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announced, and to identify those changes made at the suggestion or recommendation of OIRA .** Draft, Deliberative, Do not cite or quote.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 1 2866 Interagency Review. Subject to Further Policy Review.**

[ 6450
- 01
- P ] DEPARTMENT OF ENERGY 10 CFR Part 43 1 [Docket Number EERE

– 2013

– BT

– STD

– 00 21 ] 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, air

conditioning, and water

- heating equipment in order to determine whether more

- stringent, amended standards would be technologically feasi ble and economically justified, and Formatted: Body

1** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** 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 propos ing 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 availa ble 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
FEDE RAL 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. Formatted: Not Highlight

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2** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** Instructions : Any comments submitted must identify the NOPR for Energy Conservation Standards for C ommercial W arm A ir F urnaces , and provide docket number
EE

- 2013

– BT

– STD

– 000 21 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 i t 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 i t is not necessary to include printed copi es.

Written comments regarding the burden

- hour estimates or other aspects of the collection

- of

- information requirements contained in this proposed rule may be submitted

3** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** to Office of Energy Efficiency and Renewable Energy through the methods listed above

a nd by e

- mail to Chad_S_Whiteman@omb.eop.gov

.

No telefacsimilies telefacsimil es (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 contain s a link to the docket for th is notice on the www.regulations.gov site. The www.regulations.gov webpage contain s 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 Edward s 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 Techno logies, 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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4** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.**
Mr. Eric Stas, U.S. Department of Energy, Office of the General Couns el, 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 Rul e 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 I II. 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 Formatted: Font color: Auto

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5** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** 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 Pa yback Period Analysis 1. In puts 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. Gover nment 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 a nd Key Assumptions 2. Valuation of Other Emissi ons Reductions M. Utility Impact Analysis N. Employment Impact Analysis V. An alytical Results and Conclusions A. Trial Stand ard 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 Formatted: Font color: Auto Formatted: Font color: Auto

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6** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** 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. Ne ed 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 Standa rds 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 Distri bution 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 Formatted: Font color: Auto Formatted: Font color: Auto Formatted: Font color: Auto Formatted: Font color: Auto
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7** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** I. Summary of the Proposed Rule
Title III, Part C 1 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 inc ludes 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 Low

Rise 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 stan dards 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 c overed equipment, su ch 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 add itional 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 Sta ndard 90.1

- 2013, see: http://www1.eere.energy.gov/buildings/appliance_standards/rulemaking.aspx?ruleid=108 Formatted: Font color: Auto

Comment [A1]: Footnote: Change recommended by OIRA.

8** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** 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 concl uded that there is clear and convincing evidence to support more

- stringent standards for both
gas - fired and oil

- fired CWAF

. Accordingly, DOE is propos ing 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

. 1 Table 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 8 2 %

* 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 condit ioning 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 determin ed using the DOE test procedure specified at 10 CFR 431.76. Formatted: Font color: Auto

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Comment [A2]: Change recommended by OIRA.

9** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** A. Benefits and Costs to Commercial Consumers Table I

. 2 Table I

. 2 presents DOE’s evaluation of the economic impacts of the proposed energy cons ervation standards on c ommercial consumers of CWAF , as measured by the average life

- cycle cost (LCC) savings and the median payback period (PBP)

. In overview, t he T he average LCC savings are positive for both equipment classes, and the PBP is less than the proposed standard s average lifetime of the equipment, which is estimated to be 19 years for gas - fired CWAF and 26 years for oil

fired CWAF

.

Table I . 2 . Impacts of Proposed Energy Conservation Standards on C ommercial Consumers of Commercial Warm Air Furnaces
Equipment Class Average LCC Savings ( 2013$ ) Median Payback Period (years) Gas

- Fired Furnaces 4 26 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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10** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** 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 p roposed standards on manufacturers is described in section IV.J of this notice.

C. National Benefits 3 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 in equipment installed during the 30

- year period that begins in the year of compliance with a mended 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 energy 4 This represents a savings over 30 years, of 1. 0 .02 quads, is equivalent to nearly 0.08 percent of total U.S. commercial sector relative 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 rang es 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 201 3 dollars and are discounted to 201 4

. 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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11** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.**

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 ( CO 2 ), 319.8 thousand tons of methane ( CH 4 ), 0.1 thousa nd tons of nitrous oxide ( N 2 O ), 2.2 thousand tons of sulfur dioxide ( SO 2 ), 66.84 thousand tons of nitrogen oxides ( NO X ) and 0.003 tons of mercury (Hg). The cumulative reduction in CO 2 emiss ions through 2030 amounts to 4.4 Mt.

The value of the CO 2 reductions is calculated using a range of values per metric ton of CO 2 (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 CO 2 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 mone tary value of the NO X

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 CO 2 ar e 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

- carbon

for

- regulator

- impact

- analysis.pdf )

. 8 The values only include CO 2 emissi ons; CO 2 equivalent emissions are not included. 9 The values only include CO 2 emissi ons; CO 2 equivalent emissions from other greenhouse gases are not included. Formatted: Font color: Auto

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Comment [A8]: Change recommended by OIRA (including footnote 9).

12** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** emissions reduction to be $34.2 million to $82.0 million at 7

- percent and 3

- percent discount rates, respectively. 10

Table I

. 3 Table I

. 3 summarizes the national economic costs and benefits expected to result from t oday’s proposed standards for CWAF

.

10 DOE is investigating monetization of reductions in SO 2 and Hg emissions. Formatted: Font color: Auto

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13** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** 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. 1 05 2 7% 2. 7 7 2 1 3% CO 2 Reduction Monetized Value ($12.0/t case)** 0. 2 1 75 5% CO 2 Reduction Monetized Value ($40. 5 /t case)** 0. 8 8 4 1 3% CO 2 Reduction Monetized Value ($62. 4 /t case)** 1. 3 3 47 2.5% CO 2 Reduction Monetized Value $119/t case)** 2. 6 6 06 3% NO X Reduction Monetized Value (at $2,68 4 /ton)** 0. 0 0 3 4 7% 0. 1 08 2 3% Total Benefits† 1. 9 9 28 7% 3. 6 6 4 5 3% Costs Incremental Installed Costs 0. 0 0 36 7% 0. 1 06 2 3% Total Net Benefits Including Emissions Reduction Monetized Value† 1. 9 8 9 2 7% 3. 6 58 2 3% * This table presents the costs and benefits associated with CWAF shipped in 201 8

− 204 7 . These results include benefits to impacts on c ommercial consumers which accrue after 2048 from the products purchased in 201 8

− 204 7

. 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 interagenc y 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 $11 9 /t in 2013$ ) , 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 tempera ture 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 NO X represents the average of the low and high NO X 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 201 8

- 204 7 , can also be ex pressed in terms of annualized values. The annualized monetary values are the sum of : (1) the annualized national economic value of the benefits from Formatted: Font color: Auto Formatted: Font color: Auto

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14** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** consumer operation of equipment that meet s 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 c ommercial consumer
NPV ) , and (2) the annualized monetary value of the benefits of CO 2 and NO X emission reductions. 11

Although combining the values of operating savings and CO 2 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

mar ket transactions , whereas the value of CO 2 reductions is based on a global value. Second, the assessments of operating cost savings and CO 2 savings are performed with different methods that use different time frames for analysis. The national operating c ost savings is measured for the lifetime of CWAF shipped in 201 8

– 20 4 7

. 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 impact s continue well Because CO 2 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 d iscounting 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 CO 2 reductions. For the latter, DOE used a range of discou nt 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 calculate d 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. Formatted: Font color: Auto

15** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** atmosphere, 12 the SCC values after 2050 reflect future climate

- related impacts resulting from the emission of CO 2 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 CO 2 reduction, for which DOE used a 3

- percent discount rate along with the a verage 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 $1 04 million per year in reduced equipment ope rating costs, $4 7 million in CO 2 reductions, and $3.3 8 million in reduced NO X emissions. In this case, the net benefit would amount to $15 1 million per year. Using a 3

- percent discount rate for all benefits and costs and the average SCC series, the estima ted 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, $4 7 million in CO 2 reductions, and $4. 57 million in reduced NO X emissions. In this case, the net benefit would amount to $ 200 million per year.

