# E **C** 

# / **R Incorporated**  **Providing Environmental Technical Support Since 1989**

501 Eastowne Dr., Suite 250  Chapel Hill, North Carolina 27514 Telephone: (919) 484
- 0222  Fax: (919) 484
- 0122 

### MEMORANDUM **DATE:** January

30 , 201 5 **SUBJECT:** Estimated Residential Wood Heater Manufacturer Cost Impacts **FROM:** Jill Mozier, EC/R Inc.

Beth Friedman, EC/R Inc. **TO:** David Cole, EPA/OAQPS

Gil Wood, EPA/OAQPS Amanda Aldridge, EPA/OAQPS The purpose of this memorandum is to document the estimated nationwide cost impacts on manufacturers of emission limits under the New Source Performance Standards (NSPS) revi ew of residential wood heaters. **I. Estimated Research and Development (R&D) Costs**  **A. Model Development Costs** 

**– Room Heaters**  Prior to proposal of the draft rules, we heard various estimates of the costs to bring a wood heater from concept to completion, from $ 2 00,000 for a single model to $1,360,000 for a 4
- firebox model line. For example, a Hearth and Home article estimated the total cost to bring a model from conception to market as $645,000 to $750,000 for steel stoves and over $1 million for cast
- iron, en ameled wood stoves. The authors indicated that costs would decrease for separate models in the same line by up to 25 percent . Based on this information, we estimate d that a 4
- model steel line would cost up to approximately $328 ,000 per model to develop. These costs include marketing, design, developing first generation, second generation and prototy pe units; NSPS and safety testing, equipment tooling, etc. The manufacturer supplying these figures for the article estimated that the NSPS and safety testing component of these costs would constitute $40,000 per model. 1 

### Two other manufacturers also provided estimated development costs for a 4
-box model line, and based on that information we estimated average costs to develop a new model line, including testing with both crib and cord wood and reporting and recordkeeping , of $356,250 for certified wood stoves and pellet stoves. We also assumed $356,250 for single burn rate stoves, which may be somewhat high if they are as clean as the manufacturers claim. We likewise assumed a development cost of $356,250 for forced

- air furnaces and hydronic heaters. Comments received on the proposed rule included information and opinions regarding these wood heater cost estimates. 2 

### Comments ranged from criticism that the EPA overestimated

1 James E. Houck and Paul Tiegs. There’s a Freight Train Comin’
. Hearth and Home . December 2009. 2 Comments on the proposed NSPS are available electronically through http://www.regulations.gov by searching

### 2

costs to criticism that the EPA underestimated costs. For example, one commenter stated that the proposal cost estimates were overl y generous and did not address input from Woodstock Soapstone Stoves, winner of the 2013 Wood Stove Decathlon, which estimates that the cost of new product development is approximately $200,000 , and furthermore that the proposal cost estimates did not address the economies manufacturers realize when they develop functionall y identical models from the originally certified model. 3 

### Other commenters generall y stated that the breakdown of cost estimates faced b y manufacturers is inaccuratel y low. One commenter, in particular, provided detailed estimates of adjustable burn rate wood stoves and hydronic heater model development costs. According to this commenter, the proposal cost estimates are deficient because they do not reflect specific emission rates or emission performances. The detailed wood stove cost estimates are located in Attachment 2 of the Hearth, Patio and Barbe cue Association (HPBA) comments and were prepared b y NERA Economic Consulting (May

2014). 4 

### Appendix A of the document, Woodstove Cost Modeling (prepared by Ferguson, Andors & Company) contains the detailed cost estimates we reviewed and adapted for this analysis. According to Appendix A , “
... a ‘bottom

- up ’ approach was used to identify the relevant components of compliance costs and to develop a range of cost estimates for each cost component based on [their ] extensive experience in woodstove developmen t, testing and manufacturing. The cost estimates were focused on mid

-sized non

- catalytic stove models since those models currently represent the biggest segment of the market. In developing the cost estimates, [they

] incorporated detailed comments from a review panel consisting of ten industry experts. The range of cost estimates resulting from this process are representative of typical manufacturers and typical woodstove models, but actual costs for particular manufacturers could lie outside the range. NER A used the mid

- points (averages) of the cost ranges for the cost

effectiveness analysis
. ” 5 

### The Ferguson analysis provides cost estimates for four categories of emission reductions based on the proposed emission levels , consisting of modifying 7.5 g/hr stoves to comply with a new 4.5 g/hr standard, modifying the 4.5 g/hr stoves to comply with new standards of 2.5 g/hr or 1.3 g/hr stoves , and modifying a 2.5 g/hr stove to a new standard of 1.3 g/hr. The resulting cost components consisted of capital costs p er model (R&D, engineering labor, tooling, equipment integration, preliminary

testing, and other costs to design and manufacture the modified wood stove model) and other fixed costs per model (certification testing and safety testing, roll
- out of the modif ied products including store display models and burn programs, brochures, user manuals, training and product discounts). The mid
-point capital costs presented by Ferguson range from $281,725 to $532,050 depending on the emission reduction range. 6
Docket ID EPA
- HQ
- OAR
- 2009
- 0734. 3 Comment on the proposed rule to Docket EPA
- HQ
- OAR
- 2009
- 0734 from the Washington State Department of Ecology; available at http://www.regulations.gov/#!documentDetail;D=EPA
- HQ
- OAR
- 2009
- 0734
- 1397 4 Comment on the proposed rule to Docket EPA
- HQ
- OAR
- 2009
- 0734 from the Hearth, Patio and Barbe cue Association available at http://www.regulations.gov/#!documentDetail;D=EPA
- HQ
- OAR
- 2009
- 0734
- 1643 5 Ferguson, Robert (Ferguson, Andors & Company), prepared for the Hearth, Patio & Barbecue Association. Proposed Wood Heater NSPS Incremental Cost Effectiveness Analyses, Appendix A: Woodstove Cost Modeling. May 2014. p. 1. 6 Ferguson, Robert (Ferguson, Andors & Company), prepared for the Hearth, Patio & Barbecue Association. Proposed Wood Heater NSPS Incremental Cost Effectiveness Analyses, Appendix A: Woodstove Cost Modeling. May 2014. pp. 4

– 5.

