ENVIRONMENTAL ASSESSMENT FOR PROPOSED ENERGY CONSERVATION

STANDARDS FOR RESIDENTIAL WATER HEATERS, DIRECT HEATING

EQUIPMENT, AND POOL HEATERS

TABLE OF CONTENTS

1.0 INTRODUCTION ........................................................................................................EA­1

2.0 METHODOLOGY .......................................................................................................EA­2

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ENVIRONMENTAL ASSESSMENT FOR PROPOSED ENERGY CONSERVATION

STANDARDS FOR RESIDENTIAL WATER HEATERS, DIRECT HEATING

EQUIPMENT, AND POOL HEATERS

1.0 INTRODUCTION

The Department of Energy (DOE) will conduct an environmental assessment as part of

the notice of proposed rulemaking. DOE will assess the impacts of proposed energy conservation

standards for residential water heaters, direct heating equipment, and pool heaters on certain

environmental indicators using a variant of the U.S. DOE/Energy Information Administration

(EIA)’s National Energy Modeling System (NEMS).a EIA uses NEMS to produce the Annual

1 Energy Outlook (AEO). DOE will use a variant known as NEMS­BT to provide key inputs to

the analysis, based on the 2008 version of the AEO (AEO2008). Results of the environmental

assessment will be similar to those provided in AEO2008.

The intent of the environmental impact assessment is to fulfill requirements to properly

quantify and consider the environmental effects of all new Federal rules. DOE intends the

environmental assessment to provide emissions results to policymakers and other stakeholders,

and to fulfill requirements that the environmental effects of all new Federal rules be properly

quantified and considered. The primary environmental effects of energy conservation standards

for heating products would be reduced power plant emissions resulting from reduced

consumption of electricity as well as reduced household emissions from gas appliances. The

environmental assessment considers three pollutants— sulfur dioxide (SO2), nitrogen oxides

(NOx), and mercury (Hg)—as well as carbon emissions. The only form of carbon emissions

tracked by NEMS­BT is carbon dioxide (CO2), so the carbon discussed in this report is in the

form of CO2. For each of the trial standard levels, DOE will calculate total emissions using

NEMS­BT, using additional external analysis as needed.

Although DOE plans to consider only SO2, NOx, Hg, and CO2 in its environmental

assessment, there are other air pollutants which are of concern. Specifically, the Clean Air Act

requires the Environmental Protection Agency (EPA) to set National Ambient Air Quality

Standards for the following six common air pollutants, also know as “criteria pollutants”: (1)

ozone, (2) particulate matter (PM), (3) carbon monoxide (CO), (4) nitrogen dioxide, (5) SO2, and

2 (6) lead. But none of the “criteria pollutants” not already considered (i.e., ozone, PM, CO, and

lead) are driven significantly by either electric utility power plants or fuel­fired appliances.

Therefore, DOE does not intend on addressing them in the environmental assessment. In the case

of ozone and particulate matter, other pollutants are precursors to their formation and

atmospheric conditions are the driver behind their formation. Also, SO2 and NOx are the primary

precursors to ozone and PM, respectively, and will already be addressed by the environmental

assessment. In the case of CO, electric utilities and fuel­fired appliances are not significant

sources. For electric power plants, almost all carbon emissions come out in the form of CO2 as

a For more information on NEMS, please refer to the U.S. Department of Energy, Energy Information

Administration documentation. A useful summary is National Energy Modeling System: An Overview 2003,

DOE/EIA­0581(2003), March 2003. EIA approves use of the name NEMS to describe only an official version of the

model without any modification to code or data. Because this analysis entails some minor code modifications and

the model is run under various policy scenarios that are variations on EIA assumptions, DOE refers to the model as

NEMS­BT (BT is DOE’s Building Technologies Program). NEMS­BT was previously called NEMS­BRS.

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the combustion process is lean enough not to yield CO in significant amounts. For fuel­fired

appliances, proper appliance maintenance, installation, and use can prevent dangerous levels of

CO. A well­designed and properly functioning heating appliance should not produce toxic or

lethal levels of CO, as most CO poisoning occurs in the home as a result of malfunctioning

appliances. Finally, with regard to lead, the ban on the use of leaded gasoline has resulted in a

dramatic decrease in lead emissions since the mid 1970s. Currently, industrial processes (not

electric utilities), including primary and secondary lead smelters and battery manufacturers, are

responsible for most of the lead emissions and all violations to the lead air quality standards.

2.0 METHODOLOGY

DOE will conduct the environmental assessment as a policy deviation from the AEO

2008, using the same basic set of assumptions. For example, the emissions characteristics of an

electricity generating plant will be exactly those used in AEO2008. The NEMS reference case

and alternative growth scenarios are as described in the utility impact analysis (see Chapter 13 of

the technical support document).

The Clean Air Act Amendments of 1990 set an SO2 emissions cap on all power

generation. The attainment of this target, however, is flexible among generators through the use

of emissions allowances and tradable permits. Although NEMS includes a module for SO2

allowance trading and delivers a forecast of SO2 allowance prices, accurate simulation of SO2

trading implies that the effect of energy conservation standards on physical emissions will be

zero because emissions will always be at or near the ceiling. However, there is an SO2 benefit

from energy conservation, in the form of a lower SO2 allowance expenditures. DOE will

examine the potential monetary impact or value of an SO2 benefit that may arise from a standard.