12 The atmospheric lifetime of CO 2 is estimated of the order of 30

– 95 years. Jacobson, MZ (2 005). "Correction to "Control of fossil

- fuel particulate black carbon and organic matter, possibly the most effective meth od of slowing global warming."" J. Geophys. Res . 110. pp. D14105. Comment [A11]: Change recommended by OIRA (including footnote 12 ).

16** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 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 1 63 CO 2 Reduction Monetized Value ($12.0/t case)** 5% 13 1 3 1 4 CO 2 Reduction Monetized Value ($40.5/t case)** 3% 47 45 48 CO 2 Reduction Monetized Value ($62.4/t case)** 2.5% 69 67 72 CO 2 Reduction Monetized Value ($119/t case)** 3% 145 140 150
NO X 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 CO 2 range 120 to 253 114 to 242 128 to 264

7% 154 147 163 3% plus CO 2 range 169 to 302 160 to 287 181 to 318

3% 203 192 216 Costs Incremental Equipment Costs 7% 3. 5 5 1 3. 5 48 3. 7 6 7 3% 3. 5 48 3. 4 4 1 3. 7 68 Net Benefits

Total† 7% plus CO 2 range 117 to 249 111 to 238 124 to 261

7% 151 143 159 3% plus CO 2 range 166 to 298 156 to 283 177 to 314

3% 200 189 212 Formatted

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... 17** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** * This table presents the annualized costs and benefits associated with CWAF shipped in 201 8

− 204 7

. These results include benefits to commercial c onsumers which accrue after 2048 from the products purchased in 201 8

− 204 7

. 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. I ncremental equipment cost s 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 se lected 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, an d 5 percent. The fourth set (represented by 2015 value of $11 9 /t , in 2013$ ), 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 chan ge 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 NO X represents the average of the low and high values considered in DOE’s analy sis. † 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 CO 2 range” and “3% plus CO 2 range,” the operating cost and NO X benefits are calculated using the labeled discount rate, and those values are added to the full range of CO 2 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 th at 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

c ommercial consumer benefits, commercial consum er LCC savings, and emission Comment [A14]: Change recommended by OIRA.

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18** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** reductions) would outweigh the burdens (loss of INPV for manufacturers and LCC increases for some commercial consumer s ).

DOE also considered more

- stringent energy efficiency levels as trial standard levels , and is still consi dering 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. Authori ty Title III, Part C 13 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

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19** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** 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 def initions (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 input 15 ) greater than or e qual 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 Residentia l 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 conduc ted 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. 11 2

- 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).

20** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** consider amending the energy conservation standards for these specified types of covered commercial and indust rial 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 trigge red 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 t hat 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.

21** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** 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 cert ain 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))
Fur thermore, 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

22** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy 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 consum ers 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 pro ducts 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 im pact 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 1 2866 Interagency Review. Subject to Further Policy Review.** energy efficiency of a covered product. (42 U.S.C. 6 313 ( 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 State s. (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 prod uct 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 app licable 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** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** 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 it s 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

- 20 10 , ASHRAE Standard 90.1

- 20 13), 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 amende d 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 practica ble, 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

25** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** 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. T he 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 p rocedures 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

26** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** 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) provis ions 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

- conditi oning 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 619 40. 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 Cent ral 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, i n accordance with the requirements of EPCA, as amended by AEMTCA, DOE must pu blish 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 Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** On May 2, 2013, DOE published a request for information (RFI) and notice of document availability for CWAF. 78 FR 25627. The notice solicited informati on 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 economical ly 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 Comment s on the CWAF RFI Name Abbreviation Commenter Type * Air

- Conditioning, Heating and Refrigeration Institute AHRI IR Appliance Standards Awareness Project, American Council for an Energy

Efficient 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 Air

Conditioning Engineers ASHRAE IR
* “ IR ” : Industry Representative; “ M ” : Manufacturer; “ EA ” : Efficiency/Environmental Advocate

.

28** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** III. General Discussion
A. Compliance Date As discussed in section II.A II.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 th is 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 prod uct

. (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 sta ndards 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 op tions for consideration in consultation with manufacturers, design Formatted: Line spacing: Double, Don't adjust space between Latin and Asian text, Don't adjust space between Asian text and numbers

Formatted: Font color: Auto 29** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** 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 option s are technologically feasible, it further evaluates each technology option in light of the following additional screening criteria : (1) practicability to manufac ture, 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.B IV.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 th ese screening criteria do not directly address the propriety proprietary status of design options. DOE only considers efficiency levels achieved through the use of proprietary designs in the engineeri ng 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 equipment covered in this rule making would not mandate the Comment [A18]: Change recommended by OIRA.

30** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** 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 in formation 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 effici ency 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 c hapter 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 (201 8

– 204 7 ). 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 t hat 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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Formatted: Font color: Auto** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** quantified the energy savings attributable to each TS L 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 more

efficient 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.H IV.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 national the energy savings on an annual basis are primarily in terms the 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 5128 1 (Aug ust 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 ef ficiency standards. DOE’s approach is based on

its presentation of nationa l 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. Formatted: Font color: Auto

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Comment [A19]: Change recommended by OIRA (including footnote 17).

32** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** 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 th is 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 Crit eria 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. Field Code Changed

Comment [A20]: Change recommended by OIRA.

Comment [A21]: Change recommended by OIRA.

33** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** 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 discu ssed 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 standa rds 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 Formatted: Font color: Auto

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34** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** standards on identifiable subgroups of consumers t hat 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 installatio n) 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, maintenanc e 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. Fo r its the 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 Formatted: Font color: Auto

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Comment [A22]: Change recommended by OIRA.

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35** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** 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.H IV.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 propose d 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 writi ng 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 Formatted: Font color: Auto Field Code Changed Formatted: Font color: Auto

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36** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** proposed rule to the Attorney General with a request that the Department of Justice (DOJ) provide its dete rmination 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 t he 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

.

T he 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 c onsidered, 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 Formatted: Font color: Auto

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37** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** 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 meet s 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 a nalysis 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 suppo rting or rebutting the results of any preliminary determination of economic justification). The rebuttable presumption payback calculation is discussed in section IV.F IV.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 t he second tool , the LCC i nputs spreadsheet, is a model spreadsheet that provides shipments Formatted: Font color: Auto

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38** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** forecasts, and the detailed inputs to the LCC spreadsheet. T he 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, th e 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 version variant of EIA’s National Energy Modeling System (NEMS) for the utility and environmental emissions analyses. The NEMS is a public domain, multi

- sectored, partial equilibrium model simulates of the
U.S. energy sector of the U.S. economy. that EIA uses NEMS to prepa re 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

- BT 18 and is based on the AEO version with minor modifications. 19 The NEMS

- BT model offers a

s ophisticated 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 pre sent 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 Modelin g 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). Comment [A23]: Change recommended by OIRA.

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Comment [A24]: Change recommended by OIRA (including footnote 20).

39** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.**

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 technol ogies 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

cove rage, 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

summar ized 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 fu rnace” 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 furnace s.” (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 rulemaki ng covers Formatted: Indent: First line: 0.5"

40** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** 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 c onservation standards, DOE divides covered equipment into equipment classes based on the type of energy used or by capacity or other performance

- related feature features that would justify having a higher or lower standard from that which applies to other e quipment 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 c lasses 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 Formatted: Font color: Auto

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41** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** requested feedback on the current equipment classes and sought information regarding other equipme nt 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) a nd 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 weatheri zed 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 s mall 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 tha t it believes that separate classes are needed for

non - weatherized and weatherized CWAF due to issues related to condensate management, but noted that creating separated separate equipment classes for weatherized and non

- weatherized commercial warm air furnaces would not lead to any significant Comment [A25]: Change recommended by OIRA.