### 3

Unlike the proposed rule, the final rule onl y contains a Step 1 limit of 4.5 g/hr and a Step 2 limit of 2.0 g/hr, with no alternative, three step limits. We maintain that the Step 1 cost for 7.5 to 4.5 g/hr is a reasonable representation of model development cost s for all models subject to subpart AAA, with some exceptions, described below. The Ferguson analysis shows that several of the cost components are identical across scenarios . The anal ys is claims, however, that other cost components vary

according to the specified emission reduction scenario. We found these differences to be unsupported. For purposes of this analysis, we used the 7.5 to 4.5 g/hr scenario as a baseline case and modified it to reflect the deletion of cost categories that we deemed inappropriate ly

attributed to the NSPS. We did accept the assumptions and logic related to evaluating the tooling cost differences between steel stoves and cast iron stoves, as both are commonly manufactured. Like Ferguson, we used an average of their tooling costs to reflect product differences, even though using an average may

overestimate the number of cast iron stoves in the market place. While we recognize the range in capital cost estimates provided both prior to and after proposal of the draft standards leave room for additional cost scenarios, especiall y the much lower cost scenario for Woodstock Soapstone Stoves, we concluded that the Ferguson costs represent the best documented cost ranges and cost categories available at this time. Table 1 , below, is a summary of the estimated wood stove capital costs used in our anal ys es. For the final cost anal ys is, we used the mean wood stove costs estimated in Table 1. We have assumed that these model development costs represent feasible costs for adjus table burn rate stoves and pellet stoves. For single burn rate stoves, we estimate , as we did at proposal, that additional R&D may

be required to bring these stoves to qualifying levels. Therefore we estimated that the R&D/Engineering portion of the total cost s would require double the investment in the first 2 years, with “normal” model development proceeding thereafter.

### 4

**Table 1. Estimated Wood Stove Capital Costs**

**Capital Costs Appliance Costs**  **Notes High**  **Low Me**  **an** 2013 dollars ; All costs b ased on HPBA estimates under 7.5 to 4.5 g/hr scenario , with modifications **R&D /**  **Engineering Costs** Market research, aesthetic design, initial prototype design/construction/testing, formulate design changes, modify/test prototype $45,500 $19,000 $32,250 A djust design/test until emission target is met $47,500 $30,000 $38,750 C onstruct final prototypes, safety test check, eng. drawings/specs, patent application $27,000 $17,000 $22,000 C onfirm final prototype performance $0 $0 $0 **R&D/Engineering Total costs**  **$120,000 $66,000**  **$93,000 Tooling**  Steel Stove $31,200 $9,700 $20,450 Cast Iron Stove $62,000 $31,000 $46,500 **Average tooling cost $46,600**  **$20,350 $33,475**  HPBA costs for equipment and integration not included because these are considered duplicative of R&D costs, above **Other Capital Cost components $14,000**  **$6,000 $10,000** 

**Total Capital Cost per model $180,600**  **$92,350 $136,475**  **Fixed Costs per model** HBPA costs for person ne l at lab and travel expenses not accepted as independent third party testing costs **Certification** EPA testing, Confirmation safety testing or full safety testing, shipping of prototype $19,000 $14,500 $16,750 Owner's manual, labeling $3,500 $1,800 $2,650

**Roll -**  **out $0**  **$0 $0**  R oll
- out considered normal business operation and not due to NSPS **Total Fixed Capital Cost per model $22,500**  **$16,300 $19,400**  Total Costs per Model $203,100 $108,650 $155,875 **Annualized capital cost per model $42,610**  **$22,794 $32,702**  A nnualized over 6 years at 7% Annual ized cost for development of 4 models $170,438 $91,177 $130,808

### 5

**B. Model Development Costs** 

**– Central Heaters**  At proposal, we estimated that hydronic heaters and forced
- air furnaces would face the same model development costs as room heaters. Some commenters objected to this characterization, particularly based on the detailed hydronic heater cost estimates located in Attachment 3 of the HPBA comments as prepared by NERA Economic Consulting (May 2014). 7 

### Appendix A of that document, Hydronic Heater Cost Modeling (prepared by Ferguson, Andors & Company) contains the detailed cost estimates we reviewed and adapted for this anal ys is. These costs were prepared with the same methodology and overall assumptions as were used in development of the wood heater costs. The Ferguson anal ys is provides cost estimates for four categories of hydronic heater emission reductions, based on the proposed emission levels consisting of modifying uncontrolled heaters to comply with a new 0.32 lb/mm Btu standard, modifying the 0.32 lb/mm Btu heaters to comply with new standards of 0.15 or 0.06 lb/mm Btu , and modifying a 0.15 lb/mm Btu heater to a new standard of 0.06 lb/mm B tu . The resulting cost components consisted of capital costs per model (R&D, engineering labor, tooling, equipment integration, preliminary

testing, and other costs to design and manufacture the modified wood stove model) and other fixed costs per model (certification testing and safety testing, roll
- out of the modified products including store display models and burn programs, brochures, user manuals, training and product discounts). The mid
-point capital costs presented by Ferguson range from $1,743,750 to $2,162,300 depending on the emission reduction range. 8 

### While these estimates are considerably higher than estimates we gleaned from speaking with manufacturers in 2010 , we used them in our anal ys is absent better data and in order to not underestimate costs
. Unlike the propo sed rule, the final rule contains a Step 1 PM emission limit of 0.32 lb/mm Btu and a Step 2 PM emission limit of 0.1 0 lb/mm Btu, with no alternative three step PM emission limits. We estimate that the Step 1 PM emission limit cost for uncontrolled to 0.32 lb/mm Btu is a reasonable representation of model development costs for all models subject to subpart QQQQ, with some exceptions, described below. The Ferguson analysis shows that several of the cost components are identical across scenarios. The anal ys is claims, however, that other cost components vary according to the specified emission reduction scenario. We found these differences to be unsupported. For purposes of this analysis, we used the uncontrolled to 0.32 lb/mm Btu as a baseline case and modified it to reflect the deletion of cost categories that we deemed inappropriately attributed to the NSPS. For the final cost anal ys is, we used the mean hydronic heater costs estimated in Table 2, below. We have assumed that these model development costs repre sent feasible costs for hydronic heaters. For forced
- air furnaces, we estimate , as we did at proposal, that additional R&D may

be required to bring these heaters to compliance levels. Therefore we estimated that the R&D/Engineering portion of the total cos ts would require double the investment in the first 2 ye ars, with “normal” model development proceeding thereafter
.

