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R Incorporated Providing Environmental Technical Support Since 1989

MEMORANDUM

TO: Docket EPA

- HQ

- OAR

- 2009

- 0734

FROM: Jill Mozier, EC/R Inc.

DATE: March 31 , 2014

SUBJECT: Notes from the Cost, Emission s , and Cost Effectiveness presentation by EPA regarding the Proposed Wood Heater NSPS, requested and hosted by the Northeast States for Coordinated Air Use Management (NESCAUM) on March 2 8 , 2014, with Gil Wood and Larry Sorrels as presenter s

The Northeast States for Coordinated Air Use Management (NESCAUM) requested that EPA clarify the cost, emission, and cost effectiveness estimates underlying the proposed NSPS ( available in the docket )

. The slides presented during this call

- in webinar meeti ng are attachments to th is memo. The questions and answers discussed during the call are summarized below.

• Question /Comment : Regarding EPA’s emission estimates, Lisa Rector noted that NESCAUM noticed the Residential Wood Combustion (RWC) tool uses the sam e amount of wood in wood stoves as in outdoor wood boilers (OWB) for some northern New York counties. This means that the tool underestimates the amount of wood burned for at least hydronic heaters in some counties.
Answer : Gil Wood answered that he wou ld look into this concern with Roy Huntley, EPA’s lead on the RWC tool

.

• Question /Comment : Regarding EPA’s appliance emission estimates, Lisa Rector of NESCAUM noted that the current Energy Information Administration (EIA) data for wood usage is almost double what the RWC tool estimates. This is therefore another area where EPA may have underestimated emissions from residential wood burning.
Answer : Gil Wood noted that this EIA data is more recent than the emission estimates, but that EPA is aware of th is more recent data. T he presentation slides do note that such increases in estimated emissions will increase EPA’s emission reduction estimates, decrease the cost of R&D per appliance, and also decrease the $/ton (improve the cost effectiveness)

.

• Questio n : Rod Tinnemore of Washington State DEC asked if the analysis parsed

- out the number of models that differ only cosmetically rather than internally /substantively

.

501 Eastowne Dr., Suite 250  Chapel Hill, North Carolina 27514 Telephone: (919) 484

- 0222  Fax: (919) 484

- 0122Answer : Gil Wood answered that no, the analysis did not include such parsing. The model numbers are based on industry data and discussions and represent the total number of models

– so all models are included in the tallies, whether they differ merely cosmetically or more substantively. Gil further noted that the analysis did not take into account any model consolidation that may occur, and so the number of models assumed to undergo R&D costs in the cost effectiveness analysis may be high. Any reduction in
the numb er of models will cause the manufacturer cost estimates to be lower than what EPA estimated and the cost effectiveness of any emission reductions to thereby improve

. Note : Rod Tinnemore later noted that the Office of Enforcement and Compliance Assurance (O ECA) should have a list of models that have the same internal working parts with merely external cosmetic differences. He estimated that such a list would show that 15% to 2 0 % of models differ only cosmetically . This would lower EPA’s estimated R&D costs b ecause fewer models than EPA estimated would require R&D.

• Question : Rod Tinnemore asked if EPA took into consideration more recent data from Tom Morrissey regarding wood stove R&D costs

. Answer : Gil Wood responded that no, the Morrissey wood stove R&D costs were provided after the cost effectiveness analysis was completed

. Note : Morrissey’s R&D costs were considerably less than the cost estimates used by EPA for t he cost effectiveness analysis (and using such lower costs would decrease the cost per ton of particulate reduced, thereby improving the cost effectiveness for wood stoves.)

• Question : Rod Tinnemore noted that the [$80,000] salary figure used by EPA in estimating R&D labor costs seemed high.
Answer : Gil Wood noted that this was the estimate pr ovided by industry and also the estimate noted in

a Hearth & Home article

. Lisa Rector added that the salary number probably includes benefits (e.g., health insurance) , overhead and other costs to the employer.

• Question : Lisa Rector and others asked EPA to clarify regarding the very low $160/ton cumulative cost effectiveness bottom line estimate for hydronic heaters.
Answer : Gil Wood explained that this low figure resulted from using a more realistic lifespan for the appliances (a 20

- year model lifespan plus a 20

- year emitting lifespan in consumer homes). Gil explained that this was the approach used by the Office of Transportation and Air Quality (OTAQ) when that office estimated cost reductions over the life of consumer products such as leaf blowers an d lawn mowers. Gil further noted that in comparison HPBA’s economic contractor, NERA, did not use the appliance lifespan in its cost effectiveness analysis for residential wood heaters.

• Question : NESCAUM asked what the $/ton PM2.5 cost effectiveness numbers are for recent rules

– e.g., are they higher than the $/ton estimated for residential wood heaters ? NESCAUM noted that the bottom

line $/ton are very low and that even the annual $/ton “snapshots” are low [for hydronic heaters].

