period.
As discussed in section IV.F.1 of this document, DOE developed NWGF
and MHGF price trends based on historical PPI data. DOE applied the
same trends to project prices for each product class at each considered
efficiency level. DOE's projection of product prices is described in
appendix 10C of the final rule TSD.
To evaluate the effect of uncertainty regarding the price trend
estimates, DOE investigated the impact of different product price
projections on the consumer NPV for the considered TSLs for NWGFs and
MHGFs. In addition to the default price trend, DOE considered two
product price sensitivity cases: (1) a high-price-decline case based on
PPI data from 1990-2006 and (2) a constant-price-trend case. The
derivation of these price trends and the results of these sensitivity
cases are described in appendix 10C of the final rule TSD.
As described in section IV.H.2 of this document, DOE assumed a 15-
percent rebound from an increase in utilization of the product arising
from the increase in efficiency (i.e., the direct rebound effect). In
considering the economic impact on consumers due to the direct rebound
effect, DOE accounted for change in consumer surplus attributed to
additional heating/comfort from the purchase of a more-efficient unit.
Overall consumer surplus is generally understood to be enhanced from
rebound. The net consumer impact of the rebound effect is included in
the calculation of operating cost savings in the consumer NPV results.
See appendix 10G of the final rule TSD for details on DOE's treatment
of the monetary valuation of the rebound effect.
The operating cost savings are energy cost savings, which are
calculated using the estimated energy savings in each year and the
projected price of the appropriate form of energy. To estimate energy
prices in future years, DOE multiplied the average regional energy
prices by the projection of annual national-average residential energy
price changes in the Reference case from AEO2023, which has an end year
of 2050. To estimate price trends after 2050, DOE used the average
annual rate of change in prices from 2045 through 2050. As part of the
NIA, DOE also analyzed scenarios that used inputs from variants of the
AEO2023 Reference
[[Page 87603]]
case that have lower and higher economic growth. Those cases have lower
and higher energy price trends compared to the Reference case. NIA
results based on these cases are presented in appendix 10D of the final
rule TSD.
In considering the consumer welfare gained due to the direct
rebound effect, DOE accounted for change in consumer surplus attributed
to additional heating from the purchase of a more efficient unit.
Overall consumer welfare is generally understood to be enhanced from
rebound. The net consumer impact of the rebound effect is included in
the calculation of operating cost savings in the consumer NPV results.
See appendix 10G of the final rule TSD for details on DOE's treatment
of the monetary valuation of the rebound effect.
In calculating the NPV, DOE multiplies the net savings in future
years by a discount factor to determine their present value. For this
final rule, DOE estimated the NPV of 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.\252\ The discount rates for the determination of
NPV are in contrast to the discount rates used in the LCC analysis,
which are designed to reflect a consumer's perspective. The 7-percent
real value is an estimate of the average before-tax rate of return to
private capital in the U.S. economy. The 3-percent real value
represents the ``social rate of time preference,'' which is the rate at
which society discounts future consumption flows to their present
value.
---------------------------------------------------------------------------
\252\ United States Office of Management and Budget, Circular A-
4: Regulatory Analysis (Sept. 17, 2003) Section E (available at:
obamawhitehouse.archives.gov/omb/circulars_a004_a-4/) (last accessed
August 1, 2023).
---------------------------------------------------------------------------
I. Consumer Subgroup Analysis
In analyzing the potential impact of new or amended energy
conservation standards on consumers, DOE evaluates the impact on
identifiable subgroups of consumers that may be disproportionately
affected by a new or amended national standard. The purpose of a
subgroup analysis is to determine the extent of any such
disproportional impacts. DOE evaluates impacts on particular subgroups
of consumers by analyzing the LCC impacts and PBP for those particular
consumers from alternative standard levels. For this final rule, DOE
analyzed the impacts of the considered standard levels on three
subgroups: (1) low-income households, (2) senior-only households, and
(3) small businesses. The analysis used subsets of the RECS 2020 sample
composed of households that meet the criteria for the considered
subgroups. DOE used the LCC and PBP spreadsheet model to estimate the
impacts of the considered efficiency levels on these subgroups. Chapter
11 in the final rule TSD describes the consumer subgroup analysis.
1. Low-Income Households
Low-income households are significantly more likely to be renters
and/or live in subsidized housing units, compared to homeowners. DOE
notes that in these cases, the landlord purchases the equipment and may
pay the gas bill as well. RECS 2020 includes data on whether a
household pays for the gas bill, allowing DOE to categorize households
appropriately in the analysis.\253\ For this consumer subgroup
analysis, DOE considers the impact on the low-income household
narrowly, excluding any costs or benefits that are accrued by either a
landlord or subsidized housing agency. This allows DOE to determine
whether low-income households are disproportionately affected by an
amended energy conservation standard in a more representative manner.
DOE takes into account a fraction of renters that face costly product
switching, that is, when landlords switch to products that have lower
upfront costs but higher operating costs, which will be incurred by
tenants. Table IV.19 summarizes the low-income statistics and potential
impacts. For the low-income subgroup, renters account for more than
half of the NWGF installations and close to thirty percent of the MHGF
installations.
---------------------------------------------------------------------------
\253\ RECS 2020 includes a category for households that pay only
some of the gas bill. For the low-income consumer subgroup analysis,
DOE assumes that these households pay 50 percent of the gas bill,
and, therefore, would receive 50 percent of operating cost benefits
of an amended energy conservation standard.
Table IV.19--Low-Income Subgroup Characteristics and Potential Net Benefits
----------------------------------------------------------------------------------------------------------------
Percentage of low-income
Type of household * (pay for sample * Benefits from energy Responsibility for
gas?) ** -------------------------------- cost savings incremental cost
NWGF MHGF
----------------------------------------------------------------------------------------------------------------
Renters (Pay for Gas Bill).. 43.0 27.8 Full.................... None.
Renters (Pay for Part of Gas 1.5 0.0 Partial savings......... None.
Bill).
Renters (Do Not Pay for Gas 8.6 2.0 None.................... None.
Bill).
Owners (Pay for Gas Bill)... 45.9 64.3 Full.................... Full.
Owners (Pay for Part of Gas 0.1 0.0 Partial savings......... Full.
Bill).
Owners (Do Not Pay for Gas 0.9 5.9 None.................... Full.
Bill).
----------------------------------------------------------------------------------------------------------------
* RECS 2020 lists three categories: (1) Owned or being bought by someone in your household (classified as
``Owners'' in this table); (2) Rented (classified as ``Renters'' in this table); (3) Occupied without payment
of rent (also classified as ``Renters'' in this table). Therefore, renters include occupants in subsidized
housing including public housing, subsidized housing in private properties, and other households that do not
pay rent. RECS 2020 does not distinguish homes in subsidized or public housing.
** RECS 2020 lists four categories: (1) Household is responsible for paying for all used in this home; (2) All
used in this home is included in the rent or condo fee; (3) Some is paid by the household, some is included in
the rent or condo fee; and (4) Paid for some other way. ``Pay for Gas Bill'' includes only category (1); all
other categories are included in ``Don't Pay for Gas Bill.'' Note that DOE also takes into account if the
occupant pays for electricity, as for some higher-efficiency options, electricity use can vary compared to
baseline equipment.
Atmos Energy commented that in fulfilling its statutory
obligations, DOE cannot rely on potential external measures to mitigate
the negative impacts of its standards, including rebate programs so as
to improve its analytical outcomes and reduce the burden on low-income
households. (Atmos Energy, No. 415 at p. 3)
In response, DOE clarifies that it does not rely on potential
measures, such as rebate programs, to justify a standard. These
measures are not part of the low-income subgroup analysis. DOE merely
[[Page 87604]]
notes their possible existence, which would improve the assessed
impacts to low-income households as presented in section V.B of this
document.
MHI commented that it stands ready to work with DOE to ensure that
standards for consumer furnaces do not negatively impact potential
manufactured homeowners. (MHI, No. 365 at p. 5)
In response, DOE analyzed the impact of the considered amended
energy conservation standards on manufactured-home households,
including low-income manufactured-home households, and the Department
has concluded that these standards are economically justified, as
discussed in section V.C of this document.
Measures of energy insecurity provide another accounting of the
number of households that are affected by cost changes due to rules for
heating equipment energy efficiency in addition to the senior-only and
low-income categories used by DOE in this analysis. Energy insecurity
in the 2020 RECS quantifies the households reporting one or more of the
metrics for energy insecurity, including that they that are forgoing
basic necessities to pay for energy, and that they leave their home at
an unhealthy temperature due to energy cost. The energy insecurity data
are disaggregated by heating equipment type, income category, race,
ethnicity, presence of children, presence of seniors, regional
distribution, and ownership/rental status. DOE has determined that the
energy-insecure designation captures more households than the low-
income and seniors-only categories used for distributional analysis.
Similar PBP and net savings/net cost analysis applied to energy
insecure households could result in larger impacts than for the
categories DOE chose to analyze and may be more directly interpreted in
terms of welfare changes that can be disaggregated by the factors
already listed.
Commenting on the NOPR, a number of commenters opposed the proposed
rule based on, in part, the potential impacts to low-income households.
Southwest Gas Corporation commented that for low-income and
vulnerable populations, the appliance replacement and retrofit costs
would be a financial burden. Southwest estimated that the NOPR would
not be economically justifiable for a majority of its customers.
(Southwest, No. 353 at p. 2)
The Georgia Gas Authority recognized the importance of appliance
efficiency but argued that energy conservation standards should not
sacrifice the well-being of low-income families to achieve such goals.
(The Georgia Gas Authority, No. 367 at p. 2)
NGA of Georgia stated that DOE's proposed rule would place an undue
burden on those who can afford it the least, including seniors and low-
income consumers. (NGA of Georgia, No. 380 at p. 1) The commenter more
specifically argued that the rule would unfairly impact low- and fixed-
income homeowners and renters, seniors, and small businesses. NGA of
Georgia added that low- and fixed-income homeowners are less likely to
purchase a new home and, thus, would be forced to endure costly
retrofit installations. Additionally, the commenter stated, that low-
and fixed-income homeowners typically live in smaller spaces requiring
less energy to heat, which diminishes the value of a high-efficiency
product in such applications. Further, NGA of Georgia stated that low-
income renters would be forced to deal with increased rent when
landlords try to recoup the high cost of retrofitting apartments with
condensing furnaces. (NGA of Georgia, No. 380 at p. 2)
APGA claimed that DOE's analysis shows that low-income households
fare much worse than average consumers under the proposed rule. APGA
further claimed that DOE has not fully accounted for the impacts on
low-income residents. The commenter asserted that regional differences
in the impact of the proposed rule would create even more unfavorable
results for low-income households in certain negatively affected
regions; for example, the South, where APGA has many members, would be
expected to be more adversely affected than average. APGA further
argued that the impact of fuel switching on low-income households is
not clear in the NOPR. (APGA, No. 387 at pp. 45-47)
Spencer and Dayaratna stated that the amended standards proposed in
the July 2022 NOPR will unjustifiably reduce consumer choice. The
commenters added that the economic value of energy efficiency is best
determined by individual consumers and businesses. The commenters also
added that the flexibility to assess individual economic tradeoffs is
even more important to low-income Americans, citing statements from OMB
and research studies. Spencer and Dayaratna argued that a nine-year
payback period may not make sense for many Americans who would be
better served by having additional resources available for food or
housing. The commenters opined that DOE should not compel Americans to
take on these extra costs or degrade the livability of their homes.
(Spencer and Dayaratna, No. 390 at pp. 8-9)
Black Hills Energy commented that, if adopted, the proposed rule
would negatively impact individual homeowners, including senior and
low-income households, small business, and the overall furnace market.
The commenter stated that DOE should not issue a rule with such
negative impacts as those described in the proposal that would affect
low-income households, seniors, and energy insecure consumers. (Black
Hills Energy, No. 397 at pp. 1-2)
PHCC commented that energy insecurity is a significant concern and
that access to gas products and non-condensing products remains an
important solution to this issue. (PHCC, No. 403 at p. 5)
AHRI stated that the impacts of a full condensing furnace standards
would fall disproportionately on lower-income and senior households.
AHRI referenced a statement from MHI that the median income for mobile
home purchasers is $35,000 and that manufactured homeowners comprise a
disproportionate amount of the Nation's fixed-income citizens and
first-time homebuyers. (AHRI, No. 414-2 at p. 3)
Atmos Energy commented that DOE should amend the proposed furnace
standards to address the significant adverse impacts on low-income
households, adding that DOE's assessment on this matter is
insufficient. (Atmos Energy, No. 415 at p. 2) Atmos Energy further
commented that the proposed rule burdens low-income households because
it would cause an increase in furnace costs. Atmos Energy stated that
condensing furnaces cost consumers around $1,300 more than non-
condensing furnaces, adding that this increase in cost would burden
homeowners and place upward pressure on rents by adding to maintenance
costs. (Atmos Energy, No. 415 at p. 3)
Several commenters expressed concern regarding the July 2022 NOPR's
potential impacts on housing affordability and consumers. AGA et al.,
The Coalition, The Heartland Institute, Plastics Pipe Institute, ACCA,
and DCA all commented that the proposed rule would have significant
adverse impacts, especially on low-income or fixed-income households,
seniors, energy insecure consumers, small businesses, and/or the
overall furnace market. (AGA et al., No. 391 at p. 1; The Coalition,
No. 378 at p. 2; The Heartland Institute, No. 376 at pp. 1-2; Plastics
Pipe Institute, No. 404 at p. 1; ACCA, No. 398 at pp. 1-2; DCA, No. 372
at pp. 1-2) Strauch objected to the life-cycle methodology of DOE's
proposed rulemaking due to concerns about consumer impacts. (Strauch,
No. 366 at p. 1) Strauch stated
[[Page 87605]]
that poorer individuals or those with fixed incomes may not be able to
afford the up-front investment that would allow them access to the
future dollar savings of a more-efficient product. (Id.) Strauch also
noted that the elderly population similarly may not live long enough to
recover these additional costs through energy savings. (Id.) Strauch
also argued that the July 2022 NOPR will reduce consumer choice. (Id.)
MTNGUD, WMU, Consumer Energy Alliance, LANGD, Georgia Gas
Authority, and the Heartland Institute stated that the potential
negative impacts of the proposals in the July 2022 NOPR on consumers,
including senior-only households, low-income households, and small
business consumers, are inconsistent with the Biden-Harris
Administration's priority of achieving environmental justice in Federal
programs. (MTNGUD, No. 350 at p. 1; WMU, No. 350 at p. 1; Consumer
Energy Alliance, No. 354 at p. 1; LANGD, No. 355, at p. 1; Georgia Gas
Authority, No 367 at p. 2; The Heartland Institute, No. 376 at p. 1)
Also, several commenters noted that manufactured housing provides a
source of affordable homeownership, which is impacted by this
rulemaking. (Nortek, No. 406 at p. 5; MHI, No. 344 at p. 1; MHI, Public
Meeting Webinar Transcript, No. 363 at p. 25-29; MHI, No. 365 at p. 1)
Nortek commented that the median annual income of manufactured
homeowners is below the national average, and that these individuals
and families make up a larger group of America's fixed-income citizens
and first-time homebuyers. Nortek stated that this makes the
demographic more vulnerable to changes that could price them out of the
homebuying market. (Nortek, No. 406 at p. 5) MHI similarly argued that
the July 2022 NOPR could reduce the affordability of manufactured homes
without providing substantial energy-efficiency or cost-saving
benefits. (MHI, No. 344 at p. 1; MHI, Public Meeting Webinar
Transcript, No. 363 at pp. 25-27) Also, MHI asserted that should
furnaces become less affordable, some manufactured housing owners may
switch to less efficient and less safe heating methods. (MHI, No. 365
at p. 1) Nortek further stated that additional regulation that
increases the cost to purchase or maintain a home could prevent some
financially vulnerable consumers from achieving homeownership. (Nortek,
No. 406 at p. 2) The Coalition commented that, given current housing
prices, many potential homebuyers have been priced out of the market.
(The Coalition, No. 378 at p. 3) The Coalition also stated that these
proposed standards place added pressure on households that are
simultaneously struggling with rapidly rising prices for food,
utilities, transportation, and other basic needs. (Id.)
In contrast, a number of other commenters supported the proposed
rule based on, in part, the potential benefits to low-income
households.
NCEL stated that outdated and inefficient gas furnaces generate
high energy bills that particularly burden lower-income households. The
State legislators commented that heating bills are one of the biggest
energy expenses for most households, and those with inefficient gas
furnaces face annual average heating bills of about $700. Furthermore,
NCEL stated that increasing gas furnace efficiency will go a long way
towards easing the burden of energy costs. (NCEL, No. 359 at p. 1)
GHHI stated that due to historic underinvestment in low-income
communities of color, residents often lack the resources to fix their
aging and deteriorating homes, leading to poor insulation, drafts, and
outdated HVAC systems. Consequently, GHHI stated that low-income
communities, disproportionately of Black, Hispanic, and Native
backgrounds, end up paying three times as much of their income on
energy bills compared to those with higher income. (GHHI, No. 371 at p.
2) While GHHI acknowledged that newer appliances have greater upfront
costs, GGHI argued that the savings from reduced utility costs mean the
payback period from low-income families averages just over two years.
(GHHI, Public Meeting Webinar Transcript, No. 363 at p. 18) The State
Agencies commented that a 95-percent AFUE would help to decrease the
energy burden for low-income households that spend a large portion of
their income on energy bills. (State Agencies, No. 375 at p. 2)
NYSERDA commented that, based on their review of DOE's LCC
analysis, the commenter has concluded that for New York and the rest of
the U.S., establishing a standard at TSL 8 would yield significant
consumer benefits that outweigh potential costs, especially for low-
income consumers and those living in disadvantaged communities.
(NYSERDA, No. 379 at p. 3) The commenter stated that DOE's LCC analysis
demonstrates the importance of this standard for low-income households.
NYSERDA further commented that it found that adopting TSL 8 would not
unfairly burden low-income or disadvantaged communities in the
Northeast but instead would provide significant benefits, especially to
renters who pay for utility bills. (NYSERDA, No. 379 at pp. 6-7)
NYSERDA commented that in September 2022, Con Edison reported that,
for that winter, electricity bills in their territory are expected to
increase by 22 percent (to an average of $116 per month), and natural
gas bills are expected to increase by 32 percent (to an average of $460
per month). NYSERDA emphasized the importance of transitioning to more
efficient appliances for the general New York population, especially
low-income households. (NYSERDA, No. 379 at p. 6)
NCLC et al. commented on a 2021 analysis by the Pew Research
Center, stating that 60 percent of those in the lowest income quartile
are renters and that only 10 percent of households in the highest
income quartile rent. NCLC et al. added that since tenants cannot
dictate the efficiency of furnaces that owners purchase, strong
standards are often the only way to ensure that tenants will benefit
from having efficient furnaces. (NCLC et al., No. 383 at pp. 4-5)
The Pennsylvania Groups commented in support of improved efficiency
standards because they expect that such standards would help reduce
energy burden disparities for systematically marginalized communities
across the Commonwealth. These commenters stated that communities of
color and low-income families face high energy burdens and often
struggle to afford and maintain energy services to their homes. (The
Pennsylvania Groups, No. 396 at p. 2)
The Pennsylvania Groups stated that to achieve baseline
affordability standards, a family's total housing costs--including
utility costs--should account for no more than 30 percent of the
household's total income. These commenters further stated that
throughout Pennsylvania, families living at or below 150 percent of the
Federal Poverty Line spend as much as 29 percent of their income on
utility costs alone. (The Pennsylvania Groups, No. 396 at p. 2)
The Pennsylvania Groups stated that these households often forgo
other basic necessities in order to pay their heating bills, and when
they cannot keep up with payments, their heat is shut off. These
commenters further stated that this shut-off creates serious risks to
the health and well-being of family members and threatens stable
employment and education. (The Pennsylvania Groups, No. 396 at p. 3)
The Pennsylvania Groups commented that low-income and BIPOC (Black,
Indigenous, and People of Color) residents disproportionately occupy
[[Page 87606]]
older, lower-quality housing, and these homes are more likely to use
less-efficient, natural gas-fueled appliances. These commenters stated
that Pennsylvania has some of the oldest housing stock in the country
and that 55 percent of homes are heated with gas or propane. The
Pennsylvania Groups pointed out that renters may bear even more of the
negative impacts of wasteful furnaces than homeowners. (The
Pennsylvania Groups, No. 396 at p. 3) They stated that the increased
demand for rental housing and escalating rental costs have resulted in
a market with limited access to safe, healthy, and quality housing,
with significant cost burdens to low-income households. (The
Pennsylvania Groups, No. 396 at pp. 3-4)
The Pennsylvania Groups stated that their Commonwealth has over
435,000 low-income renters whose home heating is up to their landlords.
Additionally, these commenters stated that the estimated savings under
DOE's proposed standard would be a significant amount to low-income
families. (The Pennsylvania Groups, No. 396 at p. 4)
Climate and Health Coalition stated that high heating bills can
force a terrible choice upon consumers between paying for heat and
other necessities, particularly for low-income households which pay
three times as much of their incomes on energy costs than non-low-
income households and are disproportionately Black, Hispanic, and
Native American. (Climate and Health Coalition, No. 399 at p. 4)
The NCLC commented that low-income rental properties are more
likely to have less-efficient furnaces and pass the associated larger
energy bill on to tenants. (NCLC, Public Meeting Webinar Transcript,
No. 363 at pp. 8-10)
NEEA stated that the proposals in the July 2022 NOPR will improve
equitable outcomes by ensuring that rental units have efficient
heating, thereby benefiting the larger portion of lower-income rental
units, and better insulating lower-income households from variable
energy prices. (NEEA, No. 368 at pp. 3-4) The Joint Efficiency
Commenters stated that DOE's analysis shows that the majority of
consumers, and especially low-income consumers, will benefit from the
proposed standard level for MHGFs. (Joint Efficiency Commenters, No.
381 at p. 5) Climate Smart Missoula et al. stated that DOE's proposal
would lead to health benefits through the emissions reductions and by
lowering utility bills for low-to-moderate income households, thereby
freeing up resources that can be spent on food and medicine. (Climate
Smart Missoula et al., No. 393 at pp. 1-2) NCLC commented that
increased efficiency standards will benefit low-income families by
lowering utility bills and mitigating harms caused by global warming,
which provides both pocketbook savings and health benefits. (NCLC et
al., No. 383 at p. 2)
CFA stated that all of the conclusions about consumer benefits in
the aggregate (i.e., payback period less than half the appliance
lifetime, many more consumers with net benefits than with net costs,
and individual who benefit having larger gains than the losses of
individuals who do not) apply to low-income consumers as well. (CFA,
Public Meeting Webinar Transcript, No. 363 at p. 20)
PSEA stated that high-efficiency condensing furnaces dramatically
reduced the energy costs of low-income Philadelphians while also
reducing indoor air pollution, and stated that the proposed standards
would bring tremendous financial benefits and health benefits to low-
income people nationwide. (PSEA, Public Meeting Webinar Transcript, No.
363 at p. 37)
In response, DOE acknowledges the importance of considering the
potential impacts on low-income households from energy conservation
standards for consumer furnaces. As discussed in further detail in
section V.C of this document, DOE concludes that low-income households
are not disproportionately negatively impacted compared to the national
average. DOE's analysis takes into account a variety of factors, as
described in detail in section IV.F of this document, that are
important to consider for low-income households, including typical
equipment price, installation costs, furnace sizing, heating load,
discount rate. DOE also considers the possibility of equipment
switching to alternative options that meet all safety requirements. DOE
finds no evidence that consumers are likely to switch to less-safe
heating methods, and even if some consumers do so, such switching is
likely to be very rare.
A significantly higher fraction of low-income households are
renters compared to the national average. Renters are unlikely to be
responsible for the selection and purchase of a consumer furnace but
are often responsible for energy costs. The main LCC results assume all
equipment costs are ultimately paid for by the household, as an upper-
bound estimate of costs paid for by each household, and the low-income
subgroup analysis represent a lower-bound estimate by assuming no
passthrough. DOE did not make this upper-bound assumption in the low-
income subgroup analysis in order to better understand the likely
impacts on this specific subgroup, excluding the impact to landlords,
who are not part of the low-income subgroup. There is no evidence DOE
is aware of that suggests a price increase on the installation of a
consumer furnace, paid for by a landlord, would be passed down to any
significant extent to low-income renters. Rental markets are a separate
market determined by their own supply and demand, and low-income rents
can be further restricted by local requirements or subsidies. There are
some indications that premium, efficient appliances can result in
higher rents, but this correlation mostly applies to premium rental
properties, not low-income households. Therefore, DOE assumes that
landlords are very likely to bear the increased installation costs, not
the low-income renter households.
The main LCC results and the low-income subgroup results provide an
upper and lower bound on the likely impacts to low-income renter
households, either assuming 100 percent of equipment and installation
costs are passed through to renters or 0 percent of costs are passed
through. Even if costs are passed through to renters to some extent in
practice, DOE concludes that low-income renters are very likely to
disproportionately benefit from an energy conservation standard for
consumer furnaces as a result of significant operating cost savings.
DOE acknowledges that for low-income owner households, there are some
consumers with a net LCC cost and some households with a net LCC
savings. Those are included as part of the overall low-income subgroup
results. In addition, these results are all considered as part of DOE's
evaluation of economic justification, balancing the various burdens and
benefits of a potential standard.
ACCA recommended that DOE should focus on educating and
incentivizing homeowners to demand that HVAC systems are installed
according to the industry's recommended minimum standards (including
proper equipment sizing, duct redesign and sealing, and appropriate
refrigerant charge levels). (ACCA, No. 398 at p. 2) ACCA commented that
implementing such changes would result in a 25 to 30 percent efficiency
improvement and would result in fewer negative consumer impacts. (Id.)
APGA asserted that to the extent that a landlord incurs net costs
under the proposed rule, landlords will flow those cost increases
through to their low-income tenants, but DOE's methodology
intentionally excludes that negative
[[Page 87607]]
impact in its analysis. APGA argued that DOE's failure even to try to
consider how much of the cost will be passed down to low-income renters
is unreasonable. (APGA, No. 387 at pp. 47-48)
As discussed previously, DOE does not agree with comments asserting
that furnace cost increases will pass through to low-income tenants.
DOE is not aware of any evidence to suggest this is the case. Rental
markets are a separate market and not dictated by the cost of furnace
(especially low-income rental properties), particularly when all rental
properties are subject to the same energy conservation standards for
furnaces, and, thus, there is no differentiation between rental
properties based on the installed furnace. Furthermore, even if some
fraction of total installed costs were passed through to tenants
through rent increases, the benefits of a higher-efficiency furnace
would still vastly outweigh the costs. Any increase in rent would be
averaged over many months and years, such that increases in first cost
for lower income households would be constrained with higher than
average discount rates.
DOE also notes that a program based on educating and incentivizing
homeowners is highly unlikely to achieve the level of energy savings in
this rule, as evaluated in the discussion of alternative programs to
energy conservation standards, presented in chapter 17 of the final
rule TSD.
AGA claimed that the reported percentage impacts for low-income
consumers only include the results of low-income renters that pay their
gas bills. According to the commenter, the remainder of low-income
households is substantial and includes owner-occupied units and renters
that do not pay their bills. AGA stated that the inclusion of fuel
switching in the overall LCC savings significantly impacts the total
and average LCC savings for low-income and senior households. AGA also
pointed out that low-income consumers in four separate regions have
negative LCC savings under a no-switching scenario. (AGA, No. 405 at
pp. 98-102)
In response, DOE notes that the commenter's assertions are
incorrect. The low-income subgroup results include all low-income
households that meet the definition, including renters (both renters
who pay and who do not pay their energy bills) and owner-occupied
households. A significant fraction of low-income households are
renters, as shown in section IV.I of this document. For owner-occupied
low-income households, DOE acknowledges that some households will
experience a net savings and that some will experience a net cost, but
the Department considers this distribution of impacts, including
regional variability, in its evaluation of economic justification. DOE
has also considered all of the product switching sensitivity scenarios
as part of its evaluation. DOE acknowledges there is a range of
potential impacts across these scenarios, but as discussed in section
V.C of this document, they do not alter DOE's conclusions.
NCP pointed out that in DOE's LCC analysis, savings were negative
for housing types with more than five units, which are frequently
occupied by consumers with lower incomes. (NCP, No. 370 at p. 2)
In response and as noted previously, DOE has conducted its main LCC
analysis to assume 100 percent of total installed costs of a standards-
compliant furnace are passed through to renters. Again, this is likely
to provide a very conservative estimate of the impacts to renters,
including those who live in housing types with more than five units.
However, when assuming that the landlord is likely to bear most if not
all of these costs, those households disproportionately benefit from an
energy conservation standard for consumer furnaces.
Atmos Energy commented that the proposed rule burdens low-income
households because of the physical differences that become more
problematic in multifamily dwelling units and smaller or older homes.
The commenter elaborated that when switching to a condensing furnace,
there are physical design changes required in the house, such as larger
cabinets, different venting/combustion air intake systems, and the
addition of condensate drain systems. (Atmos Energy, No. 415 at p. 3)
As discussed in more detail in section IV.F of this document, DOE
accounts for a variety of factors in its analysis, including the need
for different venting/combustion air intake systems and possible
alterations such as larger cabinets, and installation of condensate
drain systems. These factors are considered for all households,
including low-income households.
Atmos Energy commented that the proposed rule burdens low-income
households because eliminating more affordable classes of furnaces that
can be accommodated without renovations would make furnace replacements
out of reach for many households with modest incomes. The commenter
added that this would advantage wealthier households that can afford to
replace less-efficient furnaces with newer models and reap the
accompanying energy savings benefits. (Atmos Energy, No. 415 at p. 3)
As discussed previously, DOE acknowledges that total installed
costs for a standards-compliant furnace is expected to increase, but
the commenter fails to acknowledge that operating costs will decrease.
DOE evaluates the full impact on households, including both the initial
total installed costs and operating costs, when evaluating economic
justification. DOE acknowledges that some low-income households may
have a particularly high discount rate, and this is reflected in the
discount rate distribution for the lowest income bin (see section
IV.F.7 of this document). DOE also has no evidence that the majority of
low-income households who are renters who will to be burdened with an
increase in total installed costs, and, thus, DOE disagrees with the
assertion that the rule is primarily advantageous to wealthier
households.
The Coalition commented that regulatory requirements, including the
amended standards proposed in the July 2022 NOPR, collectively create a
substantial financial burden for the development and rehabilitation of
housing. The commenter pointed to studies suggesting that regulatory
requirements account for almost 25 percent of the average cost of a new
single-family home and account for an average of 40.6 percent of the
total development costs of new multi-family communities. The Coalition
argued that these proposed furnace standards would add to these
regulatory burdens. (The Coalition, No. 378 at pp. 3-4)
The Coalition further commented that the proposed furnace standards
would have adverse impacts on housing providers, renters, and
manufacturers by effectively eliminating non-condensing furnaces as an
option for home heating. The Coalition added that these standards would
increase the cost of a furnace, stating that condensing furnaces cost
consumers approximately $1,300 more than non-condensing furnaces. The
commenter predicted that this additional cost would need to be absorbed
by new home buyers and would increase maintenance costs, arguing that
these added costs would be significant for households with modest
incomes and providers of affordable housing. (The Coalition, No. 378 at
p. 4)
In response, DOE notes that installation cost of a 95-percent AFUE
furnace in new construction can be less expensive than the installation
cost of an 80-percent AFUE furnace, as discussed in section IV.F.2 of
this document. This is primarily due to
[[Page 87608]]
lower costs to install venting systems in new construction, with
shorter vent lengths and without the need to remove an existing venting
system. Despite this, market data show that 80-percent AFUE furnaces
continue to be installed in new construction. Therefore, DOE does not
agree that an energy conservation standard will have an adverse impact
on builders or housing providers, nor will it negatively impact the
development of more affordable housing options. To the extent that an
amended energy conservation standard for consumer furnaces adds to
total construction costs, which are then absorbed by new home buyers,
that is included in DOE's analysis. Those new home buyers would then
also benefit from reduced operating costs as part of the LCC analysis.
Finally, other regulatory requirements on builders and developers would
apply in both the no-new-standards case as well as the new-standards
case, and, therefore, such requirements do not factor in DOE's
analysis.
NGA of Georgia stated that the proposed rule would negatively
impact Georgians and reduce competition. The commenter stated that the
proposal disproportionately prioritizes uncertain CO2
emissions reductions over the broader negative impacts to consumers.
NGA of Georgia argued that affordability, end-user utility, and
resiliency cannot be deprioritized in favor of increased emissions
reductions. (NGA of Georgia, No. 380 at p. 1)
In response, DOE acknowledges that some fraction of consumers will
experience net savings, whereas others will experience net costs. DOE's
analyses account for regional variation, and consumers in different
States (as represented in the RECS and CBECS surveys) are represented
in the LCC. Thus, DOE's evaluation of economic justification considers
a distribution showing the full range of consumer impacts. DOE further
notes that its conclusions would be the same even without considering
the monetized benefits of emissions reductions. Accordingly, DOE
concludes that affordability, end-user utility, and resiliency will not
be negatively impacted by the standards being adopted in this final
rule.
