After a regulatory action has been completed, Executive Order 12866 requires agencies 

to identify the substantive changes between the draft submitted to Office of Information 

and Regulatory Affairs (OIRA) for review and the action subsequently announced, and to 

identify those changes made at the suggestion or recommendation of OIRA.
** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft 

Language under E.O. 13563 and 12866 Interagency Review. Subject to Further Policy 

Review.**

[6450-01-P]

DEPARTMENT OF ENERGY

10 CFR Part 431

[Docket Number EERE–2013–BT–STD–0021]

RIN: 1904–AD11

Energy Conservation Program for Certain Industrial Equipment: Energy 

Conservation Standards for Commercial Warm Air Furnaces

AGENCY: Office of Energy Efficiency and Renewable Energy, Department of Energy.

ACTION: Notice of proposed rulemaking and public meeting.

SUMMARY: The Energy Policy and Conservation Act of 1975 (EPCA), as amended,

prescribes energy conservation standards for various consumer products and certain 

commercial and industrial equipment, including commercial warm air furnaces (CWAF).

EPCA also requires that every six years, the U.S. Department of Energy (DOE) must 

consider amending its standards for specified types of commercial heating, airconditioning, and water-heating equipment in order to determine whether more-stringent, 

amended standards would be technologically feasible and economically justified, and 

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would save a significant additional amount of energy. In this notice, DOE has tentatively 

concluded that there is sufficient record evidence to support more-stringent standards, so 

DOE is proposing to amend the current energy conservation standards for CWAF. The 

notice also announces a public meeting to receive comment on these proposed standards 

and associated analyses and results. 

DATES: Meeting: DOE will hold a public meeting on [Day of week, Month, Day, 

Year], from 9:00 a.m. to 4:00 p.m., in Washington, DC. The meeting will also be 

broadcast as a webinar. See section VII, “Public Participation,” for webinar registration 

information, participant instructions, and information about the capabilities available to 

webinar participants. 

Comments: DOE will accept comments, data, and information regarding this 

notice of proposed rulemaking (NOPR) before and after the public meeting, but no later 

than [INSERT DATE 60 DAYS AFTER DATE OF PUBLICATION IN THE 

FEDERAL REGISTER]. See section VII, “Public Participation,” for details.

ADDRESSES: The public meeting will be held at the U.S. Department of Energy, 

Forrestal Building, Room [NUMBER], 1000 Independence Avenue, SW., Washington, 

DC 20585. To attend, please notify Ms. Brenda Edwards at (202) 586–2945. For more 

information, refer to section VII, “Public Participation,” near the end of this notice.

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Instructions: Any comments submitted must identify the NOPR for Energy 

Conservation Standards for Commercial Warm Air Furnaces, and provide docket number 

EE-2013–BT–STD–00021 and/or regulatory information number (RIN) number 1904-

AD11. Comments may be submitted using any of the following methods: 

1. Federal eRulemaking Portal: www.regulations.gov. Follow the instructions for 

submitting comments. 

2. E-mail: CommWarmAirFurn2013STD0021@ee.doe.gov. Include the docket 

number and/or RIN in the subject line of the message. Submit electronic 

comments in WordPerfect, Microsoft Word, PDF, or ASCII file format, and avoid 

the use of special characters or any form of encryption.

3. Postal Mail: Ms. Brenda Edwards, U.S. Department of Energy, Building 

Technologies Office, Mailstop EE-2J, 1000 Independence Avenue, SW., 

Washington, DC, 20585-0121. If possible, please submit all items on a compact 

disc (CD), in which case it is not necessary to include printed copies.

4. Hand Delivery/Courier: Ms. Brenda Edwards, U.S. Department of Energy, 

Building Technologies Office, 950 L’Enfant Plaza, SW., Suite 600, Washington, 

DC, 20024. Telephone: (202) 586-2945. If possible, please submit all items on a 

CD, in which case it is not necessary to include printed copies.

Written comments regarding the burden-hour estimates or other aspects of the 

collection-of-information requirements contained in this proposed rule may be submitted 

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to Office of Energy Efficiency and Renewable Energy through the methods listed above 

and by e-mail to Chad_S_Whiteman@omb.eop.gov.

No telefacsimiliestelefacsimiles (faxes) will be accepted. For detailed instructions 

on submitting comments and additional information on the rulemaking process, see 

section VII of this document (Public Participation).

Docket: The docket is available for review at www.regulations.gov. All 

documents in the docket are listed in the www.regulations.gov index. A link to the 

docket webpage can be found at: [Web site. THIS WEB PAGE WILL CONTAIN A 

LINK TO THE DOCKET FOR THIS NOTICE ON THIS NOTICE ON THE 

REGULATIONS.GOV SITE]. This webpage contains a link to the docket for this notice 

on the www.regulations.gov site. The www.regulations.gov webpage contains simple 

instructions on how to access all documents, including public comments, in the docket.

For further information on how to submit a comment, review other public 

comments and the docket, or participate in the public meeting, contact Ms. Brenda 

Edwards at (202) 586-2945 or by email: Brenda.Edwards@ee.doe.gov.

FOR FURTHER INFORMATION CONTACT: Mr. John Cymbalsky, U.S. 

Department of Energy, Office of Energy Efficiency and Renewable Energy, Building 

Technologies, EE-5B, 1000 Independence Avenue, SW., Washington, DC 20585-0121.

Telephone: (202) 286-1692. E-mail: John.Cymbalsky@ee.doe.gov. 

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Mr. Eric Stas, U.S. Department of Energy, Office of the General Counsel, GC-71, 

1000 Independence Avenue, SW., Washington, DC 20585-0121. Telephone: (202) 586-

9507. E-mail: Eric.Stas@hq.doe.gov.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Summary of the Proposed Rule

A. Benefits and Costs to Commercial Consumers

B. Impact on Manufacturers

C. National Benefits

II. Introduction

A. Authority

B. Background

1. Current Standards

2. History of Standards Rulemaking for CWAF

III. General Discussion

A. Compliance Date

B. Technological Feasibility

1. General

2. Maximum Technologically Feasible Levels

C. Energy Savings

1. Determination of Savings

2. Significance of Savings

D. Economic Justification

1. Specific Criteria

a. Economic Impact on Manufacturers and Consumers

b. Life-Cycle Costs

c. Energy Savings

d. Lessening of Utility or Performance of Equipment

e. Impact of Any Lessening of Competition

f. Need for National Energy Conservation

g. Other Factors

2. Rebuttable Presumption

IV. Methodology and Discussion of Related Comments

A. Market and Technology Assessment

1. General

2. Scope of Coverage and Equipment Classes

3. Technology Options

B. Screening Analysis

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C. Engineering Analysis

1. Methodology

2. Efficiency Levels

a. Baseline Efficiency Levels

b. Incremental and Max-Tech Efficiency Levels

3. Equipment Testing and Reverse Engineering

4. Cost Model

5. Manufacturing Production Costs

6. Manufacturer Markup

7. Shipping Costs

D. Markups Analysis

E. Energy Use Analysis

F. Life-Cycle Cost and Payback Period Analysis

1. Inputs to Installed Cost

2. Inputs to Operating Costs

a. Energy Consumption

b. Energy Prices

c. Maintenance and Repair Costs

d. Other Inputs

G. Shipments Analysis

H. National Impact Analysis

I. Consumer Subgroup Analysis

J. Manufacturer Impact Analysis

1. Overview

2. Government Regulatory Impact Model

a. Government Regulatory Impact Model Key Inputs

b. Government Regulatory Impact Model Scenarios

c. Manufacturer Interviews

K. Emissions Analysis

L. Monetizing Carbon Dioxide and Other Emissions Impacts

1. Social Cost of Carbon

a. Monetizing Carbon Dioxide Emissions

b. Development of Social Cost of Carbon Values

c. Current Approach and Key Assumptions

2. Valuation of Other Emissions Reductions

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 Commercial 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

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b. Impacts on Direct 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 Commercial Consumer Costs and Benefits

c. Indirect Impacts on Employment

4. Impact on Utility or Performance of Equipment

5. Impact of Any Lessening of Competition

6. Need of the Nation to Conserve Energy

7. Other Factors

8. Summary of Other National Economic Impacts

C. Proposed Standards

1. Benefits and Burdens of Trial Standard Levels Considered for CWAF

2. Summary of Benefits and Costs (Annualized) of the Proposed Standards

VI. Procedural Issues and Regulatory Review

A. Review Under Executive Orders 12866 and 13563

B. Review Under the Regulatory Flexibility Act

C. Review Under the Paperwork Reduction Act of 1995

D. Review Under the National Environmental Policy Act of 1969

E. Review Under Executive Order 13132

F. Review Under Executive Order 12988

G. Review Under the Unfunded Mandates Reform Act of 1995

H. Review Under the Treasury and General Government Appropriations Act, 1999

I. Review Under Executive Order 12630

J. Review Under the Treasury and General Government Appropriations Act, 2001

K. Review Under Executive Order 13211

L. Review Under the Information Quality Bulletin for Peer Review

VII. Public Participation

A. Attendance at the Public Meeting

B. Procedure for Submitting Requests to Speak and Prepared General Statements For 

Distribution

C. Conduct of the Public Meeting

D. Submission of Comments

E. Issues on Which DOE Seeks Comment

VIII. Approval of the Office of the Secretary

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I. Summary of the Proposed Rule 

Title III, Part C1 of the Energy Policy and Conservation Act of 1975 (EPCA or 

the Act), Pub. L. 94-163 (42 U.S.C. 6311-6317, as codified), added by Public Law 95-

619, Title IV, § 441(a), established the Energy Conservation Program for Certain 

Industrial Equipment, which includes the commercial warm air furnaces that are the 

subject of this rulemaking. CWAF are a type of equipment also covered under the 

American Society of Heating, Refrigerating, and Air-Conditioning Engineers (ASHRAE) 

Standard 90.1 (ASHRAE Standard 90.1), “Energy Standard for Buildings Except LowRise Residential Buildings.”2 Pursuant to recent statutory amendments to EPCA, DOE 

must conduct an evaluation of its standards for CWAF every six years and publish either 

a notice of determination that such standards do not need to be amended or a notice of 

proposed rulemaking including proposed amended standards. (42 U.S.C. 

6313(a)(6)(C)(i)) EPCA further requires that any new or amended energy conservation 

standard that DOE prescribes for covered equipment, such as CWAF, shall be designed 

to achieve the maximum improvement in energy efficiency that is technologically 

feasible and economically justified. (42 U.S.C. 6313(a)(6)(A)(ii)(II)) Furthermore, the 

new or amended standard must result in a significant additional conservation of energy.

Id. Under the applicable statutory provisions, DOE must determine that there is clear and 

convincing evidence supporting the adoption of more-stringent energy conservation 

1

 For editorial reasons, upon codification in the U.S. Code, Part C was re-designated Part A-1. 2 ASHRAE Standard 90.1-2013 (i.e., the most recent version of ASHRAE Standard 90.1) did not amend 

the efficiency levels for CWAF. Thus, DOE was not triggered by the statutory provision for ASHRAE 

equipment. For more information on DOE’s review of ASHRAE Standard 90.1-2013, see: 

http://www1.eere.energy.gov/buildings/appliance_standards/rulemaking.aspx?ruleid=108

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by OIRA.

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standards than the ASHRAE level. Id. Once complete, this rulemaking will satisfy 

DOE’s statutory obligation under 42 U.S.C. 6313(a)(6)(C).

In accordance with these and other statutory provisions discussed in this notice, 

DOE has examined all of the CWAF equipment classes and has tentatively concluded 

that there is clear and convincing evidence to support more-stringent standards for both 

gas-fired and oil-fired CWAF. Accordingly, DOE is proposing amended energy 

conservation standards for both gas-fired and oil-fired CWAF. The proposed standards,

which prescribe the minimum allowable thermal efficiency (TE), are shown in Table 

I.1.Table I.1. These proposed standards, if adopted, would apply to all equipment listed in 

Table I.1Table I.1 and manufactured in, or imported into, the United States on and after 

the date three years after the publication of the final rule for this rulemaking.

Table I.1. Proposed Energy Conservation Standards for Commercial Warm Air 

Furnaces

Equipment Class Input Capacity*

(Btu/h) Thermal Efficiency**

Gas-Fired Furnaces ≥225,000 Btu/h 82%

Oil-Fired Furnaces ≥225,000 Btu/h 82%

* In addition to being defined by input capacity, a CWAF is “a self-contained oil- or gas-fired furnace 

designed to supply heated air through ducts to spaces that require it and includes combination warm air 

furnace/electric air conditioning units but does not include unit heaters and duct furnaces.” CWAF 

coverage is further discussed in section IV.A.2, “Scope of Coverage and Equipment Classes.”

**Thermal efficiency is at the maximum rated capacity (rated maximum input), and is determined using the 

DOE test procedure specified at 10 CFR 431.76.

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A. Benefits and Costs to Commercial Consumers

Table I.2Table I.2 presents DOE’s evaluation of the economic impacts of the 

proposed energy conservation standards on commercial consumers of CWAF, as 

measured by the average life-cycle cost (LCC) savings and the median payback period

(PBP). In overview, the The average LCC savings are positive for both equipment 

classes, and the PBP is less than the proposed standardsaverage lifetime of the 

equipment, which is estimated to be 19 years for gas-fired CWAF and 26 years for oilfired CWAF. 

Table I.2. Impacts of Proposed Energy Conservation Standards on Commercial 

Consumers of Commercial Warm Air Furnaces

Equipment Class

Average LCC Savings 

(2013$) Median Payback Period 

(years)

Gas-Fired Furnaces 426 0.7

Oil-Fired Furnaces 164 2.8

DOE’s analysis of the impacts of the proposed standards on consumers is 

described in section IV.F of this notice and in chapter 8 of the NOPR TSD.

B. Impact on Manufacturers

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 (2014 to 2047). 

Using a real discount rate of 8.9 percent, DOE estimates that the INPV for manufacturers 

of CWAF is $74.7 million in 2013$. Under the proposed standards, DOE expects that 

Comment [A3]: Change recommended by OIRA.

Comment [A4]: Change recommended by OIRA.

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INPV may be reduced by approximately $43.3 to $11.1 million, which is -58.0 percent to 

-14.9 percent.

DOE’s analysis of the impacts of the proposed standards on manufacturers is 

described in section IV.J of this notice.

C. National Benefits3

DOE’s analyses indicate that the proposed energy conservation standards for 

CWAF would save a significant amount of energy. The energy savings over the entire 

lifetime energy savings for of CWAF purchased inequipment installed during the 30-year 

period that begins in the year of compliance with amended standards (2018-2047)), 

relative to the base case without amended standards, amount to 0.52 quadrillion Btus 

(quads) of full-fuel-cycle energy. The average annual primary energy4 This represents a

savings over 30 years, of 1.0.02 quads, is equivalent to nearly 0.08 percent of total U.S. 

commercial sectorrelative to the energy use in 2012. of this equipment in the base case.

The cumulative net present value (NPV) of total consumer costs and savings of 

the proposed standards for CWAF ranges from $1.0 billion to $2.7 billion at 7-percent 

and 3-percent discount rates, respectively. This NPV expresses the estimated total value 

of future operating-cost savings minus the estimated increased product costs for CWAF 

purchased in 2018-2047. 

3 All monetary values in this NOPR are expressed in 2013 dollars and are discounted to 2014. 4 These results include impacts on commercial consumers which accrue after 2048 from the products 

purchased in 2018−2047.

Comment [A6]: Change recommended by OIRA.

Comment [A7]: Change recommended by OIRA 

(including footnote 4).

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In addition, the proposed standards would have significant environmental 

benefits.5 The energy savings would result in cumulative emission reductions of 27.9 

million metric tons (Mt) 6 of carbon dioxide (CO2), 319.8 thousand tons of methane 

(CH4), 0.1 thousand tons of nitrous oxide (N2O), 2.2 thousand tons of sulfur dioxide 

(SO2), 66.84 thousand tons of nitrogen oxides (NOX) and 0.003 tons of mercury (Hg).

The cumulative reduction in CO2 emissions through 2030 amounts to 4.4 Mt.

The value of the CO2 reductions is calculated using a range of values per metric 

ton of CO2 (otherwise known as the Social Cost of Carbon, or SCC) developed by an 

interagency process.7 The derivation of the SCC values is discussed in section 

IV.L.IV.L. Using discount rates appropriate for each set of SCC values, DOE estimates 

the present monetary value of the CO2 emissions reduction to be between $0.2 billion and 

$2.6 billion.

8 , with a value of $0.8 billion using the central SCC case represented by 

$40.5/t in 2015.9 Additionally, DOE estimates the present monetary value of the NOX

5 DOE calculated emissions reductions relative to the Annual Energy Outlook 2013 (AEO 2013) Reference 

case, which generally represents current legislation and environmental regulations for which implementing 

regulations were available as of December 31, 2012.

6 A metric ton is equivalent to 1.1 short tons. Results for emissions other than CO2 are presented in short 

tons.

7 Technical Update of the Social Cost of Carbon for Regulatory Impact Analysis Under Executive Order 

12866, Interagency Working Group on Social Cost of Carbon, United States Government (May 2013; 

revised November 2013) (Available at:

http://www.whitehouse.gov/sites/default/files/omb/assets/inforeg/technical-update-social-cost-of-carbonfor-regulator-impact-analysis.pdf). 8 The values only include CO2 emissions; CO2 equivalent emissions are not included. 9 The values only include CO2 emissions; CO2 equivalent emissions from other greenhouse gases are not 

included.

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Comment [A8]: Change recommended by OIRA 

(including footnote 9).

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emissions reduction to be $34.2 million to $82.0 million at 7-percent and 3-percent 

discount rates, respectively.10

Table I.3Table I.3 summarizes the national economic costs and benefits expected 

to result from today’s proposed standards for CWAF.

10 DOE is investigating monetization of reductions in SO2 and Hg emissions.

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Table I.3. Summary of National Economic Benefits and Costs of Proposed Energy 

Conservation Standards for Commercial Warm Air Furnaces*

Category

Present 

Value

Billion 2013$

Discount 

Rate

Benefits

Operating Cost Savings 1.1052 7%

2.7721 3%

CO2 Reduction Monetized Value ($12.0/t case)** 0.2175 5%

CO2 Reduction Monetized Value ($40.5/t case)** 0.8841 3%

CO2 Reduction Monetized Value ($62.4/t case)** 1.3347 2.5%

CO2 Reduction Monetized Value $119/t case)** 2.6606 3%

NOX Reduction Monetized Value (at $2,684/ton)** 0.0034 7%

0.1082 3%

Total Benefits† 1.9928 7%

3.6645 3%

Costs

Incremental Installed Costs 0.0036 7%

0.1062 3%

Total Net Benefits

Including Emissions Reduction Monetized Value† 1.9892 7%

3.6582 3%

* This table presents the costs and benefits associated with CWAF shipped in 2018−2047. These results 

include benefits toimpacts on commercial consumers which accrue after 2048 from the products purchased 

in 2018−2047. The results account for the incremental variable and fixed costs incurred by manufacturers 

due to the standard, some of which may be incurred in preparation for the rule. 

** The interagency group selected four sets of SCC values for use in regulatory analyses. Three sets of 

values (represented by 2015 values of $12.0/t, $40.5/t, and $62.4/t, in 2013$) are based on the average SCC 

from the integrated assessment models, at discount rates of 2.5, 3, and 5 percent. The fourth set

(represented by 2015 value of $119/t in 2013$), which represents the 95th percentile SCC estimate across 

all three models at a 3-percent discount rate, is included to represent higher-than-expected impacts from 

temperature change further out in the tails of the SCC distribution. The values in parentheses represent the 

SCC in 2015. The SCC time series incorporate an escalation factor. The value for NOX represents the 

average of the low and high NOX values considered in DOE’s analysis.

† Total Benefits for both the 3% and 7% cases are derived using the series corresponding to average SCC 

with 3-percent discount rate.

The benefits and costs of today’s proposed standards, for products sold in 2018-

2047, can also be expressed in terms of annualized values. The annualized monetary 

values are the sum of: (1) the annualized national economic value of the benefits from 

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Comment [A9]: Change recommended by OIRA 

(entire column).

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OIRA.

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consumer operation of equipment that meets the proposed standards (consisting primarily 

of operating cost savings from using less energy, minus increases in equipment purchase

price and installation costs, which is another way of representing commercial consumer

NPV), and (2) the annualized monetary value of the benefits of CO2 and NOX emission 

reductions.11

Although combining the values of operating savings and CO2 emission reductions 

provides a useful perspective, two issues should be considered. First, the national 

operating savings are domestic U.S. consumer monetary savings that occur as a result of 

market transactions, whereas the value of CO2 reductions is based on a global value.

Second, the assessments of operating cost savings and CO2 savings are performed with 

different methods that use different time frames for analysis. The national operating cost 

savings is measured for the lifetime of CWAF shipped in 2018–2047. The SCC values, 

on the other hand, reflect the present value of some future climate-related impacts 

resulting from the emission of one ton of carbon dioxide in each year. These impacts 

continue wellBecause CO2 emissions have a very long residence time in the 

11 DOE used a two-step calculation process to convert the time-series of costs and benefits into annualized 

values. First, DOE calculated a present value in 2013, the year used for discounting the NPV of total 

consumer costs and savings, for the time-series of costs and benefits using discount rates of three and seven 

percent for all costs and benefits except for the value of CO2 reductions. For the latter, DOE used a range 

of discount rates, as shown in Table I.4. From the present value, DOE then calculated the fixed annual 

payment over a 30-year period (2018 through 2047) that yields the same present value. The fixed annual 

payment is the annualized value. Although DOE calculated annualized values, this does not imply that the 

time-series of cost and benefits from which the annualized values were determined is a steady stream of 

payments.

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atmosphere,12 the SCC values after 2050 reflect future climate-related impacts resulting 

from the emission of CO2 that continue beyond 2100.

Estimates of annualized benefits and costs of the proposed standards are shown in 

Table I.4. The results under the primary estimate are as follows. Using a 7-percent 

discount rate for benefits and costs other than CO2 reduction, for which DOE used a 3-

percent discount rate along with the average SCC series that uses a 3-percent discount 

rate, the estimated cost of the CWAF standards proposed in today’s rule is $3.51 million 

per year in increased equipment costs, while the estimated benefits are $104 million per 

year in reduced equipment operating costs, $47 million in CO2 reductions, and $3.38

million in reduced NOX emissions. In this case, the net benefit would amount to $151

million per year. Using a 3-percent discount rate for all benefits and costs and the 

average SCC series, the estimated cost of the CWAF standards proposed in today’s rule 

is $3.48 million per year in increased equipment costs, while the estimated benefits are 

$152 million per year in reduced equipment operating costs, $47 million in CO2

reductions, and $4.57 million in reduced NOX emissions. In this case, the net benefit 

would amount to $200 million per year.

12 The atmospheric lifetime of CO2 is estimated of the order of 30–95 years. Jacobson, MZ (2005). 

"Correction to "Control of fossil-fuel particulate black carbon and organic matter, possibly the most 

effective method of slowing global warming."" J. Geophys. Res. 110. pp. D14105.

Comment [A11]: Change recommended by 

OIRA (including footnote 12).

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Language under E.O. 13563 and 12866 Interagency Review. Subject to Further Policy 

Review.**

Table I.4. Annualized Benefits and Costs of Proposed Energy Conservation 

Standards for Commercial Warm Air Furnaces*

Discount Rate

Primary 

Estimate

Low Net 

Benefits 

Estimate

High Net 

Benefits 

Estimate

million 2013$/year

Benefits

Operating Cost Savings

7% 104 98 111

3% 152 143 163

CO2 Reduction Monetized 

Value ($12.0/t case)** 5% 13 13 14

CO2 Reduction Monetized 

Value ($40.5/t case)** 3% 47 45 48

CO2 Reduction Monetized 

Value ($62.4/t case)** 2.5% 69 67 72

CO2 Reduction Monetized 

Value ($119/t case)** 3% 145 140 150

NOX Reduction Monetized 

Value (at $2,684/ton)**

7% 3.38 3.28 3.49

3% 4.57 4.41 4.72

Total Benefits†

7% plus CO2

range

120 to 253 114 to 242 128 to 264

7% 154 147 163

3% plus CO2

range 

169 to 302 160 to 287 181 to 318

3% 203 192 216

Costs

Incremental Equipment Costs

7% 3.551 3.548 3.767

3% 3.548 3.441 3.768

Net Benefits

Total†

7% plus CO2

range

117 to 249 111 to 238 124 to 261

7% 151 143 159

3% plus CO2

range

166 to 298 156 to 283 177 to 314

3% 200 189 212

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** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft 

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Review.**

* This table presents the annualized costs and benefits associated with CWAF shipped in 2018−2047.

These results include benefits to commercial consumers which accrue after 2048 from the products 

purchased in 2018−2047. The results account for the incremental variable and fixed costs incurred by 

manufacturers due to the standard, some of which may be incurred in preparation for the rule. The 

Primary, Low Benefits, and High Benefits Estimates utilize projections of energy prices from the AEO

2013 Reference case, Low Economic Growth case, and High Economic Growth case, respectively.

Incremental equipment costs account for equipment price trends and include, beyond the reference 

scenario, a low price decline scenario used in the Low Benefits Estimate and a high price decline scenario 

used in the High Benefits Estimates.

** The interagency group selected four sets of SCC values for use in regulatory analyses. Three sets of 

values (represented by 2015 values of $12.0/t, $40.5/t, and $62.4/t, in 2013$) are based on the average SCC 

from the integrated assessment models, at discount rates of 2.5, 3, and 5 percent. The fourth set 

(represented by 2015 value of $119/t, in 2013$), which represents the 95th percentile SCC estimate across 

all three models at a 3-percent discount rate, is included to represent higher-than-expected impacts from 

temperature change further out in the tails of the SCC distribution. The values in parentheses represent the 

SCC in 2015. The SCC time series incorporate an escalation factor. The value for NOX represents the 

average of the low and high values considered in DOE’s analysis.

† Total Benefits for both the 3-percent and 7-percent cases are derived using the series corresponding to 

average SCC with a 3-percent discount rate. In the rows labeled “7% plus CO2 range” and “3% plus CO2

range,” the operating cost and NOX benefits are calculated using the labeled discount rate, and those values 

are added to the full range of CO2 values.

DOE’s analysis of the national impacts of the proposed standards is described in 

sections IV.H, IV.K and IV.L of this notice.

D. Conclusion

DOE has tentatively concluded that, based upon clear and convincing evidence,

the proposed standards represent the maximum improvement in energy efficiency that is 

technologically feasible and economically justified, and would result in the significant 

conservation of energy. DOE further notes that equipment achieving these standard 

levels is already commercially available for the equipment classes covered by today’s 

proposal. Based on the analyses described above, DOE has tentatively concluded that the 

benefits of the proposed standards to the Nation (energy savings, positive NPV of 

commercial consumer benefits, commercial consumer LCC savings, and emission 

Comment [A14]: Change recommended by 

OIRA.

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reductions) would outweigh the burdens (loss of INPV for manufacturers and LCC 

increases for some commercial consumers). 

DOE also considered more-stringent energy efficiency levels as trial standard 

levels, and is still considering them in this rulemaking. However, DOE has tentatively 

concluded that the potential burdens of the more-stringent energy efficiency levels would 

outweigh the projected benefits. Based on consideration of the public comments DOE 

receives in response to this notice and related information collected and analyzed during 

the course of this rulemaking effort, DOE may adopt energy efficiency levels presented 

in this notice that are either higher or lower than the proposed standards, or some 

combination of level(s) that incorporate the proposed standards in part.

II. Introduction

The following section briefly discusses the statutory authority underlying today’s 

proposal, as well as some of the relevant historical background related to the energy 

conservation standards for CWAF.

A. Authority

Title III, Part C13 of the Energy Policy and Conservation Act of 1975 (EPCA or 

the Act), Public Law 94–163 (42 U.S.C. 6311–6317, as codified), added by Public Law 

95–619, Title IV, § 441(a), established the Energy Conservation Program for Certain 

Industrial Equipment, which includes provisions covering the CWAF equipment that is 

13 For editorial reasons, upon codification in the U.S. Code, Part C was re-designated Part A-1.

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the subject of this notice.14 In general, this program addresses the energy efficiency of 

certain types of commercial and industrial equipment. Relevant provisions of the Act 

specifically include definitions (42 U.S.C. 6311), energy conservation standards (42 

U.S.C. 6313), test procedures (42 U.S.C. 6314), labeling provisions (42 U.S.C. 6315), 

and the authority to require information and reports from manufacturers (42 U.S.C. 

6316).

The initial Federal energy conservation standards for CWAF were added to EPCA 

by the Energy Policy Act of 1992 (EPACT 1992), Public Law 102–486. (42 U.S.C. 

6313(a)(4)) These types of covered equipment have a rated capacity (rated maximum 

input15) greater than or equal to 225,000 Btu/h, can be gas-fired or oil-fired, and are 

designed to heat commercial buildings. Id. Under the Act, DOE is obligated to review 

its energy conservation standards for certain commercial and industrial equipment (i.e., 

specified heating, air-conditioning, and water-heating equipment) whenever the 

American Society of Heating, Refrigerating, and Air-Conditioning Engineers (ASHRAE) 

updates the efficiency levels in ASHRAE Standard 90.1, Energy Standard for Buildings 

Except Low-Rise Residential Buildings. DOE must either adopt the levels contained in 

ASHRAE Standard 90.1 or adopt levels more stringent than the ASHRAE levels if there 

is clear and convincing evidence in support of doing so. (42 U.S.C. 6313(a)(6)(A)) Such 

review is to be conducted in accordance with the procedures established for ASHRAE 

equipment under 42 U.S.C. 6313(a)(6). In addition, DOE must periodically review and 

14 All references to EPCA in this document refer to the statute as amended through the American Energy 

Manufacturing Technical Corrections Act of 2012, Pub. L. 112-210 (enacted Dec. 18, 2012). 15 Rated maximum input means the maximum gas-burning capacity of a commercial warm-air furnace in 

Btu per hour, as specified by the manufacturer.

Comment [A15]: Change recommended by 

OIRA (footnote 15).

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consider amending the energy conservation standards for these specified types of covered 

commercial and industrial equipment and publish either a notice of proposed rulemaking 

with amended standards or a determination that the standards do not need to be amended.

(42 U.S.C. 6313(a)(6)(C)(i)) 

In amending EPCA, the American Energy Manufacturing Technical Corrections 

Act (AEMTCA), Public Law 112–210 (Dec. 18, 2012), in relevant part, modified the 

manner in which DOE must amend the energy efficiency standards for certain types of 

commercial and industrial equipment, adding a review requirement that is triggered when 

ASHRAE adopts a design requirement, even if the standard level remains unchanged. Id. 

AEMTCA also clarified that DOE’s periodic review of ASHRAE equipment must occur 

“[e]very six years.” Id. AEMTCA further added to this process a requirement that DOE 

must initiate a rulemaking to consider amending the energy conservation standards for 

any covered equipment for which more than 6 years has elapsed since the issuance of the 

most recent final rule establishing or amending a standard for the product as of the date of 

AEMTCA’s enactment (i.e., December 18, 2012), in which case DOE must publish 

either: (1) a notice of determination that the current standards do not need to be amended, 

or (2) a notice of proposed rulemaking containing proposed standards by December 31, 

2013. (42 U.S.C. 6313(a)(6)(C)(vi)) Because DOE has not issued a standard for 

commercial warm air furnaces in the past six years, the December 31, 2013 deadline for 

publication of the applicable rulemaking document applies.

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Pursuant to EPCA, DOE’s energy conservation program for covered equipment 

consists essentially of four parts: (1) testing; (2) labeling; (3) the establishment of Federal 

energy conservation standards; and (4) certification and enforcement procedures. Subject 

to certain criteria and conditions, DOE is required to develop test procedures to measure 

the energy efficiency, energy use, or estimated annual operating cost of covered 

equipment. (42 U.S.C. 6314) Manufacturers of covered equipment must use the 

prescribed DOE test procedure as the basis for certifying to DOE that their equipment 

comply with the applicable energy conservation standards adopted under EPCA and 

when making representations to the public regarding the energy use or efficiency of such

equipment. (42 U.S.C. 6314(d)) Similarly, DOE must use these test procedures to 

determine whether the equipment comply with standards adopted pursuant to EPCA. The 

DOE test procedures for CWAF currently appear at title 10 of the Code of Federal 

Regulations (CFR) part 431.76.

When setting standards for the equipment addressed by today’s notice, EPCA, as 

amended by AEMTCA, prescribes specific statutory criteria for DOE to consider. See 

generally 42 U.S.C. 6313(a)(6)(A)–(C). As indicated above, any amended standard for

covered equipment more stringent than the level contained in ASHRAE Standard 90.1 

must be designed to achieve the maximum improvement in energy efficiency that is 

technologically feasible and economically justified. (42 U.S.C. 6313(a)(6)(A)(ii)(II)) 

Furthermore, DOE may not adopt any standard that would not result in the significant 

additional conservation of energy. Id. In deciding whether a proposed standard is 

economically justified, DOE must determine whether the benefits of the standard exceed 

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Review.**

its burdens. DOE must make this determination after receiving comments on the 

proposed standard, and by considering, to the maximum extent practicable, the following 

seven statutory factors:

1. The economic impact of the standard on manufacturers and consumers of 

products subject to the standard;

2. The savings in operating costs throughout the estimated average life of the 

covered products in the type (or class) compared to any increase in the price, 

initial charges, or maintenance expenses for the covered products which are 

likely to result from the standard;

3. The total projected amount of energy savings likely to result directly from the 

standard;

4. Any lessening of the utility or the performance of the covered products likely 

to result from 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 standard;

6. The need for national energy conservation; and

7. Other factors the Secretary of Energy considers relevant.

(42 U.S.C. 6313(a)(6)(B)(ii))

EPCA, as codified, 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 

Comment [A16]: Change recommended by 

OIRA.

23
** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft 

Language under E.O. 13563 and 12866 Interagency Review. Subject to Further Policy 

Review.**

energy efficiency of a covered product. (42 U.S.C. 6313(a)(6)(B)(iii)(I)) Also, the 

Secretary may not prescribe an amended or new standard if interested persons have 

established by a preponderance of the evidence that the standard is likely to result in the 

unavailability in the United States of any 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. (42 U.S.C. 

6313(a)(6)(B)(iii)(II))

Further, under EPCA’s provisions for consumer products, there is a rebuttable 

presumption that a standard is economically justified if the Secretary finds that the 

additional cost to the customer of purchasing a product complying with an energy 

conservation standard level will be less than three times the value of the energy (and, as 

applicable, water) savings during the first year that the consumer will receive as a result 

of the standard, as calculated under the applicable test procedure. (42 U.S.C. 

