2

- i CHAPTER 2. ANALYTICAL FRAMEWORK

TABLE OF CONTENTS

2.1 INTRODUCTION

................................ ................................ ................................ ........... 2

- 1

2.2 MARKET AND TECHNOLOG Y ASSESSMENT

................................ ........................ 2

- 5

2.2.1 Market Assessment

................................ ................................ ................................ .......... 2

- 5

2.2.2 Technology Assessment

................................ ................................ ................................ ... 2

- 5

2.3 SCREENING ANALYSIS

................................ ................................ .............................. 2

- 5

2.4 ENGINEERING ANALYSIS

................................ ................................ .......................... 2

- 6

2.5 MARKUPS ANALYSIS

................................ ................................ ................................ . 2

- 6

2.6 ENERGY AND WATER USE ANALYSIS

................................ ................................ ... 2

- 7

2.7 LIFE

- CYCLE COST AND PAYBA CK PERIOD ANALS YIS

................................ ..... 2

- 7

2.8 SHIPMENTS ANALYSIS

................................ ................................ ............................... 2

- 8

2.9 NATION AL IMPACT ANALYSIS

................................ ................................ ................ 2

- 8

2.9.1 National Energy and Water Savings

................................ ................................ ................ 2

- 8

2.9.2 Net Present Value of Consumer Benefit

................................ ................................ .......... 2

- 9

2.10 CONSUMER SUBGROUP AN ALYSIS

................................ ................................ ...... 2

- 10

2.11 MANUFACTURER IMPACT ANALYSIS

................................ ................................ .. 2

- 10

2.12 EMISSIONS ANALYSIS

................................ ................................ .............................. 2

- 10

2.13 MONETIZATION OF EMIS SIONS REDUCTION BENE FITS

................................ . 2

- 11

2.14 UTILITY IMPACT ANALY SIS

................................ ................................ ................... 2

- 12

2.15 EMPLOYMENT IMPACT AN ALYSIS

................................ ................................ ....... 2

- 13

2.16 REGULATORY IMPACT AN ALYSIS

................................ ................................ ........ 2

- 13

LIST OF FIGURES

Figure 2.1.1 Flow Diagram of Analyses for the Rulemaking Process

................................ ......... 2

- 22-1 CHAPTER 2. ANALYTICAL FRAMEWORK

2.1 I NTRODUCTION

Section 6295(o)(2)(A) and 6316(a) of the Energy Policy and Conservation Act (EP CA),

Pub. L. 94

- 163, 42 U.S.C. 6291 et seq . requires the U.S. Department of Energy (DOE) to set forth energy conservation standards that achieve the maximum improvement in energy efficiency that is technologically feasible and economically justified. This chapter describes the general analytical framework that DOE uses in developing such standards

. The analytical framework is a description of the methodology, the analytical tools, and the relationships among the various analyses that are part of this rulema king.

Figure 2.1

. 1 summarizes the analytical components of the standards

- setting process. The focus of this figure is the center col umn, identified as “Analyses.” The columns labeled “Key Inputs” and “Key Outputs” show how the analyses fit into the rulemaking process, and how the analyses re late to each other. Key inputs are the types of data and informat ion that the analyses require. Some key inputs exist in public databases; DOE collects other inputs from interest ed parties or other knowledgeable experts within the field

. Key outputs are analytical results that feed directly into the standards

- setting process. Dotted lines connecting analyses show types of information that feed from one analysis to another.

In th is rulemaking, DOE proceeded directly to the Notice of Proposed Rulemaking (NOPR) stage after publishing the framework document; therefore, the analyses listed within the Preliminary Analysis period were conducted as part of the NOPR analysis.2-2 Figure 2.1

. 1 Flow Diagram of Analyses for the Rulemaking Process Utility I mpact Analysis

Notice of Proposed Rulemaking (NOPR)

