CHAPTER 15. REGULATORY IMPACT ANALYSIS
 

TABLE OF CONTENTS
 

15.1 INTRODUCTION ................................................................................................... 15-1
 

15.2 NON-REGULATORY POLICIES.......................................................................... 15-2
 

15.2.1 Methodology............................................................................................................ 15-2
 

15.2.2 Assumptions Regarding Non-Regulatory Policies .................................................. 15-3
 

15.2.3 Policy Interactions ................................................................................................... 15-4
 

15.3 NON-REGULATORY POLICIES.......................................................................... 15-5
 

15.3.1 No New Regulatory Action ..................................................................................... 15-5
 

15.3.2 Consumer Rebates ................................................................................................... 15-5
 

15.3.2.1 Water Heaters......................................................................................... 15-6
 

15.3.2.2 Direct Heating Equipment ................................................................... 15-10
 

15.3.2.3 Pool Heaters......................................................................................... 15-14
 

15.3.3 Consumer Tax Credits ........................................................................................... 15-17
 

15.3.4 Manufacturer Tax Credits...................................................................................... 15-20
 

15.3.5 Voluntary Energy Efficiency Targets .................................................................... 15-21
 

15.3.5.1 Water Heaters....................................................................................... 15-22
 

15.3.5.2 Direct Heating Equipment ................................................................... 15-23
 

15.3.5.3 Pool Heaters......................................................................................... 15-24
 

15.3.6 Early Replacement................................................................................................. 15-24
 

15.3.7 Bulk Government Purchases.................................................................................. 15-29
 

15.3.7.1 Water Heaters....................................................................................... 15-29
 

15.3.7.2 Direct Heating Equipment ................................................................... 15-30
 

15.3.7.3 Pool Heaters......................................................................................... 15-30
 

15.3.8 State Building Codes—Water Heaters................................................................... 15-31
 

15.4 IMPACTS OF NON-REGULATORY ALTERNATIVES ................................... 15-31
 

15.5 SUMMARY OF RESULTS FOR NON-REGULATORY ALTERNATIVES .... 15-36
 

LIST OF TABLES 

Table 15.1.1 Non-Regulatory Alternatives to National Standards ................................... 15-1
 

Table 15.2.1 Efficiency Levels in Proposed Standards for Residential Water Heaters.... 15-4
 

Table 15.2.2 Efficiency Levels in Proposed Standards for Direct Heating Equipment.... 15-4
 

Table 15.2.3 Efficiency Levels in Proposed Standards for Pool Heaters ......................... 15-4
 

Table 15.3.1 Benefit/Cost Ratios Without and with Rebates for Water Heaters
 

(2008$)......................................................................................................... 15-7
 

Table 15.3.2 Market Penetrations in 2015 Without and with Rebates for Water
 

Heaters ....................................................................................................... 15-10
 

Table 15.3.3 Benefit/Cost Ratios Without and with Rebates for Direct Heating
 

Equipment.................................................................................................. 15-12
 

Table 15.3.4 Market Penetration in 2013 Without and with Rebates for Direct
 

Heating Equipment .................................................................................... 15-14
 

Table 15.3.5 Benefit/Cost Ratios Without and with Rebates for Pool Heaters .............. 15-15
 

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Table 15.3.6 Market Penetrations in 2013 Without and with Rebates for Gas-Fired 

Pool Heaters That Meet Target Efficiency Levels..................................... 15-17
 

Table 15.3.7 Start-Year Market Penetrations Attributable to Consumer Tax Credits
 

for Heating Products .................................................................................. 15-19
 

Table 15.3.8 Start-Year Market Penetrations Attributable to Manufacturer Tax
 

Credits for Heating Products...................................................................... 15-21
 

Table 15.5.1 Impacts of Non-Regulatory Alternatives for Gas-Fired Storage Water
 

Heaters that Meet the Proposed Standard (Efficiency Level 2)................. 15-37
 