6295(o)(2)(B)(iii)) For this rulemaking, DOE considered the criteria for rebuttable 

presumption as part of its analysis.

Additionally, when a type or class of covered equipment has two or more 

subcategories, DOE often specifies more than one standard level. DOE generally will 

adopt a different standard level than that which applies generally to such type or class of 

products for any group of covered products that have 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 

24
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capacity or other performance-related feature which other products within such type (or 

class) do not have and which justifies a higher or lower standard. In determining whether 

a performance-related feature justifies a different standard for a group of products, DOE 

generally considers such factors as the utility to the customer of the feature and other 

factors DOE deems appropriate. In a rule prescribing such a standard, DOE includes an 

explanation of the basis on which such higher or lower level was established. DOE 

considered these criteria for this rulemaking.

Because ASHRAE did not update its efficiency levels for CWAF in any of its 

most recent updates to ASHRAE Standard 90.1 (e.g., ASHRAE Standard 90.1-2007, 

ASHRAE Standard 90.1-2010, ASHRAE Standard 90.1-2013), DOE is analyzing 

amended standards consistent with the procedures defined under 42 U.S.C. 

6313(a)(6)(C). Specifically, pursuant to 42 U.S.C. 6313(a)(6)(C)(i)(II), DOE must use 

the procedures established under subparagraph (B) when issuing a NOPR. As noted 

above, the statutory provision at 42 U.S.C. 6313(a)(6)(B)(ii), recently amended by 

AEMTCA, states that in deciding whether a standard is economically justified, DOE 

must determine, after receiving comments on the proposed standard, whether the benefits 

of the standard exceed its burdens by considering, to the maximum extent practicable, the 

seven factors, as stated above.

After carefully reviewing all CWAF equipment classes, DOE has tentatively 

concluded that following this rulemaking process will provide “clear and convincing 

evidence” that the proposed standards for gas-fired and oil-fired CWAF which are more 

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stringent than those set forth in ASHRAE Standard 90.1-2013, would result in significant 

additional conservation of energy and would be technologically feasible and 

economically justified, as mandated by 42 U.S.C. 6313(a)(6).

B. Background

1. Current Standards

As noted above, EPACT 1992 amended EPCA to set the current minimum energy 

conservation standards for CWAF. (42 U.S.C. 6313(a)(4)(A) and (B)) These standards 

apply to all CWAF manufactured on or after January 1, 1994. The current standards are 

set forth in Table II.1.Table II.1.

Table II.1. Current Federal Energy Conservation Standards for CWAF

Equipment Type Input Capacity Thermal Efficiency* Compliance Date

Gas-Fired Furnaces ≥225,000 Btu/h 80% 1/1/1994

Oil-Fired Furnaces ≥225,000 Btu/h 81% 1/1/1994

*At the maximum rated capacity (rated maximum input).

2. History of Standards Rulemaking for CWAF

On October 21, 2004, DOE published a final rule in the Federal Register which 

adopted definitions for ‘‘commercial warm air furnace’’ and ‘‘thermal efficiency,’’ 

promulgated test procedures for this equipment, and recodified the energy conservation 

standards so that the standards are located contiguous with the test procedures in the 

Code of Federal Regulations (CFR). 69 FR 61916, 61917, 61939-41. In the same final 

rule, DOE incorporated by reference (see 10 CFR 431.75) a number of industry test 

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standards relevant to commercial warm air furnaces, including: (1) American National 

Standards Institute (ANSI) Standard Z21.47–1998, ‘‘Gas-Fired Central Furnaces,’’ for 

gas-fired CWAF; (2) Underwriters Laboratories (UL) Standard 727–1994, ‘‘Standard for 

Safety Oil-Fired Central Furnaces,’’ for oil-fired CWAF; (3) provisions from Hydronics 

Institute (HI) Standard BTS–2000, ‘‘Method to Determine Efficiency of Commercial 

Space Heating Boilers,’’ to calculate flue loss for oil-fired CWAF, and (4) provisions 

from the American Society of Heating, Refrigerating, and Air-conditioning Engineers 

(ASHRAE) Standard 103– 1993, ‘‘Method of Testing for Annual Fuel Utilization 

Efficiency of Residential Central Furnaces and Boilers,’’ to determine the incremental 

efficiency of condensing furnaces under steady-state conditions. Id. at 61940. Then in a 

final rule published in the Federal Register on May 16, 2012, DOE updated the test 

procedures for commercial warm air furnaces to match the procedures specified in 

ASHRAE Standard 90.1-2010, which referenced ANSI Z21.47-2006, “Gas-Fired Central 

Furnaces,” for gas-fired CWAF, and UL 727-2006, “Standard for Safety for Oil-Fired 

Central Furnaces,” for oil-fired furnaces. 77 FR 28928, 28987-88. 

As noted previously, in accordance with the requirements of EPCA, as amended 

by AEMTCA, DOE must publish either: (1) a notice of determination that the current 

standards do not need to be amended, or (2) a notice of proposed rulemaking containing 

proposed standards for CWAF by December 31, 2013. (42 U.S.C. 6313(a)(6)(C)(i) and 

(vi)) Consequently, DOE initiated this expedited rulemaking to determine whether to 

amend the current standards for CWAF.

Comment [A17]: Change recommended by 

OIRA.

27
** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft 

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On May 2, 2013, DOE published a request for information (RFI) and notice of 

document availability for CWAF. 78 FR 25627. The notice solicited information from 

the public to help DOE determine whether more-stringent energy conservation standards 

for CWAF would result in a significant additional amount of additional energy savings 

and whether those standards would be technologically feasible and economically 

justified. 

DOE received a number of comments from interested parties in response to the 

RFI. These commenters are identified in Table II.2. DOE considered these comments in 

the preparation of today’s NOPR. Relevant comments, and DOE’s responses, are 

provided in the appropriate sections of this notice.

Table II.2. Interested Parties Providing Written Comments on the CWAF RFI

Name Abbreviation Commenter 

Type*

Air-Conditioning, Heating and 

Refrigeration Institute AHRI IR

Appliance Standards 

Awareness Project, American 

Council for an EnergyEfficient Economy, Natural 

Resources Defense Council

ASAP, ACEEE, NRDC (Joint 

Efficiency Advocates) EA

Lennox International Inc. Lennox M

UTC Climate, Controls & 

Security Carrier M

Goodman Manufacturing Inc. Goodman M

American Society of Heating, 

Refrigeration, and AirConditioning EngineersASHRAE IR

* “IR”: Industry Representative; “M”: Manufacturer; “EA”: Efficiency/Environmental 

Advocate.

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III. General Discussion

A. Compliance Date

As discussed in section II.AII.A, DOE is analyzing amended standards pursuant 

to 42 U.S.C. 6313(a)(6)(C)(vi), which requires DOE to publish by December 31, 2013, 

either a notice of determination that standards for this type of equipment do not need to 

be amended or a notice of proposed rulemaking for any equipment for which more than 6 

years has elapsed since the issuance of the most recent final rule. EPCA requires that an 

amended standard prescribed under 42 U.S.C. 6313(a)(6)(C) must apply to products 

manufactured after the date that is the later of: (1) the date 3 years after publication of the 

final rule establishing a new standard or (2) the date 6 years after the effective date of the 

current standard for a covered product. (42 U.S.C. 6313(a)(6)(C)(iv)) For CWAF, the 

date 3 years after the publication of the final rule would be later than the date 6 years 

after the effective date of the current standard. As a result, compliance with any amended 

energy conservation standards promulgated in the final rule would be required beginning 

on the date 3 years after the publication of the final rule.

B. 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 

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engineers, and other interested parties. See chapter 3 of the NOPR TSD for a discussion 

of the list of technology options that were identified. DOE then determines which of 

those means for improving efficiency are technologically feasible. DOE considers 

technologies incorporated in commercially-available equipment or in working prototypes 

to be technologically feasible. 10 CFR part 430, subpart C, appendix A, section 

4(a)(4)(i).

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 equipment utility or availability; and (3) adverse impacts on health or safety.

10 CFR part 430, subpart C, appendix A, section 4(a)(4)(ii)-(iv). Section IV.BIV.B of 

this notice discusses the results of the screening analysis for CWAF, particularly the 

designs DOE considered, those it screened out, and those that are the basis for the trial 

standard levels (TSLs) in this rulemaking. For further details on the screening analysis 

for this rulemaking, see chapter 4 of the NOPR Technical Support Document (TSD).

Additionally, DOE notes that these screening criteria do not directly address the 

proprietyproprietary status of design options. DOE only considers efficiency levels 

achieved through the use of proprietary designs in the engineering analysis if they are not 

part of a unique path to achieve that efficiency level (i.e., if there are other nonproprietary technologies capable of achieving the same efficiency). DOE believes the 

proposed standards for the equipment covered in this rulemaking would not mandate the 

Comment [A18]: Change recommended by 

OIRA.

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use of any proprietary technologies, and that all manufacturers would be able to achieve 

the proposed levels through the use of non-proprietary designs. DOE seeks comment on 

this tentative conclusion and requests additional information regarding proprietary 

designs and patented technologies.

2. Maximum Technologically Feasible Levels

When DOE proposes to adopt an amended standard for a type or class of covered 

equipment, it must determine the maximum improvement in energy efficiency or 

maximum reduction in energy use that is technologically feasible for such equipment.

Accordingly, in the engineering analysis, DOE determined the maximum technologically 

feasible (“max-tech”) improvements in energy efficiency for CWAF, using the design 

parameters for the most efficient equipment available on the market or in working 

prototypes. (See chapter 5 of the NOPR TSD.) The max-tech levels that DOE 

determined for this rulemaking are described in section IV.C.2.b of this proposed rule.

C. Energy Savings

1. Determination of Savings

For each TSL, DOE projected energy savings from the equipment that is the 

subject of this rulemaking purchased in the 30-year period that begins in the year of 

compliance with potential amended standards (2018–2047). The savings are measured 

over the entire lifetime of equipment purchased in the 30-year analysis period.16 DOE 

16 In the past DOE presented energy savings results for only the 30-year period that begins in the year of 

compliance. In the calculation of economic impacts, however, DOE considered operating cost savings 

measured over the entire lifetime of products purchased in the 30-year period. DOE has chosen to modify 

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quantified the energy savings attributable to each TSL as the difference in energy 

consumption between each standards case and the base case. The base case represents a 

projection of energy consumption in the absence of amended mandatory efficiency 

standards, and it considers market forces and policies that affect demand for moreefficient products. 

DOE used its national impact analysis (NIA) spreadsheet model to estimate 

energy savings from amended standards for the products that are the subject of this 

rulemaking. The NIA spreadsheet model (described in section IV.HIV.H of this notice) 

calculates energy savings in site energy, which is the energy directly consumed by 

products at the locations where they are used. For CWAF, DOE reports nationalthe

energy savings on an annual basisare primarily in termsthe form of natural gas, which is 

considered to be primary energy.17

DOE has begun to also estimate full-fuel-cycle energy savings, as discussed in 

DOE’s statement of policy and notice of policy amendment. 76 FR 51281 (August 18, 

2011), as amended at 77 FR 49701 (August 17, 2012). The full-fuel-cycle (FFC) metric 

includes the energy consumed in extracting, processing, and transporting primary fuels

(i.e., coal, natural gas, petroleum fuels), which collectively presents a more complete 

picture of the impacts of energy efficiency standards. DOE’s approach is based on 

its presentation of national energy savings to be consistent with the approach used for its national economic 

analysis.

17 Primary energy consumption refers to the direct use at the source, or supply to users without 

transformation, of crude energy; that is, energy that has not been subjected to any conversion or 

transformation process.

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Comment [A19]: Change recommended by 

OIRA (including footnote 17).

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calculation of an FFC multiplier for each of the energy types used by covered products

and equipment. For more information on FFC energy savings, see section IV.H.

DOE reports both primary energy and FFC energy savings in section V.B.3.a of 

this NOPR.

2. Significance of Savings

To adopt more-stringent standards for CWAF, DOE must determine that such 

action would result in significant additional conservation of energy. (42 U.S.C. 

6313(a)(6)(A)(ii)(II)) Although the term “significant” is not defined in the Act, the U.S. 

Court of Appeals, in Natural Resources Defense Council v. Herrington, 768 F.2d 1355, 

1373 (D.C. Cir. 1985), indicated that Congress intended “significant” energy savings in 

the context of EPCA to be savings that were not “genuinely trivial.” DOE has tentatively 

concluded that the energy savings associated with today’s proposed standards−0.52 quads

due to CWAFs shipped in 2018−2047 − are significant.

D. Economic Justification

1. Specific Criteria

As discussed above, EPCA provides seven factors to be evaluated in determining 

whether a potential more-stringent energy conservation standard for CWAF is 

economically justified. (42 U.S.C. 6313(a)(6)(B)(ii)(I)-(VII)) The following sections 

discuss how DOE has addressed each of those seven factors in this rulemaking.

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a. Economic Impact on Manufacturers and Consumers

In determining the impacts of a potential amended standard on manufacturers, 

DOE conducts a manufacturer impact analysis (MIA), as discussed in section IV.J.IV.J.

(42 U.S.C. 6313(a)(6)(B)(ii)(I)) 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) industry net 

present value (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 

subgroups 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 

life-cycle cost (LCC) and payback period (PBP) associated with new or amended 

standards. The LCC is discussed further in the following section. For consumers in the 

aggregate, DOE also calculates the national net present value of the economic impacts 

applicable to a particular rulemaking. DOE also evaluates the LCC impacts of potential 

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standards on identifiable subgroups of consumers that may be affected disproportionately 

by a national standard.

b. Life-Cycle Costs

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 the 

covered product that are likely to result from the imposition of the standard. (42 U.S.C. 

42 U.S.C. 6313(a)(6)(B)(ii)(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 expense (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 consumer discount rates. 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. For 

itsthe LCC analysis, DOE assumes that consumers will purchase the covered products in 

the first year of compliance with amended standards. 

The LCC savings and the PBP for the considered efficiency levels are calculated 

relative to a base case that reflects projected market trends in the absence of amended 

standards. DOE identifies the percentage of consumers estimated to receive LCC savings 

or experience an LCC increase, in addition to the average LCC savings associated with a 

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particular standard level. DOE’s LCC and PBP analysis is discussed in further detail in 

section IV.F.

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. 6313(a)(6)(B)(ii)(III)) As 

discussed in section IV.HIV.H, DOE uses the NIA spreadsheet to project national energy 

savings.

d. Lessening of Utility or Performance of Equipment

In establishing classes of equipment, and in evaluating design options and the 

impact of potential standard levels, DOE must consider any lessening of the utility or 

performance of the considered products likely to result from the standard. (42 U.S.C. 

6313(a)(6)(B)(ii)(IV)) Based on data available to DOE, the standards proposed in 

today’s notice 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 proposed

standard. (42 U.S.C. 6313(a)(6)(B)(ii)(V)) DOE will transmit a copy of today’s 

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proposed rule to the Attorney General with a request that the Department of Justice 

(DOJ) provide its determination on this issue. DOE will publish and respond to the

Attorney General’s determination in the final rule.

f. Need for National Energy Conservation

In evaluating the need for national energy conservation, DOE expects that the 

energy savings from the proposed standards are likely to provide improvements to the 

security and reliability of the nation’s energy system. (42 U.S.C. 6313(a)(6)(B)(ii)(VI)) 

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.IV.M.

The proposed standards also are likely to result in environmental benefits in the 

form of reduced emissions of air pollutants and greenhouse gases associated with energy 

production. DOE reports the emissions impacts from the proposed standards, and from 

each TSL it considered, in section IV.K of this notice. DOE also reports estimates of the 

economic value of some of the emissions reductions resulting from the considered TSLs, 

as discussed in section IV.L.

g. Other Factors

EPCA allows the Secretary of Energy, in determining whether a standard is 

economically justified, to consider any other factors that the Secretary deems to be 

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relevant. (42 U.S.C. 6313(a)(6)(B)(ii)(VII)) DOE did not consider other factors for this 

notice.

2. Rebuttable Presumption

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 effects that proposed energy 

conservation standards would have on the payback period for consumers. These analyses 

include, but are not limited to, the 3-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. 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.FIV.F of this proposed rule.

IV. Methodology and Discussion of Related Comments

DOE used four analytical tools to estimate the impact of today’s proposed 

standards for CWAF. The first tool is the LCC spreadsheet, a spreadsheet that calculates 

LCCs and PBPs of potential new energy conservation standards. The, and the second 

tool, the LCC inputs spreadsheet, is a modelspreadsheet that provides shipments 

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forecasts, and the detailed inputs to the LCC spreadsheet. The third tool, the NIA 

spreadsheet, is a spreadsheet that calculates national energy savings and net present value 

resulting from potential amended energy conservation standards. The fourth spreadsheet 

tool, the Government Regulatory Impact Model (GRIM), helped DOE to assess 

manufacturer impacts.

Additionally, DOE estimated the impacts of energy conservation standards for 

CWAF on utilities and the environment. DOE used a versionvariant of EIA’s National 

Energy Modeling System (NEMS) for the utility and environmentalemissions analyses.

The NEMS is a public domain, multi-sectored, partial equilibrium model simulatesof the 

U.S. energy sector of the U.S. economy. that EIA uses NEMS to prepare its Annual 

Energy Outlook (AEO), a widely known energy forecast for the United States. The 

version of NEMS used for appliance standards analysis is called NEMS-BT18 and is 

based on the AEO version with minor modifications.19 The NEMS-BT model offers a 

sophisticated picture of the effect of potential standards, because it accounts for the 

interactions between the various energy supply and demand sectors and the economy as a 

whole.20 

18 “

BT” stands for DOE’s Building Technologies Program. 19 The EIA allows the use of the name “NEMS” to describe only an AEO version of the model without any 

modification to code or data. Because the present analysis entails some minor code modifications and runs 

the model under various policy scenarios that deviate from AEO assumptions, the name “NEMS-BT” refers 

to the model as used here. For more information on NEMS, refer to The National Energy Modeling 

System: An Overview, DOE/EIA–0581 (98) (Feb.1998) (Available at: 

http://tonto.eia.doe.gov/FTPROOT/forecasting/058198.pdf).

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

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

2003, DOE/EIA-0581(2003) (March, 2003). 

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A. Market and Technology Assessment

1. General

For the market and technology assessment for CWAF, DOE developed 

information that provided an overall picture of the market for the equipment concerned, 

including the purpose of the equipment, the industry structure, market characteristics, and 

the technologies used in the equipment. This activity included both quantitative and 

qualitative assessments, based primarily on publicly-available information. The subjects 

addressed in the market and technology assessment for this rulemaking include scope of 

coverage, equipment classes, types of equipment sold and offered for sale, manufacturers, 

and technology options that could improve the energy efficiency of the equipment under 

examination. The key findings of DOE’s market and technology assessment are 

summarized below. For additional detail, see chapter 3 of the NOPR TSD.

2. Scope of Coverage and Equipment Classes

The proposed energy conservation standards in today’s NOPR cover commercial 

warm air furnaces, as defined by EPCA and DOE. EPCA defines “warm air furnace” as 

meaning “a self-contained oil- or gas-fired furnace designed to supply heated air through 

ducts to spaces that require it and includes combination warm air furnace/electric air 

conditioning units but does not include unit heaters and duct furnaces.” (42 U.S.C. 

6311(11)(A)) DOE defines “commercial warm air furnace” as meaning “a warm air 

furnace that is industrial equipment, and that has a capacity (rated maximum input) of 

225,000 Btu per hour or more.” 10 CFR 431.72. Accordingly, this rulemaking covers 

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equipment in these categories having a rated capacity of 225,000 Btu/h or higher and that 

are designed to supply heated air in commercial buildings via ducts (excluding unit 

heaters and duct furnaces). 

When evaluating and establishing energy conservation standards, DOE divides 

covered equipment into equipment classes based on the type of energy used or by 

capacity or other performance-related featurefeatures that would justify having a higher 

or lower standard from that which applies to other equipment classes. In determining 

whether a performance-related feature would justify a different standard, DOE considers 

such factors as the utility to the consumer of the feature and other factors DOE 

determines are appropriate. 

The current equipment classes for CWAF were defined in the EPACT 1992 

amendments to EPCA, and divide this equipment into two classes based on fuel type (i.e., 

one for gas-fired units, and one for oil-fired units). Table IV.1 shows the current 

equipment class structure for CWAF.

Table IV.1 Current CWAF Equipment Classes

Fuel Type Heating Capacity (Btu/h) Thermal 

Efficiency

Gas-fired ≥225,000 Btu/h 80%

Oil-fired ≥225,000 Btu/h 81%

In the May 2, 2013 RFI, DOE stated that it planned to use the existing CWAF 

equipment classes for its analysis of amended energy conservation standards. DOE 

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requested feedback on the current equipment classes and sought information regarding 

other equipment classes it should consider for inclusion in its analysis. 78 FR 25627, 

25629-31. 

One particular issue on which DOE sought comment was the need for separate 

equipment classes for units designed to be installed indoors (i.e., “non-weatherized” 

units) and units designed to be installed outdoors (i.e., “weatherized” units). High 

efficiency, condensing CWAF produce acidic condensate during operation due to the 

cooling of flue gasses below their dew point. Condensate is more difficult to manage in 

weatherized CWAF than in non-weatherized CWAF, due to the risk of the condensate 

freezing after exiting the furnace. For gas-fired models, which represent the large 

majority of CWAF on the market, most of the models on the market are weatherized 

units, and a small number are non-weatherized. For oil-fired units, which make up a very 

small percentage of the CWAF models on the market, all models that DOE identified 

during the market assessment are non-weatherized. 

In response to the RFI, Carrier supported the idea of separate product classes for 

weatherized and non-weatherized commercial warm air furnaces and stated that unit 

heaters and duct heaters could potentially fall into these two classifications. (Carrier, No. 

2 at p. 1) Conversely, AHRI asserted that it believes that separate classes are needed for 

non-weatherized and weatherized CWAF due to issues related to condensate 

management, but noted that creating separatedseparate equipment classes for weatherized 

and non-weatherized commercial warm air furnaces would not lead to any significant 

Comment [A25]: Change recommended by 

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energy savings because a majority of the commercial warm air furnace market consists of 

non-condensing weatherized equipment. (AHRI, No. 7 at p. 4) Similarly, Goodman 

commented that there is a very small segment of the commercial warm air furnace market 

that consists of units installed indoors, which would indicate that the costs would far 

outweigh the benefits of having separate equipment classes (indoor/outdoor). (Goodman, 

No. 6 at p. 2)

DOE considered these comments and has tentatively decided to continue the use 

of the existing equipment classes. DOE agrees with AHRI that differentiating between 

weatherized and non-weatherized CWAF for establishing product classes would provide 

little opportunity for additional energy savings or benefits as compared to the current 

equipment class structure. Therefore, DOE is not proposing to adopt separate equipment 

classes for weatherized and non-weatherized equipment. As to Carrier’s assertion that 

unit heaters and duct heaters could fall into the classification of commercial warm air 

furnaces, DOE notes that the definition of “warm air furnace” in EPCA explicitly 

excludes such equipment. as it defines a warm air furnace as: “a self-contained oil- or 

gas-fired furnace designed to supply heated air through ducts to spaces that require it and 

includes combination warm air furnace/electric air conditioning units but does not 

include unit heaters and duct furnaces.” (42 U.S.C. 6311(11)(A))

Another specific issue identified in the May 2, 2013 RFI was the potential gap in 

coverage of DOE’s regulations for three-phase commercial furnaces with an input rating 

below 225,000 Btu/h. 78 FR 25627, 25630-31. Current Federal energy conservation 

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standards for CWAF only cover equipment with an input rating at or above 225,000 

Btu/h, and Federal energy conservation standards for residential furnaces cover products 

with input ratings below 225,000 Btu/h, but only for single-phase products. Thus, there 

are no Federal standards for furnaces with an input rating below 225,000 Btu/h that use 3-

phase electric power. 

Carrier stated that weatherized and non-weatherized product classes should be 

created to cover three-phase commercial warm air furnaces with input ratings below 

225,000 Btu/h, and that DOE should adopt the current levels in ASHRAE Standard 90.1 

for these products. However, Carrier stated that there would be limited energy savings 

for new 3-phase, less than 225,000 Btu/h product classes because many of those products 

share designs with current covered products that already meet efficiency levels set forth 

in ASHRAE Standard 90.1. (Carrier, No. 2 at p. 2) Lennox supported regulation of 

three-phase commercial warm air furnaces with input ratings below 225,000 Btu/h, 

stating that closing this gap would prevent a manufacturer from entering the market with 

a cost advantage. (Lennox, No. 3 at p. 2) Conversely, AHRI stated that creating an 

equipment class for three-phase commercial warm air furnaces with an input rating below 

225,000 Btu/h would not lead to any additional energy savings since they share the same 

design as their single-phase counterparts, and consequently have similar thermal 

efficiencies. (AHRI, No. 7 at p. 4) Goodman reiterated this point, stating that most 

manufacturers have the same basic design for single- and three-phase products and added 

that the efficiency of three-phase equipment with an input rating below 225,000 Btu/h 

generally meet the requirements of single-phase products. Therefore, Goodman argued 

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that any additional regulations would be duplicative and burdensome. (Goodman, No. 6 

at p. 3) 

Upon considering the comments in response to the RFI on the potential for a new 

equipment class for three-phase commercial warm air furnaces with an input capacity less 

than 225,000 Btu/h, DOE has tentatively decided not to extend coverage to this 

equipment at this time. DOE agrees with commenters who pointed out the limited 

potential for energy savings due to the fact that equipment with these characteristics 

already meets efficiency levels specified by ASHRAE Standard 90.1. In its review of the 

market, DOE did not identify any equipment not meeting or exceeding the ASHRAE 

Standard 90.1 levels, and thus, has tentatively concluded that a separate equipment class 

and standard for this equipment may be unnecessarily duplicative and provide little 

opportunity for energy savings. Further, three-phase commercial warm air furnaces with 

input ratings below 225,000 Btu/h typically achieve the same efficiency as their singlephase residential counterparts. Thus, the efficiency of this equipment could be expected 

to be consistent with residential furnace energy conservation standards.

Lastly, in response to the RFI, several commenters suggested that DOE should 

adopt an upper limit to the input capacity of covered commercial warm air furnaces. 

Carrier recommended that DOE should consider an upper limit for weatherized furnaces 

corresponding to DOE's upper limit of 760,000 Btu/h of cooling capacity for commercial 

air conditioners, and noted that for 760,000 Btu/h air conditioners, the maximum heat 

input of equipment in their product offering is 1.2 million Btu/h. (Carrier, No. 2 at p. 2) 

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AHRI also recommended an upper limit on input capacity and suggested that the limit be 

2,000,000 Btu/h. According to AHRI, this is the maximum input capacity associated 

with a commercial warm air furnace that is paired with an air conditioner having a 

cooling capacity of 760,000 Btu/h. (AHRI, No. 7 at p. 5) 

DOE notes that neither the statute nor DOE’s existing regulations for CWAF 

specify an upper limit to the input rating of covered equipment. Establishing such an 

upper limit as suggested by interested parties would potentially remove coverage of 

models that would have otherwise been covered by DOE regulations, which would 

potentially be in violation of EPCA’s “anti-backsliding” clause. (42 U.S.C. 

6313(a)(6)(B)(iii)) DOE also. As such, DOE sees advantage to leaving the upper end of 

the range open, such that the standard can accommodate any very large CWAF which 

may come on the market in the future. Therefore, DOE has tentatively decided not to 

establish an upper limit on the input capacity of covered CWAF.

DOE requests comment on the proposed scope of coverage and equipment classes 

for this rulemaking. This is identified as issue 1 in section VII.E, “Issues on Which DOE 

Seeks Comment.”

3. Technology Options

As part of the market and technology assessment, DOE uses information about 

existing and past technology options and prototype designs to help identify technologies 

that manufacturers could use to improve CWAF energy efficiency. Initially, these 

Comment [A28]: Change recommended by 

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technologies encompass all those that DOE believes are technologically feasible. 

Chapter 3 of the NOPR TSD includes the detailed list and descriptions of all technology 

options identified for this equipment. 

In the May 2, 2013 RFI, DOE requested comment on technology options that 

could be used to improve the thermal efficiency of CWAF. 78 FR 25627, 25631. The 

comments generally centered on how to improve the efficiency of non-condensing 

CWAF while still achieving efficiencies in the non-condensing range (i.e., less than 90 

percent thermal efficiency,), and on how to improve the efficiency of non-condensing 

CWAF by utilizing condensing operation (which would achieve a thermal efficiency 

greater than 90 percent).

Carrier stated that raising the thermal efficiency from 80 to 82 percent requires 

more heat transfer surface. (Carrier, No. 2 at p. 3) Lennox commented that all their 

warm air furnaces are rated at 80 percent thermal efficiency and are constructed with 

induced draft combustion system with multiple burners firing into aluminized steel tubes. 

Lennox explained that these tubes are enhanced on the flue portion to improve heat 

transfer and balance flow between the parallel flow paths. Further, Lennox expounded 

that heat exchanger tubes are arranged below or beside the supply blower for optimal 

coverage of the tube surface area, and the tubes are sloped from the flue outlet back to the 

burner area to allow any condensate produced by the heat exchanger to drain out in order 

to prevent heat exchanger corrosion. Lennox stated that 82-percent thermal efficiency 

furnaces are similar to 80-percent furnaces except that more heat transfer surface is 

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needed, and the amount of excess air required to support complete combustion has to be 

reduced, and the commenter asserted that the additional flue side pressure drop requires a 

more powerful combustion inducer (which would draw more electricity). Lennox stated 

that the lower excess air would reduce the ability for the furnace to operate without 

derating at high-altitude conditions, and expressed its belief that there would be a risk of 

corrosion and heat exchanger failure at 82 percent for a very small benefit. (Lennox, No. 

3 at p. 4)

To reach 90 percent thermal efficiency, Carrier stated that a secondary heat 

exchanger is required along with a reliable condensate management system. Carrier 

described the challenges for achieving thermal efficiencies of greater than 82 percent, 

including dealing with condensate freezing and disposal of acidic condensate. (Carrier, 

No. 2 at p. 2) AHRI stated that in order to increase the efficiency of a commercial gas 

warm air furnace to a condensing level, the heat exchanger surface area must be 

increased. AHRI further explained that handling acidic condensate would require 

condensate disposal lines, which cannot be drained on ground or on the roof. (AHRI, No. 

7 at p. 3) Lennox commented that condensing furnaces would necessitate a secondary 

heat exchanger, which would require a much more expensive corrosion-resistant material. 

Further, Lennox explained that combustion blowers with upgraded housing and stainless 

steel impellers to protect against corrosion would be required. Lennox reported that it

participated in a 1988 Gas Research Institute study on the feasibility of a 90+ percent gas 

furnace, where condensate was managed by draining it into the building; Lennox 

explained that incremental product costs were high due to use of a stainless steel 

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secondary heat exchanger, a larger combustion inducer, piping, and thermostaticallycontrolled heat tape, and that the additional energy used to overcome the pressure drop 

offset the gas savings. Lennox added that a 90-percent-efficiency gas furnace would 

have even more barriers in horizontal applications (which make up approximately 15 to 

20 percent of the market) because the condensate would have to be pumped into the 

building. (Lennox, No. 3 at p. 5) Goodman stated that while technology exists that 

allows condensing operation of commercial warm air furnaces, the application 

requirements are very onerous, costly, and potentially dangerous. Goodman further 

stated that many condensate lines today are exposed to extreme weather conditions and 

are apt to crack or fail at joints, and such a failure would then leak acidic condensate 

directly onto the building rooftop with a high risk of causing holes in the roof surface. 

(Goodman, No. 6 at p. 3) 

After considering the comments, discussing approaches for improving efficiency 

with manufacturers during interviews, and reviewing the market for CWAF, DOE 

primarily considered the following technology options for improving the rated thermal 

efficiency of CWAF in the development of this NOPR:

• Increased heat exchanger (HX) surface area21

• Improved flue side HX enhancements (e.g., dimples, turbulators)

• Secondary HX (stainless steel)22

21 This design option includes a larger combustion inducer (to overcome the pressure drop of the increased 

HX area). The larger combustion inducer does not directly lead to a higher thermal efficiency, but would 

allow the implementation of other technologies (i.e., HX improvements) that would cause the furnace to 

operate more efficiently.

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DOE notes that many commenters acknowledged that a secondary heat exchanger 

for condensing operation is a possible technology option for CWAF, but also that that 

technology has considerable issues to overcome when used in weatherized equipment.

HoweverThese issues relate specifically to the handling of acidic condensate produced by 

a condensing furnace in the secondary heat exchanger. Condensate must be drained from 

the furnace to prevent build-up in the secondary heat exchanger, and properly disposed of 

after exiting into the external environment. Some building codes limit the disposal of 

condensate into the municipal sewage system, so the condensate must be passed through 

a neutralizer to reduce its acidity to appropriate levels prior to disposal. In weatherized 

installations, it is more difficult to access the municipal sewage system than in nonweatherized installations. Condensate produced by a weatherized condensing furnace 

must flow naturally or be pumped through pipes to the nearest disposal drain, which may 

not be in close proximity to the furnace. In cold environments, there is a risk of the 

condensate freezing as it flows through these pipes, which can cause an eventual back-up 

of condensate into the heat exchanger, resulting in significant damage to the furnace.

Despite these issues, DOE also notes thatfound in its review of the market, DOE 

found that multiple manufacturers that offer weatherized HVAC equipment with a 

22 This design option includes a larger combustion inducer fan, upgraded housing for combustion blowers, 

stainless steel impellers, condensate heater, and condensate drainage system that would be required for 

condensing operation. Although these design changes do not directly lead to a higher thermal efficiency, 

they allow the implementation of condensing operation, which causes the furnace to operate more 

efficiently.

Comment [A30]: Change recommended by 

OIRA.

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condensing furnace heating section. DOE believes that this indicates that many of the 

issues explained by the commenters can be overcome, and thus, DOE considered a 

secondary condensing heat exchanger as a technology option. As discussed in section 

IV.B and IV.C.2.bIV.B and IV.C.2.b, this technology was ultimately passed through the 

screening analysis and considered in the engineering analysis. Regarding condensate 

disposal, DOE included the cost of a condensate disposal lines for all condensing 

installations. For more details, see section IV.F.1.

DOE also identified the following technology options for improving the 

efficiency of CWAF, which were either removed from the analysis because they were 

screened out (see section IV.B) or because they did not improve the rated thermal 

efficiency as measured by the DOE test procedure.