Final Rule Approaches Key Inputs Analyses Key Outputs

Market and Technology

Assessment

Screening Analysis

Engineering Analysis

Product Price

Determination Life

- Cycle Cost and Payback Period Analyses

National Impact Analysis Energy Use

Revise Preliminary Analyses

Life

- Cycle Cost
Sub

- Group Analysis

Manufacturer Impact Analysis Shipments Analysis

Employment Impact Analysis

Revise Analyses • Product Classes

• Technology Options

• Industry Cash Flow

• Sub

- Group Cash

- Flow

• Direct Employment Impacts

• Competitive Impacts

• Cumulative Regulatory Burden • Product Designs

• Life

- Cycle Costs

• Payback Periods

• National Energy Savings

• Net Present Values

• National Employment Impacts

• Revised Results • Characterize Industry

• Market Segmentation

• Non

- Regulatory Programs Framework Document

• Efficiency

- Level Approach

• Design Option Approach

• Energy Prices

• Installation Costs

• Maintenance & Repair Costs

• Accounting Approach

• Backcast and Forecast

• Market Saturation

• Stakeholder Comments

• Demographics

• Manufacturer Interviews

• GRIM Analysis

• Emission Rates

• National Energy Savings

• Stakeholder Comments • Identify Firms/Products

• Historical Shipments

• Retail Price Collection and Analysis

• Manufacturer Prices

• Average Costs

• Manufacturer Financial Data Design Options Product Classes

Retail

Prices Design Energy/ Use

Advance Notice of Proposed Rulemaking (ANO) • Efficiency/Performance • Commercial Products

Candidate Standard Levels • Analysis of Energy Use

Data

Environmental

Assessment

Regulatory Impact Analysis Technology Options

• Emission Estimates • Utility Load Factors

• National Energy Savings

• Non

- Regulatory
Alternatives • NEMS

- BT

• ImSET

• NEMS

- BT • Design Options

• Energy Price Forecasts

• Site

- to

- Source Factors • Energy

- Efficiency Levels

Direct Employment Impacts

• National Energy Savings

• National Product Costs

• National Operating Costs • Utility Impacts • Analysis of Market Data

• Analysis of Product Data

• Life

- Cycle Costs

• Payback Periods • Installation Costs

• Maint Costs

• Repair Costs • UEC

• Energy Prices Annual Energy Use (UEC)

Preliminary Manufacturer Impact Analysis • Manufacturer Prices

• Average Costs • Conversion Capital Expenditures

• Direct Employment Impacts

• National Energy Savings

• Net Present Values • Trial Standard Levels ( TSLs )

TSLs • Product Prototypes

Energy

- Efficiency

Levels

• Department of Justice Review Product Designs

Utility Impact Analysis

Notice of Proposed Rulemaking (NOPR)

Final Rule Approaches Key Inputs Analyses Key Outputs

Market and Technology

Assessment

Screening Analysis

Engineering Analysis

Product Price

Determination Life

- Cycle Cost and Payback Period Analyses

National Impact Analysis Energy Use

Analyses

Life

- Cycle Cost
Sub

- Group Analysis

Manufacturer Impact Analysis Shipments Analysis

Employment Impact Analysis

Revise Analyses • Product Classes

• Technology Options

• Industry Cash Flow

• Sub

- Group Cash

- Flow

• Direct Employment Impacts

• Competitive Impacts

• Cumulative Regulatory Burden • Product Designs

• Life

- Cycle Costs

• Payback Periods

• National Energy Savings

• Net Present Values

• National Employment Impacts

• Revised Results • Characterize Industry

• Market Segmentation

• Non

- Regulatory Programs Framework Document

• Efficiency

- Level Approach

• Design Option Approach

• Energy Prices

• Installation Costs

• Maintenance & Repair Costs

• Accounting Approach

• Backcast and Forecast

• Market Saturation

• Stakeholder Comments

• Demographics

• Manufacturer Interviews

• GRIM Analysis

• Emission Rates

• National Energy Savings

• Stakeholder Comments • Identify Firms/Products

• Historical Shipments

• Retail Price Collection and Analysis

• Manufacturer Prices

• Average Costs

• Manufacturer Financial Data Design Options Product Classes

Retail

Prices Design Energy/ Use

Publication of Preliminary Analyses • Efficiency/Performance • Commercial Products