ACCA expressed concern that a landlord will not see a return on
their cost for a more expensive but higher efficiency furnace. ACCA
argued that landlords will likely turn to alternative heating options
resulting in increased monthly utility bills for their tenants and
additional safety concerns. (ACCA, No. 398 at p. 3) DOE notes that this
comment is not specific to the low-income subgroup. In the main LCC
results, the product switching analysis includes examples of households
experiencing higher operating costs after switching to lower cost
electric alternatives. The product switching analysis only considers
alternative options that meet all safety requirements.
Joint Efficiency Commenters stated that there are other energy
efficiency programs that can help offset the costs of switching to a
higher-efficiency gas furnace or electric heating system, adding that
there are particular programs for low- and moderate-income households.
These commenters further stated that these types of programs would
reduce the number of low-income consumers that may be
disproportionately impacted by the proposed standard. (Joint Efficiency
Commenters, No. 381 at p. 3)
NCLC et al. commented that with passage of the Inflation Reduction
Act, Public Law 117-169, there will be funding to help consumers
install efficient heating products, as well as assistance from rebate
and subsidy programs offered by many State agencies and utility
companies. Furthermore, NCLC et al. agreed that there will often be
programs available for mitigating the cost impact of purchasing and
installing efficient furnaces, particularly for low-income households.
(NCLC et al., No. 383 at p. 7)
In response, DOE acknowledges that rebate and incentive programs
may assist low-income owner households with the purchase of more-
efficient consumer furnaces. However, as discussed in section IV.G of
this document, the implementation details of such future programs
remain unknown at the time of the analysis, and DOE did not include
them in its analysis. However, DOE notes that if such programs were to
be deployed after the compliance date of an amended standard, the
consumer benefits of the amended standards would be even higher. If
such programs were implemented prior to the compliance date of an
amended standard, incentivizing low-income households to adopt more
efficient furnaces, such households would no longer be impacted by the
amended standard.
NCLC et al. commented that the proposed TSL 8 standard will
significantly reduce greenhouse gas and other emissions, adding that
this reduction will benefit low-income households and racial
minorities. (NCLC et al., No. 383 at p. 7) DOE agrees with this
comment.
J. Manufacturer Impact Analysis
1. Overview
DOE performed an MIA to estimate the financial impacts of amended
energy conservation standards on manufacturers of NWGFs and MHGFs and
to estimate the potential impacts of such standards on domestic
employment, manufacturing capacity, and cumulative regulatory burden
for those manufacturers. The MIA has both quantitative and qualitative
aspects. The quantitative part of the MIA includes analyses of
projected industry cash flows, the INPV, additional investments in
research and development (R&D) and manufacturing capital necessary to
comply with amended standards, and the potential impact on domestic
manufacturing employment. Additionally, the MIA seeks to qualitatively
determine how amended energy conservation standards might affect
manufacturing capacity and competition, as well as how standards
contribute to manufacturers' overall regulatory burden. Finally, the
MIA serves to identify any disproportionate impacts on manufacturer
subgroups, including small business manufacturers.
The quantitative part of the MIA primarily relies on the Government
Regulatory Impact Model (GRIM),\254\ an industry cash-flow model with
inputs specific to this rulemaking. The key GRIM inputs include data on
the industry cost structure, unit production costs, product shipments,
manufacturer markups, and investments in R&D and manufacturing capital
required to produce compliant products. The key GRIM outputs are the
INPV, which is the sum of industry annual cash flows over the analysis
period, discounted using the industry-weighted average cost of capital,
and the impact on domestic manufacturing employment. The model uses
standard accounting principles to estimate the impacts of amended
energy conservation standards on the NWGF and MHGF manufacturing
industry by comparing changes in INPV and domestic manufacturing
employment between the no-new-standards case and the various standards
cases (i.e., TSLs). To capture the uncertainty relating to manufacturer
pricing strategies following amended standards, the GRIM estimates a
range of possible impacts under different markup scenarios.
---------------------------------------------------------------------------
\254\ A copy of the GRIM spreadsheet tool is available on the
DOE website for this rulemaking: www1.eere.energy.gov/buildings/appliance_standards/standards.aspx?productid= 59&action=viewlive.
---------------------------------------------------------------------------
The qualitative part of the MIA addresses manufacturer
characteristics
[[Page 87609]]
and market trends. Specifically, the MIA considers such factors as a
potential standard's impact on manufacturing capacity, competition
within the industry, the cumulative regulatory burden impact of other
DOE and non-DOE regulations, and impacts on manufacturer subgroups. The
complete MIA is outlined in chapter 12 of the final rule TSD.
DOE conducted the MIA for this rulemaking in three phases. In Phase
1 of the MIA, DOE prepared a profile of the NWGF and MHGF manufacturing
industry based on the market and technology assessment, preliminary
manufacturer interviews, and publicly-available information. This
included a top-down cost analysis of NWGF and MHGF manufacturers that
DOE used to derive preliminary financial inputs for the GRIM (e.g.,
revenues; materials, labor, overhead, and depreciation expenses;
selling, general, and administrative expenses (SG&A); R&D expenses; and
tax rates). DOE also used public sources of information to further
calibrate its initial characterization of the NWGF and MHGF
manufacturing industry, including company filings of form 10-K from the
SEC,\255\ corporate annual reports, the U.S. Census Bureau's Annual
Survey of Manufactures (ASM),\256\ and prior NWGF and MHGF rulemakings,
as well as subscription-based market research tools (i.e., reports from
Dun & Bradstreet \257\).
---------------------------------------------------------------------------
\255\ U.S. Securities and Exchange Commission's Electronic Data
Gathering, Analysis, and Retrieval system (EDGAR) database
(available at: www.sec.gov/edgar/search/) (last accessed August 1,
2023).
\256\ U.S. Census Bureau's Annual Survey of Manufactures: 2018-
2021 (available at: www.census.gov/programs-surveys/asm/data/tables.html) (last accessed August 1, 2023).
\257\ The Dun & Bradstreet Hoovers subscription login is
accessible online at: app.dnbhoovers.com/login (last accessed August
1, 2023).
---------------------------------------------------------------------------
In Phase 2 of the MIA, DOE prepared a framework industry cash-flow
analysis to quantify the potential impacts of new or amended energy
conservation standards. The GRIM uses several factors to determine a
series of annual cash flows starting with the announcement of the
standard and extending over a 30-year period following the compliance
date of the standard. These factors include annual expected revenues,
costs of sales, SG&A and R&D expenses, taxes, and capital expenditures.
In general, energy conservation standards can affect manufacturer cash
flow in three distinct ways: (1) creating a need for increased
investment; (2) raising production costs per unit, and (3) altering
revenue due to higher per-unit prices and changes in sales volumes.
In addition, during Phase 2, DOE developed interview guides to
distribute to manufacturers of NWGF and MHGF in order to develop other
key GRIM inputs, including product and capital conversion costs, and to
gather additional information on the anticipated effects of amended
energy conservation standards on revenues, direct employment, capital
assets, industry competitiveness, and manufacturer subgroup impacts.
In Phase 3 of the MIA, DOE's contractor conducted structured,
detailed interviews with representative NWGF and MHGF manufacturers.
These interviews discussed engineering, manufacturing, procurement, and
financial topics to validate assumptions used in the GRIM. The
interviews also solicited information about manufacturers' views of the
industry as a whole and their key concerns regarding this rulemaking.
DOE's contractor conducted manufacturer interviews for the withdrawn
March 2015 NOPR. DOE's contractor conducted additional abridged
interviews in October 2021 for the purposes of updating analyses. As
part of Phase 3, DOE also evaluated subgroups of manufacturers that may
be disproportionately impacted by amended standards or that may not be
accurately represented by the average cost assumptions used to develop
the industry cash-flow analysis. Such manufacturer subgroups may
include small business manufacturers, low-volume manufacturers, niche
players, and/or manufacturers exhibiting a cost structure that largely
differs from the industry average, all of whom could be more negatively
affected by amended energy conservation standards. DOE identified one
subgroup for a separate impact analysis: small business manufacturers.
The small business subgroup is discussed in section VI.B, ``Review
Under the Regulatory Flexibility Act,'' of this document and in chapter
12 of the final rule TSD.
2. Government Regulatory Impact Model and Key Inputs
DOE uses the GRIM to quantify the changes in cash flows over time
due to amended energy conservation standards that result in a higher or
lower INPV for the standards cases as compared to the no-new-standards
case. The GRIM uses a standard, annual discounted cash-flow analysis
that incorporates manufacturer costs, manufacturer markups, shipments,
and industry financial information as inputs. The GRIM models changes
in costs, distribution of shipments, investments, and manufacturer
margins that could result from an amended energy conservation standard.
The GRIM spreadsheet uses the inputs to arrive at a series of annual
cash flows, beginning in 2023 (the base year of the analysis) and
continuing to 2058 (the terminal year of the analysis). DOE calculated
INPVs by summing the stream of annual discounted cash flows during this
period. For manufacturers of NWGFs and MHGFs, DOE used a real discount
rate of 6.4 percent, which was derived from industry corporate annual
reports and public filings to the Securities and Exchange Commission
(SEC 10-Ks) and then modified according to feedback received during
manufacturer interviews.
Many GRIM inputs came from the engineering analysis, the NIA,
manufacturer interviews, and other research conducted during the MIA.
The major GRIM inputs are described in detail in the following
sections.
The GRIM results are presented in section V.B.2 of this document.
Additional details about the GRIM, the discount rate, and other
financial parameters can be found in chapter 12 of the final rule TSD.
a. Manufacturer Production Costs
Manufacturing more efficient products is typically more expensive
than manufacturing baseline products due to the use of more complex
components, which are typically more costly than baseline components.
The changes in the MPCs of covered products can affect the shipments,
revenue, gross margins, and cash flow of the industry. To calculate the
MPCs for NWGFs and MHGFs at and above the baseline, DOE performed
teardowns for representative units. The data generated from these
analyses were then used to estimate the incremental materials, labor,
depreciation, and overhead costs for products at each efficiency level.
For a complete description of the MPCs, see section IV.C of this
document or chapter 5 of the final rule TSD.
b. Shipments Projections
The GRIM estimates industry revenues based on total unit shipment
projections and the distribution of those shipments by efficiency level
and product class. Changes in sales volumes and efficiency mix over
time can significantly affect manufacturer finances. For this analysis,
the GRIM uses the NIA's annual shipment projections derived from the
shipments analysis from 2023 (the base year) to 2058 (the end year of
the analysis period). In the shipments analysis, DOE estimates the
distribution of efficiencies
[[Page 87610]]
in the no-new-standards case and standards cases for all product
classes. To account for a regional standard at TSL 4, shipment values
in the GRIM are broken down by region, North and rest of country, for
the NWGF and MHGF product classes.
The NIA assumes that product efficiencies in the no-new-standards
case that do not meet the energy conservation standard in the standards
case either ``roll up'' to meet the amended standard or switch to
another product, such as a heat pump or electric furnace. In other
words, the market share of products that are below the energy
conservation standard is added to the market share of products at the
minimum energy efficiency level allowed under each standard case. The
market share of products above the amended energy conservation standard
is assumed to be unaffected by that standard in the compliance year.
For a complete description of the shipments analysis, see section IV.G
of this document and chapter 9 of the final rule TSD.
c. Capital and Product Conversion Costs
Amended energy conservation standards could cause manufacturers to
incur one-time conversion costs to bring their production facilities
and product designs into compliance. DOE evaluated the level of
conversion-related expenditures that would be needed to comply with
each considered efficiency level in each product class. For the MIA,
DOE classified these conversion costs into two major groups: (1)
capital conversion costs; and (2) product conversion costs. Capital
conversion costs are one-time investments in property, plant, and
equipment necessary to adapt or change existing production facilities
such that new, compliant product designs can be fabricated and
assembled. Product conversion costs are one-time investments in
research, development, testing, marketing, and other non-capitalized
costs necessary to make product designs comply with amended energy
conservation standards.
To evaluate the level of capital conversion costs manufacturers
would likely incur to comply with amended energy conservation
standards, DOE used manufacturer interviews to gather data on the
anticipated level of capital investment that would be required at each
efficiency level. Manufacturer data were aggregated to better reflect
the industry as a whole and to protect confidential information. DOE
then scaled up the capital conversion cost feedback from interviews to
estimate total industry capital conversion costs.
DOE assessed the product conversion costs at each considered AFUE
efficiency level by integrating data from quantitative and qualitative
sources. DOE considered market-share weighted feedback regarding the
potential costs at each efficiency level from multiple manufacturers to
estimate product conversion costs. Once again, manufacturer data were
aggregated to better reflect the industry as a whole and to protect
confidential information.
DOE adjusted the conversion cost estimates developed in support of
the July 2022 NOPR to 2022$ for this analysis. Industry conversion
costs for the adopted standard total $162.0 million. It consists of
$117.3 million in capital conversion costs and $44.8 million in product
conversion costs.
In general, DOE assumes all conversion-related investments occur
between the year of publication of the final rule and the year by which
manufacturers must comply with the new standard. The conversion cost
figures used in the GRIM can be found in section V.B.2 of this
document. For additional information on the estimated capital and
product conversion costs, see chapter 12 of the final rule TSD.
d. Manufacturer Markup Scenarios
MSPs include direct manufacturing production costs (i.e., labor,
materials, and overhead estimated in DOE's MPCs) and all non-production
costs (i.e., SG&A, R&D, and interest), along with profit. To calculate
the MSPs in the GRIM, DOE applied manufacturer markups to the MPCs
estimated in the engineering analysis for each product class and
efficiency level. Modifying these manufacturer markups in the standards
case yields different sets of impacts on manufacturers. For the MIA,
DOE modeled two standards-case scenarios to represent uncertainty
regarding the potential impacts on prices and profitability for
manufacturers following the implementation of amended energy
conservation standards: (1) a preservation of gross margin percentage
scenario; and (2) a tiered scenario.\258\ These scenarios lead to
different manufacturer markup values that, when applied to the MPCs,
result in varying revenue and cash flow impacts. The industry cash-flow
analysis results in section V.B.2 of this document present the impacts
of the upper and lower bound manufacturer markup scenarios on INPV. For
the proposed AFUE standards, the preservation of gross margin
percentage scenario represents the upper bound scenario, and the tiered
scenario represents the lower bound scenario for INPV impacts.
---------------------------------------------------------------------------
\258\ DOE analyzed the preservation of per-unit operating profit
scenario for the proposed standby mode and off mode standards in the
July 2022 NOPR. DOE is not analyzing the preservation of per-unit
operating profit scenario for this final rule, as DOE is not
adopting the standby mode/off mode power standards for NWGFs/MHGFs
proposed in the July 2022 NOPR at this time.
---------------------------------------------------------------------------
Under the preservation of gross margin percentage scenario, DOE
applied a single uniform ``gross margin percentage'' markup across all
efficiency levels, which assumes that following amended standards,
manufacturers would be able to maintain the same amount of profit as a
percentage of revenues at all efficiency levels within a product class.
As production costs increase with efficiency, this scenario implies
that the per-unit dollar profit will increase. Based on publicly
available financial information for NWGF and MHGF manufacturers, as
well as comments from manufacturer interviews, DOE assumed average
gross margin percentages of 25.3 percent for NWGFs and 21.3 percent for
MHGF.\259\ Manufacturers noted that this scenario represents the upper
bound of the NWGF and MHGF industry's profitability in the standards
case because manufacturers can fully pass on additional costs due to
standards to consumers.
---------------------------------------------------------------------------
\259\ The gross margin percentages correspond to manufacturer
markups of 1.34 for NWGFs and 1.27 for MHGFs.
---------------------------------------------------------------------------
DOE also modeled a tiered scenario, which reflects the industry's
``good, better, best'' pricing structure. DOE implemented the tiered
markup scenario because several manufacturers stated in interviews that
they offer multiple tiers of product lines that are differentiated, in
part, by efficiency level. Manufacturers further noted that tiered
pricing encompasses additional differentiators such as comfort
features, brand, and warranty. To account for this nuance in the GRIM,
DOE's tiered mark-up structure incorporates both AFUE and combustion
systems (e.g., single-stage, two-stage, and modulating combustion
systems) into its ``good, better, best'' markup analysis.
Multiple manufacturers suggested that amended standards could lead
to a compression of overall mark-ups and reduce the profitability of
higher-efficiency products. During interviews, manufacturers provided
information on the range of typical manufacturer mark-ups in the
``good, better, best'' tiers. DOE used this information to estimate
manufacturer mark-ups for NWGFs and MHGFs under a tiered pricing
strategy in the no-new-standards case. In the standards cases, DOE
modeled the
[[Page 87611]]
situation in which amended standards result in a reduction of product
differentiation, compression of the markup tiers, and an overall
reduction in profitability.
A comparison of industry financial impacts under the two scenarios
is presented in section V.B.2.a of this document.
K. Emissions Analysis
The emissions analysis consists of two components. The first
component estimates the effect of potential energy conservation
standards on power sector and site (where applicable) combustion
emissions of CO2, NOX, SO2, and Hg.
The second component estimates the impacts of potential standards on
emissions of two additional greenhouse gases, CH4 and
N2O, as well as the reductions in emissions of other gases
due to ``upstream'' activities in the fuel production chain. These
upstream activities comprise extraction, processing, and transporting
fuels to the site of combustion.
The analysis of electric power sector emissions of CO2,
NOX, SO2, and Hg uses emissions intended to
represent the marginal impacts of the change in electricity consumption
associated with amended or new standards. The methodology is based on
results published for the AEO, including a set of side cases that
implement a variety of efficiency-related policies. The methodology is
described in appendix 13A in the final rule TSD. The analysis presented
in this document uses projections from AEO2023. Power sector emissions
of CH4 and N2O from fuel combustion are estimated
using Emission Factors for Greenhouse Gas Inventories published by the
Environmental Protection Agency (EPA).\260\
---------------------------------------------------------------------------
\260\ Available at: www.epa.gov/sites/production/files/2021-04/documents/emission-factors_apr2021.pdf (last accessed August 1,
2023).
---------------------------------------------------------------------------
The on-site operation of the subject consumer furnaces requires
combustion of fossil fuels and results in emissions of CO2,
NOX, SO2, CH4, and N2O
where these products are used. Site emissions of these gases were
estimated using Emission Factors for Greenhouse Gas Inventories and,
for NOX and SO2, emissions intensity factors from
an EPA publication.\261\
---------------------------------------------------------------------------
\261\ U.S. Environmental Protection Agency. External Combustion
Sources. In Compilation of Air Pollutant Emission Factors. AP-42.
Fifth Edition. Volume I: Stationary Point and Area Sources. Chapter
1 (available at: www.epa.gov/air-emissions-factors-and-quantification/ap-42-compilation-air-emissions-factors#Proposed/)
(last accessed August 1, 2023).
---------------------------------------------------------------------------
FFC upstream emissions, which include emissions from fuel
combustion during extraction, processing, and transportation of fuels,
and ``fugitive'' emissions (direct leakage to the atmosphere) of
CH4 and CO2, are estimated based on the
methodology described in chapter 15 of the final rule TSD.
The emissions intensity factors are expressed in terms of physical
units per MWh or MMBtu of site energy savings. For power sector
emissions, specific emissions intensity factors are calculated by
sector and end use. Total emissions reductions are estimated using the
energy savings calculated in the national impact analysis.
GHHI stated that the reductions in nitrous oxide emissions will
create more than $21 billion in health benefits from reduced medical
spending on treatment and improved economic productivity. (GHHI, No.
371 at p. 2)
NCLC et al. commented that reducing the combustion of natural gas
in furnaces would reduce emissions of CO2, nitrogen oxides,
and methane, which in turn would yield health benefits. NCLC et al.
further commented that these benefits are important for low-income
communities and racial minorities, stating that these groups already
experience higher rates of negative health outcomes, have limited
healthcare access, and struggle with higher amounts of medical debt.
These commenters added that the reduction of heating-energy bills would
further benefit low-income households who are forced to cut back on
other necessities to pay energy bills. (NCLC et al., No. 383 at p. 8)
Climate and Health Coalition expressed support for the eventual
elimination of gas use within the home, and during the transition,
Climate and Health Coalition stated that DOE's proposed rule would
reduce pollutants that harm human health, reduce climate change
emissions, and save all customers (including disadvantaged and low-
income communities) money. (Climate and Health Coalition, No. 399 at p.
1) Climate and Health Coalition further commented that exposure to air
pollutants caused by burning natural gas contributes to premature
mortality and increased risk for illness, including ischemic heart
disease, stroke, chronic obstructive pulmonary disease (COPD), lung
cancer, heart attack, type-2 diabetes, headache, fatigue,
unconsciousness, lower-respiratory infections, and even death. (Climate
and Health Coalition, No. 399 at pp. 1-3) Additionally, these
commenters stated that there is a growing body of evidence showing an
association between long-term exposure to air pollution and adverse
birth outcomes. (Climate and Health Coalition, No. 399 at pp. 1-2)
Furthermore, Climate and Health Coalition stated that air pollution can
exacerbate asthma and cardiopulmonary symptoms, are associated with
upper respiratory infections and cough, increase lower respiratory
tract illnesses, and reduce lung function in children. (Climate and
Health Coalition, No. 399 at pp. 2-3)
In response, DOE acknowledges the potential health and climate
benefits of reducing emissions and continues to estimate site and power
plant emissions reductions for CO2, CH4,
N2O, NOX, SO2, and Hg in this final
rule.
APGA expressed concerned that DOE's assumed fuel sulfur content
leads to overstatements of SO2 emissions from on-site
operation of furnaces, especially as utilities across the country can
have much less total sulfur in their gas and still meet odorant
requirements. (APGA, No. 387 at pp. 29-30)
DOE acknowledges that there is some uncertainty in the sulfur
content of fuel. However, the resulting site emission reductions of
SO2 are over an order of magnitude smaller than the
corresponding increases in SO2 emissions due to increased
electricity consumption in the amended standards case, and, therefore,
any changes to the sulfur content assumptions would have very little
impact on overall results and would not alter DOE's evaluation of
economic justification.
APGA noted that EPA is in the process of promulgating regulations
to impose a methane fee (i.e., a charge on methane emissions from the
petroleum and natural gas sector, where methane emissions from an
applicable facility (upstream of gas distribution) exceed a pre-
determined waste emissions threshold). APGA argued that given that such
a fee would reduce methane emissions, DOE's estimates are likely
overstated and must be recalculated to account for the impact of EPA's
new methane fee. (APGA, No. 387 at p. 30)
In response, DOE notes that its estimates of emissions reductions,
including methane, are based on various projections from the latest
AEO. AEO's methodology incorporates all regulations affecting the
energy sector, if they are finalized. If a rule is proposed but not yet
finalized, it will not be incorporated into the reference case of AEO,
as it may ultimately differ from its proposed rule (or not be
finalized). Should EPA finalize a regulation regarding a methane fee,
it will be incorporated into future publications of AEO. AEO2023 does
not incorporate this regulation. DOE notes that, even if methane
emissions were lower than estimated in this final rule, the
[[Page 87612]]
Department's conclusions regarding economic justification and
technological feasibility of the rule would be the same.
Spencer and Dayaratna cited a report from the U.S. Environmental
Protection Agency indicating that U.S. air quality has been improving
for decades, suggesting that this weakens DOE's finding that the air
quality benefits associated with DOE's proposal would outweigh the
costs. (Spencer and Dayaratna, No. 390 at pp. 5-6)
In response, DOE notes that this assertion is incorrect. DOE
acknowledges that air quality is generally improving, but this would
occur in the no-new-standards case as well as the new-standards-case.
DOE's analysis specifically considers the difference between the two
cases (i.e., emissions reductions from an energy conservation standard
on consumer furnaces only). This difference between the no-new-
standards and new-standards cases is the same regardless of the
background air quality. Furthermore, DOE incorporates projections from
AEO with respect to the fuel mix of future electricity generation,
which includes a greater fraction of renewable sources with no
emissions. Therefore, improving emissions from the power sector are
included in DOE's analysis.
Atmos Energy commented that DOE's analysis should differentiate
between the carbon dioxide emissions from natural gas-fueled and
propane-fueled furnaces and evaluate them separately. (Atmos Energy,
No. 415 at p. 7)
DOE acknowledges that propane and natural gas have different carbon
dioxide emissions. However, this difference is orders of magnitude
smaller than the total emissions reductions estimated in the analysis.
Furthermore, as discussed in section V.C of this document, DOE comes to
the same conclusions with or without taking into consideration the
impact of emissions reductions, and, therefore, any adjustments to the
emissions analysis for propane would not change DOE's conclusions.
1. Air Quality Regulations Incorporated in DOE's Analysis
DOE's no-new-standards case for the electric power sector reflects
the AEO, which incorporates the projected impacts of existing air
quality regulations on emissions. AEO2023 generally represents current
legislation and environmental regulations, including recent government
actions, that were in place at the time of preparation of AEO2023,
including the emissions control programs discussed in the following
paragraphs.\262\
---------------------------------------------------------------------------
\262\ For further information, see the Assumptions to AEO2023
report that sets forth the major assumptions used to generate the
projections in the Annual Energy Outlook (available at: www.eia.gov/outlooks/aeo/assumptions/) (last accessed August 1, 2023).
---------------------------------------------------------------------------
SO2 emissions from affected electric generating units
(``EGUs'') are subject to nationwide and regional emissions cap-and-
trade programs. Title IV of the Clean Air Act sets an annual emissions
cap on SO2 for affected EGUs in the 48 contiguous States and
the District of Columbia (DC). (42 U.S.C. 7651 et seq.) SO2
emissions from numerous States in the eastern half of the United States
are also limited under the Cross-State Air Pollution Rule (CSAPR). 76
FR 48208 (August 8, 2011). CSAPR requires these States to reduce
certain emissions, including annual SO2 emissions, and went
into effect as of January 1, 2015.\263\ AEO2023 incorporates
implementation of CSAPR, including the update to the CSAPR ozone season
program emission budgets and target dates issued in 2016. 81 FR 74504
(Oct. 26, 2016). Compliance with CSAPR is flexible among EGUs and is
enforced through the use of tradable emissions allowances. Under
existing EPA regulations, for States subject to SO2
emissions limits under CSAPR, any excess SO2 emissions
allowances resulting from the lower electricity demand caused by the
adoption of an efficiency standard could be used to permit offsetting
increases in SO2 emissions by another regulated EGU.
---------------------------------------------------------------------------
\263\ CSAPR requires States to address annual emissions of
SO2 and NOX, precursors to the formation of
fine particulate matter (PM2.5) pollution, in order to
address the interstate transport of pollution with respect to the
1997 and 2006 PM2.5 National Ambient Air Quality
Standards (NAAQS). CSAPR also requires certain States to address the
ozone season (May-September) emissions of NOX, a
precursor to the formation of ozone pollution, in order to address
the interstate transport of ozone pollution with respect to the 1997
ozone NAAQS. 76 FR 48208 (August 8, 2011). EPA subsequently
published a supplemental rule in the Federal Register that included
an additional five States in the CSAPR ozone season program, 76 FR
80760 (Dec. 27, 2011).
---------------------------------------------------------------------------
However, beginning in 2016, SO2 emissions began to fall
as a result of the Mercury and Air Toxics Standards (MATS) for power
plants. 77 FR 9304 (Feb. 16, 2012). In the MATS final rule, EPA
established a standard for hydrogen chloride as a surrogate for acid
gas hazardous air pollutants (HAP), and also established a standard for
SO2 (a non-HAP acid gas) as an alternative equivalent
surrogate standard for acid gas HAP. The same controls are used to
reduce HAP and non-HAP acid gas; thus, SO2 emissions are
being reduced as a result of the control technologies installed on
coal-fired power plants to comply with the MATS requirements for acid
gas. In order to continue operating, coal plants must have either flue
gas desulfurization or dry sorbent injection systems installed. Both
technologies, which are used to reduce acid gas emissions, also reduce
SO2 emissions. Because of the emissions reductions under the
MATS, it is unlikely that excess SO2 emissions allowances
resulting from the lower electricity demand would be needed or used to
permit offsetting increases in SO2 emissions by another
regulated EGU. Therefore, energy conservation standards that decrease
electricity generation will generally reduce SO2 emissions.
DOE estimated SO2 emissions reduction using emissions
factors based on AEO2023.
CSAPR also established limits on NOX emissions for
numerous States in the eastern half of the United States. Energy
conservation standards would have little effect on NOX
emissions in those States covered by CSAPR emissions limits if excess
NOX emissions allowances resulting from the lower
electricity demand could be used to permit offsetting increases in
NOX emissions from other EGUs. In such case, NOX
emissions would remain near the limit even if electricity generation
goes down. Depending on the configuration of the power sector in the
different regions and the need for allowances, however, NOX
emissions might not remain at the limit in the case of lower
electricity demand. That would mean that standards might reduce
NOX emissions in covered States. Despite this possibility,
DOE has chosen to be conservative in its analysis and has maintained
the assumption that standards will not reduce NOX emissions
in States covered by CSAPR. Energy conservation standards would be
expected to reduce NOX emissions in the States not covered
by CSAPR.\264\ DOE used AEO2023 data to derive NOX emissions
factors for the group of States not covered by CSAPR.
---------------------------------------------------------------------------
\264\ See footnote 246.
---------------------------------------------------------------------------
The MATS limit mercury emissions from power plants, but they do not
include emissions caps and, as such, DOE's energy conservation
standards would be expected to slightly reduce Hg emissions. DOE
estimated mercury emissions reduction using emissions factors based on
AEO2023, which incorporates the MATS.
L. Monetizing Emissions Impacts
As part of the development of this final rule, for the purpose of
complying with the requirements of Executive
[[Page 87613]]
Order 12866, DOE considered the estimated net monetary benefits from
changes in emissions of CO2, CH4, N2O,
NOX, and SO2 that are expected to result from
each of the TSLs considered. In order to make this calculation
analogous to the calculation of the NPV of consumer benefit, DOE
considered the reduced emissions expected to result over the lifetime
of products shipped in the projection period for each TSL. This section
summarizes the basis for the values used for monetizing the emissions
benefits and presents the values considered in this final rule.
1. Monetization of Greenhouse Gas Emissions
To monetize the benefits of reducing GHG emissions, this analysis
uses the interim estimates presented in the Technical Support Document:
Social Cost of Carbon, Methane, and Nitrous Oxide Interim Estimates
Under Executive Order 13990 published in February 2021 by the IWG.\265\
---------------------------------------------------------------------------
\265\ See www.whitehouse.gov/wp-content/uploads/2021/02/TechnicalSupportDocument_SocialCostofCarbonMethaneNitrousOxide.pdf
(last accessed August 1, 2023).
---------------------------------------------------------------------------
DOE estimates the monetized benefits of the reductions in emissions
of CO2, CH4, and N2O by using a
measure of the social cost (SC) of each pollutant (e.g., SC-
CO2). These estimates represent the monetary value of the
net harm to society associated with a marginal increase in emissions of
these pollutants in a given year, or the benefit of avoiding that
increase. These estimates are intended to include (but are not limited
to) climate-change-related changes in net agricultural productivity,
human health, property damages from increased flood risk, disruption of
energy systems, risk of conflict, environmental migration, and the
value of ecosystem services.
DOE exercises its own judgment in presenting monetized climate
benefits as recommended by applicable Executive orders, and DOE would
reach the same conclusion presented in this final rule in the absence
of the social cost of greenhouse gases. That is, the social costs of
greenhouse gases, whether measured using the February 2021 interim
estimates presented by the Interagency Working Group on the Social Cost
of Greenhouse Gases or by another means, did not affect the rule
ultimately being adopted by DOE.
DOE estimated the global social benefits of CO2,
CH4, and N2O reductions (i.e., SC-GHGs) using SC-
GHG values that were based on the interim values presented in the
Technical Support Document: Social Cost of Carbon, Methane, and Nitrous
Oxide Interim Estimates under Executive Order 13990, published in
February 2021 by the IWG. The SC-GHGs is the monetary value of the net
harm to society associated with a marginal increase in emissions in a
given year, or the benefit of avoiding that increase. In principle, SC-
GHGs includes the value of all climate change impacts, including (but
not limited to) changes in net agricultural productivity, human health
effects, property damage from increased flood risk and natural
disasters, disruption of energy systems, risk of conflict,
environmental migration, and the value of ecosystem services. The SC-
GHGs, therefore, reflects the societal value of reducing emissions of
the gas in question by one metric ton. The SC-GHGs is the theoretically
appropriate value to use in conducting benefit-cost analyses of
policies that affect CO2, N2O, and CH4
emissions. As a member of the IWG involved in the development of the
February 2021 SC-GHG TSD, DOE agrees that the interim SC-GHG estimates
represent the most appropriate estimate of the SC-GHG until revised
estimates have been developed reflecting the latest, peer-reviewed
science.