Comment [A26]: Change recommended by OIRA.

42** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** 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 additi onal 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 de signed 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 Comment [A27]: Cha nge recommended by OIRA.

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43** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** stand ards 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

ar e 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 inp ut 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 ma ny 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 be low 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 wi th 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

44** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** 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 ai r 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 equipmen t 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 t hat 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 t he same efficiency as their single

phase 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 sugges ted 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 cap acity 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)

45** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** 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 ope n, 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 OIRA. Comment [A29]: Change recommended by OIRA.

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46** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** t echnologies 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 ef ficiency 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 multip le 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 co rrosion. Lennox stated that 82

- percent thermal efficiency furnaces are similar to 80

- percent furnaces except that more heat transfer surface is Formatted: Font color: Auto

47** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** needed, and the amount of excess air required to support complete combustion has to be reduced, and the comment er 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

- a ltitude 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, includi ng 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 incre ased. 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 ex changer, 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

48** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** s econdary heat exchanger, a larger combustion inducer, piping, and thermostatically

controlled 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 all ows 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 cr ack 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 imp roving 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 exchang er (HX) surface area 21

• 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) tha t would cause the furnace to operate more efficiently.
49** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.**
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.
However These issues relate specifically to the handling of acidic condensate produced by a condensing furnace in the secondary heat exchanger. Cond ensate 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 th e 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 non

weatherized installations. Condensate prod uced 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 that found 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 high er thermal efficiency, they al low the implementation of condensing operation, which cause s the furnace to operate more efficiently. Comment [A30]: Change recommended by OIRA.

50** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** 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 techno logy option. As discussed in section
IV.B and IV.C.2.b IV.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 condens ing 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 NO X premix burners

• Low pressure, a ir

- 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.

51** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.**

B. Screening Analysis After DOE identified the technologies that might improve the energy efficiency of CWAF, DOE conduct ed 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 equi pment 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: D OE 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

52** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** unavailabi lity 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 He alth 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 scr eening 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 efficien cy 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.

53** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** 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 NO X 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 c oncentric 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.

54** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** 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 cost

benefit 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 des ign

- 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

- as sessment) 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

55** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** 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 relation ship for CWAF, it anticipated having to structure its engineering analysis using the reverse

engineering approach, potentially including physical and catalog teardowns. DOE requested comments on the approach outlined in the RFI and on the appropriate
repr esentative 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 reverse

engineering 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 th e 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,

56** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** which was subsequently scaled down via cost modeling techniques to represent a un it 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 chap ter 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 analys es, 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 e xceed, 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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57** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** 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 availa ble 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 fo r 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 r eviewed 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/s dpsearch/search.jsp?table=CFurnace

. Formatted: Font color: Auto

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58** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** between the baseline and max

- tech for analysis (see Table IV

. 4 )

. Table IV

. 4 ). For oil

fired 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 gas fired 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 fail ure 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 gas fired commercial warm air furnaces have stayed near a thermal efficiency of 80 percent. As discussed previously in section IV.A.3 IV.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. Formatted: Font color: Auto

Field Code Changed

59** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** 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 effi ciency. 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 meeti ng 82

- percent thermal efficiency. DOE acknowledges the concerns raised regarding the near

condensing 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 effic iency. 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 surveye d the market and found non

condensing 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 effic iency levels DOE considered for each equipment class during the NOPR analyses (including the baseline levels) are presented
in Table IV

. 4 and Table IV

. 5 Table IV

. 4 and Table IV

. 5

. Comment [A33]: Change recommended by OIRA. Comment [A34]: Change recommended by OIRA.

60** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** 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 oil

fired 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 effici ency level for gas

fired 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 we re 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 effic iency for gas

- fired units, and 92

- percent thermal efficiency for oil

- fired units. DOE based the selection of units for

61** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** testing and reverse engineering on the efficiency data available in the AHRI certification database 25 and the CEC equipment database. 26 D etails 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, blow er 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 th at 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 reverse

engineering of the furnace s ection 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 va ry 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

.
62** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** intermediate level. At the 80

- percent and 81

- percent thermal efficiency levels, DOE scaled down the size of the h eat 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 c ommercial 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 util izes 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 as sembly, 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 non

weatherized furnace at 81

- percent thermal efficiency. DOE used this teardown, along with product literature, prior industry experience, manufacturer feedback, and analysis previously per formed on residential furnaces to develop cost estimates at the 82

- percent and 92

- percent thermal efficiency levels.

63** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** In a previous analysis of residential non

- weatherized oil

- fired furnaces, DOE developed an estimate of the cost

- efficiency relationship a cross 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 ob tained 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 eff iciency 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 compari sons 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

- g rade 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

64** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** components sensitive to cabinet size changes we re 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 cost

efficiency relationship for this equipment class

. The teardown analyses are described in further detail in section 5.6 of the prop osed 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 val ues 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 d ollar 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 volume

variable price quotations and detailed discussions with manufac turers 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.

65** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** 5. Manufacturing Production Costs
Once the cost estimates for all the components in each teardown unit were finalized, DOE totaled the cost of ma terials, 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, referr ed 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 effici ency 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. , mate rials, 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. DO E 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 technologi es DOE analyzed for each thermal efficiency Comment [A36]: Change recommended by OIRA.

66** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** 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 oi l

- 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 produ ction 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 a ll 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.

67** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** an important bearing on profitability. A high markup under a standards scenario suggests manufacturers can r eadily 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 accounti ng 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 equipmen t 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 straight

frame trailer with a s torage 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 enclos ed within a

27 U.S. Secu rities and Exchange Commission , Annual 10

- K Reports ( Various Years ) (Available at: http://www.sec.gov/edgar/searchedgar/companysearch.html ) (Last Accessed Dec. 13, 2013).

68** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** cabinet that also contains a commercial unitary air conditioner (CUAC)

. Thus, the CUAC components are significant factor in driving the overall cabinet dimension s . DOE found that the changes in CWAF component sizes necessary to achieve the 81 p ercent 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 inc reased CWA F 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 addi tional 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 self

contained 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. Formatted: Font: 10 pt Formatted: Normal

69** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** 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. (“C ommercial c ons umer” 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 c ommercial cons umer. 78 FR 25627, 25632 (May 2, 2013)

. The first distribution channel is characterized as fol lows:

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 Accou nt)

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 70** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** described, for very large air

- cooled equipment, there is an additional channel that co nsists 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 con tractor 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 contract or, 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 coolin g 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 wh o 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 t he 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 des cribed in the RFI, with the remainder split among the other channels. (Carrier, No. 2 at p. 4) Lennox stated that the

71** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** 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 Report 28 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 industry 29 to develop mechanical contractor markups, and (3) U.S. Census Bureau’s 2007 Economic Census data 30 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 Ame rica (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 Burea u, 2007 Economic Census Data (2 007 ) ( Available at : http://www.census.gov/econ/ ) (Last accessed April 10, 2013). Formatted: Font color: Auto

72** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** In addition to the markups, DOE derived S tate 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 increa sed 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 fa ctors 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 Adm inistration (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 dev elopment 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

.
73** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** 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 ac counted 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 ai r 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 comm ercial 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 prof iles. 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 t han 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).

74** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** DOE assumed that the CBECS data are representative of the energy use measured in the field for the U.S. commer cial building types. CBECS provides information about buildings with a wide range of energy use representing both high

- energy - use and low

energy - 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 distribut ion 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 st andard . (Carrier, No. 2 a t 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 i t 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 )

.

75** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.**

Lennox stated that in its experience, furnaces with higher th ermal 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 high er increased blower fan electricity use by fans in 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 ins talled 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 perce n t of gas

- fired CWAF . All oil

- fired
CWAF s are assumed to be installed indoors s o 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 a nd 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 building s Comment [A40]: Change recommended by OIRA.

76** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** 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, de creasing the heating load, the efficiency of the equipment is also likely to improve, which woul d 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 determin ing 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 installa tion 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). Comment [A41]: Change recommended by OIRA.

77** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** 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 more

efficient 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

en ergy 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 an d 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

78** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** 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 t hat 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 rece ive 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 consumer s 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 noti ce 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 2014 201 5 , 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 thi s equipment. Formatted: Font color: Auto

Comment [A42]: Change recommended by OIRA. Comment [A43]: Change recommended by OIRA.

79** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** 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 o f 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 build ings 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 electr ic 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 electric equipment lifetime and Comment [A44]: Change recommended by OIRA.

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80** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** gas discount rates, that affect the LCC analysis

. The method advocated by Carrier typically uses average v alues, 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 c ost, 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

c ommercial cons umer equi pment 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. T he PPI for "Warm air furnaces" show s 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 inclu ding 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.

81** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** 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 facto r 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 technolog ies, 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. It On 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 co sts 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). Formatted: Font color: Auto

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Comment [A47]: Change recommended by OIRA.

Comment [A48]: Change recommended by OIRA.

82** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** 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. Formatted: Font color: Auto

83** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** 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 a ctual 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 data 41 to calculate commercial electricity prices, EIA’s Natural Gas Navigator 42 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). Formatted: Font color: Auto

84** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** c. Maintenance and Repair Co sts 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 cost s 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 2 two to 3 three times the maintenan ce 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 cos ts 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; inspect ing the grounding and power connection of heat
t ape ; 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).

85** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** annualized maintenance cost is $289 for 82

- percent TE units, and $317 for 92 percent TE
units.

For condensing oil

- fired commercial warm air furnace s, 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 equ ipment 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 functio n 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 requir ed 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 OIRA.

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86** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** 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 $0.5 7 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 co mmercial 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. Comment [A50]: Change recommended by OIRA.

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87** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** For gas

- fired commercial warm air furnaces, DOE used t he 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 ef ficiency 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 capi tal 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 stand ards. 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 T echnical Support Document for Small, Large, and Very Large Commerci al 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 ). Comment [A51]: Change recommended by OIRA. Formatted: Font color: Auto

88** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** 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 a t 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 expect s that the resultant efficiency trend will be flat for commercial warm air furnaces combined in air con ditioning 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 hig her

- 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

- f ired 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). Formatted: Font color: Auto

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89** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.**
A rebound effect occurs when a piece of equipment that is made more efficient is used more intensively, such that the expect ed 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 f urnaces. 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 f lows. DOE develops shipment projections based on historical data Formatted: Font color: Auto

Comment [A52]: Change recommended by OIRA. Formatted: Font color: Auto

90** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** 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 da ta 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 AHRI 54 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

- Cover ed 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 T he fraction of non

- heat pump CUAC e quipment 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

- Historical

Data ). (Last accessed January 7, 2015). Formatted: English (U.S.)

Comment [A53]: Change recommende d by OIRA (including footnote 54).

91** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.**
The CWAF shipments model considers two market segments: (1) new commercial buildings acquiring equipment; (2) existing buildings replacing old equipment.

For new com mercial 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 const ruction starts by using recorded data through 2012 55 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 (f rom 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 acces sed 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://ww w.census.gov/construction/mhs/pdf/placnsa_all.pdf ) (Last accessed March 15, 2013)

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92** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** 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 CW AF 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 repl ace 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 NO PR 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 o nes.

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 p erspective, 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 pr esent) of the total Formatted: Font color: Auto

93** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** 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

c ommercial cons umer 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 per

unit annual energy use data multiplied by projected shipments. As explained in section
IV.E IV.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 proje ctions . The per

56 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 pro vides 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.
94** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** 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 204 0 ) 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 p rice decline. DOE also developed a sensitivity analysis that considered one scenario with a lower rate of price decline than the R eference case and one scenario with a higher rate of price decline than the R eference case.

The aggregate difference each y ear 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 inclu ding duct furnaces, humidifier s 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.white house.gov/omb/circulars_a004_a

- 4 )

.

95** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** the determination of NPV ar e 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 h ave 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 t he 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 standard s 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 it s 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 effic iencies 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

96** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** re - orients the distribution at and above the new or amended minimum energy

conserv ation 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 com mercial 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 Stan dards” appointed by the National Academy of Science s , DOE announc ed 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). A fter evaluating the approaches discussed in the August 18, 2011 notice, DOE published a statement of amended policy in the

97** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** Federal Register in which DOE explained its determination that NEMS is the most appropriate tool for its FFC analysis and its intenti on 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 T SD.

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 e mployment 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 rule making. The key GRIM inputs are data on the industry cost structure, equipment costs, shipments, and assumptions Formatted: Font: Not Bold, Not Italic, Font color: Auto

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98** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** about markups and conversion expenditures. The key output is the industry net present value (INPV). Different sets of assumptions (markup sc enarios) 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 Comm ission (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 s tandard. 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

- uni t prices and possible changes in sales volumes.

59 U.S. Census Bureau, Annual Survey of Manufacturers: General Statistics: Statistics for Indus try 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.

99** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.**

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 manuf acturers 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 emp loy 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

100** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** manufacturers that qualify as small businesses under the SBA def inition. 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 i n 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 calculate s cash flows using standard accounting principles and compare s changes in INPV between a base case and each standards case

. T he 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

- a vailable data and interviews with a number of manufacturers

101** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** (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 t he 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 typic ally 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 an alysis.

In the MIA, DOE used the MPCs for each considered efficiency level calculated in the engineering analysis, as described in section IV.C IV.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

102** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** The GRIM estimates manufacturer revenues based on total unit shipment forecasts and the distribution of the se 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 analy sis from 2014 (the base year) to 204 7 (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 woul d “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 di rect 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 pres ervation of per

- unit operating profit

103** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** 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. Formatted: Font color: Auto

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104** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** In the preservation of op erating 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 woul d be needed to comply with each considered efficiency level in each equipment class. For the Formatted: Font color: Auto

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105** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** MIA, DOE classified these conversion costs into two major groups: (1) product conversion costs; and (2) capital conversion costs. Product conversion costs are on e - 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 f rom 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 c osts expected at each efficiency level, and (2) a
Bottoms Bottom

- 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
appr oximation 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

106** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** Bottoms Bott om - Up approach took capital conversion costs from the engineering analysis
on a per - manufacturer basis to develop an industry

- wide cost estimate. This analysis include d the expected equipment, tooling, conveyor , and plant costs associated with CWAF produc tion, 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 pro duct 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 Bottoms Bottom

- Up approach, DOE used vendor quotes, industr y 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.

107** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** 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 estimate d 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 manufact urers’ 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

re commendation ), inc luding 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 an d related data.

108** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.**
Condensate Disposal The primary concern among the interview participants centered on condensate formation at efficiency levels above 81 to 82 percent. S ix out of the seven Nearly all interviewed CWAF manufacturers cited raised 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 high

efficiency 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 disp osal 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 engineeri ng 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.

109** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.**
Increased Operating Risks for the End User Many interview participants expr essed 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 roof top 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 be nefits 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 th e technical challenges of installing a condensing rooftop furnace can be overcome , and thi s has been demonstrated by the dedicated outdoor air systems that are currently on the mark et, 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

110** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** During interviews, most manufacturers expre ssed 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 pr ice 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 co st 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, less

efficient units that are repaired rather than replaced with newer, more

- efficient units. Manufacturers expressed concern over a potential con traction 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 in stalled 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 chapt er 9 of the TSD (shipments analysis)

.

111** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** K. Emissions Analysis In the emissions analysis, DOE estimates the reduction in power sector emissions of carbon dioxide ( CO 2 ), nitrogen oxides ( NO X ), sulfur dioxide ( SO 2 ), 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 5128 1 (Aug. 18, 2011)), the FFC analysis includes impacts on emissions of methane ( CH 4 ) and nitrous oxide ( N 2 O ), 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 , there by 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 CO 2 , NO X , SO 2 , and mercury (Hg). 61

DOE primarily conducted the emissions analysis using emissions factors for CO 2 and most of the other gases derived from data in EIA’s Annual Energy Outlook 2013 ( AEO 2013 ). Combustion emissions of CH 4 and N 2 O 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 CO 2 , NO X , and SO 2 is larger than the increase in power sector emissions

.
112** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** GHG Emissions Factors Hub. 62 Site emissions of CO 2 and NO X were estimated using emissions intensity fact ors 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 CH 4 and N 2 O , DOE calculated emi ssions reduction in tons and also in terms of units of carbon dioxide equivalent ( CO 2 eq). Gases are converted to CO 2 eq by multiplying by the gas' global warming potential (GWP) over a 100

- year time horizon. Based on the Fourth Assessment Report of the In tergovernmental Panel on Climate Change, 64 DOE used GWP values of 25 for CH 4 and 298 for N 2 O

.

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. My hre, 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, Camb ridge, United Kingdom and New York, NY, USA. p. 212.

113** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** Because the on

- site operation of CWAF requires use of fossil fuels and results in emissions of CO 2 , NO X , and SO 2 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 poten tial standards.

SO 2 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 SO 2 for affected EGUs in the 48 contigu ous States and the District of Columbia (D.C.). SO 2 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 wi th 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 Pol lution 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 Generati on , No 12

- 1182, s lip o p. at 32 ( U.S. April 29, 2014). B ecause 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.

114** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.**
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 SO 2 emissions allowances resulting from the lower electricity demand caused by the adoption of an efficiency standard could be used to permit offsetting increases in SO 2 emissions by any regulated EGU. In past rulemakings, DOE recognized that t here was uncertainty about the effects of efficiency standards on
SO 2 emissions covered by the existing cap

- and

- trade system, but it concluded that negligible reductions in power sector SO 2 emissions would occur as a result of standards.

Beginning in 2015 , however, SO 2 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
SO 2 (a non

- HAP acid gas) as an alternative equivalent surrogate standard for acid gas
H AP. The same controls are used to reduce HAP and non

- HAP acid gas; thus, SO 2 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 SO 2 emissions. Under the MATS, NEMS show s a

force. The difference between CAIR and CSAPR is not relevant for the purpose of DOE's analysis of SO 2 emissions.

115** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** reduction in SO 2 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 SO 2 emissions allowances resulting from the lower ele ctricity demand would be needed or used to permit offsetting increases in SO 2 emissions by any regulated EGU. Therefore, DOE believes that energy efficiency standards will reduce SO 2 emissions in 2015 and beyond.

CAIR established a cap on NO X emissions in 28 eastern States and the District of Columbia. Energy conservation standards are expected to have little effect on NO x emissions in those States covered by CAIR because excess NO x emissions allowances resulting from the lower electricity dem and could be used to permit offsetting increases in NO x emissions. However, standards would be expected to reduce NO x emissions in the States not affected by the caps, so DOE estimated NO x 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 fact ors 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 CO 2 and NO X that are expected to result

116** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** 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 t he 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 Car bon 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 f rom 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,

117** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** 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 regulatio n justify its costs. The purpose of the SCC estimates presented here is to allow agencies to incorporate the monetized social benefits of reducing CO 2 emissions into cost

- benefit analyses of regulatory actions. The estimates are presented with an acknowle dgement 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 est imates, 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 ran ge 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 ru lemaking 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 climat e system; (3) the impact of changes

118** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** 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 cha nge 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

. T he 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 th e 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 Carbo n 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

119** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** process, to quantify avoided climate change damages from reduced CO 2 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 CO 2 . 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 con sidered 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

c ited 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

120** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** different approaches to quantifying damages taken by the key modele rs 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 sen sitivity 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 i n 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, althou gh preference is given to consideration of the global benefits of reducing CO 2 emissions. Table IV . 11 9 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

- Carbo n - for

RIA.pdf )

. 69 Id

.
121** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.**

Table IV . 10 . Annual SCC Values from 2010 Interagency Report, 2010

– 2050 (in 2007 dollars per metric ton CO 2 )

Year Discount Rate % 5 3 2.5 3 Average Average Average 95 th 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 peer

reviewed literature. 70 Table IV

. 12 10 shows the updated sets of SCC estimates from th e 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 capt uring 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

- carb on for

- 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

122** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.**

Table IV . 11 . Annual SCC Values from 2013 Interagency Update, 2010

– 2050 (in 2007 dollars per metric ton CO 2 )

Year Discount Rate % 5 3 2.5 3 Average Average Average 95 th 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
goa l 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 be ing addressed by the research community, includ ing 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 a nd 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"

123** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.**
In summary, in considering the potential global benefits resulting from reduced
CO 2 emissions, DOE used the values from the 2013 interagency report, adjusted to 201 3 $ 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 $11 9 per metric ton avoided (values expressed in 201 3 $). DOE derived values For the years after
2050 using , DOE applied the relevant average 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 CO 2 emissions reduction estimated for each year by the SC C 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 NO X emissions nationwide and increase power sector NO X emissions in those 22 States not affected by the CAIR. DOE estimated the monetized value of net NO X 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 NO X from stationary sources range from $4 76 to $4,89 3 per

71 The post

- 2050 annual growth rates for the four SCC cases are 2.6%, 1.6%, 1.3%, and 1.5%. Comment [A56]: Change recommended by OIRA (including footnote 71).

124** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** ton in 201 3 $. 72 DOE calculated monetary benefits using a medium value for NO X emissions of $2,6 8 4 per short ton (in 2013$ ) , and NO X real discount rates of 3 percent

a nd 7 percent.

DOE is evaluating appropriate monetization of avoided SO 2 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 estima tes several effects on the power electricity 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, multi

sectored, part ial 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’s use d 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 an d 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 Natio nal 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 co de 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 OIRA.

125** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** 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 ex penditures 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 e conomy.

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 it s 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 se ctor

126** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** 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 labor

intensive than other sectors. Energy conservation standards have the effect of reducing consumer utility bills. Because reduced consumer expenditures for energy likely lead to increased expenditures in other sectors of the economy, the genera l 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 nation al 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 en ergy saving 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, speci ally aggregated to the 187 sectors most relevant to industrial, commercial, and residential

75 See Bu reau 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 Sect or Energy Technologies , PNNL

- 18412, Pacific Northwest National Laboratory (2009) (Available at: www.pnl.gov/main/publications/external/technical_reports/PNNL

- 18412.pdf ).

127** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** building energy use. DOE notes that ImSET is not a general equilibrium forecasting model, and understands the uncertainties involved in projecting employment impac ts, especially changes in the later years of the analysis. Because ImSET does not incorporate price changes, the employment effects predicted by ImSET may over

estimate actual job impacts over the long run. For the NOPR, DOE used ImSET only to estimate s hort

- 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 standar d 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 differe nt efficiency levels, which are potential standard levels for each equipment class. DOE analyzed the benefits and burdens of the TSLs developed for

128** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** 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

- co ndensing 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. Thes e analyses are discussed below.

129** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** 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 installatio n 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 PB P 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

consumer equipment 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 OIRA.

130** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.**

Table V .2 and Table V

. 3 Table 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 1 Baseline 81 80 % $2, 271 26 2 $26, 343 623 $28, 613 8 85 $186 N A 1 0 % 33 100 % 66 0 % 0.6 NA
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. Formatted: Font: 10 pt Formatted Table

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Formatted: Font: 10 pt, Font color: Auto Formatted: Font: 10 pt Formatted: Font: 10 pt, Font color: Auto Formatted Table Formatted: Font: 10 pt 131** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** 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 1 Baseline

, 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 . T he 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 Formatted: Font: 10 pt Formatted Table

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132** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** * 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.2 III.C.2 , EPCA establishes a rebuttable presumption that an energy conservation stan dard is economically justified if the increased purchase cost for equipment that meets the standard is less than three times the value of the first

year energy savings resulting from the standard. DOE calculated a rebuttable

presumption 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 th e 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 Comment [A64]: Change recommended by OIRA.

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133** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.**

Gas

- fired 0. 018 0 2 0. 018 0 2 0. 019 0 2 0. 019 0 2 0. 445 44 Oil

- fired

- 0. 143 14

- 0. 143 14 0. 631 63 * 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 distributi on 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 potenti al 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 a nd 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 Comment [A65]: Change recommended by OIRA. Comment [A66]: Change recommended by OIRA.

Comment [A67]: Change recommended by OIRA.

134** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** 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 lowe st 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 impact s 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 stan dards 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 bel ow shows potential INPV impacts for CWAF manufacturers; Table V

. 6. reflects the lower bound of impacts, and Table V .7 represents the upper bound.

135** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** 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.

136** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** 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 Inputs IV.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
137** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** total shipments be low 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

- D own methodolog y relied on manufacturer feedback, AHRI listing data, and market share estimates. A
Bottoms Bottom

- U p methodology was also used to estimate industry conversion costs , under which DOE relied on test lab pricing quotes, industry product literature, and the

en gineering 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.

138** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** 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 t he 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
milli on. 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 p ercent) 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

139** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** potential standard level, industry free cash flow is estimated to decrease by as much as 334.7 percent to

- $14.8 million, c ompared 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. , E L 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 t han double from TSL 4 to TSL 5. T he vast majority of the industry do es not offer condensing commercial furnace s to day and would need to develop condensing technology for commercial applications. Implementing a condensing commercial furnace w ould likely hav e 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,

140** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** 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
comp onent 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 (20 18).

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 t he 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 nece ssary 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/ ).

141** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.**
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 p roduction 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 operati ons, 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

- intensi ve 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 forecast s.

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 domest ically. The employment impact estimates in Table V.8 below show a range of potential production employment levels that could exist following the
142** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** compliance date of amended energy conservation standards. These direct employment
i mpacts 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 Prod uction 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 expenditur e. The major costs and changes for increasing product efficiency at lower levels would be for capital, not labor. On the other hand, the m ax - t ech level at TSL 5 would require significant increases in both capital and labor expenditure due to increased co mplexity 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 conversion s Formatted: Font color: Auto Formatted: Font color: Auto Formatted: Font color: Auto Formatted: Font color: Auto Formatted: Font color: Auto

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143** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** and product redesign s . DOE assumes manufa cturers 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, t here is no consideration given to the fact that there may be employment grow th in higher

efficiency 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 re quire d 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 Formatted: Indent: First line: 0", Line spacing: single

144** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** 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

sm all 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, f or a more detailed discussion of DOE’s assessme nt 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 manufacture rs, 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

145** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** 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 com pliance 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 industr y conversion costs of relevant amended energy conservation standards are indicated in Table V

. 9 below

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146** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** 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 E xpense 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 $ 35.2 M (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 oil

fired boilers associated with the November 2007 final rule for residential furnaces and boilers are excluded from this figure. With regard to oil

- fired furances furnaces , t he 2011 direct final rule for residential furnaces sets a higher standard an d 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 t his table. With regard to gas

- fired and oil

fired 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 Formatted: Font color: Auto

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147** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** 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 publish ed 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 reac hed 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 decision 79 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 ( Aug ust 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). Formatted: Font color: Auto

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148** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** HCFC

- 22, which is also known as R

- 22, is a popular refrigerant that is commonly used in air

- conditioning products. Many manufactu rers of CWAF also manufacture air

conditioning 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 cumulativ e 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 Analy sis

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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149** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** 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

- 4 80 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 underlyi ng 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 ene rgy conservation standards and potential revision of and compliance with such revised

80 OMB, Circular A

- 4: Regulatory Analysis (Sept. 17, 2003). Formatted: Font color: Auto Formatted: Font color: Auto Formatted: Font color: Auto Formatted: Font color: Auto Formatted: Font color: Auto Formatted: Font color: Auto Formatted: Font color: Auto Formatted: Font color: Auto Formatted: Font color: Auto Formatted: Font color: Auto Formatted: Font color: Auto Formatted: Font color: Auto Formatted: Font color: Auto Formatted: Font color: Auto Formatted: Font color: Auto

150** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** 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 accor dance 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 af ter 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 vari ability 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. Formatted Table Formatted: Font color: Auto Formatted: Font color: Auto Formatted: Font color: Auto Formatted: Font color: Auto Formatted: Font color: Auto Formatted: Font color: Auto Formatted: Font color: Auto Formatted: Font color: Auto Formatted: Font color: Auto Formatted: Font color: Auto Formatted: Font color: Auto Formatted: Not Highlight Formatted: Font color: Auto Formatted: Not Highlight Formatted: Font color: Auto Formatted: Not Highlight Formatted: Font color: Auto Formatted: Not Highlight Formatted: Font color: Auto Formatted: Not Highlight

151** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** 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 r eflects 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 t o 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 )

.

152** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** 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

– 20 26
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 Formatted Table

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153** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** 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 show s 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 R eference 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 affe ct the demand for labor. As described in section IV.N IV.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 i n 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 dema nd 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.

154** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.**

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 Competi tion 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 deter mination 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

en ergy 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
155** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** 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 chapter 13 of the NOPR TSD

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156** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** 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* CO 2 (million metric tons) 10.7 10.8 24.8 24.9 162.8 SO 2 (thousand tons) 0.9 0.9 2.2 2.2 4.6 NO X (thousand tons) 9.2 9.3 21.3 21.4 141.9 Hg (tons) 0.001 0.001 0.003 0.003 0.005 CH 4 (thousand tons) 0.3 0.3 0.6 0.6 3.7 N 2 O (thousand tons) 0.033 0.035 0.077 0.079 0.435 Upstream Emissions CO 2 (million metric tons) 1.3 1.3 3.0 3.0 19.8 SO 2 (thousand tons) 0.0 0.0 0.0 0.0 0.2 NO X (thousand tons) 19.5 19.6 45.3 45.4 302.3 Hg (tons) 0.000 0.000 0.000 0.000 0.000 CH 4 (thousand tons) 137.4 137.5 319.0 319.2 2107.1 N 2 O (thousand tons) 0.002 0.003 0.006 0.006 0.038 Total Emissions CO 2 (million metric tons) 12.0 12.1 27.8 27.9 182.5 SO 2 (thousand tons) 0.9 1.0 2.2 2.2 4.8 NO X (thousand tons) 28.7 28.9 66.6 66.8 444.1 Hg (tons) 0.001 0.001 0.003 0.003 0.005 CH 4 (thousand tons) 137.6 137.8 319.7 319.8 2110.8 N 2 O (thousand tons) 0.036 0.038 0.083 0.085 0.472 CH 4 (million tons CO 2 eq)** 3.4 3.4 8.0 8.0 52.8 N 2 O (thousand tons CO 2 eq)** 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. ** CO 2 eq is the quantity of CO 2 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 CO 2 and NO X that DOE estimated for each Formatted: Font color: Auto

157** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** of the TSLs considered for CWAF. As discussed in section IV.L IV.L , DOE used the most recent values for the SCC developed by an interagency process. The four sets of SCC values for CO 2 emissions reductions in 2015 resulting from that process (expressed in 201 3 $) 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), $6 2

. 4 /metric ton (the average value from a distribution that uses a 2.5

- percent discount rate), and $11 9 /metric ton (the 95 th

- percentile value from a distribution th at 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 CO 2 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 studi es 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
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158** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** Table V . 16 . Estimates of Global Present Value of CO 2 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, 95 th 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 scientif ic and economic knowledge about the contribution of CO 2 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 CO 2 emissions in this rulemaking is subject to change. DOE, together with other Federal agencies, will continue to review various Formatted: Font color: Auto

159** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** methodologies for estimating the monetary value of reductions in CO 2 and other GHG emissi ons. 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
in to 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

as sociated with NO X 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 NO X emissions reductions for each TSL calculated using the average dollar

per - ton values and seven

- percent and three

- percent discount rates.