Candidate Standard Levels • Analysis of Energy Use

Data

Environmental

Assessment

Regulatory Impact Analysis Technology Options

• Emission Estimates • Utility Load Factors

• National Energy Savings

• Non

- Regulatory
Alternatives • NEMS

- BT

• ImSET

• NEMS

- BT • Design Options

• Energy Price Forecasts

• Site

- to

- Source Factors • Energy

- Efficiency Levels

Direct Employment Impacts

• National Energy Savings

• National Product Costs

• National Operating Costs • Utility Impacts • Analysis of Market Data

• Analysis of Product Data

• Life

- Cycle Costs

• Payback Periods • Installation Costs

• Maint Costs

• Repair Costs • UEC

• Energy Prices Annual Energy Use (UEC)

Preliminary Manufacturer Impact Analysis • Manufacturer Prices

• Average Costs • Conversion Capital Expenditures

• Direct Employment Impacts

• National Energy Savings

• Net Present Values • Trial Standard Levels ( TSLs )

TSLs • Product Prototypes

Energy

- Efficiency

Levels

• Department of Justice Review Product Designs2-3

The analyses performed for this final rule and reported in this technical support document (TSD) are listed below.

 A market and technology assessment to characterize the relevant product markets and existing technology options, including protot ype designs.

 A screening analysis to review each technology option to decide whether it is technologically feasible; is practical to manufacture, install, and service; would adversely affect product utility or product availability; or would have adverse e ffects on health and safety.

 An engineering analysis to develop cost

- efficiency relationships, which indicate the manufacturer’s cost of achieving increased efficiency.

 A markups analysis to develop distribution channel markups that relate the manufactur er production cost (MPC) to the cost to the consumer.

 An analysis of the annual energy and water use of the considered products.

 Life

- cycle cost (LCC) and payback period (PBP) analyses to calculate, at the consumer level, the discounted savings in operat ing costs (minus maintenance and repair costs) throughout the estimated average lifetime of the covered products, compared to any increase in purchase and installation cost likely to result directly from imposition of a given standard.

 A shipments analysis to forecast future shipments, which are then used to calculate the national impacts of standards on energy, net present value (NPV), and future

manufacturer cash flows.

 A national impact analysis (NIA) to assess aggregate impacts at the national level of potential energy conservation standards for the considered products, as measured by the NPV of total consumer economic impacts and the national energy savings (NES).

 An LCC subgroup analysis to evaluate variations in consumer characteristics that might cause a standard to affect particular consumer subpopulations, such as low

- income households, differently than the overall population.

 A manufacturer impact analysis to estimate the financial impact of standards on

manufacturers and to calculate im pacts on competition, employment, and manufacturing capacity.

 A utility impact analysis to estimate the effects of proposed standards on electric, gas, or

oil utilities.2-4

 An employment impact analysis to assess the aggregate impacts on national employment

.

 An emissions impact analysis to estimate the effects of amended standards on emissions of carbon dioxide (CO 2 ), sulfur dioxide (SO 2 ), nitrogen oxides (NO X ), mercury (Hg)

, methane (CH 4 ), and nitrous oxide (N 2 O)

.

 An estimate of the monetary benefits of the reduced emissions of CO 2 and NO X that are expected to result from the amended standard.

 A regulatory impact analysis to examine major alternatives to proposed amended energy conservation standards that potentially could achieve substantially the same regulatory goal at a lower cost.

DOE developed this analytical framework and documented its initial findings in the Energy Conservation Standards Rulemaking Framework Document for Commercial Clothes

Washers (the framework document). DOE announced the av ailability of the framework document in a Notice of Public Meeting and Availability of a Framework Document published in

the Federal Register on August 13, 2012 . 7 7 FR 48108 . DOE presented the analytical approach to interested parties during a public meeti ng on September 2 4 , 20 12 . The framework document is

available at http://www.regulations.gov/#!documentDetail;D=EERE

- 2012

- BT

- STD

- 0020

- 0001

.2-5

2.2 MARKET AND TECHNOLOGY ASSESSMENT

The market and technology assessment characterizes the relevant product markets and existing technology options, including prototype designs, for the considered products.