The SC-GHGs estimates presented here were developed over many
years, using a transparent process, peer-reviewed methodologies, the
best science available at the time of that process, and with input from
the public. Specifically, in 2009, the IWG, which included DOE and
other Executive Branch agencies and offices, was established to ensure
that agencies were using the best available science and to promote
consistency in the social cost of carbon (SC-CO2) values
used across agencies. The IWG published SC-CO2 estimates in
2010 that were developed from an ensemble of three widely cited
integrated assessment models (IAMs) that estimate global climate
damages using highly aggregated representations of climate processes
and the global economy combined into a single modeling framework. The
three IAMs were run using a common set of input assumptions in each
model for future population, economic, and CO2 emissions
growth, as well as equilibrium climate sensitivity--a measure of the
globally averaged temperature response to increased atmospheric
CO2 concentrations. These estimates were updated in 2013
based on new versions of each IAM. In August 2016, the IWG published
estimates of the social cost of methane (SC-CH4) and nitrous
oxide (SC-N2O) using methodologies that are consistent with
the methodology underlying the SC-CO2 estimates. The
modeling approach that extends the IWG SC-CO2 methodology to
non-CO2 GHGs has undergone multiple stages of peer review.
The SC-CH4 and SC-N2O estimates were developed by
Marten et al.\266\ and underwent a standard double-blind peer review
process prior to journal publication. In 2015, as part of the response
to public comments received to a 2013 solicitation for comments on the
SC-CO2 estimates, the IWG announced a National Academies of
Sciences, Engineering, and Medicine review of the SC-CO2
estimates to offer advice on how to approach future updates to ensure
that the estimates continue to reflect the best available science and
methodologies. In January 2017, the National Academies released their
final report, ``Valuing Climate Damages: Updating Estimation of the
Social Cost of Carbon Dioxide,'' and recommended specific criteria for
future updates to the SC-CO2 estimates, a modeling framework
to satisfy the specified criteria, and both near-term updates and
longer-term research needs pertaining to various components of the
estimation process (National Academies, 2017).\267\ Shortly thereafter,
in March 2017, President Trump issued Executive Order 13783, which
disbanded the IWG, withdrew the previous TSDs, and directed agencies to
ensure SC-CO2 estimates used in regulatory analyses are
consistent with the guidance contained in OMB's Circular A-4,
``including with respect to the consideration of domestic versus
international impacts and the consideration of appropriate discount
rates'' (E.O. 13783, section 5(c)). Benefit-cost analyses following
E.O. 13783 used SC-GHG estimates that attempted to focus on the U.S.-
specific share of climate change damages as estimated by the models and
were calculated using two discount rates recommended by Circular A-4, 3
percent and 7 percent. All other methodological decisions and model
versions used in SC-GHG calculations remained the same as those used by
the IWG in 2010 and 2013, respectively.
---------------------------------------------------------------------------
\266\ Marten, A.L., E.A. Kopits, C.W. Griffiths, S.C. Newbold,
and A. Wolverton. Incremental CH4 and N2O
mitigation benefits consistent with the U.S. Government's SC-
CO2 estimates. Climate Policy (2015) 15(2): pp. 272-298.
\267\ National Academies of Sciences, Engineering, and Medicine.
Valuing Climate Damages: Updating Estimation of the Social Cost of
Carbon Dioxide. 2017. The National Academies Press: Washington, DC.
---------------------------------------------------------------------------
On January 20, 2021, President Biden issued Executive Order 13990,
which re-
[[Page 87614]]
established the IWG and directed it to ensure that the U.S.
Government's estimates of the social cost of carbon and other
greenhouse gases reflect the best available science and the
recommendations of the National Academies (2017). The IWG was tasked
with first reviewing the SC-GHG estimates currently used in Federal
analyses and publishing interim estimates within 30 days of the E.O.
that reflect the full impact of GHG emissions, including by taking
global damages into account. The interim SC-GHG estimates published in
February 2021 are used here to estimate the climate benefits for this
rulemaking. The February 2021 SC-GHG TSD provides a complete discussion
of the IWG's initial review conducted under E.O. 13990. In particular,
the IWG found that the SC-GHG estimates used under E.O. 13783 fail to
reflect the full impact of GHG emissions in multiple ways.
First, the IWG found that the SC-GHG estimates used under E.O.
13783 fail to fully capture many climate impacts that affect the
welfare of U.S. citizens and residents, and those impacts are better
reflected by global measures of the SC-GHG. Examples of omitted effects
from the E.O. 13783 estimates include direct effects on U.S. citizens,
assets, and investments located abroad, supply chains, U.S. military
assets and interests abroad, and tourism, as well as spillover pathways
such as economic and political destabilization and global migration
that can lead to adverse impacts on U.S. national security, public
health, and humanitarian concerns. In addition, assessing the benefits
of U.S. GHG mitigation activities requires consideration of how those
actions may affect mitigation activities by other countries, as those
international mitigation actions will provide a benefit to U.S.
citizens and residents by mitigating climate impacts that affect U.S.
citizens and residents. A wide range of scientific and economic experts
have emphasized the issue of reciprocity as support for considering
global damages of GHG emissions. If the United States does not consider
impacts on other countries, it is difficult to convince other countries
to consider the impacts of their emissions on the United States. The
only way to achieve an efficient allocation of resources for emissions
reduction on a global basis--and so benefit the U.S. and its citizens--
is for all countries to base their policies on global estimates of
damages. As a member of the IWG involved in the development of the
February 2021 SC-GHG TSD, DOE agrees with this assessment, and,
therefore, in this final rule DOE centers attention on a global measure
of the SC-GHG. This approach is the same as that taken in DOE
regulatory analyses from 2012 through 2016. A robust estimate of
climate damages that accrue only to U.S. citizens and residents does
not currently exist in the literature. As explained in the February
2021 TSD, existing estimates are both incomplete and an underestimate
of total damages that accrue to the citizens and residents of the U.S.
because they do not fully capture the regional interactions and
spillovers discussed above, nor do they include all of the important
physical, ecological, and economic impacts of climate change recognized
in the climate change literature. As noted in the February 2021 SC-GHG
TSD, the IWG will continue to review developments in the literature,
including more robust methodologies for estimating a U.S.-specific SC-
GHG value, and explore ways to better inform the public of the full
range of carbon impacts. As a member of the IWG, DOE will continue to
follow developments in the literature pertaining to this issue.
Second, the IWG found that the use of the social rate of return on
capital (7 percent under current OMB Circular A-4 guidance) to discount
the future benefits of reducing GHG emissions inappropriately
underestimates the impacts of climate change for the purposes of
estimating the SC-GHG. Consistent with the findings of the National
Academies (2017) and the economic literature, the IWG continued to
conclude that the consumption rate of interest is the theoretically
appropriate discount rate in an intergenerational context,\268\ and
recommended that discount rate uncertainty and relevant aspects of
intergenerational ethical considerations be accounted for in selecting
future discount rates.
---------------------------------------------------------------------------
\268\ Interagency Working Group on Social Cost of Carbon. Social
Cost of Carbon for Regulatory Impact Analysis under Executive Order
12866 (2010) United States Government (last accessed August 1, 2023)
(available at: www.epa.gov/sites/default/files/2016-12/documents/scc_tsd_2010.pdf); Interagency Working Group on Social Cost of
Carbon. Technical Update of the Social Cost of Carbon for Regulatory
Impact Analysis Under Executive Order 12866 (2013) (78 FR 70586)
(last accessed August 1, 2023) (available at:
www.federalregister.gov/documents/2013/11/26/2013-28242/technical-support-document-technical-update-of-the-social-cost-of-carbon-for-regulatory-impact); Interagency Working Group on Social Cost of
Greenhouse Gases, United States Government. Technical Support
Document: Technical Update on the Social Cost of Carbon for
Regulatory Impact Analysis-Under Executive Order 12866 (August 2016)
(last accessed August 1, 2023) (available at: www.epa.gov/sites/default/files/2016-12/documents/sc_co2_tsd_august_2016.pdf);
Interagency Working Group on Social Cost of Greenhouse Gases, United
States Government. Addendum to Technical Support Document on Social
Cost of Carbon for Regulatory Impact Analysis under Executive Order
12866: Application of the Methodology to Estimate the Social Cost of
Methane and the Social Cost of Nitrous Oxide. August 2016 (last
accessed August 1, 2023) (available at: www.epa.gov/sites/default/files/2016-12/documents/addendum_to_sc-ghg_tsd_august_2016.pdf).
---------------------------------------------------------------------------
Furthermore, the damage estimates developed for use in the SC-GHG
are estimated in consumption-equivalent terms, and so an application of
OMB Circular A-4's guidance for regulatory analysis would then use the
consumption discount rate to calculate the SC-GHG. DOE agrees with this
assessment and will continue to follow developments in the literature
pertaining to this issue. DOE also notes that while OMB Circular A-4,
as published in 2003, recommends using 3 percent and 7 percent discount
rates as ``default'' values, Circular A-4 also reminds agencies that
``different regulations may call for different emphases in the
analysis, depending on the nature and complexity of the regulatory
issues and the sensitivity of the benefit and cost estimates to the key
assumptions.'' On discounting, Circular A-4 recognizes that ``special
ethical considerations arise when comparing benefits and costs across
generations,'' and Circular A-4 acknowledges that analyses may
appropriately ``discount future costs and consumption benefits . . . at
a lower rate than for intragenerational analysis.'' In the 2015
``Response to Comments on the Social Cost of Carbon for Regulatory
Impact Analysis,'' OMB, DOE, and the other IWG members recognized that
``Circular A-4 is a living document'' and ``the use of 7 percent is not
considered appropriate for intergenerational discounting. There is wide
support for this view in the academic literature, and it is recognized
in Circular A-4 itself.'' Thus, DOE concludes that a 7 percent discount
rate is not appropriate to apply to value the social cost of greenhouse
gases in the analysis presented in this analysis.
To calculate the present and annualized values of climate benefits,
DOE uses the same discount rate as the rate used to discount the value
of damages from future GHG emissions, for internal consistency. That
approach to discounting follows the same approach that the February
2021 TSD recommends ``to ensure internal consistency--i.e., future
damages from climate change using the SC-GHG at 2.5 percent should be
discounted to the base year of the analysis using the same 2.5 percent
rate.'' DOE has also consulted the National Academies' 2017
recommendations on how SC-GHG
[[Page 87615]]
estimates can ``be combined in RIAs with other cost and benefits
estimates that may use different discount rates.'' The National
Academies reviewed several options, including ``presenting all discount
rate combinations of other costs and benefits with [SC-GHG]
estimates.''
As a member of the IWG involved in the development of the February
2021 SC-GHG TSD, DOE agrees with the above assessment and will continue
to follow developments in the literature pertaining to this issue.
While the IWG works to assess how best to incorporate the latest, peer-
reviewed science to develop an updated set of SC-GHG estimates, it set
the interim estimates to be the most recent estimates developed by the
IWG prior to the group being disbanded in 2017. The estimates rely on
the same models and harmonized inputs and are calculated using a range
of discount rates. As explained in the February 2021 SC-GHG TSD, the
IWG has recommended that agencies revert to the same set of four values
drawn from the SC-GHG distributions based on three discount rates as
were used in regulatory analyses between 2010 and 2016 and were subject
to public comment. For each discount rate, the IWG combined the
distributions across models and socioeconomic emissions scenarios
(applying equal weight to each) and then selected a set of four values
recommended for use in benefit-cost analyses: an average value
resulting from the model runs for each of three discount rates (2.5
percent, 3 percent, and 5 percent), plus a fourth value, selected as
the 95th percentile of estimates based on a 3-percent discount rate.
The fourth value was included to provide information on potentially
higher-than-expected economic impacts from climate change. As explained
in the February 2021 SC-GHG TSD, and DOE agrees, this update reflects
the immediate need to have an operational SC-GHG for use in regulatory
benefit-cost analyses and other applications that was developed using a
transparent process, peer-reviewed methodologies, and the science
available at the time of that process. Those estimates were subject to
public comment in the context of dozens of proposed rulemakings as well
as in a dedicated public comment period in 2013.
There are a number of limitations and uncertainties associated with
the SC-GHG estimates. First, the current scientific and economic
understanding of discounting approaches suggests discount rates
appropriate for intergenerational analysis in the context of climate
change are likely to be less than 3 percent, near 2 percent or
lower.\269\ Second, the IAMs used to produce these interim estimates do
not include all of the important physical, ecological, and economic
impacts of climate change recognized in the climate change literature
and the science underlying their ``damage functions'' (i.e., the core
parts of the IAMs that map global mean temperature changes and other
physical impacts of climate change into economic--both market and
nonmarket--damages) lags behind the most recent research. For example,
limitations include the incomplete treatment of catastrophic and non-
catastrophic impacts in the integrated assessment models, their
incomplete treatment of adaptation and technological change, the
incomplete way in which inter-regional and intersectoral linkages are
modeled, uncertainty in the extrapolation of damages to high
temperatures, and inadequate representation of the relationship between
the discount rate and uncertainty in economic growth over long time
horizons. Likewise, the socioeconomic and emissions scenarios used as
inputs to the models do not reflect new information from the last
decade of scenario generation or the full range of projections. The
modeling limitations do not all work in the same direction in terms of
their influence on the SC-CO2 estimates. However, as
discussed in the February 2021 TSD, the IWG has recommended that, taken
together, the limitations suggest that the interim SC-GHG estimates
used in this final rule likely underestimate the damages from GHG
emissions. DOE concurs with this assessment.
---------------------------------------------------------------------------
\269\ Interagency Working Group on Social Cost of Greenhouse
Gases (IWG) (2021) Technical Support Document: Social Cost of
Carbon, Methane, and Nitrous Oxide Interim Estimates under Executive
Order 13990. February. United States Government (available at:
www.whitehouse.gov/briefing-room/blog/2021/02/26/a-return-to-science-evidence-based-estimates-of-the-benefits-of-reducing-climate-pollution/) (last accessed August 1, 2023).
---------------------------------------------------------------------------
DOE's derivations of the SC-GHG (i.e., SC-CO2, SC-
N2O, and SC-CH4) values used for this final rule
are discussed in the following sections, and the results of DOE's
analyses estimating the benefits of the reductions in emissions of
these GHGs are presented in section V.B of this document.
A number of commenters expressed concern over DOE's estimates of
the SC-GHG, as discussed in the paragraphs that follow.
The Joint Market and Consumer Organizations argued that climate
change considerations do not play a role under EPCA and that DOE should
not use the IWG SC-GHGs analysis to calculate net regulatory benefits.
The commenters claimed that climate change is mentioned nowhere in
EPCA's detailed instructions to DOE on how to set and amend appliance
efficiency standards. They suggest that DOE acted extra-statutorily by
relying on Executive Order 13990 to account for greenhouse gas
emissions in their net benefit analysis. (Joint Market and Consumer
Organizations, No. 373 at p. 6) The commenters also question how DOE
attempted to calculate the net benefits, claiming the SC-GHG is too
speculative and subjective, and that it is too easily manipulated to be
weighed in the same scales with the near-term consumer costs of the
proposed standards. They claimed the IWG estimates are biased due to
reliance on overheated climate models, inflated emission scenarios, and
pessimistic adaptation assumptions. These commenters concluded that
using biased SC-GHG estimates to estimate net benefits is arbitrary and
capricious. (Id. at pp. 3, 7-10) They also claimed, even if the IWG's
methodology were not biased in multiple ways, that DOE's finding that
the furnace efficiency standards will deliver the estimated climate
benefits would be unlikely. (Id. at p. 11)
APGA asserted that flaws in the interim SC-GHG values could lead to
miscalculations in monetary benefits from the proposed rule for NWGFs
and MHGFs. APGA claimed that the process used by the IWG to develop the
estimates was inconsistent with the Administrative Procedure Act,
failed to fully consider recommendations from a related National
Academies of Sciences, Engineering, and Medicine review, and did not
follow current Office of Management and Budget bulletins and circulars,
each of which is intended to ensure the underlying data used to develop
the SC-GHGs are based on the best available science and economics.
Accordingly, APGA asserted that failure to ensure that these procedural
shortcomings are fully addressed before applying any SC-GHG estimates
in a final rule will result in inappropriately calculated and, thus,
misapplied values. APGA argued that DOE's speculative projections
regarding emission reductions benefits should not be part of any final
rule. (APGA, No. 387 at pp. 31-32)
Spencer and Dayaratna stated that the SC-GHGs obscures regulatory
costs. These commenters referenced studies exploring the sensitivity of
assessment models to changes in assumptions, which they said could make
such models prone to user manipulation. Additionally, Spencer and
Dayaratna stated that accurately accounting for costs and benefits,
even those that do
[[Page 87616]]
not impact DOE's final decision (such as the SC-GHGs), is important for
providing transparency. The commenters also suggested that DOE's use of
the SC-GHGs creates bias and is misleading. (Spencer and Dayaratna, No.
390 at pp. 6-8)
The Associations urged DOE to reconsider the use of the SC-GHGs
estimates in this rulemaking based on three core concerns. First, these
commenters argued that before DOE considers applying the SC-GHG
estimates to the proposed rule (and, likewise, to any final rule
resulting from this rulemaking), the SC-GHG estimates should be subject
to a proper administrative process, including a full and fair public
comment process, as well as a robust independent peer review. Second,
these commenters argued that there are statutory limitations on using
the SC-GHG estimates, and the Associations urged DOE to fully consider
the applicable limits before applying those estimates. Third, the
Associations urged DOE to carefully consider whether the ``major
questions'' doctrine precludes the application of the SC-GHG estimates
in the proposed rule, given the political and economic significance of
the estimates. (The Associations, No. 392 at p. 2)
In response, DOE first notes that it would reach the same
conclusion presented in this final rule in the absence of the social
cost of greenhouse gases. DOE notes that, as stated in section
III.F.1.f of this document, DOE maintains that environmental and public
health benefits associated with the more efficient use of energy,
including those connected to global climate change, are important to
take into account when considering the ``need for national energy . . .
conservation,'' which is one of the factors that EPCA requires DOE to
evaluate in determining whether a potential energy conservation
standard is economically justified. (42 U.S.C. 6295(o)(2)(B)(i)(VI));
Zero Zone, Inc. v. United States DOE, 832 F.3d 654, 677 (7th Cir. 2016)
(pointing to 42 U.S.C. 6295(o)(2)(B)(i)(VI) in concluding that ``[w]e
have no doubt that Congress intended that DOE have the authority under
the EPCA to consider the reduction in SCC.'') DOE has been analyzing
the monetized emissions impacts from its rules, for over 10 years. In
addition, Executive Order 13563, ``Improving Regulation and Regulatory
Review,'' which was re-affirmed on January 20, 2021, states that each
agency, among other things, must, to the extent permitted by law:
``select, in choosing among alternative regulatory approaches, those
approaches that maximize net benefits (including potential economic,
environmental, public health and safety, and other advantages;
distributive impacts; and equity).'' E.O. 13563, section 1(b).
Furthermore, as noted previously, E.O. 13990, ``Protecting Public
Health and the Environment and Restoring Science to Tackle the Climate
Crisis,'' re-established the IWG and directed it to ensure that the
U.S. Government's estimates of the social cost of carbon and other
greenhouse gases reflect the best available science and the
recommendations of the National Academies. As a member of the IWG
involved in the development of the February 2021 SC-GHG TSD, DOE agrees
that the interim SC-GHG estimates represent the most appropriate
estimate of the SC-GHG until revised estimates have been developed
reflecting the latest, peer-reviewed science. For these reasons, DOE
includes monetized emissions reductions in its evaluation of potential
standard levels. Finally, DOE notes that the ``major questions''
doctrine raised by the Associations applies only in ``extraordinary
cases'' concerning Federal agencies claiming highly consequential
regulatory authority beyond what Congress could reasonably be
understood to have granted. West Virginia v. EPA, 142 S. Ct. 2587, 2609
(2022); N.C. Coastal Fisheries Reform Grp. v. Capt. Gaston LLC, 2023
U.S. App. LEXIS 20325, *6-8 (4th Cir., Aug. 7, 2023) (listing the
hallmarks courts have recognized to invoke the major questions
doctrine, such as a hesitancy ``to recognize new-found powers in old
statutes against a backdrop of an agency failing to invoke them
previously,'' ``when the asserted power raises federalism concerns,''
or ``when the asserted authority falls outside the agency's traditional
expertise, . . . or is found in an `ancillary provision.' ''). DOE has
clear authorization under EPCA to regulate the energy efficiency or
energy use of a variety of consumer products, including the subject
furnaces. Although DOE routinely conducts an analysis of the
anticipated emissions impacts of potential energy conservation
standards under consideration, see, e.g., Zero Zone, 832 F.3d at 677,
DOE does not purport to regulate such emissions, and as stated
elsewhere in this document, DOE's selection of standards would be the
same without consideration of emissions. Where DOE applied the factors
it was tasked to consider under EPCA and the rule is justified even
absent use of the SC-GHG analysis, the major questions doctrine has no
bearing.
In contrast to the commenters on this topic discussed previously,
The Climate Commenters stated that DOE appropriately applies the social
cost estimates developed by the IWG on the SC-GHGs to its analysis of
emissions reduction benefits generated by the proposed rule for NWGFs
and MHGFs. These commenters stated that DOE should expand upon its
rationale for adopting a global damages valuation and for the range of
discount rates it applies to climate effects, as there are additional
legal, economic, and policy reasons for such methodological decisions
that can further bolster and support DOE's rationale for these choices.
These commenters added that DOE should consider conducting sensitivity
analysis using a sound domestic-only social cost estimate as a
backstop, and the Department should explicitly conclude that the rule
is cost-benefit justified even using a domestic-only valuation that may
still undercount climate benefits. These commenters also urged DOE to
consider providing additional sensitivity analysis using discount rates
lower than two percent for climate impacts. (The Climate Commenters,
No. 388 at pp. 1-3)
In response, DOE maintains that the reasons for using global
measures of the SC-GHG previously discussed are sufficient for the
purposes of this rulemaking. DOE notes that further discussion of this
topic is contained in the February 2021 SC-GHG TSD, and DOE agrees with
the assessment therein. Regarding conducting sensitivity analysis using
a domestic-only social cost estimate, climate change harms U.S.
interests both domestically and abroad through (1) impacts within U.S.
borders; (2) impacts outside U.S. borders that affect the welfare of
U.S. citizens and residents; and (3) spillover impacts of climate
actions elsewhere on U.S. interests. Focusing on climate impacts
occurring solely within U.S. borders, as commenters suggest, would
``underestimate'' benefits of greenhouse-gas mitigation for U.S.
citizens and residents and ignore the reality that a Nation's interests
extend beyond its borders. See Zero Zone, Inc. v. U.S. Dep't of Energy,
832 F.3d 654, 678-79 (7th Cir. 2016) (upholding consideration of global
impacts in climate analysis). DOE also agrees with the assessment in
the February 2021 SC-GHG TSD that the only currently available
quantitative characterization of domestic damages from GHG emissions is
both incomplete and an underestimate of the share of total damages that
accrue to the citizens and residents of the United States.
[[Page 87617]]
Therefore, it would be of questionable value to conduct the suggested
sensitivity analysis at this time. DOE considered performing
sensitivity analysis using discount rates lower than two percent for
climate impacts, as suggested by the IWG, but it concluded that such
analysis would not add meaningful information or impact the rationale
in the context of this rulemaking.
The Climate Commenters further stated that DOE should provide
additional justification for combining climate effects discounted at an
appropriate consumption-based discount rate, with other costs and
benefits discounted at a capital-based rate (i.e., 7 percent). (The
Climate Commenters, No. 388 at p. 2)
In response, DOE notes that the reasons for using consumption-based
discount rates for future climate effects were discussed previously and
are further elaborated in the February 2021 SC-GHG TSD. Combining
climate benefits with health benefits and consumer economic benefits is
in keeping with the guidance of OMB Circular A-4 to count all
significant costs and benefits. DOE is aware that there are different
approaches to combining climate benefits with other cost and benefits
estimates that may use different discount rates, and the approach
applied in this document (as well as in numerous other past DOE
rulemaking notices) is among those discussed in the National Academies
2017 report (p. 182).\270\
---------------------------------------------------------------------------
\270\ National Academies of Sciences, Engineering, and Medicine.
Valuing Climate Damages: Updating Estimation of the Social Cost of
Carbon Dioxide. 2017. The National Academies Press: Washington, DC.
(Available at: https://nap.nationalacademies.org/catalog/24651/valuing-climate-damages-updating-estimation-of-the-social-cost-of)
(last accessed August 1, 2023).
---------------------------------------------------------------------------
Finally, The Climate Commenters recommend that DOE should clearly
state that any criticisms of the social cost of greenhouse gases are
moot in this rulemaking, because the proposed rule is easily cost-
justified without any climate benefits. (The Climate Commenters, No.
388 at p. 3)
In response, DOE acknowledges that its conclusions regarding
economic justification and technological feasibility would be the same
without including climate benefits. When those benefits are accounted
for, the justification becomes stronger still.
PHCC commented that it is a mistake to include the estimated social
and health cost in the rulemaking because they are currently under
litigation, which could affect the rule's viability. (PHCC, No. 403 at
p. 5)
In response, DOE notes that on April 5, 2023, the Fifth Circuit
Court of Appeals (No. 22-30087) ruled that the plaintiffs lacked
standing, dismissed the case for lack of jurisdiction, and vacated the
February 11, 2022, preliminary injunction issued by the District Court
in Louisiana v. Biden, No. 21-cv-1074-JDC-KK (W.D. La.). As reflected
in this rule, DOE has reverted to its approach prior to the injunction
and presents monetized greenhouse gas abatement benefits where
appropriate and permissible under law.
Furthermore, DOE bases its factors on the best available estimates
for both climate and health benefits. The commenter did not provide any
alternative data sources for DOE's consideration, and, therefore, DOE
has maintained its current approach from the NOPR for this final rule.
a. Social Cost of Carbon
The SC-CO2 values used for this final rule were based on
the values developed for the IWG's February 2021 TSD, which are shown
in Table IV.14 in five-year increments from 2020 to 2050. DOE notes
that it has exercised its discretion in adopting the IWG's estimates,
and as previously stated, DOE finds that the interim SC-GHG estimates
represent the most appropriate estimate of the SC-GHG until revised
estimates have been developed reflecting the latest, peer-reviewed
science.
The set of annual values that DOE used, which was adapted from
estimates published by EPA,\271\ is presented in appendix 14A of the
final rule TSD. These estimates are based on methods, assumptions, and
parameters identical to the estimates published by the IWG (which were
based on EPA modeling), and include values for 2051 to 2070. DOE
expects additional climate benefits to accrue for products still
operating after 2070, but a lack of available SC-CO2
estimates for emissions years beyond 2070 prevents DOE from monetizing
these potential benefits in this analysis.
---------------------------------------------------------------------------
\271\ See EPA, Revised 2023 and Later Model Year Light-Duty
Vehicle GHG Emissions Standards: Regulatory Impact Analysis,
Washington, DC, December 2021. Available at nepis.epa.gov/Exe/ZyPDF.cgi?Dockey=P1013ORN.pdf (last accessed August 1, 2023).
Table IV.14--Annual SC-CO2 Values From 2021 Interagency Update, 2020-2050
[2020$ per metric ton CO2]
----------------------------------------------------------------------------------------------------------------
Discount rate and statistic
---------------------------------------------------------------
Year 3% 95th
5% Average 3% Average 2.5% Average percentile
----------------------------------------------------------------------------------------------------------------
2020............................................ 14 51 76 152
2025............................................ 17 56 83 169
2030............................................ 19 62 89 187
2035............................................ 22 67 96 206
2040............................................ 25 73 103 225
2045............................................ 28 79 110 242
2050............................................ 32 85 116 260
----------------------------------------------------------------------------------------------------------------
DOE multiplied the CO2 emissions reduction estimated for
each year by the SC-CO2 value for that year in each of the
four cases. DOE adjusted the values to 2022$ using the implicit price
deflator for gross domestic product (GDP) from the Bureau of Economic
Analysis. To calculate a present value of the stream of monetary
values, DOE discounted the values in each of the four cases using the
specific discount rate that had been used to obtain the SC-
CO2 values in each case. See chapter 13 of the final rule
TSD for the annual emissions reduction and see also appendix 14A of the
final rule TSD for the annual SC-CO2 values.
[[Page 87618]]
b. Social Cost of Methane and Nitrous Oxide
The SC-CH4 and SC-N2O values used for this
final rule were based on the values developed for the February 2021
TSD. DOE notes that it has exercised its discretion in adopting the
IWG's estimates, and as previously stated, DOE finds that the interim
SC-GHG estimates represent the most appropriate estimate of the SC-GHG
until revised estimates have been developed reflecting the latest,
peer-reviewed science. Table IV.16 shows the updated sets of SC-
CH4 and SC-N2O estimates from the latest
interagency update in five-year increments from 2020 to 2050. The full
set of annual values used is presented in appendix 14A of the final
rule TSD. To capture the uncertainties involved in regulatory impact
analysis, DOE has determined it is appropriate to include all four sets
of SC-CH4 and SC-N2O values, as recommended by
the IWG. DOE derived values after 2050 using the approach described
previously for the SC-CO2.
Table IV.16--Annual SC-CH4 and SC-N2O Values From 2021 Interagency Update, 2020-2050
[2020$ per metric ton]
--------------------------------------------------------------------------------------------------------------------------------------------------------
SC-CH4 SC-N2O
-------------------------------------------------------------------------------------------
Discount rate and statistic Discount rate and statistic
Year -------------------------------------------------------------------------------------------
5% 3% 2.5% 3% 95th 5% 3% 2.5% 3% 95th
Average Average Average percentile Average Average Average percentile
--------------------------------------------------------------------------------------------------------------------------------------------------------
2020........................................................ 670 1,500 2,000 3,900 5,800 18,000 27,000 48,000
2025........................................................ 800 1,700 2,200 4,500 6,800 21,000 30,000 54,000
2030........................................................ 940 2,000 2,500 5,200 7,800 23,000 33,000 60,000
2035........................................................ 1,100 2,200 2,800 6,000 9,000 25,000 36,000 67,000
2040........................................................ 1,300 2,500 3,100 6,700 10,000 28,000 39,000 74,000
2045........................................................ 1,500 2,800 3,500 7,500 12,000 30,000 42,000 81,000
2050........................................................ 1,700 3,100 3,800 8,200 13,000 33,000 45,000 88,000
--------------------------------------------------------------------------------------------------------------------------------------------------------
DOE multiplied the CH4 and N2O emissions
reduction estimated for each year by the SC-CH4 and SC-
N2O estimates for that year in each of the cases. DOE
adjusted the values to 2022$ using the implicit price deflator for
gross domestic product (GDP) from the Bureau of Economic Analysis. To
calculate a present value of the stream of monetary values, DOE
discounted the values in each of the cases using the specific discount
rate that had been used to obtain the SC-CH4 and SC-
N2O estimates in each case. See chapter 13 of the final rule
TSD for the annual emissions reduction, and see also appendix 14A of
the final rule TSD for the annual SC-CH4 and SC-
N2O values.
2. Monetization of Other Emissions Impacts
For the final rule, DOE estimated the monetized value of
NOX and SO2 emissions reductions from electricity
generation using benefit-per-ton estimates for that sector from the
EPA's Benefits Mapping and Analysis Program.\272\ DOE used EPA's values
for PM2.5-related benefits associated with NOX
and SO2 and for ozone-related benefits associated with
NOX for 2025, 2030, and 2040, calculated with discount rates
of 3 percent and 7 percent. DOE used linear interpolation to define
values for the years not given in the 2025 to 2040 range; for years
beyond 2040, the values are held constant. DOE combined the EPA
regional benefit-per-ton estimates with regional information on
electricity consumption and emissions from AEO2023 to define weighted-
average national values for NOX and SO2 (see
appendix 14B of the final rule TSD).
---------------------------------------------------------------------------
\272\ Estimating the Benefit per Ton of Reducing
PM2.5 Precursors from 21 Sectors (available at:
www.epa.gov/benmap/estimating-benefit-ton-reducing-pm25-precursors-21-sectors) (last accessed August 1, 2023).
---------------------------------------------------------------------------
DOE also estimated the monetized value of NOX and
SO2 emissions reductions from site use of natural gas in
NWGFs and MHGFs using benefit-per-ton estimates from the EPA's Benefits
Mapping and Analysis Program. Although none of the sectors covered by
EPA refers specifically to residential and commercial buildings, the
sector called ``area sources'' would be a reasonable proxy for
residential and commercial buildings.\273\ The EPA document provides
high and low estimates for 2025 and 2030 at 3- and 7-percent discount
rates.\274\ DOE used the same linear interpolation and extrapolation as
it did with the values for electricity generation.
---------------------------------------------------------------------------
\273\ ``Area sources'' represents all emission sources for which
States do not have exact (point) locations in their emissions
inventories. Because exact locations would tend to be associated
with larger sources, ``area sources'' would be fairly representative
of small, dispersed sources like homes and businesses.
\274\ ``Area sources'' are a category in the 2018 document from
EPA, but are not used in the 2021 document cited previously. See:
www.epa.gov/sites/default/files/2018-02/documents/sourceapportionmentbpttsd_2018.pdf (last accessed August 1, 2023).
---------------------------------------------------------------------------
DOE multiplied the site emissions reduction (in tons) in each year
by the associated $/ton values, and then discounted each series using
discount rates of 3 percent and 7 percent as appropriate.