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160** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** Table V . 17 . Estimates of Present Value of NO X 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 Formatted: Font color: Auto Formatted Table

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161** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** each TSL considered in this rulemaking. Table V

. 18. presents the NPV values that result from adding the estimates of the potential ec onomic benefits resulting from reduced CO 2 and NO X 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 seven

percent and three

- percent discount rate. The CO 2 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 CO 2 and NO X Emissions Reductions

TSL Consumer NPV at 3% Discount Rate added with: SCC Case $1 2.0 /metric ton CO 2 * and Medium Value for NO X SCC Case $ 40. 5 /metric ton CO 2 * and Medium Value for NO X SCC Case $6 2 . 4 /metric ton CO 2 * and Medium Value for NO X SCC Case $11 9 /metric ton CO 2 * and Medium

Value for NO X 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 2 8.1

TSL Consumer NPV at 7% Discount Rate added with: SCC Case $ 12.0 /metric ton CO 2 * SCC Case $ 40. 5 /metric ton CO 2 * SCC Case $6 2 . 4 /metric ton CO 2 * SCC Case $11 9 /metric ton CO 2 * Billion 2013$ 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 NO X emissions, each case uses the medium value, which corresponds to $2,6 8 4 per ton.

162** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** 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 CO 2 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 e quipment 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 CO 2 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 Formatted: Font color: Auto

163** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** 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.b V.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 begi ns in the year of compliance with amended standards (2018

- 2047). The energy savings, emissions reductions, and value of emissions reductions refer to full

- fuel

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164** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** Table V . 19 . Summary of Analytica l 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)* CO 2 ( million metric tons) 12.0 12.1 27.8 27.9 182.5 SO 2 ( thousand tons) 0.9 1.0 2.2 2.2 4.8 NO X ( thousand tons) 28.7 28.9 66.6 66.8 444.1 Hg ( tons) 0. 001 0. 001 0. 003 0. 003 0. 005 CH 4 ( thousand tons) 137.6 137.8 319.7 319.8 2110.8 N 2 O ( thousand tons) 0. 04 0. 04 0. 08 0. 08 0. 47 CH 4 ( million tons CO 2 eq**) 3.4 3.4 8.0 8.0 52.8 N 2 O ( thousand tons CO 2 eq**) 10.6 11.2 24.7 25.2 140.7 Value of Emissions Reduction (Total FFC Emissions) CO 2 ( 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 NO X – 3% discount rate ( 2013$ million) 35.2 35.4 81.7 82.0 550.9 NO X – 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. ** CO 2 eq is the quantity of CO 2 that would have the same global warming potential (GWP). † Range of the economic value of CO 2 reductions is based on estimates of the global benefit of reduced CO 2 emissions. Formatted Table

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165** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** 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 $1 86 $1 86 $4 26 $4 26 $1,02 5 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 1 2.2 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% 4 8 % Customers with Net Benefit ( %) 66% 66% 88% 88% 5 1 % Customers with No Impact ( %) 33% 33% 10% 10% 1% Oil
- fired Furnaces** Customers with Net Cost ( %) 0% 8 % 0% 8 % 4 7 % Customers with Net Benefit ( %) 0% 2 3 % 0% 2 3 % 5 3 % 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. Sin ce 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 10 0%.

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

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... 166** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.**

The cumulative emissions reductions at TSL 5 are 182.5 million metric tons of
CO 2 , 444.12 thousand tons of NO X , 4.80 thousand tons of SO 2 , and 0.005 tons of Hg. The estimated monetary value of the CO 2 emissions reductions at TSL 5 ranges from $1. 2 billion to $1 7.1 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 CW AF 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, t he projected change in INPV ranges from a decrease of $ 98.3 million
to a n in crease 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 tha t, 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.

167** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** 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 5 4 are 27.9 million metric tons of
CO 2 , 66.84 thousand tons of NO X , 2.21 thousand tons of SO 2 , and 0.003 tons of Hg. The estimated monetary value of the CO 2 emissions reductions at TS L 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 consumer s 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 coul d 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 o f commercial consumer benefit, positive impacts on consumers (as indicated by positive average LCC savings, favorable PBPs, and the large percentage of

168** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** 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 justi fied, 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 stan dards (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 Formatted: Font color: Auto

169** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** the benefits of emission reductions, inc luding CO 2 emission reductions. 83 The value of
CO 2 reductions, otherwise known as the Social Cost of Carbon (SCC), is calculated using a range of values per metric ton of CO 2 developed by a recent interagency process.

Although combining the values of oper ating savings and CO 2 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 C O 2 reductions is based on a global value. Second, the assessments of operating cost savings and CO 2 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 20 18

– 20 47

. 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.

Es timates 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 CO 2 r eduction, for which DOE used a 3

- percent discount rate along wi th 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 fo r 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 CO 2 reductions. For the latter, DOE used a range of disc ount 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. Formatted: Font color: Auto Formatted: Font color: Auto

170** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** 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 $1 04 million per year in reduced equip ment operating costs, $4 7 million in CO 2 reductions, and $3.3 8 million in reduced NO X emissions. In this case, the net benefit would amount to $15 1 million per year. Using a 3

- percent discount rate for all benefits and costs and the average SCC series, t he 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, $4 7 million in CO 2 reductions, and $4. 57 m illion in reduced NO X emissions. In this case, the net benefit would amount to $ 200 million per year.

171** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** 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 CO 2 Reduction Monetized Value ($12.0/t case)** 5% 13 1 3 1 4 CO 2 Reduction Monetized Value ($40.5/t case)** 3% 47 45 48 CO 2 Reduction Monetized Value ($62.4/t case)** 2.5% 69 67 72 CO 2 Reduction Monetized Value ($119/t case)** 3% 145 140 150
NO X 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 CO 2 range 120 to 253 114 to 242 128 to 264

7% 154 147 163 3% plus CO 2 range 169 to 302 160 to 287 181 to 318

3% 203 192 216 Costs Incremental Equipment Costs 7% 3. 5 51 3. 5 48 3. 7 6 7 3% 3. 5 48 3. 4 41 3. 7 68 Net Benefits/Costs

Total† 7% plus CO 2 range 117 to 249 111 to 238 124 to 261

7% 151 143 159 3% plus CO 2 range 166 to 298 156 to 283 177 to 314

3% 200 189 212 Comment [A71]: Change recommended by

... Comment [A72]: Change recommended by

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... 172** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy 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 equipment purchased in 2018−2047. The results account for the increme ntal 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 c ase, 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 discoun t 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 NO X 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 CO 2 range” and “3% plus CO 2 range,” the operating cost and NO X benefits are calculated using the labeled discount rate, and those values are added to the full range of CO 2 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 we ll 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 customer Insufficient 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

.

173** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** (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 doe s 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 energy national 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 t oday’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 an d 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 incl uded 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 OI RA. Comment [A78]: Change recommended by OIRA. Comment [A79]: Change recommended by OIRA.

174** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** 13 563, 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 alt ernative 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 obj ectives, 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, suc h 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 innova tion or anticipated behavioral changes. For the reasons stated in the preamble, DOE believes that today’s NOPR is consistent

175** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** with these principles, including the requirement that, to the extent permitted by law, benefits justify costs and that net benefit s 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, unl ess 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 policie s 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 rulemak ing.

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 Cl assification System (NAICS) code and industry description and are available at Formatted: Font color: Auto

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176** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** http://www.sba.gov/category/navigation

- structure /contracting/contracting

- official s/small

business

- 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
AHRI 84 ), individual company websites, and market research tools ( e.g. , Hoovers reports 85 ) 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 defini tion 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)

. Formatted: Font color: Auto

177** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** 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 ident ify two manufacturers that meet the SBA’s definition of a “small business” and out 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 CWA F 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
250 86 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 gas

fire d CWAF manufacturers would that would need to update all equipment offerings to meet the proposed standard. From a design perspective, DOE believes that most gas fired 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 installe d 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.

178** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** stand ard 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 .95 4.4 million per platform at TSL 4. For even one platform upgrade at these levels, this small gas - fired CWAF manufacturer c ould 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 i nformation 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 simila r 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 manufacturer s were declined. Therefore, DOE assumed that small business manufacturers would face similar conversion costs as large r 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.

179** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** The small oil

- fired CWAF manufacturer accounts for 11 of the 16 oil

- fired CWAF listing s 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 w ould be unlikely to be at a technological disadvantage relative to its com petitors at the proposed TSL. It is possible the small manufacturer w ould have a competitive advantage , given its technological lead and experience in the niche market of high

efficiency commercial oil

- fired warm air furnaces.

Since the proposed standar d 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 co mpliance. Manufacturer s may choose to access outside capital to help fund the upfront, one

- time costs to bring products

180** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** into compliance. Small manufacturers may have greater difficulty securing outside capital 87 and, as a result, may face higher costs of capital than large competitors.

A s noted above, none of the small businesses consented to formal interviews, so information re garding the impacts of this proposed standard for small business manufacturers is lim ited. 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 stand ards , 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 cred its; (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

- to

recover - 1408329562. Comment [A87]: Change recommended by OIRA (including footnote 87)..

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181** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** 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 th at the energy savings of these alternatives did 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 smalle r 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 corr esponding to TSL 4. DOE also examined standards at lower efficiency levels, TSL 3, TSL 2 and TSL 1. (See sect ion 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 s lightly 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 f or gas - fired CWAF the same. Thus, there would be no reduction of burden for the small business manufactu rer 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 o il

- 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 oil

fired warm air furnac es. 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.

182** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** fraction of the savings achieved by standards and would provide even lower savings benefits. To achieve subs tantial 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 effici ency 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 d id 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 availab le 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 alternat ives 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 ava ilable 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.

1 83** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** Additionally, Section 504 of the Department of Ener gy 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 ru le. 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 ha s 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 re cordkeeping 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 i s 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. Formatted: Line spacing: single, Tab stops: Not at -0.76" + -0.5" + 0" + 0.5" + 1" + 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" Formatted: Line spacing: single

184** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** information subject to the requirements of the PRA, unless that collection of information displays a currently valid OMB Control Number.

D. Re view 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 otherw ise 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 conser vation 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 Assessme nt 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 U nder 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 Formatted: Line spacing: single

185** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** an accountable process t o 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
propose d 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 a mbiguity; (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 requi red 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

186** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** effect on ex isting 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 importan t 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 sec tor. 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 mo re 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 a lso 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 opport unity for timely input to potentially affected small governments before

187** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** 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 consultatio n 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

s tandards 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) o f 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.

188** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.**
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 ru le 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 al ternatives 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 Appro priations 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. Ac cordingly, DOE has concluded that it is not necessary to prepare a Family Policymaking Assessment.

189** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** I. Review Under Executive Order 12630 Pursuant to Executive Order 12630, “Governmental Actions and Interference with Constitutionally Protected Property Right s,” 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, 2 001), 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,

190** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** distribution, or use of energy, or (3) is designated b y 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 reas onable 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 e nergy 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 o f 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 P eer 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 info rmation 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 sci entific information,” which the Bulletin defines as “scientific information the agency reasonably

191** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** 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 t o 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 an d 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

. F oreign nationals visiting DOE Headquarters are subject to advance security screening pr ocedures. 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
192** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** DOE Headquarters ar e 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 not e 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 parti cipants 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 Ed wards 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

193** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** 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 cle arly 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 ab out 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 pre sentation 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 a lso be sent by mail or email to: Ms. Brenda Formatted: Indent: First line: 0.5"

Formatted: Font color: Auto, Not Highlight

194** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** Edwards, U.S. Department of Energy, Building Technologies Program, Mailstop EE

- 2J, 1000 Independence Avenue, SW, Washington, DC 20585

- 0121, or Brenda.Edwards@ee.do e.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 wi sh 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 h is 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

195** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** 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, confer ence 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 partici pant 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 prepa red 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 repres entatives 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 w ill announce any further procedural rules or modification of the above procedures that may be needed for the proper conduct of the public meeting.

196** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** 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 re garding 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 de scribed 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 pr ovide 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 submi tter 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

197** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** you do not want to be publ icly 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 Confi dential 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.r egulations.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.

198** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** Instead, provide your contact information in a cover letter. Include yo ur 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.

C omments, 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 viruse s. 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 1004.1 1, any person submitting information that he or she believes to be confidential and exempt by law from

199** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** public disclosure should submit via email, postal mail, or hand delivery/courier two well

marked copies: one copy of the document marked “confidential” i ncluding all the information believed to be confidential, and one copy of the document marked “non

confidential” with the information believed to be confidential deleted. Submit these documents via email or on a CD, if feasible. DOE will make its own det ermination 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) wheth er 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 obligatio n 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 discl osure 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, i ncluding any personal information provided in the comments (except information deemed to be exempt from public disclosure).

200** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** 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 is sues: 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

- propriet ary 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.
I n particular DOE seeks comment on whether there is a 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) 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 chapt er 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.

201** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** performance characteristics (including reliability), features, sizes, capacities, and volumes that are substantiall y 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 percen t 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 methodo log y . 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.
202** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** 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.)
8 12

. 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 life times for CWAF.
10 13

. 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

covere d by the proposed standards. (See section IV.F.2.d and chapter 8 of the NOPR TSD.)
1 4 . 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.) Formatted: Indent: Left: 0.5", First line: 0"
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.

203** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** 1 5

. 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.)
11 1 6

. 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.)
12 1 7 . 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.)
13 1 8

. 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.)
14 1 9

. Consumer subgroups that should be considered in this rulemaking. (See section IV.I and chapter 11 of the NOPR TSD.)
15 20

. The approach for conducting the emissions analysis for CWAF. (See section IV.K and chapter 13 of the NOPR TSD.)
16 21

. 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]: Ch ange recommended by OIRA.

204** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** concerning the potential impacts to small business manufacturers of the proposed
energy conserv ation 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.

205** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.**

206** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** 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 Ai r Furnaces

. Each gas

- fired commercial warm air furnace must meet the following energy efficiency standard levels:

(1) For gas

- fired commercial warm air furnace s 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

207** Draft, Deliberative, Do not cite or quote. Interagency Working Comments on Draft Language under E.O. 13563 and 1 2866 Interagency Review. Subject to Further Policy Review.** (2) For gas

- fired commercial warm air furnace s manufactured on and after [ date 3 years after public ation 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 mu st meet the following energy efficiency standard levels:

(1) For oil

- fired commercial warm air furnace s 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 furnace s 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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