• Pulse combustion

• Low NOX premix burners

• Low pressure, air-atomized burners

• Burner derating

• Two-stage or modulating burners

DOE requests comment on the technologies identified in this rulemaking, as well 

as the technologies which were primarily considered as the methods for increasing 

thermal efficiency of commercial warm air furnaces. This is identified as issue 2 in 

section VII.E, “Issues on Which DOE Seeks Comment.”

Comment [A31]: Change recommended by 

OIRA.

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B. Screening Analysis

After DOE identified the technologies that might improve the energy efficiency of 

CWAF, DOE conducted a screening analysis. The purpose of the screening analysis is to 

determine which options to consider further and which to screen out. DOE consulted 

with industry, technical experts, and other interested parties in developing a list of design 

options. DOE then applied the following set of screening criteria to determine which 

design options are unsuitable for further consideration in the rulemaking: 

• Technological Feasibility: DOE will consider only those technologies 

incorporated in commercial equipment or in working prototypes to be 

technologically feasible.

• Practicability to Manufacture, Install, and Service: If mass production of a 

technology in commercial equipment and reliable installation and servicing of the 

technology could be achieved on the scale necessary to serve the relevant market 

at the time of the effective date of the standard, then DOE will consider that 

technology practicable to manufacture, install, and service.

• Adverse Impacts on Equipment Utility or Equipment Availability: DOE will not 

further consider a technology if DOE determines it will have a significant adverse 

impact on the utility of the equipment to significant subgroups of customers. 

DOE will also not further consider a technology that will result in the 

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unavailability of any covered equipment type with performance characteristics 

(including reliability), features, sizes, capacities, and volumes that are 

substantially the same as equipment generally available in the United States at the 

time.

• Adverse Impacts on Health or Safety: DOE will not further consider a technology 

if DOE determines that the technology will have significant adverse impacts on 

health or safety.

(10 CFR part 430, subpart C, appendix A, 4(a)(4) and 5(b))

Additionally, DOE notes that these screening criteria do not directly address the 

propriety status of design options. DOE only considers efficiency levels achieved 

through the use of proprietary designs in the engineering analysis if they are not part of a 

unique path to achieve that efficiency level (i.e., if there are other non-proprietary 

technologies capable of achieving the same efficiency). DOE believes the proposed 

standards for the CWAF equipment covered in this rulemaking would not mandate the 

use of any proprietary technologies, and that all manufacturers would be able to achieve 

the proposed levels through the use of non-proprietary designs. DOE seeks comment on 

this tentative conclusion and requests additional information regarding proprietary 

designs and patented technologies.

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Technologies that pass through the screening analysis are referred to as “design 

options” and are subsequently examined in the engineering analysis for consideration in 

DOE’s downstream cost-benefit analysis. In view of the above factors, DOE screened 

out the following design options listed below in Table IV.2. 

Table IV.2. Screened Technology Options

Technology Option Reason for Screening Out

Pulse Combustion Adverse impact on utility; potential for 

adverse impact on safety

Low NOX Premix Burner Technological feasibility

Burner Derating Adverse impact on utility

Low Pressure, Air-Atomized Burner Technological Feasibility

Based on the screening analysis, DOE identified the following seven design 

options for further consideration in the engineering analysis:

• Condensing secondary heat exchanger

• Increased heat exchanger surface area

• Incorporation of heat exchanger surface features (e.g., dimples)

• Use of heat exchanger baffles and turbulators

• Use of concentric venting of flue gases

• Improved combustion air flow (oil-fired)

• High-static oil burner

A full description of each technology option is included in chapter 3 of the TSD, 

and additional discussion of the screening analysis is included in chapter 4 of the TSD.

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C. Engineering Analysis

The engineering analysis establishes the relationship between an increase in 

energy efficiency of the equipment and the increase in manufacturer selling price (MSP) 

associated with that efficiency level. This relationship serves as the basis for the costbenefit calculations for commercial consumers, manufacturers, and the Nation. In 

determining the cost-efficiency relationship, DOE estimates the increase in manufacturer 

cost associated with increasing the efficiency of equipment above the baseline up to the 

maximum technologically feasible (“max-tech”) efficiency level for each equipment 

class. 

1. Methodology

DOE typically structures its engineering analysis using one or more of three 

identified basic methods for generating manufacturing costs: (1) the design-option 

approach, which provides the incremental costs of adding individual technology options 

(from the market and technology assessment) that can be added alone or in combination 

to a baseline model in order to improve its efficiency (i.e., lower its energy use); (2) the 

efficiency-level approach, which provides the incremental costs of moving to higher 

energy efficiency levels, without regard to the particular design option(s) used to achieve 

such increases; and (3) the reverse-engineering (or cost-assessment) approach, which 

provides “bottom-up” manufacturing cost assessments for achieving various levels of 

increased efficiency, based on teardown analyses (or physical teardowns) providing 

detailed data on costs for parts and material, labor, shipping/packaging, and investment 

for models that operate at particular efficiency levels. A supplementary method called a 

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catalog teardown uses published manufacturer catalogs and supplementary component 

data to estimate the major physical differences between a piece of equipment that has 

been physically disassembled and another piece of similar equipment for which catalog 

data are available to determine the cost of the latter equipment.

In the RFI, DOE stated that in order to create the cost-efficiency relationship for 

CWAF, it anticipated having to structure its engineering analysis using the reverseengineering approach, potentially including physical and catalog teardowns. DOE 

requested comments on the approach outlined in the RFI and on the appropriate 

representative capacities for each equipment class. 78 FR 25627, 25631 (May 2, 2013). 

In response to the RFI, Carrier stated that equipment is available for teardown 

analysis to develop a cost-efficiency relationship between 80 percent and 82 percent, but

noted that it may be difficult to draw clear conclusions from the data. However, Carrier 

added that it was unclear how to analyze a 90-percent efficiency level through a teardown 

analysis. 

For today’s NOPR, DOE conducted the engineering analysis using the reverseengineering approach to estimate the costs of achieving various efficiency levels. DOE 

selected two gas-fired CWAF in the non-condensing efficiency range for physical 

teardowns at an input rating of 250,000 Btu/h, which was considered to be the 

representative input rating for analysis. DOE also performed a physical teardown of an 

oil-fired CWAF at 81-percent thermal efficiency at an input rating of 400,000 Btu/h, 

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which was subsequently scaled down via cost modeling techniques to represent a unit of 

the representative 250,000 Btu/h input rating. DOE seeks comment regarding the 

applicability of these teardown units to represent the range of potential input capacities 

on the market. Additional detail on the teardowns performed is provided in chapter 5, 

section 5.6.2, of the proposed rule TSD. In addition, DOE used catalog data and 

information from physical teardowns to virtually model a gas-fired unit at the max-tech 

92-percent thermal efficiency level, as well as two oil-fired furances (at 82 percent and 

the max-tech 92 percent thermal efficiency). .

2. Efficiency Levels

a. Baseline Efficiency Levels

The baseline model is used as a reference point for each equipment class in the 

engineering analysis and the life-cycle cost and payback-period analyses, which provides 

a starting point for analyzing potential technologies that provide energy efficiency 

improvements. Generally, DOE considers “baseline” equipment to refer to a model or 

models having features and technologies that just meet, but do not exceed, the minimum 

energy conservation standard. In establishing the baseline efficiency level for this 

analysis, DOE used the existing minimum energy conservation standards for CWAF to 

identify baseline units. The baseline thermal efficiency levels for each equipment class 

are presented below in Table IV.3.

Table IV.3. Baseline Thermal Efficiency Levels for CWAF

Comment [A32]: Change recommended by 

OIRA.

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Equipment Class Baseline Efficiency Level

Gas-fired Commercial Warm Air Furnace 80%

Oil-fired Commercial Warm Air Furnace 81%

b. Incremental and Max-Tech Efficiency Levels

For each equipment class, DOE analyzes several efficiency levels and determines 

the incremental cost at each of these levels. For today’s NOPR, DOE developed 

efficiency levels based on a review of available equipment. DOE compiled a database of 

the CWAF market to determine what types of equipment are currently available to 

commercial consumers. At each representative capacity, DOE surveyed various 

manufacturers’ equipment offerings to identify the commonly-available efficiency levels. 

By identifying the most prevalent energy efficiencies in the range of available equipment, 

DOE can establish a technology path that manufacturers would typically use to increase 

the thermal efficiency of a CWAF and corresponding efficiency levels along that 

technology path.

DOE established incremental thermal efficiency levels for each equipment class. 

The incremental thermal efficiency levels are representative of efficiency levels along the 

technology paths that manufacturers of CWAF commonly use to maintain cost-effective 

designs while increasing the thermal efficiency. DOE reviewed AHRI’s Directory of 

Certified Product Performance,23 manufacturer catalogs, and other publicly-available 

literature to determine which thermal efficiency levels are the most prevalent for each 

representative equipment class. For gas-fired CWAF, DOE chose two efficiency levels 

23 For more information see: http://cafs.ahrinet.org/gama_cafs/sdpsearch/search.jsp?table=CFurnace. 

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between the baseline and max-tech for analysis (see Table IV.4).Table IV.4). For oilfired CWAF, DOE chose one thermal efficiency level between the baseline and max-tech 

for analysis (see Table IV.5).

Carrier stated that in the current market, the max-tech efficiency level for gasfired weatherized furnaces is 81-percent to 82-percent thermal efficiency, pointing out 

that no AHRI member makes a more efficient gas-fired furnace, and asserting that 90 

percent is not currently feasible. (Carrier, No. 2 at p. 2) Lennox described how an 82-

percent gas-fired commercial furnace could be designed, but then expressed significant 

concerns about trying to develop furnaces at 82-percent thermal efficiency. The 

commenter asserted that there would be an undue risk of corrosion and heat exchanger 

failure for a very small benefit in gas consumption at this efficiency level. Lennox also 

commented that the two gas-fired 90-percent thermal efficiency model lines available on 

the market currently are for makeup air applications,24 which is a niche market. (Lennox, 

No. 3 at pp. 4-5) AHRI stated that since January 1, 1994, the efficiency trends for gasfired commercial warm air furnaces have stayed near a thermal efficiency of 80 percent. 

As discussed previously in section IV.A.3IV.A.3, many of the commenters also noted 

concerns regarding issues with condensate management in weatherized furnaces with 

thermal efficiencies at or above 90 percent. 

24 Makeup air applications require fresh outdoor air that is brought into a building through the ventilation 

system, and do not allow air to be recirculated through the building.

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DOE considered these comments in conjunction with its review of the market. 

DOE found several manufacturers that offer gas-fired equipment at 81-percent thermal 

efficiency. In addition, although only one manufacturer has gas-fired equipment rated at 

82-percent thermal efficiency, there is equipment available across a wide range of input 

capacities indicating that the entire product family would be capable of meeting 82-

percent thermal efficiency. DOE acknowledges the concerns raised regarding the nearcondensing operation at 82-percent thermal efficiency, but believes that the presence of 

models across a broad range of input ratings demonstrates the feasibility of this efficiency 

level. Thus, DOE considered 81-percent and 82-percent as incrementally higher thermal 

efficiency levels for the gas-fired commercial furnace analysis. DOE also considered the 

max-tech level, which was identified as 92-percent thermal efficiency. The max-tech 

level is based on a dedicated outdoor air system with a condensing furnace section, which 

proves the technical feasibility of a weatherized condensing furnace. For oil-fired 

furnaces, which are typically installed indoors, DOE surveyed the market and found noncondensing equipment with thermal efficiencies in the range of 81 to 82 percent, as well 

as a condensing model with a thermal efficiency of 92 percent. Therefore, DOE analyzed 

those three levels in this NOPR analysis. The efficiency levels DOE considered for each 

equipment class during the NOPR analyses (including the baseline levels) are presented 

in Table IV.4 and Table IV.5Table IV.4 and Table IV.5.

Comment [A33]: Change recommended by 

OIRA.

Comment [A34]: Change recommended by 

OIRA.

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Table IV.4. Efficiency Levels for Gas-Fired CWAF

Efficiency Level Gas-Fired CWAF

EL0 (Baseline) 80%

EL1 81%

EL2 82%

Max-Tech 92%

Table IV.5. Efficiency Levels for Oil-Fired CWAF

Efficiency Level Oil-Fired CWAF

EL0 (Baseline) 81%

EL1 82%

Max-Tech 92%

DOE requests comment on the efficiency levels analyzed for gas-fired and oilfired commercial warm air furnaces. In particular, DOE is interested in the feasibility of 

the max-tech efficiency levels, as well as the 82-percent thermal efficiency level for gasfired commercial warm air furnaces. This is identified as issue 3 in section VII.E, “Issues 

on Which DOE Seeks Comment.”

3. Equipment Testing and Reverse Engineering 

As discussed above, for the engineering analysis, DOE analyzed a representative 

input capacity of 250,000 Btu/h for the gas-fired and oil-fired CWAF equipment classes 

to develop incremental cost-efficiency relationships. The models were selected to 

represent the efficiency levels available on the market, ranging from the baseline 80-

percent thermal efficiency for gas-fired units, and baseline 81-percent thermal efficiency 

for oil-fired units, up to the max-tech 92-percent thermal efficiency for gas-fired units, 

and 92-percent thermal efficiency for oil-fired units. DOE based the selection of units for 

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testing and reverse engineering on the efficiency data available in the AHRI certification 

database25 and the CEC equipment database.26 Details of the key features of the tested 

units are presented in chapter 5 of the NOPR TSD.

DOE conducted physical or virtual teardowns on each test unit to develop a 

manufacturing cost model and to evaluate key design features (e.g., heat exchangers, 

blower and inducer fans/fan motors, control strategies). 

For gas-fired commercial warm air furnaces, DOE performed two teardowns on 

weatherized furnaces at non-condensing efficiency levels. Prior to teardown, the units 

were tested by a third-party test lab and achieved a thermal efficiency of 82 percent. The 

units were from the same manufacturer and had nearly identical furnace sections with 

different air conditioner sections. DOE assumed that the repeatability of the test result on 

both units indicated that the furnace design that was torn down is representative of 

equipment that would achieve 82-percent thermal efficiency. Using the cost-assessment 

methodology, DOE determined the cost of the furnace components through reverseengineering of the furnace section of the weatherized packaged units. Based on 

discussions with manufacturers, a review of product literature, and experience obtained 

from examining residential weatherized furnaces, DOE made assumptions regarding how 

the heat exchanger size would vary between units with 82-percent thermal efficiency and 

at the baseline (80-percent thermal efficiency) and the 81-percent thermal efficiency 

25 Available at: https://www.ahridirectory.org/ahridirectory/pages/home.aspx. 26 Available at: http://www.appliances.energy.ca.gov/Default.aspx. 

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intermediate level. At the 80-percent and 81-percent thermal efficiency levels, DOE 

scaled down the size of the heat exchanger and related components (e.g., inducer fan, 

cabinet panels, insulation), as applicable, to generate an estimate of the cost to 

manufacture equipment at those levels. Thus, DOE obtained an estimate of the 

differential cost of manufacturing a commercial gas furnace section at the baseline (80-

percent), 81-percent, and 82-percent thermal efficiency. To develop an estimate of the 

cost of a max-tech unit at 92-percent thermal efficiency, DOE obtained a sample of 

commercial HVAC equipment that utilizes a condensing furnace section for analysis, and 

also used information gathered from a teardown of a condensing weatherized residential 

furnace. DOE examined the heat exchanger, inducer fan, condensate management 

system, and other aspects of the furnace section in the commercial equipment sample to 

develop a cost estimate to manufacture a condensing commercial furnace. DOE then used 

information from the residential condensing weatherized furnace teardown to refine 

estimates of the costs of the exhaust assembly, inducer fan assembly, and condensate 

management system to model the cost of a 92-percent efficient CWAF that is designed 

for implementation on a broad scale.

For oil-fired commercial furnaces, DOE performed a teardown of a nonweatherized furnace at 81-percent thermal efficiency. DOE used this teardown, along 

with product literature, prior industry experience, manufacturer feedback, and analysis 

previously performed on residential furnaces to develop cost estimates at the 82-percent 

and 92-percent thermal efficiency levels. 

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In a previous analysis of residential non-weatherized oil-fired furnaces, DOE 

developed an estimate of the cost-efficiency relationship across a range of efficiency 

levels. In examining product literature for commercial oil-fired furnaces, DOE found that 

commercial units are very similar to residential units, except with higher input ratings and 

overall larger size. Based on information obtained from the physical teardown of the 81-

percent thermal efficiency oil furnace, in addition to the information gained from the 

residential furnace analysis and product literature, DOE was able to conduct a virtual 

teardown at the 82-percent thermal efficiency level. Key to this model was the growth in 

heat exchanger size necessary for a 1-percent increase in thermal efficiency, which 

necessitates a larger cabinet to accommodate it. Sheet metal and other components 

sensitive to size changes were scaled in order to match the larger size of the unit, while 

components that are not sensitive to heat exchanger size changes remained unchanged. 

Similarly, DOE relied on the physical teardown at the 81-percent thermal 

efficiency level, as well as prior comparisons of residential oil-fired furnaces at 

condensing and non-condensing efficiency levels, to conduct a virtual teardown at the 92-

percent thermal efficiency level. At 92-percent thermal efficiency, a secondary 

condensing heat exchanger made from a high-grade stainless steel was added in order to 

withstand the formation of condensate from the flue gases coupled with increased heat 

extraction into the building airstream (and, thus, higher thermal efficiency). This 

additional heat exchanger was appropriately sized based on information gathered from 

the residential furnaces teardowns. To accommodate the secondary heat exchanger, the 

cabinet was increased in size, and all associated sheet metal, wiring, and other 

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components sensitive to cabinet size changes were also scaled as a result. In addition, the 

size of the blower fan blade was increased appropriately to account for the additional 

airflow needed over the secondary heat exchanger (however, based on observations in 

product literature, the rated fan power was unchanged). The manufacturing costs 

obtained from these physical and virtual teardowns served as the basis for the costefficiency relationship for this equipment class. The teardown analyses are described in 

further detail in section 5.6 of the proposed rule TSD.

4. Cost Model

DOE developed a manufacturing cost model to estimate the manufacturing 

production cost of CWAF. The cost model is a spreadsheet model that converts the 

materials and components in the bills of materials (BOMs) into dollar values based on the 

price of materials, average labor rates associated with fabrication and assembling, and the 

cost of overhead and depreciation, as determined based on manufacturer interviews and 

DOE expertise. To convert the information in the BOMs into dollar values, DOE 

collected information on labor rates, tooling costs, raw material prices, and other factors. 

For purchased parts, the cost model estimates the purchase price based on volumevariable price quotations and detailed discussions with manufacturers and component 

suppliers. For fabricated parts, the prices of raw metal materials (e.g., tube, sheet metal) 

are estimated on the basis of five-year averages. The cost of transforming the 

intermediate materials into finished parts is estimated based on current industry pricing. 

Additional details on the cost model are contained in chapter 5 of the NOPR TSD.

Comment [A35]: Change recommended by 

OIRA.

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5. Manufacturing Production Costs

Once the cost estimates for all the components in each teardown unit were 

finalized, DOE totaled the cost of materials, labor, and direct overhead used to 

manufacture each type of equipment in order to calculate the manufacturing production 

cost. The total cost of the equipment was broken down into two main costs: (1) the full 

manufacturing production cost, referred to as MPC; and (2) the non-production cost, 

which includes selling, general, and administration (SG&A) costs; the cost of research 

and development; and interest from borrowing for operations or capital expenditures. 

DOE estimated the MPC at each efficiency level considered for each equipment class, 

from the baseline through the max-tech level. After incorporating all of the assumptions 

into the cost model, DOE calculated the percentages attributable to each element of total 

production costs (i.e., materials, labor, depreciation, and overhead). These percentages 

are used to validate the assumptions 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. 

Based on the analytical methodology discussed in the sections above, DOE 

developed the cost-efficiency results shown in Table IV.6 for each thermal efficiency 

level analyzed. The results shown in Table IV.6 represent the incremental increase in 

manufacturing cost, relative to the baseline manufacturing cost, needed to produce 

equipment at each efficiency level above baseline. Details of the cost-efficiency analysis, 

including descriptions of the technologies DOE analyzed for each thermal efficiency 

Comment [A36]: Change recommended by 

OIRA.

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level to develop incremental manufacturing costs, are presented in chapter 5 of the NOPR 

TSD. DOE seeks comment on the results of the engineering analysis at each efficiency 

level considered.

Table IV.6. Incremental Manufacturing Cost Increases*

Equipment Type EL0 (Baseline) EL1 EL2 (Oil-fired 

Max-tech)

EL3 (Gas-fired 

Max-Tech)

Gas-fired CWAF - $5 $10 $613

Oil-fired CWAF - $24 $660 -

* DOE structures proposed standards in terms of TSLs and analyzed five TSLs for this NOPR. TSL 1 

includes EL1 for gas-fired CWAF and EL0 for oil-fired CWAF, TSL 2 includes EL1 for both equipment 

classes, TSL 3 includes EL2 for gas-fired CWAF and EL0 for oil-fired CWAF, TSL 4 includes EL2 for 

gas-fired CWAF and EL1 for oil-fired CWAF, and TSL 5 includes EL3 for gas-fired CWAF and EL2 for 

oil-fired CWAF. For more information on the TSL structure, see section V.A of this NOPR.

6. Manufacturer Markup

To account for manufacturers’ non-production costs and profit margin, DOE 

applies a non-production cost multiplier (the manufacturer markup) to the full MPC. The 

resulting manufacturer selling price (MSP) is the price at which the manufacturer can 

recover all production and non-production costs and earn a profit. To meet new or 

amended energy conservation standards, manufacturers often introduce design changes to 

their equipment lines that result in increased MPCs. Depending on the competitive 

pressures, some or all of the increased production costs may be passed from 

manufacturers to retailers and eventually to customers in the form of higher purchase 

prices. As production costs increase, manufacturers typically incur additional overhead. 

The MSP should be high enough to recover the full cost of the equipment (i.e., full 

production and non-production costs) and yield a profit. The manufacturer markup has 

Comment [A37]: Change recommended by 

OIRA.

Comment [A38]: Change recommended by 

OIRA.

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an important bearing on profitability. A high markup under a standards scenario suggests 

manufacturers can readily pass along the increased variable costs and some of the capital 

and product conversion costs (the one-time expenditure) to customers. A low markup 

suggests that manufacturers will not be able to recover as much of the necessary 

investment in plant and equipment. DOE developed the manufacturer markup through an 

examination of corporate annual reports and Securities and Exchange Commission (SEC) 

10-K reports.27 Additional information is contained in chapter 5 of the TSD.

7. Shipping Costs

Manufacturers of heating, ventilation, and air-conditioning (HVAC) equipment 

typically pay for shipping to the first step in the distribution chain. Freight is not a 

manufacturing cost, but because it is a substantial cost incurred by the manufacturer, 

DOE is accounting for shipping costs of CWAF separately from other non-production 

costs that comprise the manufacturer markup. To calculate the MSP for CWAF, DOE 

multiplied the MPC at each efficiency level by the manufacturer markup and added 

shipping costs for equipment at the given efficiency level. More specifically, DOE 

calculated shipping costs at each efficiency level based on the average outer dimensions 

of equipment at the given efficiency and assuming the use of a typical 53-foot straightframe trailer with a storage volume of 4,240 cubic feet. Chapter 5 of the NOPR TSD 

contains additional details about DOE’s shipping cost assumptions and DOE’s shipping 

cost estimates.Gas-fired CWAF equipment is almost exclusively enclosed within a 

27 U.S. Securities and Exchange Commission, Annual 10-K Reports (Various Years) (Available at:

http://www.sec.gov/edgar/searchedgar/companysearch.html) (Last Accessed Dec. 13, 2013).

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cabinet that also contains a commercial unitary air conditioner (CUAC). Thus, the CUAC 

components are significant factor in driving the overall cabinet dimensions. DOE found 

that the changes in CWAF component sizes necessary to achieve the 81 percent and 82

percent thermal efficiency levels are not large enough to add any size to the cabinet, 

which is driven primarily by the size of the CUAC components. The shipping costs 

calculated for each efficiency level are shown in Table IV.7. Due to the noted 

dependence on CUAC components of the overall shipping cost for gas-fired CWAF, 

DOE presents only the incremental cost change due to increased CWAF efficiency for 

that equipment. For oil-fired CWAF, DOE presents the full cost of shipping, since this 

equipment is not packaged with CUAC components, and thus, the shipping cost

represents only the oil-fired CWAF. Chapter 5 of the NOPR TSD contains additional 

details about DOE’s shipping cost assumptions and DOE’s shipping cost estimates.

Table IV.7. CWAF Shipping Cost Estimates

CWAF 

Equipment 

Class

Thermal Efficiency

(%)

Shipping Costs* 

(2013$)

Gas-Fired 

CWAF

80 $0

81 $0

82 $0

92 $39.64

Oil-Fired 

CWAF

81 $63.78

82 $69.60

92 $76.53

*Because gas-fired CWAF are weatherized and are typically included in a cabinet with a commercial 

unitary air conditioner which affects the shipping cost, the shipping costs for gas-fired CWAF are shown in 

terms of the incremental increase from the baseline level. Since oil-fired CWAF are normally selfcontained non-weatherized units, the shipping costs for oil-fired CWAF are representative of the entire cost 

to ship the unit. Comment [A39]: Change recommended by 

OIRA.

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D. Markups Analysis

The markups analysis develops appropriate markups in the distribution chain to 

convert the estimates of manufacturer selling price derived in the engineering analysis to 

commercial consumer prices. (“Commercial consumer” refers to purchasers of the 

equipment being regulated.) DOE develops baseline and incremental markups based on 

the equipment markups at each step in the distribution chain. The markups are 

multipliers that represent increases above equipment purchase costs for CWAF 

equipment. The incremental markup relates the change in the manufacturer sales price of 

higher-efficiency models (the incremental cost increase) to the change in the customer 

price.

In the RFI, DOE characterized two distribution channels to describe how CWAF 

equipment passes from the manufacturer to the commercial consumer. 78 FR 25627, 

25632 (May 2, 2013). The first distribution channel is characterized as follows:

Manufacturer  Wholesaler  Mechanical contractor  General contractor  Consumer

In the second distribution channel, the manufacturer sells the equipment directly 

to the customer through a national account:

Manufacturer  Consumer (National Account)

Carrier stated that the distribution channels outlined in the RFI are relevant for 

commercial warm air furnaces. Carrier added that in addition to the two channels 

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described, for very large air-cooled equipment, there is an additional channel that consists 

of factory employees selling direct to end customers/mechanical contractors. (Carrier, 

No. 2 at p. 3) Lennox stated that the first example of distribution channels provided by 

DOE (manufacturer to wholesaler to mechanical contractor to general contractor to 

customer) is a typical distribution approach. Lennox stated that the second example 

(where a manufacturer would sell directly to a customer) is not a typical distribution 

approach, but rather the distribution channel should include the contractor, who must set 

up and install the system at the building site. (Lennox, No. 3 at p. 6) Goodman stated 

that the distribution channels should not be significantly different from the analysis 

performed for the same products being considered for the cooling mode. (Goodman, No. 

6 at p. 3)

In response to these comments, DOE modified the second distribution channel to 

include a wholesaler who purchases the equipment and sells it to the customer. DOE’s 

understanding of this channel is that the contractor who installs the system generally does 

not purchase and mark up the equipment. Rather, the building owner purchases the 

equipment and hires the contractor. Thus, for the purposes of DOE’s analysis, it would 

not be appropriate to include the contractor in the distribution channel.

DOE also sought input on the percentage of equipment being distributed through 

the various types of distribution channels. Carrier stated that approximately 70 percent of 

equipment flows through the first distribution channel described in the RFI, with the 

remainder split among the other channels. (Carrier, No. 2 at p. 4) Lennox stated that the 

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first distribution approach discussed is the typical approach to equipment sales, 

accounting for approximately 90-95 percent of sales. (Lennox, No. 3 at p. 6) 

DOE assumes that the above responses reflect each company’s experience, rather 

than a characterization of the industry overall. For today’s NOPR, DOE estimated that 

the first distribution channel accounts for 83 percent of shipments, and the second 

distribution channel accounts for 17 percent.

To develop markups for the parties involved in the distribution of the equipment, 

DOE utilized several sources, including: (1) the Heating, Air-Conditioning &

Refrigeration Distributors International (HARDI) 2012 Profit Report28 to develop 

wholesaler markups; (2) the 2005 Air Conditioning Contractors of America’s (ACCA) 

financial analysis for the heating, ventilation, air-conditioning, and refrigeration 

(HVACR) contracting industry29 to develop mechanical contractor markups, and (3) U.S. 

Census Bureau’s 2007 Economic Census data30 for the commercial and institutional 

building construction industry to develop general contractor markups. For mechanical 

contractors, DOE derived separate markups for small and large contractors.

28 Heating, Air Conditioning & Refrigeration Distributors International 2012 Profit Report (Available at: 

http://www.hardinet.org/Profit-Report) (Last accessed April 10, 2013). 29 Air Conditioning Contractors of America (ACCA), Financial Analysis for the HVACR Contracting 

Industry: 2005 (Available at: https://http://www.acca.org/store/product.php?pid=142) (Last accessed April 

10, 2013).

30 U.S. Census Bureau, 2007 Economic Census Data (2007) (Available at: 

http://www.census.gov/econ/)(Last accessed April 10, 2013).

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In addition to the markups, DOE derived State and local taxes from data provided 

by the Sales Tax Clearinghouse.31 These data represent weighted average taxes that 

include county and city rates. DOE derived shipment-weighted average tax values for 

each CBECS region considered in the analysis.

Chapter 6 of the NOPR TSD provides further detail on the estimation of markups.

E. Energy Use Analysis

The purpose of the energy use analysis is to assess the energy requirements of 

equipment at different efficiencies in several building types that utilize the equipment and 

to assess the energy savings potential of increased commercial warm air furnace

efficiency. The annual energy consumption includes the natural gas and oil fuel types 

used for heating and the auxiliary electrical use associated with the furnace electrical 

components.

DOE based the energy use analysis on Energy Information Administration’s 2003 

Commercial Building Energy Consumption Survey (CBECS)32 for the subset that uses 

the type of equipment covered by the standards. DOE utilized the building types defined 

in CBECS 2003.33 Each building was assigned to a specific location, and the approach 

captured variability in heating loads due to factors such as building activity, schedule, 

31 Sales Tax Clearinghouse Inc., State Sales Tax Rates Along with Combined Average City and County 

Rates, 2013 (Available at: http://thestc.com/STrates.stm) (Last accessed Sept. 11, 2013). 32 Energy Information Administration (EIA), 2003 Commercial Building Energy Consumption Survey 

(Available at: http://www.eia.gov/consumption/commercial/) (Last accessed April 10, 2013). Note: CBECS 

2012 is currently in development but was not available in time for this rulemaking. 33 Definitions of CBECS building types can be found at: 

http://www.eia.gov/emeu/cbecs/building_types.html.

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occupancy, local weather, and shell characteristics. Energy use estimates from 2003 

CBECS were adjusted for average weather conditions and for projected improvements to 

the building shell efficiency. DOE also accounted for the energy use of a small fraction 

of commercial warm air furnaces that are installed in residential housing using data from 

the 2009 Residential Energy Consumption Survey (RECS 2009).34

To determine the energy consumption of commercial warm air furnaces, DOE is 

using a Thermal Efficiency (TE) rating, along with relevant characteristics for each 

sample building. DOE assumed that TE is proportional to annual heating energy 

consumption for any given set of operating conditions. To calculate commercial warm 

air furnace energy consumption at each considered efficiency level, DOE determined the 

equipment capacity and the heating load in each CBECS building.

In the RFI, DOE requested comment on its planned method to determine the 

equipment load profiles. 78 FR 25627, 25632 (May 2, 2013). Carrier stated that DOE 

should develop equipment load profiles using the 16 benchmark buildings from Pacific 

Northwest National Laboratories (PNNL) building models.35 (Carrier, No. 2 at p. 4)

In response, rather than developing detailed load profiles for various building 

types, DOE decided to use CBECS-reported heating energy use for each sample building.

34 EIA, 2009 Residential Energy Consumption Survey (Available at: 

http://www.eia.gov/consumption/residential/) (Last accessed April 10, 2013). 35 Deru, M., K. Field, D. Studer, K. Benne, B. Griffith, P. Torcellini, B. Liu, M. Halverson, D. Winiarski, 

M. Rosenberg, M. Yazdanian, J. Huang, and D. Crawley, U.S. Department of Energy Commercial 

Reference Building Models of the National Building Stock, 2011 (Available at 

http://www.nrel.gov/docs/fy11osti/46861.pdf) (Last accessed December 6, 2013).

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DOE assumed that the CBECS data are representative of the energy use measured in the 

field for the U.S. commercial building types. CBECS provides information about 

buildings with a wide range of energy use representing both high-energy-use and lowenergy-use buildings. DOE has concluded that the selected approach better reflects the 

heating energy use of the commercial buildings stock in the U.S. in comparison to using a 

set of benchmark buildings.

DOE’s RFI also sought input from stakeholders on the current distribution of 

equipment efficiencies in the building population. 78 FR 25627, 25632 (May 2, 2013). 

Carrier stated that the vast majority of equipment should be in the 80-percent to 82-

percent efficiency range based on the ASHRAE 90.1 standard. (Carrier, No. 2 at p. 4) 

DOE’s approach is consistent with Carrier’s comment. It utilizes model efficiency 

information from the 2013 AHRI Certification Directory for Commercial Furnaces.36

In the RFI, DOE requested comment on how equipment energy use for a given 

heating load shape scales as a function of capacity (i.e., whether two commercial furnace 

units of a certain capacity use the same total heating energy as one commercial furnace 

unit of twice the capacity). 78 FR 25627, 25632 (May 2, 2013). Carrier stated that it 

would expect to see no measurable difference in energy use for a given load shape as a 

function of capacity. (Carrier, No. 2 at p. 4) DOE’s approach reflects the statement 

made by Carrier.

36 AHRI, 2013 AHRI Certification Directory for Commercial Furnaces (Available at: 

http://www.ahridirectory.org/ahridirectory/pages/home.aspx).

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Lennox stated that in its experience, furnaces with higher thermal efficiency 

ratings may use less gas, but they may use more electricity, offsetting the potential 

benefits. (Lennox, No. 3 at p. 7) For condensing CWAF, DOE’s analysis accounts for 

the fact that CWAF at a condensing efficiency level may require higherincreased blower

fan electricity use by fansin the field in both heating and cooling mode, and also due to 

the presense of the secondary heat exchanger. The increased electricity use of 

condensing furnaces is expected to be small compared to the potential savings in fuel use. 