2Answer : Larry Sorr els answered that other rules (principally standard s on industrial facilities) tend to
look at the impacts in the 5 th year or similar year , rather than cumulative emission reductions over the lifespan of a source. Such analyses therefore tend to have a hig her $/ton than estimated for residential wood heaters, which used cumulative emission reductions over the lifespan of the source/appliance. Gil further commented that while these wood heater NSPS cost effectiveness numbers are relatively low,

comments

- to

- date have included other issues such as potential cost increases in appliances and the potential impacts to small businesses

. Gil also later commented that hydronic heaters have one of the lowest $/ton estimates because of the big emission reductions estimated for these appliances. Other appliances, such as wood stoves and pellet stoves, have somewhat higher $/ton estimates because lower emission reductions are estimated (since these are cleaner burning at baseline, relative to hydronic
hea ters).

• Question : NESCAUM asked Larry Sorrels to clarify what he meant when he said that 90% of residential wood heater companies had less than between 500 and 1,000 employees [and would therefore be classified as small businesses].
Answer : Larry Sorrel s explained that each industry or type of associated business has different small
business size definitions set by the Small Business Administration (SBA) . F or some types (e. g. , wood

stove manufacturers) the industry s mall business definition is that any business with 500 or fewer employees is considered a small business , while for other types of wood heater businesses the definition is that any business with 1,000 or fewer employees is considered a small business

. Using these various
defin i tio ns for all affected industries, 90% of residential wood heat er businesses would be classified as small businesses across the various appliance types.

• Question : NESCAUM asked if the $115

- $270 to $1 benefits to cost ratio [in the RIA] is very high relative to other rules.
Answer : Larry Sorrels answered that yes, it is a high benefit per ton estimate, although there are some categories [of emission sources] that have even higher benefit estimates

.

• Question : Rod Tinnemore asked if there was a way to compare inflation

- adjusted costs of the 1988 rule with this proposal

– i.e., was any historic comparison done ?
Answer : Larry Sorrels answered that no such comparison to the 1988 rule was done , that such a comparison would require too many extrapolations, due to the many years between the first rule and this proposal (i.e., extrapolating from the 19 80’s to 2014 would not allow for an accurate or useful comparison).

• Question : Rod Tinnemore asked if the RIA also looked at costs and emission reductions over the 20

- year appliance life or if it reported only on the 5 years.
Answer : Larry Sorrels noted that the 20 year lifespan assumptions were also shown in the RIA. Larry further noted that Section 6 of the RIA includes a sensitivity analysis regarding changing the n umber of

3years in the R&D cycle (e.g., from the 6 years used for the proposed rule calculations to 10 and 20 years, and also decreased to 4 years)

. The results of this sensitivity analysis show close

- to

- linear results. That is, extending the analysis out 2 0 years shows about 1/3 the impact (in terms of annual cost) compared to 6 years, and vice versa regarding shorter periods.

• Question : NESCAUM noted that an 8 to 10

- year R&D cycle seems more typical. Six (6) years [in terms
of the frequency or interval for beginning new R&D cycles for a new model] seems unrealistic [too frequent] and causes EPA’s cost estimates to be too high and represent a worst

- case scenario.
Answer : Gil Wood clarified that EPA used a 6

- year amortization period for R&D cos ts, not a 6

- year model life assumption. Rather a 20

- year model life assumption was used after the 6

- year R&D amortization period

.

• Question : NESCAUM noted that

, at the public hearing

, manufacturers were claiming they would have to bear the brunt of any inc rease in appliance cost, and wondered if the RIA looked at what increasing the costs (by for example) $100 would do. Answer : Larry Sorrels noted that this type of sensitivity analysis was not done, but it would be possible to do so

. Larry noted that ther e is a difference between the cost to manufacture versus the retail price and that typically the increased retail price is 160 % of the increased costs to the manufacturer. Gil further noted that EPA is receiving comments that the price of new hydronic heat ers may potentially be more like $13,000 rather than $7,000 to $8,000, so EPA will need to look at a cost sensitivity analysis. Gil further noted that today’ s cleaner models (at least for wood stoves) don’t necessarily cost more than less clean/lower e fficiency models; the price at retail depends more on how the appliance looks than on its emission levels.

• Question : NESCAUM asked if any sensitivity analyses had been done on the cost to re

- design [i.e., the R&D costs]

. Answer : Gil Wood responded that while no formal analyses had been done, the results would be linear

– so a ratio could be applied to the cost effectiveness numbers for such an analysis

. A linear relationship also exists, essentially, for the benefits.

• No further questions were asked. Gi l noted that all slides would be available in the docket for the general public and therefore NESCAUM had permission to share the presentation slides as they wished. All information presented is public information.

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