7 Comment on the proposed rule to Docket EPA
- HQ
- OAR
- 2009
- 0734 from the Hearth, Patio and Barbe cue Association available at http://www.regulations.gov/#!documentDetail;D=EPA
- HQ
- OAR
- 2009
- 0734
- 1643 8 Ferguson, Robert (Ferguson, Andors & Company), prepared for the Hearth, Patio & Barbecue Association. Proposed Wood Heater NSPS Incremental Cost Effectiveness Analyses, Appendix A: Hydronic Heater Cost Modeling. May 2014. p. 4.

### 6

**Table 2**  **. Estimated Hydronic Heater**  **Capital Costs**

**Capital Costs Appliance Costs**  **Notes High**  **Low Me**  **an** 2013 dollars ; All costs based on HPBA estimates under uncontrolled to 0.32 lb/mm BTU scenario , with modifications **R&D Engineering Costs** Market research, aesthetic design, initial prototype design/construction/testing, formulate design changes, modify/test prototype $ 180,000 $ 115,000 $ 147,500 Formulate design changes $ 4,500 $ 2,500 $ 3,500 Modify prototype $ 16,000 $ 9,000 $ 12,500 Test/Retest $ 615,000 $ 410,000 $ 512,500 App. A (NERA) concludes erroneously $887,000 for high cost and $581,000 for low cost Construct final prototype, confirm testing, safety testing $ 133,500 $ 88,500 $ 111,000 Document final changes $ 8,000 $ 6,000 $ 7,000 **R&D/Engineering Total costs $**  **957,000 $**  **631,000 $**  **794,000 Manufacturing/Engineering**  Programming and Tooling
- Steel parts $ 22,000 $ 13,000 $ 17,500 Tooling
- Refractory $ 45,000 $ 28,000 $ 36,500 Electronic Control System $ 10,000 $ 5,000 $ 7,500 Final Production samples/Confirm product. Fit
up $ 25,000 $ 15,000 $ 20,000 Create QA/QC specs $ 4,000 $ 2,000 $ 3,000 **Manufacturing/Engineering total costs $**  **106,000 $**  **63,000 $**  **84,500 Other Capital Cost components**  HPBA costs for equipment and integration not included because these are considered duplicative of R&D costs, above Purchased parts sourcing $ 41,000 $ 23,500 $ 32,250 Test first production heaters $ 200,000 $ 150,000 $ 175,000 Equipment and facilities $ 75,000 $ 25,000 $ 50,000 **Other Capital Cost components total costs $**  **316,000 $**  **198,500 $**  **257,250 Total Capital Cost per model**  **$ 1,379,000**  **$ 892,500**  **$ 1,135,750**  **Fixed Costs per model** HBPA costs for person ne l at lab and travel expenses not accepted as independent third party testing costs **Certification** EPA testing, Confirmation safety testing or full safety testing, shipping of prototype $ 72,500 $ 36,000 $ 54,250 Owner's manual, labeling $ 6,500 $ 3,500 $ 5,000 **Certification Total Costs** $ 79,000 $ 39,500 $ 59,250 **Roll -**  **out $**  **0 $**  **0 $**  **0** R oll
- out considered normal business operation and not due to NSPS **Total Fixed Capital Cost per model**  **$ 79,000**  **$ 39,500**  **$ 59,250**  Total Costs per Model $ 1,458,000 $ 932,000 $ 1,195,000 **Annualized capital cost per model $**  **305,882 $**  **195,530 $**  **250,706** A nnualized over 6 years at 7% Annual ized cost for development of 4 models $ 1,223,529 $ 782,119 $ 1,002,824

### 7

**II. Estimated Manufacturer Cost Impacts**  **A. Final**  **NSPS and Appliances Meeting Stepped Limits**  For proposal, w e developed two primary options to evaluate the cost impacts of implementing new or revised NSPS standards for the residential wood heating appliance industry

– namely , a two - step PM emission limit proposed approach and an alternative three
- step PM emission limit approach
. Under the final NSPS, all ty pes of appliances would be required to meet a specified Step 1 PM emission limit and then a stricter Step 2 PM emission limit in 20 20
. Forced
- air furnaces will be required to comply with a work practi ce/operational standard in 2015, a Step 1 PM emission limit for small furnaces (<65,000 BTU/hr heat output) by 2016 and a Step 1 PM emission limit for the remaining large furnaces (65,000 BTU/hr heat output or larger) by 2017. All appliances, including forced
- air furnaces of every size, will be required to meet the Step 2 PM emission limits five years after the effective date ( 2020 ) . It should be noted however that the final Step 2 limit s are less stringent than proposed, as discussed below
. **Subpart AAA (“**  **room heaters”)** : 1. Adjustable burn rate, pellet and single burn rate stoves : **Stepped Limits** : Step 1 PM emission limit of 4.5 g/hr upon effective date in 201 5 ; and Step 2 PM emission limit of 2.0 g/hr five ye ars after effective date, i.e., in 20 20
. **Notes on appliances already meeting these limits**  : The Step 1 PM emission limit is the 1995 Washington State standard for non
- cataly tic stoves; and the Step 2 PM emission limit is already

met by the top performing catal ytic, non
- catal ytic and pellet stove models , according to industry data. This industry

data was initially

prepared by HPBA and includes the results of an effort to delete models that are no longer manufactured and remove duplicate certifications. 9 