Table 15.5.2 Impacts of Non-Regulatory Alternatives for Electric Storage Water
 

Heaters that Meet the Proposed Standard (Efficiency Level 5)................. 15-38
 

Table 15.5.3 Impacts of Non-Regulatory Alternatives for Gas Wall Fan DHE that
 

Meet the Proposed Standard (Efficiency Level 3)..................................... 15-39
 

Table 15.5.4 Impacts of Non-Regulatory Alternatives for Gas Hearth DHE that
 

Meet the Proposed Standard (Efficiency Level 1)..................................... 15-40
 

Table 15.5.5 Impacts of Non-Regulatory Alternatives for Pool Heaters that Meet
 

Proposed Standards (Efficiency Level 5) .................................................. 15-40
 

Table 15.5.6 Impacts of Policy Allowing States to Incorporate Requirements For
 

High-Efficiency Electric Storage Water Heaters In Building Codes......... 15-41
 

LIST OF FIGURES 

Figure 15.3.1 Market Penetration Curve for Gas-Fired Storage Water Heaters ................ 15-8
 

Figure 15.3.2 Market Penetration Curve for Electric Storage Water Heaters.................... 15-9
 

Figure 15.3.3 Market Penetration Curve for Gas Wall Fan DHE .................................... 15-12
 

Figure 15.3.4 Market Penetration Curve for Gas Hearth DHE ........................................ 15-13
 

Figure 15.3.5 Market Penetration Curve for Gas-Fired Pool Heaters.............................. 15-16
 

Figure 15.3.6 Estimated Replacement Shipments of Gas-Fired Storage Water
 

Heaters With and Without an Early Replacement Program ...................... 15-26
 

Figure 15.3.7 Estimated Replacement Shipments of Electric Storage Water Heaters
 

With and Without an Early Replacement Program.................................... 15-27
 

Figure 15.3.8 Estimated Replacement Shipments of Gas Wall Fan DHE With and
 

Without an Early Replacement Program ................................................... 15-27
 

Figure 15.3.9 Estimated Replacement Shipments of Gas Hearth DHE With and
 

Without an Early Replacement Program ................................................... 15-28
 

Figure 15.3.10 Estimated Replacement Shipments of Gas-Fired Pool Heaters With
 

and Without an Early Replacement Program............................................. 15-28
 

Figure 15.4.1 Market Penetration of Gas-Fired Storage Water Heaters in Policy
 

Cases .......................................................................................................... 15-32
 

Figure 15.4.2 Market Penetration of Electric Storage Water Heaters in Policy Cases .... 15-33
 

Figure 15.4.3 Market Penetration of Gas Wall Fan DHE in Policy Cases....................... 15-34
 

Figure 15.4.4 Market Penetration of Gas Hearth DHE in Policy Cases .......................... 15-35
 

Figure 15.4.5 Market Penetration of Gas-Fired Pool Heaters in Policy Cases ................ 15-36
 

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CHAPTER 15. REGULATORY IMPACT ANALYSIS
 

15.1 INTRODUCTION
 

The U.S. Department of Energy (DOE) has determined that energy conservation 

standards for residential water heaters, direct heating equipment, and pool heaters constitute an 

“economically significant regulatory action” under Executive Order (E.O.) 12866, Regulatory 

Planning and Review. 58 FR 51735, Volume 58, No. 190, page 51735. (October 4, 1993). Under 

10 CFR part 430, subpart C, appendix A, section III.12, DOE committed to evaluating nonregulatory alternatives to proposed standards by performing a regulatory impact analysis (RIA). 

61 FR 36981, Volume 61, No. 136, page 36978. (July 15, 1996). This RIA, which DOE has 

prepared pursuant to E.O. 12866, evaluates potential non-regulatory alternatives, comparing the 

costs and benefits of each to those of the proposed standards. 58 FR 51735, page 51741. As 

noted in E.O. 12866, this RIA is subject to review by the Office of Management and Budget’s 

Office of Information and Regulatory Affairs. 58 FR 51735, page 51740. 