DOE also accounts for condensate line freeze protection or a condensate pump for a 

fraction of installations. Condensing CWAF installed outdoors that are located in regions 

with an outdoor design temperature of ≤ 32°F were assumed to require condensate 

freeze protection. This applies to roughly 90 percent of gas-fired CWAF. All oil-fired 

CWAFs are assumed to be installed indoors so condensate line freeze protection was 

assumed to not be needed.

Carrier stated that increasing plug loads (e.g., computers and related equipment) 

and tighter buildings with higher insulation values will most likely continue to lower the 

change-over temperature from cooling to heating in commercial buildings. (Carrier, No. 

2 at p. 6) Lennox stated that commercial buildings are being required to have higher 

insulation levels by ASHRAE Standard 90.1 in the future, which will reduce the building 

load and further reduce the potential energy savings for higher-efficiency furnaces.

(Lennox, No. 3 at p. 7) DOE’s analysis accounts for improvements in the building shell. 

The analysis uses the AEO 2013 building shell efficiency index for commercial buildings 

Comment [A40]: Change recommended by 

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to account for these impacts. Due to a lack of data, at this time, DOE did not account for 

changes to the internal loads.Although plug loads may increase, decreasing the heating 

load, the efficiency of the equipment is also likely to improve, which would increase the 

heating load, so the net effect is uncertain.

In the RFI, DOE requested comment on the fraction of commercial warm air 

furnaces which are used in residential applications such as multi-family buildings. 78 FR 

25627, 25632 (May 2, 2013). Carrier stated that the fraction of commercial furnaces 

applied in residential applications is negligible. (Carrier, No. 2 at p. 5) Based on RECS 

2009 data, DOE estimates that about two percent of commercial furnaces are used in 

residential applications.37

F. Life-Cycle Cost and Payback Period Analysis

The purpose of the LCC and PBP analysis is to analyze the effects of potential 

amended energy conservation standards on commercial consumers of commercial 

furnace equipment by determining how a potential amended standard would affect their 

operating expenses (usually decreased) and their total installed costs (usually increased). 

The LCC is the total consumer expense over the life of the equipment, consisting 

of equipment and installation costs plus operating costs over the lifetime of the 

equipment (expenses for energy use, maintenance, and repair). DOE discounts future 

37 EIA, 2009 Residential Energy Consumption Survey (Available at: 

http://www.eia.gov/consumption/residential/) (Last accessed April 10, 2013).

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operating costs to the time of purchase using commercial consumer discount rates. The 

PBP is the estimated amount of time (in years) it takes commercial consumers to recover 

the increased total installed cost (including equipment and installation costs) of a moreefficient type of equipment through lower operating costs. DOE calculates the PBP by 

dividing the change in total installed cost (normally higher) due to a new or amended 

energy conservation standard by the change in annual operating cost (normally lower) 

that results from that standard.

For any given efficiency level, DOE measures the PBP and the change in LCC 

relative to an estimate of the base-case efficiency level. The base-case estimate reflects 

the market in the absence of amended energy conservation standards, including market 

trends for equipment that exceeds the current energy conservation standards.

DOE analyzed the potential for variability and uncertainty by performing the LCC 

and PBP calculations on a nationally-representative sample of individual commercial 

buildings. More specifically, DOE utilized the sample of buildings developed for the 

energy use analysis. Within a given building, one or more commercial warm air furnace 

units may serve the building’s space-conditioning needs, depending on the heating load 

requirements of the building. As a result, the Department also expressed the LCC and 

PBP results as the percentage of commercial warm air furnace customers experiencing 

economic impacts of different magnitudes. DOE modeled both the uncertainty and the 

variability in the inputs to the LCC and PBP analysis using Monte Carlo simulation and

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probability distributions. As a result, the LCC and PBP results are displayed as 

distributions of impacts compared to the base-case conditions. 

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 (and, as applicable, water) savings during the first year that 

the consumer will receive as a result of the standard, as calculated under the test 

procedure in place for that standard. For each considered efficiency level, DOE typically 

determines the value of the first year’s energy savings by calculating the quantity of those 

savings in accordance with the applicable DOE test procedure,38 and multiplying that 

amount by the average energy price forecast for the year in which compliance with the 

amended standards would be required.

DOE calculated the LCC and PBP for all commercial consumers of CWAF as if 

each were to purchase new equipment in the year that compliance with amended 

standards is required. EPCA directs DOE to publish a final rule amending the standard 

for the products covered by today’s NOPR not later than 2 years after a notice of 

proposed rulemaking is issued. (42 U.S.C. 6313(a)(6)(C)(iii)) At the time of preparation 

of the NOPR analysis, the expected issuance date was early 20142015, leading to an 

anticipated final rule publication in early 2015. EPCA also states that amended standards 

38 The DOE test procedure for commercial warm air furnaces a 10 CFR 431.76 does not specify a 

calculation method for determining energy use. For the rebuttable presumption PBP calculation, DOE used 

average energy use reported from CBECS 2003 for this equipment.

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Comment [A43]: Change recommended by 

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prescribed under this subsection shall apply to products manufactured after a date that is 

the later of—(I) the date that is 3 years after publication of the final rule establishing a 

new standard; or (II) the date that is 6 years after the effective date of the current standard 

for a covered product. (42 U.S.C. 6313(a)(6)(C)(iv)) The date under clause (I), currently 

projected to be early 2018, is later than the date under clause (II). Therefore, for 

purposes of its analysis, DOE used January 1, 2018 as the beginning of compliance with 

potential amended standards for CWAF.

In the RFI, DOE requested comment from stakeholders on the overall method that 

it intended to use in conducting the LCC and PBP analysis for commercial warm air 

furnaces. 78 FR 25627, 25632 (May 2, 2013). Carrier stated that DOE should use the 

procedures as developed by the ASHRAE 90.1 committee and PNNL for evaluating 

changes to ASHRAE Standard 90.1, because this procedure has defined buildings that 

can be used for these products. Carrier added that ASHRAE also has a standard work 

procedure for economic analysis that is similar to the LCC analysis but uses the Scalar 

Ratio as defined by the ASHRAE 90.1 committee with national average electric and gas 

rates. (Carrier, No. 2 at p. 5) 

DOE reviewed the approach suggested by Carrier. It did not use this approach 

because, for the reasons explained in section IV.E,IV.E, DOE is not estimating energy 

use using whole building simulation, as do the procedures as developed by the ASHRAE 

90.1 committee. Furthermore, DOE’s methodology allows a better evaluation of 

variability and uncertainty in key variables, such as electricequipment lifetime and 

Comment [A44]: Change recommended by 

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gasdiscount rates, that affect the LCC analysis. The method advocated by Carrier 

typically uses average values, which do not capture the range of equipment operation and 

user characteristics found in the field.

Inputs to the LCC and PBP analysis are categorized as: (1) inputs for establishing 

the purchase expense, otherwise known as the total installed cost, and (2) inputs for 

calculating the operating expense. These key inputs are discussed in further detail 

immediately below.

1. Inputs to Installed Cost

The primary inputs for establishing the total installed cost are the baseline 

commercial consumer equipment price, standard-level customer price increases, and 

installation costs. Baseline customer prices and standard-level customer price increases 

were determined by applying markups to manufacturer price estimates. The installation 

cost is added to the customer price to arrive at a total installed cost. 

DOE used the historic trend in the Producer Price Index (PPI) for "Warm air 

furnaces"39 to estimate the change in price for commercial warm air furnaces between the 

present and 2018. The PPI for "Warm air furnaces" shows a small rate of annual price 

decline. The price trend in this PPI series shows a small rate of annual price decline.

39 PCU333415333415C: Warm air furnaces including duct furnaces, humidifiers and electric comfort 

heating (Available at: http://www.bls.gov/ppi/).

Comment [A45]: Change recommended by 

OIRA.

Comment [A46]: Change recommended by 

OIRA.

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In the RFI, DOE sought input on its planned approach and the data sources it 

intended to use to develop installation costs. 78 FR 25627, 25633 (May 2, 2013). Carrier 

recommended that if RS Means Mechanical Cost Data are to be used to estimate installed 

cost, it should be based on unit rated cooling capacity for combined air conditioning and 

commercial furnace equipment. 

DOE developed installation costs for commercial warm air furnaces using the 

most recent RS Means Mechanical Cost Data.40 In estimating costs, DOE considered the 

heating and cooling capacity of the combined equipment.

Carrier stated that DOE must factor in additional cost for condensate drainage and 

treatment if the analysis includes furnaces at condensing efficiencies. (Carrier, No. 2 at 

p. 5) Goodman expects that application costs would be very significant for the 

application of condensing technologies, and, therefore, must be thoroughly and 

completely considered. (Goodman, No. 6 at p. 4)

DOE accounted for additional installation costs for condensate removal, which 

includes condensate drainage, freeze protection, and treatment for furnaces with 

condensing designs. ItOn average, the installation cost for condensate removal is $389 

for gas-fired CWAF and $180 for oil-fired CWAF. The details about the condensate 

removal costs are provided in appendix 8-D of DOE’s proposed rule TSD. DOE also 

40 RS Means, 2013 Mechanical Cost Data (Available at: 

http://rsmeans.reedconstructiondata.com/60023.aspx) (Last accessed April 10, 2013).

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Comment [A48]: Change recommended by 

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accounted for meeting the venting requirements for oil-fired commercial warm air 

furnaces, as well as for the small fraction of gas commercial warm air furnaces installed 

indoors.

2. Inputs to Operating Costs

The primary inputs for calculating the operating costs are equipment energy 

consumption, equipment efficiency, energy prices and forecasts, maintenance and repair 

costs, equipment lifetime, and discount rates.

a. Energy Consumption

The equipment energy consumption is the site energy use associated with 

providing space-heating to the building. DOE utilized the methodology described in 

section IV.E to establish equipment energy use. 

Lennox cautioned DOE that, as it develops estimates for the operating costs of 

these systems, DOE should keep in mind that the systems are being applied in a 

commercial application where the overwhelming majority of the time the system is 

operating in cooling – not heating – mode. Lennox gave the example that when the 

outside ambient temperature is 30°F, the system could be calling for cooling, based on 

the internal heat gains. (Lennox, No. 3 at p. 7) DOE’s analysis accounts for the range of 

CWAF operating conditions with respect to heating and cooling mode.

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b. Energy Prices

In the RFI, DOE sought comment on its approach for developing energy prices.

78 FR 25627, 25633 (May 2, 2013). Carrier stated that DOE’s tariff-based approach 

makes sense, and that the most recent price data available should be used. (Carrier, No. 2 

at p. 5)

For the NOPR, DOE determined gas, oil, and electricity prices based on recent or 

current tariffs from a representative sample of utilities, as well as historical State 

commercial energy price data from the Energy Information Administration (EIA). This 

approach calculates energy expenses based on actual energy prices that commercial 

consumers are paying in different geographical areas of the country. In addition to using 

tariffs, DOE used data provided in EIA’s Form 861 data41 to calculate commercial 

electricity prices, EIA’s Natural Gas Navigator42 to calculate commercial natural gas 

prices, and EIA’s State Energy Data System (SEDS)43 to calculate LPG and fuel oil 

prices. Future energy prices were projected using trends from the EIA’s 2013 Annual 

Energy Outlook (AEO 2013).44

41 Energy Information Administration (EIA), Survey form EIA-861 -- Annual Electric Power Industry 

Report (Available at: http://www.eia.gov/electricity/data/eia861/index.html) (Last accessed April 15, 

2013). 42 Energy Information Administration (EIA), Natural Gas Navigator (Available at:

http://tonto.eia.doe.gov/dnav/ng/ng_pri_sum_dcu_nus_m.htm) (Last accessed April 15, 2013). 43 Energy Information Administration (EIA), State Energy Data System (SEDS) (Available at:

http://www.eia.gov/state/seds/) (Last accessed April 15, 2013). 44 Energy Information Administration (EIA), 2013 Annual Energy Outlook (AEO) Full Version (Available 

at: http://www.eia.gov/forecasts/aeo/) (Last accessed April 15, 2013).

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c. Maintenance and Repair Costs

Maintenance costs are expenses associated with ensuring continued operation of 

the covered equipment over time. In the RFI, DOE sought input on the approach and 

data sources it intended to use to develop maintenance costs. 78 FR 25627, 25633 (May 

2, 2013). Carrier stated that RS Means might serve as a reasonable guide to assist in 

developing maintenance costs; however, assuming the issues associated with condensing 

furnace technology are overcome, it is reasonable to expect increased maintenance costs 

for these higher-efficiency furnaces. Carrier added that, based on experience with 

residential 80-percent versus 90-percent AFUE furnaces, it expects the maintenance costs 

for condensing furnace sections to be at least 2two to 3three times the maintenance costs 

for current non-condensing commercial warm air furnaces. (Carrier, No. 2 at p. 5)

DOE developed maintenance costs for its analysis using the most recent RS 

Means Facilities Maintenance & Repair Cost Data.45 DOE included increased 

maintenance costs for condensing equipment. For condensing gas-fired commercial 

warm air furnaces, DOE added labor and material costs to account for checking the 

condensate withdrawal system, including inspecting, cleaning, and flushing the 

condensate trap and drain tubes; inspecting the grounding and power connection of heat 

tape; checking condensate neutralizer; and checking condensate pump for corrosion and 

proper operation. For gas-fired CWAF, the annualized maintenance cost is $157 for 81-

and 82-percent TE units, and $169 for 92 percent TE units. For oil-fired CWAF, the 

45 RS Means, 2013 Facilities Maintenance & Repair Cost Data (Available at: 

http://rsmeans.reedconstructiondata.com/60303.aspx) (Last accessed April 10, 2013).

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annualized maintenance cost is $289 for 82-percent TE units, and $317 for 92 percent TE 

units.

For condensing oil-fired commercial warm air furnaces, DOE added additional 

maintenance for installations in non-low-sulfur regions to account for extra cleaning of 

the heat exchanger for condensing designs, as well as checking of the condensate 

withdrawal system. DOE also considered the cases when the equipment is covered by 

service and/or maintenance agreements.

Repair costs are expenses associated with repairing or replacing components of 

the covered equipment that have failed. In the RFI, DOE sought comment as to whether 

repair costs vary as a function of equipment efficiency. 78 FR 25627, 25633 (May 2, 

2013). Carrier stated that condensing furnace repair costs will be higher due to a number 

of factors including: (1) the presence of acidic condensate; (2) potential damage due to 

condensate expansion during freezing; (3) the presence of a secondary heat exchanger; 

and (4) the need to add a condensate pump for some applications. (Carrier, No. 2 at p. 6) 

Goodman stated that as a general rule, due to additional components and additional 

materials required to achieve higher efficiencies, as well as additional service time for 

analysis and actual repair time, repair costs will always be higher for higher-efficiency 

products. (Goodman, No. 6 at p. 4)

Comment [A49]: Change recommended by 

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DOE developed repair costs for its analysis using the most recent RS Means 

Facilities Maintenance & Repair Cost Data.46 It agrees with the comments and,

therefore, included additional repair costs for higher efficiency levels (i.e., condensing 

furnaces). For gas-fired CWAF, the annualized repair cost is $0.57 for 81- and 82-

percent TE units, and $1.31 for 92 percent TE units. For gas-fired CWAF, the annualized 

repair cost is $1.94 for 82-percent TE units, and $2.58 for 92 percent TE units.

See chapter 8 of the NOPR TSD for more details on maintenance and repair costs.

d. Other Inputs

Equipment lifetime is the age at which a unit of covered equipment is retired from 

service. The average equipment lifetime for commercial warm air furnaces is estimated 

by ASHRAE to be between 15 and 20 years.47

In the RFI, DOE requested any equipment lifetime data and sought comment on 

its approach of using a Weibull probability distribution to characterize equipment 

lifetime. 78 FR 25627, 25633 (May 2, 2013). Carrier stated that a 15 to 20 year life 

expectancy for commercial warm air furnaces is reasonable. (Carrier, No. 2 at p. 6) 

Lennox stated that the Weibull analysis is the preferred method when evaluating product 

or component life. (Lennox, No. 3 at p. 7)

46 RS Means, 2013 Mechanical Cost Data (Available at: 

http://rsmeans.reedconstructiondata.com/60023.aspx) (Last accessed April 10, 2013). 47 American Society of Heating, Refrigerating and Air-Conditioning Engineers, Inc. (ASHRAE), ASHRAE 

Handbook of HVAC Systems and Equipment (2008) p. 32.8.

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For gas-fired commercial warm air furnaces, DOE used the lifetime Weibull 

probability distribution developed in the NOPR analysis for small, large, and very large 

air-cooled commercial package air conditioning and heating equipment,48 which results 

in a 19-year average lifetime. For oil-fired commercial warm air furnaces, DOE used a 

lifetime Weibull probability distribution based on a method described in an article in 

HVAC&R Research,

49 which results in a 26-year average lifetime. DOE expects the 

lifetime of the equipment to not change due to any new energy efficiency standards.

The discount rate is the rate at which future expenditures are discounted to 

establish their present value. DOE did not receive comments on discount rates. It 

derived a distribution of discount rates by estimating the cost of capital of companies that 

purchase commercial warm air furnace equipment.

DOE measures LCC and PBP impacts of potential standard levels relative to a 

base case that reflects the likely distribution of efficiencies in the market in the absence 

of amended standards. In the RFI, DOE requested data on current efficiency market 

shares (of shipments) by equipment class, and also similar historic data. 78 FR 25627, 

25633 (May 2, 2013). Carrier stated that these data are not readily available for the 

industry as a whole. Carrier added that the vast majority of equipment should be in the 

48 Technical Support Document for Small, Large, and Very Large Commercial Package Air Conditioners 

and Heat Pumps Notice of Proposed Rulemaking (Available at: 

http://www1.eere.energy.gov/buildings/appliance_standards/rulemaking.aspx/ruleid/59). 49 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): pp. 28 (Available at: 

http://www.tandfonline.com/doi/abs/10.1080/10789669.2011.558166).

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80-percent to 82-percent efficiency range based on the standard in place since 1989.

(Carrier, No. 2 at p. 6)

Since shipment-weighted efficiency data are not available, DOE developed 

current market-share efficiency (i.e., the current distribution of equipment shipments by 

efficiency) for the CWAF equipment classes for 2013 based on the number of models at 

different efficiency levels from AHRI’s Certification Directory for Commercial 

Furnaces.50 These data show no market share for condensing CWAF.

In the RFI, DOE also requested information on expected trends in efficiency for 

commercial warm air furnaces over the next five years. 78 FR 25627, 25633 (May 2, 

2013). Carrier added that while there will be continuing pressure on cooling efficiency, it 

expects that the resultant efficiency trend will be flat for commercial warm air furnaces 

combined in air conditioning equipment. (Carrier, No. 2 at p. 6) Lennox stated that its 

weatherized commercial furnaces are at the 80-percent thermal efficiency level and 

would be expected to remain there for the foreseeable future, as there is little market 

demand for higher-efficiency furnaces in the commercial sector. (Lennox, No. 3 at p. 7)

DOE agrees with the comments with respect to non-condensing CWAF, and it assumed 

no change from the current distribution of equipment shipments by efficiency. For 

condensing gas-fired CWAF, however, DOE found that models are just now becoming 

available, so DOE estimated a market share of one percent by 2018.

50 AHRI, 2013 AHRI Certification Directory for Commercial Furnaces (Available at: 

http://www.ahridirectory.org/ahridirectory/pages/home.aspx) (Last accessed Oct. 15, 2013).

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A rebound effect occurs when a piece of equipment that is made more efficient is 

used more intensively, such that the expected energy savings from the efficiency 

improvement may not fully materialize. In the RFI, DOE sought comments and data on 

any rebound effect that may be associated with more-efficient commercial warm air 

furnaces. 78 FR 25627, 25633 (May 2, 2013). Carrier opined that any rebound effect 

associated with higher-efficiency commercial equipment would be negligible for 

commercial buildings. (Carrier, No. 2 at p. 7)

DOE found no evidence for a rebound effect associated with higher-efficiency 

commercial furnaces. HVAC operation adjustment in commercial buildings is not driven 

by the occupants but primarily by building managers or owners. In such cases, the 

comfort conditions are already established in order to satisfy the occupants, and they are 

unlikely to change due to replacement with higher-efficiency equipment. CWAF 

installed in residential buildings are mainly in situations similar to commercial buildings,

so DOE expects there would be negligible rebound effect.

G. Shipments Analysis

DOE uses projections of product shipments for CWAF to calculate equipment 

stock over the course of the analysis period, which in turn is used to determine the 

impacts of amended standards on national energy savings, net present value, and future 

manufacturer cash flows. DOE develops shipment projections based on historical data 

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and an analysis of key market drivers for each product. Historical shipments data are 

used to build up an equipment stock and also to calibrate the shipments model.

Historical shipments data for commercial warm air furnace equipment are very 

limited. DOE used 1994 shipments data from AHRI (previously GAMA) that were 

presented in a report from PNNL,51 and the historical shipments of non-heat pump 

commercial unitary air conditioners (CUAC),52 which are usually packaged together with 

CWAF. The ratio of the shipments of non-heat pump CUAC equipment and the 

shipments of gas-fired commercial warm air furnaces in 1994 was calculated.53 DOE 

believes that this ratio should be reasonably stable over time. Therefore, DOE 

determined the historical shipments of gas-fired CWAF by multiplying this ratio with the 

historical shipments of non-heat pump CUAC.

Shipments data for oil-fired CWAF is not publically available. DOE used the 

ratio of oil-fired versus gas-fired residential furnace shipments from AHRI54 and the 

historical shipments of gas-fired commercial furnaces to calculate the historical shipment 

of oil-fired commercial furnaces. DOE estimated that oil-fired CWAF account for about 

1 percent of total CWAF shipments.

51 Pacific Northwest National Laboratory (PNNL), Screening Analysis for EPACT-Covered Commercial 

HVAC and Water-Heating Equipment, April 2000. (Available at: 

http://www.pnl.gov/main/publications/external/technical_reports/PNNL-13232.pdf) (Last accessed April 

10, 2013).

52 Air-Conditioning and Refrigeration Institute, Commercial Unitary Air Conditioner and Heat Pump Unit 

Shipments for 1980-2001 (Jan. 2005) (Prepared for Lawrence Berkeley National Laboratory). 53 The fraction of non-heat pump CUAC equipment that is packaged with commercial furnaces is 80 

percent. 54 Air-Conditioning Heating and Refrigeration Institute, Furnaces Historical Data (1994-2013). 2015.

(Available at: http://www.ahrinet.org/site/497/Resources/Statistics/Historical-Data/Furnaces-HistoricalData). (Last accessed January 7, 2015).

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The CWAF shipments model considers two market segments: (1) new 

commercial buildings acquiring equipment; (2) existing buildings replacing old 

equipment.

For new commercial buildings, DOE estimated shipments using forecasts of 

commercial building and residential housing construction and estimates of the saturation 

of CWAF equipment in new buildings. DOE determined new commercial building and 

residential housing construction starts by using recorded data through 201255 and 

projections from AEO 2013. DOE developed data on the historic saturation of CWAF 

equipment in new buildings using CBECS 2003 and RECS 2009. To estimate future 

saturations in new commercial buildings, DOE used the average saturations in buildings 

built in 1990-2003 (from CBECS 2003 data) that use each type of CWAF equipment. To 

estimate future saturations in residential housing, DOE used the average saturations in 

homes built in 1990-2009 (from RECS 2009 data) that use each type of CWAF 

equipment. 

To estimate shipments to existing buildings replacing old equipment, DOE used a 

survival function to estimate the fraction of commercial warm air furnaces of a given age 

55 U.S. Department of Commerce-Bureau of the Census, New Privately Owned Housing Units Started: 

Annual Data 1959-2012 (2013) (Available at: http://www.census.gov/construction/mhs/mhsindex.html)

(Last accessed March 15, 2013). 

U.S. Department of Commerce-Bureau of the Census, Placements of New Manufactured Homes by Region 

and Size of Home: 1980 – 2011 (2013) (Available at: 

http://www.census.gov/construction/mhs/pdf/placnsa_all.pdf) (Last accessed March 15, 2013).

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still in operation. When a furnace fails, it is removed from the stock or, as explained 

below, is repaired for extended use. The survival function uses the lifetime values from 

the LCC analysis and has the form of a cumulative Weibull distribution. 

For cases with potential CWAF standards, DOE considered whether the increase 

in price would cause some commercial consumers to choose to repair rather than replace 

their commercial furnace equipment. To determine whether a commercial consumer 

would choose to repair rather than replace their commercial warm air furnace equipment, 

the shipments model uses a relative price elasticity to account for the combined effects of 

changes in purchase price and annual operating cost on the purchase versus repair 

decision. Appendix 9-A of the NOPR TSD describes the method. DOE assumed that the 

consumers who repair their equipment rather than replace it would extend the life of the 

product by 6 years. When the extended repaired units fail after the 6-year period, they 

will be replaced with new ones.

The details of the shipments analysis can be found in chapter 9 of the NOPR TSD.

H. National Impact Analysis

The purpose of the national impact analysis (NIA) is to estimate aggregate 

impacts of potential energy conservation standards from a national perspective, rather 

than from the consumer perspective represented by the LCC and PBP analysis. Impacts 

that DOE reports include the national energy savings (NES) from potential standards and 

the net present value (NPV) (future amounts discounted to the present) of the total 

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commercial consumer costs and savings that are expected to result from amended or new 

standards at specific efficiency levels. 

To make the analysis more accessible and transparent to all interested parties, 

DOE used a spreadsheet model to calculate the energy savings and the national 

commercial consumer costs and savings from each TSL.56 The NIA calculations are 

based on the annual energy consumption and total installed cost data from the energy use 

analysis and the LCC analysis. In the NIA, DOE forecasted the lifetime energy savings, 

energy cost savings, equipment costs, and NPV of commercial consumer benefits for 

each equipment class over the lifetime of equipment sold from 2018 through 2047. 

To develop the NES, DOE calculates annual energy consumption for the base 

case and the standards cases. DOE calculates the annual energy consumption using perunit annual energy use data multiplied by projected shipments. As explained in section 

IV.EIV.E, DOE did not incorporate a rebound effect for CWAF. 

To develop the national NPV of consumer benefits from potential energy 

conservation standards, DOE calculates annual energy expenditures and annual 

equipment expenditures for the base case and the standards cases. DOE calculates annual 

energy expenditures from annual energy consumption by incorporating forecasted energy 

prices, using shipment projections and average energy efficiency projections. The per56 DOE’s use of spreadsheet models provides interested parties with access to the models within a familiar 

context. In addition, the TSD and other documentation that DOE provides during the rulemaking help 

explain the models and how to use them, and interested parties can review DOE’s analyses by changing 

various input quantities within the spreadsheet.

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unit energy savings were derived as described in section IV.E. To calculate future 

electricity prices, DOE applied the projected trend in national-average commercial 

electricity price from the AEO 2013 Reference case (which extends to 2040) to the prices 

derived in the LCC and PBP analysis. DOE used the trend from 2030 to 2040 to 

extrapolate beyond 2040. DOE calculates annual equipment expenditures by multiplying 

the price per unit times the projected shipments.

DOE used the historic trend in the Producer Price Index (PPI) for "Warm air 

furnaces"57 to estimate the change in price for commercial warm air furnaces over the 

analysis period. The inflation-adjusted PPI for "Warm air furnaces" from 1989 to 2006 

shows a small rate of annual price decline. DOE also developed 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 aggregate difference each year between energy bill savings and increased 

equipment expenditures is the net savings or net costs. In calculating the NPV, DOE 

multiplies the net savings in future years by a discount factor to determine their present 

value. DOE estimates the NPV using both a 3-percent and a 7-percent real discount rate, 

in accordance with guidance provided by the Office of Management and Budget (OMB) 

to Federal agencies on the development of regulatory analysis.58 The discount rates for 

57 PCU333415333415C: Warm air furnaces including duct furnaces, humidifiers and electric comfort 

heating (Available at: http://www.bls.gov/ppi/). 58 OMB Circular A-4, section E (Sept. 17, 2003) (Available at: 

http://www.whitehouse.gov/omb/circulars_a004_a-4). 

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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.

A key component of the NIA is the equipment energy efficiency forecasted over 

time for the base case and for each of the standards cases. In the RFI, DOE requested 

information on expected trends in efficiency of commercial warm air furnaces over the 

long run. 78 FR 25627, 25634 (May 2, 2013). AHRI stated that since January 1, 1994, 

the efficiency trends for commercial warm air furnaces have stayed near a thermal 

efficiency of 80 percent. AHRI expects that the efficiency trends for these products will 

continue to remain flat over the long run. (AHRI, No. 7 at p. 6) DOE agrees with the 

comment, and it assumed no change in efficiency in the base case for non-condensing 

CWAF. For condensing gas-fired CWAF, however, it estimated that market interest in 

efficiency would lead to a modest growth in market share (from one percent in 2018 to 

five percent in 2047). In addition, for each standards case, DOE assumed no change in 

efficiency over time, given this long-term efficiency trend.

To estimate the impact that amended energy conservation standards may have in 

the year compliance becomes required, DOE uses "roll-up" or "shift" scenarios in its 

standards rulemakings. Under the "roll-up" scenario, DOE assumes equipment 

efficiencies in the base case that do not meet the new or amended standard level under 

consideration would "roll up" to meet that standard level, and equipment shipments at 

efficiencies above the standard level under consideration would not be affected. Under 

the "shift" scenario, DOE retains the pattern of the base-case efficiency distribution but 

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re-orients the distribution at and above the new or amended minimum energy 

conservation standard.

In the RFI, DOE requested comment on whether it should pursue a roll-up or shift 

approach for potential commercial warm air furnace standards in the NIA. 78 FR 25627, 

25634 (May 2, 2013). Lennox stated that given that virtually all commercial warm air 

furnaces are at or just above the current minimum efficiency requirement, the roll-up 

approach is the more appropriate choice. (Lennox, No. 3 at p. 8) DOE concurs with the 

comment, and it used the roll-up approach for the standards cases.

Based on the user samples in the LCC and PBP analysis, DOE estimated that a 

small fraction of commercial warm air furnaces (1-3 percent) is installed in residential 

buildings. The national energy savings in the standard cases includes the savings from 

both commercial and residential furnace users. 

DOE has historically 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” appointed by the National 

Academy of Sciences, 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 conservation 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 

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Federal Register in which DOE explained its determination that 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). The method used to derive the FFC measures is described 

in appendix 10-B of the NOPR TSD.

I. Consumer Subgroup Analysis 

In analyzing the potential impacts of new or amended standards on commercial 

consumers, DOE evaluates impacts on identifiable groups (i.e., subgroups) of consumers 

that may be disproportionately affected by a national standard. DOE believes that small 

businesses could be such a subgroup. Accordingly, for the NOPR, DOE evaluated 

impacts on a small business subgroup using the LCC and PBP spreadsheet model. To the 

extent possible, it utilized inputs appropriate for this subgroup. The commercial 

consumer subgroup analysis is discussed in detail in chapter 11 of the NOPR TSD.

J. Manufacturer Impact Analysis

1. Overview

DOE performed a manufacturer impact analysis (MIA) to estimate the financial 

impact of amended energy conservation standards on manufacturers of CWAF and to 

calculate the potential impact of such standards on employment and manufacturing 

capacity. The MIA has both quantitative and qualitative aspects. The quantitative part of 

the MIA primarily relies on the Government Regulatory Impact Model (GRIM), an 

industry cash-flow model with inputs specific to this rulemaking. The key GRIM inputs 

are data on the industry cost structure, equipment costs, shipments, and assumptions 

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about markups and conversion expenditures. The key output is the industry net present 

value (INPV). Different sets of assumptions (markup scenarios) will produce different 

results. The qualitative part of the MIA addresses factors such as equipment 

characteristics, impacts on particular subgroups of firms, and important industry, market, 

and equipment trends. The complete MIA is outlined in chapter 12 of the NOPR TSD.

DOE conducted the MIA for this rulemaking in three phases. In Phase 1 of the 

MIA, DOE prepared a profile of the CWAF industry that includes a top-down 

manufacturer cost analysis that DOE used to derive preliminary financial inputs for the 

GRIM (e.g., sales, general, and administration (SG&A) expenses; research and 

development (R&D) expenses; and tax rates). DOE used public sources of information, 

including company Securities and Exchange Commission (SEC) 10-K filings, corporate 

annual reports, the U.S. Census Bureau’s Economic Census,59 and Hoover’s reports.60

In Phase 2 of the MIA, DOE prepared an industry cash-flow analysis to quantify 

the potential impacts of an amended energy conservation standard. In general, new or 

more-stringent energy conservation standards can affect manufacturer cash flow in three 

distinct ways: (1) create a need for increased investment; (2) raise production costs per 

unit; and (3) alter revenue due to higher per-unit prices and possible changes in sales 

volumes. 

59 U.S. Census Bureau, Annual Survey of Manufacturers: General Statistics: Statistics for Industry Groups 

and Industries (Available at: 

http://factfinder2.census.gov/faces/nav/jsf/pages/searchresults.xhtml?refresh=t). 60 Hoovers Inc., Company Profiles, Various Companies (Available at: http://www.hoovers.com). Last 

Accessed December 13, 2013.

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In Phase 3 of the MIA, DOE conducted structured, detailed interviews with a 

representative cross-section of manufacturers. During these interviews, DOE discussed 

engineering, manufacturing, procurement, and financial topics to validate assumptions 

used in the GRIM and to identify key issues or concerns. See section IV.J.2.c for a 

description of the key issues manufacturers raised during the interviews.

Additionally, in Phase 3, DOE evaluated subgroups of manufacturers that may be 

disproportionately impacted by new standards or that may not be accurately represented 

by the average cost assumptions used to develop the industry cash-flow analysis. For 

example, small manufacturers, niche players, or manufacturers exhibiting a cost structure 

that largely differs from the industry average could be more negatively affected. DOE 

identified one subgroup (i.e., small manufacturers) for a separate impact analysis.

DOE applied the small business size standards published by the Small Business 

Administration (SBA) to determine whether a company is considered a small business.

65 FR 30836, 30848 (May 15, 2000), as amended at 65 FR 53533, 53544 (Sept. 5, 2000) 

and codified at 13 CFR part 121. To be categorized as a small business under North 

American Industry Classification System (NAICS) code 333415, “Air-Conditioning and 

Warm Air Heating Equipment and Commercial and Industrial Refrigeration Equipment 

Manufacturing,” a CWAF manufacturer and its affiliates may employ a maximum of 750 

employees. The 750-employee threshold includes all employees in a business’s parent 

company and any other subsidiaries. Based on this classification, DOE identified two

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manufacturers that qualify as small businesses under the SBA definition. The CWAF 

small manufacturer subgroup is discussed in chapter 12 of the NOPR TSD and in sections 

V.B.2.d and VI.B of this notice.