2.2.1 Market Assessment

When DOE begins an energy conservation stan dards rulemaking, it develops information that provides an overall picture of the market for the products considered, including the nature of the products, the industry structure, and market characteristics for the products. This activity

consists of both quantitative and qualitative efforts based primarily on publicly available information. The subjects addressed in the market assessment include manufacturers, trade associations, and the quantities and types of products sold and offered for sale. DOE exami ned both large and small and foreign and domestic manufacturers. DOE also examined publicly available data from the key trade association for this product category. DOE reviewed shipment data to evaluate annual shipment trends. Finally, DOE reviewed other energy efficiency programs from utilities, individual States, and other organizations. Chapter 3 of the TSD provides additional details on the market and technology assessment.

2.2.2 Technology Assessment

DOE typically uses information relating to existing an d past technology options and prototype designs as inputs to determine what technologies manufacturers use to attain higher performance levels. In consultation with interested parties , DOE develops a list of technologies for consideration. Initially, these technologies encompass all those it believes are technologically

feasible.

DOE developed its list of technologically feasible design options t hrough consultation with manufacturers of components and systems, and from trade publ ications and technical

pap ers. Since many options for improving product efficiency are available in existing units, product literature and direct examination provided additional information.

Chapter 3 of the TSD includes the detailed list of all the technology options

.

2.3 SCREENING A NALYSIS

The screening analysis examines various technologies as to whether they: (1) are technologically feasible; (2) are practicable to manufacture, install, and service; (3) have an adverse impact on product utility or availability; and (4) have advers e impacts on health and safety. DOE developed an initial list of efficiency

- enhancement options from the technologies identified as technologically feasible in the technology assessment. Then DOE, in consultation with interested parties, review ed the list to determine if these options are practicable to manufacture, install, and service, would adversely affect product utility or availability, or would

have adverse impacts on health and safety. In addition, DOE remove d from the list technology2-6

options that l ack energy consumption data as well as technology options whose energy consumption could not be adequately measured by existing DOE test procedur es. In the engineering analysis, DOE further consider ed efficiency enhancement options that it did not

screen o ut in the screening analysis. Chapter 4 of the TSD contains details on the screening analysis

.

2.4 ENGINEERING ANALYSIS

The engineering analysis establishes the relationship between the manufacturing production cost (MPC) and the efficiency for each class of products

. The purpose of the analysis is to estimate the incremental MPCs for a product that would result from increasing efficiency levels above the level of the baseline model in each product class. This relationship serves as the

basis for cost/benefit calculations in terms of individual consumers, manufacturers, and the nation. Chapter 5 discusses the product classes DOE analyzed, the representative baseline units, the incremental efficiency levels, the methodology DOE used to develop the manufacturing production costs, the cost

- efficiency curves, and the impact of efficiency improvements on the considered products.

The engineering analysis consider ed technologies not eliminated in the screening analysis, although certain technologies were not analyzed due to negligible incremental efficiency improvements or the inability of the existing DOE test procedures to measure any reduction in energy use. DOE consider ed the remaining technologies, designated as design options, in developing the cost

- efficiency c urves

.

DOE typically structures its engineering analysis around one of three methodologies: (1) the design

- option approach, which calculates the incremental costs of adding specific design options to a baseline model; (2) the efficiency

- level approach, w hich calculates the relative costs of achieving increases in energy efficiency levels without regard to the particular design options used to achieve such increases; and/or (3) the reverse

- engineering or cost

- assessment approach,

which involves a “bottom

- u p” manufacturing cost assessment based on a detailed bill of

materials derived from tear

- downs of the product being analyzed. DOE used a combination of these approaches for this rulemaking, as described in further detail in Chapter 5.

2.5 MARKUPS ANALYSIS

DOE performed a markup analysis to convert the manufacturer costs estimated in the engineering analysis to consumer prices, which then were used in the LCC and PBP and manufacturer impact analyses. DOE calculated markups for baseline products (baseline

mar kups) and for more efficient products (incremental markups). The incremental markup relates the change in the manufacturer sales price of higher efficiency models (the incremental cost increase) to the change in the retailer or distributor sales price.2-7

T o develop markups, DOE identifie d how the products are distributed from the manufacturer to the consumer. After establishing appropriate distribution channels, DOE relie d on economic data from the U.S. Census Bureau and other sources to determine how price s are marked up as the products pass from the manufacturer to the consumer. Chapter 6 of this TSD provides details on DOE’s development of markups

.