Of the four product classes of residential water heaters subject to proposed standards, this 

RIA concerns only gas-fired storage and electric storage water heaters, which represent the 

majority of shipments. As described in section 15.2.2, the efficiency level in the proposed 

standard for gas-fired storage water heaters is level 2, and the efficiency level in the proposed 

standard for electric storage water heaters is level 5. Of the five product classes of direct heating 

equipment (DHE), this RIA concerns only gas wall fan DHE and gas hearth DHE, which 

represent the majority of shipments. The efficiency level in the proposed standard for gas wall 

fan DHE is level 3, and the efficiency level in the proposed standard for gas hearth DHE is level 

1. The efficiency level in the proposed standard for pool heaters is level 5. 

DOE identified six non-regulatory policy alternatives that feasibly could achieve the 

same energy efficiency as the proposed standards for the products that are the subject of this 

rulemaking. The non-regulatory policy alternatives are listed in Table 15.1.1. DOE evaluated 

each alternative in terms of its ability to achieve significant energy savings at a reasonable cost, 

and compared the effectiveness of each to the effectiveness of the proposed standard. 

Table 15.1.1 Non-Regulatory Alternatives to National Standards 

No New Regulatory Action 

Consumer Rebates 

Consumer Tax Credits 

Manufacturer Tax Credits 

Voluntary Energy Efficiency Targets 

Early Replacement 

Bulk Government Purchases 

In addition to the above six non-regulatory policy alternatives, specifically for this 

rulemaking DOE evaluated the potential impacts of a policy that would allow States to require 

that electric storage water heaters installed in new homes have an efficiency level higher than the 

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Federal standard (mandated through State building codes). For this policy, DOE further assumed 

that electric storage water heaters purchased for existing buildings would have to meet the 

proposed standard level. 

15.2 NON-REGULATORY POLICIES 

This section describes the method DOE used to analyze the energy savings and cost 

effectiveness of the six non-regulatory policy alternatives (excluding the alternative of no new 

regulatory action) for the identified residential water heaters, direct heating equipment, and pool 

heaters. This section also describes the assumptions underlying the analysis. 

15.2.1 Methodology 

DOE used its national impact analysis (NIA) spreadsheet models to calculate the national 

energy savings (NES) and net present value (NPV) associated with each non-regulatory policy 

alternative. (Chapter 10 of the technical support document (TSD) describes the NIA spreadsheet 

models.) DOE quantified the effect of each alternative on the purchase of products that meet 

target efficiency levels, which are defined as the efficiency levels in the proposed standards, 

described above. After establishing the quantitative assumptions underlying each alternative, 

DOE appropriately revised inputs to the NIA spreadsheet models. The primary model inputs that 

DOE revised were market shares of products meeting target efficiencies and equipment 

replacement rates. The shipments of products for any given year reflect a distribution of 

efficiency levels. DOE assumed that the proposed standards would affect 100 percent of the 

shipments of products that did not meet target levels in the base case,a whereas the nonregulatory policies would affect a smaller percentage of those shipments. DOE made certain 

assumptions about the percentage of shipments affected by each alternative policy. DOE used 

those percentages to calculate the shipment-weighted average energy consumption and costs 

attributable to each policy alternative, of residential water heaters, direct heating equipment, and 

pool heaters. 

Increasing the efficiency of a product often increases its average installed cost. On the 

other hand, operating costs generally decrease because energy consumption declines. DOE 

therefore calculated an NPV for each non-regulatory alternative in the same way it did for the 

proposed standards. In some scenarios, increases in total installed cost are mitigated by 

government rebates or tax credits. Because DOE assumed that consumers would re-pay credits 

and rebates in some way (such as additional taxes), DOE did not include rebates or tax credits as 

a consumer benefit when calculating national NPV. DOE’s analysis also excluded any 

administrative costs for the non-regulatory policies; including such costs would decrease the 

NPVs slightly. 

The following are key measures for evaluating the impact of each alternative. 

a The base case for the NIA is a market-weighted average of units at several efficiency levels. 