2. Government Regulatory Impact Model

DOE uses the GRIM to quantify the changes in cash flow due to new standards 

that result in a higher or lower industry value. The GRIM analysis uses a standard, 

annual, discounted cash-flow methodology that incorporates manufacturer costs, 

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 2014 (the base year of 

the analysis) and continuing to 2047. DOE calculated INPVs by summing the stream of 

annual discounted cash flows during this period. For CWAF manufacturers, DOE used a 

real discount rate of 8.9 percent, which was derived from industry financials and then

modified according to feedback received during manufacturer interviews. 

The GRIM calculates cash flows using standard accounting principles and compares

changes in INPV between a base case and each standards case. The difference in INPV 

between the base case and a standards case represents the financial impact of the 

amended energy conservation standard on manufacturers. As discussed previously, DOE 

collected this information on the critical GRIM inputs from a number of sources, 

including publicly-available data and interviews with a number of manufacturers 

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(described in the next section). The GRIM results are shown in section V.B.2. 

Additional details about the GRIM, the discount rate, and other financial parameters can 

be found in chapter 12 of the NOPR TSD.

a. Government Regulatory Impact Model Key Inputs

Manufacturer Production Costs

Manufacturing higher-efficiency equipment is typically more expensive than 

manufacturing baseline equipment due to the use of more complex components, which 

are typically more costly than baseline components. The changes in the manufacturer 

production cost (MPC) of the analyzed equipment can affect the revenues, gross margins, 

and cash flow of the industry, making these equipment cost data key GRIM inputs for 

DOE’s analysis.

In the MIA, DOE used the MPCs for each considered efficiency level calculated in 

the engineering analysis, as described in section IV.CIV.C and further detailed in chapter 

5 of the NOPR TSD. In addition, DOE used information from its teardown analysis, 

described in chapter 5 of the TSD, to disaggregate the MPCs into material, labor, and 

overhead costs. To calculate the MPCs for equipment above the baseline, DOE added the 

incremental material, labor, and overhead costs from the engineering cost-efficiency 

curves to the baseline MPCs. These cost breakdowns and equipment markups were 

validated and revised based on manufacturer comments received during MIA interviews.

Shipments Forecasts

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The GRIM estimates manufacturer revenues based on total unit shipment forecasts 

and the distribution of these values by equipment class and efficiency level. 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 forecasts derived 

from the shipments analysis from 2014 (the base year) to 2047 (the end year of the 

analysis period). The NIA shipments forecasts are, in part, based on a roll-up scenario.

The forecast assumes that product in the base case that does not meet the standard under 

consideration would “roll up” to meet the new standard beginning in the compliance year 

of 2018. See section IV.G. above and chapter 9 of the NOPR TSD for additional details.

b. Government Regulatory Impact Model Scenarios

Markup Scenarios

As discussed above, 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 non-production cost markups to the MPCs estimated in the engineering 

analysis for each equipment class and efficiency level. Modifying these markups in the 

standards case yields different sets of impacts on manufacturers. For the MIA, DOE 

modeled two standards-case markup scenarios to represent the 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 markup scenario; and (2) a preservation of per-unit operating profit 

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markup scenario. These scenarios lead to different markups values that, when applied to 

the inputted MPCs, result in varying revenue and cash flow impacts. 

Under the preservation of gross margin percentage scenario, DOE applied a single 

uniform “gross margin percentage” markup across all efficiency levels, which assumes 

that manufacturers would be able to maintain the same amount of profit as a percentage 

of revenues at all efficiency levels within an equipment class. As production costs 

increase with efficiency, this scenario implies that the absolute dollar markup will 

increase as well. Based on publicly-available financial information for manufacturers of 

CWAF as well as comments from manufacturer interviews, DOE assumed the average 

non-production cost markup—which includes SG&A expenses, R&D expenses, interest, 

and profit—to be the following for each CWAF equipment class: 

Table IV.8. Manufacturer Markup for Baseline Equipment in the Base Case

Equipment Markup

Gas-fired Commercial Warm Air Furnaces ≥ 

225,000 Btu/h

1.31

Oil-fired Commercial Warm Air Furnaces ≥ 

225,000 Btu/h

1.28

Because this markup scenario assumes that manufacturers would be able to 

maintain their gross margin percentage markups as production costs increase in response 

to an amended energy conservation standard, it represents a high bound to industry 

profitability.

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In the preservation of operating profit scenario, manufacturer markups are set so 

that operating profit one year after the compliance date of the amended energy 

conservation standard is the same as in the base case. Under this scenario, as the costs of 

production increase under a standards case, manufacturers are generally required to 

reduce their markups to a level that maintains base-case operating profit. The implicit 

assumption behind this markup scenario is that the industry can only maintain its 

operating profit in absolute dollars after compliance with the new or amended standard is 

required. Therefore, operating margin in percentage terms is reduced between the base 

case and standards case. DOE adjusted (i.e., lowered) the manufacturer markups in the 

GRIM at each TSL to yield approximately the same earnings before interest and taxes in 

the standards case as in the base case. This markup scenario represents a low bound to 

industry profitability under an amended energy conservation standard.

Table IV.9. Markups for Baseline Equipment at the Proposed Standard Levels

Equipment Markup

Gas-fired Commercial Warm Air Furnaces ≥ 

225,000 Btu/h

1.30

Oil-fired Commercial Warm Air Furnaces ≥ 

225,000 Btu/h

1.28

Conversion Cost Scenarios

An amended energy conservation standard would cause manufacturers to incur 

one-time conversion costs to bring their production facilities and equipment designs into 

compliance. DOE evaluated the level of conversion-related expenditures that would be 

needed to comply with each considered efficiency level in each equipment class. For the 

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MIA, DOE classified these conversion costs into two major groups: (1) product 

conversion costs; and (2) capital conversion costs. Product conversion costs are one-time 

investments in research, development, testing, marketing, and other non-capitalized costs 

necessary to make product designs comply with the amended energy conservation 

standard. Capital conversion costs are one-time investments in property, plant, and 

equipment necessary to adapt or change existing production facilities such that equipment 

with new, compliant designs can be fabricated and assembled. 

DOE based its estimates of the conversion costs for each efficiency level on 

information obtained from manufacturer interviews and the design pathways analyzed in 

the engineering analysis. Two methodologies were used to develop conversion cost 

estimates: (1) a Top-Down approach using feedback from manufacturer interviews to 

gather data on the level of costs expected at each efficiency level, and (2) a 

BottomsBottom-Up approach using engineering analysis inputs derived from the 

equipment teardown analysis and engineering model described in chapter 5 of the TSD to 

evaluate the investment required to design, manufacturer, and release equipment that 

meets a higher energy conservation standard. 

For estimating capital conversion costs, the Top-Down approach took available 

feedback from manufacturers and market share weighted the responses to arrive at an 

approximation representative of the industry as a whole. Responses from manufacturers 

with the greatest market share were given the greatest weight, while responses from 

manufacturers with the lowest market share were given the lowest weight. The 

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BottomsBottom-Up approach took capital conversion costs from the engineering analysis 

on a per-manufacturer basis to develop an industry-wide cost estimate. This analysis 

included the expected equipment, tooling, conveyor, and plant costs associated with 

CWAF production, as estimated by DOE based on product tear-down and manufacturers’

plant tours. The results of the two methodologies were integrated to create high and low 

capital conversion cost scenarios.

Product conversion costs for CWAFs are primarily driven by re-development and 

testing expenses. As the standard increases, increasing levels of re-development effort 

would be required to meet the efficiency requirements, as more equipment models would 

require redesign. Additionally, expected product conversion costs would ramp up 

significantly where DOE expects condensing technology to be necessary to meet a 

revised energy conservation standard.

To estimate costs for product R&D, the Top-Down approach developed average 

costs per product platform based on feedback from manufacturers. Manufacturer 

feedback focused on the human capital investments, such as engineering and lab 

technician time necessary to update designs. In the BottomsBottom-Up approach, DOE 

used vendor quotes, industry product information, and engineering cost model data to 

estimate the expenses associated with thermal efficiency testing, heat limit testing, 

product safety testing, reliability testing, and engineering effort. The results of the two 

methodologies were integrated to create high and low product conversion cost scenarios.

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In general, DOE assumes that all conversion-related investments occur between 

the year of publication of the final rule and the year by which manufacturers must comply 

with the amended standard. The conversion cost figures used in the GRIM can be found 

in section V.B.2.a of this notice. For additional information on the estimated product and 

capital conversion costs, see chapter 12 of the NOPR TSD.

DOE requests comment on the product and capital conversion costs required to meet 

the range of energy conservation standard levels being considered by DOE.

c. Manufacturer Interviews

DOE interviewed manufacturers representing over 80 percent of the domestic 

CWAF market by revenue in order to discuss the potential impacts of amended energy 

conservation standards on the industry. The information gathered during these interviews 

enabled DOE to tailor the GRIM to reflect the unique financial characteristics of the 

CWAF industry. In interviews, DOE asked manufacturers to describe their major 

concerns with the rulemaking involving CWAF equipment. This section (IV.J.2.c) 

highlights manufacturers’ interview statements that helped shaped DOE’s understanding 

of the potential impacts of an amended standard on the industry. Manufacturers raised a 

range of general issues to consider (but did not necessarily provide a specific 

recommendation), including condensate disposal concerns, increased operating risks for 

end-users, and a change in the repair rate of older units. Below, DOE summarizes these 

issues, which were informally raised in manufacturer interviews, in order to obtain public 

comment and related data.

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Condensate Disposal

The primary concern among the interview participants centered on condensate 

formation at efficiency levels above 81 to 82 percent. Six out of the sevenNearly all

interviewed CWAF manufacturers citedraised this issue as a serious problem for both the 

industry and customers in terms of cost and implementation. The major drawbacks 

mentioned relate to the management and disposal of acidic condensate created by highefficiency furnaces. In most commercial rooftop units, condensate would need to be 

removed in electrically-heated piping or channeled directly into the building to avoid 

freezing. Manufacturers argued that such infrastructure would be required for 

condensing furnaces to safely dispose of the acidic runoff in both cold and warm 

climates. Solutions for condensate management systems would be a separate and 

additional cost to the consumer beyond the cost of the higher-efficiency furnace.

Manufacturers stated that a simple, packaged solution for disposal of acidic condensate is 

not available and that the design of the condensate management system will be highly 

dependent on the design of the building, local building codes, waste water disposal 

requirements, and the expertise of the installer.

DOE agrees with manufacturers that the formation and disposal of corrosive 

condensate is a concern for CWAF achieving efficiencies greater than 82-percent. DOE 

considered this factor in its engineering analysis and when developing the installation 

costs for the LCC analysis. See sections IV.C and IV.F of this NOPR for more 

information about how DOE addressed these concerns.

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Increased Operating Risks for the End User 

Many interview participants expressed concerns about risk associated with 

installation and equipment for reliable management of caustic effluent from condensing 

CWAF. They believe there are risks in installation, as condensate management systems 

must often be installed around other rooftop equipment and contractor ability varies 

widely. They cited problems with power outages, which tend to happen during winter 

and can impair even well-designed effluent management systems. Manufacturers stated 

than any leak or failure of the condensate management system could result in costly 

roofing repairs for the end user. The interview participants were of the opinion that 

effluent management would be a significant expense for end-users and that the risk and 

cost of roof damage would outweigh any benefits of high-efficiency condensing units.

DOE acknowledges the potential issues that could be associated with an 

improperly installed condensing rooftop furnace, which could cause reliability issues for 

end-users of this equipment. DOE believes that the technical challenges of installing a

condensing rooftop furnace can be overcome, and this has been demonstrated by the 

dedicated outdoor air systems that are currently on the market, which are installed on 

rooftops and have reliable condensate management systems. Nevertheless, DOE believes 

significant installer training and education would be required to ensure reliable 

installation of outdoor furnaces using condensing technology. 

Repair and Replacement Rates

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During interviews, most manufacturers expressed concerns that an increase in 

energy conservation standards for CWAF may make customers more likely to repair an 

old unit rather than replace it. According to manufacturers, the main reason an amended 

standard may lead to a drop in shipments is the price sensitivity of end users.

Manufacturers added that some customers would need to make significant alterations to 

the layout of rooftop equipment in order to accommodate larger CWAF units and 

condensate management systems. The higher total installed cost of more-efficient 

CWAF units and the possible risk of damage to existing roofing could deter customers 

from purchasing new units. The lower cost of fixing an old unit may become a more 

attractive option. Furthermore, manufacturers indicated that there could be a reduction in 

national energy savings from a higher standard due to an increased number of older, lessefficient units that are repaired rather than replaced with newer, more-efficient units.

Manufacturers expressed concern over a potential contraction in the overall market size 

resulting from amended standards, because commercial consumers may decide to turn to 

other space-conditioning options entirely.

DOE agrees with manufacturers that for certain equipment, such as CWAF, the 

higher total installed cost of more-efficient equipment may lead end-users to delay 

purchasing new equipment and to repair rather than to replace this equipment. DOE 

accounts for this effect at higher efficiency levels in the shipments analysis by examining 

the cost of higher-efficiency equipment as compared to the operating savings, and this is 

discussed further in chapter 9 of the TSD (shipments analysis).

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K. Emissions Analysis

In the emissions analysis, DOE estimates the reduction in power sector emissions 

of carbon dioxide (CO2), nitrogen oxides (NOX), sulfur dioxide (SO2), and mercury (Hg) 

from potential energy conservation standards for CWAF. In addition, DOE estimates 

emissions impacts in production activities (extracting, processing, and transporting fuels) 

that provide the energy inputs to power plants. These are referred to as “upstream” 

emissions. Together, these emissions account for the full-fuel-cycle (FFC). In 

accordance with DOE’s FFC Statement of Policy (76 FR 51281 (Aug. 18, 2011)), the 

FFC analysis includes impacts on emissions of methane (CH4) and nitrous oxide (N2O), 

both of which are recognized as greenhouse gases.

Today’s proposed standards would reduce use of fuel at the site and slightly 

reduce electricity use, thereby reducing power sector emissions. However, the highest 

efficiency levels (i.e., the max-tech levels) considered for CWAF would increase the use 

of electricity by the furnace. For the considered TSLs, DOE estimated the change in 

power sector and upstream emissions of CO2, NOX, SO2, and mercury (Hg).61 

DOE primarily conducted the emissions analysis using emissions factors for CO2

and most of the other gases derived from data in EIA’s Annual Energy Outlook 2013

(AEO 2013). Combustion emissions of CH4 and N2O were estimated using emissions 

intensity factors published by the Environmental Protection Agency (EPA) through its

61 Note that in these cases the reduction in site emissions of CO2, NOX, and SO2 is larger than the increase 

in power sector emissions.

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GHG Emissions Factors Hub.62 Site emissions of CO2 and NOX were estimated using 

emissions intensity factors from an EPA publication.63 DOE developed separate 

emissions factors for power sector emissions and upstream emissions. The method that 

DOE used to derive emissions factors is described in chapter 13 of the NOPR TSD.

For CH4 and N2O, DOE calculated emissions reduction in tons and also in terms 

of units of carbon dioxide equivalent (CO2eq). Gases are converted to CO2eq by 

multiplying by the gas' global warming potential (GWP) over a 100-year time horizon.

Based on the Fourth Assessment Report of the Intergovernmental Panel on Climate 

Change,64 DOE used GWP values of 25 for CH4 and 298 for N2O.

EIA prepares the Annual Energy Outlook using the National Energy Modeling 

System (NEMS).NEMS. Each annual version of NEMS incorporates the projected 

impacts of existing air quality regulations on emissions. AEO 2013 generally represents 

current legislation and environmental regulations, including recent government actions, 

for which implementing regulations were available as of December 31, 2012.

62 See http://www.epa.gov/climateleadership/guidance/ghg-emissions.html. 63 U.S. Environmental Protection Agency, Compilation of Air Pollutant Emission Factors, AP-42, Fifth 

Edition, Volume I: Stationary Point and Area Sources (1998) (Available at: 

http://www.epa.gov/ttn/chief/ap42/index.html). 64 Forster, P., V. Ramaswamy, P. Artaxo, T. Berntsen, R. Betts, D.W. Fahey, J. Haywood, J. Lean, D.C. 

Lowe, G. Myhre, J. Nganga, R. Prinn,G. Raga, M. Schulz and R. Van Dorland. 2007: Changes in 

Atmospheric Constituents and in Radiative Forcing. In Climate Change 2007: The Physical Science Basis. 

Contribution of Working Group I to the Fourth Assessment Report of the Intergovernmental Panel on 

Climate Change. S. Solomon, D. Qin, M. Manning, Z. Chen, M. Marquis, K.B. Averyt, M.Tignor and H.L. 

Miller, Editors. 2007. Cambridge University Press, Cambridge, United Kingdom and New York, NY, 

USA. p. 212.

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Because the on-site operation of CWAF requires use of fossil fuels and results in 

emissions of CO2, NOX, and SO2 at the sites where these appliances are used, DOE also 

accounted for the reduction in these site emissions and the associated upstream emissions 

due to potential standards. 

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 (D.C.). SO2 emissions from 28 eastern States and D.C. were 

also limited under the Clean Air Interstate Rule (CAIR; 70 FR 25162 (May 12, 2005)), 

which created an allowance-based trading program that operates along with the Title IV 

program. CAIR was remanded to the U.S. Environmental Protection Agency (EPA) by 

the U.S. Court of Appeals for the District of Columbia Circuit, but it remained in effect.65

In 2011 EPA issued a replacement for CAIR, the Cross-State Air Pollution Rule 

(CSAPR). 76 FR 48208 (August 8, 2011). On August 21, 2012, the D.C. Circuit issued a 

decision to vacate CSAPR.66 The court ordered EPA to continue administering CAIR. 

The AEO 2013 emissions factors used for today’s NOPR , which are based on AEO 2013

assume that CAIR remains a binding regulation through 2040.67

65 See North Carolina v. EPA, 550 F.3d 1176 (D.C. Cir. 2008); North Carolina v. EPA, 531 F.3d 896 (D.C. 

Cir. 2008).

66 See EME Homer City Generation, LP v. EPA, 696 F.3d 7, 38 (D.C. Cir. 2012).

67 On April 29, 2014, the U.S. Supreme Court reversed the judgment of the D.C. Circuit and remanded the 

case for further proceedings consistent with the Supreme Court's opinion. The Supreme Court held in part 

that EPA's methodology for quantifying emissions that must be eliminated in certain states due to their 

impacts in other downwind states was based on a permissible, workable, and equitable interpretation of the 

Clean Air Act provision that provides statutory authority for CSAPR. See EPA v. EME Homer City 

Generation, No 12-1182, slip op. at 32 (U.S. April 29, 2014). Because DOE is using emissions factors 

based on AEO 2013 for today's NOPR, the analysis assumes that CAIR, not CSAPR, is the regulation in 

Comment [A54]: Change recommended by 

OIRA.

Comment [A55]: Footnote 67: Change 

recommended by OIRA.

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The attainment of emissions caps is typically flexible among EGUs and is 

enforced through the use of emissions allowances and tradable permits. Under existing 

EPA regulations, 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 any regulated EGU. In past rulemakings, 

DOE recognized that there was uncertainty about the effects of efficiency standards on 

SO2 emissions covered by the existing cap-and-trade system, but it concluded that 

negligible reductions in power sector SO2 emissions would occur as a result of standards.

Beginning in 2015, however, SO2 emissions will decline significantly as a result 

of the Mercury and Air Toxics Standards (MATS) for power plants. 77 FR 9304 (Feb. 

16, 2012). In the final MATS 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 will be reduced as a result of the control technologies installed on coal-fired 

power plants to comply with the MATS requirements for acid gas. AEO 2013 assumes 

that, in order to continue operating, coal plants must have either flue gas desulfurization 

or dry sorbent injection systems installed by 2015. Both technologies, which are used to 

reduce acid gas emissions, also reduce SO2 emissions. Under the MATS, NEMS shows a 

force. The difference between CAIR and CSAPR is not relevant for the purpose of DOE's analysis of SO2

emissions.

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reduction in SO2 emissions when electricity demand decreases (e.g., as a result of energy 

efficiency standards). Emissions will be far below the cap established by CAIR, so it is 

likely that excess SO2 emissions allowances resulting from the lower electricity demand 

would be needed or used to permit offsetting increases in SO2 emissions by any regulated 

EGU. Therefore, DOE believes that energy efficiency standards will reduce SO2

emissions in 2015 and beyond.

CAIR established a cap on NOX emissions in 28 eastern States and the District of 

Columbia. Energy conservation standards are expected to have little effect on NOx

emissions in those States covered by CAIR because excess NOx emissions allowances 

resulting from the lower electricity demand could be used to permit offsetting increases 

in NOx emissions. However, standards would be expected to reduce NOx emissions in the 

States not affected by the caps, so DOE estimated NOx emissions reductions from the 

standards considered in today’s NOPR for these States.

The MATS limit mercury emissions from power plants, but they do not include 

emissions caps and, as such, DOE’s energy conservation standards would likely reduce 

Hg emissions. DOE estimated mercury emissions reduction using emissions factors based 

on AEO 2013, which incorporates the MATS.

L. Monetizing Carbon Dioxide and Other Emissions Impacts

As part of the development of this proposed rule, DOE considered the estimated 

monetary benefits from the reduced emissions of CO2 and NOX that are expected to result 

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from each of the TSLs considered. In order to make this calculation similar to the 

calculation of the NPV of consumer benefit, DOE considered the reduced emissions 

expected to result over the lifetime of equipment shipped in the forecast period for each 

TSL. This section summarizes the basis for the monetary values used for each of these 

emissions and presents the values considered in this rulemaking.

For today’s NOPR, DOE is relying on a set of values for the social cost of carbon 

(SCC) that was developed by an interagency process. A summary of the basis for these 

values is provided below, and a more detailed description of the methodologies used is 

provided as an appendix to chapter 14 of the NOPR TSD.

1. Social Cost of Carbon 

The SCC is an estimate of the monetized damages associated with an incremental 

increase in carbon emissions in a given year. It is intended to include (but is not limited 

to) changes in net agricultural productivity, human health, property damages from 

increased flood risk, and the value of ecosystem services. Estimates of the SCC are 

provided in dollars per metric ton of carbon dioxide. A domestic SCC value is meant to 

reflect the value of damages in the United States resulting from a unit change in carbon 

dioxide emissions, while a global SCC value is meant to reflect the value of damages 

worldwide.

Under section 1(b)(6) of Executive Order 12866, “Regulatory Planning and 

Review,” 58 FR 51735 (Oct. 4, 1993), agencies must, to the extent permitted by law, 

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assess both the costs and the benefits of the intended regulation and, recognizing that 

some costs and benefits are difficult to quantify, propose or adopt a regulation only upon 

a reasoned determination that the benefits of the intended regulation justify its costs. The 

purpose of the SCC estimates presented here is to allow agencies to incorporate the 

monetized social benefits of reducing CO2 emissions into cost-benefit analyses of 

regulatory actions. The estimates are presented with an acknowledgement of the many 

uncertainties involved and with a clear understanding that they should be updated over 

time to reflect increasing knowledge of the science and economics of climate impacts.

As part of the interagency process that developed the SCC estimates, technical 

experts from numerous agencies met on a regular basis to consider public comments, 

explore the technical literature in relevant fields, and discuss key model inputs and 

assumptions. The main objective of this process was to develop a range of SCC values 

using a defensible set of input assumptions grounded in the existing scientific and 

economic literatures. In this way, key uncertainties and model differences transparently 

and consistently inform the range of SCC estimates used in the rulemaking process.

a. Monetizing Carbon Dioxide Emissions

When attempting to assess the incremental economic impacts of carbon dioxide 

emissions, the analyst faces a number of challenges. A recent report from the National 

Research Council points out that any assessment will suffer from uncertainty, 

speculation, and lack of information about: (1) future emissions of greenhouse gases; (2) 

the effects of past and future emissions on the climate system; (3) the impact of changes 

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in climate on the physical and biological environment; and (4) the translation of these 

environmental impacts into economic damages. As a result, any effort to quantify and 

monetize the harms associated with climate change will raise questions of science, 

economics, and ethics and should be viewed as provisional.

Despite the limits of both quantification and monetization, SCC estimates can be 

useful in estimating the social benefits of reducing carbon dioxide emissions. The agency 

can estimate the benefits from reduced emissions in any future year by multiplying the 

change in emissions in that year by the SCC value appropriate for that year. The net 

present value of the benefits can then be calculated by multiplying the future benefits by 

an appropriate discount factor and summing across all affected years. 

It is important to emphasize that the interagency process is committed to 

updating these estimates as the science and economic understanding of climate change 

and its impacts on society improves over time. In the meantime, the interagency group 

will continue to explore the issues raised by this analysis and consider public comments 

as part of the ongoing interagency process.

b. Development of Social Cost of Carbon Values

In 2009, an interagency process was initiated to offer a preliminary assessment of 

how best to quantify the benefits from reducing carbon dioxide emissions. To ensure 

consistency in how benefits are evaluated across agencies, the Administration sought to 

develop a transparent and defensible method, specifically designed for the rulemaking 

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process, to quantify avoided climate change damages from reduced CO2 emissions. The 

interagency group did not undertake any original analysis. Instead, it combined SCC 

estimates from the existing literature to use as interim values until a more comprehensive 

analysis could be conducted. The outcome of the preliminary assessment by the 

interagency group was a set of five interim values: global SCC estimates for 2007 (in 

2006$) of $55, $33, $19, $10, and $5 per metric ton of CO2. These interim values 

represented the first sustained interagency effort within the U.S. government to develop 

an SCC for use in regulatory analysis. The results of this preliminary effort were 

presented in several proposed and final rules.

c. Current Approach and Key Assumptions 

After the release of the interim values, the interagency group reconvened on a 

regular basis to generate improved SCC estimates. Specifically, the group considered 

public comments and further explored the technical literature in relevant fields. The 

interagency group relied on three integrated assessment models commonly used to 

estimate the SCC: the FUND, DICE, and PAGE models. These models are frequently 

cited in the peer-reviewed literature and were used in the last assessment of the 

Intergovernmental Panel on Climate Change. Each model was given equal weight in the 

SCC values that were developed. 

Each model takes a slightly different approach to model how changes in 

emissions result in changes in economic damages. A key objective of the interagency 

process was to enable a consistent exploration of the three models while respecting the 

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different approaches to quantifying damages taken by the key modelers in the field. An 

extensive review of the literature was conducted to select three sets of input parameters 

for these models: climate sensitivity, socio-economic and emissions trajectories, and 

discount rates. A probability distribution for climate sensitivity was specified as an input 

into all three models. In addition, the interagency group used a range of scenarios for the 

socio-economic parameters and a range of values for the discount rate. All other model 

features were left unchanged, relying on the model developers’ best estimates and 

judgments.

In 2010, the interagency group selected four sets of SCC values for use in 

regulatory analyses.68 Three sets of values are based on the average SCC from three 

integrated assessment models, at discount rates of 2.5 percent, 3 percent, and 5 percent.

The fourth set, which represents the 95th-percentile SCC estimate across all three models 

at a 3-percent discount rate, is included to represent higher-than-expected impacts from 

climate change further out in the tails of the SCC distribution. The values grow in real 

terms over time. Additionally, the interagency group determined that a range of values 

from 7 percent to 23 percent should be used to adjust the global SCC to calculate 

domestic effects, although preference is given to consideration of the global benefits of 

reducing CO2 emissions. Table IV.119 presents the values in the 2010 interagency group 

report,69 which is reproduced in appendix 14-A of the NOPR TSD.

68 Social Cost of Carbon for Regulatory Impact Analysis Under Executive Order 12866, Interagency 

Working Group on Social Cost of Carbon, United States Government (February 2010) (Available at: 

http://www.whitehouse.gov/sites/default/files/omb/inforeg/for-agencies/Social-Cost-of-Carbon-forRIA.pdf). 69 Id.

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Table IV.10. Annual SCC Values from 2010 Interagency Report, 2010–2050 (in 2007 

dollars per metric ton CO2)

Year

Discount Rate %

5 3 2.5 3

Average Average Average 95th Percentile

2010 4.7 21.4 35.1 64.9

2015 5.7 23.8 38.4 72.8

2020 6.8 26.3 41.7 80.7

2025 8.2 29.6 45.9 90.4

2030 9.7 32.8 50.0 100.0

2035 11.2 36.0 54.2 109.7

2040 12.7 39.2 58.4 119.3

2045 14.2 42.1 61.7 127.8

2050 15.7 44.9 65.0 136.2

The SCC values used for today’s notice were generated using the most recent 

versions of the three integrated assessment models that have been published in the peerreviewed literature.70 Table IV.1210 shows the updated sets of SCC estimates from the 

2013 interagency update in five-year increments from 2010 to 2050. Appendix 14-B of 

the NOPR TSD provides the full set of values. The central value that emerges is the 

average SCC across models at 3-percent discount rate. However, for purposes of 

capturing the uncertainties involved in regulatory impact analysis, the interagency group 

emphasizes the importance of including all four sets of SCC values.

70 Technical Update of the Social Cost of Carbon for Regulatory Impact Analysis Under Executive Order 

12866, Interagency Working Group on Social Cost of Carbon, United States Government (May 2013; 

revised November 2013) (Available at: 

http://www.whitehouse.gov/sites/default/files/omb/assets/inforeg/technical-update-social-cost-of-carbonfor-regulator-impact-analysis.pdf).

Formatted: Line spacing: Double, Tab stops:

0.5", Left + 0.78", Left + 1.17", Left +

1.56", Left + 1.94", Left + 2.33", Left +

2.72", Left + 3.11", Left + 3.5", Left +

3.89", Left + 4.28", Left + 4.67", Left

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Table IV.11. Annual SCC Values from 2013 Interagency Update, 2010–2050 (in 

2007 dollars per metric ton CO2)

Year

Discount Rate %

5 3 2.5 3

Average Average Average 95th Percentile

2010 11 32 51 89

2015 11 37 57 109

2020 12 43 64 128

2025 14 47 69 143

2030 16 52 75 159

2035 19 56 80 175

2040 21 61 86 191

2045 24 66 92 206

2050 26 71 97 220

It is important to recognize that a number of key uncertainties remain, and that 

current SCC estimates should be treated as provisional and revisable since they will 

evolve with improved scientific and economic understanding. The interagency group 

also recognizes that the existing models are imperfect and incomplete. The National 

Research Council report mentioned above points out that there is tension between the 

goal of producing quantified estimates of the economic damages from an incremental ton 

of carbon and the limits of existing efforts to model these effects. There are a number of 

analytical challenges that are being addressed by the research community, including 

research programs housed in many of the Federal agencies participating in the 

interagency process to estimate the SCC. The interagency group intends to periodically 

review and reconsider those estimates to reflect increasing knowledge of the science and 

economics of climate impacts, as well as improvements in modeling.

Formatted: Indent: First line: 0.5", Tab

stops: Not at 0.5" + 0.78" + 1.17" + 1.56"

+ 1.94" + 2.33" + 2.72" + 3.11" + 3.5" +

3.89" + 4.28" + 4.67"

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In summary, in considering the potential global benefits resulting from reduced 

CO2 emissions, DOE used the values from the 2013 interagency report, adjusted to 2013$ 

using the Gross Domestic Product price deflator. For each of the four SCC cases 

specified, the values used for emissions in 2015 were $12.0, $40.5, $62.4, and $119 per 

metric ton avoided (values expressed in 2013$). DOE derived valuesFor the years after 

2050 using, DOE applied the relevantaverage annual growth rates forrate of the SCC 

estimates in 2040-−2050 period in the interagency update. associated with each of the 

four sets of values.71

DOE multiplied the CO2 emissions reduction estimated for each year by the SCC 

value for that year in each of the four cases. 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 SCC values in each case.

2. Valuation of Other Emissions Reductions

As noted above, DOE has taken into account how amended energy conservation 

standards would reduce site NOX emissions nationwide and increase power sector NOX

emissions in those 22 States not affected by the CAIR. DOE estimated the monetized 

value of net NOX emissions reductions resulting from each of the TSLs considered for 

today’s NOPR based on estimates found in the relevant scientific literature. Estimates of 

monetary value for reducing NOX from stationary sources range from $476 to $4,893 per 

71 The post-2050 annual growth rates for the four SCC cases are 2.6%, 1.6%, 1.3%, and 1.5%.

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ton in 2013$.72 DOE calculated monetary benefits using a medium value for NOX

emissions of $2,684 per short ton (in 2013$), and NOX real discount rates of 3 percent 

and 7 percent. 

DOE is evaluating appropriate monetization of avoided SO2 and Hg emissions in 

energy conservation standards rulemakings. It has not included monetization in the 

current analysis.

M. Utility Impact Analysis 

The utility impact analysis estimates several effects on the powerelectricity

generation industry that would result from the adoption of new or amended energy 

conservation standards. In the utility impact analysis, DOE analyzes the changes in 

installed electricity capacity and generation that would result for each trial standard level.

The utility impact analysis uses a variant of NEMS,73 which is a public domain, multisectored, partial equilibrium model of the U.S. energy sector. DOE uses a variant of this 

model, referred to as NEMS-BT,74 to account for selected utility impacts of new or 

amended energy conservation standards. DOE’sused a variant of NEMS. The analysis 

consists of a comparison between model results for the most recent AEO Reference Case 

72 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, DC. 73 For more information on NEMS, refer to the U.S. Department of Energy, Energy Information 

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

2003, DOE/EIA-0581(2003) (March, 2003). 74 DOE/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 DOE/EIA assumptions, DOE refers to it by the 

name “NEMS-BT” (“BT” is DOE’s Building Technologies Program, under whose aegis this work has been 

performed). 

Comment [A57]: Change recommended by 

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and for cases in which energy use is decremented to reflect the impact of potential 

standards. The energy savings inputs associated with each TSL come from the NIA. 

Chapter 15 of the NOPR TSD describes the utility impact analysis in further detail.

N. Employment Impact Analysis

Employment impacts from new or amended energy conservation standards 

include direct and indirect impacts. Direct employment impacts are any changes in the 

number of employees of manufacturers of the equipment 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 equipment. Indirect employment impacts 

from standards consist of the jobs created or eliminated in the national economy, other 

than in the manufacturing sector being regulated, due to: (1) reduced spending by end 

users on energy; (2) reduced spending on new energy supply by the utility industry; (3) 

increased consumer spending on the purchase of new equipment; 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 

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generally create fewer jobs (both directly and indirectly) than expenditures in other 

sectors of the economy.75 There are many reasons for these differences, including wage 

differences and the fact that the utility sector is more capital-intensive and less laborintensive 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, based 

on the BLS data alone, DOE believes net national employment may increase because of 

shifts in economic activity resulting from amended standards for CWAF.