### Communication from HPBA confirmed that there were 110 non
- cataly tic wood stoves and 15 catal ytic wood stoves being manufactured in 2010 by 34 manufacturers or importers of EPA certified wood heaters. 10 

### We expect that manufacturers will focus on existing models that meet the Washington State limits in order to comply with the Step 1 standard. Furthermore, certification data indicate that 26% of non
- cataly tic and cataly

tic stoves combined and 70% of pellet stoves already meet the Step 2 limit
. 11 

### Based on this emission data for adjustable burn rate wood stove s and pellet stoves, for our cost anal ys is we estimated that while major R&D efforts are not needed to meet Step 1, R&D efforts would be required for some of these appliance models ( e.g., approximately

74% of wood stove model s and 30% of pellet stove model s ) to meet the Step 2 limit in 2020
.

9 Letter to Gil Wood, EPA, from Robert Ferguson, Ferguson, Andors, & Company. April 30, 2010. EC/R made minor changes to the data set used in this analysis ; s ee Memo from Jeff Harris, EC/R to Project File , May 3 , 2010. Changes to “Final HPBA Heater Database” from 2/25/10 HPBA v ersion. 10 Letter to Lucinda Power, EPA, from John Crouch, HPBA. September 12, 2010. 11 Memo randum to USEPA from EC/R, Inc. Derivation of wood heater model percentages meeting Step 2 standards
. November 2014.

### 8 Although previously

unregulated and a less developed technology than adjustable burn rate stoves, single burn rate stove designs have been undergoing R&D in anticipation of the proposed NSPS and cleaner designs are nearl y market
- ready. 12 

### However, given the relative lack of previous regulation of these appliance ty pes in the United States, we estimate that manufacturers will have to redesign all single burn rate stove models to meet the final Step 2 emission s limit, and reflected that major re
design effort in our cost estimates. Our specific cost and implementation assumptions are discussed below in Section B and Section C
. **Subpart QQQQ (“central heaters”)**  : 1. Hydronic heaters (both outdoor and indoor) : **Stepped Limits** : Step 1 PM emission limit of 0.32 lb/mm BTU heat output (weighted average with an 18 g/hr cap for each individual test run), upon the effective date of the final rule in 2015; and Step 2 PM emission limit of 0.10 lb/mm BTU heat output (at each burn rate) five ye ars after the effective date of the final rule in 2020. **Notes on appliances already meeting these limits** : The Step 1 limit is identical to the EPA “Phase 2” voluntary program limit and is already met b y all 50 of the 50 hydronic heater models built b y U.S. manufacturers currentl y participating in the voluntary program. 13 

### The Step 2 limit is already met by 9 of the 50 (18%) hydronic heater models built by

U.S. manufacturers currently participating in the voluntary program , as well as over 100 European manufacturers per test method EN 303
- 05. 14 

### It should be noted that cleaner models continue to become Phase 2 qualified until the effective date of the final rule, and additional manufacturers not participating in the voluntary program may

also have models m eeting Step 1 and Step 2. (19 test reports have just recently

been submitted to EPA for review.) Based on the EPA’s experience with the hydronic heater market through the voluntary program, we understand that it is dominated by a few manufacturers in term s of the bulk of sales, and these manufacturers have qualifying units at one or both of the stepped emission limits, as noted above. Therefore, on a sales
- weighted basis, only

a percentage of the hydronic heater models currentl y sold in the United States w ould be required to undertake R&D to meet Step 1, with higher percentages needing R&D to meet the Step 2 limit. F or our cost analysis, based on the data cited above from the voluntary program, we estimate that 1 8 % of existing hydronic heater models sold in the United States can meet the Step 2 limit without intensive R&D efforts, so that 8 2 % of models would begin R&D in 201 5 to meet the Step 2 standard
.
12 2/8/13 telephone discussion between Gil Wood, USEPA, and a manufacturer of single burn rate stoves. 13 See list of cleaner hydronic heaters participating in EPA’s Phase 2 voluntary Hydronic Heater P rogram at http://www.epa.gov/burnwise/owhhlist.html
. 14 European Wood
- Heating Technology Survey: An Overview of Combustion Principles and the Energy and Emissions Performance Characteristics of Commercially Avai lable Systems in Austria, Germany, Denmark, Norway , and Sweden; Final Report; Prepared for the New York State Energy Research and Development Authority; NYSERDA Report 10

–01; April 2010.

### 9 Our specific cost and implementation assumptions are discussed below in Section B and Section C
. 2. Forced
- Air Furnaces: **Stepped Limits** : Work practice/operational standards will be required of all forced
- air furnaces upon the rule’s 2015 effective date. A Step 1 PM emission limit of 0.93 lb/mm BTU heat output will be required b y 2016 for small forced
- air furna ces (<65,000 BTU/hr models, representing approximately 25% of current sales) and this same PM emission limit of 0.93 lb/mm BTU will be required by 2017 for large forced
- air furnaces (≥65,000 BTU/hr models, representing approximately

75% of current sales). A Step 2 PM emission limit of 0.1 5 lb/mm BTU heat output will be required for all forced
- air furnace models five ye ars after promulgation in 2020 **Notes on appliances already meeting these limits** : The stepped compliance timelines are based on the infeasibil ity of testing and certifying approximately 50 untested forced
- air furnaces in the 60 days between publication of the final rule and the effective date and industry comments on the proposed rule, explaining the design challenges for small and large forced
- air furnaces, respectivel y. 15 

### The Step 1 and Step 2 PM emission limit s are based on test data from development of Canadian standard B415.1
- 10 16 

### and conversation s with industry regarding cleaner forced
- air furnace models currentl y being tested in R&D 17



### . Forced
- air furnace designs able to meet the Step 2 limit will be based on technology transferred from hydronic heater designs and/or wood stove designs . Given the relative lack of previous regulation of these appliance types in the United States, we assum e in our cost anal ys is that manufacturers will have to redesign all forced
- air furnace models to meet the Step 2 PM emissions limit , and reflect that major re
- design effort in our cost estimates. Our specific cost and implementation assumptions are discuss ed below in Section B and Section C
. **B. Estimated Manufacturer Costs** 

**– General Approach**  We estimated the average annual cost to manufacturers of each appliance type and then extended those costs to nationwide total annual costs. The basic components to each manufacturer’s estimated annual cost are: 1. Annualized R&D cost s ; 2. Ongoing annual Certification cost; and 3. Ongoing annual Reporting and Recordkeeping cost. The underl ying assumptions used to estimate these components are discussed below.