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•	 National energy savings, given in quadrillion Btus (quads), describes the cumulative 

national primary energy savings for products bought during the period from the 

effective date of the policy (2015 for water heaters and 2013 for direct heating 

equipment and pool heaters) through the end of the analysis period (2045 for water 

heaters and 2043 for direct heating equipment and pool heaters). 

•	 Net present value represents the value in 2008$ (discounted to 2010)b of net monetary 

savings from products bought during the period from the effective date of the policy 

(2015 for water heaters and 2013 for direct heating equipment and pool heaters) 

through the end of the analysis period (2045 for water heaters and 2043 for direct 

heating equipment and pool heaters). 

•	 DOE calculated the NPV as the difference between the present value of installed 

equipment cost and operating expenditures in the base case and the present value of 

those costs in each policy case. DOE calculated operating expenses (including 

energy) for the life of the product. 

15.2.2 Assumptions Regarding Non-Regulatory Policies 

The effects of non-regulatory policies are by nature uncertain, because they depend on 

program implementation and marketing efforts and on consumers’ responses to a program. 

Because the projected effects depend on assumptions regarding the rate of consumer 

participation, they are subject to more uncertainty than are the impacts of mandatory standards, 

which DOE assumes will meet with full compliance. To increase the robustness of the analysis, 

DOE conducted a literature review regarding each non-regulatory policy and consulted with 

recognized experts to gather information on similar incentive programs that have been 

implemented in the United States. By studying experiences with the various types of programs, 

DOE sought to make credible assumptions regarding potential market impacts. Section 15.3 

presents the sources DOE relied on in developing assumptions about each alternative policy and 

reports DOE’s conclusions as they affected the assumptions that underlie the modeling of each 

policy. 

Each non-regulatory policy that DOE considered would improve the average efficiency 

of new residential water heaters, direct heating equipment, and pool heaters relative to their base 

cases (which involve no new regulatory action). The analysis considered that each alternative 

policy would induce consumers to purchase units having the same efficiency levels as required 

by the proposed standards (the target levels). As opposed to the standards case, however, the 

policy cases may not lead to 100 percent market penetration of units that meet target levels. 

Tables 15.2.1 through 15.2.3 show the efficiency levels stipulated in the proposed 

standards for the products in this rulemaking. For residential water heaters, these are level 2 for 

gas-fired storage water heaters and level 5 for electric storage water heaters. For direct heating 

equipment, the efficiency levels stipulated in the proposed standards are level 3 for gas wall fan 

b The Final Rule for heating products is expected to be published in 2010. 

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DHE and level 1 for gas hearth DHE. The efficiency level stipulated in the proposed standards 

for pool heaters is level 5. 

Table 15.2.1 Efficiency Levels in Proposed Standards for Residential Water Heaters 

Water Heater 

Product Class Proposed Efficiency Level 

Gas-Fired Storage 0.63 EF*; standing pilot; 2′′ insulation 

Electric Storage 0.95 EF; 4′′ insulation 

* Energy factor 

Table 15.2.2 Efficiency Levels in Proposed Standards for Direct Heating Equipment 

DHE Product Class Proposed Efficiency Level 

Gas Wall Fan 77% AFUE*; electronic ignition; two-speed blower; 

improved heat exchanger 

Gas Hearth 67% AFUE; electronic ignition 

* Annual fuel utilization efficiency 

Table 15.2.3 Efficiency Levels in Proposed Standards for Pool Heaters 

Pool Heater Product 

Class Proposed Efficiency Level 

Gas-Fired 84% thermal efficiency; power venting; improved heat 

exchanger 

For the special policy case in which States would impose a regulation that electric storage 

water heaters installed in new homes would need to meet a high efficiency level than the target 

level, DOE also assumed that the proposed standard (target) level would apply to water heaters 

destined for existing homes. DOE assumed that the efficiency level mandated by State building 

codes would be level 6 (2.0 EF), which represents heat pump water heater technology. The level 

for existing homes would be level 5 (0.95 EF), as shown in Table 15.2.1 above. 