GHHI stated that increasing furnace efficiency will have direct
health benefits for American families, particularly in low-income and
vulnerable communities. GHHI explained that fossil fuel burning
furnaces release pollutants that can affect indoor air quality,
including nitrogen oxides, carbon monoxide, PM2.5, and
formaldehyde, all of which are associated with asthma, cardiovascular
disease, birth defects, and even death. (GHHI, No. 371 at p. 1) In
addition, GHHI stated that hazardous air conditions in dense cities
have led to disproportionately higher rates of chronic conditions such
as heart disease and respiratory disease in low-income and Black and
Brown communities. (Id.)
GHHI also commented that older unsafe systems can lead to carbon
monoxide leaks. GHHI stated that 450 Americans are killed annually from
these leaks, disproportionately effecting Hispanic and black
populations. (GHHI, Public Meeting Webinar Transcript, No. 363 at pp.
15-16) GHHI commented that low-income homes are twice as likely to use
a gas stove or oven for heating, which results in higher indoor
pollution and increased rick of fire-related death and injury. (Id.)
According to GHHI, access to more-efficient furnaces may help to
prevent these hazards, and that
[[Page 87619]]
increasing furnace standards will directly benefit low-income
communities and people of color. (Id.)
The Pennsylvania Groups stated that inefficient and faulty furnaces
expose household members to unsafe levels of indoor air pollution.
These commenters further stated that families living in homes with
polluted air frequently experience more hospital visits, with causes
ranging from cardiovascular disease, heart attacks, asthma attacks, and
premature death, among others. Moreover, the Pennsylvania Groups
stated, that individuals exposed to indoor air pollution have increased
COVID-19 infection incidences, hospitalizations, and deaths. (The
Pennsylvania Groups, No. 396 at p. 3)
Climate and Health Coalition commented that although gas furnaces
are vented outside, that does not prevent back drafting of these
pollutants back into the home when indoor air pressure is reduced due
to kitchen exhaust hoods or bathroom ventilation fans. Additionally,
Climate and Health Coalition stated that venting pollutants outdoors
can cause community-wide harm, particularly among low-income
communities and communities of color who are already saddled with
increased levels of ambient air pollution. (Climate and Health
Coalition, No. 399 at p. 1)
Climate and Health Coalition stated that gas heating appliances
account for about two-thirds of household gas use and related
emissions. The commenter added that nearly half of U.S. homes are
heated with gas or propane furnaces. Additionally, Climate and Health
Coalition commented that many homes use inefficient furnaces, which
cause excess methane, carbon dioxide, and nitrogen dioxide emissions
into the indoor and outdoor environment. (Climate and Health Coalition,
No. 399 at p. 1) Climate and Health Coalition further mentioned that
uncombusted methane gas, which can leak into homes, was found to
contain varying levels of at least 21 different hazardous pollutants
that are undetectable by smell. Additionally, Climate and Health
Coalition stated that methane is a potent greenhouse gas that drives
health harms related to climate change. (Climate and Health Coalition,
No. 399 at p. 2)
In response, DOE has not quantitatively assessed the health
benefits of reducing in-home exposure to particulate matter, nitrogen
dioxide, and other hazardous air pollutants. DOE acknowledges that in-
home emissions may carry different health risks than the risks assumed
in the monetized health benefits calculations. Such in-home emissions
may be associated with a variety of serious respiratory and
cardiovascular conditions and other health risks. Not all the public
health and environmental benefits from the reduction of greenhouse
gases, NOX, and SO2 are captured in the values
reflected in DOE's analysis, and there may be additional unquantified
benefits from the reductions of those pollutants, as well as from the
reduction of Hg, direct PM, and other co-pollutants. However, DOE
assumes in its analysis that furnaces will be installed by licensed
professionals and that all appropriate safety standards will be met,
including indoor air pollutant exposure. DOE further assumes that a
properly ventilated furnace will not result in any significant in-home
emissions and, therefore, does not estimate any additional health
benefits from reducing in-home emissions. Furnaces are not simple
appliances that are purchased in stores and installed by average
consumers. They require licensed gas plumbers and experienced
contractors to properly size and install a system, especially in new
construction. It is highly unlikely that an unlicensed individual, with
little knowledge of gas plumbing, would install a furnace. However, DOE
does account for site emissions that are vented outdoors and includes
those emissions in its analysis.
GHHI stated that the improved furnace efficiency standards would
reduce use of dangerous heating methods. The commenter stated that low-
income, energy insecure homes are twice as likely to use a gas stove or
oven as a supplemental method to generate heat when money is short.
Furthermore, GHHI stated that these practices often lead to levels of
indoor pollution that are above what is recommended by public health
guidelines, and accordingly, are a main risk factor for pediatric
asthma. The commenter continued that children under age 6 in homes that
use a gas stove or oven for heat are 80 percent more likely to have
asthma than children in other homes. Additionally, GHHI commented that
families that use a gas stove or oven as supplementary heat are also at
an increased risk of fire-related death and injury. (GHHI, No. 371 at
p. 2)
In response, DOE is not aware of any data supporting the claim that
the amended standards would increase the use of gas stoves being used
to supplement heating from a furnace, and accordingly, the Department
has not included any emissions impact of supplemental heating in the
analysis for this rule.
M. Utility Impact Analysis
The utility impact analysis estimates the changes in installed
electrical capacity and generation projected to result for each
considered TSL. The analysis is based on published output from the NEMS
associated with AEO2023. NEMS produces the AEO Reference case, as well
as a number of side cases that estimate the economy-wide impacts of
changes to energy supply and demand. For the current analysis, impacts
are quantified by comparing the levels of electricity sector
generation, installed capacity, fuel consumption, and emissions in the
AEO2023 Reference case and various side cases. Details of the
methodology are provided in the appendices to chapters 13 and 15 of the
final rule TSD.
The output of this analysis is a set of time-dependent coefficients
that capture the change in electricity generation, primary fuel
consumption, installed capacity, and power sector emissions due to a
unit reduction in demand for a given end use. These coefficients are
multiplied by the stream of electricity savings calculated in the NIA
to provide estimates of selected utility impacts of potential new or
amended energy conservation standards.
The utility analysis also estimates the impact on gas utilities in
terms of projected changes in natural gas deliveries to consumers for
each TSL.
APGA commented that DOE's procedures state: ``The analysis of
utility impacts will include estimated marginal impacts on electric and
gas utility costs and revenues.'' According to APGA, DOE contends that
``rate decoupling'' insulates gas utilities' revenues from change
resulting from the actions by the Department in this proceeding. APGA
pointed out that rate decoupling is not a factor in most States and
that few of its over 730 members employ rate decoupling. Furthermore,
APGA argued that rate decoupling does not insulate retail customers
from higher rates, as fixed costs are spread across reduced volumes due
to fuel switching that would be caused by the elimination of non-
condensing furnaces. The commenter recommended that DOE should conduct
better sensitivity analyses based on the fuel switching that its own
analysis shows will occur, as well as the fuel switching that will
occur if the DOE analysis is corrected as APGA has suggested. (APGA,
No. 387 at p. 58)
AGA similarly asserted that DOE's Process Rule requires the
Department's utility impact analysis to ``include estimated marginal
impacts on electric and gas utility costs and revenues.''
[[Page 87620]]
According to AGA, the analysis presented in the NOPR is insufficient.
Consequently, AGA argued that DOE should conduct a complete impact
analysis that quantifies and evaluates the marginal impacts to gas
utility costs and revenues of a reduction in gas deliveries due to fuel
switching driven by the proposed rule. In addition, AGA stated that DOE
should evaluate whether the loss of demand for natural gas local
distribution companies could lead to higher rates on remaining
consumers in order to cover fixed distribution costs. (AGA, No. 405 at
pp. 107-108)
In response, DOE acknowledges that rate decoupling does not apply
to all utilities, but for those utilities that are subject to rate
decoupling, changes in natural gas deliveries will not impact revenues.
Analysis of the impact of standards on rates is very difficult, given
the diversity of regulatory structures in the U.S. and the many factors
that go into setting utility rates. DOE notes that the Process Rule is
non-binding and is intended to guide DOE in the consideration and
promulgation of new or revised appliance energy conservation standards
and test procedures. The analyses it describes are not necessarily
those that are needed to meet EPCA's requirements for evaluating the
economic justification of potential new or amended standards. (42
U.S.C. 6295(o)(2)(B)(i)(I)-(VII)) Nevertheless, DOE includes an
estimate of impacts on gas utility deliveries as part of the utility
impact analysis in chapter 15 of the final rule TSD, in addition to
estimates of impacts to installed capacity and generation for electric
utilities. DOE notes that the impacts on gas deliveries does include
the effects of product switching.
N. Employment Impact Analysis
DOE considers employment impacts in the domestic economy as one
factor in selecting a standard. Employment impacts from new or amended
energy conservation standards include both direct and indirect impacts.
Direct employment impacts are any changes in the number of employees of
manufacturers of the products subject to standards. The MIA addresses
those impacts. Indirect employment impacts are changes in national
employment that occur due to the shift in expenditures and capital
investment caused by the purchase and operation of more-efficient
appliances. 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, caused by: (1) reduced
spending by consumers on energy, (2) reduced spending on new energy
supply by the utility industry, (3) increased consumer spending on the
products to which the new standards apply and other goods and services,
and (4) the effects of those three factors throughout the economy.
One method for assessing the possible effects on the demand for
labor of such shifts in economic activity is to compare sector
employment statistics developed by the Labor Department's Bureau of
Labor Statistics (BLS). BLS regularly publishes its estimates of the
number of jobs per million dollars of economic activity in different
sectors of the economy, as well as the jobs created elsewhere in the
economy by this same economic activity. Data from BLS indicate that
expenditures in the utility sector generally create fewer jobs (both
directly and indirectly) than expenditures in other sectors of the
economy.\275\ There are many reasons for these differences, including
wage differences and the fact that the utility sector is more capital-
intensive and less labor-intensive than other sectors. Energy
conservation standards have the effect of reducing consumer utility
bills. Because reduced consumer expenditures for energy likely lead to
increased expenditures in other sectors of the economy, the general
effect of efficiency standards is to shift economic activity from a
less labor-intensive sector (i.e., the utility sector) to more labor-
intensive sectors (e.g., the retail and service sectors). Thus, the BLS
data suggest that net national employment may increase due to shifts in
economic activity resulting from energy conservation standards.
---------------------------------------------------------------------------
\275\ See U.S. Department of Commerce-Bureau of Economic
Analysis. Regional Multipliers: A User Handbook for the Regional
Input-Output Modeling System (RIMS II) (1997) U.S. Government
Printing Office: Washington, DC. (Available at: https://www.bea.gov/resources/methodologies/RIMSII-user-guide) (last accessed August 1,
2023).
---------------------------------------------------------------------------
DOE estimated indirect national employment impacts for the standard
levels considered in this final rule using an input/output model of the
U.S. economy called Impact of Sector Energy Technologies version 4
(ImSET).\276\ ImSET is a special-purpose version of the ``U.S.
Benchmark National Input-Output'' (I-O) model, which was designed to
estimate the national employment and income effects of energy-saving
technologies. The ImSET software includes a computer- based I-O model
having structural coefficients that characterize economic flows among
187 sectors most relevant to industrial, commercial, and residential
building energy use.
---------------------------------------------------------------------------
\276\ Livingston, O.V., S.R. Bender, M.J. Scott, and R.W.
Schultz. ImSET 4.0: Impact of Sector Energy Technologies Model
Description and User's Guide (2015), Pacific Northwest National
Laboratory: Richland, WA. PNNL-24563.
---------------------------------------------------------------------------
DOE notes that ImSET is not a general equilibrium forecasting
model, and that there are uncertainties involved in projecting
employment impacts, especially changes in the later years of the
analysis. Because ImSET does not incorporate price changes, the
employment effects predicted by ImSET may over-estimate actual job
impacts over the long run for this rule. Therefore, DOE used ImSET only
to generate results for near-term timeframes (2029-2034), where these
uncertainties are reduced. For more details on the employment impact
analysis, see chapter 16 of the final rule TSD.
V. Analytical Results and Conclusions
The following section addresses the results from DOE's analyses
with respect to the considered energy conservation standards for NWGFs
and MHGFs. It addresses the TSLs examined by DOE, the projected impacts
of each of these levels if adopted as energy conservation standards for
NWGFs and MHGFs, and the standards levels that DOE is adopting in this
final rule. Additional details regarding DOE's analyses are contained
in the TSD supporting this final rule.
A. Trial Standard Levels
In general, DOE typically evaluates potential amended standards for
products and equipment at the product class level and by grouping
select individual efficiency levels for each class into TSLs. Use of
TSLs allows DOE to identify and consider industry-level manufacturer
cost interactions between the product classes, to the extent that there
are such interactions, and national-level market cross-elasticity from
consumer purchasing decisions that may change when different standard
levels are set. For the subject consumer furnaces, it is particularly
important to look at the aggregated impacts as characterized by TSLs
due to the changes in consumer purchasing decisions as a result of the
increased product and installation costs that impact the shipments
model. The changes to the shipments model will drive differential
national impacts both on the consumer and manufacturer side that are
more realistic of how the market may change in response to amended DOE
standards.
For this final rule, DOE analyzed the consumer impacts of four
efficiency levels for NWGFs, four efficiency levels for MHGFs, and the
national impacts of
[[Page 87621]]
nine TSLs for NWGFs and MHGFs. Table V.1 presents the TSLs and the
corresponding efficiency levels that DOE has identified for potential
amended energy conservation standards for NWGFs and MHGFs. It is noted
that because the impact of a potential standard on different consumers
can depend on the input capacity of the NWGF or MHGF, DOE considered
certain TSLs (six cases) with an input capacity threshold, below which
the amended standard would remain at the current efficiency level of
80-percent AFUE. Because the impact of a potential standard on
different consumers can depend on the region of the country, for one of
these six cases, DOE considered a regional TSL such that the amended
standard would remain at an efficiency level of 80-percent AFUE outside
the Northern region. For other TSLs (three cases), DOE examined a
national standard level for NWGFs and MHGFs not differentiated by input
capacity. DOE presents the results for the TSLs in this document, while
the results for all efficiency levels that DOE analyzed are in the
final rule TSD.
The following provides a brief overview of the TSLs considered.
Each TSL consists of similar efficiency levels for both NWGFs and
MHGFs. TSL 9 represents the maximum technologically feasible (``max-
tech'') energy efficiency for both NWGFs (98-percent AFUE) and MHGFs
(96-percent AFUE) and represents the maximum energy savings possible
among the specific efficiency levels analyzed by DOE (see section
IV.C.1 of this final rule). TSL 8 consists of a national standard at an
efficiency level of 95-percent AFUE for both NWGFs and MHGFs, which
reflects a high degree of energy savings second only to the max-tech
efficiency levels. TSL 7 consists of an efficiency level at 80-percent
AFUE for small NWGFs and MHGFs at or below an input capacity of 55
kBtu/h and an efficiency level at 95-percent AFUE for large NWGFs and
MHGFs. The threshold of 55 kBtu/h generally separates the market into
larger capacity furnaces typically installed in larger single-family
detached homes versus smaller capacity furnaces more likely to be
installed in multi-family buildings and other households with higher
potential installation costs. TSL 6 consists of the next highest
efficiency levels, which would set a national standard at 92-percent
AFUE for both NWGFs and MHGFs, regardless of input capacity. Similar to
TSL 7, TSL 5 is constructed with an input capacity threshold. TSL 5
consists of an efficiency level at 80-percent AFUE for small NWGFs and
MHGFs at or below an input capacity of 55 kBtu/h and an efficiency
level at 92-percent AFUE for large NWGFs and MHGFs. TSL 4 consists of
the efficiency levels that represent 95-percent AFUE for the Northern
region for both NWGFs and MHGFs, but retains the baseline efficiency
level (80-percent AFUE) for the rest of country. TSLs 3, 2, and 1 are
similar to TSL 5, except with an increasingly higher input capacity
threshold (and a correspondingly smaller fraction of the market subject
to more-stringent standards). TSL 3 consists of the efficiency level
that represents 80-percent AFUE for small NWGFs and MHGFs at or below
an input capacity of 60 kBtu/h and the efficiency level that represents
92-percent AFUE for large NWGFs and MHGFs. TSL 2 consists of the
efficiency level that represents 80-percent AFUE for small NWGFs and
MHGFs at or below an input capacity of 70 kBtu/h and the efficiency
level that represents 92-percent AFUE for large NWGFs and MHGFs. TSL 1
consists of the efficiency level that represents 80-percent AFUE for
small NWGFs and MHGFs at or below an input capacity of 80 kBtu/h and
the efficiency level that represents 92-percent AFUE for large NWGFs
and MHGFs.
Table V.1--Trial Standard Levels for Non-Weatherized Gas Furnaces and Mobile Home Gas Furnaces
----------------------------------------------------------------------------------------------------------------
AFUE (percent)
TSL -------------------------------------------------------------
Non-weatherized gas furnace Mobile home gas furnace
----------------------------------------------------------------------------------------------------------------
1................................................. 92% (>80 kBtu/h)............. 92% (>80 kBtu/h).
80% (<=80 kBtu/h)............ 80% (<=80 kBtu/h).
2................................................. 92% (>70 kBtu/h)............. 92% (>70 kBtu/h).
80% (<=70 kBtu/h)............ 80% (<=70 kBtu/h).
3................................................. 92% (>60 kBtu/h)............. 92% (>60 kBtu/h).
80% (<=60 kBtu/h)............ 80% (<=60 kBtu/h).
4................................................. 95% (North).................. 95% (North).
80% (Rest of Country)........ 80% (Rest of Country).
5................................................. 92% (>55 kBtu/h)............. 92% (>55 kBtu/h).
80% (<=55 kBtu/h)............ 80% (<=55 kBtu/h).
6................................................. 92%.......................... 92%.
7................................................. 95% (>55 kBtu/h)............. 95% (>55 kBtu/h).
80% (<=55 kBtu/h)............ 80% (<=55 kBtu/h).
8................................................. 95%.......................... 95%.
9................................................. 98%.......................... 96%.
----------------------------------------------------------------------------------------------------------------
B. Economic Justification and Energy Savings
1. Economic Impacts on Individual Consumers
DOE analyzed the economic impacts on NWGF and MHGF consumers by
looking at the effects that potential new and amended standards at each
TSL would have on the LCC and PBP. DOE also examined the impacts of
potential standards on selected consumer subgroups. These analyses are
discussed in the following sections.
a. Life-Cycle Cost and Payback Period
In general, higher-efficiency products affect consumers in two
ways: (1) purchase price increases and (2) annual operating costs
decrease. In addition, for NWGFs, some consumers may choose to switch
to an alternative heating system rather than purchase and install a
NWGF if they judge the economics to be favorable. DOE estimated the
extent of switching at each TSL using the consumer choice model
discussed in section IV.F.10 of this document.
Inputs used for calculating the LCC and PBP include total costs
(i.e., product price plus installation costs), and operating costs
(i.e., annual energy use, energy prices, energy price trends, repair
costs, and maintenance costs). The LCC calculation also uses product
lifetime and a discount rate. In cases
[[Page 87622]]
where consumers are predicted to switch, the inputs include the total
installed costs, operating costs, and product lifetime for the chosen
heating system. Chapter 8 of the final rule TSD provides detailed
information on the LCC and PBP analyses.
For NWGFs, the LCC and PBP results at each efficiency level include
consumers that would purchase and install a NWGF at that level, and
also consumers that would choose to switch to an alternative heating
product rather than purchase and install a NWGF at that level. The
impacts for consumers that switch depend on the product that they
choose (heat pump or electric furnace) and the NWGF that they would
purchase in the no-new-standards case. The extent of projected product/
fuel switching (in 2029) is shown in Tables V.2 and V.3 for each TSL
for NWGFs and MHGFs, respectively. The degree of switching increases at
higher-efficiency TSLs where the installed cost of a NWGF is very high
for some consumers, making the alternative option competitive. As
discussed in section IV.F.10 of this document, DOE also conducted
sensitivity analyses using no-switching, high, and low switching
estimates. See appendix 8J of the final rule TSD for more details. For
the adopted standards (TSL 8), the total switching and repair vs.
replace is 6.8 percent for NWGFs and 4.8 percent for MHGFs.
Table V.2--Results of Fuel-Switching Analysis for Non-Weatherized Gas Furnaces in 2029
----------------------------------------------------------------------------------------------------------------
Trial standard level
Consumer option --------------------------------------------------------------------------------
1 2 3 4 5 6 7 8 9
----------------------------------------------------------------------------------------------------------------
% of consumers
--------------------------------------------------------------------------------
Purchase NWGF at Standard Level 99.4 99.2 98.5 98.4 98.1 93.2 98.1 93.2 89.2
Switch to Heat Pump *.......... 0.1 0.2 0.7 0.8 1.0 4.1 1.0 4.2 7.3
Switch to Electric Furnace *... 0.1 0.1 0.2 0.1 0.2 0.8 0.2 0.8 1.2
Repair vs. Replacing........... 0.4 0.5 0.6 0.8 0.7 1.9 0.7 1.8 2.3
--------------------------------------------------------------------------------
Total...................... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
----------------------------------------------------------------------------------------------------------------
* Includes switching from a gas water heater to an electric water heater.
Note: Components may not sum due to rounding.
Table V.3--Results of Fuel-Switching Analysis for Mobile Home Gas Furnaces in 2029
----------------------------------------------------------------------------------------------------------------
Trial standard level
Consumer option --------------------------------------------------------------------------------
1 2 3 4 5 6 7 8 9
----------------------------------------------------------------------------------------------------------------
% of consumers
--------------------------------------------------------------------------------
Purchase MHGF at Standard Level 100.0 99.9 99.7 99.0 99.6 95.4 99.6 95.2 90.2
Switch to Heat Pump............ 0.0 0.0 0.1 0.6 0.2 2.4 0.2 2.6 2.3
Switch to Electric Furnace..... 0.0 0.0 0.1 0.1 0.1 1.4 0.1 1.5 1.5
Repair vs. Replacing........... 0.0 0.0 0.1 0.4 0.1 0.7 0.1 0.7 6.0
--------------------------------------------------------------------------------
Total...................... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
----------------------------------------------------------------------------------------------------------------
Note: Components may not sum due to rounding.
Tables V.4 through V.7 show the LCC and PBP results for the TSLs
considered for each product class. In the first of each pair of tables,
the simple payback is measured relative to the baseline product. In the
second table, the impacts are measured relative to the efficiency
distribution in the in the no-new-standards case in the compliance year
(see section IV.F.8 of this document). The LCC and PBP results for
NWGFs include both residential and commercial users. The LCC and PBP
results are shipment-weighted and averaged over all capacities and
regions. Results for all efficiency levels are reported in chapter 8 of
the final rule TSD. LCC Results for the alternative product switching
scenarios are reported in appendix 8J of the final rule TSD.
Because some consumers purchase products with higher efficiency in
the no-new-standards case, the average savings are less than the
difference between the average LCC of the baseline product and the
average LCC at each TSL. The savings refer only to consumers who are
affected by a standard at a given TSL. Those who already purchase a
product with efficiency at or above a given TSL are not affected.
Consumers for whom the LCC increases at a given TSL experience a net
cost.
Table V.4--Average LCC and PBP Results for Non-Weatherized Gas Furnaces
----------------------------------------------------------------------------------------------------------------
Average costs (2022$)
--------------------------------------------------- Simple Average
TSL AFUE (%) Lifetime payback lifetime
Installed First year's operating LCC (years) (years)
cost operating cost cost
----------------------------------------------------------------------------------------------------------------
1.................. 92/80 *........... 3,733 578 9,300 13,033 6.4 21.5
2.................. 92/80 *........... 3,786 571 9,173 12,959 6.6 21.5
3.................. 92/80 *........... 3,810 568 9,114 12,924 6.7 21.5
[[Page 87623]]
4.................. 95/80 **.......... 3,832 566 9,075 12,907 7.0 21.5
5.................. 92/80 *........... 3,835 566 9,077 12,912 7.0 21.5
6.................. 92 [dagger]....... 3,947 563 8,958 12,905 9.4 21.5
7.................. 95/80 *........... 3,845 556 8,924 12,769 5.8 21.5
8.................. 95 [dagger]....... 3,962 552 8,788 12,750 7.6 21.5
9.................. 98 (Max-Tech) 4,156 545 8,620 12,776 10.1 21.5
[dagger].
----------------------------------------------------------------------------------------------------------------
* The first number refers to the standard for large NWGFs; the second refers to the standard for small NWGFs.
The input capacity threshold definitions for small NWGFs are as follows:
TSL 1: 80 kBtu/h
TSL 2: 70 kBtu/h
TSL 3: 60 kBtu/h
TSL 5: 55 kBtu/h
TSL 7: 55 kBtu/h.
** The first number refers to the efficiency level for the North; the second number refers to the efficiency
level for the rest of country.
[dagger] Refers to national standards.
Note: The results for each TSL are calculated assuming that all consumers use products at that efficiency level.
The PBP is measured relative to the baseline product.
Table V.5--Average LCC Savings Relative to the No-New-Standards Case for Non-Weatherized Gas Furnaces
----------------------------------------------------------------------------------------------------------------
Life-cycle cost savings
----------------------------------------------------------
TSL AFUE (%) Average LCC savings Percentage of consumers that
(2022$) experience net cost (%)
----------------------------------------------------------------------------------------------------------------
1......................... 92/80 *.................. 577 3.2
2......................... 92/80 *.................. 571 4.7
3......................... 92/80 *.................. 580 5.8
4......................... 95/80 **................. 390 5.6
5......................... 92/80 *.................. 551 6.8
6......................... 92 [dagger].............. 320 19.2
7......................... 95/80 *.................. 479 6.8
8......................... 95 [dagger].............. 350 18.7
9......................... 98 (Max-Tech) [dagger]... 169 62.3
----------------------------------------------------------------------------------------------------------------
* The first number refers to the standard for large NWGFs; the second refers to the standard for small NWGFs.
The input capacity threshold definitions for small NWGFs are as follows:
TSL 1: 80 kBtu/h
TSL 2: 70 kBtu/h
TSL 3: 60 kBtu/h
TSL 5: 55 kBtu/h
TSL 7: 55 kBtu/h
** The first number refers to the efficiency level for the North; the second number refers to the efficiency
level for the rest of country.
[dagger] Refers to national standards.
Note: The savings represent the average LCC for affected consumers.
Table V.6--Average LCC and PBP Results for Mobile Home Gas Furnaces
----------------------------------------------------------------------------------------------------------------
Average costs (2022$)
--------------------------------------------------- Simple Average
TSL AFUE (%) Lifetime payback lifetime
Installed First year's operating LCC (years) (years)
cost operating cost cost
----------------------------------------------------------------------------------------------------------------
1.................. 92/80 *........... 2,429 545 9,126 11,556 2.2 21.5
2.................. 92/80 *........... 2,484 525 8,804 11,288 2.5 21.5
3.................. 92/80 *........... 2,499 518 8,709 11,209 2.5 21.5
4.................. 95/80 **.......... 2,510 513 8,577 11,087 2.4 21.5
5.................. 92/80 *........... 2,514 515 8,647 11,161 2.6 21.5
6.................. 92 [dagger]....... 2,564 511 8,547 11,111 3.6 21.5
7.................. 95/80 *........... 2,528 505 8,492 11,020 2.4 21.5
8.................. 95 [dagger]....... 2,583 500 8,374 10,956 3.2 21.5
9.................. 96 (Max-Tech) 2,592 517 8,312 10,904 4.8 21.5
[dagger].
----------------------------------------------------------------------------------------------------------------
* The first number refers to the standard for large MHGFs; the second refers to the standard for small MHGFs.
The input capacity threshold definitions for small MHGFs are as follows:
TSL 1: 80 kBtu/h
[[Page 87624]]
TSL 2: 70 kBtu/h
TSL 3: 60 kBtu/h
TSL 5: 55 kBtu/h
TSL 7: 55 kBtu/h.
** The first number refers to the efficiency level for the North; the second number refers to the efficiency
level for the rest of country.
[dagger] Refers to national standards.
Note: The results for each TSL are calculated assuming that all consumers use products at that efficiency level.
The PBP is measured relative to the baseline product.
Table V.7--Average LCC Savings Relative to the No-New-Standards Case for Mobile Home Gas Furnaces
----------------------------------------------------------------------------------------------------------------
Life-cycle cost savings
----------------------------------------------------------
TSL AFUE (%) Average LCC savings Percentage of consumers that
(2022$) experience net cost (%)
----------------------------------------------------------------------------------------------------------------
1......................... 92/80 *.................. 846 0.6
2......................... 92/80 *.................. 805 2.5
3......................... 92/80 *.................. 736 3.7
4......................... 95/80 **................. 908 3.9
5......................... 92/80 *.................. 675 5.0
6......................... 92 [dagger].............. 532 16.2
7......................... 95/80 *.................. 760 5.0
8......................... 95 [dagger].............. 616 15.3
9......................... 96 (Max-Tech) [dagger]... 529 18.6
----------------------------------------------------------------------------------------------------------------
* The first number refers to the standard for large MHGFs; the second refers to the standard for small MHGFs.
The input capacity threshold definitions for small MHGFs are as follows:
TSL 1: 80 kBtu/h
TSL 2: 70 kBtu/h
TSL 3: 60 kBtu/h
TSL 5: 55 kBtu/h
TSL 7: 55 kBtu/h
** The first number refers to the efficiency level for the North; the second number refers to the efficiency
level for the rest of country.
[dagger] Refers to national standards.
Note: The savings represent the average LCC for affected consumers.
b. Consumer Subgroup Analysis
In the consumer subgroup analysis, DOE estimated the impact of the
considered TSLs on low-income households, senior-only households, and
small businesses (for NWGF only). Tables V.8 and V.9 compare the
average LCC savings and PBP at each efficiency level for the consumer
subgroups, along with the average LCC savings for the entire consumer
sample. Because the small NWGF and MHGF efficiency levels at TSLs 1, 2,
3, 5, and 7 and the rest of country efficiency level at TSL 4 are at
the baseline (i.e., the current standard), these tables only include
results for large NWGFs and MHGFs or the Northern region for these
TSLs. The percentage of low-income NWGF and MHGF consumers experiencing
a net cost is smaller than the full LCC sample in all cases, largely
due to the high proportion of renter households. The percentage of
senior-only NWGF and MHGF households experiencing a net cost is either
very similar to or smaller than the full LCC sample. Chapter 11 of the
final rule TSD presents the complete LCC and PBP results for the
subgroups.
Table V.8--Comparison of LCC Savings and PBP for Consumer Subgroups and All Households for Non-Weatherized Gas Furnaces
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Average LCC savings (2022$) Simple payback period (years) % of consumers experiencing net cost (%)
-------------------------------------------------------------------------------------------------------------------------------------
TSL Low- Senior- Small Low- Senior- Small Low- Senior- Small
income only business All income only business All Income only business All
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1 *....................................................... 332 354 767 577 2.9 6.2 1.0 6.4 2.0 2.6 3.5 3.2
2 *....................................................... 384 394 457 571 2.6 5.8 2.2 6.6 2.6 3.6 8.2 4.7
3 *....................................................... 383 402 689 580 2.4 5.8 2.3 6.7 3.4 4.3 8.9 5.8
4 **...................................................... 277 160 298 390 1.7 6.2 1.5 7.0 4.0 4.7 2.5 5.6
5 *....................................................... 392 387 630 551 2.5 6.0 2.2 7.0 4.8 5.7 10.4 6.8
6 [dagger]................................................ 207 321 402 320 3.0 7.1 2.4 9.4 15.4 16.5 16.1 19.2
7 *....................................................... 372 250 626 479 2.0 5.0 1.9 5.8 5.7 5.5 8.7 6.8
8 [dagger]................................................ 254 254 460 350 2.5 6.0 2.1 7.6 15.9 15.5 13.7 18.7
9 [dagger]................................................ 153 412 269 169 3.4 7.6 3.1 10.1 39.7 54.0 58.0 62.3
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
* Refers to TSLs with separate standards for small and large NWGFs. The input capacity threshold definitions for small NWGFs are as follows:
TSL 1: 80 kBtu/h
TSL 2: 70 kBtu/h
TSL 3: 60 kBtu/h
TSL 5: 55 kBtu/h
TSL 7: 55 kBtu/h
** Regional standards.
[dagger] Refers to national standards.
Note: The savings represent the average LCC for affected consumers. The PBP is measured relative to the baseline product.
[[Page 87625]]
Table V.9--Comparison of LCC Savings and PBP for Consumer Subgroups and All Households for Mobile Home Gas Furnaces
--------------------------------------------------------------------------------------------------------------------------------------------------------
Average LCC savings (2022$) Simple payback period (years) % of consumers experiencing net
-------------------------------------------------------------------- cost (%)
TSL --------------------------------
Low- Senior- All Low- Senior- All Low- Senior-
income only income only income only All
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 *................................................ 1,175 697 846 1.2 2.0 2.2 0.1 0.4 0.6
2 *................................................ 1055 865 805 1.4 2.0 2.5 1.0 3.2 2.5
3 *................................................ 888 820 736 1.4 2.0 2.5 2.2 3.9 3.7
4 **............................................... 931 764 908 1.0 1.1 2.4 3.6 3.4 3.9
5 *................................................ 699 702 675 1.5 2.2 2.6 4.6 6.7 5.0
6 [dagger]......................................... 472 546 532 2.0 3.0 3.6 15.9 19.1 16.2
7 *................................................ 775 648 760 1.3 2.1 2.4 4.7 6.9 5.0
8 [dagger]......................................... 552 537 616 1.8 2.7 3.2 15.3 19.2 15.3
9 [dagger]......................................... 476 1,493 529 2.7 3.7 4.8 18.0 21.7 18.6
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Refers to TSLs with separate standards for small and large MHGFs. The input capacity threshold definitions for small MHGFs are as follows:
TSL 1: 80 kBtu/h
TSL 2: 70 kBtu/h
TSL 3: 60 kBtu/h
TSL 5: 55 kBtu/h
TSL 7: 55 kBtu/h
** Regional standards.
[dagger] Refers to national standards.