2.6 ENERGY A ND WATER USE ANALYSIS

DOE performed an energy and water use analysis to assess the energy and water savings potential from higher efficiency levels, providing the basis for the energy and water savings values used in the LCC and subsequent analyses. The goal of the energy and water use characterization is to generate a range of energy and water use valu es that reflects actual product

use

. Chapter 7 of this TSD provides more detail about DOE’s approach for characterizing energy

and water use.

2.7 LIFE

- CYCLE COST AND PAYBACK PERIOD ANALSYIS

New energy con servation standards usually decrease a product’s operat ing expenses, and usually increase its price. DOE analyzes the net effect of amended standards on consumers by evaluating the net life cycle cost ( LCC ) . To evaluate the net LCC, DOE uses the cost

- efficiency relationship derived in the engineering analysis and the energy and water costs derived from the energy and water use analysis . Inputs to the LCC calculation include the installed cost of a product to the consumer (consumer purchase price plus installation cost), operating expenses (energy expenses and m aintenance costs), the lifetime of the unit, and a discount rate.

Because the installed cost of a product typically increases while operating costs typically decrease under new standards, there is a time in the life of products having higher

- than

- baselin e efficiency when the net operating

- cost benefit (in dollars) since the time of purchase is equal to the incremental first cost of purchasing the product. The time required for products to reach this

cost

- equivalence point is known as the payback period (P BP).

Recognizing that several inputs to determining consumer LCC and PBP are either variable or uncertain, DOE uses Monte Carlo simulation and probability distributions to model both the uncertainty and variability in inputs. DOE uses Microsoft Excel com bined with Crystal Ball (a commercially available add

- in program) to develop LCC and PBP spreadsheet models that incorporate both Monte Carlo simulation and probability distributions.

Chapter 8 of this TSD describes the results from the LCC and PBP analy ses.2-8

2.8 SHIPMENTS ANALYSIS

Forecasts of product shipments are needed to calculate the national impacts of standards on energy use, NPV, and future manufacturer cash flows. DOE developed shipment forecasts

based on an an alysis of key market drivers . In DOE’s shipments model, shipments of products are driven by new construction, stock replacements, and other types of purchases.

The shipments models take an accounting approach, tracking market shares of each product class and the vintage of units in the existin g 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 operat ing costs for any year depend on the age distribution of the stock.

DOE also considers the impacts on shipments from changes in product purchase price and operating cost associated with higher energy efficiency levels. Chapter 9 of this TSD provides add itional details on the shipments analysis.

2.9 NATION AL IMPACT ANALYSIS

The national impact analysis (NIA) assesses the net present value (NPV), to the nation, of

total consumer life

- cycle cost (LCC) and net energy savings (NES). DOE determined both the

NPV a nd NES for the efficiency levels considered for the product classes analyzed. To make the analysis more accessible and transparent to all interested parties, DOE prepared a Microsoft Excel spreadsheet model to forecast NES and the national consumer economi c costs and savings resulting from new standards. The spreadsheet model uses as inputs typical values (as opposed to probability distributions). To assess the effect of input uncertainty on NES and NPV results, DOE may conduct sensitivity analyses by runni ng scenarios on specific input variables. Chapter 10 of this TSD provides additional details regarding the national impact analysis.

Several of the inputs for determining NES and NPV depend on the forecast trends in product energy efficiency. For the bas e case, DOE uses the efficiency distributions developed for the LCC analysis, and assumes some rate of change over the forecast period. In this analysis,

DOE has used a roll

- up scenario in developing its forecasts of efficiency trends after standards

take effect. Under a roll

- up scenario, all products that perform at levels below a prospective standard are moved, or rolled

- up, to the minimum performance level allowed under the standard.

Product efficiencies above the standard level under consideration would remain the same as

before the revised standard takes effect.

2.9.1 National Energy and Water Savings

The inputs for determining the national energy and water savings (NES) for each product class are: (1) annual energy and water consumption per unit, (2) shipments, (3) product stock, (4) national energy and water consumption, and (5) site

- to

- primary energy and full

- fuel cycle2-9

conversion factors for energy. DOE calculated national energy and water consumption by multiplying the number of units, or stock, of each product class (by vintage, or age) by the unit energy and water consumption (also by vintage). DOE calculated annual NES based on the difference in national energy and water consumption for the base case (without new efficiency standards) and for eac h efficiency standard being considered.