15 See the Response to Comment (RTC) document in the docket for this rulemaking. 16 CSA B415.1
- 10, Performance Testing of Solid
- Fuel
- Burning Heating Appliances. Appendix D. March 2010. 17 2/8/13 telephone discussion between Gil Wood, USEPA, and a manufacturer of forced
- air furnaces.

### 10

**Am ortiz**  **ation Period used for annualizing R&D costs** : Manufacturers have indicated that it takes several years to develop new models. One manufacturer said that development time is 12 to 14 months for non
- catal ytic heaters and 10 to 12 months for catal ytic heaters
. 18 

### Another manufacturer estimated costs over an 8
- to 12
- month schedule for a relativel y uncomplicated product, but added that costs will increase for products that have more sophisticated controls. 19 

### Two other manufacturers suggested a 14
- to 18
- month time frame is required to develop a new firebox, but added that it will take from 5 to 6 years of intensive engineering and R&D efforts to have a model line consisting of 4 boxes ready
- for
manufacture, agreeing that knowledge of the process obtained during each firebox development will shorten (somewhat) the time necessary , but not enough to consider within a guiding framework. 20 

### Given this information and in an effort to not underestimate the time needed for R&D, w e amortized R&D costs (shown in Tables 1 and 2 a bove) over 6 ye ars. We assume that many

manufacturers have already begun R&D efforts

– in anticipation of this rule whose initial development was publicly announced b y EPA in November 2009
. However, for the purposes of our cost estimate, we amortized model development costs over the 6 year period beginning in 2015 and ending in 2020 (inclusive). We prepared estimates using both a 7% interest rate and a 3% interest rate during the amortization period. 21 

### Annualized R&D costs : The annualized R&D costs (shown in Table s 1 and 2) are b y far the largest cost component and we have applied these costs to most models in each appliance category

– especiall y for previousl y unregulated appliance s and for appliances without a voluntary program

– in order to avoid underestimating cost impacts
. For these appliances (i.e., single burn rate stoves and forced
- air furnaces), we estimated that 100% of the existing models will undergo R&D beginning in 2015 to meet the final limit s. Incases where we assumed less than 100% of the models would require R&D (e.g., adjustable burn rate stoves, pellet stoves and hydronic heaters), this was based on the percentage of models estimated to already m eet the 2020 Step 2 limit, as explained above
. However, it is important to note that manufacturers will likely consolidate their model lines, f ocusing on models able to achieve the limit, rather than incur R&D costs for every currentl y non - compliant model line. Therefore fewer models than we used in our cost estimates will likely

undergo R&D, which will decrease cost impacts , potentially signific antly . But since we do not have data to suggest the degree of consolidation which may occur, we assumed all non - compliant models would remain in existence and incur R&D costs, in order to avoid underestimating costs.

18 James E. Houck and Paul Tiegs. There’s a Freight Train Comin’ . Hearth and Home. December 2009. 19 Comments from United States Stove Company, Small Entity Representative. July 13, 2010. 20 NSPS Review/Revision, and Impact on Our Companies: A Manufacturer’s Position Statement. Prepared by Stove Builder International and United States Stove Company. June 2010 21 See January 2015 cost effectiveness (CE) spreadsheets including for PM2.5 the Revised Final Wood Heater NSPS PM CE 7% and the Revised Final Wood Heater NSPS PM CE 3% for the CE analysis supporting the NSPS. All of these spreadsheets are found in the public docket for this rulemaking.

### 11

Furthermore, for appliances like single burn rate stoves and forced
- air furnaces, which were previousl y unregulated (and also were not pushed technologicall y b y a voluntary program, as hydronic heaters were), we have doubled the R&D/Engineering cost portion of the total costs in the first 2 ye ars (201 5 and 201 6 ) , as noted above in Sections I .A. and I.B. This doubling of the R&D/Engineering cost s represent s an intensification of the R&D efforts to meet the Step 1 limit s and begin development of models to meet the Step 2 limit s
– R&D efforts which industry has indicated are already ongoing. 22 

### Ongoing certification and reporting & recordkeeping costs : All manufacturers, except for wood stoves that are subject to the current 1988 NSPS (and therefore already incur certification costs), will face ongoing certification costs above baseline conditions. In the 201 5 to 20 20 timeframe, we have incorporated these costs as part of the overall R&D expenditures. F or the purposes of our anal ys is , which estimates initial R&D costs from 2015 to 2020 and ongoing costs for bringing a model to market after 2020 , the ongoing certification and reporting and recordkeeping costs faced b y m anufacturers are estimated over the 10
- ye ar model life span . 23 , 24 

### Regarding ongoing certification costs (after initial certification which is estimated in the R&D costs itemized above in Tables 1 and 2) , we estimated a continuing cost of $10,000 per model for pellet stoves and single burn rate stoves and a continuing cost of $20,000 per model for hydronic heaters and forced
- air furnaces. 25 

### We distributed these ongoing costs over the 5 ye ar certification life, assuming annual certification costs for one
- fifth of the models. For example, compliant (but as yet uncertified) pellet stoves will incur certification costs starting in 2015 . As explained in Section II. A , approximately 7 0 percent of existing pellet stove models are expected to comply

with the Step 2 standard without requiring intensive R&D . However, in order to be sold, these pellet models would now be required to demonstrate compliance with the emissions limit, incurring an upfront cost of $10,000 per model to become certified. We have estimated that one fifth of the pellet stove models will certify in any given year. We based reporting and recordkeeping (R&R) costs on the annual average costs derived from development of the Information Collection Request (ICR) supporting statements
. 26 , 27 

### These are annual estimates of the ongoing R&R burden to manufacturers associated with final rule compliance. We estimated that R&R costs are incurred beginning in 2015 in our anal ys is.