For the amended standard levels considered in today’s NOPR, DOE estimated 

indirect national employment impacts using an input/output model of the U.S. economy 

called Impact of Sector Energy Technologies, Version 3.1.1 (ImSET).76 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 energysaving technologies. The ImSET software includes a computer-based I–O model having 

structural coefficients that characterize economic flows among the 187 sectors. ImSET’s 

national economic I–O structure is based on a 2002 U.S. benchmark table, specially 

aggregated to the 187 sectors most relevant to industrial, commercial, and residential 

75 See Bureau of Economic Analysis, “Regional Multipliers: A Handbook for the Regional Input-Output 

Modeling System (RIMS II),” U.S. Department of Commerce (1992).

76 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 (2009) (Available at: 

www.pnl.gov/main/publications/external/technical_reports/PNNL-18412.pdf). 

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building energy use. DOE notes that ImSET is not a general equilibrium forecasting 

model, and understands the 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 overestimate actual job impacts over the long run. For the NOPR, DOE used ImSET only to 

estimate short-term (through 2023) employment impacts.

For more details on the employment impact analysis, see chapter 16 of the NOPR 

TSD.

V. Analytical Results and Conclusions

The following section addresses the results from DOE’s analyses with respect to 

potential amended energy conservation standards for CWAF in this rulemaking. It 

addresses the trial standard levels (TSLs) examined by DOE, the projected impacts of 

each of these levels if adopted as energy conservation standards for CWAF, and the 

proposed standard levels that DOE sets forth in today’s NOPR. Additional details 

regarding DOE’s analyses are contained in the TSD supporting this notice.

A. Trial Standard Levels

At the NOPR stage, DOE develops TSLs for consideration. TSLs are formed by 

grouping different efficiency levels, which are potential standard levels for each 

equipment class. DOE analyzed the benefits and burdens of the TSLs developed for 

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today’s proposed rule. Table V.1 presents the TSLs analyzed and the corresponding 

efficiency level for each CWAF equipment class. TSL 5 represents the max-tech 

efficiency levels, which use condensing technology. For non-condensing efficiency 

levels, DOE considered all gas-fired and oil-fired efficiency level combinations as part of 

the TSL structure.

Table V.1. Summary of Trial Standard Levels for Commercial Warm Air Furnaces

Equipment Class TSL 1 TSL 2 TSL 3 TSL 4 TSL 5

Thermal Efficiency (TE)

Gas-fired Furnaces 81% 81% 82% 82% 92%

Oil-fired Furnaces 81% 82% 81% 82% 92%

B. Economic Justification and Energy Savings

As discussed in section II.A, EPCA provides seven factors to be evaluated in 

determining whether a more-stringent standard for CWAF is economically justified. (42 

U.S.C. 6313(a)(6)(B)(ii)) The following sections generally discuss how DOE is 

addressing each of those factors in this rulemaking. 

1. Economic Impacts on Individual Commercial Consumers

DOE analyzed the economic impacts on CWAF consumers by looking at the 

effects standards would have on the LCC and PBP. DOE also examined the impacts of 

potential standards on commercial consumer subgroups. These analyses are discussed 

below.

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a. Life-Cycle Cost and Payback Period

To evaluate the net economic impact of potential amended energy conservation 

standards on commercial consumers of CWAF, DOE conducted LCC and PBP analyses 

for each TSL. In general, higher-efficiency equipment would affect customers in two 

ways: (1) annual operating expense would decrease, and (2) purchase price would 

increase. Inputs used for calculating the LCC and PBP include total installed costs (i.e., 

equipment price plus installation costs), operating costs (i.e., annual energy savings, 

energy prices, energy price trends, repair costs, and maintenance costs), equipment 

lifetime, and discount rates. 

The key outputs of the LCC analysis are a mean LCC savings (or cost) and a 

median PBP relative to the base case for each equipment class, as well as the percentage 

of consumers for which the LCC under an amended standard would decrease (net 

benefit), increase (net cost), or exhibit no change (no impact) relative to the base-case 

equipment forecast. No impacts occur when the base-case efficiency equals or exceeds 

the efficiency at a given TSL. 

DOE also performed a PBP analysis as part of the consumer impact analysis. The 

PBP is the number of years it would take for the consumer of this commercial 

consumerequipment to recover the increased costs of higher-efficiency equipment as a 

result of energy savings based on the operating cost savings. The PBP is an economic 

benefit-cost measure that uses benefits and costs without discounting. Chapter 8 of the 

NOPR TSD provides detailed information on the LCC and PBP analyses.

Comment [A58]: Change recommended by 

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Table V.2 and Table V.3Table V.3 show the key LCC and PBP results for each 

equipment class.

Table V.2. Summary Life-Cycle Cost and Payback Period Results for Gas-Fired 

Commercial Warm Air Furnaces

Trial 

Standard 

Level

Thermal 

Efficiency

Life-Cycle Cost 

2013$ Life-Cycle Cost Savings

Median 

Payback 

Period 

years

Total 

Installed 

Cost

Discounted 

Operating 

Cost

LCC

Average 

Savings 

2013$*

% of Customers that 

Experience Median

Net

Cost

No 

Impact

Net 

Benefit

1Baseline 8180% $2,27126

2 $26,343623 $28,613885

$186N

A 10% 33100% 660% 0.6NA

1, 2 81% $2,271 $26,343 $28,613 $186 1% 33% 66% 0.6

3, 4 82% $2,280 $26,069 $28,349 $426 2% 10% 88% 0.7

4 82% $2,280 $26,069 $28,349 $426 2% 10% 88% 0.7

5 92% $3,848 $23,898 $27,746 $1,025 48% 1% 51% 12.2

* Rounding may cause some items to not total 100 percent.

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Table V.3. Summary Life-Cycle Cost and Payback Period Results for Oil-fired 

Commercial Warm Air Furnaces

Trial 

Standard 

Level

Thermal 

Efficiency

Life-Cycle Cost 

2013$ Life-Cycle Cost Savings

Median 

Paybac

k Period 

years

Total 

Installed 

Cost

Discounted 

Operating 

Cost

LCC

Average 

Savings 

2013$*

% of Customers that 

Experience Median

Net

Cost

No 

Impact

Net 

Benefit

1Baseline

, 1, 3 81% $6,504 $67,313 $73,817 NA 0% 100% 0% NA

2, 4 82% $6,556 $73,310 $73,310 $164 8% 69% 23% 2.8

3 81% $6,504 $67,313 $73,817 NA 0% 100% 0% NA

4 82% $6,556 $73,310 $73,310 $164 8% 69% 23% 2.8

5 92% $8,008 $62,187 $70,195 $3,278 47% 0% 53% 7.5

* Rounding may cause some items to not total 100 percent.

b. Consumer Subgroup Analysis

In the consumer subgroup analysis, DOE estimated the impacts of the considered 

TSLs on small business consumers. The LCC savings and payback periods for small 

business consumers are shown in Table V.4.Table V.4. Chapter 11 of the NOPR TSD 

presents detailed results of the commercial consumer subgroup analysis.

Table V.4. Summary Consumer Subgroup (Small Business Consumers) Results for

Commercial Warm Air Furnaces

Trial Standard 

Level Gas-Fired Oil-Fired

Average LCC 

Savings* Median PBP Average LCC Savings* Median PBP

1 $158 0.6 NA NA

2 $158 0.6 $132 2.3

3 $365 0.7 NA NA

4 $365 0.7 $132 2.3

5 $708 12.6 $2,454 8.8

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* LCC savings are net savings (i.e., savings over the life time net of any costs incurred).

c. Rebuttable Presumption Payback

As discussed in section III.C.2III.C.2, EPCA establishes a rebuttable presumption 

that an energy conservation standard is economically justified if the increased purchase 

cost for equipment that meets the standard is less than three times the value of the firstyear energy savings resulting from the standard. DOE calculated a rebuttablepresumption PBP for each TSL to determine whether DOE could presume that a standard 

at that level is economically justified. 

DOE based the calculations on average usage profiles. As a result, DOE 

calculated a single rebuttable-presumption payback value, and not a distribution of PBPs,

for each TSL. Table V.5 shows the rebuttable-presumption PBPs for the considered 

TSLs. The rebuttable presumption is fulfilled in those cases where the PBP is three years 

or less. However, DOE routinely conducts an economic analysis that considers the full 

range of impacts to the customer, manufacturer, Nation, and environment, as required by 

EPCA. 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 three-year PBP analysis). Section V.C addresses how DOE considered the 

range of impacts to select today’s proposed standards.

Table V.5. Rebuttable-Presumption Payback Periods (years) for Commercial Warm 

Air Furnaces*

Trial Standard Level

Equipment Class 1 2 3 4 5

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Gas-fired 0.01802 0.01802 0.01902 0.01902 0.44544

Oil-fired - 0.14314 - 0.14314 0.63163

* The rebuttable PBP is based on DOE’s test procedure and uses single-point values, while the LCC 

analysis presented in Table V.2 and Table V.3 reflects energy use under actual field conditions and uses a 

distribution of values.

2. Economic Impacts on Manufacturers

As noted above, DOE performed an MIA to estimate the impact of amended 

energy conservation standards on manufacturers of CWAF. The following section 

describes the expected impacts on manufacturers at each considered TSL. Chapter 12 of 

the NOPR TSD explains the analysis in further detail.

a. Industry Cash-Flow Analysis Results

Table V.6. and Table V.7 depict the estimated financial impacts (represented by 

changes in INPV) of amended energy standards on manufacturers of CWAF, as well as 

the conversion costs that DOE expects manufacturers would incur for all equipment 

classes at each TSL. To evaluate the range of cash flow impacts on the CWAF industry 

associated with potential amended energy conservation standards, DOE modeled two 

different mark-up scenarios and two different conversion cost scenarios, as described in 

section IV.J.b (Government Regulatory Impact Model Scenarios).IV.J.b (Government 

Regulatory Impact Model Scenarios). The combination of markup scenarios and 

conversion costs scenarios results in 4 sets of results: (1) Preservation of Gross Margin 

Percentage and Low Conversion Costs scenario, (2) Preservation of Gross Margin 

Percentage and High Conversion Costs scenario, (3) Preservation of Operating Profit and 

Low Conversion Costs scenario, (4) Preservation of Operating Profit and High 

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Conversion Costs scenario. Each of the modeled scenarios results in a unique set of cash 

flows and corresponding industry values at each TSL. DOE presents the highest and 

lowest INPV results from the combined scenarios to portray the range of potential 

impacts on the industry. The low end of the range of impacts is the Preservation of Gross 

Margin Percentage and Low Conversion Costs scenario. The high end of the range of 

impacts is the Preservation of Operating Profit and High Conversion Costs scenario. 

In the following discussion, the INPV results refer to the difference in industry 

value between the base case and each standards case that results from the sum of 

discounted cash flows from the base year 2014 through 2047, the end of the analysis 

period. To provide perspective on the short-run cash flow impact, DOE includes in the 

discussion of the results below a comparison of free cash flow between the base case and 

the standards case at each TSL in the year before new standards would take effect. This 

figure provides an understanding of the magnitude of the required conversion costs 

relative to the cash flow generated by the industry in the base case.

The set of results below shows potential INPV impacts for CWAF manufacturers; 

Table V.6. reflects the lower bound of impacts, and Table V.7 represents the upper 

bound.

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Table V.6. Manufacturer Impact Analysis for CWAF - Preservation of Gross 

Margin Percentage / Low Conversion Cost Scenario Scenario*

Units Base 

Case

Trial Standard Level

1 2 3 4 5

INPV 2013$ M 74.67 67.9 67.5 64.0 63.5 89.4

Change in 

INPV

2013$ M - (6.7) (7.2) (10.7) (11.1) 14.8

% - -9% -10% -14% -15% -20%

Product 

Conversion 

Costs

2013$ M - 11.1 11.5 18.0 18.4 28.2 

Capital 

Conversion 

Costs

2013$ M - 0.6 0.9 1.2 1.5 61.3 

Total 

Conversion 

Costs

2013$ M - 11.7 12.4 19.2 19.9 89.4 

Free Cash 

Flow 2013$ M 6.3 2.4 2.2 (0.1) (0.3) (31.3)

Change in 

Free Cash 

Flow 

2013$ M - 3.9 4.1 6.4 6.7 37.6 

% Change - 61.4 65.6 101.4 105.5 596.0

* Parentheses indicate negative values.

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Table V.7. Manufacturer Impact Analysis for CWAF - Preservation of Operating 

Profit Scenario / High Conversion Costs Scenario: Changes Scenario*

Units Base 

Case

Trial Standard Level

1 2 3 4 5

INPV 2013$ M 74.67 64.2 60.1 36.7 31.4 (23.7)

Change in 

INPV

2013$ M - (10.5) (14.5) (38.0) (43.3) (98.3)

% - 14% 19% 51% 58% 132%

Product 

Conversion 

Costs

2013$ M - 11.3 17.2 48.8 54.7 81.0 

Capital 

Conversion 

Costs

2013$ M - 4.4 5.0 4.5 5.0 71.5 

Total 

Conversion 

Costs

2013$ M - 15.7 22.2 53.2 59.7 152.5 

Free Cash 

Flow 2013$ M 6.3 0.7 (1.5) (14.8) (17.7) (59.2)

Change in 

Free Cash 

Flow 

2013$ M - 5.7 7.8 21.1 24.0 65.5

% Change - 89.6 124.3 334.7 380.4 1038.6

* Parentheses indicate negative values.

As noted in section IV.J.a (Government Regulatory Impact Model Key 

InputsIV.J.a (Government Regulatory Impact Model Key Inputs), the MIA uses the 

Engineering Analysis’s manufacturer production costs and the Shipments Analysis’s

sales forecasts as inputs. Two key trends in these inputs help drive the MIA results. First, 

the increase in efficiency at TSLs below max-tech can be accomplished with very little 

incremental production cost. This is highlighted in Table IV.6.Table IV.6. At levels 

below TSL 5, gas-fired equipment MPCs increase by 4% at most and oil-fired MPC 

increase by 1% at most. Furthermore, at levels below TSL 5, total industry shipments 

over the analysis period remain the same across TSLs. Since DOE’s analysis indicates 

there are no significant changes to variable production costs and no significant changes in 

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total shipments below max-tech, manufacturer markups are also unlikely to vary 

significantly at those TSLs and have limited impact on the change in industry value 

between the base case and standards cases.

However, anticipated conversion costs provided by manufacturers in interviews 

were quite high relative to industry value. As a result, conversion costs would have a 

significant impact on industry value. In particular, product conversion costs and time 

requirements were a concern for the industry. Manufacturer input during interviews 

indicated higher product conversion costs than initially expected by DOE. As a result, the 

Department modeled a sensitivity related to conversion costs. DOE applied two different 

methodologies to estimate conversion costs. A Top-Down methodology relied on 

manufacturer feedback, AHRI listing data, and market share estimates. A 

BottomsBottom-Up methodology was also used to estimate industry conversion costs, 

under which DOE relied on test lab pricing quotes, industry product literature, and the 

engineering cost model data to estimate the expenses associated with thermal efficiency 

testing, heat limit testing, product safety testing, reliability testing, and engineering effort.

DOE assumed these items comprised the bulk of product conversion costs.

In its analysis, DOE ran 4 scenarios based on combinations from 2 markup 

scenarios and 2 conversion cost scenarios. The results presented below represent the 

upper-bound and lower-bound of results from those scenarios.

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TSL 1 represents EL 1 (81 percent) for gas-fired CWAF and baseline (81 percent) 

for oil-fired CWAF. At this level, DOE estimates 54% of the industry platforms would 

require redesign at a total industry conversion cost of $11.7 million to $15.7 million. 

DOE estimates impacts on INPV for CWAF manufacturers to range from a change in 

INPV of -14.0 percent to -9.0 percent, or $10.5 million to -$6.7 million. At this potential 

standard level, industry free cash flow is estimated to decrease by as much as 89.6 

percent to -$0.7 million, compared to the base-case value of $6.3 million in 2017, the 

year before the compliance date (2018).

TSL 2 represents EL 1 (81 percent for gas-fired and 82 percent for oil-fired) 

across all equipment classes. At this level, DOE estimates 60% of the industry platforms 

would require redesign at a total industry conversion cost of $12.4 million to $22.2 

million. DOE estimates impacts on INPV for CWAF manufacturers to range from a 

change in INPV of -19.5 percent to -9.6 percent, or a change of -$14.5 million to -$7.2 

million. At this potential standard level, industry free cash flow is estimated to decrease 

by as much as 124.3 percent to -$1.5 million, compared to the base-case value of $6.3 

million in the year before the compliance date (2018).

TSL 3 represents EL 2 (82 percent) for gas-fired CWAF and baseline (81 percent) 

for oil-fired CWAF. At this level, DOE estimates 77% of the industry platforms would 

require redesign at a total industry conversion cost of $19.2 million to $53.2 million 

DOE estimates impacts on INPV for CWAF manufacturers to range from a change in 

INPV of -50.8 percent to -14.3 percent, or-$38.0 million to -$10.7 million. At this 

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potential standard level, industry free cash flow is estimated to decrease by as much as 

334.7 percent to -$14.8 million, compared to the base-case value of $6.3 million in the 

year before the compliance date (2018).

TSL 4 represents EL 2 (82 percent) for gas-fired CWAF and EL 1 (82 percent) for 

oil-fired CWAF. At this level, DOE estimates 83% of the industry platforms would 

require redesign at a total industry conversion cost of $19.9 million to $59.7 million. 

DOE estimates impacts on INPV for CWAF manufacturers to range from a change in 

INPV of -58.0 percent to -14.9 percent, or-$43.3 million to -$11.1 million. At this 

potential standard level, industry free cash flow is estimated to decrease by as much as 

380.4 percent to -$17.7 million, compared to the base-case value of $6.3 million in the 

year before the compliance date (2018)

TSL 5 represents max-tech across all equipment classes (i.e., EL 3 (92 percent) 

for gas-fired CWAF and EL 2 (92 percent) for oil-fired CWAF). At this level, DOE 

estimates 92% of the industry platforms would require redesign at a total industry 

conversion cost of $89.4 million to $152.5 million. Conversion costs more than double 

from TSL 4 to TSL 5. The vast majority of the industry does not offer condensing 

commercial furnaces today and would need to develop condensing technology for 

commercial applications. Implementing a condensing commercial furnace would likely 

have design implication for the cooling side of the HVAC product and for the chassis that 

houses both the cooling and heating components. DOE estimates impacts on INPV for 

CWAF manufacturers to range from a change in INPV of -131.7 percent to 19.8 percent, 

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or -$98.3 million to $14.8 million. The loss of more than 100% of INPV reflects the fact 

that conversion expenses extend beyond the commercial furnace and affect commercial 

air conditioners and heat pumps, which tend to be the more expensive and complex 

component of commercial HVAC products. At this potential standard level, industry free 

cash flow is estimated to decrease by as much as 1,038.6 percent to -$59.2 million 

relative to the base-case value of $6.3 million in the year before the compliance date 

(2018).

b. Impacts on Direct Employment

To quantitatively assess the potential impacts of amended energy conservation 

standards on direct employment in the CWAF industry, DOE used the GRIM to estimate 

the domestic labor expenditures and number of employees in the base case and at each 

TSL from 2014 through 2047. DOE used statistical data from the U.S. Census Bureau’s 

2011 Annual Survey of Manufacturers (ASM),77 the results of the engineering analysis, 

and interviews with manufacturers to determine the inputs necessary to calculate 

industry-wide labor expenditures and domestic employment levels. Labor expenditures 

related to manufacturing of the product are a function of 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 MPCs 

by the labor percentage of MPCs. DOE estimates that 99 percent of CWAF units are 

produced domestically.

77 "Annual Survey of Manufactures (ASM)," U.S. Census Bureau (2011) (Available at: 

http://www.census.gov/manufacturing/asm/).

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The total labor expenditures in the GRIM were then converted to domestic 

production employment levels by dividing production labor expenditures by the annual 

payment per production worker (production worker hours times the labor rate found in 

the U.S. Census Bureau’s 2011 ASM). The estimates of production workers in this 

section cover workers, including line-supervisors who are directly involved in fabricating 

and assembling a product within the manufacturing facility. Workers performing services 

that are closely associated with production operations, such as materials handling tasks 

using forklifts, are also included as production labor. DOE’s estimates only account for 

production workers who manufacture the specific products covered by this rulemaking.

The total direct employment impacts calculated in the GRIM are the changes in the 

number of production workers resulting from the amended energy conservation standards 

for CWAF, as compared to the base case. In general, more-efficient equipment is larger, 

more complex, and more labor-intensive to build. Per unit labor requirements and 

production time requirements increase with a higher energy conservation standard. As a 

result, the total labor calculations described in this paragraph are considered an upper 

bound to direct employment forecasts.

Using the GRIM, DOE estimates that in the absence of amended energy 

conservation standards, there would be 235 domestic production workers for CWAF 

equipment. DOE estimates that 99 percent of CWAF units sold in the United States are 

manufactured domestically. The employment impact estimates in Table V.8 below show

a range of potential production employment levels that could exist following the 

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compliance date of amended energy conservation standards. These direct employment 

impacts shown are independent of the employment impacts to the broader U.S. economy, 

which are documented in the section IV.N (Employment Impact Analysis) and chapter 13 

of the NOPR TSD.

Table V.8. Range of Potential Changes in CWAF Production Workers in 2018

Trial Standard Level

1 2 3 4 5

Total Number of Domestic 

Production Workers in 2018 

(no production location change)

235

to

190

235

to

189

235

to

142

235

to

141

521

to 

136

Change from Base Case 

Estimate (of 235) of Domestic 

Production Workers in 2018 

0 

to

(45)

0 

to

(46)

0 

to

(93)

0 

to

(94)

286 

to

(99)

The upper bound of the range assumes that manufacturers would continue to 

produce the same scope of covered equipment within the United States, and assumes that 

domestic production would not shift to countries with lower labor costs. At TSL 1 

through 4, the upper bound shows no change in employment from the baseline due to a 

constant level of production labor expenditure. The major costs and changes for 

increasing product efficiency at lower levels would be for capital, not labor. On the other 

hand, the max-tech level at TSL 5 would require significant increases in both capital and 

labor expenditure due to increased complexity and size of condensing furnaces. 

The lower bound assumes that as the standard increases, manufacturers choose to 

retire sub-standard product lines rather than invest in manufacturing facility conversions

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and product redesigns. DOE assumes manufacturers take the lowest investment option 

and do not relocate any production facilities to lower-cost countries. In this scenario,

there is a loss of employment because manufacturers consolidate and operate fewer 

production lines. Since this is intended to be a worst-case scenario for employment, there 

is no consideration given to the fact that there may be employment growth in higherefficiency lines.

c. Impacts on Manufacturing Capacity

According to the certain CWAF manufacturers interviewed, amended energy 

conservation standards could lead to decreased production capacity. Most manufacturers 

indicated there would be little to no production capacity decrease at 81-percent and 82-

percent efficiency levels, but at 91-percent and 92-percent levels, there would be 

significant capacity shortfall. This feedback is consistent with the engineering analysis, 

which found there would be sufficient capacity at current levels to meet slightly higher 

efficiency standards, but that significant investment would be required to support 

production of higher-efficiency, condensing furnace standards. 

d. Impacts on Subgroups of Manufacturers

Small manufacturers, niche equipment manufacturers, and manufacturers 

exhibiting a cost structure substantially different from the industry average could be 

affected disproportionately. For CWAF, DOE identified and evaluated the impact of 

amended energy conservation standards on one subgroup: small manufacturers. The 

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Small Business Administration (SBA) defines a “small business” as having 750 

employees or less for NAICS 333415, “Air-Conditioning and Warm Air Heating 

Equipment and Commercial and Industrial Refrigeration Equipment Manufacturing.” 

Based on this definition, DOE identified 2 manufacturers in the CWAF industry that are 

small businesses.

As discussed in section IV.J, using average cost assumptions to develop an 

industry cash-flow estimate is inadequate to assess differential impacts among 

manufacturer subgroups. Therefore, for a more detailed discussion of DOE’s assessment 

of the impacts on the small manufacturer subgroup, see the regulatory flexibility analysis 

in section VI.B of this notice and chapter 12 of the NOPR TSD. 

DOE requests stakeholder input on the number of small business CWAF manufacturers 

and the potential for disproportionate impacts to those small manufacturers.

e. Cumulative Regulatory Burden

While any one regulation may not impose a significant burden on manufacturers, 

the combined effects of 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. Multiple regulations affecting the same 

manufacturer can strain profits and lead companies to abandon product lines or markets 

with lower expected future returns than competing products. For these reasons, DOE 

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conducts an analysis of cumulative regulatory burden as part of its rulemakings 

pertaining to appliance efficiency. 

For the cumulative regulatory burden analysis, DOE looks at other regulations 

that could affect CWAF manufacturers that will take effect approximately three years 

before or after the 2018 compliance date of amended energy conservation standards for 

these products. In interviews, manufacturers cited Federal regulations on equipment 

other than CWAF that contribute to their cumulative regulatory burden. The compliance 

years and expected industry conversion costs of relevant amended energy conservation 

standards are indicated in Table V.9 below. Field Code Changed

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Table V.9. Compliance Dates and Expected Conversion Expenses of Federal Energy 

Conservation Standards Affecting CWAF Manufacturers

Federal Energy Conservation Standards Approximate 

Compliance Date

Estimated Total 

Industry Conversion 

Expense

2007 Residential Furnaces & Boilers *

72 FR 65136 (Nov. 19, 2007) 2015 $88M 

(2006$)

2011 Residential Furnaces **

76 FR 37408 (June 27, 2011);

76 FR 67037 (Oct. 31, 2011)

2015 $2.5M 

(2009$)

2011 Residential Central Air Conditioners and 

Heat Pumps **

76 FR 37408 (June 27, 2011);

76 FR 67037 (Oct. 31, 2011)

2015 $ 26.0M 

(2009$)

2010 Gas Fired and Electric Storage Water 

Heaters

75 FR 20112 (April 16, 2010)

2015 $95.4M 

(2009$)

2014 Walk-in Coolers and Freezers 

79 FR 32049 (June 3, 2014) 2017 $35.2M

(2012$)

Commercial Packaged Air-Conditioning and 

Heating Equipment †

79 FR 58948 (September 30, 2014)

2018 $226.4M 

(2013$)

Commercial and Industrial Fans and Blowers † 2018 TBD

2014 Furnace Fans 

79 FR 37937 (July 3, 2014) 2019 $40.6M 

(2013$)

Packaged Terminal Air Conditioners and Heat 

Pumps†

79 FR 55538 (September 16, 2014).

2019 TBD$7.6M

(2013$)

Single Package Vertical Units †

79 FR 78614 (December 30, 2014) 2019 $16.1M

(2013$)

Residential Boilers † 2019 TBD

Commercial Boilers † 2019 TBD

Single Package Vertical Units † 2019 TBD

* Conversion expenses for manufacturers of oil-fired furnaces and for manufacturers of gas-fired and oilfired boilers associated with the November 2007 final rule for residential furnaces and boilers are excluded 

from this figure. With regard to oil-fired furancesfurnaces, the 2011 direct final rule for residential furnaces 

sets a higher standard and earlier compliance date for oil-fired furnaces than the 2007 final rule. As a result, 

manufacturers will be required design to the 2011 direct final rule standard. The conversion costs 

associated with the 2011 direct final rule are listed separately in this table. With regard to gas-fired and oilfired boilers, EISA 2007 legislated higher standards and earlier compliance dates for residential boilers than 

were in the November 2007 final rule. As a result, gas-fired and oil-fired boiler manufacturers were 

required to design to the EISA 2007 standard beginning in 2012. 

**Estimated industry conversion expense and approximate compliance date reflect a court-ordered May 1, 

2013 stay of the residential non-weatherized and mobile home gas furnaces standards set in the 2011 

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Comment [A68]: Change recommended by 

OIRA.

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Comment [A69]: Change recommended by 

OIRA.

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Energy Conservation Standards for Residential Furnaces and Residential Central Air Conditioners and Heat 

Pumps.

† The final rule for this energy conservation standard has not been published. For energy conservation 

standards which have published a NOPR, DOE lists the compliance date and conversion costs for the 

proposed standard level. However, standard level and analytic results are not finalized until the publication 

of the final rule. For energy conservation standards which have not yet reached the NOPR publication 

phase of the rulemaking, information is not yet available.

In addition to Federal energy conservation standards, DOE identified other 

Federal regulatory burdens that would affect manufacturers of CWAF:

EPA Phase-out of Hydrochlorofluorocarbons (HCFCs)

The U.S. is obligated under the Montreal Protocol to limit production and 

consumption of HCFCs through incremental reductions, culminating in a complete 

phase-out of HCFCs by 2030.78 On December 15, 2009, the U.S. Environmental 

Protection Agency (EPA) published a final rule commonly referred to as the “2010 

HCFC Allocation Rule,” which allocates production and consumption allowances for 

HCFC-22 for each year between 2010 and 2014. 74 FR 66412. On January 4, 2012, 

EPA published the “2012 HCFC Allocation Proposed Rule,” which proposes to lift the 

regulatory ban on the production and consumption of HCFC-22 (following a court 

decision79 in August 2010 to vacate a portion of the “2010 HCFC Allocation Rule”) by 

establishing company-by-company HCFC-22 baselines and allocating allowances for 

2012-2014. 77 FR 237.

78 "Montreal Protocol," United Nations Environment Programme, Web. 26 (August 2010) (Available at:

http://ozone.unep.org/new_site/en/montreal_protocol.php) (Last accessed 12/13/13). 79 See Arkema v. EPA, 618 F.3d 1 (D.C. Cir. 2010).

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HCFC-22, which is also known as R-22, is a popular refrigerant that is commonly 

used in air-conditioning products. Many manufacturers of CWAF also manufacture airconditioning products, and would be impacted by the HCFC phase-out. Manufacturers of 

CWAF that make air-conditioning equipment must comply with the allowances 

established by the allocation rule, thereby facing a cumulative regulatory burden.

DOE requests comment on the cumulative regulatory burden that may be imposed 

on industry by regulations that go into effect in the 3 years before and the 3 years after 

the proposed CWAF standards year of 2018. 

3. National Impact Analysis

a. Significance of Energy Savings

For each TSL, DOE projected energy savings for CWAF purchased in the 30-year 

period that begins in the year of anticipated compliance with amended standards (2018–

2047). The savings are measured over the entire lifetime of equipment purchased in the 

30-year period. DOE quantified the energy savings attributable to each TSL as the 

difference in energy consumption between each standards case and the base case. Table 

V.10 presents the estimated primary energy savings for each considered TSL, and Table 

V.11 presents the estimated FFC energy savings for each TSL. The approach for 

estimating national energy savings is further described in section IV.H.

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Table V.10. Cumulative National Primary Energy Savings for Commercial Warm 

Air Furnace Trial Standard Levels for Units Sold in 2018–2047*

Equipment Class

Trial Standard Level

1 2 3 4 5

quads

Gas-fired Furnaces 0.203 0.203 0.471 0.471 3.040

Oil-fired Furnaces 0.000 0.001 0.000 0.001 0.031

Total All Classes 0.203 0.204 0.471 0.472 3.071

* Note: Components may not sum due to rounding.

Table V.11. Cumulative National Full-Fuel-Cycle Energy Savings for Commercial 

Warm Air Furnace Trial Standard Levels for Units Sold in 2018–2047*

Equipment Class

Trial Standard Level

1 2 3 4 5

quads

Gas-fired Furnaces 0.222 0.222 0.516 0.516 3.338

Oil-fired Furnaces 0.000 0.001 0.000 0.001 0.036

Total All Classes 0.222 0.223 0.516 0.517 3.374

* Note: Components may not sum due to rounding.

Circular A-480 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 nine, rather than 30, years of equipment shipments. The choice 

of a nine-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 

80 OMB, Circular A-4: Regulatory Analysis (Sept. 17, 2003).

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standards.81 The review timeframe established in EPCA is generally not synchronized 

with the equipment lifetime, equipment manufacturing cycles, or other factors specific to 

CWAF. Thus, this information is presented for informational purposes only and is not 

indicative of any change in DOE’s analytical methodology. The NES results based on a 

nine-year analytical period are presented in Table V.12. The impacts are counted over 

the lifetime of CWAF purchased in 2018–2026.

Table V.12. Cumulative National Primary Energy Savings for Commercial Warm 

Air Furnace Trial Standard Levels for Units Sold in 2018–2026

Equipment Class

Trial Standard Level

1 2 3 4 5

quads

Gas-fired Furnaces 0.059 0.059 0.136 0.136 0.937

Oil-fired Furnaces 0.000 0.000 0.000 0.000 0.013

Total All Classes 0.059 0.059 0.136 0.137 0.950

b. Net Present Value of Commercial Consumer Costs and Benefits

DOE estimated the cumulative NPV of the total costs and savings for commercial 

consumers that would result from the TSLs considered for CWAF. In accordance with 

81 EPCA requires DOE to review its energy conservation 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. (42 U.S.C. 6313(a)(6)(C)(iv)) 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 consumer products, the compliance period is 5 years rather than 3 years.

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OMB’s guidelines on regulatory analysis,82 DOE calculated the NPV using both a 7-

percent and a 3-percent real discount rate. The 7-percent rate is an estimate of the 

average before-tax rate of return on private capital in the U.S. economy, and reflects the 

returns on real estate and small business capital as well as corporate capital. This 

discount rate approximates the opportunity cost of capital in the private sector (OMB 

analysis has found the average rate of return on capital to be near this rate). The 3-

percent rate reflects the potential effects of standards on private consumption (e.g.,

through higher prices for equipment and reduced purchases of energy). This rate 

represents the rate at which society discounts future consumption flows to their present 

value. It can be approximated by the real rate of return on long-term government debt 

(i.e., yield on United States Treasury notes), which has averaged about 3 percent for the 

past 30 years.

Table V.13 shows the commercial consumer NPV results for each TSL 

considered for CWAF. In each case, the impacts cover the lifetime of equipment 

purchased in 2018–2047. 

82 OMB Circular A-4, section E (Sept. 17, 2003) (Available at: 

http://www.whitehouse.gov/omb/circulars_a004_a-4). 