DOE assumed that the effects of non-regulatory policies would last from the effective 

date of proposed standards—2015 for water heaters and 2013 for direct heating equipment and 

pool heaters—through the end of the analysis period, which is 2045 for water heaters and 2043 

for direct heating equipment and pool heaters. 

15.2.3 Policy Interactions 

DOE calculated the effects of each non-regulatory policy separately from those of the 

other policies. In practice, some policies are most effective when implemented in combination, 

such as early replacement implemented with consumer rebates, or early replacement 

implemented with bulk government purchases. However, DOE attempted to make conservative 

assumptions to avoid double-counting policy impacts. The resulting policy impacts are not 

additive: the combined effect of several or all policies cannot be inferred from summing their 

results. 

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Section 15.3 presents graphs that show the market penetration estimated under each nonregulatory policy for residential water heaters, direct heating equipment, and pool heaters. 

15.3 NON-REGULATORY POLICIES 

The following subsections describe DOE’s analysis of the impacts of the six nonregulatory policy alternatives to proposed standards for water heaters, direct heating equipment, 

and pool heaters. (Because the alternative of No New Regulatory Action has no energy or NPV 

impacts, essentially representing the NIA base case, DOE did not perform additional analysis for 

that alternative.) DOE developed estimates of the market penetration of high-efficiency products 

both with and without each of the non-regulatory policy alternatives. 

15.3.1 No New Regulatory Action 

The case in which no new regulatory action is taken with regard to the energy efficiency 

of residential water heater, direct heating equipment, and pool heater products constitutes the 

base case, as described in chapter 10, National Impact Analysis. The base case provides the basis 

of comparison for all other policies. By definition, no new regulatory action yields zero energy 

savings and an NPV of zero dollars. 

15.3.2 Consumer Rebates 

DOE considered this scenario in which the Federal government provides financial 

incentives in the form of rebates to consumers for purchasing energy efficient appliances. This 

policy provides a consumer rebate for purchasing residential water heater, direct heating 

equipment, and pool heater products that operate at the same efficiencies as stipulated in 

proposed standards. In July 2009 DOE announced funding from the American Recovery and 

Reinvestment Act (ARRA)1 for State-run rebate programs for consumer purchases of new 

2 ENERGY STAR® qualified home appliances.

DOE evaluated consumer rebates using a comprehensive study of California’s potential 

for achieving energy efficiency. The study, performed by XENERGY, Inc.,c summarizes 

experiences with various utility rebate programs.3 XENERGY’s analytical method utilizes 

curves that estimate the market penetration of a technology based on its benefit/cost (B/C) ratio. 

DOE consulted with experts and reviewed other methods of estimating the effect of consumer 

rebate programs on the market penetration of efficient technologies. The other methods, 

4, 5, 6, 7, 8 developed after the referenced XENERGY report was published, used different 

approaches: different economic parameters (e.g., payback period), expert surveys, or calibration 

of a model with specific program data rather than using generic penetration curves. DOE decided 

that the most appropriate available method for this RIA analysis was the XENERGY approach of 

penetration curves based on B/C ratio, which incorporates lifetime operating cost savings. DOE 

adjusted the XENERGY penetration curves based on expert advice founded on more recent 

c XENERGY is now owned by KEMA, Inc. (www.kema.com) 

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utility program experience. Appendix 15-A, section 15-A.2, contains details on how DOE 

adjusted the curves. 

XENERGY’s model estimates market impacts induced by financial incentives based on 

the premise that two types of information diffusion drive the adoption of new technologies. 

Internal sources of information encourage consumers to purchase new products primarily 

through word-of-mouth from early adopters. External sources affect consumer purchase 

decisions through marketing efforts and information from outside the consumer group. Appendix 

15-A, section 15-A.2, contains additional details on internal and external information diffusion. 