DOE historically has presented NES in terms of primary energy savings. In response to the

recommendations of a committee on “Point

- of

- Use and Full

- Fuel

- Cycle Measurement Approaches to Energy Efficiency Standards” a ppointed by the National Academy of Science,

DOE announced its intention to use full

- fuel

- cycle (FFC) measures of energy use and greenhouse gas and other emissions in the national impact analyses and emissions analyses included in future energy conservatio n standards rulemakings. 76 FR 51281 (August 18, 2011). After evaluating the approaches discussed in the August 18, 2011 notice, DOE published a statement of amended policy in the Federal Register in which DOE explained its determination

that NEMS is the m ost appropriate tool for its FFC analysis and its intention to use NEMS for that purpose. 77 FR 49701 (August 17, 2012) . The approach used for the final rule is described in appendix 10

- A of the TSD. DOE estimated water consumption and savings based on si te

water use. DOE did not use a conversion factor for water because no such factor has been developed. Cumulative energy and water savings are the sum of the NES for each year.

2.9.2 Net Present Value of Consumer Benefit

The inputs for determining NPV of the total costs and benefits experienced by consumers are: (1) total annual installed cost, (2) total annual savings in operating costs, (3) a discount factor, (4) present value of costs, and (5) present value of savings. DOE calculated net savings

each year as the difference in total savings in operating costs and total increases in installed costs between the base case and each standards case. DOE calculated savings over the life of each product class, accounting for differences in yearly energy rates. DOE calculated NPV as the difference between the present value of operating cost savings and the present value of total installed costs. DOE used a discount factor based on real discount rates of 3 percent and 7 percent to discount future costs and saving s to present values.

DOE calculated the difference in total installed cost between the base case and each standards case ( i.e ., after standards take effect). Because the more efficient products bought in the standards case usually cost more than products bought in the base case, cost increases appear as negative values in the NPV.

DOE expressed savings in operating costs as decreases associated with the lower energy consumption of products bought in the standards case compared to the base efficiency cas e. Total savings in operating costs are the product of savings per unit and the number of units of each vintage that survive in a given year.

Chapter 10 of this TSD provides additional details regarding the national impact analysis.2-10

2.10 CONSUMER SUBGROUP ANA LYSIS

The consumer subgroup analysis evaluates economic impacts on selected groups of consumers who might be adversely affected by a change in the national energy conservation standards for the considered products. DOE evaluates impacts on particular subg roups of consumers primarily by analyzing the LCC impacts and PBP for those particular consumers using the LCC spreadsheet model. Chapter 11 of this TSD describes the consumer subgroup analysis.

2.11 MANUFACTURER IMPACT ANALYSIS

The manufacturer impact analys is ( MIA ) assesses the impacts of new energy

conservation standards on manufacturers of the considered products . Potential impacts include financial effects, both quantitative and qualitative, that might l ead to changes in the manufacturing practices for th ese products. DOE identified these potential impacts through interviews with manufacturers and other interested parties.

DOE conducted the MIA in three phases, and further tailored the analytical framework based on interested parties’ comments. In Phase I, an industry profile was created to characterize the industry, and a preliminary MIA was conducted to identify important issues that required consideration. In Phase II, an industry cash flow model and an interview questionnaire were prepared to guide su bsequent discussions. In Phase III, manufacturers were interviewed, and the impacts of standards were assessed both quantitatively and qualitatively. Industry and subgroup cash flow and NPV were assessed through use of the Government Regulatory Impact Mode l (GRIM). Then impacts on competition, manufacturing capacity, employment, and cumulative regulatory burden were assessed based on manufacturer interview feedback and discussions. DOE discusses its findings from the MIA in chapter 1 2 of the TSD.

2.12 EMISSIONS ANALYSIS

In the emissions analysis, DOE estimate d the reduction in power

- sector emissions of carbon dioxide (CO 2 ), nitrogen oxides (NO X ), sulfur dioxide (SO 2 )

, and mercury (Hg)

attributable to potential energy conservation standards. In addition to estima ting reductions in power plant emissions , DOE estimate d the reductions in emissions from the activities (extracting, processing, and transporting) that provide the fuels needed by power plants.