Note: The savings represent the average LCC for affected consumers. The PBP is measured relative to the baseline product.
c. Rebuttable Presumption Payback
As discussed in section III.F.2 of this document, EPCA establishes
a rebuttable presumption that an energy conservation standard is
economically justified if the increased purchase cost for a product
that meets the standard is less than three times the value of the
first-year energy savings resulting from the standard. In calculating a
rebuttable presumption payback period for each of the considered TSLs,
DOE used discrete values, and, as required by EPCA, based the energy
use calculation on the DOE test procedures for residential furnaces and
boilers. In contrast, the PBPs presented in section V.B.1.a of this
document were calculated using distributions that reflect the range of
energy use in the field.
Table V.10 present the rebuttable-presumption payback periods for
the considered TSLs for NWGFs and MHGFs. The payback periods for most
NWGF and MHGF TSLs do not meet the rebuttable-presumption criterion.
While DOE examined the rebuttable-presumption criterion, it determined
whether the standard levels considered for this rule are economically
justified through a more detailed analysis of the economic impacts of
those levels, pursuant to 42 U.S.C. 6295(o)(2)(B)(i), that considers
the full range of impacts to the consumer, manufacturer, Nation, and
environment. The results of that analysis serve as the basis for DOE to
definitively evaluate the economic justification for a potential
standard level, thereby supporting or rebutting the results of any
preliminary determination of economic justification.
Table V.10--Rebuttable-Presumption Payback Periods (Years) for Non-
Weatherized Gas Furnace and Mobile Home Gas Furnaces
------------------------------------------------------------------------
Non-weatherized Mobile home gas
TSL gas furnaces furnaces
------------------------------------------------------------------------
1 *............................... 2.64 1.52
2 *............................... 2.86 1.62
3 *............................... 2.94 1.68
4 **.............................. 1.03 0.54
5 *............................... 3.06 1.69
6 [dagger]........................ 3.20 1.80
7 *............................... 2.92 1.56
8 [dagger]........................ 3.05 1.63
9 [dagger]........................ 3.67 1.67
------------------------------------------------------------------------
* Refers to TSLs with separate standards for small and large NWGFs and
MHGFs. The input capacity threshold definitions for small NWGFs and
MHGFs are as follows:
TSL 1: 80 kBtu/h
TSL 2: 70 kBtu/h
TSL 3: 60 kBtu/h
TSL 5: 55 kBtu/h
TSL 7: 55 kBtu/h
** Regional standards.
[dagger] Refers to national standards.
[[Page 87626]]
2. Economic Impacts on Manufacturers
DOE performed an MIA to estimate the impact of amended energy
conservation standards on manufacturers of NWGFs and MHGFs. The next
section describes the expected impacts on manufacturers at each
considered TSL. Chapter 12 of the final rule TSD explains the analysis
in further detail.
a. Industry Cash-Flow Analysis Results
In this section, DOE provides GRIM results from the analysis, which
examines changes in the industry that could result from a standard.
Table V.11 presents the financial impacts of analyzed standards on NWGF
and MHGF manufacturers represented by changes in INPV and free cash
flow in the year before the standard would take effect, as well by the
conversion costs that DOE estimates NWGF and MHGF manufacturers would
incur at each TSL. To evaluate the range of cash-flow impacts on the
NWGF and MHGF industry, DOE modeled two manufacturer markup scenarios
that correspond to the range of anticipated market responses to amended
standards. DOE modeled a preservation of gross margin percentage markup
scenario and a tiered markup scenario. Each scenario results in a
unique set of cash flows and corresponding industry values at each TSL.
In the following discussion, the INPV results refer to the
difference in INPV between the no-new-standards case and the standards
cases, calculated by summing discounted cash flows from the reference
year (2023) through the end of the analysis period (2058). Changes in
INPV reflect the potential impacts on the value of the industry over
the course of the analysis period as a result of implementing a
particular TSL. The results also discuss the difference in cash flows
between the no-new-standards case and the standards cases in the year
before the compliance date for analyzed standards (2028). This
difference in cash flow represents the size of the required conversion
costs relative to the cash flow generated by the NWGF and MHGF industry
in the absence of amended energy conservation standards.
To assess the upper (less severe) bound of the range of potential
impacts on NWGF and MHGF manufacturers, DOE modeled a preservation of
gross margin percentage scenario. This scenario assumes industry would
be able to maintain its average no-new-standards case gross margin
percentage in the standard case, even as MPCs increase and companies
make upfront investments to bring products into compliance with amended
standards. DOE assumed gross margin percentages of 25.3 percent for
NWGFs and 21.3 percent for MHGFs.\277\ Manufacturers noted in
interviews that it is optimistic to assume that, as their production
costs increase in response to an amended energy conservation standard,
they will be able to maintain the same gross margin percentage. DOE has
determined this scenario to be an upper bound to industry profitability
under an energy conservation standard.
---------------------------------------------------------------------------
\277\ The gross margin percentage values correspond to
manufacturer markups of 1.34 for NWGFs and 1.27 for MHGFs.
---------------------------------------------------------------------------
To assess the lower (more severe) bound of the range of potential
impacts of AFUE standards on NWGF and MHGF manufacturers, DOE modeled a
tiered scenario. DOE implemented the tiered scenario because multiple
manufacturers stated in interviews that they offer multiple tiers of
product lines that are differentiated, in part, by efficiency level.
Manufacturers further noted that pricing tiers encompass additional
differentiators, such as the combustion system (e.g., single-stage,
two-stage, and modulating combustion systems). To account for this
nuance, the tiered markup in the GRIM incorporates both efficiency and
combustion system technology into the ``good, better, best''
manufacturer markup scenario.
Several manufacturers suggested that amended standards would lead
to a reduction in premium markups and would reduce the profitability of
higher-efficiency products. During the manufacturer interviews,
manufacturers provided information on the range of typical efficiency
levels in those tiers and the change in profitability at each level.
DOE used this information to estimate manufacturer markups for NWGFs
and MHGFs under a tiered pricing strategy in the no-new-standards case.
In the standards cases, DOE modeled the situation in which standards
result in less product differentiation, compression of the markup
tiers, and an overall reduction in profitability.
Table V.11 presents the financial impacts of the analyzed standards
on NWGF and MHGF manufacturers. These impacts are represented by
changes in INPV summed over the analysis period and free cash flow in
the year before the standard (2028), as well as by the conversion costs
that DOE estimates NWGF and MHGF manufacturers would incur at each TSL.
The range of results reflect the two manufacturer markup scenarios that
were modeled.
Table V.11--Manufacturer Impact Analysis Results for Non-Weatherized Gas Furnaces and Mobile Home Gas Furnaces
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Units No-new-standards case TSL 1 TSL 2 TSL 3 TSL 4
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
INPV............................ 2022$ millions........ 1,371.8................... 1,263.7 to 1,351.3....... 1,226.3 to 1,345.3....... 1,207.2 to 1,337.0....... 1,088.7 to 1,342.5
Change in INPV.................. 2022$ millions........ .......................... (107.8) to (20.5)........ (145.3) to (26.5)........ (164.3) to (34.9)........ (282.8) to (29.4)
%..................... .......................... (7.9) to (1.5)........... (10.6) to (1.9).......... (12.0) to (2.5).......... (20.6) to (2.1)
Free Cash Flow (2028)........... 2022$ millions........ 84.6...................... 60.3..................... 53.8..................... 50.7..................... 38.4
Change in Free Cash Flow (2028). %..................... .......................... (28.8)................... (36.4)................... (40.1)................... (54.6)
Product Conversion Costs........ 2022$ millions........ .......................... 28.8..................... 28.8..................... 28.8..................... 44.8
Capital Conversion Costs........ 2022$ millions........ .......................... 31.6..................... 46.0..................... 52.9..................... 67.7
Total Investment Required....... 2022$ millions........ .......................... 60.4..................... 74.8..................... 81.7..................... 112.5
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Units................. TSL 5..................... TSL 6.................... TSL 7.................... TSL 8.................... TSL 9
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
INPV............................ 2022$ millions........ 1,199.6 to 1,341.4........ 1,201.0 to 1,337.9....... 1,014.8 to 1,339.1....... 1,004.2 to 1,338.0....... 702.8 to 1,352.7
Change in INPV.................. 2022$ millions........ (172.0) to (30.4)......... (170.5) to (34.0)........ (356.8) to (32.7)........ (367.3) to (33.8)........ (668.7) to (19.1)
%..................... (12.5) to (2.2)........... (12.4) to (2.5).......... (26.0) to (2.4).......... (26.8) to (2.5).......... (48.7) to (1.4)
Free Cash Flow (2028)........... 2022$ millions........ 47.9...................... 40.1..................... 28.0..................... 16.1..................... (54.4)
[[Page 87627]]
Change in Free Cash Flow (2028). %..................... (43.4).................... (52.6)................... (66.9)................... (81.0)................... (164.3)
Product Conversion Costs........ 2022$ millions........ 28.8...................... 28.8..................... 44.8..................... 44.8..................... 86.8
Capital Conversion Costs........ 2022$ millions........ 59.2...................... 76.4..................... 90.8..................... 117.3.................... 241.1
Total Investment Required....... 2022$ millions........ 87.9...................... 105.2.................... 135.6.................... 162.0.................... 328.0
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Note: Parentheses indicate negative values.
The following cash flow results discussion refers to the AFUE
efficiency levels and capacity threshold cutoffs detailed in section
V.A of this document. Tables V.12 and V.13 present the percentage of
NWGF and MHGF shipments in 2028 that are considered to be large or
small, based on the input capacity threshold for each TSL. See section
IV.G of this document for additional details on the shipments analysis.
Table V.12--Shipments Breakdowns (2028) Representing Large and Small Non-Weatherized Gas Furnaces at Each Trial
Standard Level
----------------------------------------------------------------------------------------------------------------
Trial standard level and capacity threshold
--------------------------------------------------------------------------------
TSL 4 TSL 6 TSL 8 TSL 9
Size TSL 1 TSL 2 TSL 3 No TSL 5 No TSL 7 No No
80 kBtu/ 70 kBtu/ 60 kBtu/ cutoff 55 kBtu/ cutoff 55 kBtu/ cutoff cutoff
h (%) h (%) h (%) (%) h (%) (%) h (%) (%) (%)
----------------------------------------------------------------------------------------------------------------
Large.......................... 45.4 69.5 81.1 100.0 92.5 100.0 92.5 100.0 100.0
Small.......................... 54.6 30.5 18.9 0.0 7.5 0.0 7.5 0.0 0.0
----------------------------------------------------------------------------------------------------------------
Table V.13--Shipments Breakdowns (2028) Representing Large and Small Mobile Home Gas Furnaces at Each Trial
Standard Level
----------------------------------------------------------------------------------------------------------------
Trial standard level and capacity threshold
--------------------------------------------------------------------------------
TSL 4 TSL 6 TSL 8 TSL 9
Size TSL 1 TSL 2 TSL 3 No TSL 5 No TSL 7 No No
80 kBtu/ 70 kBtu/ 60 kBtu/ cutoff 55 kBtu/ cutoff 55 kBtu/ cutoff cutoff
h (%) h (%) h (%) (%) h (%) (%) h (%) (%) (%)
----------------------------------------------------------------------------------------------------------------
Large.......................... 18.9 61.1 76.0 100.0 89.4 100.0 89.4 100.0 100.0
Small.......................... 81.1 38.9 24.0 0.0 10.6 0.0 10.6 0.0 0.0
----------------------------------------------------------------------------------------------------------------
TSL 1, TSL 2, TSL 3, and TSL 5 all represent national standards set
at 92-percent AFUE for large furnaces, while small furnaces remain at
the current Federal minimum of 80-percent AFUE. However, the capacity
threshold used to classify small furnaces is different at each TSL.
Small NWGFs and MHGFs are defined as units having an input capacity of
80 kBtu/h or less at TSL 1, 70 kBtu/h or less at TSL 2, 60 kBtu/h or
less at TSL 3, and 55 kBtu/h or less at TSL 5. As the capacity
threshold decreases from 80 kBtu/h at TSL 1 down to 55 kBtu/h at TSL 5,
the number of furnace shipments classified as large gas-fired consumer
furnaces--and subsequently the portion of shipments that must be
condensing after the standard year--increases. Capital conversion costs
increase as manufacturers add additional capacity to their secondary
heat exchanger production lines. Manufacturers would also incur product
conversion costs as they invest resources to develop cost-optimized 92-
percent AFUE models that are competitive at lower price points.
Manufacturers are expected to incur $28.8 million in product conversion
costs to develop such models at each of TSL 1, TSL 2, TSL 3, and TSL 5.
In addition to conversion costs, a national standard of 92-percent
AFUE for large NWGFs and MHGFs could lead to a slight compression of
manufacturer markups. In its manufacturer markup scenarios, DOE
includes a scenario which models the industry maintaining three tiers
of markups, with efficiency as one differentiating attribute. In a
market where the national standard is 92-percent AFUE, DOE
characterizes these markups as ``good,'' ``better,'' and ``best,'' and
they correspond to 92-percent AFUE, 95-percent AFUE, and max-tech
levels (98-percent AFUE for NWGFs and 96-percent AFUE for MHGFs),
respectively.
TSL 1 represents a national standard set at 92-percent AFUE for
large NWGFs and MHGFs, while small NWGFs and MHGFs remain at the
current Federal minimum of 80-percent AFUE. At TSL 1, small furnaces
are defined as NWGFs and MHGFs with input capacities of 80 kBtu/h or
less. DOE estimates the change in INPV to range from -$107.8 million to
-$20.5 million, or a change of -7.9 percent to -1.5 percent. At this
level, industry free cash flow in 2028 (the year before the compliance
date) is estimated to decrease to $60.3 million, or a decrease of 28.8
percent compared to the no-new-standards case value of $84.6 million.
[[Page 87628]]
Small furnaces with input capacities of 80 kBtu/h or less account
for approximately 54.6 percent of NWGF shipments and 81.1 percent of
MHGF shipments in 2028, a year before the standard goes into effect. In
the no-new-standards case, approximately 60.6 percent of NWGF shipments
and 33.3 percent of MHGF shipments are expected to be sold at
condensing levels in the year before the standard goes into effect. At
TSL 1, once the standard goes into effect, DOE expects 70.0 percent of
NWGF shipments and 44.2 percent of MHGF shipments to be sold at
condensing levels, requiring the industry to expand its production of
secondary heat exchangers. Manufacturers will incur an estimated $31.6
million in capital conversion costs as manufacturers increase secondary
heat exchanger production line capacity. Manufacturers would also incur
product conversion costs driven by the development necessary to create
compliant, cost-competitive products. Total industry conversion costs
are expected to reach $60.4 million at TSL 1.
TSL 2 represents a national standard at 92-percent AFUE for large
furnaces, while small furnaces remain at the current Federal minimum of
80-percent AFUE. Small furnaces are defined as NWGFs and MHGFS with
input capacities of 70 kBtu/h or less. At TSL 2, DOE estimates the
change in INPV to range from -$145.3 million to -$26.5 million, or a
change in INPV of -10.6 percent to -1.9 percent. At this level, free
cash flow in 2028 is estimated to decrease to $53.8 million, or a
decrease of 36.4 percent compared to the no-new-standards-case value of
$84.6 million in the year 2028.
Small furnaces with input capacities of 70 kBtu/h or less account
for approximately 30.5 percent of NWGF shipments and 38.9 percent of
MHGF shipments in the year before standards go into effect. At TSL 2,
once the standard goes into effect, DOE expects 75.2 percent of NWGF
shipments and 66.1 percent of MHGF shipments to be sold at condensing
levels, requiring the industry to expand its production of secondary
heat exchangers. Capital conversion costs increase from $31.6 million
at TSL 1 to $46.0 million at TSL 2. Manufacturers would also incur
product conversion costs driven by the development necessary to create
compliant, cost-competitive products. Total industry conversion costs
are expected to reach $74.8 million at TSL 2.
TSL 3 represents a national standard at 92-percent AFUE for large
furnaces, while small furnaces remain at the current Federal minimum of
80-percent AFUE. Small furnaces are defined as NWGFs and MHGFs with
input capacities of 60 kBtu/h or less. At TSL 3, DOE estimates the
change in INPV to range from -$164.3 million to -$34.9 million, or a
change in INPV of -12.0 percent to -2.5 percent. At this level, free
cash flow is estimated to decrease to $50.7 million, or a decrease of
40.1 percent compared to the no-new-standards case value of $84.6
million in the year 2028.
Small furnaces with input capacities of 60 kBtu/h or less account
for approximately 18.9 percent of NWGF shipments and 24.0 percent of
MHGF shipments in the year before standards take effect. At TSL 3, once
standards go into effect, DOE expects 78.6 percent of NWGF shipments
and 75.3 percent of MHGF shipments to be sold at condensing levels,
requiring the industry to expand its production of secondary heat
exchangers. Capital conversion costs would increase from $46.0 million
at TSL 2 to $52.9 million at TSL 3 as manufacturers increase secondary
heat exchanger production line capacity. Manufacturers would also incur
product conversion costs driven by the development necessary to create
compliant, cost-competitive products. Total industry conversion costs
could reach $81.7 million at TSL 3.
TSL 4 represents a regional standard set at 95-percent AFUE for
products sold in the North and 80-percent AFUE for products sold in the
rest of country. TSL 4 does not have a small furnace capacity
threshold. At TSL 4, DOE estimates the change in INPV to range from -
$282.8 million to -$29.4 million, or a change in INPV of -20.6 percent
to -2.1 percent. At this level, free cash flow is estimated to decrease
to $38.4 million, or a decrease of 54.6 percent compared to the no-new-
standards case value of $84.6 million in the year 2028.
In the year before the standard goes into effect, DOE expects that
the North region will account for approximately 58.8 percent of
consumer furnace shipments, with the remaining shipments attributable
to the rest of country region. Once the standard goes into effect,
consumer furnaces sold in the North must achieve 95-percent AFUE. At
TSL 4, DOE expects 74.7 percent of NWGFs and 74.5 percent of MHGFs
would be sold at condensing levels in 2029. Capital conversion costs
are expected to reach $67.7 million as manufacturers increase secondary
heat exchanger production line capacity. Product conversion costs reach
$44.8 million, as manufacturers develop cost-optimized 95-percent AFUE
furnaces that are competitive at reduced markups. Total industry
conversion costs would be expected to reach $112.5 million at TSL 4.
For products sold in the North that must achieve 95-percent AFUE,
the industry faces a noticeable compression of markups. In the no-new-
standards case, 95-percent AFUE products garner a higher markup than
baseline products. At TSL 4, 95-percent AFUE products become the
minimum AFUE efficiency offering and would no longer command the same
premium manufacturer markup in the North. However, at this level,
manufacturers can still differentiate products and offer multiple
markup tiers based on ``comfort'' features, such as two-stage or
modulating combustion technology. DOE models the industry maintaining
three manufacturer markup tiers (``good, better, best'') but at a
compressed range of manufacturer markup values. This approach accounts
for manufacturers' continued ability to differentiate products based on
combustion system technology while recognizing that manufacturer
markups (and profitability) for high-efficiency products in the North
may be reduced due to the higher AFUE standard.
TSL 5 represents a standard set at 92-percent AFUE for large
furnaces, while small furnaces remain at the current Federal minimum of
80-percent AFUE. Small furnaces are defined as NWGFs and MHGFs with
input capacities of 55 kBtu/h or less. At TSL 5, DOE estimates the
change in INPV to range from -$172.0 million to -$30.4 million, or a
change in INPV of -12.5 percent to -2.2 percent. At this level, free
cash flow is estimated to decrease to $47.9 million, or a decrease of
43.4 percent compared to the no-new-standards case value of $84.6
million in the year 2028.
Small furnaces with input capacities of 55 kBtu/h or less account
for approximately 7.5 percent of NWGFs and 10.6 percent of MHGFs in the
year before the standard goes into effect. At TSL 5, 81.5 percent of
NWGF shipments and 82.4 percent of MHGF shipments would be sold at
condensing levels when the standard goes into effect, requiring the
industry to expand its production of secondary heat exchangers. Capital
conversion costs would increase from $52.9 million at TSL 3, the
previous TSL with a separate standard level for small furnaces, to
$59.2 million at TSL 5. Manufacturers will also incur product
conversion costs driven by the development necessary to create
compliant, cost-competitive products. DOE estimates total industry
conversion costs could reach $87.9 million at TSL 5.
[[Page 87629]]
TSL 6, TSL 8, and TSL 9 represent national standards for all
covered NWGFs and MHGFs. At these TSLs, there is no separate standard
level based on furnace input capacity. As the TSL increases from TSL 6
to TSL 8 to TSL 9, the national standard increases, and DOE models a
compression of markups in the tiered markup scenario. Compressed
markups are a significant driver of negative impacts to INPV in the
tiered markup scenario, particularly at TSL 9 for NWGFs, when neither
efficiency nor combustion system technology (e.g., single-stage, two-
stage, or modulating combustion) is a means for product
differentiation.
TSL 6 represents a national 92-percent AFUE standard for all
covered NWGFs and MHGFs. As previously noted, TSL 6 does not have a
small furnace capacity threshold. At this level, DOE estimates the
change in INPV to range from -$170.5 million to -$34.0 million, or a
change in INPV of -12.4 percent to -2.5 percent. At this level, free
cash flow is estimated to decrease to $40.1 million, or a decrease of
52.6 percent compared to the no-new-standards case value of $84.6
million in the year 2028.
At TSL 6, all shipments of the covered product would be at a
condensing level once the standard goes into effect. Manufacturer
markups at TSL 6 are slightly reduced, but the industry is still able
to maintain three tiers of markups. Manufacturers would incur product
conversion costs of $28.8 million at TSL 6, as manufacturers develop
92-percent AFUE furnaces that are competitive at reduced markups.
Capital conversion costs would total $76.4 million, as manufacturers
add production capacity to have secondary heat exchangers for all NWGF
and MHGF shipments sold into the domestic market. Total conversion
costs could reach $105.2 million for the industry.
TSL 7 represents a 95-percent AFUE standard for large furnaces,
while small furnaces remain at the current Federal minimum of 80-
percent AFUE. At TSL 7, small furnaces are defined as NWGFs and MHGFs
with input capacities of 55 kBtu/h or less. DOE estimates the change in
INPV to range from -$356.8 million to -$32.7 million, or a change in
INPV of -26.0 percent to -2.4 percent. At this level, free cash flow is
estimated to decrease to $28.0 million, or a decrease of 66.9 percent
compared to the no-new-standards case value of $84.6 million in the
year 2028.
Small furnaces with input capacities of 55 kBtu/h or less account
for approximately 7.5 percent of NWGF shipments and 10.6 percent of
MHGF shipments before the standard goes into effect. At this level,
81.5 percent of NWGF shipments and 82.4 percent of MHGF shipments would
be sold at condensing levels when the standard goes into effect,
requiring the industry to expand its production of secondary heat
exchangers. Capital conversion costs would total $90.8 million, as
manufacturers add production capacity to have secondary heat exchangers
for the majority of NWGF and MHGF shipments sold into the domestic
market. Manufacturers would also incur product conversion costs of an
estimated $44.8 million, driven by the development necessary to create
compliant, cost-competitive products. Total conversion costs could
reach $135.6 million.
For large NWGFs and MHGFs, industry faces a noticeable compression
of markups due to their limited ability to differentiate products
purely based on AFUE. However, as with TSL 4, manufacturers can still
differentiate products subject to the 95-percent standard based on
``comfort'' features, such as two-stage or modulating combustion
technology. DOE models the industry as maintaining three markup tiers
(``good, better, best'') but at a compressed range of tiers where max-
tech products do not command the same premium as they did in the no-
new-standards case. This approach accounts for manufacturers' continued
ability to differentiate large NWGFs and MHGFs based on combustion
systems while recognizing that markups (and profitability) for high-
efficiency products may be reduced for large furnaces due to the 95-
percent AFUE standard. While manufacturers would not experience a
compression of markups for small capacity products, most shipments
qualify as large furnaces at this capacity cutoff. The reduction in
premium product offerings and deterioration of markups for the majority
of furnace shipments, coupled with increased conversion costs, are
expected to result in a negative change in INPV at TSL 7.
TSL 8 represents a national 95-percent AFUE standard for all
covered NWGFs and MHGFs. TSL 8 does not have a small capacity
threshold. At TSL 8, DOE estimates the change in INPV to range from -
$367.3 million to -$33.8 million, or a change in INPV of -26.8 percent
to -2.5 percent. At this level, free cash flow is estimated to decrease
to $16.1 million, or a decrease of 81.0 percent compared to the no-new-
standards case value of $84.6 million in the year 2028.
DOE estimates that approximately 41.6 percent of the annual NWGF
shipments and approximately 19.5 percent of the annual MHGF shipments
currently meet or exceed the efficiencies required at TSL 8. At TSL 8,
all covered furnaces would be condensing after the standard goes into
effect. DOE estimates capital conversion costs would increase to $117.3
million at TSL 8, as manufacturers add production capacity to have
secondary heat exchangers for all NWGF and MHGF shipments sold into the
domestic market. Product conversion costs would total $44.8 million, as
manufacturers develop a cost-optimized 95-percent AFUE for NWGF and
MHGF models that are competitive at reduced markups. Total industry
conversion costs could reach $162.0 million.
With a national standard of 95-percent AFUE, industry faces a
noticeable compression of markups due to their limited ability to
differentiate products purely based on AFUE. As with TSL 4 and TSL 7,
manufacturers can still differentiate products based on ``comfort''
features such as the combustion systems. At TSL 8, DOE models the
industry as maintaining three markup tiers (``good, better, best'') but
at a compressed range of manufacturer markup values where max-tech
products do not command the same premium as they did in the no-new-
standards case. This approach accounts for manufacturers' continued
ability to differentiate NWGFs and MHGFs based on combustion systems
while recognizing that markups (and profitability) for high-efficiency
products may be reduced due to the 95-percent AFUE standard. The
compression of markups and a reduction in product offerings, coupled
with increased conversion costs are expected to result in INPV losses
at TSL 8.
TSL 9 represents a national max-tech standard, where NWGF products
must achieve 98-percent AFUE and MHGF products must achieve 96-percent
AFUE. At TSL 9, DOE estimates the change in INPV to range from -$668.7
million to -$19.1 million, or a change in INPV of -48.7 percent to -1.4
percent. At this level, the large conversion costs result in a free
cash flow dropping below zero in the years before the standard year.
The negative free cash flow calculation indicates manufacturers may
need to access cash reserves or outside capital to finance conversion
efforts.
At TSL 9, approximately 1.4 percent of NWGFs and 0.9 percent of
MHGFs are sold at this level today. Manufacturers would incur $86.8
million in product conversion costs as they develop cost-optimized,
high-efficiency NWGF models that can
[[Page 87630]]
compete in a market where efficiency and combustion systems are no
longer viable options for product differentiation and MHGF models that
can compete in a market where efficiency is no longer a means for
product differentiation. More than half of all NWGF and MHGF OEMs do
not currently offer any models that meet the efficiency levels required
by TSL 9. Manufacturers would also incur capital conversion costs of
$241.1 million as manufacturers add the production capacity necessary
to produce all NWGFs and MHGFs sold into the domestic market at 98-
percent and 96-percent AFUE, respectively. Total conversion costs would
be expected to reach $328.0 million for the industry.
Some manufacturers expressed great concern about the state of
technology at max-tech. Specifically, those manufacturers noted
uncertainty about the ability to deliver cost-effective products for
their customers. They also cited high conversion costs and large
investments in R&D to produce all products at this level. Many OEMs do
not currently manufacture any models that meet these efficiency levels.
These OEMs would likely have more technical challenges in designing new
models that meet max-tech levels. Furthermore, NWGF manufacturers would
lose efficiency and combustion systems as differentiators between
baseline and premium product offerings. The extent of conversion costs,
the compression of markups, and the reduced ability to differentiate
products would likely alter the consumer furnace competitive landscape.
b. Direct Impacts on Employment
To quantitatively assess the potential impacts of amended energy
conservation standards on direct employment in the NWGF and MHGF
industry, DOE used the GRIM to estimate the domestic labor expenditures
and number of direct employees in the no-new-standards case and in each
of the standards cases during the analysis period. DOE calculated these
values using the most up-to-date statistical data from the U.S. Census
Bureau's 2021 ASM,\278\ the U.S. Bureau of Labor Statistics' (``BLS'')
employee compensation data,\279\ results of the engineering analysis,
and manufacturer interviews.
---------------------------------------------------------------------------
\278\ U.S. Census Bureau's Annual Survey of Manufactures: 2018-
2021 (available at www.census.gov/programs-surveys/asm/data/tables.html) (last accessed March 21, 2023).
\279\ U.S. Bureau of Labor Statistics, Employer Costs for
Employee Compensation (March 17, 2023) (available at: www.bls.gov/news.release/pdf/ecec.pdf) (last accessed March 21, 2023).
---------------------------------------------------------------------------
Labor expenditures related to product manufacturing depend on the
labor intensity of the product, the sales volume, and an assumption
that wages remain fixed in real terms over time. The total labor
expenditures in each year are calculated by multiplying the total MPCs
by the labor percentage of MPCs. The total labor expenditures in the
GRIM were then converted to domestic production employment levels by
dividing production labor expenditures by the average fully burdened
wage multiplied by the average number of hours worked per year per
production worker. To do this, DOE relied on the ASM inputs: Production
Workers Annual Wages, Production Workers Annual Hours, Production
Workers for Pay Period, and Number of Employees. DOE also relied on the
BLS employee compensation data to determine the fully burdened wage
ratio. The fully burdened wage ratio factors in paid leave,
supplemental pay, insurance, retirement and savings, and legally
required benefits.
The number of production employees is then multiplied by the U.S.
labor percentage to convert total production employment to total
domestic production employment. The U.S. labor percentage represents
the industry fraction of domestic manufacturing production capacity for
the covered product. This value is derived from manufacturer
interviews, product database analysis, and publicly-available
information. Consistent with the July 2022 NOPR, DOE estimates that 45
percent of gas-fired consumer furnaces are produced domestically.
The domestic production employees estimate covers production line
workers, including line supervisors, who are directly involved in
fabricating, processing, or assembling products within the OEM
facility. Workers performing services that are closely associated with
production operations, such as handling materials using forklifts, are
also included as production labor.\280\ DOE's estimates only account
for production workers who manufacture the specific products covered by
this rulemaking.
---------------------------------------------------------------------------
\280\ The comprehensive description of production and non-
production workers is available online at: www2.census.gov/programs-surveys/asm/technical-documentation/questionnaire/2021/instructions/MA_10000_Instructions.pdf, ``Definitions and Instructions for the
Annual Survey of Manufacturers, MA-10000'' (pp. 13-14). (Last
accessed June 1, 2023).
---------------------------------------------------------------------------
Non-production workers account for the remainder of the direct
employment figure. The non-production employees cover domestic workers
who are not directly involved in the production process, such as sales,
engineering, human resources, management, etc. Using the amount of
domestic production workers calculated above, non-production domestic
employees are extrapolated by multiplying the ratio of non-production
workers in the industry compared to production employees. DOE assumes
that this employee distribution ratio remains constant between the no-
new-standards case and standards cases.
Using the GRIM, DOE estimates that in the absence of new energy
conservation standards, there would be 1,470 domestic production and
non-production workers for NWGFs and MHGFs in 2029. Table V.14 shows
the range of the impacts of potential amended energy conservation
standards on U.S. manufacturing employment in the NWGF and MHGF
industry. The discussion below provides a qualitative evaluation of the
range of potential impacts presented in the table.
Table V.14--Potential Changes in the Total Number of Non-Weatherized Gas Furnace and Mobile Home Gas Furnace Production and Non-Production Workers in
2029
--------------------------------------------------------------------------------------------------------------------------------------------------------
Trial standard level
-------------------------------------------------------------------------------------------------------------------------
No-new- standards case TSL 1 TSL 2 TSL 3 TSL 4
--------------------------------------------------------------------------------------------------------------------------------------------------------
Direct Employment in 2029 1,470.................. 435 to 1,514........... 453 to 1,532.......... 451 to 1,530.......... 487 to 1,566.
(Production Workers + Non-
Production Workers).
Potential Changes in Direct ....................... (1,079) to 44.......... (1,079) to 62......... (1,079) to 60......... (1,079) to 96.
Employment Workers in 2029 *.
-------------------------------------------------------------------------------------------------------------------------
[[Page 87631]]
TSL 5.................. TSL 6.................. TSL 7................. TSL 8................. TSL 9
--------------------------------------------------------------------------------------------------------------------------------------------------------
Direct employment in 2029 473 to 1,552........... 470 to 1,549........... 547 to 1,626.......... 571 to 1,650.......... 549 to 1,628.