XENERGY’s model equation accounts for the influences of both internal and external 

sources of information by superimposing the two components. Combining the two mechanisms 

for information diffusion, XENERGY’s model generates a set of penetration (or implementation) 

curves for a measure. XENERGY then calibrated the curves based on participation data from 

utility rebate programs. The curves illustrate the increased penetration (i.e., increased market 

share) of efficient products driven by consumer response to changes in B/C ratio induced by 

rebate programs. The penetration curves depict various diffusion patterns based on perceived 

barriers (from low to extremely high)d to consumer purchase of high-efficiency products. 

DOE modeled the effects of a consumer rebate policy for water heaters, direct heating 

equipment, and pool heaters by determining the increase in market penetration of target-level 

products relative to their market penetration in the base case. It did this using the penetration 

curve from the XENERGY study that best reflect the market barriers faced by each product 

class. It also noted which curve showed a market share at the product’s B/C ratio without rebates 

that was closest to DOE’s predicted 2015 market share of the target-level unit in the base case. 

15.3.2.1 Water Heaters 

For water heaters, DOE estimated the effect of increasing the B/C ratio via a rebate that 

would pay part or all of the increased installed cost of a unit meeting the target efficiency level 

compared to one meeting the baseline level.e DOE based the rebate amounts on two large 

samples of utility and agency rebate programs for water heaters. 

For gas-fired storage water heaters, DOE gathered data on 100 rebate programs initiated 

by 47 utilities or agencies in States throughout the country. (Appendix 15-A, section 15-A.3.1, 

identifies the programs.) Thirty-seven of the rebate programs, which involved water heaters of 

various sizes and efficiency levels, were for units with an EF of at least 0.62 and one additional 

d There is also a no barriers curve, which is considered a theoretical curve reflecting penetration rates that could not 

be achieved by an actual program. 

e The baseline technology for each product class is defined in the engineering analysis, chapter 5, as the technology 

that represents the basic characteristics of products in that class. A baseline unit typically is one that just meets 

current Federal energy conservation standards and provides basic consumer utility. 

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program was for units that met the target (standard) level (0.63 EF). Since the technology is 

similar for units with these two energy factors, to have an ample data set DOE used the simple 

average of the rebate amounts in these 38 programs. This average, $57, was 56 percent of the 

increase in installed cost of $101 for gas-fired storage water heaters that meet the target level 

compared to those at baseline efficiency levels. DOE therefore assumed that a rebate program for 

gas-fired storage water heaters would offer a rebate amounting to 56 percent of the incremental 

installed cost of the target-level unit versus the baseline unit. 

For electric storage water heaters, DOE gathered data on 246 rebate programs developed 

by 101 utilities or agencies throughout the country. (Appendix 15-A, section 15-A.3.2, identifies 

the rebate programs.) None of the rebates, which were offered for water heaters of various sizes 

and efficiency levels, were for units that meet the target level (0.95 EF). DOE therefore selected 

the 26 rebate programs for electric water heaters that required 0.94 EF, reasoning that rebate 

amounts would be similar for both efficiency levels. The simple average of the rebate amounts in 

the 26 programs for water heaters having 0.94 EF was $97. This amount represents about 73 

percent of the incremental installed cost of $132 for the target-level unit versus baseline units. 

DOE assumed that rebates would remain in effect at the same levels throughout the 

forecast period (2015–2045). 

For gas-fired and electric storage water heaters, DOE first calculated B/C ratios without a 

rebate using the difference in lifetime operating costs and lifetime operating cost savings 

between the unit meeting the target level and the baseline unit. It then calculated B/C ratios given 

a rebate for the unit meeting the target efficiency. Because the rebate reduced the incremental 

cost, the unit receiving the rebate had a larger B/C ratio. Table 15.3.1 shows the effects of 

consumer rebates on lifetime operating cost savings, incremental installed costs, and B/C ratios 

for gas-fired and electric storage water heaters that meet target efficiency levels. 