Emissions from those activities are referred to as upstream em issions. Together, the power plant and upstream emissions account for the full fuel cycle (FFC). In accordance with DOE’s FFC statement of policy (76 FR 51282 (Aug ust 18, 2011)), the FFC analysis includes impacts on emissions of methane and nitrous oxide, both of which are recognized as greenhouse gases (GHG)

.2-11

DOE conduct ed the emissions analysis for CO 2 and most of the other gases primarily

based on emissions factors derived from the Energy Information Administration’s (EIA) Annual Energy Outlook 2014 (

AEO 2014 ). EIA prepares the Annual Energy Outlook using the National Energy Modeling System ( NEMS ) for the given AEO year

. Each annual version of NEMS incorporates the projected effec ts of current air quality regulations on emissions. AEO 2014 generally re presents current legislation and environmental regulations, including recent government actions, for which implementing regulations were available as of October 31, 2013.

DOE estimated c ombustion emissions of CH 4 and N 2 O using emissions intensity factors

p ublished by the Environmental Protection Agency 's ( EPA 's) GHG Emissions Factors Hub

. 1

Power plants may emit particulates from the smoke stack, which are known as emissions

of direct particulate matter (PM). NEMS does not account for direct PM emissions from power plants. Almost all ambient PM from power plants is in the form of secondary sulfates and nitrates, primari ly SO 2 and NO X , which are produced at a significant distance from the power plant by complex atmospheric chemical reactions. The mone tary benefits that DOE estimated for

reductions in SO 2 and NO X emissions resulting from standards (see section below) are related primarily to the health benefits of reduced ambient PM.

Further detail regarding DOE's emissions analysis is provided in chapter 13 of th is TSD.

2.13 MONETIZATION OF EMISSIONS REDUCTION BENEFITS

DOE assigned monetary values to the benefits likely to result from the reduced emissions

of CO 2 and NO X expected from each TSL considered for commercial and industrial pumps

. To assign a monetary value of benefits resulting from reduced CO 2 emissions , DOE use d the most

current Social Cost of Carbon (SCC ) v alues developed and/or agreed on by an interagency process. The SCC is intended to be a monetary measure of the incremental damage resulting from GHG emissions, including, but not limited to, net loss in agricultural productivity, human health effects, pro perty damage from sea level rise, and changes in ecosystem services. Any effort to quantify or monetize the harms associated with climate change raise serious questions of science, economics, and ethics. But with full regard for the limits of both quantifi cation and monetization, the SCC can be used to estimate the social benefits of reductions in GHG

emissions.

I n 2013 t he Interagency Working Group on Social Cost of Carbon released an update of its previous report. 2 The most recent estimates of the SCC i n 2015, expressed in 201 3 $, are $ 12.0, $40.5, $62.4, and $119 per metric ton of CO 2 avoided. For emissions reductions that occur in later years, th o se values increase in real terms. Additionally, the interagency group determined

1 http://www.epa.gov/climateleadership/inventory/ghg

- emissions.html . (Last accessed September 16, 2014.)

2 Technical Update o

f the Social Cost of Carbon for Regulatory Impact Analysis Under Executive Order 12866

. Interagency Working Group on Social Cost of Carbon, United States Government . Revised November 2013. www.whitehouse.gov/sites/default/files/omb/assets/inforeg/technical

- update

- social

- cost

- of

- carbon

- for

- reg ulator

impact

- analysis.pdf . (Last accessed September 16, 2014.)2-12

that a range of values from 7 percent to 23 percent should be used to adjust the global SCC when

calculat ing domestic effects, although DOE give s preference to consideration of the global benefits of reducing CO 2 emissions.

DOE multiplied the CO 2 emissio ns reduction estimated for each year by each of the four

SCC value s for that year. To calculate a present value of the stream of monetary values, DOE

discount ed the value s in each of the four cases using the discount rates that had been used to

obtain the SCC values in each case. DOE recognizes that scientific and economic knowledge continues to evolve rapidly regarding the contribution of CO 2 and other GHG to changes in the future global climate and the potential resulting damages to the world economy. Thu s, the SCC values are subject to change.