(Production Workers + Non-
Production Workers).
Potential Changes in Direct (1,079) to 82.......... (1,079) to 79.......... (1,079) to 156........ (1,079) to 180........ (1,079) to 158.
Employment Workers in 2029 *.
--------------------------------------------------------------------------------------------------------------------------------------------------------
* DOE presents a range of potential employment impacts. Numbers in parentheses indicate negative values.
The direct employment impacts shown in Table V.14 represent the
potential domestic employment changes that could result following the
compliance date of the amended standards for NWGFs and MHGFs. The upper
end of the range estimates an increase in the number of domestic
workers producing NWGFs and MHGFs after implementation of an amended
energy conservation standard at each TSL. This upper bound assumes
manufacturers would continue to produce the same scope of covered
products within the United States and would require additional labor to
produce more-efficient products. The lower bound of the range
represents the estimated maximum decrease in the total number of U.S.
domestic workers if all production moved to lower labor-cost countries
or if domestic manufacturers left the market. Some large manufacturers
are currently producing covered products in countries with lower labor
costs, and an amended standard that necessitates large increases in
labor content or large expenditures to re-tool facilities could cause
manufacturers to re-evaluate domestic production siting options.
Additional detail on the analysis of direct employment can be found
in chapter 12 of the final rule TSD. Additionally, the employment
impacts discussed in this section are independent of the employment
impacts from the broader U.S. economy, which are documented in chapter
15 of the final rule TSD.
c. Impacts on Manufacturing Capacity
According to manufacturer feedback, production facilities are not
currently equipped to supply the entire NWGF and MHGF market with
condensing products. However, most manufacturers would be able to add
capacity and adjust product designs in the five-year period between the
announcement year of the standard and the compliance year of the
standard. DOE interviewed manufacturers representing over 65 percent of
industry shipments. None of the interviewed manufacturers expressed
concern over the industry's ability to increase the capacity of
production lines that meet required efficiency levels at TSL 1 through
TSL 8 to meet consumer demand. At TSL 9, technical uncertainty was
expressed by manufacturers that do not offer max-tech efficiency
products today, as they were unsure of what production lines changes
would be needed to meet an amended standard set at max-tech. However,
because TSL 8 (the adopted level) would not require max-tech
efficiencies, DOE does not expect manufacturers to face long-term
capacity constraints due to the standard levels detailed in this final
rule.
d. Impacts on Subgroups of Manufacturers
Using average cost assumptions to develop an industry cash-flow
estimate is not adequate for assessing differential impacts among
subgroups of manufacturers. Small manufacturers, niche players, or
manufacturers exhibiting a cost structure that differs substantially
from the industry average could be affected disproportionately. DOE
used the results of the industry characterization to group
manufacturers exhibiting similar characteristics. Specifically, DOE
identified small businesses as a manufacturer subgroup that it believes
could be disproportionally impacted by energy conservation standards
and would require a separate analysis in the MIA. DOE did not identify
any other adversely impacted manufacturer subgroups for this rulemaking
based on the results of the industry characterization.
DOE analyzes the impacts on small businesses in a separate analysis
in section VI.B of this final rule as part of the Regulatory
Flexibility Analysis. In summary, the Small Business Administration
(SBA) defines a ``small business'' as having 1,250 employees or less
for North American Industry Classification System (``NAICS'') code
333415, ``Air-Conditioning and Warm Air Heating Equipment and
Commercial and Industrial Refrigeration Equipment Manufacturing.''
Based on this classification, DOE identified four domestic OEMs that
certify NWGFs and/or MHGFs that qualify as a small business. For a
discussion of the impacts on the small business manufacturer subgroup,
see the Regulatory Flexibility Analysis in section VI.B of this final
rule and chapter 12 of the final rule TSD.
e. Cumulative Regulatory Burden
One aspect of assessing manufacturer burden involves examining the
cumulative impact of multiple DOE standards and the product-specific
regulatory actions of other Federal agencies that affect the
manufacturers of a covered product or equipment. While any one
regulation may not impose a significant burden on manufacturers, the
combined effects of several recent or impending regulations may have
serious consequences for some manufacturers, groups of manufacturers,
or an entire industry. Assessing the impact of a single regulation may
overlook this cumulative regulatory burden. In addition to energy
conservation standards, other regulations can significantly affect
manufacturers' financial operations. For these reasons, DOE conducts an
analysis of cumulative regulatory burden as part of its rulemakings
pertaining to appliance efficiency.
For the cumulative regulatory burden analysis, DOE examines
Federal, product-specific regulations that could affect NWGF and MHGF
manufacturers that take effect approximately three years before or
after the 2029 compliance date. Table V.15 presents the DOE energy
conservation standards that would impact manufacturers of
[[Page 87632]]
NWGF and MHGF products in the 2026 to 2032 timeframe.
Table V.15--Compliance Dates and Expected Conversion Expenses of Federal Energy Conservation Standards Affecting
Gas-Fired Consumer Furnace Original Equipment Manufacturers
----------------------------------------------------------------------------------------------------------------
Number of
OEMs Approx. Industry Industry
Federal energy conservation standard Number of affected standards conversion costs conversion
OEMs * by this compliance (millions) costs/product
rule ** year revenue *** (%)
----------------------------------------------------------------------------------------------------------------
Consumer Clothes Dryers [dagger] 87 FR 15 1 2027 $149.7 (2020$) 1.8
51734 (August 23, 2022).................
Residential Clothes Washers [dagger] 88 19 1 2027 $690.8 (2021$) 5.2
FR 13520 (March 3, 2023)................
Refrigerators, Freezers, and Refrigerator- 49 1 2027 $1,323.6 (2021$) 3.8
Freezers [dagger] 88 FR 12452 (February
27, 2023)...............................
Room Air Conditioners 88 FR 34298 (May 8 2 2026 $24.8 (2021$) 0.4
26, 2023)...............................
Miscellaneous Refrigeration Products 38 1 2029 $126.9 (2021$) 3.1
[dagger] 88 FR 19382 (March 31, 2023)...
Dishwashers [dagger] 88 FR 32514 (May 19, 22 1 2027 $125.6 (2021$) 2.1
2023)...................................
Consumer Water Heaters [dagger] 88 FR 22 3 2030 $228.1 (2022$) 1.3
49058 (July 28, 2023)...................
Consumer Pool Heaters 88 FR 34624 (May 20 1 2028 $48.4 (2021$) 1.5
30, 2023)...............................
Commercial Water Heating Equipment 15 3 2026 $42.7 (2022$) 5.3
[Dagger]................................
Consumer Boilers [dagger] 88 FR 55128 24 4 2030 $98.0 (2022$) 3.6
(August 14, 2023).......................
Walk-in Coolers and Freezers [dagger] 88 79 4 2027 $89.0 (2022$) 0.8
FR 60746 (September 5, 2023)............
Microwave Ovens 88 FR 39912 (June 20, 18 1 2026 $46.1 (2021$) 0.7
2023)...................................
----------------------------------------------------------------------------------------------------------------
* This column presents the total number of OEMs identified in the energy conservation standard rule that is
contributing to cumulative regulatory burden.
** This column presents the number of OEMs producing consumer furnaces that are also listed as OEMs in the
identified energy conservation standard that is contributing to cumulative regulatory burden.
*** This column presents industry conversion costs as a percentage of product revenue during the conversion
period. Industry conversion costs are the upfront investments manufacturers must make to sell compliant
products/equipment. The revenue used for this calculation is the revenue from just the covered product/
equipment associated with each row. The conversion period is the time frame over which conversion costs are
made and lasts from the publication year of the final rule to the compliance year of the energy conservation
standard. The conversion period typically ranges from three to five years, depending on the rulemaking.
[dagger] These rulemakings are at the NOPR stage, and all values are subject to change until finalized through
publication of a final rule.
[Dagger] At the time of issuance of this consumer furnaces final rule, the commercial water heating equipment
energy conservation standards final rule has been issued but not yet published in the Federal Register. Once
published, the commercial water heating equipment final rule will be available at: www.regulations.gov/docket/EERE-2021-BT-STD-0027.
3. National Impact Analysis
This section presents DOE's estimates of the national energy
savings and the NPV of consumer benefits that would result from each of
the TSLs considered as potential amended standards.
a. Significance of Energy Savings
To estimate the energy savings attributable to potential amended
standards for NWGFs and MHGFs, DOE compared their energy consumption
under the no-new-standards case to their anticipated energy consumption
under each TSL. The savings are measured over the entire lifetime of
products purchased in the 30-year period that begins in the year of
anticipated compliance with amended standards (2029-2058). Table V.16
presents DOE's projections of the national energy savings for each TSL
considered for NWGFs and MHGFs. The savings were calculated using the
approach described in section IV.H.2 of this document.
Table V.16--Cumulative National Energy Savings for Non-Weatherized Gas Furnaces and Mobile Home Gas Furnaces; 30 Years of Shipments (2029-2058)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Trial standard level
Energy savings Product class --------------------------------------------------------------------------------
1 2 3 4 5 6 7 8 9
--------------------------------------------------------------------------------------------------------------------------------------------------------
(quads)
--------------------------------------------------------------------------------
Primary Energy........................... NWGF........................ 1.33 1.81 2.06 2.60 2.24 3.00 3.09 3.98 5.17
MHGF........................ 0.02 0.07 0.08 0.11 0.09 0.10 0.12 0.13 0.15
--------------------------------------------------------------------------------
Total.................... 1.35 1.88 2.14 2.72 2.34 3.10 3.21 4.11 5.32
FFC Energy............................... NWGF........................ 1.49 2.04 2.33 2.97 2.54 3.51 3.50 4.62 6.10
MHGF........................ 0.03 0.08 0.09 0.13 0.10 0.12 0.14 0.15 0.17
--------------------------------------------------------------------------------
Total.................... 1.52 2.11 2.42 3.10 2.65 3.63 3.63 4.77 6.26
--------------------------------------------------------------------------------------------------------------------------------------------------------
For the adopted standards (TSL 8), the FFC energy savings of 4.77
quads are the FFC natural gas savings minus the increase in FFC energy
use associated with higher electricity use due primarily
[[Page 87633]]
to some consumers switching to electric heating.
The results reflect the use of the reference product switching
scenario and repair vs. replace trend for NWGFs and MHGFs (as described
in sections IV.F.10 and IV.F.11 of this document). DOE also conducted a
sensitivity analysis that considered scenarios with lower and higher
rates of product switching, as compared to the default case. The
results of these alternative cases are presented in appendix 10E of the
final rule TSD.
OMB Circular A-4 \281\ requires agencies to present analytical
results, including separate schedules of the monetized benefits and
costs that show the type and timing of benefits and costs. Circular A-4
also directs agencies to consider the variability of key elements
underlying the estimates of benefits and costs. For this rulemaking,
DOE undertook a sensitivity analysis using 9 years, rather than 30
years, of product shipments. The choice of a 9-year period is a proxy
for the timeline in EPCA for the review of certain energy conservation
standards and potential revision of and compliance with such revised
standards.\282\ The review timeframe established in EPCA is generally
not synchronized with the product lifetime, product manufacturing
cycles, or other factors specific to NWGFs and MHGFs. Thus, such
results are presented for informational purposes only and are not
indicative of any change in DOE's analytical methodology. The NES
sensitivity analysis results based on a 9-year analytical period are
presented in for standards. The impacts are counted over the lifetime
of NWGFs and MHGFs purchased in 2029-2037.
---------------------------------------------------------------------------
\281\ U.S. Office of Management and Budget, Circular A-4:
Regulatory Analysis (Sept. 17, 2003) (available at:
obamawhitehouse.archives.gov/omb/circulars_a004_a-4/) (last accessed
August 1, 2023).
\282\ Section 325(m) of EPCA requires DOE to review its
standards at least once every 6 years, and requires, for certain
products, a 3-year period after any new standard is promulgated
before compliance is required, except that in no case may any new
standards be required within 6 years of the compliance date of the
previous standards. While adding a 6-year review to the 3-year
compliance period adds up to 9 years, DOE notes that it may
undertake reviews at any time within the 6 year period and that the
3-year compliance date may yield to the 6-year backstop. A 9-year
analysis period may not be appropriate given the variability that
occurs in the timing of standards reviews and the fact that for some
products, the compliance period is 5 years rather than 3 years.
Table V.17--Cumulative National Energy Savings for Non-Weatherized Gas Furnaces and Mobile Home Gas Furnaces; 9 Years of Shipments (2029-2037)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Trial standard level
Energy savings Product class --------------------------------------------------------------------------------
1 2 3 4 5 6 7 8 9
--------------------------------------------------------------------------------------------------------------------------------------------------------
(quads)
--------------------------------------------------------------------------------
Primary Energy........................... NWGF........................ 0.35 0.50 0.57 0.69 0.62 0.85 0.87 1.14 1.56
MHGF........................ 0.01 0.02 0.03 0.04 0.03 0.04 0.04 0.05 0.05
--------------------------------------------------------------------------------
Total.................... 0.36 0.52 0.60 0.73 0.65 0.89 0.91 1.19 1.62
FFC Energy............................... NWGF........................ 0.40 0.56 0.64 0.79 0.70 1.00 0.98 1.33 1.85
MHGF........................ 0.01 0.03 0.03 0.05 0.04 0.04 0.05 0.05 0.06
--------------------------------------------------------------------------------
Total.................... 0.41 0.58 0.68 0.84 0.74 1.04 1.03 1.38 1.91
--------------------------------------------------------------------------------------------------------------------------------------------------------
b. Net Present Value of Consumer Costs and Benefits
DOE estimated the cumulative NPV of the total costs and savings for
consumers that would result from the TSLs considered for NWGFs and
MHGFs. In accordance with OMB's guidelines on regulatory analysis,\283\
DOE calculated NPV using both a 7-percent and a 3-percent real discount
rate. Table V.18 shows the consumer NPV results for standards with
impacts counted over the lifetime of products purchased in 2029-2058.
---------------------------------------------------------------------------
\283\ U.S. Office of Management and Budget, Circular A-4:
Regulatory Analysis (Sept. 17, 2003) (available at:
obamawhitehouse.archives.gov/omb/circulars_a004_a-4/) (last accessed
August 1, 2023).
Table V.18--Cumulative Net Present Value of Consumer Benefits for Non-Weatherized Gas Furnaces and Mobile Home Gas Furnaces; 30 Years of Shipments (2029-
2058)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Trial standard level
Energy savings Product class --------------------------------------------------------------------------------
1 2 3 4 5 6 7 8 9
--------------------------------------------------------------------------------------------------------------------------------------------------------
(billion 2022$)
--------------------------------------------------------------------------------
7 percent................................ NWGF........................ 1.25 1.85 2.14 2.76 2.43 2.90 3.70 4.41 3.60
MHGF........................ 0.06 0.19 0.24 0.35 0.27 0.29 0.36 0.40 0.44
--------------------------------------------------------------------------------
Total.................... 1.31 2.04 2.38 3.11 2.70 3.20 4.06 4.81 4.04
3 percent................................ NWGF........................ 4.31 6.21 7.20 9.05 8.18 11.06 11.76 15.28 16.03
MHGF........................ 0.17 0.50 0.63 0.92 0.71 0.78 0.94 1.06 1.17
--------------------------------------------------------------------------------
Total.................... 4.48 6.71 7.83 9.97 8.88 11.84 12.70 16.34 17.21
--------------------------------------------------------------------------------------------------------------------------------------------------------
These results reflect the use of the default product switching
trend for NWGFs (as described in section IV.F.10 of this document). As
previously discussed, DOE conducted a sensitivity analysis assuming
higher and lower levels of product switching for NWGFs. The results of
these alternative cases are
[[Page 87634]]
presented in appendix 10 E of the final rule TSD.
The NPV results for standards based on the aforementioned 9-year
analytical period are presented in Table V.19. The impacts are counted
over the lifetime of products purchased in 2029-2037. As mentioned
previously, such results are presented for informational purposes only
and are not indicative of any change in DOE's analytical methodology or
decision criteria.
Table V.19--Cumulative Net Present Value of Consumer Benefits for Non-Weatherized Gas Furnace and Mobile Home Gas Furnace Standards; 9 Years of
Shipments (2029-2037)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Trial standard level
Energy savings Product class --------------------------------------------------------------------------------
1 2 3 4 5 6 7 8 9
--------------------------------------------------------------------------------------------------------------------------------------------------------
(billion 2022$)
--------------------------------------------------------------------------------
7 percent................................ NWGF........................ 0.57 0.90 1.06 1.48 1.19 1.43 1.99 2.41 2.01
MHGF........................ 0.04 0.11 0.15 0.21 0.16 0.18 0.22 0.24 0.27
--------------------------------------------------------------------------------
Total.................... 0.61 1.01 1.21 1.69 1.36 1.62 2.20 2.65 2.28
3 percent................................ NWGF........................ 1.46 2.21 2.62 3.49 2.94 3.93 4.60 5.97 6.37
MHGF........................ 0.08 0.24 0.30 0.44 0.34 0.38 0.45 0.50 0.56
--------------------------------------------------------------------------------
Total.................... 1.53 2.45 2.92 3.92 3.28 4.31 5.05 6.47 6.92
--------------------------------------------------------------------------------------------------------------------------------------------------------
The previous results reflect the use of a default trend to estimate
the change in price for NWGFs and MHGFs over the analysis period (see
section IV.F.1 of this document). DOE also conducted a sensitivity
analysis that considered one scenario with a lower rate of price
decline than the reference case and one scenario with a higher rate of
price decline than the reference case. The results of these alternative
cases are presented in appendix 10C of the final rule TSD. In the high-
price-decline case, the NPV of consumer benefits is higher than in the
default case. In the low-price-decline case, the NPV of consumer
benefits is lower than in the default case.
c. Indirect Impacts on Employment
It is estimated that amended energy conservation standards for
NWGFs and MHGFs will reduce energy expenditures for consumers of those
products, with the resulting net savings being redirected to other
forms of economic activity. These expected shifts in spending and
economic activity could affect the demand for labor. As described in
section IV.N of this document, DOE used an input/output model of the
U.S. economy to estimate indirect employment impacts of the TSLs that
DOE considered. There are uncertainties involved in projecting
employment impacts, especially changes in the later years of the
analysis. Therefore, DOE generated results for near-term timeframes
(2029-2034), where these uncertainties are reduced.
The results suggest that the adopted standards are likely to have a
negligible impact on the net demand for labor in the economy. The net
change in jobs is so small that it would be imperceptible in national
labor statistics and might be offset by other, unanticipated effects on
employment. Chapter 16 of the final rule TSD presents detailed results
regarding anticipated indirect employment impacts.
4. Impact on Utility or Performance of Products
As discussed in section III.F.1.d of this document, DOE has
concluded that the standards adopted in this final rule would not
lessen the utility or performance of the NWGFs and MHGFs under
consideration in this rulemaking. Manufacturers of these products
currently offer units that meet or exceed the adopted standards.
5. Impact of Any Lessening of Competition
DOE considered any lessening of competition that would be likely to
result from new or amended standards. As discussed in section III.F.1.e
of this document, EPCA directs the Attorney General of the United
States (Attorney General) to determine the impact, if any, of any
lessening of competition likely to result from a proposed standard and
to transmit such determination in writing to the Secretary within 60
days of the publication of a proposed rule, together with an analysis
of the nature and extent of the impact. DOE has provided DOJ with
copies of the proposed rule and the accompanying TSD for review. DOE
considered DOJ's comments on the proposed rule in determining whether
to proceed to a final rule. DOE is publishing and responds to DOJ's
comments in this final rule.
6. Need of the Nation To Conserve Energy
Enhanced energy efficiency, where economically justified, improves
the Nation's energy security, strengthens the economy, and reduces the
environmental impacts (costs) of energy production. Chapter 15 in the
final rule TSD presents the estimated impacts on electricity generating
capacity, relative to the no-new-standards case, for the TSLs that DOE
considered in this rulemaking.
Energy conservation resulting from potential energy conservation
standards for NWGFs and MHGFs is expected to yield environmental
benefits in the form of reduced emissions of certain air pollutants and
greenhouse gases. Table V.20 provides DOE's estimate of cumulative
emissions reductions expected to result from the TSLs considered in
this rulemaking. The increase in emissions of SO2 and Hg is
due to a fraction of NWGF consumers that are projected to switch from
gas furnaces to electric heat pumps and electric furnaces in response
to the potential standards. The emissions were calculated using the
multipliers discussed in section IV.K of this document. DOE reports
annual emissions reductions for each TSL in chapter 13 of the final
rule TSD.
[[Page 87635]]
Table V.20--Cumulative Emissions Reduction for Non-Weatherized Gas Furnaces and Mobile Home Gas Furnaces Shipped
in 2029-2058
----------------------------------------------------------------------------------------------------------------
Trial standard level
--------------------------------------------------------------------------------
1 2 3 4 5 6 7 8 9
----------------------------------------------------------------------------------------------------------------
Power Sector and Site Emissions
----------------------------------------------------------------------------------------------------------------
CO2 (million metric tons)...... 75 106 125 173 139 234 189 290 413
CH4 (thousand tons)............ 1.5 2.0 2.3 2.9 2.5 3.1 3.4 4.2 5.2
N2O (thousand tons)............ 0.1 0.2 0.2 0.2 0.2 0.2 0.3 0.3 0.3
NOX (thousand tons)............ 67 95 112 157 124 218 169 268 385
SO2 (thousand tons)............ (0) (1) (1) (4) (2) (10) (2) (10) (19)
Hg (tons)...................... (0.00) (0.01) (0.01) (0.03) (0.02) (0.08) (0.02) (0.08) (0.15)
----------------------------------------------------------------------------------------------------------------
Upstream Emissions
----------------------------------------------------------------------------------------------------------------
CO2 (million metric tons)...... 11 15 18 25 20 34 27 42 59
CH4 (thousand tons)............ 1,080 1,528 1,801 2,519 2,005 3,473 2,725 4,282 6,139
N2O (thousand tons)............ 0.0 0.0 0.0 0.0 0.0 0.1 0.0 0.1 0.1
NOX (thousand tons)............ 167 237 279 389 310 534 422 660 944
SO2 (thousand tons)............ 0.04 0.05 0.05 0.04 0.05 (0.01) 0.08 0.02 (0.04)
Hg (tons)...................... (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00)
----------------------------------------------------------------------------------------------------------------
Total FFC Emissions
----------------------------------------------------------------------------------------------------------------
CO2 (million metric tons)...... 86 121 142 197 158 268 215 332 472
CH4 (thousand tons)............ 1,082 1,531 1,803 2,522 2,007 3,476 2,728 4,286 6,144
N2O (thousand tons)............ 0.2 0.2 0.2 0.3 0.3 0.3 0.4 0.4 0.4
NOX (thousand tons)............ 234 331 390 546 435 752 591 928 1329
SO2 (thousand tons)............ (0) (1) (1) (4) (2) (10) (2) (10) (19)
Hg (tons)...................... (0.00) (0.01) (0.01) (0.03) (0.02) (0.08) (0.02) (0.08) (0.15)
----------------------------------------------------------------------------------------------------------------
Note: Negative values (shown in parentheses) refer to an increase in emissions.
As part of the analysis for this rulemaking, DOE estimated monetary
benefits likely to result from the reduced emissions of CO2
that DOE estimated for each of the considered TSLs for NWGFs and MHGFs.
Section IV.L.1.a of this document discusses the SC-CO2
values used.
Table V.21 presents the present value of the CO2
emissions reduction at each TSL.
Table V.21--Present Value of CO2 Emissions Reduction for Non-Weatherized Gas Furnaces and Mobile Home Gas
Furnaces Shipped in 2029-2058
----------------------------------------------------------------------------------------------------------------
SC-CO2 case
---------------------------------------------------------------------------
TSL Discount rate and statistics
---------------------------------------------------------------------------
5%, Average 3%, Average 2.5%, Average 3%, 95th-percentile
----------------------------------------------------------------------------------------------------------------
(million 2022$)
---------------------------------------------------------------------------
1................................... 676 3,059 4,860 9,253
2................................... 965 4,357 6,917 13,181
3................................... 1,137 5,130 8,142 15,522
4................................... 1,543 6,989 11,104 21,139
5................................... 1,266 5,709 9,060 17,274
6................................... 2,165 9,735 15,433 29,464
7................................... 1,721 7,767 12,327 23,500
8................................... 2,684 12,076 19,149 36,550
9................................... 3,857 17,311 27,429 52,406
----------------------------------------------------------------------------------------------------------------
As discussed in section IV.L.1.b of this document, DOE estimated
monetary benefits likely to result from the reduced emissions of
methane (CH4) and N2O that DOE estimated for each
of the considered TSLs for furnaces. Table V.22 presents the value of
the CH4 emissions reduction at each TSL, and Table V.23
presents the value of the N2O emissions reduction at each
TSL.
[[Page 87636]]
Table V.22--Present Value of Methane Emissions Reduction for Non-Weatherized Gas Furnaces and Mobile Home Gas
Furnaces Shipped in 2029-2058
----------------------------------------------------------------------------------------------------------------
SC-CH4 case
---------------------------------------------------------------------------
TSL Discount rate and statistics
---------------------------------------------------------------------------
5%, Average 3%, Average 2.5%, Average 3%, 95th-percentile
----------------------------------------------------------------------------------------------------------------
(million 2022$)
---------------------------------------------------------------------------
1................................... 403 1,284 1,817 3,395
2................................... 576 1,829 2,588 4,838
3................................... 681 2,160 3,054 5,712
4................................... 935 2,976 4,213 7,872
5................................... 760 2,408 3,405 6,370
6................................... 1,333 4,199 5,930 11,108
7................................... 1,032 3,271 4,626 8,652
8................................... 1,641 5,177 7,314 13,695
9................................... 2,378 7,473 10,549 19,771
----------------------------------------------------------------------------------------------------------------
Table V.23--Present Value of Nitrous Oxide Emissions Reduction for Non-Weatherized Gas Furnaces and Mobile Home
Gas Furnaces Shipped in 2029-2058
----------------------------------------------------------------------------------------------------------------
SC-N2O case
---------------------------------------------------------------------------
TSL Discount rate and statistics
---------------------------------------------------------------------------
5%, Average 3%, Average 2.5%, Average 3%, 95th-percentile
----------------------------------------------------------------------------------------------------------------
(million 2022$)
---------------------------------------------------------------------------
1................................... 0.5 2.0 3.2 5.4
2................................... 0.7 2.8 4.4 7.5
3................................... 0.7 3.1 4.9 8.4
4................................... 0.8 3.6 5.7 9.7
5................................... 0.8 3.4 5.3 9.0
6................................... 0.8 3.3 5.2 8.8
7................................... 1.1 4.7 7.4 12.6
8................................... 1.1 4.9 7.7 13.1
9................................... 1.3 5.5 8.7 14.7
----------------------------------------------------------------------------------------------------------------
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 on
reduced GHG emissions in this rulemaking is subject to change. That
said, because of omitted damages, DOE agrees with the IWG that these
estimates most likely underestimate the climate benefits of greenhouse
gas reductions. 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. DOE notes that the adopted
standards are economically justified even without inclusion of
monetized benefits of reduced GHG emissions.
DOE also estimated the monetary value of the economic benefits
associated with NOX emissions reductions anticipated to
result from the considered TSLs for NWGFs and MHGFs. The dollar-per-ton
values that DOE used are discussed in section IV.L of this document.
Table V.24 shows the present value for NOX emissions
reduction for each TSL calculated using 7-percent and 3-percent
discount rates. This table presents results that use the low benefit-
per-ton values, which reflect DOE's primary estimate.
Table V.24--Present Value of NOX Emissions Reduction for Non-Weatherized
Gas Furnaces and Mobile Home Gas Furnaces Shipped in 2029-2058
------------------------------------------------------------------------
TSL 7% Discount rate 3% Discount rate
------------------------------------------------------------------------
(million 2022$)
---------------------------------------
1............................... 2,195 6,868
2............................... 3,157 9,777
3............................... 3,735 11,520
4............................... 5,031 15,773
5............................... 4,164 12,822
6............................... 7,251 21,994
7............................... 5,651 17,432
8............................... 8,950 27,227
[[Page 87637]]
9............................... 12,980 39,089
------------------------------------------------------------------------
Note: Results are based on the low benefit-per-ton values.
DOE also estimated the monetary value of the economic impacts
associated with changes in SO2 emissions anticipated to
result from the considered TSLs for NWGFs and MHGFs. The dollar-per-ton
values that DOE used are discussed in section IV.L.2 of this document.
Table V.25 presents the present value of SO2 emission
changes for each TSL calculated using 7-percent and 3-percent discount
rates. This table presents results that use the low benefit-per-ton
values, which reflect DOE's primary estimate.
Table V.25--Present Value of SO2 Emission Changes for Non-Weatherized
Gas Furnaces and Mobile Home Gas Furnaces Shipped in 2029-2058
------------------------------------------------------------------------
TSL 7% Discount rate 3% Discount rate
------------------------------------------------------------------------
(million 2022$)
---------------------------------------
1............................... (7) (20)
2............................... (15) (44)
3............................... (28) (81)
4............................... (76) (226)
5............................... (39) (112)
6............................... (214) (608)
7............................... (43) (131)
8............................... (214) (616)
9............................... (401) (1,142)
------------------------------------------------------------------------
Note: Parentheses indicate negative (-) values.
The benefits of reduced CO2, CH4, and
N2O emissions are collectively referred to as ``climate
benefits.'' The effects of SO2 and NOX emission
changes are collectively referred to as ``health benefits.'' For the
time series of estimated monetary values of reduced emissions, see
chapter 14 of the final rule TSD.
7. Other Factors
The Secretary of Energy, in determining whether a standard is
economically justified, may consider any other factors that the
Secretary deems to be relevant. (42 U.S.C. 6295(o)(2)(B)(i)(VII)) No
other factors were considered in this analysis.
8. Summary of National Economic Impacts
Table V.26 presents the NPV values that result from adding the
monetized estimates of the potential economic, climate, and health net
benefits resulting from GHG, NOX, and SO2
emission changes to the NPV of consumer savings calculated for each TSL
considered in this rulemaking. The consumer benefits are domestic U.S.
monetary savings that occur as a result of purchasing the covered NWGFs
and MHGFs, and are measured for the lifetime of products shipped in
2029-2058. The climate benefits associated with reduced GHG emissions
resulting from the adopted standards are global benefits and are also
calculated based on the lifetime of consumer furnaces shipped in 2029-
2058. The climate benefits associated with four SC-GHG estimates are
shown. DOE does not have a single central SC-GHG point estimate, and it
emphasizes the importance and value of considering the benefits
calculated using all four SC-GHG estimates.
Table V.26--NPV of Consumer Benefits Combined With Monetized Climate and Health Benefits From Emissions
Reductions
----------------------------------------------------------------------------------------------------------------
Category TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6 TSL 7 TSL 8 TSL 9
----------------------------------------------------------------------------------------------------------------
3% discount rate for NPV of Consumer and Health Benefits (billion 2022$)
----------------------------------------------------------------------------------------------------------------
5% d.r., Average SC-GHG case... 12.4 18.0 21.1 28.0 23.6 36.7 32.8 47.3 61.4
3% d.r., Average SC-GHG case... 15.7 22.6 26.6 35.5 29.7 47.2 41.0 60.2 79.9
2.5% d.r., Average SC-GHG case. 18.0 26.0 30.5 40.8 34.1 54.6 47.0 69.4 93.1
3% d.r., 95th-percentile SC-GHG 24.0 34.5 40.5 54.5 45.2 73.8 62.2 93.2 127.3
case..........................
----------------------------------------------------------------------------------------------------------------
7% discount rate for NPV of Consumer and Health Benefits (billion 2022$)
----------------------------------------------------------------------------------------------------------------
5% d.r., Average SC-GHG case... 4.6 6.7 7.9 10.5 8.8 13.7 12.4 17.9 22.9
3% d.r., Average SC-GHG case... 7.8 11.4 13.4 18.0 14.9 24.2 20.7 30.8 41.4
2.5% d.r., Average SC-GHG case. 10.2 14.7 17.3 23.4 19.3 31.6 26.6 40.0 54.6
3% d.r., 95th-percentile SC-GHG 16.2 23.2 27.3 37.1 30.5 50.8 41.8 63.8 88.8
case..........................
----------------------------------------------------------------------------------------------------------------
Note: ``d.r.'' means discount rate.
[[Page 87638]]
C. Conclusion
When considering new or amended energy conservation standards, the
standards that DOE adopts 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 by,
to the greatest extent practicable, considering the seven statutory
factors discussed previously. (42 U.S.C. 6295(o)(2)(B)(i)) The new or
amended standard must also result in significant conservation of
energy. (42 U.S.C. 6295(o)(3)(B))
In this final rule, DOE considered the impacts of amended standards
for NWGFs and MHGFs at each TSL, beginning with the maximum
technologically feasible level, to determine whether that level was
economically justified. Where the max-tech level was not justified, DOE
then considered the next most efficient level and undertook the same
evaluation until it reached the highest efficiency level that is both
technologically feasible and economically justified and saves a
significant amount of energy.