Table 15.3.1 Benefit/Cost Ratios Without and with Rebates for Water Heaters (2008$) 

Benefit (Lifetime Operating Cost Savings) 

Increase in Installed Cost 

B/C Ratio Without Rebate 

Gas-Fired Electric 

$187 

$101 

1.9 

$190 

$132 

1.4 

Rebate Amount 

Increase in Installed Cost with Rebate 

B/C Ratio with Rebate 

$57 

$44 

4.3 

$97 

$35 

5.4 

DOE used the B/C ratios along with the penetration curves shown in Figures 15.3.1 and 

15.3.2 to estimate the percentage of consumers who would purchase water heaters that meet the 

target levels both with and without a rebate incentive. 

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0% 

10% 

20% 

30% 

40% 

50% 

60% 

70% 

80% 

90% 

100% 

0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 

Participant Benefit-Cost Ratio 

Maximum Penetration Rate

Moderate 

Barriers Curve 

Penetration Rate = 5.6% at B/C 

ratio of 1.9 

Penetration Rate = 19.6% 

at B/C ratio of 4.3 

Figure 15.3.1 Market Penetration Curve for Gas-Fired Storage Water Heaters
 

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0% 

10% 

20% 

30% 

40% 

50% 

60% 

70% 

80% 

90% 

100% 

0 2 4 6 8 10 12 14 16 18 20 

Participant Benefit-Cost Ratio 

Maximum Penetration Rate

Moderate Barriers Curve 

Penetration Rate = 3.2% at B/C 

ratio of 1.4 

Penetration Rate = 24.1% 

at B/C ratio of 5.4 

Figure 15.3.2 Market Penetration Curve for Electric Storage Water Heaters 

DOE selected the moderate barriers penetration curve as most descriptive of the market 

for gas-fired storage water heaters. The barriers are lack of consumer awareness of options and 

the urgent nature of many water heater replacements. DOE predicted that in 2015 the base-case 

market share of units that meet the target level would be 17.4 percent, which is closest to the 

market share of 5.6 percent on the moderate barriers curve for a unit having a B/C ratio of 1.9. 

DOE also selected the moderate barriers penetration curve for electric storage water 

heaters. Along with the barriers affecting purchase of gas-fired storage water heaters, electric 

units face an additional barrier because the increased insulation width may limit the location of a 

new unit. In 2015 the base-case market share of units that meet the target level is predicted to be 

10.1 percent, which is closest to the market share of 3.2 percent on the moderate barriers curve 

for a unit having a B/C ratio of 1.4. 

For each product class, DOE next estimated the relative percent increase represented by 

the change in penetration rate shown on the penetration curve. It then multiplied the market share 

of units that meet the target level in the base case by that percent increase to obtain the market 

share of units that meet the target level in the rebate case. DOE applied a constraint that the 

market penetration of units in the rebate case would not exceed the highest market share on the 

selected penetration curve. 

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Table 15.3.2 summarizes market shares of target-level gas-fired and electric storage 

water heaters estimated for 2015. For gas-fired storage water heaters, DOE estimated that a 

rebate policy would result in a 50 percent market share of products that meet the target efficiency 

level. DOE assumed that this market share would be constant throughout the forecast period, 

because 50 percent is the maximum achievable market share on the moderate barriers penetration 

curve. For electric storage water heaters, DOE estimated that a rebate policy would result in a 50 

percent market share of products that meet the target level, again assuming that this market share 

would remain constant throughout the forecast period. 

Table 15.3.2 Market Penetrations in 2015 Without and with Rebates for Water Heaters 

Market Penetration Without Rebate 

Gas-Fired 

Storage % 

Electric 

Storage 

% 

(Moderate Barriers Penetration Curve) 

Market Penetration with Rebate 

5.6 3.2 

(Moderate Barriers Penetration Curve) 50 24 

Relative Percent Increase in Market Penetration 252 644 

Base-Case Market Share of Units that Meet Target 

Levels 

Market Share of Units that Meet Target Levels 

17.4 10.1 

Under Rebate 

Increased Market Share of Units that Meet Target 

50 50 

Level Under Rebate 32.7 39.9 

To calculate the impacts of the rebate policy, DOE subtracted the market shares of gasfired and electric storage water heaters that meet target efficiencies in the base case from the 

estimated market shares that meet target efficiencies in the rebate case for each year. Although 