22 2/8/13 telephone discussion between Gil Wood, USEPA, and a manufacturer of forced
- air furnaces and single burn rate stoves. 23 Memorandum to USEPA from EC/R, Inc. Estimated Emissions from Wood Heaters. January 2015 24 Memorandum to USEPA from EC/R, Inc. Residential Wood Heater Cost Effectiveness Analysis . January 2015 25 Conversation with Dennis Brazier, Central Boiler. August 9, 2010. 26 See http://www.reginfo.gov for the ICR Supporting Statements for the New Residential Wood Heaters New Source Performance Standards (OMB Control Number 2060
- 0161), Hydronic Heaters and Forced
- Air Furnaces New Source Performance Standards (OMB Control Number 2060
- 0693)(40 CFR Part 60, Subparts AAA and QQQQ)
. 27 See also Memorandum to Docket ID Number EPA
- HQ
- OAR
- 2009
- 0734 from EC/R, Inc. 40 CFR Part 60, Subparts AAA and QQQQ Estimated Three
- Year and Annual Respondent Burden Cost of Reporting and Recordkeeping Requirements (Years 2018 to 2020). January 2015.

### 12

As noted above, the certification and reporting and recordkeeping costs were estimated to be incurred b y manufacturers for the full 10
- ye ar model design lifespan , for models designed to meet each final limit
. W e therefore estimated costs from 201 5 through 20 29

– that is, 1 0 years (inclusive) after the 20 20 compliance ye ar marking the beginning of the lifespan for a model designed to meet the Step 2 limit. **C. Estimated Manufacturer Costs** 

**– Specific**  **Assumptions & Resulting Costs** Table s 3 and 4 show the estimated annual cost per manufacturer under the final NSPS for all appliances , as well as the nationwide annual costs. Table s 3a and 3b are based on a 7% interest rate during the 6
- ye ar amortization p eriod; while Tables 4a and 4b are based on a 3% interest rate . Cost estimates are based on 2013 dollars ($). Note that costs vary by appliance typ e based on the estimated number of models. Our estimate s of the number of model s for each appliance type are d escribed in the unit cost memo. 28 

### For numbers of manufacturers, we started with HPBA data and modified those numbers as needed, based on internet searches of manufacturers of the major appliance typ es. 29 

### The final estimates for numbers of models and number of manufacturers are shown in Tables 3 and 4. The footnotes associated with Tables 3 and 4 ( included in our cost spreadsheets 30 

### but not included with the tables below due to space limitations ) explain the details we assumed for the cost anal ys is and are listed below. 1. Nationwide Annual Cost assumes R&D investment is amortized over 6 years (2015 through 2020). Ongoing certification and reporting & recordkeeping costs are incurred through 2029 (based on a model brought to market in 2020 with a lifespan of 10 years). 2. Since certification is required every 5 years, it is assumed that certification costs will be spread out so that one - fifth of the models certify each year . 3. This analysis considers additional costs resulting from the NSPS. For wood stoves, the anal ys is assumes that 26% meet Step 2 already so that 74% of the models will undergo re
- design to meet the Step 2 level. The costs modeled for years 2021 through 2029 exclude the ongo ing certification and reporting & recordkeeping costs incurred by wood stove manufacturers who already had to certify and report under the existing 1988 NSPS. 4. For pellet stoves, the analysis assumes that 70% meet Step 2 already so that 30% of models undergo R&D re
- design to meet Step 2. The R&D budget includes certification costs. The analysis also assumes that the 70% of the pellet stove models

28 Memo randum to USEPA from EC/R, Inc. Unit Cost Estimates of Residential Wood Heating Appliances. January 2015
. 29 HPBA Solid Fuel Product List. Attachment to E
- mail from John Crouch, HBPS, to Gil Wood, EPA. September 24, 2010. 30 See January 2015 cost effectiveness (CE) spreadsheets including for PM2.5 the Revised Final Wood Heater NSPS PM CE 7% and the Revised Final Wood Heater NSPS PM CE 3% for the CE analysis supporting the NSPS. All of these spreadsheets are found in the public docket for this rulemaking
.

### 13 which already meet Step 2 will certify in an ongoing basis starting in 2015. The anal ys is reflects the certification costs beginning in 2015 for the 70% of models meeting Step 2, and beginning in 2020 for the remaining 30% of models which underwent R&D re
- design. The anal ys is also reflects ongoing reporting & recordkeeping costs for 100% of the models beginning in 2 015. 5. Based on conversations with industry , single burn rate stoves and forced
- air furnaces have been undergoing R&D prior to 2014 to develop cleaner models
. 31 