To aid the reader as DOE discusses the benefits and/or burdens of
each TSL, tables in this section present a summary of the results of
DOE's quantitative analysis for each TSL. In addition to the
quantitative results presented in the tables, DOE also considers other
burdens and benefits that affect economic justification. These include
the impacts on identifiable subgroups of consumers who may be
disproportionately affected by a national standard and impacts on
employment.
DOE also notes that the economics literature provides a wide-
ranging discussion of how consumers trade off upfront costs and energy
savings in the absence of government intervention. Much of this
literature attempts to explain why consumers appear to undervalue
energy efficiency improvements. There is evidence that consumers
undervalue future energy savings as a result of: (1) a lack of
information; (2) a lack of sufficient salience of the long-term or
aggregate benefits; (3) a lack of sufficient savings to warrant
delaying or altering purchases; (4) excessive focus on the short term,
in the form of inconsistent weighting of future energy cost savings
relative to available returns on other investments; (5) computational
or other difficulties associated with the evaluation of relevant
tradeoffs; and (6) a divergence in incentives (for example, between
renters and owners, or builders and purchasers). Having less than
perfect foresight and a high degree of uncertainty about the future,
consumers may trade off these types of investments at a higher than
expected rate between current consumption and uncertain future energy
cost savings.
In DOE's current regulatory analysis, potential changes in the
benefits and costs of a regulation due to changes in consumer purchase
decisions are included in two ways. First, if consumers forgo the
purchase of a product in the standards case, this decreases sales for
product manufacturers, and the impact on manufacturers attributed to
lost revenue is included in the MIA. Second, DOE accounts for energy
savings attributable only to products actually used by consumers in the
standards case; if a standard decreases the number of products
purchased by consumers or increases consumer use of energy, such as
through a rebound rate, this decreases the potential energy savings
from an energy conservation standard. DOE provides estimates of
shipments and changes in the volume of product purchases in chapter 9
of the final rule TSD. However, DOE's current analysis does not
explicitly control for heterogeneity in consumer preferences,
preferences across subcategories of products or specific features, or
consumer price sensitivity variation according to household
income.\284\
---------------------------------------------------------------------------
\284\ P.C. Reiss and M.W. White (2005), Household Electricity
Demand, Revisited. The Review of Economic Studies, 72 (3), 853-883
(available at: academic.oup.com/restud/article/72/3/853/1557538)
(last accessed August 1, 2023).
---------------------------------------------------------------------------
1. Benefits and Burdens of TSLs Considered for Non-Weatherized Gas
Furnaces and Mobile Home Gas Furnaces
Tables V.27 and V.28 summarize the quantitative impacts estimated
for each TSL for NWGFs and MHGFs. The national impacts are measured
over the lifetime of NWGFs and MHGFs purchased in the 30-year period
that begins in the anticipated year of compliance with amended
standards (2029-2058). The energy savings and emissions reductions
refer to full-fuel-cycle results. The efficiency levels contained in
each TSL are described further in section V.A of this document.
Table V.27--Summary of Analytical Results for Non-Weatherized Gas Furnace and Mobile Home Gas Furnace TSLs:
National Impacts
----------------------------------------------------------------------------------------------------------------
Category TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6 TSL 7 TSL 8 TSL 9
----------------------------------------------------------------------------------------------------------------
Cumulative FFC National Energy Savings (quads)
----------------------------------------------------------------------------------------------------------------
Quads.......................... 1.52 2.11 2.42 3.10 2.65 3.63 3.63 4.77 6.26
----------------------------------------------------------------------------------------------------------------
Cumulative FFC Emissions Reduction (total FFC emission)
----------------------------------------------------------------------------------------------------------------
CO2 (million metric tons)...... 86 121 142 197 158 268 215 332 472
CH4 (thousand tons)............ 1,082 1,531 1,803 2,522 2,007 3,476 2,728 4,286 6,144
N2O (thousand tons)............ 0.16 0.22 0.24 0.28 0.26 0.26 0.36 0.38 0.43
NOX (thousand tons)............ 234 331 390 546 435 752 591 928 1,329
SO2 (thousand tons)............ (0) (1) (1) (4) (2) (10) (2) (10) (19)
Hg (tons)...................... (0.00) (0.01) (0.01) (0.03) (0.02) (0.08) (0.02) (0.08) (0.15)
----------------------------------------------------------------------------------------------------------------
Present Value of Benefits and Costs (3% discount rate, billion 2022$)
----------------------------------------------------------------------------------------------------------------
Consumer Operating Cost Savings 6.3 9.3 10.9 13.9 12.4 18.8 17.3 24.8 32.8
Climate Benefits *............. 4.3 6.2 7.3 10.0 8.1 13.9 11.0 17.3 24.8
Health Benefits **............. 6.8 9.7 11.4 15.5 12.7 21.4 17.3 26.6 37.9
Total Benefits [dagger]........ 17.4 25.2 29.7 39.4 33.2 54.1 45.6 68.7 95.5
Consumer Incremental Product 1.8 2.5 3.1 3.9 3.5 7.0 4.6 8.5 15.6
Costs [Dagger]................
Consumer Net Benefits.......... 4.5 6.7 7.8 10.0 8.9 11.8 12.7 16.3 17.2
Total Net Benefits............. 15.7 22.6 26.6 35.5 29.7 47.2 41.0 60.2 79.9
----------------------------------------------------------------------------------------------------------------
[[Page 87639]]
Present Value of Benefits and Costs (7% discount rate, billions 2022$)
----------------------------------------------------------------------------------------------------------------
Consumer Operating Cost Savings 2.3 3.4 4.1 5.1 4.6 7.0 6.4 9.3 12.5
Climate Benefits *............. 4.3 6.2 7.3 10.0 8.1 13.9 11.0 17.3 24.8
Health Benefits **............. 2.2 3.1 3.7 5.0 4.1 7.0 5.6 8.7 12.6
Total Benefits [dagger]........ 8.8 12.7 15.1 20.1 16.8 28.0 23.1 35.3 49.8
Consumer Incremental Product 1.0 1.4 1.7 2.0 1.9 3.8 2.4 4.5 8.4
Costs [Dagger]................
Consumer Net Benefits.......... 1.3 2.0 2.4 3.1 2.7 3.2 4.1 4.8 4.0
Total Net Benefits............. 7.8 11.4 13.4 18.0 14.9 24.2 20.7 30.8 41.4
----------------------------------------------------------------------------------------------------------------
Note: This table presents the costs and benefits associated with consumer furnaces shipped in 2029-2058. These
results include benefits to consumers which accrue after 2058 from the products shipped in 2029-2058.
Parentheses indicate negative (-) values.
* Climate benefits are calculated using four different estimates of the social cost of carbon (SC-CO2), methane
(SC-CH4), and nitrous oxide (SC-N2O) (model average at 2.5-percent, 3-percent, and 5-percent discount rates;
95th-percentile at 3-percent discount rate). Together these represent the global social cost of greenhouse
gases (SC-GHG). For presentational purposes of this table, the climate benefits associated with the average SC-
GHG at a 3-percent discount rate are shown, but the Department does not have a single, central SC-GHG point
estimate. DOE emphasizes the importance and value of considering the benefits calculated using all four sets
of SC-GHG estimates. To monetize the benefits of reducing GHG emissions, this analysis uses the interim
estimates presented in the Technical Support Document: Social Cost of Carbon, Methane, and Nitrous Oxide
Interim Estimates Under Executive Order 13990 published in February 2021 by the IWG.
** Net health benefits are calculated using benefit-per-ton values for NOX and SO2. DOE is currently only
monetizing (for SO2 and NOX) PM2.5 precursor health benefits and (for NOX) ozone precursor health benefits,
but will continue to assess the ability to monetize other effects such as health benefits from reductions in
direct PM2.5 emissions. See section IV.L of this document for more details.
[dagger] Total and net benefits include those consumer, climate, and health benefits that can be monetized. For
presentation purposes, total and net benefits for both the 3-percent and 7-percent cases are presented using
the average SC-GHG with 3-percent discount rate.
[Dagger] Costs include incremental equipment costs as well as installation costs.
Table V.28--Summary of Analytical Results for Non-Weatherized Gas Furnace and Mobile Home Gas Furnace TSLs: Manufacturer and Consumer Impacts
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Category TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6 TSL 7 TSL 8 TSL 9
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Manufacturer Impacts
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Industry NPV (million 2022$) 1,264.0 to 1,226.7 to 1,207.5 to 1,089.0 to 1,199.9 to 1,201.3 to 1,337.9 1,015.1 to 1,004.6 to 703.1 to
(No-new-standards case INPV = 1,351.3. 1,345.3. 1,337.0. 1,342.5. 1,341.4. 1,339.1. 1,338.0. 1,352.7
1,371.8).
Industry NPV (% change)........ (7.9) to (1.5).. (10.6) to (1.9). (12.0) to (2.5). (20.6) to (2.1). (12.5) to (2.2). (12.4) to (2.5)... (26.0) to (2.4) (26.8) to (2.5) (48.7) to (1.4)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Consumer Average LCC Savings (2022$)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
NWGF........................... 577............. 571............. 580............. 390............. 551............. 320............... 479............ 350............ 169
MHGF........................... 846............. 805............. 736............. 908............. 675............. 532............... 760............ 616............ 529
Shipment-Weighted Average \*\.. 583............. 580............. 587............. 406............. 557............. 327............... 487............ 357............ 176
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Consumer Simple PBP (years)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
NWGF........................... 6.4............. 6.6............. 6.7............. 7.0............. 7.0............. 9.4............... 5.8............ 7.6............ 10.1
MHGF........................... 2.2............. 2.5............. 2.5............. 2.4............. 2.6............. 3.6............... 2.4............ 3.2............ 4.8
Shipment-Weighted Average \*\.. 6.4............. 6.5............. 6.6............. 6.9............. 7.0............. 9.2............... 5.7............ 7.5............ 10.0
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Percentage of Consumers That Experience a Net Cost
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
NWGF........................... 3.2............. 4.7............. 5.8............. 5.6............. 6.8............. 19.2.............. 6.8............ 18.7........... 62.3
MHGF........................... 0.6............. 2.5............. 3.7............. 3.9............. 5.0............. 16.2.............. 5.0............ 15.3........... 18.6
Shipment-Weighted Average \*\.. 3.1............. 4.6............. 5.8............. 5.6............. 6.8............. 19.2.............. 6.8............ 18.7........... 61.4
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Note: Parentheses indicate negative (-) values.
* Weighted by shares of each product class in total projected shipments in 2029.
DOE first considered the standards at TSL 9, which represents the
max-tech efficiency levels and which includes the highest efficiency
commercially available for both non-weatherized gas furnaces and mobile
furnaces (i.e., 98-percent AFUE for NWGFs and 96-percent AFUE for
MHGFs). TSL 9 would save 6.26 quads of energy, an amount DOE considers
significant. Under TSL 9, the NPV of consumer benefit would be $4.0
billion using a discount rate of 7 percent, and $17.2 billion using a
discount rate of 3 percent.
The cumulative emissions reductions at TSL 9 are 472 Mt of
CO2, 6.1 million tons of CH4, 0.4 thousand tons
of N2O, and 1.3 million tons of NOX. Projected
emissions show an increase of 19 thousand tons of SO2 and
0.15 tons of Hg. The increase is due to projected switching from gas
furnaces to electric heat pumps and electric furnaces by some consumers
under standards at TSL 9. The estimated monetary value of the climate
benefits from reduced GHG emissions (associated with the average SC-GHG
at a 3-percent discount rate) at TSL 9 is $24.8 billion. The estimated
monetary value of the net health benefits from changes to
NOX and SO2 emissions at TSL 9 is $12.6 billion
using a 7-percent discount rate and $37.9 billion using a 3-percent
discount rate.
Using a 7-percent discount rate for consumer benefits and costs,
net health benefits from SO2 and NOX emission
changes, and the 3-percent discount rate case for climate benefits from
reduced GHG emissions, the estimated total NPV at TSL 9 is $41.4
billion. Using a 3-percent discount rate for all benefits and
[[Page 87640]]
costs, the estimated total NPV at TSL 9 is $79.9 billion.
At TSL 9, the average LCC impact on affected consumers is a savings
of $169 for NWGFs and $529 for MHGFs. The simple payback period is 10.1
years for NWGFs and 4.8 years for MHGFs. The fraction of consumers
experiencing a net LCC cost is 62.3 percent for NWGFs and 18.3 percent
for MHGFs. The fraction of low-income consumers experiencing a net LCC
cost is 39.7 percent for NWGFs and 18.0 percent for MHGFs.
At TSL 9, the projected changes in INPV range from a decrease of
$668.7 million to a decrease of $19.1 million. If the more severe end
of this range is realized, TSL 9 could result in a net loss of 48.7
percent in INPV. Industry conversion costs could reach $328.0 million
at this TSL.
At TSL 9, manufacturers would need to significantly restructure
their product offerings. Currently, less than half of consumer furnace
manufacturers offer a product that meets the max-tech efficiencies. The
models available at these efficiencies are not produced in high
volumes. DOE estimates that approximately 1.4 percent of NWGF shipments
and 0.9 percent of MHGF shipments are currently sold (2023) at the max-
tech levels, 98-percent AFUE and 96-percent AFUE, respectively. The
NWGF industry would incur significant product conversion costs to
develop cost-optimized NWGF models for a marketplace where efficiency
and combustion system technology are no longer viable options for
product differentiation. Similarly, the MHGF industry would incur
significant product conversion costs to develop cost-optimized models
for a marketplace where efficiency is no longer a means for product
differentiation. As noted in section IV.J.2.d of this document,
manufacturers currently maintain multiple tiers of product lines, which
have varying levels of profitability. DOE models the industry operating
with three manufacturer markup tiers (``good, better, best'') that are
primarily differentiated on AFUE and combustion system technology
(e.g., single-stage, two-stage, and modulating combustion systems).
Generally, higher-efficiency models and those with more advanced
combustion system technology command a higher manufacturer markup than
lower efficiency models. At max-tech, NWGF and MHGF manufacturers would
lose the ability to charge a premium markup based on AFUE, which would
lead to an overall reduction in profitability. At the NWGF max-tech
level, manufacturers would also lose the ability to differentiate
products based on combustion system technology, as all models would
need to integrate modulating combustion. Without these differentiators,
manufacturers would have a more difficult time maintaining premium
product lines that command higher manufacturer markups. The reduction
in product differentiation leads to a reduction in profitability, which
is a key driver of loss in INPV. Even as profitability of products is
expected to decline, NWGF and MHGF manufacturers would need to invest
in significant capital conversion costs to update manufacturing lines
to produce max-tech designs at high volume. The reduced profitability
due to limited product differentiation, large upfront investments to
remain in the market, and negative impacts on INPV could alter the
consumer furnaces competitive landscape. Manufacturers that have lower
cash reserves, more difficulty raising capital, a greater portion of
products that require redesign, or fewer technical resources would
experience more business risk than their competitors in the industry.
Based upon the above considerations, the Secretary concludes that
at TSL 9 for NWGFs and MHGFs, the benefits of energy savings, positive
NPV of consumer benefits, emission reductions, and the estimated
monetary value of the net health benefits of emissions reductions would
be outweighed by the economic burden on many consumers, especially low-
income consumers, as well as the impacts on manufacturers, including
the large potential reduction in INPV. In reaching this decision, DOE
notes that a large fraction of both NWGF and MHGF consumers (62.3
percent and 18.6 percent, respectively), including low-income
consumers, experience a net cost at TSL 9. This is due to the high
incremental cost of NWGFs and MHGFs at the max-tech efficiency levels.
This is particularly pronounced for NWGFs, where the incremental
production cost above baseline is more than twice as large as the next
highest efficiency level (see section IV.C.2 of this document).
Consumers with existing furnaces above 90-percent AFUE but below 98-
percent AFUE are more likely to experience a net cost at TSL 9, given
the relatively modest decrease in operating costs compared to the high
incremental installed costs. DOE also notes the consumer impacts are
similar across the range of sensitivity analyses performed,
particularly with respect to the fraction of consumers who may switch
to alternative space-heating products. A large fraction of NWGF and
MHGF consumers in the sensitivity analyses experience a net cost at TSL
9 as well. Therefore, DOE's conclusions would not change if based on
any of the sensitivity scenarios. At max-tech, most manufacturers would
need to make significant upfront investments to update product lines
and manufacturing facilities. Additionally, the companies must make
those investments to remain in a less-profitable market where there is
less product differentiation to maintain premium pricing tiers and
where consumers are more likely to repair their existing furnaces or
switch to alternative heating technologies. As result, there is risk
that some manufacturers would choose to leave the market and risk that
the standard would drive industry consolidation that would not
otherwise have occurred. Consequently, the Secretary has concluded that
TSL 9 is not economically justified.
DOE then considered the standards at TSL 8, which consists of
intermediate condensing efficiency levels at 95-percent AFUE for both
NWGFs and MHGFs across the Nation. TSL 8 would save 4.77 quads of
energy, an amount DOE considers significant. Under TSL 8, the NPV of
consumer benefit would be $4.8 billion using a discount rate of 7
percent, and $16.3 billion using a discount rate of 3 percent.
The cumulative emissions reductions at TSL 8 would be expected to
be 332 Mt of CO2, 4.3 million tons of CH4, 0.4
thousand tons of N2O, and 0.9 million tons of
NOX. Projected emissions show an increase of 10 thousand
tons of SO2 and 0.08 tons of Hg. The increase is due to
projected switching from gas furnaces to electric heat pumps and
electric furnaces by some consumers under standards at TSL 8. The
estimated monetary value of the climate benefits from reduced GHG
emissions (associated with the average SC-GHG at a 3-percent discount
rate) at TSL 8 is $17.3 billion. The estimated monetary value of the
net health benefits from changes to NOX and SO2
emissions at TSL 8 is $8.7 billion using a 7-percent discount rate and
$26.6 billion using a 3-percent discount rate.
Using a 7-percent discount rate for consumer benefits and costs,
net health benefits from SO2 and NOX emission
changes, and the 3-percent discount rate case for climate benefits from
reduced GHG emissions, the estimated total NPV at TSL 8 is $30.8
billion. Using a 3-percent discount rate for all benefits and costs,
the estimated total NPV at TSL 8 is $60.2 billion.
At TSL 8, the average LCC impact on affected consumers is a savings
of $350 for NWGFs and $616 for MHGFs. The simple payback period is 7.6
years for NWGFs and 3.2 years for MHGFs. The
[[Page 87641]]
fraction of consumers experiencing a net LCC cost is 18.7 percent for
NWGFs and 15.3 percent for MHGFs. The fraction of low-income consumers
experiencing a net LCC cost is 15.9 percent for NWGFs and 15.3 percent
for MHGFs.
At TSL 8, the projected changes in INPV range from a decrease of
$367.3 million to a decrease of $33.8 million. If the more severe end
of this range is realized, TSL 8 could result in a net loss of 26.8
percent in INPV. Industry conversion costs would reach $162.0 million
as manufacturers expand secondary heat exchanger capacity and redesign
products to meet the standard.
At TSL 8, manufacturers would incur conversion costs to develop
cost-optimized model offerings at the new minimum 95-percent AFUE and
to expand secondary heat exchanger production capacity. However, the
conversion costs at TSL 8 are substantially lower than those at TSL 9.
Ninety percent of manufacturers currently have a range of compliant
offerings at TSL 8. DOE estimates that approximately 41.6 percent of
the annual NWGF shipments and approximately 19.5 percent of the annual
MHGF shipments are already at this level. Furthermore, manufacturers
would not be making the upfront investments with same level of
profitability risk noted at TSL 9. With a national standard of 95-
percent AFUE, both NWGF and MHGF manufacturers would maintain the
ability to differentiate products based on efficiency and combustion
system technology. With these options available, industry can continue
to operate with three markup tiers (``good, better, best'') that enable
greater industry profitability. However, the range of manufacturer
markups are compressed, as max-tech products would not be expected to
command the same premium as they did in the no-new-standards case.
After considering the analysis and weighing the benefits and
burdens, the Secretary has concluded that a standard set at TSL 8 for
NWGFs and MHGFs would be economically justified. At this TSL, the
average LCC savings for both NWGF and MHGF consumers are positive. An
estimated 18.7 percent of NWGF consumers and 15.3 percent of MHGF
consumers experience a net cost. The reduction in the percentage of
consumers experiencing a net cost at TSL 8 compared to TSL 9 is largely
due to the market share of consumers already with a furnace at 95-
percent AFUE (see section IV.F.8 of this document). These consumers are
not impacted by a standard set at TSL 8. For the remaining consumers
that are impacted, the lower incremental cost above baseline for a 95-
percent AFUE furnace compared to a max-tech furnace (see section IV.C.2
of this document), particularly for NWGFs, results in fewer consumers
experiencing a net cost as compared to TSL 9. DOE also notes the
consumer impacts are similar across the range of sensitivity analyses
performed, particularly with respect to the fraction of consumers who
may switch to alternative space-heating products. A much smaller
fraction of NWGF and MHGF consumers in the sensitivity analyses
experience a net cost at TSL 8 as compared to TSL 9 as well. Therefore,
DOE's conclusions would not change if based on any of the sensitivity
scenarios. The FFC national energy savings at TSL 8 are significant,
and the NPV of consumer benefits is positive using both a 3-percent and
7-percent discount rate. Notably, the benefits to consumers vastly
outweigh the cost to manufacturers. At TSL 8, the NPV of consumer
benefits, even measured at the more conservative discount rate of 7
percent, is 13 times higher than the maximum estimated manufacturers'
loss in INPV. The shipment-weighted average LCC savings are 2 times
higher than at TSL 9. The standard levels at TSL 8 are economically
justified even without weighing the estimated monetary value of the net
health benefits of emissions reductions. When those emissions
reductions are included--representing $17.3 billion in climate benefits
(associated with the average SC-GHG at a 3-percent discount rate), and
$26.6 billion (using a 3-percent discount rate) or $8.7 billion (using
a 7-percent discount rate) in net health benefits--the rationale
becomes stronger still.
DOE further notes that there have been regulations in Canada
requiring condensing furnaces with at least 90-percent AFUE for over
ten years and requiring at least 95-precent AFUE since July 2019 (see
section II.B.3 of this final rule). The adopted standard levels for
NWGFs at TSL 8 align with the Canadian regulations. As discussed in the
2016 SNOPR (since withdrawn), some stakeholders noted that Canada has
required condensing furnaces for years and stated that neither Natural
Resources Canada nor its mortgage agency found any significant
implementation issues. 81 FR 65720, 65779 (Sept. 23, 2016). While DOE
realizes that climate and fuel prices differ between the U.S. and
Canada and will yield different results in terms of costs and benefits
of the standard, there are similarities in the equipment and venting
materials used in both the U.S. and Canada with respect to NWGFs.
Because the stock of buildings using NWGFs in Canada has many
similarities to the stock using NWGFs in northern parts of the U.S.,
the Canadian experience in terms of installation of condensing furnaces
has relevance to the U.S.
DOE acknowledges that an estimated 15.9 percent of low-income NWGF
and 15.3 percent of low-income MHGF consumers experience a net cost at
TSL 8, whereas an estimated 5.7 percent of low-income NWGF and 4.7
percent of low-income MHGF consumers experience a net cost at TSL 7.
(TSL 7 is an AFUE standard at the same level as TSL 8 but for NWGFs and
MHGFs greater than 55 kBtu/h only.) The majority of negatively impacted
low-income consumers at TSL 8 have smaller capacity NWGFs or MHGFs
below 55 kBtu/h and, therefore, would not be impacted by a standard set
at TSL 7, since the standards for NWGFs and MHGFs below 55 kBtu/h would
remain at 80-percent AFUE. However, compared to TSL 7, it is estimated
that TSL 8 would result in additional FFC national energy savings of
1.14 quads and additional net health benefits of $9.3 billion (using a
3-percent discount rate) or $3.1 billion (using a 7-percent discount
rate). The national consumer NPV similarly increases at TSL 8, compared
to TSL 7, by $0.7 billion using a 7-percent discount rate and $3.6
billion using a 3-percent discount rate. These additional savings and
benefits at TSL 8 are significant. DOE considers these impacts to be,
as a whole, economically justified at TSL 8.
Accordingly, the Secretary has concluded that TSL 8 would offer the
maximum improvement in efficiency that is technologically feasible and
economically justified and would result in the significant conservation
of energy. Although results are presented here in terms of TSLs, DOE
analyzes and evaluates all possible ELs for each product class in its
analysis. For both NWGFs and MHGFs, TSL 8 is comprised of the highest
efficiency level below max-tech. For NWGFs and MHGFs, the max-tech
efficiency level results in a large percentage of consumers that
experience a net LCC cost, in addition to significant manufacturer
impacts. The ELs one level below max-tech, representing the adopted
standard levels, result in positive LCC savings for both classes,
significantly reduce the number of consumers experiencing a net cost,
and reduce the decrease in INPV and conversion costs to the point where
DOE has concluded they are
[[Page 87642]]
economically justified, as discussed for TSL 8 in the preceding
paragraphs.
Therefore, based on the considerations discussed, DOE adopts the
energy conservation standards for NWGFs and MHGFs at TSL 8. The adopted
energy conservation standards for NWGFs and MHGFs, which are expressed
as AFUE, are shown in Table V.29.
Table V.29--Adopted Energy Conservation Standards for Non-Weatherized
Gas Furnaces and Mobile Home Gas Furnaces
[Compliance starting 2029]
------------------------------------------------------------------------
Product class AFUE (percent)
------------------------------------------------------------------------
Non-Weatherized Gas Furnaces............................ 95
Mobile Home Gas Furnaces................................ 95
------------------------------------------------------------------------
2. Annualized Benefits and Costs of the Adopted Standards
The benefits and costs of the adopted standards can also be
expressed in terms of annualized values. The annualized net benefit is:
(1) the annualized national economic value (expressed in 2022$) of the
benefits from operating products that meet the adopted standards
(consisting primarily of operating cost savings from using less energy,
minus increases in product purchase costs), and (2) the annualized
monetary value of the climate and net health benefits from emission
reductions.
Table V.30 shows the annualized values under TSL 8, expressed in
2022$. The results under the primary estimate are as follows.
Using a 7-percent discount rate for consumer benefits and costs and
net health benefits from SO2 and NOX emission
changes, and the 3-percent discount rate case for climate benefits from
reduced GHG emissions, the estimated cost of the adopted standards is
$511 million per year in increased equipment costs, while the estimated
annual benefits would be $1,054 million in reduced equipment operating
costs, $1,021 million in climate benefits, and $987 million in net
health benefits (accounting for reduced NOX emissions and
increased SO2 emissions). In this case, the net benefit
amounts to $2,551 million per year.
Using a 3-percent discount rate for all benefits and costs, the
estimated cost of the adopted standards is $500 million per year in
increased equipment costs, while the estimated annual benefits would be
$1,467 million in reduced operating costs, $1,021 million in climate
benefits, and $1,574 million in net health benefits (accounting for
reduced NOX emissions and increased SO2
emissions). In this case, the net benefit amounts to $3,561 million per
year.
Table V.30--Annualized Monetized Benefits and Costs of Adopted Standards
for Non-Weatherized Gas Furnaces and Mobile Home Gas Furnaces
[TSL 8]
------------------------------------------------------------------------
Million 2022$/year
--------------------------------------
Low-net- High-net-
Primary benefits benefits
estimate estimate estimate
------------------------------------------------------------------------
3% discount rate
------------------------------------------------------------------------
Consumer Operating Cost Savings.. 1,467 1,528 1,440
Climate Benefits *............... 1,021 1,003 1,028
Net Health Benefits **........... 1,574 1,546 1,585
Total Monetized Benefits [dagger] 4,061 4,077 4,053
Consumer Incremental Product 500 520 489
Costs [Dagger]..................
Net Monetized Benefits........... 3,561 3,557 3,564
Change in Producer Cashflow (INPV (27)-(2) (27)-(2) (27)-(2)
[Dagger][Dagger])...............
------------------------------------------------------------------------
7% discount rate
------------------------------------------------------------------------
Consumer Operating Cost Savings.. 1,054 1,094 1,051
Climate Benefits * (3% discount 1,021 1,003 1,028
rate)...........................
Health Benefits **............... 987 972 994
Total Monetized Benefits [dagger] 3,062 3,069 3,073
Consumer Incremental Product 511 528 501
Costs [Dagger]..................
Net Monetized Benefits........... 2,551 2,541 2,572
Change in Producer Cashflow (INPV (27)-(2) (27)-(2) (27)-(2)
[Dagger][Dagger])...............
------------------------------------------------------------------------
Note: This table presents the costs and benefits associated with
consumer furnaces shipped in 2029-2058. These results include benefits
to consumers which accrue after 2058 from the products shipped in 2029-
2058.
* Climate benefits are calculated using four different estimates of the
global SC-GHG (see section IV.L of this document). For presentational
purposes of this table, the climate benefits associated with the
average SC-GHG at a 3-percent discount rate are shown, but the
Department does not have a single, central SC-GHG point estimate. DOE
emphasizes the importance and value of considering the benefits
calculated using all four sets of SC-GHG estimates. To monetize the
benefits of reducing GHG emissions, this analysis uses the interim
estimates presented in the Technical Support Document: Social Cost of
Carbon, Methane, and Nitrous Oxide Interim Estimates Under Executive
Order 13990 published in February 2021 by the IWG.
[[Page 87643]]
** Health benefits are calculated using benefit-per-ton values for NOX
and SO2. DOE is currently only monetizing (for SO2 and NOX) PM2.5
precursor health benefits and disbenefits and (for NOX) ozone
precursor health benefits, but will continue to assess the ability to
monetize other effects such as health benefits from reductions in
direct PM2.5 emissions. See section IV.L of this document for more
details.
[dagger] Total benefits for both the 3-percent and 7-percent cases are
presented using the average SC-GHG with 3-percent discount rate.
[Dagger] Costs include incremental equipment costs, as well as
installation costs.
[Dagger][Dagger] Operating Cost Savings are calculated based on the LCC
analysis and national impact analysis as discussed in detail below.
See sections IV.F and IV.H of this document. DOE's national impact
analysis includes all impacts (both costs and benefits) along the
distribution chain beginning with the increased costs to the
manufacturer to manufacture the product and ending with the increase
in price experienced by the consumer. DOE also separately conducts a
detailed analysis on the impacts on manufacturers (the MIA). See
section IV.J of this document. In the detailed MIA, DOE models
manufacturers' pricing decisions based on assumptions regarding
investments, conversion costs, cashflow, and margins. The MIA produces
a range of impacts, which is the rule's expected impact on the INPV.
The change in INPV is the present value of all changes in industry
cash flow, including changes in production costs, capital
expenditures, and manufacturer profit margins. The annualized change
in INPV is calculated using the industry weighted average cost of
capital value of 6.4 percent that is estimated in the manufacturer
impact analysis (see chapter 12 of the final rule TSD for a complete
description of the industry weighted average cost of capital). For
NWGFs and MHGFs, those values are -$27 million to -$2 million. DOE
accounts for that range of likely impacts in analyzing whether a TSL
is economically justified. See section V.C of this document. DOE is
presenting the range of impacts to the INPV under two manufacturer
markup scenarios: the Preservation of Gross Margin scenario, which is
the manufacturer markup scenario used in the calculation of Consumer
Operating Cost Savings in this table, and the Tiered scenario, where
DOE assumed amended standards would result in a reduction of product
differentiation and a compression of the markup tiers. DOE includes
the range of estimated annualized change in INPV in the above table,
drawing on the MIA explained further in section IV.J of this document,
to provide additional context for assessing the estimated impacts of
this final rule to society, including potential changes in production
and consumption, which is consistent with OMB's Circular A-4 and E.O.
12866. If DOE were to include the INPV into the annualized net benefit
calculation for this final rule, the annualized net benefits would
range from $3,534 million to $3,559 million at 3-percent discount rate
and would range from $2,524 million to $2,549 million at 7-percent
discount rate. Parentheses ( ) indicate negative values.
VI. Procedural Issues and Regulatory Review
A. Review Under Executive Orders 12866, 13563, and 14094
Executive Order (E.O.) 12866, ``Regulatory Planning and Review,''
58 FR 51735 (Oct. 4, 1993), as supplemented and reaffirmed by E.O.
13563, ``Improving Regulation and Regulatory Review,'' 76 FR 3821 (Jan.
21, 2011), and E.O. 14094, ``Modernizing Regulatory Review,'' 88 FR
21879 (April 11, 2023), requires agencies, to the extent permitted by
law, to: (1) propose or adopt a regulation only upon a reasoned
determination that its benefits justify its costs (recognizing that
some benefits and costs are difficult to quantify); (2) tailor
regulations to impose the least burden on society, consistent with
obtaining regulatory objectives, taking into account, among other
things, and to the extent practicable, the costs of cumulative
regulations; (3) select, in choosing among alternative regulatory
approaches, those approaches that maximize net benefits (including
potential economic, environmental, public health and safety, and other
advantages; distributive impacts; and equity); (4) to the extent
feasible, specify performance objectives, rather than specifying the
behavior or manner of compliance that regulated entities must adopt;
and (5) identify and assess available alternatives to direct
regulation, including providing economic incentives to encourage the
desired behavior, such as user fees or marketable permits, or providing
information upon which choices can be made by the public. DOE
emphasizes as well that E.O. 13563 requires agencies to use the best
available techniques to quantify anticipated present and future
benefits and costs as accurately as possible. In its guidance, the
Office of Information and Regulatory Affairs (OIRA) in the Office of
Management and Budget (OMB) has emphasized that such techniques may
include identifying changing future compliance costs that might result
from technological innovation or anticipated behavioral changes. For
the reasons stated in this preamble, this final regulatory action is
consistent with these principles.