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Table V.13. Cumulative Net Present Value of Consumer Benefits for Commercial 

Warm Air Furnace Trial Standard Levels for Units Sold in 2018–2047

Discount 

Rate %

Trial Standard Level

Equipment Class 1 2 3 4 5

billion 2013$

Gas-fired Furnaces

3%

1.1391 1.1391 2.6432 2.6432 10.0083

Oil-fired Furnaces 0.0000 0.0157 0.0000 0.0157 0.3756

Total All Classes* 1.1391 1.1548 2.6432 2.6589 10.3839

Gas-fired Furnaces

7%

0.4361 0.4361 1.0111 1.0111 2.7799

Oil-fired Furnaces 0.0000 0.0057 0.0000 0.0057 0.1220

Total All Classes* 0.4361 0.4417 1.0111 1.0168 2.9019

* Note: Components may not sum due to rounding.

The NPV results based on the aforementioned nine-year analytical period are 

presented in Table V.14. The impacts are counted over the lifetime of equipment 

purchased in 2018–2026. As mentioned previously, this information is presented for 

informational purposes only and is not indicative of any change in DOE’s analytical 

methodology or decision criteria. 

Table V.14. Cumulative Net Present Value of Consumer Benefits for Commercial 

Warm Air Furnace Trial Standard Levels for Units Sold in 2018–2026

Discount 

Rate %

Trial Standard Level

Equipment Class 1 2 3 4 5

billion 2013$

Gas-fired Furnaces

3%

0.366 0.366 0.849 0.849 2.978

Oil-fired Furnaces 0.000 0.007 0.000 0.007 0.177

Total All Classes 0.366 0.373 0.849 0.856 3.156

Gas-fired Furnaces

7%

0.199 0.199 0.461 0.461 1.139

Oil-fired Furnaces 0.000 0.003 0.000 0.003 0.073

Total All Classes 0.199 0.202 0.461 0.464 1.212

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The above results reflect the use of the historic trend in the inflation-adjusted PPI 

for "Warm air furnaces" to estimate the change in price for CWAF over the analysis 

period (see section IV.H).IV.H). The trend shows a small rate of annual price decline.

DOE also developed sensitivity analyses using two price trends that have rates of price 

decline that are less than and greater than the Reference trend. . The results of these 

alternative cases are presented in appendix 10-C of the NOPR TSD.

c. Indirect Impacts on Employment

DOE expects that amended energy conservation standards for CWAF would 

reduce energy costs for equipment owners, with the resulting net savings being redirected 

to other forms of economic activity. Those shifts in spending and economic activity 

could affect the demand for labor. As described in section IV.NIV.N, DOE used an 

input/output model of the U.S. economy to estimate indirect employment impacts of the 

TSLs that DOE considered in this rulemaking. DOE understands that there are 

uncertainties involved in projecting employment impacts, especially changes in the later 

years of the analysis. Therefore, DOE generated results for near-term time frames 

(2018−2023), where these uncertainties are reduced. 

The results suggest that the proposed standards would be 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 NOPR TSD presents 

detailed results regarding indirect employment impacts.

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4. Impact on Utility or Performance of Equipment 

DOE has tentatively concluded that the amended standards it is proposing in 

today’s NOPR would not lessen the utility or performance of CWAF. 

5. Impact of Any Lessening of Competition

DOE considers any lessening of competition that is likely to result from new or 

amended standards. The Attorney General determines the impact, if any, of any 

lessening of competition likely to result from a proposed standard, and transmits such 

determination in writing to the Secretary, together with an analysis of the nature and 

extent of such impact. 

To assist the Attorney General in making such determination, DOE has provided 

DOJ with copies of this NOPR and the TSD for review. DOE will consider DOJ’s 

comments on the proposed rule in preparing the final rule, and DOE will publish and 

respond to DOJ’s comments in that document.

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. Energy savings from amended standards for the CWAF equipment 

classes covered in today’s NOPR could also produce environmental benefits in the form 

of reduced emissions of air pollutants and greenhouse gases associated with electricity 

production. Table V.15 provides DOE’s estimate of cumulative emissions reductions 

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projected to result from the TSLs considered in this rulemaking. This table includes both 

site and upstream emissions. DOE reports annual emissions reductions for each TSL in 

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Table V.15. Cumulative Emissions Reduction Estimated for Commercial Warm Air 

Furnace Trial Standard Levels 

Trial Standard Level

1 2 3 4 5

Site and Power Sector Emissions*

CO2 (million metric tons) 10.7 10.8 24.8 24.9 162.8

SO2 (thousand tons) 0.9 0.9 2.2 2.2 4.6

NOX (thousand tons) 9.2 9.3 21.3 21.4 141.9

Hg (tons) 0.001 0.001 0.003 0.003 0.005

CH4 (thousand tons) 0.3 0.3 0.6 0.6 3.7

N2O (thousand tons) 0.033 0.035 0.077 0.079 0.435

Upstream Emissions

CO2 (million metric tons) 1.3 1.3 3.0 3.0 19.8

SO2 (thousand tons) 0.0 0.0 0.0 0.0 0.2

NOX (thousand tons) 19.5 19.6 45.3 45.4 302.3

Hg (tons) 0.000 0.000 0.000 0.000 0.000

CH4 (thousand tons) 137.4 137.5 319.0 319.2 2107.1

N2O (thousand tons) 0.002 0.003 0.006 0.006 0.038

Total Emissions

CO2 (million metric tons) 12.0 12.1 27.8 27.9 182.5

SO2 (thousand tons) 0.9 1.0 2.2 2.2 4.8

NOX (thousand tons) 28.7 28.9 66.6 66.8 444.1

Hg (tons) 0.001 0.001 0.003 0.003 0.005

CH4 (thousand tons) 137.6 137.8 319.7 319.8 2110.8

N2O (thousand tons) 0.036 0.038 0.083 0.085 0.472

CH4 (million tons CO2eq)** 3.4 3.4 8.0 8.0 52.8

N2O (thousand tons 

CO2eq)** 10.6 11.2 24.7 25.2 140.7

* Primarily site emissions. Values include the increase in power sector emissions from higher 

electricity use at TSL 5.

** CO2eq is the quantity of CO2 that would have the same global warming potential (GWP).

As part of the analysis for this proposed rule, DOE estimated monetary benefits 

likely to result from the reduced emissions of CO2 and NOX that DOE estimated for each 

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of the TSLs considered for CWAF. As discussed in section IV.LIV.L, DOE used the 

most recent values for the SCC developed by an interagency process. The four sets of 

SCC values for CO2 emissions reductions in 2015 resulting from that process (expressed 

in 2013$) are represented by $12.0/metric ton (the average value from a distribution that 

uses a 5-percent discount rate), $40.5/metric ton (the average value from a distribution 

that uses a 3-percent discount rate), $62.4/metric ton (the average value from a 

distribution that uses a 2.5-percent discount rate), and $119/metric ton (the 95th-percentile 

value from a distribution that uses a 3-percent discount rate). The values for later years 

are higher due to increasing damages (emissions-related costs) as the projected 

magnitude of climate change increases. 

Table V.16 presents the global value of CO2 emissions reductions at each TSL. 

For each of the four cases, DOE calculated a present value of the stream of annual values 

using the same discount rate as was used in the studies upon which the dollar-per-ton 

values are based. DOE calculated domestic values as a range from 7 percent to 23 

percent of the global values, and these results are presented in chapter 14 of the NOPR 

TSD.

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Table V.16. Estimates of Global Present Value of CO2 Emissions Reduction Under 

Commercial Warm Air Furnace Trial Standard Levels

TSL

SCC Case*

5% discount 

rate, 

average

3% discount 

rate, average

2.5% discount 

rate, average

3% discount 

rate, 95th

percentile

million 2013$

Site and Power Sector Emissions**

1 67.3 323 517 1,000

2 67.7 325 520 1,007

3 156 750 1,200 2,322

4 157 752 1,204 2,329

5 1,032 4,932 7,890 15,271

Upstream Emissions

1 7.99 38.4 61.4 119

2 8.06 38.7 62.0 120

3 18.6 89.1 143 276

4 18.6 89.4 143 277

5 125 598 957 1,852

Total Emissions

1 75.2 361 578 1,119

2 75.8 364 582 1,127

3 175 839 1,343 2,598

4 175 841 1,347 2,606

5 1,157 5,530 8,847 17,123

* For each of the four cases, the corresponding SCC value for emissions in 2015 is $12.0, $40.5, $62.4, and 

$119 per metric ton (2013$).

** Includes the increase in power sector emissions from higher electricity use at TSL 5.

DOE is well aware that scientific and economic knowledge about the contribution 

of CO2 and other greenhouse gas (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 reducing CO2 emissions in this rulemaking is subject 

to change. DOE, together with other Federal agencies, will continue to review various 

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methodologies for estimating the monetary value of reductions in CO2 and other GHG 

emissions. This ongoing review will consider the comments on this subject that are part 

of the public record for this and other rulemakings, as well as other methodological 

assumptions and issues. However, consistent with DOE’s legal obligations, and taking 

into account the uncertainty involved with this particular issue, DOE has included in this 

proposed rule the most recent values and analyses resulting from the interagency process.

DOE also estimated the cumulative monetary value of the economic benefits 

associated with NOX emissions reductions anticipated to result from amended standards 

for the CWAF equipment that is the subject of this notice. The dollar-per-ton values that 

DOE used are discussed in section IV.L.IV.L. Table V.17 presents the cumulative present 

values for NOX emissions reductions for each TSL calculated using the average dollarper-ton values and seven-percent and three-percent discount rates.

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Table V.17. Estimates of Present Value of NOX Emissions Reduction Under 

Commercial Warm Air Furnace Trial Standard Levels

TSL 3% Discount Rate 7% Discount Rate

million 2013$

Site and Power Sector Emissions*

1 11.3 4.72

2 11.4 4.76

3 26.2 11.0

4 26.3 11.0

5 176 74.9

Upstream Emissions

1 23.9 9.98

2 24.1 10.0

3 55.5 23.2

4 55.7 23.2

5 375 159

Total Emissions

1 35.2 14.7

2 35.4 14.8

3 81.7 34.1

4 82.0 34.2

5 551 234

* Includes the increase in power sector emissions from higher electricity use at TSL 5.

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. 6313(a)(6)(B)(ii)(VII)) No other factors were considered in this analysis.

8. Summary of Other National Economic Impacts

The NPV of the monetized benefits associated with emissions reductions can be 

viewed as a complement to the NPV of the commercial consumer savings calculated for 

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each TSL considered in this rulemaking. Table V.18. presents the NPV values that result 

from adding the estimates of the potential economic benefits resulting from reduced CO2

and NOX emissions in each of four valuation scenarios to the NPV of commercial 

consumer savings calculated for each TSL considered in this rulemaking, at both a sevenpercent and three-percent discount rate. The CO2 values used in the columns of each 

table correspond to the four sets of SCC values discussed above.

Table V.18. CWAF TSLs: Net Present Value of Consumer Savings Combined with 

Present Value of Monetized Benefits from CO2 and NOX Emissions Reductions 

TSL

Consumer NPV at 3% Discount Rate added with:

SCC Case 

$12.0/metric ton 

CO2

* and 

Medium Value 

for NOX

SCC Case 

$40.5/metric ton 

CO2

* and 

Medium Value 

for NOX

SCC Case 

$62.4/metric ton 

CO2

* and 

Medium Value 

for NOX

SCC Case 

$119/metric ton 

CO2

* and Medium 

Value for NOX

Billion 2013$

1 1.2 1.5 1.8 2.3

2 1.3 1.6 1.8 2.3

3 2.9 3.6 4.1 5.3

4 2.9 3.6 4.1 5.3

5 12.1 16.5 19.8 28.1

TSL

Consumer NPV at 7% Discount Rate added with:

SCC Case 

$12.0/metric ton 

CO2

*

SCC Case 

$40.5/metric ton 

CO2

*

SCC Case 

$62.4/metric ton 

CO2

*

SCC Case 

$119/metric ton 

CO2

*

Billion 2013$

1 0.5 0.8 1.0 1.5

2 0.5 0.8 1.0 1.6

3 1.2 1.9 2.4 3.6

4 1.2 1.9 2.4 3.7

5 4.3 8.7 12.0 20.3

* These label values represent the global SCC in 2015, in 2013$. For NOX emissions, each case uses the 

medium value, which corresponds to $2,684 per ton.

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Although adding the value of consumer savings to the values of emission 

reductions provides a valuable perspective, two issues should be considered. First, the 

national operating cost savings are domestic U.S. consumer monetary savings that occur 

as a result of market transactions, while the value of CO2 reductions is based on a global 

value. Second, the assessments of operating cost savings and the SCC are performed 

with different methods that use different time frames for analysis. The national operating 

cost savings is measured for the lifetime of equipment shipped in 2018–2047. The SCC 

values, on the other hand, reflect the present value of future climate-related impacts 

resulting from the emission of one metric ton of CO2 in each year. These impacts 

continue well beyond 2100.

C. Proposed Standards

To adopt national standards more stringent than the current standards for CWAF, 

DOE must determine that such action would result in significant additional conservation 

of energy and is technologically feasible and economically justified. (42 U.S.C. 

6313(a)(6)(A)(ii)) As discussed previously, EPCA provides seven factors to be evaluated 

in determining whether a more-stringent standard for CWAF is economically justified.

(42 U.S.C. 6313(a)(6)(B)(ii)(I)-(VII)) 

For today’s NOPR, DOE considered the impacts of amended standards for CWAF 

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 

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evaluation until it reached the highest efficiency level that is both technologically feasible 

and economically justified and saves a significant additional amount of energy. 

To aid the reader in understanding the benefits and/or burdens of each TSL, tables 

in this section summarize the quantitative analytical results for each TSL, based on the 

assumptions and methodology discussed herein. The efficiency levels contained in each 

TSL are described in section V.A.V.A. 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 subgroups of consumer who may be 

disproportionately affected by a national standard (see section V.B.1.b), and impacts on 

employment. DOE discusses the impacts on direct employment in CWAF manufacturing 

in section V.B.2.bV.B.2.b, and discusses the indirect employment impacts in section 

V.B.3.c.

1. Benefits and Burdens of Trial Standard Levels Considered for CWAF

Table V.19 and Table V.20 summarize the quantitative impacts estimated for each 

TSL for CWAF. The national impacts are measured over the lifetime of CWAF 

purchased in the 30-year period that begins in the year of compliance with amended 

standards (2018-2047). The energy savings, emissions reductions, and value of 

emissions reductions refer to full-fuel-cycle results.

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Table V.19. Summary of Analytical Results for Commercial Warm Air Furnaces: 

National Impacts

Category TSL 1 TSL 2 TSL 3 TSL 4 TSL 5

National FFC Energy Savings (quads)

0.22 0.22 0.52 0.52 3.37

NPV of Consumer Benefits (2013$ billion)

3% discount rate 1.1 1.2 2.6 2.7 10.4

7% discount rate 0.4 0.4 1.0 1.0 2.9

Cumulative Emissions Reduction (Total FFC Emissions)*

CO2 (million metric tons) 12.0 12.1 27.8 27.9 182.5

SO2 (thousand tons) 0.9 1.0 2.2 2.2 4.8

NOX (thousand tons) 28.7 28.9 66.6 66.8 444.1

Hg (tons) 0.001 0.001 0.003 0.003 0.005

CH4 (thousand tons) 137.6 137.8 319.7 319.8 2110.8

N2O (thousand tons) 0.04 0.04 0.08 0.08 0.47

CH4 (million tons CO2eq**) 3.4 3.4 8.0 8.0 52.8

N2O (thousand tons CO2eq**) 10.6 11.2 24.7 25.2 140.7

Value of Emissions Reduction (Total FFC Emissions)

CO2 (2013$ billion)† 0.1 to 1.1 0.1 to 1.1 0.2 to 2.6 0.2 to 2.6 1.2 to 17.1

NOX – 3% discount rate 

(2013$ million) 35.2 35.4 81.7 82.0 550.9

NOX – 7% discount rate 

(2013$ million) 14.7 14.8 34.1 34.2 234.3

* Includes the increase in power sector emissions from higher electricity use at TSL 5.

** CO2eq is the quantity of CO2 that would have the same global warming potential (GWP).

† Range of the economic value of CO2 reductions is based on estimates of the global benefit of reduced 

CO2 emissions.

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Table V.20. Summary of Analytical Results for Commercial Warm Air Furnaces: 

Manufacturer and Consumer Impacts*

Category TSL 1 TSL 2 TSL 3 TSL 4 TSL 5

Manufacturer Impacts

Industry NPV 

(2013$ million)

64.2 

to 

67.9 

60.1

to 

67.5 

36.7

to 

64.0 

31.4 

to 

63.5 

(23.7) 

to 

89.4 

Change in Industry NPV 

(%)†

(14.0) 

to 

(9.0)

(19.5) 

to 

(9.6)

(50.8) 

to 

(14.3)

(58.0) 

to 

(14.9)

(131.7)

to 

19.8††

Commercial Consumer Mean LCC Savings (2013$)

Gas-fired Furnaces $186 $186 $426 $426 $1,025

Oil-fired Furnaces NA $164 NA $164 $3,278

Commercial Consumer Median PBP (years)

Gas-fired Furnaces 0.6 0.6 0.7 0.7 12.2

Oil-fired Furnaces NA 2.8 NA 2.8 7.5

Distribution of Commercial Consumer LCC Impacts

Gas-fired Furnaces**

Customers with Net Cost (%) 1% 1% 2% 2% 48%

Customers with Net Benefit (%) 66% 66% 88% 88% 51%

Customers with No Impact (%) 33% 33% 10% 10% 1%

Oil-fired Furnaces**

Customers with Net Cost (%) 0% 8% 0% 8% 47%

Customers with Net Benefit (%) 0% 23% 0% 23% 53%

Customers with No Impact (%) 100% 69% 100% 69% 0%

* Weighted by shares of each equipment class in total projected shipments in 2018.

** Rounding may cause some items to not total 100 percent.

† Parentheses indicate negative values.

†† At max tech, the standard will likely require commercial furnace manufacturers to make design changes 

to the cooling components of commercial HVAC products and to the chassis that houses the heating and 

cooling components. Since these cooling system changes are triggered by the CWAF standard, they are 

taken into account in the MIA’s estimate of conversion costs. The additional expense of updating the 

commercial cooling product contributes to an INPV loss that is greater than 100%.

First, DOE considered TSL 5, the most efficient level (max-tech), which would 

save an estimated total of 3.37 quads of energy, an amount DOE considers significant. 

TSL 5 has an estimated NPV of commercial consumer benefit of $2.9 billion using a 7-

percent discount rate, and $10.4 billion using a 3-percent discount rate. 

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The cumulative emissions reductions at TSL 5 are 182.5 million metric tons of 

CO2, 444.12 thousand tons of NOX, 4.80 thousand tons of SO2, and 0.005 tons of Hg. The 

estimated monetary value of the CO2 emissions reductions at TSL 5 ranges from $1.2

billion to $17.1 billion.

At TSL 5, the average LCC savings are $1025.2 for gas-fired CWAF and $3278.3 

for oil-fired CWAF. The median PBP is 12.2 years for gas-fired CWAF and 7.5 years for 

oil-fired CWAF. The share of commercial consumers experiencing a net LCC benefit is 

51 percent for gas-fired CWAF and 53 percent for oil-fired CWAF. 

At TSL 5, the projected change in INPV ranges from a decrease of $98.3 million 

to an increase of $14.8 million, depending on the manufacturer markup scenario. If the 

larger decrease is realized, TSL 5 could result in a net loss of 131.7 percent in INPV to 

manufacturers of covered CWAF.

Accordingly, the Secretary tentatively concludes that, at TSL 5 for CWAF, the 

benefits of energy savings, positive NPV of total commercial consumer benefits, 

commercial consumer LCC savings, emission reductions, and the estimated monetary 

value of the emissions reductions would be outweighed by the very large reduction in 

industry value at TSL 5, as well as the potential for loss of domestic manufacturing.

Consequently, DOE has concluded that TSL 5 is not economically justified. 

Comment [A70]: Change recommended by 

OIRA.

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Next, DOE considered TSL 4, which would save an estimated total of 0.52 quads 

of energy, an amount DOE considers significant. TSL 4 has an estimated NPV of 

commercial consumer benefit of $1.0 billion using a 7-percent discount rate, and $2.7 

billion using a 3-percent discount rate. 

The cumulative emissions reductions at TSL 54 are 27.9 million metric tons of 

CO2, 66.84 thousand tons of NOX, 2.21 thousand tons of SO2, and 0.003 tons of Hg. The 

estimated monetary value of the CO2 emissions reductions at TSL 4 ranges from $0.2 

billion to $2.6 billion.

At TSL 4, the average LCC savings are $425.9 for gas-fired CWAF and $163.9 

for oil-fired CWAF. The median PBP is 0.7 years for gas-fired CWAF and 2.8 years for 

oil-fired CWAF. The share of commercial consumers experiencing a net LCC benefit is 

88 percent for gas-fired CWAF and 23 percent for oil-fired CWAF. 

At TSL 4, projected change in INPV ranges from a decrease of $43.3 million to a 

decrease of $11.1 million. If the larger decrease is realized, TSL 4 could result in a net 

loss of 58 percent in INPV to manufacturers of covered CWAF.

After considering the analysis and weighing the benefits and the burdens, DOE 

has tentatively concluded that at TSL 4 for CWAFs, the benefits of energy savings, 

positive NPV of commercial consumer benefit, positive impacts on consumers (as 

indicated by positive average LCC savings, favorable PBPs, and the large percentage of 

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commercial consumers who would experience LCC benefits), emission reductions, and 

the estimated monetary value of the emissions reductions would outweigh the potential 

reductions in INPV for manufacturers. The Secretary of Energy has concluded that TSL 

4 would save a significant additional amount of energy, is technologically feasible and 

economically justified, and is supported by clear and convincing evidence. 

Based on the above considerations, DOE today proposes to adopt the energy 

conservation standards for CWAFs at TSL 4. Table V.21 presents the proposed energy 

conservation standards for CWAFs.

Table V.21. Proposed Energy Conservation Standards for Commercial Warm Air 

Furnaces

Equipment Type Input Capacity

(Btu/h) Thermal Efficiency

Gas-fired Furnaces ≥ 225,000 Btu/h 82%

Oil-fired Furnaces ≥ 225,000 Btu/h 82%

2. Summary of Benefits and Costs (Annualized) of the Proposed Standards

The benefits and costs of today’s proposed standards can also be expressed in 

terms of annualized values. The annualized monetary values are the sum of: (1) the 

annualized national economic value (expressed in 2013$) of the benefits from operation 

of equipment that meets the proposed standards (consisting primarily of operating cost 

savings from using less energy, minus increases in equipment purchase costs, which is 

another way of representing consumer NPV), and (2) the annualized monetary value of 

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the benefits of emission reductions, including CO2 emission reductions.83 The value of 

CO2 reductions, otherwise known as the Social Cost of Carbon (SCC), is calculated using 

a range of values per metric ton of CO2 developed by a recent interagency process.

Although combining the values of operating savings and CO2 emission reductions 

provides a useful perspective, two issues should be considered. First, the national 

operating savings are domestic U.S. consumer monetary savings that occur as a result of 

market transactions, while the value of CO2 reductions is based on a global value.

Second, the assessments of operating cost savings and CO2 savings are performed with 

different methods that use different time frames for analysis. The national operating cost 

savings is measured for the lifetime of CWAF shipped in 2018 –2047. The SCC values, 

on the other hand, reflect the present value of some future climate-related impacts 

resulting from the emission of one metric ton of carbon dioxide in each year. These 

impacts continue well beyond 2100.

Estimates of annualized benefits and costs of the proposed standards for CWAF 

are shown in Table V.22. The results under the primary estimate are as follows. Using a 

7-percent discount rate for benefits and costs other than CO2 reduction, for which DOE 

used a 3-percent discount rate along with the average SCC series that uses a 3-percent 

83 DOE used a two-step calculation process to convert the time-series of costs and benefits into annualized 

values. First, DOE calculated a present value in 2013, the year used for discounting the NPV of total 

customer costs and savings, for the time-series of costs and benefits using discount rates of three and seven 

percent for all costs and benefits except for the value of CO2 reductions. For the latter, DOE used a range of 

discount rates. From the present value, DOE then calculated the fixed annual payment over a 30-year 

period (2018 through 2047) that yields the same present value. The fixed annual payment is the annualized 

value. Although DOE calculated annualized values, this does not imply that the time-series of cost and 

benefits from which the annualized values were determined is a steady stream of payments.

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discount rate, the estimated cost of the CWAF standards proposed in today’s rule is $3.51 

million per year in increased equipment costs, while the estimated benefits are $104

million per year in reduced equipment operating costs, $47 million in CO2 reductions, 

and $3.38 million in reduced NOX emissions. In this case, the net benefit would amount 

to $151 million per year. Using a 3-percent discount rate for all benefits and costs and 

the average SCC series, the estimated cost of the CWAF standards proposed in today’s 

rule is $3.48 million per year in increased equipment costs, while the estimated benefits 

are $152 million per year in reduced equipment operating costs, $47 million in CO2

reductions, and $4.57 million in reduced NOX emissions. In this case, the net benefit 

would amount to $200 million per year.

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Table V.22. Annualized Benefits and Costs of Proposed Standards (TSL 4) for 

Commercial Warm Air Furnaces*

Discount Rate

Primary 

Estimate

Low Net 

Benefits 

Estimate

High Net 

Benefits 

Estimate

million 2013$/year

Benefits

Operating Cost Savings

7% 104 98 111

3% 152 143 163

CO2 Reduction Monetized 

Value ($12.0/t case)** 5% 13 13 14

CO2 Reduction Monetized 

Value ($40.5/t case)** 3% 47 45 48

CO2 Reduction Monetized 

Value ($62.4/t case)** 2.5% 69 67 72

CO2 Reduction Monetized 

Value ($119/t case)** 3% 145 140 150

NOX Reduction Monetized 

Value (at $2,684/ton)**

7% 3.38 3.28 3.49

3% 4.57 4.41 4.72

Total Benefits†

7% plus CO2

range

120 to 253 114 to 242 128 to 264

7% 154 147 163

3% plus CO2

range 

169 to 302 160 to 287 181 to 318

3% 203 192 216

Costs

Incremental Equipment Costs

7% 3.551 3.548 3.767

3% 3.548 3.441 3.768

Net Benefits/Costs

Total†

7% plus CO2

range

117 to 249 111 to 238 124 to 261

7% 151 143 159

3% plus CO2

range

166 to 298 156 to 283 177 to 314

3% 200 189 212

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* This table presents the annualized costs and benefits associated with CWAF shipped in 2018−2047. 

These results include benefits to commercial consumers which accrue after 2048 from the equipment 

purchased in 2018−2047. The results account for the incremental variable and fixed costs incurred by 

manufacturers due to the standard, some of which may be incurred in preparation for the rule. The Primary, 

Low Benefits, and High Benefits Estimates utilize projections of energy prices from the AEO2013

Reference case, Low Economic Growth case, and High Economic Growth case, respectively. Incremental 

equipment costs account for equipment price trends and include, beyond the reference scenario, a low price 

decline scenario used in the Low Benefits Estimate and a high price decline scenario used in the High 

Benefits Estimates.

** The interagency group selected four sets of SCC values for use in regulatory analyses. Three sets of 

values are based on the average SCC from the three integrated assessment models, at discount rates of 2.5, 

3, and 5 percent. The fourth set, which represents the 95th percentile SCC estimate across all three models 

at a 3-percent discount rate, is included to represent higher-than-expected impacts from temperature change 

further out in the tails of the SCC distribution. The values in parentheses represent the SCC in 2015. The 

SCC time series incorporate an escalation factor. The value for NOX is the average of the low and high 

values used in DOE’s analysis.

† Total benefits for both the 3-percent and 7-percent cases are derived using the series corresponding to 

average SCC with 3-percent discount rate. In the rows labeled “7% plus CO2 range” and “3% plus CO2

range,” the operating cost and NOX benefits are calculated using the labeled discount rate, and those values 

are added to the full range of CO2 values.

VI. Procedural Issues and Regulatory Review

A. Review Under Executive Orders 12866 and 13563

Section 1(b)(1) of Executive Order 12866, “Regulatory Planning and Review,” 58 

FR 51735 (Oct. 4, 1993), requires each agency to identify the problem that it intends to 

address, including, where applicable, the failures of private markets or public institutions 

that warrant new agency action, as well as to assess the significance of that problem. The 

problems that today’s proposed standards address are as follows: 

(1) There is a lack of customerInsufficient information and/or the high costs of 

gathering and analyzing relevant information processing capability about leads 

some consumers to miss opportunities to make cost-effective investments in 

energy efficiency opportunities in the commercial space conditioning market.

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(2) There is asymmetric information (one party to a transaction has more and better

information than the other) and/or high transactions costs (costs of gathering 

information and effecting exchanges of goods and services).

(2) In some cases the benefits of more efficient equipment are not realized due to 

misaligned incentives between purchasers and users. An example of such a case 

is when the equipment purchase decision is made by a building contractor or 

building owner who does not pay the energy costs of operating the equipment.

(3) There are external benefits resulting from improved energy efficiency of CWAF 

that are not captured by the users of such equipment. These benefits include 

externalities related to public health, environmental protection and energynational

security that are not reflected in energy prices, such as reduced emissions of air 

pollutants and greenhouse gases that impact human health and global warming.

In addition, DOE has determined that today’s regulatory action is an “economically 

significant regulatory action” under section 3(f)(1) of Executive Order 12866.

Accordingly, section 6(a)(3) of the Executive Order requires that DOE prepare a 

regulatory impact analysis (RIA) on today’s rule and that the Office of Information and 

Regulatory Affairs (OIRA) in the Office of Management and Budget (OMB) review this 

rule. DOE presented to OIRA for review the draft rule and other documents prepared for 

this rulemaking, including the RIA, and has included these documents in the rulemaking 

record. The assessments prepared pursuant to Executive Order 12866 can be found in the 

technical support document for this rulemaking.

DOE has also reviewed this proposed regulation pursuant to Executive Order 

Comment [A75]: Change recommended by 

OIRA.

Comment [A76]: Change recommended by 

OIRA.

Comment [A77]: Change recommended by 

OIRA.

Comment [A78]: Change recommended by 

OIRA.

Comment [A79]: Change recommended by 

OIRA.

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13563, issued on January 18, 2011. 76 FR 3281 (Jan. 21, 2011). Executive Order 13563 

is supplemental to and explicitly reaffirms the principles, structures, and definitions 

governing regulatory review established in Executive Order 12866. To the extent 

permitted by law, agencies are required by Executive Order 13563 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 Executive Order 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 

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 the preamble, DOE believes that today’s NOPR is consistent 

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with these principles, including the requirement that, to the extent permitted by law, 

benefits justify costs and that net benefits are maximized. 

B. Review Under the Regulatory Flexibility Act

The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) requires preparation of an 

initial regulatory flexibility analysis (IRFA) for any rule that by law must be proposed for 

public comment, unless the agency certifies that the rule, if promulgated, will not have a 

significant economic impact on a substantial number of small entities. As required by 

Executive Order 13272, “Proper Consideration of Small Entities in Agency Rulemaking,” 

67 FR 53461 (August 16, 2002), DOE published procedures and policies on February 19, 

2003, to ensure that the potential impacts of its rules on small entities are properly 

considered during the rulemaking process. 68 FR 7990. DOE has made its procedures 

and policies available on the Office of the General Counsel’s website 

(http://energy.gov/gc/office-general-counsel). DOE has prepared the following IRFA for 

the products that are the subject of this rulemaking.

For manufacturers of CWAF, the Small Business Administration (SBA) has set a 

size threshold, which defines those entities classified as “small businesses” for the 

purposes of the statute. DOE used the SBA’s small business size standards to determine

whether any small entities would be subject to the requirements of the rule. 65 FR 

30836, 30848 (May 15, 2000), as amended at 65 FR 53533, 53544 (Sept. 5, 2000) and 

codified at 13 CFR part 121. The size standards are listed by North American Industry 

Classification System (NAICS) code and industry description and are available at 

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http://www.sba.gov/category/navigation-structure/contracting/contracting-officials/smallbusiness-size-standards. Manufacturing of CWAF 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 750 employees or 

less for an entity to be considered as a small business for this category.

1. Description and Estimated Number of Small Entities Regulated 

DOE reviewed the proposed energy conservation standards for CWAF considered 

in today’s notice of proposed rulemaking under the provisions of the Regulatory 

Flexibility Act and the procedures and policies published on February 19, 2003. 68 FR 

7990. To better assess the potential impacts of this rulemaking on small entities, DOE 

conducted a more focused inquiry of the companies that could be small business 

manufacturers of equipment covered by this rulemaking. DOE conducted a market 

survey using available public information to identify potential small manufacturers.

DOE’s research involved industry trade association membership directories (including 

AHRI84), individual company websites, and market research tools (e.g., Hoovers 

reports85) to create a list of companies that manufacture or sell the CWAF equipment 

covered by this rulemaking. DOE also asked industry representatives if they were aware 

of any other small manufacturers during manufacturer interviews. DOE reviewed 

publicly-available data and contacted companies on its list, as necessary, to determine 

whether they met the SBA’s definition of a small business manufacturer of covered 

84 Based on listings in the AHRI directory accessed on August 2, 2013 (Available at: 

https://www.ahridirectory.org/ahridirectory/pages/home.aspx). 85 Hoovers | Company Information | Industry Information | Lists, D&B (2013) (Available at: 

http://www.hoovers.com/) (Last accessed April 3, 2013).

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CWAF equipment. DOE screened out companies that do not offer equipment covered by 

this rulemaking, do not meet the definition of a “small business,” or are foreign-owned 

and operated. DOE was able to identify two manufacturers that meet the SBA’s 

definition of a “small business” andout of the 13 companies that manufacture products 

covered by this rulemaking. 

Before issuing this NOPR, DOE attempted to contact all the small business 

manufacturers of CWAF it had identified. None of the small businesses consented to 

formal interviews. DOE also attempted to obtain information about small business 

impacts while interviewing large manufacturers.

2. Description and Estimate of Compliance Requirements

DOE identified one small gas-fired CWAF manufacturer and one small oil-fired 

CWAF manufacturer. The small gas-fired CWAF manufacturer accounts for 17 of the 

25086 gas-fired CWAF listings in the AHRI Directory, or approximately 7 percent of the 

listings. This small manufacturer offers product exclusively at 80-percent TE, and at the 

proposed level of TSL 4, would need to update its equipment offerings to meet a standard 

of 82-percent TE. However, this position is not unique. There are also some large gasfired CWAF manufacturers would that would need to update all equipment offerings to 

meet the proposed standard. From a design perspective, DOE believes that most gasfired equipment lines on the market today can be upgraded to achieve the proposed 

86 The AHRI directory lists approximately 1,000 units. Many of these units are from the same model line, 

share the same chassis, and have the same level of performance, but have different heating capacities or 

installed product options. DOE consolidated the AHRI listing of CWAF such that all units from the same 

model line and chassis are listed together as a single unit. 