### Because these devices were previously

unregulated and may

need to transfer technology from adjustable burn rate stoves and hydronic heaters (respectivel y) this anal ys is assumes that these efforts will intensify in 2015 and 2016. Therefore estimated R&D costs are doubled in 2015 and 2016 to reflect model development to meet the more stringent 2020 Step 2 PM emission limit
. 6. For single burn rate stoves and forced
- air furnaces, the anal ys is assumes that only a small percentage meet Step 2 so that approximately 100% of the models undergo R&D re
- design to meet Step 2. The R&D budget includes certification costs. Ongoing certification costs for the re
- designed models are reflected in this analysis beginning in 2021. Ongoing reporting & recordkeeping for all models are estimated beginning in 2015. 7. Reporting and recordkeeping costs (R&R) are based on the annual average costs derived from the IC R and are estimates of the ongoing R&R burden to manufacturers associated with the NSPS. The annual average nationwide R&R burden estimated to manufacturers for Subpart AAA is approximately $179,000 for years 2015 through 2017 and $352,000 for years 2018 through 2020. For Subpart QQQQ, the R&R burden to manufacturers is estimated to be $141,000 for years 2015 through 2017 and $197,00 0 for years 2018 through 2020. Although the 2018 through 2020 costs are carried forward to 2029 for this analysis, actual R&R costs from 2021 through 2029 may vary slightl y. These R&R costs do not include the R&R burden to laboratories and certifying entities, which have been calculated separately [and provided in the ICRs and spreadsheets in the docket]. 8. For hydronic heaters, the anal ys is assumes that 18% of models meet Step 2 already so that 82% must undergo R&D to meet Step 2 in 2020. The R&D budget includes certification costs. Ongoing certification costs for the re
- designed models are reflected in this anal ys is beginning in 2021. Ongoing reporting & recordkeeping for all models are estimated beginning in 2015. Cost Tables 3 and 4 are included after the sample calculation provided below in Section D. **D. Sample Calculation**  **for Deriving Nationwide Annual Cost to Manufacturers**  The following provides a sample calculation showing how we derived nationwide annual costs to hydronic heater manufacturers in the year 2019 , based on costs being amortized over 6
31 2/8/13 telephone discussion between Gil Wood, USEPA, and a manufacturer of forced
- air furnaces and single burn rate stoves.

### 14

ye ars at a 7% interest rate
. Itmay be helpful to refer to Tables 3a and 3b while reviewing the sample calculation steps
. 1. We derived the annualized c apital c ost per m odel, for R&D related costs including certification, based on industry
- supplied cost components as described in Sectio n I . The estimated annualized capital cost to bring a hydronic heater model through R&D, based on an amortization period of 6 years and an interest rate of 7%, is **$250,70 6**  as shown in Table 2 of Section I
. 2. To derive the average annual c ost to each hydroni c heater manufacturer, we multiplied the annualized capital cost of **$250,70 6**  by the estimated number of hydronic h eater models in the nation, **120** , divided by the estimated number of hydronic heater manufacturers, **30**
. 3. To refine the average annual cost further, we estimated the percentage of hydronic heater models that already meet the Step 2 limit

– and therefore would not need to incur R&D costs, but only

certification and R&R costs . As described in Section II, w e estimate d that **18%** of current hydronic heater models can meet Step 2 without additional R&D. Therefore **82%** of models will incur R&D, certification and reporting & recordkeeping costs; while 18% of hydronic heater models will incur only certification and reporting & recordkeeping costs. 4. We estim ate d ongoing hydronic heater certification testing (outside the R&D process) to cost **$20,000** per certification . Since a certification is good for 5 ye ars, in order to determine an annual certification cost, we assumed that manufacturers will choose to spre ad out certification costs by certifying **one -**  **fifth** of their models each year. (Note again that the certification cost for models undergoing R&D is included in the $250,706 R&D cost.) 5. We estimated ongoing R&R costs based on Information Collection Request (ICR) assumptions, which were calculated for the first 3 years and then for the 3 years following, respectful of changing reporting & recordkeeping costs to meet a 2
- Step standard. The annual average reporting & recordkeeping burden estimated for hydronic he ater manufacturers is $ 3,300 per manufacturer for years 2015 through 2017 and **$4, 635**  per manufacturer for ye ars 2018 through 2020. 6. B ased on the above costs and assumptions, the annual cost to a hydronic heater manufacturer in ye ar 2019 is: **(120/30) *** **[0.82*$250,7** **0 6**  **+ 0.18*($20,000/5)] + $** **4, 635**  = **$829, 8**  **3 0**  **per manufacturer** 7. To derive the total nationwide annual cost to all hydronic h eater manufacturers in the U.S. market , we multiplied the above average annual c ost to each manufacturer b y the total number of manufacturers (30). Therefore, the total estimated nationwide annual cost to all hydronic heater manufacturers in year 2019 is: **$829, 8**  **3 0**  **per manufacturer * 30 manufacturers** = approximately **$24, 89**  **5 ,000** 

### 15

It should be noted that the estimated cost to each hydronic heater manufacturer drops significantl y after the investment required during the R&D period. In ye ars 2021 through 2029, we estimate that ongoing certification and R&R will cost approximately $21, 000 per manufacturer, or $619,000 nationwide, annuall y.16



### Table 3a. Average Annual Cost per Manufacturer under the **Final NSPS** *****

**Table 3b. Nationwide Annual Costs under the Final NSPS**  *****

* Model development c osts amortized over 6 years at a 7% interest rate (St ep 1 com pl ian ce ) 2015 2016 2017 2018 2019 (Step 2 co mpl ian ce ) 2020 2021

th rough 2029 2 Wood St ove s (R&D) 3 34 125 $88, 968 $88, 968 $88, 968 $88, 968 $88, 968 $88, 968 $0 Pe llet Stoves (R&D, R&R, c er t)4, 7 29 125 $51, 179 $51, 179 $51, 179 $53, 941 $53, 941 $53, 941 $14, 240 Si ng leBur n Ra te Stove s (R&D, R&R, cert.) 5, 6 , 7 3 20 $352, 506 $352, 506 $352, 506 $226, 704 $226, 704 $226, 704 $22, 025 For ce d A ir Furna ce s (R&D, R&R, c er t.) 5, 6 , 7 7 50 $2, 986, 523 $2, 986, 523 $1, 796, 681 $1, 799, 034 $1, 799, 034 $1, 799, 034 $36, 849 Hydroni c He ater s (R&D, R&R, c er t.) 7, 8 30 120 $828, 513 $828, 513 $828, 513 $829, 831 $829, 831 $829, 831 $20, 635 Av er ag e An nua l Cos t per Ma nufa ct ure r ba se d on 6-ye ar R&D r ound (2015-2020) t o me et St ep 1 a nd

St ep 2 l im it s wi th ongoi ng c er ti fi cat io n a nd R&R c os ts (t hrough 2029) # Ma nufa ctu re rs # Mode ls