NOX and Hg emissions are not currently subject to regulatory emissions caps. The U.S.

Environmental Protection Agency (EPA) issued the Clean Air Interstate Rule (CAIR) on March

10, 2005. 70 FR 25162 (May 12, 2005). On July 11, 2008, the U.S. Court of Appeals for the

District of Columbia Circuit (D.C. Circuit) issued its decision in North Carolina v.

b Environmental Protection Agency , in which the court vacated the CAIR. 531 F.3d 896 (D.C.

Cir. 2008). If left in place, the CAIR would have permanently capped emissions of NOX in 28

eastern States and the District of Columbia. However, upon consideration of petitions for review,

the D.C. Circuit decided on December 23, 2008 to allow CAIR to remain in effect until it is

replaced by a rule consistent with the court's earlier opinion. North Carolina v. EPA, No. 05­

1244, 2008 WL 5335481 (D.C. Cir. Dec. 23, 2008). Therefore, DOE’s Environmental Analysis

will be based on CAIR, pending revision by EPA. See www.epa.gov/cleanairinterstaterule.

Similarly, the EPA issued the Clean Air Mercury Rule (CAMR). 70 FR 28606 (May 18, 2005).

CAMR would have permanently capped emissions of mercury for new and existing coal­fired

power plants in all States by 2010. On February 8, 2008, the D.C. Circuit issued its decision in

New Jersey v. Environmental Protection Agencyc, in which the D.C. Circuit, among other

actions, vacated the CAMR.

b Case No. 05­1244, 2008 WL 2698180 at *1 (DC Cir. July 11, 2008) c Case No. 05­1097, 2008 WL 341338 at * (DC Cir. Feb. 9,2008)

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Both with and without emissions caps, decreased power production at emitting power

plants can have environmental­related economic benefits. When NOX and Hg emissions are

subject to emissions caps, electricity demand reductions may result in incremental changes in the

prices of emissions allowances in cap­and­trade emissions markets rather than physical

emissions reductions. When there are physical emissions reductions, economic benefits can

accrue from the decreased environmental damage from lower emissions. Therefore, both with

and without emissions caps, standards can produce an environmental­related economic benefit in

the form of lower prices for emissions allowance credits or a monetary value of the economic

benefits of lower emissions. Therefore in addition to potential physical emissions reductions,

DOE will examine the potential monetary value of NOX and Hg benefits that may arise from a

standard.

NEMS does not estimate emissions at homes from gas­fired appliances (e.g., gas­fired

water heaters, direct heating equipment and gas pool heaters). Therefore, DOE plans to conduct

an analysis that includes separate estimates of the effect of energy conservation standards on

CO2, NOx, and SO2 emissions from gas­fired appliances, based on simple emissions factors

5 derived from the literature. Although household NOx and SO2 emissions savings will be small,

DOE will report them because the emissions caps do not apply to the residential sector.

NEMS­BT tracks carbon emissions using a detailed carbon module; this approach

provides good results because of its broad coverage of all sectors and inclusion of interactive

effects. Past experience with carbon results from NEMS suggests that the NEMS­generated

emissions estimates are somewhat lower than estimates based on simple average factors. One of

the reasons for this divergence is that NEMS tends to predict that conservation displaces

renewable generating capacity in the later years of its forecast. On the whole, NEMS­BT

provides carbon emissions results of reasonable accuracy, at a level consistent with other

published Federal results.

In addition to providing estimates of quantitative impacts of heating products standards on

carbon dioxide emissions and other emissions, DOE expects to base its estimates of the monetary

value of emissions reductions on the economic benefits likely to result from such reductions.

DOE will also examine a range of monetary values. DOE invites comment on how to estimate

the monetary value of emissions reductions or any widely accepted values which might be used

in DOE’s analyses.

The results for the environmental assessment are similar to a complete NEMS run, as

published in the AEO. These include emissions for SO2, NOx, mercury, and CO2 in five­year

forecasted increments. DOE will report the outcome of the analysis for each trial standard level

as a deviation from the AEO2008 reference (base) case results.

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REFERENCES

1. U.S. Department of Energy ­ Energy Information Administration, Annual Energy

Outlook 2008 (Revised Early Release) with Projections to 2030, 2008. Washington, DC.

2. U.S. Environmental Protection Agency, National Ambient Air Quality Standards, 2008.

(Last accessed March 11, 2008.) <http://www.epa.gov/air/urbanair/>

3. U.S. Environmental Protection Agency, Clean Air Act. 1990. http://www.epa.gov/air/caa/

4. U.S. Federal Register, Rule To Reduce Interstate Transport of Fine Particulate Matter

and Ozone (Clean Air Interstate Rule); Revisions to Acid Rain Program; Revisions to the

NOX SIP Call, Final Rule, May 12, 2005, 2005.

5. U.S. Environmental Protection Agency, Compilation of Air Pollutant Emission Factors,

AP­42, Fifth Edition, Volume I: Stationary Point and Area Sources.

1998<http://www.epa.gov/ttn/chief/ap42/>

6. U.S. Federal Register, Standards of Performance for New and Existing Stationary

Sources: Electric Utility Steam Generating Units, Final Rule, May 18, 2005, 2005.

Report No. 70 FR 28606.

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