Comment [A80]: Change recommended by 

OIRA.

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Comment [A81]: Change recommended by 

OIRA.

Comment [A82]: Change recommended by 

OIRA.

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standard with increases in heat exchange surface area. However, based on feedback used 

in the Top-Down conversion costs analysis (see chapter 12 of the NOPR TSD), industry 

average conversion costs could reach $1.954.4 million per platform at TSL 4. For even 

one platform upgrade at these levels, this small gas-fired CWAF manufacturer could 

struggle to remain competitive in the industry. .

Table VI.1 Average Conversion Cost per Gas-fired CWAF Manufacturer*

Bottom-Up Model

(million $)

Top-Down Model

(million $)

TSL 1 1.0 1.3

TSL 2 1.0 1.3

TSL 3 1.6 4.4

TSL 4 1.6 4.4

TSL 5 7.2 11.3

*Additional information about industry conversion costs and the two estimation models can be 

found in section IV.J.2.B of this Notice.

Because this is a relatively low sales volume market, and because the industry as 

a whole generally produces equipment at the baseline, DOE believes the average impacts 

will be similar for large and small business manufacturers. DOE was unable to identify 

any publicly available information that would lead to a conclusion that small 

manufacturers are differentially impacted, and as noted above, requests to conduct 

interviews with small business manufacturers were declined. Therefore, DOE assumed 

that small business manufacturers would face similar conversion costs as larger

businesses. However, the small gas-fired CWAF manufacturer may need to allocate a 

greater portion of technical resources or may need to access outside capital to support the 

transition to the proposed standard.

Comment [A83]: Change recommended by 

OIRA.

Comment [A84]: Change recommended by 

OIRA.

Comment [A85]: Change recommended by 

OIRA.

Comment [A86]: Change recommended by 

OIRA.

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The small oil-fired CWAF manufacturer accounts for 11 of the 16 oil-fired 

CWAF listings in the AHRI Directory. The small oil-fired furnace manufacturer 

produces some of the most efficient products on the market at 82-percent TE. It would

be unlikely to be at a technological disadvantage relative to its competitors at the 

proposed TSL. It is possible the small manufacturer would have a competitive 

advantage, given its technological lead and experience in the niche market of highefficiency commercial oil-fired warm air furnaces.

Since the proposed standard could cause competitive concerns for at least one of 

the two small manufacturers, DOE cannot certify that the proposed standards would not 

have a significant impact on a substantial number of small businesses. Consequently, 

DOE prepared this IRFA.

Table VI.2 Average Conversion Cost per Oil-fired CWAF Manufacturer*

Bottom-Up Model

(million $)

Top-Down Model

(million $)

TSL 1 0.0 0.0

TSL 2 0.2 2.2

TSL 3 0.0 0.0

TSL 4 0.2 2.2

TSL 5 0.9 5.5

*Additional information about industry conversion costs and the two estimation models can be 

found in section IV.J.2.B of this Notice.

An amended energy conservation standard is likely to necessitate conversion 

investment by all manufacturers to bring products into compliance. Manufacturers may 

choose to access outside capital to help fund the upfront, one-time costs to bring products 

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into compliance. Small manufacturers may have greater difficulty securing outside 

capital87 and, as a result, may face higher costs of capital than large competitors.

As noted above, none of the small businesses consented to formal interviews, so 

information regarding the impacts of this proposed standard for small business 

manufacturers is limited. DOE seeks further information and data regarding the sales 

volume and annual revenues for small businesses so the agency can be better informed 

concerning the potential impacts to small business manufacturers of the proposed energy 

conservation standards, and would consider any such additional information when 

formulating and selecting TSLs for the final rule. 

3. Duplication, Overlap, and Conflict with Other Rules and Regulations

DOE is not aware of any rules or regulations that duplicate, overlap, or conflict 

with the rule being considered today.

4. Significant Alternatives to the Rule 

The discussion above analyzes impacts on small businesses that would result from 

DOE’s proposed rule. In addition to the other TSLs being considered, the proposed 

rulemaking TSD includes a regulatory impact analysis (RIA). For CWAF, the RIA 

discusses the following policy alternatives: (1) no change in standard; (2) consumer 

rebates; (3) consumer tax credits; (4) manufacturer tax credits; (5) voluntary energy 

87 Simon, Ruth, and Angus Loten. "Small-Business Lending Is Slow to Recover." Wall Street Journal, 

August 14, 2014. Accessed August 2014. http://online.wsj.com/articles/small-business-lending-is-slow-torecover-1408329562.

Comment [A87]: Change recommended by 

OIRA (including footnote 87)..

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efficiency targets; and (6) bulk government purchases. While these alternatives may 

mitigate to some varying extent the economic impacts on small entities compared to the 

standards, DOE determined that the energy savings of these alternativesdid not consider 

the alternatives further because they are either not feasible to implement without 

authority and funding from Congress, or are expected to result in energy savings that are 

significantly smaller than those that would be expected to result from adoption of the 

proposed standard levels. In reviewing alternatives that would reduce burden on small 

business manufacturers, DOE analyzed a case in which the voluntary programs targeted 

efficiencies corresponding to TSL 4. DOE also examined standards at lower efficiency 

levels, TSL 3, TSL 2 and TSL 1. (See section V.C of this NOPR for a description of 

benefits and burdens at each TSL and discussion of DOE’s TSL selection process.)

TSL 3 achieves a slightly lower level of energy savings as TSL 4; and it would 

not significantly reduce burden on small business manufacturers. TSL 3 would reduce 

the required efficiency of oil-fired CWAF as compared to TSL 4, while leaving the 

standard for gas-fired CWAF the same. Thus, there would be no reduction of burden for 

the small business manufacturer of gas-fired CWAF. TSL 3 would marginally reduce the 

burden for the small business manufacturer of oil-fired CWAF, but as noted previously 

the majority of the small oil-fired furnace manufacturer’s products already meet TSL 4. 

The small oil-fired manufacturer may have a competitive advantage at TSL 4, given its 

technological lead and experience in the niche market of high-efficiency commercial oilfired warm air furnaces. TSL 2 and TSL 1 both achieve savings that would be less than 

half of that achieved by TSL 4. Voluntary programs at these levels achieve only a 

Comment [A88]: Change recommended by 

OIRA.

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fraction of the savings achieved by standards and would provide even lower savings 

benefits. To achieve substantial reductions in small business impacts would force the 

standard down to TSL 2 levels, at the expense of substantial energy savings and NPV 

benefits, which would be inconsistent with DOE’s statutory mandate to maximize the 

improvement in energy efficiency that the Secretary determines is technologically 

feasible and economically justified. DOE believes that establishing standards at TSL 4 

provides the optimum balance between energy savings benefits and impacts on small 

businesses. DOE notes that it did not consider an alternative compliance date for the 

entire industry affected by this rulemaking. DOE is constrained by the three-year lead 

time required by statute (42 U.S.C. 6313(a)(6)(D)). However, certain compliance date 

alternatives may be available to individual manufacturers, as discussed below. 

Accordingly, DOE is declining to adopt any of these alternatives and is proposing the 

standards set forth in this rulemaking. (See chapter 17 of the NOPR TSD for further 

detail on the policy alternatives DOE considered.) The TSD considers regulatory 

alternatives that would potentially reduce the burden on the industry as a whole, 

including small businesses and the agency requests comment on this issue. 

Additional compliance flexibilities may be available through other means. For 

example, individual manufacturers may petition for a waiver of the applicable test 

procedure. (See 10 CFR 431.401.) Further, EPCA provides that a manufacturer whose 

annual gross revenue from all of its operations does not exceed $8,000,000 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. 

Comment [A89]: Change recommended by 

OIRA.

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Additionally, Section 504 of the Department of Energy Organization Act, 42 U.S.C. 

7194, provides authority for the Secretary to adjust a rule issued under EPCA in order to 

prevent “special hardship, inequity, or unfair distribution of burdens” that may be 

imposed on that manufacturer as a result of such rule. Manufacturers should refer to 10 

CFR part 430, subpart E, and part 1003 for additional details. 

C. Review Under the Paperwork Reduction Act of 1995

Manufacturers of CWAF must certify to DOE that their equipment complies with 

any applicable energy conservation standards. In certifying compliance, manufacturers 

must test their equipment according to the applicable DOE test procedures for CWAF, 

including any amendments adopted for those test procedures on the date that compliance 

is required. DOE has established regulations for the certification and recordkeeping 

requirements for all covered consumer products and commercial equipment, including 

CWAF. 76 FR 12422 (March 7, 2011). 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 20 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. 

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 

Comment [A90]: Change recommended by 

OIRA.

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1.5" + 2" + 2.5" + 3" + 3.5" + 4" + 4.5"

+ 5" + 5.5" + 6" + 6.5" + 7" + 7.5" + 8"

+ 8.5" + 9" + 9.5" + 10" + 10.5" + 11" +

11.5" + 12" + 12.5" + 13"

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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 (NEPA) of 1969, DOE has 

determined that the proposed rule fits within the category of actions included in 

Categorical Exclusion (CX) B5.1 and otherwise meets the requirements for application of 

a CX. See 10 CFR Part 1021, App. B, B5.1(b); 1021.410(b) and Appendix B, B(1)-(5). 

The proposed rule fits within the category of actions under CX B5.1 because it is a 

rulemaking that establishes energy conservation standards for consumer products or 

industrial equipment, and for which none of the exceptions identified in CX B5.1(b) 

apply. Therefore, DOE has made a CX determination for this rulemaking, and DOE does 

not need to prepare an Environmental Assessment or Environmental Impact Statement 

for this proposed rule. DOE’s CX determination for this proposed rule is available at 

http://cxnepa.energy.gov/. 

E. Review Under Executive Order 13132

Executive Order 13132, “Federalism,” 64 FR 43255 (Aug. 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 States and to carefully 

assess the necessity for such actions. The Executive Order also requires agencies to have 

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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 proposed rule and has tentatively determined that it would not 

have a substantial direct effect on the States, on the relationship between the national 

government and the States, or on the distribution of power and responsibilities among the 

various levels of government. EPCA governs and prescribes Federal preemption of State 

regulations as to energy conservation for the products that are the subject of today’s 

proposed 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) No further action is 

required by Executive Order 13132.

F. Review Under Executive Order 12988

With respect to the review of existing regulations and the promulgation of new 

regulations, section 3(a) of Executive Order 12988, “Civil Justice Reform,” imposes on 

Federal agencies the general duty to adhere to the following requirements: (1) eliminate 

drafting errors and ambiguity; (2) write regulations to minimize litigation; and (3) 

provide a clear legal standard for affected conduct rather than a general standard; and (4) 

promote simplification and burden reduction. 61 FR 4729 (Feb. 7, 1996). Regarding the 

review required by section 3(a), section 3(b) of Executive Order 12988 specifically 

requires that Executive agencies make every reasonable effort to ensure that the 

regulation: (1) clearly specifies the preemptive effect, if any; (2) clearly specifies any 

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effect on existing Federal law or regulation; (3) provides a clear legal standard for 

affected conduct while promoting simplification and burden reduction; (4) specifies the 

retroactive effect, if any; (5) adequately defines key terms; and (6) addresses other 

important issues affecting clarity and general draftsmanship under any guidelines issued 

by the Attorney General. Section 3(c) of Executive Order 12988 requires Executive 

agencies to review regulations in light of applicable standards in section 3(a) and section 

3(b) to determine whether they are met or it is unreasonable to meet one or more of them.

DOE has completed the required review and determined that, to the extent permitted by 

law, this proposed rule meets the relevant standards of Executive Order 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. Pub. L. 104-4, sec. 201 (codified at 2 U.S.C. 

1531). For a proposed regulatory action likely to result in a rule that may cause the 

expenditure by State, local, and Tribal governments, in the aggregate, or by the private 

sector of $100 million or more in any one year (adjusted annually for inflation), section 

202 of UMRA requires a Federal agency to publish a written statement that estimates the 

resulting costs, benefits, and other effects 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 proposed 

“significant intergovernmental mandate,” and requires an agency plan for giving notice 

and opportunity for timely input to potentially affected small governments before 

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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 

http://energy.gov/gc/office-general-counsel.

Although today’s proposed rule, which proposes amended energy conservation 

standards for CWAF, does not contain a Federal intergovernmental mandate, it may 

require annual expenditures of $100 million or more by the private sector. Specifically, 

the proposed rule would likely result in a final rule that could require expenditures of 

$100 million or more. Such expenditures may include: (1) investment in research and 

development and in capital expenditures by CWAF manufacturers in the years between 

the final rule and the compliance date for the amended standards, and (2) incremental

additional expenditures by commercial consumers to purchase higher-efficiency CWAF, 

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 proposed 

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 the NOPR and the “Regulatory 

Impact Analysis” section of the TSD for this proposed rule respond to those 

requirements. 

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Under section 205 of UMRA, the Department 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 proposed rule unless DOE publishes an explanation for 

doing otherwise, or the selection of such an alternative is inconsistent with law. As 

required by 42 U.S.C. 6313(a), today’s proposed rule would establish amended energy 

conservation standards for CWAF that are designed to achieve the maximum 

improvement in energy efficiency that DOE has determined to be both technologically 

feasible and economically justified. A full discussion of the alternatives considered by 

DOE is presented in the “Regulatory Impact Analysis” section of the TSD for today’s 

proposed 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.

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I. Review Under Executive Order 12630

Pursuant to Executive Order 12630, “Governmental Actions and Interference with 

Constitutionally Protected Property Rights,” 53 FR 8859 (March 15, 1988), DOE has 

determined that this proposed 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). DOE has reviewed today’s NOPR under the OMB and DOE guidelines and has 

concluded that it is consistent with applicable policies in those guidelines.

K. Review Under Executive Order 13211

Executive Order 13211, “Actions Concerning Regulations That Significantly 

Affect Energy Supply, Distribution, or Use,” 66 FR 28355 (May 22, 2001), requires 

Federal agencies to prepare and submit to OIRA at OMB, a Statement of Energy Effects 

for any proposed significant energy action. A “significant energy action” is defined as 

any action by an agency that promulgates or is expected to lead to promulgation of a final 

rule, and that: (1) is a significant regulatory action under Executive Order 12866, or any 

successor order; and (2) is likely to have a significant adverse effect on the supply, 

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distribution, or use of energy, or (3) is designated by the Administrator of OIRA as a 

significant energy action. For any proposed significant energy action, the agency must 

give a detailed statement of any adverse effects on energy supply, distribution, or use 

should the proposal be implemented, and of reasonable alternatives to the action and their 

expected benefits on energy supply, distribution, and use. 

DOE has tentatively concluded that today’s regulatory action, which sets forth 

proposed energy conservation standards for CWAF, is not a significant energy action 

because the proposed 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 the proposed 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 

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can determine will have, or does have, a clear and substantial impact on important public 

policies or private sector decisions.” Id. at 2667.

In response to OMB’s Bulletin, DOE conducted formal in-progress peer reviews 

of the energy conservation standards development process and analyses and has prepared 

a Peer Review Report pertaining to the energy conservation standards rulemaking 

analyses. Generation of this report involved a rigorous, formal, and documented 

evaluation using objective criteria and qualified and independent reviewers to make a 

judgment as to the technical/scientific/business merit, the actual or anticipated results, 

and the productivity and management effectiveness of programs and/or projects. The 

“Energy Conservation Standards Rulemaking Peer Review Report” dated February 2007 

has been disseminated and is available at the following Web site: 

www1.eere.energy.gov/buildings/appliance_standards/peer_review.html.

VII. Public Participation

A. Attendance at the Public Meeting

The time, date, and location of the public meeting are listed in the DATES and 

ADDRESSES sections at the beginning of this notice. If you plan to attend the public 

meeting, please notify Ms. Brenda Edwards at (202) 586-2945 or 

Brenda.Edwards@ee.doe.gov. Foreign nationals visiting DOE Headquarters are subject 

to advance security screening procedures. Any foreign national wishing to participate in 

the meeting should advise DOE of this fact as soon as possible by contacting Ms. Brenda 

Edwards to initiate the necessary procedures. Please note that foreign nationals visiting 

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DOE Headquarters are subject to advance security screening procedures. Any foreign 

national wishing to participate in the meeting should advise DOE as soon as possible by 

contacting Ms. Edwards at the phone number above to initiate the necessary procedures.

Please also note that any person wishing to bring a laptop into the Forrestal Building will 

be required to obtain a property pass. Visitors should avoid bringing laptops, or allow an 

extra 45 minutes. Persons may also attend the public meeting via webinar. 

All participants will undergo security processing upon building entry. Any 

participant with a laptop computer or similar device (e.g., tablets), must undergo 

additional screening. Note that any foreign national who requests to participate in the 

public meeting is subject to advance security screening prior to the date of the public 

meeting, and such persons should contact Ms. Brenda Edwards as soon as possible at 

(202) 586-2945 to commence the necessary procedures. 

Due to the REAL ID Act implemented by the Department of Homeland Security 

(DHS), there have been recent changes regarding identification (ID) requirements for 

individuals wishing to enter Federal buildings from specific States and U.S. territories. 

As a result, driver's licenses from the following States or territory will not be accepted for 

building entry, and instead, one of the alternate forms of ID listed below will be required.

DHS has determined that regular driver's licenses (and ID cards) from the 

following jurisdictions are not acceptable for entry into DOE facilities: Alaska, American 

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Samoa, Arizona, Louisiana, Maine, Massachusetts, Minnesota, New York, Oklahoma, 

and Washington.

Acceptable alternate forms of Photo-ID include: U.S. Passport or Passport 

Card; an Enhanced Driver's License or Enhanced ID-Card issued by the States of 

Minnesota, New York or Washington (Enhanced licenses issued by these States are 

clearly marked Enhanced or Enhanced Driver's License); a military ID or other Federal 

government-issued Photo-ID card.

In addition, you can attend the public meeting via webinar. Webinar registration 

information, participant instructions, and information about the capabilities available to 

webinar participants will be published on DOE’s website at: [INSERT LINK].

Participants are responsible for ensuring their systems are compatible with the webinar 

software.

B. Procedure for Submitting Requests to Speak and Prepared General Statements for

Distribution

Any person who has an interest in the topics addressed in this notice, or who is 

representative of a group or class of persons that has an interest in these issues, may 

request an opportunity to make an oral presentation at the public meeting. Such persons 

may hand-deliver requests to speak to the address shown in the ADDRESSES section at 

the beginning of this notice between 9:00 a.m. and 4:00 p.m., Monday through Friday, 

except Federal holidays. Requests may also be sent by mail or email to: Ms. Brenda 

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Edwards, U.S. Department of Energy, Building Technologies Program, Mailstop EE-2J, 

1000 Independence Avenue, SW, Washington, DC 20585-0121, or 

Brenda.Edwards@ee.doe.gov. Persons who wish to speak should include with their 

request a computer diskette or CD-ROM in WordPerfect, Microsoft Word, PDF, or text 

(ASCII) file format that briefly describes the nature of their interest in this rulemaking 

and the topics they wish to discuss. Such persons should also provide a daytime 

telephone number where they can be reached. 

DOE requests persons scheduled to make an oral presentation to submit an 

advance copy of their statements at least one week before the public meeting. DOE may 

permit persons who cannot supply an advance copy of their statement to participate, if 

those persons have made advance alternative arrangements with the Building 

Technologies Program. As necessary, requests to give an oral presentation should ask for 

such alternative arrangements. DOE prefers to receive requests and advance copies via 

email. Any person who has plans to present a prepared general statement may request 

that copies of his or her statement be made available at the public meeting.

C. Conduct of the Public Meeting

DOE will designate a DOE official to preside at the public meeting and may also 

use a professional facilitator to aid discussion. The meeting will not be a judicial or 

evidentiary-type public hearing, but DOE will conduct it in accordance with section 336 

of EPCA (42 U.S.C. 6306). A court reporter will be present to record the proceedings 

and prepare a transcript. DOE reserves the right to schedule the order of presentations 

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and to establish the procedures governing the conduct of the public meeting. There shall 

not be discussion of proprietary information, costs or prices, market share, or other 

commercial matters regulated by U.S. anti-trust laws. After the public meeting, 

interested parties may submit further comments on the proceedings, as well as on any 

aspect of the rulemaking, until the end of the comment period.

The public meeting will be conducted in an informal, conference style. DOE will 

present summaries of comments received before the public meeting, allow time for 

prepared general statements by participants, and encourage all interested parties to share 

their views on issues affecting this rulemaking. Each participant will be allowed to make 

a general statement (within time limits determined by DOE), before the discussion of 

specific topics. DOE will allow, as time permits, other participants to comment briefly 

on any general statements. 

At the end of all prepared statements on a topic, DOE will permit participants to 

clarify their statements briefly and comment on statements made by others. Participants 

should be prepared to answer questions by DOE and by other participants concerning 

these issues. DOE representatives may also ask questions of participants concerning 

other matters relevant to this rulemaking. The official conducting the public meeting will 

accept additional comments or questions from those attending, as time permits. The 

presiding official will announce any further procedural rules or modification of the above 

procedures that may be needed for the proper conduct of the public meeting.

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A transcript of the public meeting will be included in the docket, which can be 

viewed as described in the Docket section at the beginning of this notice and will be 

accessible on the DOE website. In addition, any person may buy a copy of the transcript 

from the transcribing reporter. 

D. Submission of Comments

DOE will accept comments, data, and information regarding this proposed rule 

before or after the public meeting, but no later than the date provided in the DATES

section at the beginning of this proposed rule. Interested parties may submit comments, 

data, and other information using any of the methods described in the ADDRESSES

section at the beginning of this notice.

Submitting comments via www.regulations.gov. The www.regulations.gov

webpage will require you to provide your name and contact information. Your contact 

information will be viewable to DOE Building Technologies staff only. Your contact 

information will not be publicly viewable except for your first and last names, 

organization name (if any), and submitter representative name (if any). If your comment 

is not processed properly because of technical difficulties, DOE will use this information 

to contact you. If DOE cannot read your comment due to technical difficulties and 

cannot contact you for clarification, DOE may not be able to consider your comment.

However, your contact information will be publicly viewable if you include it in 

the comment itself or in any documents attached to your comment. Any information that 

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you do not want to be publicly viewable should not be included in your comment, nor in 

any document attached to your comment. Otherwise, persons viewing comments will see 

only first and last names, organization names, correspondence containing comments, and 

any documents submitted with the comments. 

Do not submit to www.regulations.gov information for which disclosure is 

restricted by statute, such as trade secrets and commercial or financial information 

(hereinafter referred to as Confidential Business Information (CBI)). Comments 

submitted through http://www.regulations.gov cannot be claimed as CBI. Comments 

received through the website will waive any CBI claims for the information submitted.

For information on submitting CBI, see the Confidential Business Information section 

below.

DOE processes submissions made through www.regulations.gov before posting. 

Normally, comments will be posted within a few days of being submitted. However, if 

large volumes of comments are being processed simultaneously, your comment may not 

be viewable for up to several weeks. Please keep the comment tracking number that 

www.regulations.gov provides after you have successfully uploaded your comment. 

Submitting comments via email, hand delivery/courier, or mail. Comments and 

documents submitted via email, hand delivery, or mail also will be posted to 

www.regulations.gov. If you do not want your personal contact information to be 

publicly viewable, do not include it in your comment or any accompanying documents.

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Instead, provide your contact information in a cover letter. Include your first and last 

names, email address, telephone number, and optional mailing address. The cover letter 

will not be publicly viewable as long as it does not include any comments

Include contact information each time you submit comments, data, documents,

and other information to DOE. If you submit via mail or hand delivery/courier, please 

provide all items on a CD, if feasible, in which case it is not necessary to submit printed 

copies. No facsimiles (faxes) will be accepted.

Comments, data, and other information submitted to DOE electronically should 

be provided in PDF (preferred), Microsoft Word or Excel, WordPerfect, or text (ASCII) 

file format. Provide documents that are not secured, that are written in English, and that 

are free of any defects or viruses. Documents should not contain special characters or 

any form of encryption and, if possible, they should carry the electronic signature of the 

author.

Campaign form letters. Please submit campaign form letters by the originating 

organization in batches of between 50 to 500 form letters per PDF or as one form letter 

with a list of supporters’ names compiled into one or more PDFs. This reduces comment 

processing and posting time. 

Confidential Business Information. Pursuant to 10 CFR 1004.11, any person 

submitting information that he or she believes to be confidential and exempt by law from 

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public disclosure should submit via email, postal mail, or hand delivery/courier two wellmarked copies: one copy of the document marked “confidential” including all the 

information believed to be confidential, and one copy of the document marked “nonconfidential” with the information believed to be confidential deleted. Submit these 

documents via email or on a CD, if feasible. DOE will make its own determination about 

the confidential status of the information and treat it according to its determination.

Factors of interest to DOE when evaluating requests to treat submitted 

information as confidential include: (1) A description of the items; (2) whether and why 

such items are customarily treated as confidential within the industry; (3) whether the 

information is generally known by or available from other sources; (4) whether the 

information has previously been made available to others without obligation concerning 

its confidentiality; (5) an explanation of the competitive injury to the submitting person 

which would result from public disclosure; (6) when such information might lose its 

confidential character due to the passage of time; and (7) why disclosure of the 

information would be contrary to the public interest.

It is DOE’s policy that all comments may be included in the public docket, 

without change and as received, including any personal information provided in the 

comments (except information deemed to be exempt from public disclosure).

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E. Issues on Which DOE Seeks Comment

Although DOE welcomes comments on any aspect of this proposal, DOE is 

particularly interested in receiving comments and views of interested parties concerning 

the following issues: 

1. The proposed scope of coverage and equipment classes for this 

rulemaking.The use of proprietary designs and patented technologies in CWAF, 

and whether all manufacturers would be able to achieve the proposed levels 

through the use of non-proprietary designs. (See section III.B.1 and chapter 3 of 

the NOPR TSD.) 

2.2. The proposed scope of coverage and equipment classes for this rulemaking.

In particular DOE seeks comment on whether there is a need for separate 

equipment classes for units designed to be installed indoors (i.e., “nonweatherized” units) and units designed to be installed outdoors (i.e., 

“weatherized” units) due to the potential need to manage acidic condensate and 

the potential for condensate freezing after exiting the furnace. (See section 

IV.A.2 and chapter 3 of the NOPR TSD.)

3. The technologies identified in this rulemaking, as well as the technologies 

which were primarily considered as the methods for increasing thermal efficiency 

of commercial warm air furnaces. (See section IV.A.3 and chapters 3 and 4 of the 

NOPR TSD.)

4. The potential for lessening of product utility for CWAF meeting the proposed 

standards and whether the proposed standards would likely result in the 

unavailability in the United States of any covered product type (or class) of 

Comment [A91]: Change recommended by 

OIRA.

Comment [A92]: Change recommended by 

OIRA.

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performance characteristics (including reliability), features, sizes, capacities, and 

volumes that are substantially the same as those generally available in the United 

States . (See section II.A and chapter 3 of the NOPR TSD.)

5. The efficiency levels analyzed for gas-fired and oil-fired commercial warm air 

furnaces. In particular, DOE is interested in the feasibility of the max-tech 

efficiency levels, as well as the ability of non-condensing technologies to meet the

82 percent thermal efficiency level for gas-fired commercial furnaces. DOE also 

seeks comment on whether an 82 percent thermal efficiency standard would shift 

production to condensing technology if manufacturers, for example, would need 

to design their equipment to a level slightly higher than the DOE standard due to 

the margin of error associated with the test methodology. In addition, DOE is 

interested in whether the accuracy of the results from the test method would 

support measuring thermal efficiencies to the tenth decimal place such that DOE 

could consider 81.5 percent or some other fraction as a potential standard level as 

opposed to rounding the standard to the nearest whole number. (See section 

IV.C.2.b and chapter 5 of the NOPR TSD.)

4. 6. The applicability of the teardown units at 250,000 Btu/h and 400,000 Btu/h 

input capacities to represent the range of potential input capacities on the market.

(See section IV.C.1 and chapter 5 of the NOPR TSD.)

7. The incremental manufacturing costs above the baseline cost at the efficiency 

levels considered in the engineering analysis, which DOE estimates to be $10 for 

gas-fired CWAFs and $24 for oil-fired CWAFs at the proposed standard level.

(See section IV.C.5 and chapter 5 of the NOPR TSD.)

Comment [A93]: Change recommended by 

OIRA.

Comment [A94]: Change recommended by 

OIRA.

Comment [A95]: Change recommended by 

OIRA.

Comment [A96]: Change recommended by 

OIRA.

Comment [A97]: Change recommended by 

OIRA.

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8. The approach used to estimate the trend for future CWAF consumer prices. 

(See section IV.F.1 and chapter 8 of the NOPR TSD.)

5. 9. The approach of using CBECS and RECS data for determining the energy 

consumption of CWAF in residential and commercial buildings. (See section 

IV.E and chapter 7 of the NOPR TSD.)

6. 10. The analytical methodology to estimate the annual energy use for CWAF.

 (See section IV.E and chapter 7 of the NOPR TSD.)

11. The approach and data sources used for assessing changes in installation costs 

for more-efficient CWAF. (See section IV.F.1 and chapter 8 of the NOPR TSD.)

812. The methodology and data sources used for assessing changes in 

maintenance and repair costs for more-efficient CWAF. (See section IV.F.2.c and 

chapter 8 of the NOPR TSD.)

9. The approach used to determine the lifetimes for CWAF.

1013. The approach used to determine the lifetimes for CWAF and whether the 

lifetimes assumed in the analysis are reflective of CWAF equipment covered by 

this rule. In addition, the agency is seeking comment on whether the energy 

efficiency standards would be expected to affect the lifetime of the products 

covered by the proposed standards. (See section IV.F.2.d and chapter 8 of the 

NOPR TSD.)

14. The potential for a rebound effect associated with higher efficiency standards 

for the covered furnaces in both commercial and residential installations. (See 

section IV.F.2.d and chapter 8 of the NOPR TSD.)

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Comment [A98]: Change recommended by 

OIRA.

Comment [A99]: Change recommended by 

OIRA.

Comment [A100]: Change recommended by 

OIRA.

Comment [A101]: Change recommended by 

OIRA.

Comment [A102]: Change recommended by 

OIRA.

Comment [A103]: Change recommended by 

OIRA.

Comment [A104]: Change recommended by 

OIRA.

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15. The appropriate base case distribution of energy efficiencies for CWAF in 

2018 (compliance year of the standard) in the absence of amended energy 

conservation standards. (See section IV.F.2.d and chapter 8 of the NOPR TSD.)

1116. DOE’s methodology and data sources used for projecting the future 

shipments of CWAF in the absence of amended energy conservation standards.

Specifically, DOE is interested in the historical data from the past 10 years for 

CWAF. (See section IV.G and chapter 9 of the NOPR TSD.)

1217. The potential impacts of amended standards on product shipments, 

including impacts related to equipment switching. (See section IV.G and chapter 

9 of the NOPR TSD.)

1318. The methodology used to determine long-term changes in CWAF energy 

efficiency independent of amending energy conservation standards. (See section 

IV.H and chapter 10 of the NOPR TSD.)

1419. Consumer subgroups that should be considered in this rulemaking. (See 

section IV.I and chapter 11 of the NOPR TSD.)

1520. The approach for conducting the emissions analysis for CWAF. (See 

section IV.K and chapter 13 of the NOPR TSD.)

1621. DOE’s approach for estimating monetary benefits associated with 

emissions reductions. , including the SCC values used. (See section IV.L and 

chapter 14 of the NOPR TSD.)

22. Impacts on small business manufacturers from the proposed standard. In 

particular, DOE seeks further information and data regarding the sales volume 

and annual revenues for small businesses so the agency can be better informed 

Comment [A105]: Change recommended by 

OIRA.

Comment [A106]: Change recommended by 

OIRA.

Comment [A107]: Change recommended by 

OIRA.

Comment [A108]: Change recommended by 

OIRA.

Comment [A109]: Change recommended by 

OIRA.

Comment [A110]: Change recommended by 

OIRA.

Comment [A111]: Change recommended by 

OIRA.

Comment [A112]: Change recommended by 

OIRA.

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concerning the potential impacts to small business manufacturers of the proposed 

energy conservation standards, and would consider any such additional 

information when formulating and selecting TSLs for the final rule and whether 

any feasible compliance flexibilities that the agency may consider. (See section 

VI.B and chapter 12 of the NOPR TSD.)

VIII. Approval of the Office of the Secretary

The Secretary of Energy has approved publication of today’s notice of proposed 

rulemaking.

List of Subjects in 10 CFR Part 431

Administrative practice and procedure, Confidential business information, Energy 

conservation, Reporting and recordkeeping requirements, and Small businesses. 

Issued in Washington, DC, on 

________________________________

David T. Danielson

Assistant Secretary

Energy Efficiency and Renewable Energy

Comment [A113]: Change recommended by 

OIRA.

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For the reasons set forth in the preamble, DOE proposes to amend part 431 of 

Chapter II, Subchapter D, of Title 10 of the Code of Federal Regulations, to read as set 

forth below: 

PART 431 - ENERGY EFFICIENCY PROGRAM FOR CERTAIN 

COMMERCIAL AND INDUSTRIAL EQUIPMENT

1. The authority citation for Part 431 continues to read as follows:

Authority: 42 U.S.C. 6291-6317.

2. Section 431.77 is revised to read as follows:

§ 431.77 Energy conservation standards and their effective dates.

(a) Gas-fired Commercial Warm Air Furnaces. Each gas-fired commercial warm air 

furnace must meet the following energy efficiency standard levels:

(1) For gas-fired commercial warm air furnaces manufactured on and after January 1, 

1994, and before [date 3 years after publication of the energy conservation standards 

final rule], the thermal efficiency at the maximum rated capacity (rated maximum input) 

must be not less than 80 percent; and

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(2) For gas-fired commercial warm air furnaces manufactured on and after [date 3 years 

after publication of the energy conservation standards final rule], the thermal efficiency 

at the maximum rated capacity (rated maximum input) must be not less than 82 percent.

(b) Oil-fired Commercial Warm Air Furnaces. Each oil-fired commercial warm air 

furnace must meet the following energy efficiency standard levels:

(1) For oil-fired commercial warm air furnaces manufactured on and after January 1, 

1994, and before [date 3 years after publication of the energy conservation standards 

final rule], the thermal efficiency at the maximum rated capacity (rated maximum input) 

must be not less than 81 percent; and

(2) For oil-fired commercial warm air furnaces manufactured on and after [date 3 years 

after publication of the energy conservation standards final rule], the thermal efficiency 

at the maximum rated capacity (rated maximum input) must be not less than 82 percent.

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