QQQQ: Ce ntr al He at er s AAA: Room He ater s NS PS Subpa rt Ap pl ian ceT ype

(St ep 1 com pl ian ce ) 2015 2016 2017 2018 2019 (Step 2 co mp lian ce ) 2020 2021 t hroug h

2029 2 Wood St ove s (R&D) 3 34 125 $3, 024, 928 $3, 024, 928 $3, 024, 928 $3, 024, 928 $3, 024, 928 $3, 024, 928 $0 Pe llet Stoves (R&D, R&R, c er t) 4, 7 29 125 $1, 484, 192 $1, 484, 192 $1, 484, 192 $1, 564, 285 $1, 564, 285 $1, 564, 285 $412, 963 Si ngl e Bur n Ra te Stove s (R&D, R&R, c er t.) 5, 6 , 7 3 20 $1, 057, 518 $1, 057, 518 $1, 057, 518 $680, 112 $680, 112 $680, 112 $66, 074 $5, 566, 638 $5, 566, 638 $5, 566, 638 $5, 269, 325 $5, 269, 325 $5, 269, 325 $479, 037 For ce d A ir Fur na ce s (R&D, R&R, c er t. ) 5, 6 , 7 7 50 $20, 905, 663 $20, 905, 663 $12, 576, 770 $12, 593, 240 $12, 593, 240 $12, 593, 240 $257, 941 Hydr oni c He at er s (R&D, R&R, c er t.) 7, 8 30 120 $24, 855, 398 $24, 855, 398 $24, 855, 398 $24, 894, 927 $24, 894, 927 $24, 894, 927 $619, 059 $45, 761, 061 $45, 761, 061 $37, 432, 168 $37, 488, 168 $37, 488, 168 $37, 488, 168 $877, 000
$51, 327, 699 $51, 327, 699 $42, 998, 805 $42, 757, 493 $42, 757, 493 $42, 757, 493 $1, 356, 037 An nua l Cos t o f theRul e # Ma nufa ctu re rs # Model s Na ti onw id e An nua l Cos ts 1

QQQQ: Ce nt ral He at er s AAA: Room H ea ter s NSP S Subpa rt Ap pl ian ceT ype

### 17

**Table 4**  **a. Average Annual Cost per Manufacturer under the Final NSPS ** *

**Table 4**  **b. Nationwide Annual Costs under the Final NSPS** *

* Model development c osts amortized over 6 years at a 3 % interest rate (St ep 1 com pl ian ce ) 2015 2016 2017 2018 2019 (Step 2 co mpl ian ce ) 2020 2021

th rough 2029 2 Wood St ove s (R&D) 3 34 125 $78, 283 $78, 283 $78, 283 $78, 283 $78, 283 $78, 283 $0 Pe llet Stoves (R&D, R&R, c er t)4, 7 29 125 $46, 100 $46, 100 $46, 100 $48, 862 $48, 862 $48, 862 $14, 240 Si ng leBur n Ra te Stove s (R&D, R&R, cert.) 5, 6 , 7 3 20 $310, 698 $310, 698 $310, 698 $200, 519 $200, 519 $200, 519 $22, 025 For ce d A ir Furna ce s (R&D, R&R, c er t.) 5, 6 , 7 7 50 $2, 628, 527 $2, 628, 527 $1, 581, 596 $1, 583, 949 $1, 583, 949 $1, 583, 949 $36, 849 Hydroni c He ater s (R&D, R&R, c er t.) 7, 8 30 120 $729, 746 $729, 746 $729, 746 $731, 064 $731, 064 $731, 064 $20, 635 Av er ag e An nua l Cos t per Ma nufa ct ure r ba se d on 6-ye ar R&D r ound (2015-2020) t o me et St ep 1 a nd

St ep 2 l im it s wi th ongoi ng ce rt if ic at io n c os ts (t hrough 2029) # Ma nufa ctu re rs # Mode ls

QQQQ: Ce ntr al He at er s AAA: Room He ater s NS PS Subpa rt Ap pl ian ceT ype

(St ep 1 com pl ian ce ) 2015 2016 2017 2018 2019 (Step 2 co mp lian ce ) 2020 2021 t hroug h

2029 2 Wood St ove s (R&D) 3 34 125 $2, 661, 608 $2, 661, 608 $2, 661, 608 $2, 661, 608 $2, 661, 608 $2, 661, 608 $0 Pe llet Stoves (R&D, R&R, c er t) 4, 7 29 125 $1, 336, 900 $1, 336, 900 $1, 336, 900 $1, 416, 993 $1, 416, 993 $1, 416, 993 $412, 963 Si ngl e Bur n Ra te Stove s (R&D, R&R, c er t.) 5, 6 , 7 3 20 $932, 093 $932, 093 $932, 093 $601, 557 $601, 557 $601, 557 $66, 074 $4, 930, 601 $4, 930, 601 $4, 930, 601 $4, 680, 157 $4, 680, 157 $4, 680, 157 $479, 037 For ce d A ir Fur na ce s (R&D, R&R, c er t. ) 5, 6 , 7 7 50 $18, 399, 692 $18, 399, 692 $11, 071, 171 $11, 087, 642 $11, 087, 642 $11, 087, 642 $257, 941 Hydr oni c He at er s (R&D, R&R, c er t.) 7, 8 30 120 $21, 892, 380 $21, 892, 380 $21, 892, 380 $21, 931, 910 $21, 931, 910 $21, 931, 910 $619, 059 $40, 292, 072 $40, 292, 072 $32, 963, 552 $33, 019, 552 $33, 019, 552 $33, 019, 552 $877, 000
$45, 222, 674 $45, 222, 674 $37, 894, 153 $37, 699, 709 $37, 699, 709 $37, 699, 709 $1, 356, 037 An nua l Cos t o f theRul e # Ma nufa ctu re rs # Model s Na ti onw id e An nua l Cos ts 1

QQQQ: Ce nt ral He at er s AAA: Room H ea ter s NSP S Subpa rt Ap pl ian ceT ype