Section 6(a) of E.O. 12866 also requires agencies to submit
``significant regulatory actions'' to OIRA for review. OIRA has
determined that this final regulatory action constitutes a
``significant regulatory action'' under section 3(f)(1) of E.O. 12866,
as amended by E.O. 14094. Accordingly, pursuant to section 6(a)(3)(C)
of E.O. 12866, DOE has provided to OIRA an assessment, including the
underlying analysis, of benefits and costs anticipated from the final
regulatory action, together with, to the extent feasible, a
quantification of those costs; and an assessment, including the
underlying analysis, of costs and benefits of potentially effective and
reasonably feasible alternatives to the planned regulation, and an
explanation why the planned regulatory action is preferable to the
identified potential alternatives. These assessments are summarized in
this preamble and further detail can be found in the technical support
document for this rulemaking.
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) and a
final regulatory flexibility analysis (FRFA) for any rule that by law
must be proposed for public comment, unless the agency certifies that
the rule, if promulgated, will not have a significant economic impact
on a substantial number of small entities. As required by E.O. 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 website (www.energy.gov/gc/office-general-counsel). DOE has prepared the following FRFA for the products
that are the subject of this rulemaking.
For manufacturers of NWGFs and MHGFs, the 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. (See 13 CFR part 121.) The
size standards are listed by North American Industry Classification
System (NAICS) code and industry description and are available at
www.sba.gov/document/support-table-size-standards. Manufacturing of
NWGFs and MHGFs is classified under NAICS 333415, ``Air-Conditioning
and Warm Air Heating Equipment and Commercial and Industrial
Refrigeration Equipment Manufacturing.'' The SBA sets a threshold of
1,250 employees or fewer for an entity to be considered as a small
business for this category.
1. Need for, and Objectives of the Rule
DOE is amending the energy conservation standards for NWGFs and
MHGFs. EPCA specifically provides that DOE must conduct two rounds of
energy
[[Page 87644]]
conservation standard rulemakings for NWGFs and MHGFs. (42 U.S.C.
6295(f)(4)(B) and (C)) The statute also requires that not later than
six years after issuance of any final rule establishing or amending a
standard, DOE must publish either a notice of determination that
standards for the product do not need to be amended, or a NOPR
including new proposed energy conservation standards. (42 U.S.C.
6295(m)(1)) This rulemaking is pursuant to the statutorily required
second round of rulemaking for NWGFs and MHGFs and the statutorily
required six-year-lookback review.
2. Significant Issues Raised in Response to the IRFA
In response to the July 2022 NOPR, NGA of Georgia stated that DOE's
proposal fails to capture the negative effects on small businesses that
manufacture venting and accessories for non-condensing furnaces. (NGA
of Georgia, No. 380 at p. 2) HARDI commented that the proposed
standards also do not meet the requirements under the Regulatory
Flexibility Act, as DOE only assessed the impact on four small
manufacturers, but not on distributors, contractors, or manufacturers
of furnace supplies. HARDI stated that there are a number of small
businesses that serve as furnace suppliers. (HARDI, No. 384 at pp. 3-4)
DOE conducted an IRFA in support of the July 2022 NOPR. The
Regulatory Flexibility Act requires an agency to perform a regulatory
flexibility analysis of small entity impacts only when a rule directly
regulates the small entities. This final rule regulates manufacturers
of consumer furnaces, and, as such, DOE's analysis is scoped to the
original equipment manufacturers (OEMs) of the covered products
directly affected by this rulemaking.
3. Description and Estimated Number of Small Entities Affected
DOE reviewed this final rule under the provisions of the Regulatory
Flexibility Act and the procedures and policies published on February
19, 2003. 68 FR 7990. DOE conducted a market survey to identify
potential small manufacturers of the covered products. DOE began its
assessment by reviewing DOE's Compliance Certification Database
(CCD),\285\ California Energy Commission's Modernized Appliance
Efficiency Database System (MAEDbS),\286\ Air Conditioning, Heating,
and Refrigeration Institute's (AHRI) Directory of Certified Product
Performance database,\287\ individual retailer websites, and the
withdrawn September 2016 SNOPR to identify manufacturers of the covered
products. 81 FR 65720. DOE then consulted publicly-available data, such
as manufacturer websites, manufacturer specifications and product
literature, import/export logs (e.g., bills of lading from Panjiva
\288\), and basic model numbers, to identify OEMs of the products
covered by this rulemaking. DOE further relied on public data and
subscription-based market research tools (e.g., Dun & Bradstreet
reports) \289\ to determine company location, headcount, and annual
revenue. DOE also asked industry representatives if they were aware of
any other small manufacturers during manufacturer interviews. DOE
screened out companies that do not offer products covered by this
rulemaking, do not meet the SBA's definition of a ``small business,''
or are foreign-owned and operated.
---------------------------------------------------------------------------
\285\ DOE's Compliance Certification Database is available at:
www.regulations.doe.gov/certification-data/ (last accessed March 8,
2023).
\286\ California Energy Commission's MAEDbS (available at:
cacertappliances.energy.ca.gov/Pages/Search/AdvancedSearch.aspx)
(last accessed July 15, 2021).
\287\ AHRI's Directory of Certified Product Performance
(available at: www.ahridirectory.org/Search/SearchHome) (last
accessed March 8, 2023).
\288\ S&P Global. Panjiva Market Intelligence is available at:
panjiva.com/import-export/United-States (last accessed March 24,
2023).
\289\ D&B Hoovers subscription login is available at:
app.dnbhoovers.com/ (last accessed March 24, 2023).
---------------------------------------------------------------------------
For the IRFA, DOE identified 15 OEMs selling NWGFs and/or MHGFs in
the United States. Of those 15 OEMs, DOE tentatively determined that
four companies qualified as small businesses and were not foreign-owned
or operated. For this FRFA, DOE refreshed its database of model
listings to include the most up-to-date information on NWGF and MHGF
models currently available on the market. Through its review of the
updated product database and other public sources, DOE determined that
one MHGF OEM and that one small domestic NWGF OEM no longer offer
products covered by this rulemaking. Additionally, DOE identified a new
entrant to the NWGF market that qualifies as a ``small business.''
Therefore, for this FRFA, DOE identified 14 OEMs that sell NWGFs and/or
MHGFs in the United States. Of the 14 OEMs identified, DOE determined
that four companies qualify as small businesses and are not foreign-
owned or operated.
4. Description of Compliance Requirements
Of the four small domestic OEMs identified, two manufacture NWGFs,
one manufactures MHGFs, and one manufactures both NWGFs and MHGFs. DOE
considered the impact of this rule on the four manufacturers.
DOE adjusted the small business conversion cost estimates developed
in the IRFA to 2022$ for this FRFA. As previously discussed, DOE also
refreshed its database of model listings to include updated information
on NWGF and MHGF models currently available on the market.
One of the small NWGF manufacturers (``Company A'') sells a niche
product in the NWGF market. The company offers three basic models of a
through-the-wall furnace marketed for multi-family construction. The
three models have identical dimensions and share many components. One
model is rated at 80-percent AFUE, one model is rated at 93-percent
AFUE, and the other model is rated at 95-percent AFUE. Given the
product similarities and low volume of sales, DOE expects the
manufacturer would likely discontinue the non-compliant models. DOE
does not expect the small manufacturer would incur conversion costs due
to the standard, as the company currently offers their niche product at
95-percent AFUE.
The other small NWGF manufacturer (``Company B'') introduced new
products into the CCD after DOE conducted its NOPR analysis. Since the
July 2022 NOPR, this small NWGF manufacturer now offers approximately
10 basic models of both non-condensing and condensing NWGFs. The non-
condensing models are rated at 81-percent AFUE, and the condensing
models are rated between 93-percent and 96-percent AFUE. The non-
condensing models and condensing models have identical dimensions and
share many components. Given the product similarities, DOE expects this
manufacturer would likely ramp up production of its compliant models
and discontinue models that do not meet the adopted level. However, to
avoid underestimating the potential investments, DOE used model counts
to scale industry product conversion costs and market share estimates
to scale industry capital conversion costs for this FRFA. As discussed
in this final rule, capital conversion costs are one-time investments
in property, plant, and equipment necessary to adapt or change existing
production facilities such that new, compliant product designs can be
fabricated and assembled. Product conversion costs are one-time
investments in research, development, testing, marketing, and other
non-capitalized costs necessary to make product designs comply with
amended
[[Page 87645]]
energy conservation standards. The eight NWGF models that would require
redesign or retirement is an estimated 1.0 percent of the 825 NWGF
models with an AFUE below 95-percent in the product database developed
for this rulemaking. DOE estimates that this small business could incur
approximately $0.4 million in product conversion costs and $1.1 million
in capital conversion costs as they work to develop a condensing NWGF
product line. The total conversion costs of $1.6 million are
approximately 0.3 percent of company revenues over the 5-year
conversion period.\290\
---------------------------------------------------------------------------
\290\ According to D&B Hoovers, this small business has an
estimated annual revenue of $119.8 million. DOE calculated total
conversion costs as a percent of revenue over the 5-year conversion
period using the following calculation: ($0.4 million + $1.1
million)/(5 years x $119.8 million).
---------------------------------------------------------------------------
The small MHGF manufacturer, Mortex (``Company C''), sells non-
condensing furnaces into the manufactured housing replacement market.
DOE identified this small business through its review of DOE's CCD and
the withdrawn September 2016 SNOPR. Of the six MHGF OEMs identified,
Mortex is the only MHGF company that does not currently offer any
condensing products. DOE analyzed the conversion costs for Mortex
separately from other MHGF manufacturers since Mortex would need to
make a different set of investments than the rest of the MHGF industry.
To offer condensing MHGFs, Mortex would need to either source
secondary heat exchangers from a vendor or set up its own manufacturing
line to produce secondary heat exchangers. Setting up in-house
production is the significantly more capital-intensive option. For this
FRFA, DOE estimated the investments required for the company to set up
in-house production. Based on DOE's engineering analysis, the main
driver of additional capital conversion costs would be the production
of secondary heat exchangers. Including equipment, tooling, and
conveyer, DOE estimates upfront capital investments of $5.3 million to
set up manufacturing of condensing MHGFs. Additionally, the design and
product development (e.g., engineering resources, testing costs) of
condensing products could run as high as $1.4 million. If the company
has less than 15 percent market share in the MHGF market, as suggested
by the percentage of industry model offerings, the cost recovery period
for this investment would be in excess of 10 years. Unlike other MHGF
manufacturers, which can leverage their investments in secondary heat
exchanger production across other heating products, DOE is not aware of
any other heating product from Mortex that could make use of the
secondary heat exchanger production capacity. The total conversion
costs of $6.7 million are approximately 2.2 percent of company revenues
over the 5-year conversion period and are considered significant.\291\
---------------------------------------------------------------------------
\291\ According to D&B Hoovers, this small business has an
estimated annual revenue of $60.4 million. DOE calculated total
conversion costs as a percent of revenue over the 5-year conversion
period using the following calculation: ($1.4 million + $5.3
million)/(5 years x $60.4 million).
---------------------------------------------------------------------------
Given the high upfront investment and long cost recovery period,
the small manufacturer would likely seek options other than investing
in secondary heat exchanger production capabilities. The company could
source the secondary heat exchanger, which would reduce the need for
capital conversion costs but would also increase the per-unit cost of
the final product. DOE estimates that the secondary heat exchanger
accounts for approximately 14 percent of the total manufacturer
production cost, on average. Sourcing the heat exchanger could put the
company at a pricing disadvantage relative to manufacturers that
produce their heat exchangers in-house. Depending on the business'
ability to compete on factors other than price, its willingness to
invest technical resources toward designing a condensing product, and
the role of MHGFs in the company's business strategy, the small
manufacturer could also choose to leave the MHGF business.
The remaining small manufacturer of NWGFs and MHGFs (``Company D'')
is one of the five MHGF companies that offer condensing products. Of
these five companies with condensing MHGFs, one manufacturer only
offers products at or above the adopted standard and would, therefore,
likely incur no conversion costs. The remaining four manufacturers,
which includes the small manufacturer of NWGFs and MHGFs, have some
products that do not meet the standard. All MHGF conversion costs that
are not directly attributed to Mortex would be borne by these four
manufacturers. The small domestic business has six MHGF models that
would require redesign or retirement, which is an estimated 14.6
percent of the 41 MHGF models with an AFUE below 95 percent in the
product database developed for this rulemaking.
DOE estimated industry conversion costs of $3.1 million for the
MHGF standard when excluding the conversion costs attributable to
Mortex.\292\ For the purposes of this FRFA, DOE assumes the $3.1
million in conversion costs are evenly allocated across the four
companies that may incur MHGF conversion costs. The MHGF-related
conversion costs are approximately $0.8 million per company. DOE has
determined this even allocation of capital and product conversion costs
avoids under-estimating the investment requirements on the small,
domestic manufacturer, given that this manufacturer has a small market
share. For the small manufacturer, total conversion costs are
approximately 0.1 percent of company revenue over the 5-year conversion
period.\293\
---------------------------------------------------------------------------
\292\ Excluding the conversion costs attributable to Mortex, DOE
estimates industry MHGF capital conversion costs of $2.6 million and
industry MHGF product conversion costs of $0.5 million, for a total
of $3.1 million, at the adopted level (TSL 8).
\293\ According to D&B Hoovers, this small business has an
estimated annual revenue of $240.6 million. DOE calculated total
conversion costs as a percent of revenue over the 5-year conversion
period using the following calculation: ($0.1 million + $0.6
million)/(5 years x $240.6 million).
---------------------------------------------------------------------------
As noted earlier, this small domestic manufacturer also produces
NWGFs. The company offers four NWGF models, out of over 1,300 NWGFs in
the product database developed for this rulemaking. All four of their
NWGF offerings are at or above the adopted standard and would not
likely incur conversion costs due to the standard. Therefore, the small
manufacturer that produces both MHGFs and NWGFs is expected to only
incur conversion costs relating to their MHGF products at TSL 8, the
adopted standard level.
[[Page 87646]]
Table VI.1--Estimated Small Business Impacts
[TSL 8]
----------------------------------------------------------------------------------------------------------------
Product Capital Conversion costs
conversion conversion Annual revenue Conversion as a % of
Company costs ($ costs ($ ($ millions) period revenue conversion
millions) millions) ($ millions) period revenue
----------------------------------------------------------------------------------------------------------------
Company A..................... 0.0 0.0 77.0 385.0 0.0
Company B..................... 0.4 1.1 119.8 599.0 0.3
Company C..................... 1.4 0.0 60.4 302.0 0.5
Company D..................... 0.1 0.6 240.6 1,202.8 0.1
----------------------------------------------------------------------------------------------------------------
5. Significant Alternatives Considered and Steps Taken To Minimize
Significant Economic Impacts on Small Entities
The discussion in the previous section analyzes impacts on small
businesses that would result from the adopted standards, represented by
TSL 8. In reviewing alternatives to the adopted standards, DOE examined
a range of different efficiency levels and their respective impacts to
both manufacturers and consumers. At TSL 9, the conversion costs were
higher for small businesses and for industry overall. At TSLs 1, 2, 3,
4, 5, 6, and 7, the impacts on small manufacturers would have been
potentially lower. However, those changes would have would come at the
expense of reduced consumer benefits and a reduction in energy savings.
In general, the consumer benefits were an order of magnitude greater
than the cost to industry generally, and multiple orders of magnitude
greater than the conversion costs to small manufacturers. DOE has
determined that establishing standards at the adopted level, TSL 8,
balances the benefits of energy savings with the potential burdens
placed on manufacturers of covered products, including small business
manufacturers.
DOE has determined that establishing standards at TSL 8 would
deliver the highest energy savings while mitigating the potential
burdens placed on NWGF and MHGF manufacturers, including small business
manufacturers. Accordingly, DOE is not adopting one of the other TSLs
considered in the analysis, or the other policy alternatives examined
as part of the regulatory impact analysis and included in chapter 17 of
the final rule TSD.
Additional compliance flexibilities may be available through other
means. EPCA provides that a manufacturer whose annual gross revenue
from all of its operations does not exceed $8 million may apply for an
exemption from all or part of an energy conservation standard for a
period not longer than 24 months after the effective date of a final
rule establishing the standard. (42 U.S.C. 6295(t)) Additionally,
manufacturers subject to DOE's energy conservation standards may apply
to DOE's Office of Hearings and Appeals for exception relief under
certain circumstances. Manufacturers should refer to 10 CFR part 430,
subpart E, and 10 CFR part 1003 for additional details.
C. Review Under the Paperwork Reduction Act
Manufacturers of NWGFs and MHGFs must certify to DOE that their
products comply with any applicable energy conservation standards in
terms of AFUE.
In certifying compliance, manufacturers must test their products
according to the DOE test procedures for NWGFs and MHGFs, including any
amendments adopted for those test procedures. DOE has established
regulations for the certification and recordkeeping requirements for
all covered consumer products and commercial equipment, including NWGFs
and MHGFs. (See generally 10 CFR part 429) These requirements were also
discussed in some detail in the July 2022 NOPR. 87 FR 40590, 40702
(July 7, 2022). The collection-of-information requirement for the
certification and recordkeeping is subject to review and approval by
OMB under the Paperwork Reduction Act (PRA). This requirement has been
approved by OMB under OMB control number 1910-1400. Public reporting
burden for the certification is estimated to average 35 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.
DOE is not amending the existing reporting requirements or
establishing new DOE reporting requirements. If determined to be
necessary, DOE may consider associated reporting and certification
requirements in a future rulemaking. Therefore, DOE has concluded that
the amended energy conservation standards for NWGFs and MHGFs will not
impose additional costs for manufacturers related to reporting and
certification.
Notwithstanding any other provision of the law, no person is
required to respond to, nor shall any person be subject to a penalty
for failure to comply with, a collection of information subject to the
requirements of the PRA, unless that collection of information displays
a currently valid OMB control number.
D. Review Under the National Environmental Policy Act of 1969
Pursuant to the National Environmental Policy Act of 1969 (NEPA),
DOE has analyzed this action in accordance with NEPA and DOE's NEPA
implementing regulations (10 CFR part 1021). DOE has determined that
this rule qualifies for categorical exclusion under 10 CFR part 1021,
subpart D, appendix B, categorical exclusion B5.1, because it is a
rulemaking that establishes energy conservation standards for consumer
products or industrial equipment, none of the exceptions identified in
categorical exclusion B5.1(b) apply, no extraordinary circumstances
exist that require further environmental analysis, and it otherwise
meets the requirements for application of a categorical exclusion. See
10 CFR 1021.410. Therefore, DOE has determined that promulgation of
this rule is not a major Federal action significantly affecting the
quality of the human environment within the meaning of NEPA, and does
not require an environmental assessment or an environmental impact
statement.
E. Review Under Executive Order 13132
E.O. 13132, ``Federalism,'' 64 FR 43255 (August 10, 1999), imposes
certain requirements on Federal agencies formulating and implementing
policies or regulations that preempt State law or that have federalism
implications. The Executive order requires agencies to examine the
constitutional and statutory authority supporting any action that would
limit the policymaking discretion of the
[[Page 87647]]
States and to carefully assess the necessity for such actions. The
Executive order also requires agencies to have an accountable process
to ensure meaningful and timely input by State and local officials in
the development of regulatory policies that have federalism
implications. On March 14, 2000, DOE published a statement of policy
describing the intergovernmental consultation process it will follow in
the development of such regulations. 65 FR 13735. DOE has examined this
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 this 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
Regarding the review of existing regulations and the promulgation
of new regulations, section 3(a) of E.O. 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; (3) provide a clear legal standard for affected conduct
rather than a general standard, and (4) promote simplification and
burden reduction. Regarding the review required by section 3(a),
section 3(b) of E.O. 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
E.O. 12988 requires Executive agencies to review regulations in light
of applicable standards in sections 3(a) and 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 E.O.
12988.
G. Review Under the Unfunded Mandates Reform Act of 1995
Title II of the Unfunded Mandates Reform Act of 1995 (UMRA)
requires each Federal agency to assess the effects of Federal
regulatory actions on State, local, and Tribal governments and the
private sector. Public Law 104-4, sec. 201 (codified at 2 U.S.C. 1531).
For a regulatory action likely to result in a rule that may cause the
expenditure by State, local, and Tribal governments, in the aggregate,
or by the private sector of $100 million or more in any one year
(adjusted annually for inflation), section 202 of UMRA requires a
Federal agency to publish a written statement that estimates the
resulting costs, benefits, and other effects on the national economy.
(2 U.S.C. 1532(a), (b)) The UMRA also requires a Federal agency to
develop an effective process to permit timely input by elected officers
of State, local, and Tribal governments on a ``significant
intergovernmental mandate,'' and requires an agency plan for giving
notice and opportunity for timely input to potentially affected small
governments before establishing any requirements that might
significantly or uniquely affect them. On March 18, 1997, DOE published
a statement of policy on its process for intergovernmental consultation
under UMRA. 62 FR 12820. DOE's policy statement is also available at
www.energy.gov/sites/prod/files/gcprod/documents/umra_97.pdf.
DOE has concluded that this final rule may require expenditures of
$100 million or more in any one year by the private sector. Such
expenditures may include (1) investment in research and development and
in capital expenditures by NWGF and MHGF manufacturers in the years
between the final rule and the compliance date for the new standards
and (2) incremental additional expenditures by consumers to purchase
higher-efficiency NWGFs and MHGFs starting at the compliance date for
the applicable standard.
Section 202 of UMRA authorizes a Federal agency to respond to the
content requirements of UMRA in any other statement or analysis that
accompanies the final rule. (2 U.S.C. 1532(c)) The content requirements
of section 202(b) of UMRA relevant to a private sector mandate
substantially overlap the economic analysis requirements that apply
under section 325(o) of EPCA and Executive Order 12866. The
SUPPLEMENTARY INFORMATION section of this document and the TSD for this
final rule respond to those requirements.
Under section 205 of UMRA, DOE is obligated to identify and
consider a reasonable number of regulatory alternatives before
promulgating a rule for which a written statement under section 202 is
required. (2 U.S.C. 1535(a)) DOE is required to select from those
alternatives the most cost-effective and least burdensome alternative
that achieves the objectives of the rule, unless DOE publishes an
explanation for doing otherwise, or the selection of such an
alternative is inconsistent with law. As required by EPCA, this final
rule establishes amended energy conservation standards for NWGFs and
MHGFs that are designed to achieve the maximum improvement in energy
efficiency that DOE has determined to be both technologically feasible
and economically justified, as required by 42 U.S.C. 6295(o)(2)(A) and
6295(o)(3)(B). A full discussion of the alternatives considered by DOE
is presented in chapter 17 of the TSD for this final rule.
H. Review Under the Treasury and General Government Appropriations Act,
1999
Section 654 of the Treasury and General Government Appropriations
Act, 1999 (Pub. L. 105-277) requires Federal agencies to issue a Family
Policymaking Assessment for any rule that may affect family well-being.
This rule would not have any impact on the autonomy or integrity of the
family as an institution. Accordingly, DOE has concluded that it is not
necessary to prepare a Family Policymaking Assessment.
I. Review Under Executive Order 12630
Pursuant to E.O. 12630, ``Governmental Actions and Interference
with Constitutionally Protected Property Rights,'' 53 FR 8859 (March
18, 1988), DOE has determined that this rule would not result in any
takings that might require compensation under the Fifth Amendment to
the U.S. Constitution.
J. Review Under the Treasury and General Government Appropriations Act,
2001
Section 515 of the Treasury and General Government Appropriations
Act, 2001 (44 U.S.C. 3516, note) provides for Federal agencies to
review most disseminations of information to the public under
information quality guidelines established by each agency pursuant to
general guidelines issued by OMB. OMB's guidelines were published at 67
FR 8452 (Feb. 22, 2002), and DOE's guidelines were published at 67 FR
62446 (Oct. 7, 2002). Pursuant to OMB Memorandum M-19-15,
[[Page 87648]]
``Improving Implementation of the Information Quality Act'' (April 24,
2019), DOE published updated guidelines which are available at:
www.energy.gov/sites/prod/files/2019/12/f70/DOE%20Final%20Updated%20IQA%20Guidelines%20Dec%202019.pdf. DOE has
reviewed this 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
E.O. 13211, ``Actions Concerning Regulations That Significantly
Affect Energy Supply, Distribution, or Use,'' 66 FR 28355 (May 22,
2001), requires Federal agencies to prepare and submit to OIRA at OMB,
a Statement of Energy Effects for any 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 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 concluded that this regulatory action, which sets forth
amended energy conservation standards for NWGFs and MHGFs, is not a
significant energy action 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 at
OIRA. Accordingly, DOE has not prepared a Statement of Energy Effects
on this final rule.
L. Review Under the Information Quality Bulletin for Peer Review
On December 16, 2004, OMB, in consultation with the Office of
Science and Technology Policy (OSTP), issued its Final Information
Quality Bulletin for Peer Review (``the Bulletin''). 70 FR 2664 (Jan.
14, 2005). The Bulletin establishes that certain scientific information
shall be peer reviewed by qualified specialists before it is
disseminated by the Federal Government, including influential
scientific information related to agency regulatory actions. The
purpose of the Bulletin is to enhance the quality and credibility of
the Government's scientific information. Under the Bulletin, the energy
conservation standards rulemaking analyses are ``influential scientific
information,'' which the Bulletin defines as ``scientific information
the agency reasonably can determine will have, or does have, a clear
and substantial impact on important public policies or private sector
decisions.'' 70 FR 2664, 2667 (Jan. 14, 2005).
In response to OMB's Bulletin, DOE conducted formal peer reviews of
the energy conservation standards development process and the analyses
that are typically used and prepared a report describing that peer
review.\294\ Generation of this report involved a rigorous, formal, and
documented evaluation using objective criteria and qualified and
independent reviewers to make a judgment as to the technical/
scientific/business merit, the actual or anticipated results, and the
productivity and management effectiveness of programs and/or projects.
Because available data, models, and technological understanding have
changed since 2007, DOE has engaged with the National Academy of
Sciences to review DOE's analytical methodologies to ascertain whether
modifications are needed to improve DOE's analyses. DOE is in the
process of evaluating the resulting December 2021 report.\295\
---------------------------------------------------------------------------
\294\ The 2007 ``Energy Conservation Standards Rulemaking Peer
Review Report'' is available at the following website: energy.gov/eere/buildings/downloads/energy-conservation-standards-rulemaking-peer-review-report-0 (last accessed Feb. 16, 2022).
\295\ The December 2021 NAS report is available at
www.nationalacademies.org/our-work/review-of-methods-for-setting-building-and-equipment-performance-standards (last accessed August
14, 2023).
---------------------------------------------------------------------------
M. Congressional Notification
As required by 5 U.S.C. 801, DOE will report to Congress on the
promulgation of this rule prior to its effective date. The report will
state that it has been determined that the rule falls within the scope
of 5 U.S.C. 804(2).
VII. Approval of the Office of the Secretary
The Secretary of Energy has approved publication of this final
rule.
List of Subjects in 10 CFR Part 430
Administrative practice and procedure, Confidential business
information, Energy conservation, Household appliances, Imports,
Intergovernmental relations, Small businesses.
Signing Authority
This document of the Department of Energy was signed on September
28, 2023, by Jeffrey Marootian, Principal Deputy Assistant Secretary
for Energy Efficiency and Renewable Energy, pursuant to delegated
authority from the Secretary of Energy. That document with the original
signature and date is maintained by DOE. For administrative purposes
only, and in compliance with requirements of the Office of the Federal
Register, the undersigned DOE Federal Register Liaison Officer has been
authorized to sign and submit the document in electronic format for
publication, as an official document of the Department of Energy. This
administrative process in no way alters the legal effect of this
document upon publication in the Federal Register.
Signed in Washington, DC, on November 14, 2023.
Treena V. Garrett,
Federal Register Liaison Officer, U.S. Department of Energy.
For the reasons stated in the preamble, DOE amends part 430 of
chapter II, of title 10 of the Code of Federal Regulations, 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. Amend Sec. 430.32 by:
0
a. Revising paragraph (e)(1)(ii);
0
b. Redesignating paragraph (e)(1)(iii) as paragraph (e)(1)(iv); and
0
c. Adding a new paragraph (e)(1)(iii).
The revision and addition read as follows:
Sec. 430.32 Energy and water conservation standards and their
compliance dates.
* * * * *
(e) * * *
(1) * * *
(ii) The AFUE for non-weatherized gas furnaces (not including
mobile home gas furnaces) manufactured on or after November 19, 2015,
but before December 18, 2028; mobile home gas furnaces manufactured on
or after November 19, 2015, but before December 18, 2028; non-
weatherized oil-fired furnaces (not including mobile home furnaces)
manufactured on or after May 1, 2013, mobile home oil-fired furnaces
manufactured on or after September 1, 1990; weatherized gas-fired
furnaces manufactured on or after January 1, 2015; weatherized oil-
fired furnaces manufactured on or after
[[Page 87649]]
January 1, 1992; and electric furnaces manufactured on or after January
1, 1992; shall not be less than the following:
------------------------------------------------------------------------
AFUE (percent)
Product class \1\
------------------------------------------------------------------------
(A) Non-weatherized gas furnaces (not including mobile 80.0
home furnaces).........................................
(B) Mobile home gas furnaces............................ 80.0
(C) Non-weatherized oil-fired furnaces (not including 83.0
mobile home furnaces)..................................
(D) Mobile home oil-fired furnaces...................... 75.0
(E) Weatherized gas furnaces............................ 81.0
(F) Weatherized oil-fired furnaces...................... 78.0
(G) Electric furnaces................................... 78.0
------------------------------------------------------------------------
\1\ Annual Fuel Utilization Efficiency, as determined in Sec.
430.23(n)(2).
(iii) The AFUE for non-weatherized gas (not including mobile home
gas furnaces) manufactured on and after December 18, 2028; and mobile
home gas furnaces manufactured on and after December 18, 2028, shall
not be less than the following:
------------------------------------------------------------------------
AFUE (percent)
Product class \1\
------------------------------------------------------------------------
(A) Non-weatherized gas furnaces (not including mobile 95.0
home gas furnaces).....................................
(B) Mobile home gas furnaces............................ 95.0
------------------------------------------------------------------------
\1\ Annual Fuel Utilization Efficiency, as determined in Sec.
430.23(n)(2).
* * * * *
Note: The following appendix will not appear in the Code of
Federal Regulations.
Appendix A--Letter From the Department of Justice to the Department of
Energy
U.S. Department of Justice
Antitrust Division
RFK Main Justice Building
950 Pennsylvania Avenue NW
Washington, DC 20530-0001
September 6, 2022
Ami Grace-Tardy
Assistant General Counsel for Legislation, Regulation and Energy
Efficiency
U.S. Department of Energy
Washington, DC 20585
[email protected]
Dear Assistant General Counsel Grace-Tardy:
I am responding to your July 7, 2022, letter seeking the views
of the Attorney General about the potential impact on competition of
proposed energy conservation standards for consumer furnaces,
specifically for non-weatherized gas furnaces (``NWGFs'') and
mobile-home gas furnaces (``MHGFs'').
Your request was submitted under Section 325(o)(2)(B)(i)(V) of
the Energy Policy and Conservation Act, as amended (EPCA), 42 U.S.C.
6295(o)(2)(B)(i)(V) and 42 U.S.C. 6316(a), 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 0.40(g). The Assistant Attorney General for the
Antitrust Division has authorized me, as the Policy Director for the
Antitrust Division, to provide the Antitrust Division's views
regarding the potential impact on competition of proposed energy
conservation standards on his behalf.
In conducting its analysis, the Antitrust Division examines
whether a proposed standard may lessen competition, for example, by
substantially limiting consumer choice or increasing industry
concentration. A lessening of competition could result in higher
prices to manufacturers and consumers. We have reviewed the proposed
standards contained in the Notice of Proposed Rulemaking (87 FR
40591, July 7, 2022). We have also interviewed industry
participants, reviewed public comments and information provided by
industry participants, reviewed comments submitted to DOJ, have
spoken with DOE staff, and have listened to the Webinar of the
Public Meeting held on August 3, 2022.
Based on our review of the information currently available, we
do not believe that the proposed energy conservation standards for
consumer furnaces are likely to substantially lessen competition in
any particular product or geographic market. In the course of our
review, we were told that the MHGF market may be more highly
concentrated than DOE's analysis suggests. Given the necessarily
short time-frame for our review, we are not in a position to confirm
the level of concentration increase that may be caused by the rule,
but encourage DOE to closely examine and consider potential
competitive issues that commenters may raise with respect to this
rulemaking.
Sincerely,
/s/
David G.B. Lawrence,
Director of Policy.
[FR Doc. 2023-25514 Filed 12-15-23; 8:45 am]
BILLING CODE 6450-01-P