DOE also estimated the potential monetary benefit s of reduced NO X emissions resulting

from the TSLs consider ed

. Estimates of monetary value of reducing NO X from stationary sources

range from $476 to $4,893 per ton in 201 3 $

. 3 DOE calculated monetary benefits using a n

average value for NO X emissions of $2,6 84 per short ton (201 3 $), and real discount rates of 3 percent and 7 percent.

DOE is investigating appropriate valuation s for Hg and SO 2 emissions. For this rulemaking DOE has not monetized estimates of SO 2 and Hg reduction s

.

Further detail on the monetization of emission reduction s is provided in chapter 14 of th is

TSD.

2.14 UTILITY IMPACT ANALYSIS

In the utility impact analysis, DOE analyzes the changes in electric installed capacity and generation attributable to each TSL for potential energy conservation standards

. The utility impact analysis is based on output of the Energy Information Administra tion (EIA)’s National Energy Modeling System (NEMS). NEMS is a public

- domain, multi

- sectorial, partial

equilibrium model of the U.S. energy sector. Each year, the EIA uses NEMS to produce an energy forecast for the United States (the Annual Energy Outlook ) . The EIA publishes a reference case, which incorporates all energy

- related policies at the time of publication, and a variety of side cases that analyze the impact of different policies, energy prices, and market trends. As of 2014, DOE is using a new met hod based on results published for the AEO 2014

Reference case and a set of alternative c ases that implement a variety of efficiency

- related policies

. Further detail is provided in chapter 15 of th is TSD.

3 U.S. Office of Management and Budget

– Office of Information and Regulatory Affairs

. 2006 Report to Congress on the Costs and Benefits of Federal Regulations and Unfunded Mandates on State, Local, and Tribal Entities

. Washington, D.C

.2-13

2.15 EMPLOYMENT IMPACT ANALYSIS

The adoption of energy conservation standards can affect employment both directly and indirectly. Direct employment effe cts are changes in the number s of employees at the plants that produce commercial and industrial pumps . DOE evaluates direct employment impacts in the

MIA. Indirect employment impacts may result when standards (1) cause expenditures to shift between goods (the substitution effect) or (2) impact income and overall expenditure levels (the income effect). DOE defines indirect employment impac ts from standards as net jobs eliminated or created in the general economy as a result of increased spending driven by increased equipment cost s and reduced spending on energy.

To investigate i ndirect employment impacts in the employment impact analysis , D OE

uses the Pacific Northwest National Laboratory’s " Impact of Sector Energy Technologies” (ImSET) model. 4 The ImSET model was developed for DOE’s Office of Planning, Budget, and Analysis to estimate the employment and income effects of energy

- saving techn ologies in buildings, industry, and transportation

. Compared with approaches that simply apply an economic multiplier, ImSET allows for a more complete and automated ana lysis of the economic impacts of energy conservation investments. Further detail i s pro vided in chapter 16 of this TSD.

2.16 REGULATORY IMPACT ANALYSIS

DOE prepare d a regulatory impact analysis (RIA) under Executive Order 12866,

“ Regulatory Planning and Revie w,” 58 FR 51735 (October 4, 1993) . The RIA addresses the potential for non

- regulatory a lternatives to energy conservation standards in improv ing the energy efficiency or reduc ing the energy consumption of the equipmen t covered under this rulemaking. DOE recognizes that voluntary or other non

- regulatory efforts by manufacturers, utilities, and other interested parties can substantially affect energy efficiency or reduce energy consumption. DOE bases its assessment on the recorded impacts of any such initiatives to date, but also considers information presented by interested parties regarding the impacts current
initiatives m ay have in the future. Further detail on the RIA is provided in chapter 17 of th is

TSD.

4 M.J. Scott, O.V. Livingston, P.J. Balducci, J.M. Roop, and R.W. Schultz. ImSET 3.1: Impact of Sector Energy Technologies

. PNNL

- 18412, Pacific Northwest National Laboratory. May 2009. www.pnl.gov/main/publications/external/technical_reports/PNNL

- 18412.pdf . (Last accessed September 16, 2014.)