DOE assumed that the market shares induced by the rebate policy would be constant, the basecase market shares of gas-fired and electric storage water heaters that meet target levels change 

annually. Therefore the increased market shares used as inputs to the RIA model also change 

annually for the policy cases. See Appendix 15-A, Table 15-A.1.1, for the annual increases in 

market shares for gas-fired and electric storage water heaters meeting target efficiency levels 

under a rebate policy. DOE used these increases in market shares as inputs to represent the 

policy case scenarios in its RIA model. Section 15.4 presents the resulting efficiency trends for 

the policy case of consumer rebates for water heaters. 

15.3.2.2 Direct Heating Equipment 

For direct heating equipment, DOE estimated the effect of increasing the B/C ratio via a 

rebate that would pay part or all of the increased installed cost of a unit that meets the target 

efficiency level compared to the cost of a unit meeting the baseline level. DOE based the rebate 

amounts on small samples of utility and agency rebate programs for direct heating equipment. 

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For gas wall fan DHE, DOE gathered data on rebate programs provided by five utilities 

or agencies in four States. (Appendix 15-A, section 15.3.3, identifies the rebate programs.) The 

rebates were offered for natural gas or propane space heaters. Most of these rebates did not 

stipulate an efficiency level and appeared to be incentives for installing new gas space heaters or 

replacing non-gas heaters with gas units, rather than incentives for purchasing efficient units. 

One rebate stipulated an efficiency level higher than the target (standard) level. Given the 

paucity of identified rebate programs, DOE used the data from all five programs as 

representative of the rebate amount for this policy case. The simple average of the rebate 

amounts in the programs, $89, was 74 percent of the increase in installed price of $120 for gas 

wall fan units that meet the target efficiency level compared to those at baseline levels. DOE 

therefore assumed that a rebate program for gas wall fan units would provide a rebate amounting 

to 74 percent of the incremental installed cost of the target-level unit compared to the baseline 

unit. 

For gas hearth DHE, DOE gathered data on rebate programs provided by six utilities or 

agencies in six States. (Appendix 15-A, section 15.3.4, identifies the rebate programs.) The 

rebates were offered for natural gas or propane gas logs. Most of these rebates did not stipulate 

an efficiency level and appeared to be incentives for installing new gas hearth DHE, rather than 

incentives for purchasing efficient units. One rebate stipulated an efficiency level higher than the 

target (standard) level. Given the paucity of identified rebate programs, DOE used the data from 

all six programs as representative of the rebate amount for this policy case. The simple average 

of the rebate amounts in the programs, $70, was higher than the increase in installed price of $59 

for gas hearth DHE that meet the target efficiency level compared to those at baseline levels. 

DOE therefore assumed that a rebate program for gas hearth DHE would provide a rebate 

amounting to 100 percent of the incremental installed cost of the target-level unit compared to 

the baseline unit. 

DOE assumed that rebates would remain in effect until the market had been transformed; 

that is, the shift in market share of efficient units seen in the first year of the rebate program 

would be maintained throughout the forecast period (2013–2043). 

For direct heating equipment, DOE first calculated B/C ratios without a rebate using the 

difference in lifetime operating costs and total installed costs between the unit meeting the target 

level and the baseline unit. It then calculated B/C ratios given a rebate for the unit meeting the 

target efficiency. Because the rebate reduced the incremental cost, the unit receiving the rebate 

had a larger B/C ratio. Table 15.3.4 shows the effects of consumer rebates on lifetime operating 

cost savings, incremental installed costs, and B/C ratios for direct heating equipment that meets 

target efficiency levels. 

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Table 15.3.3 Benefit/Cost Ratios Without and with Rebates for Direct Heating 

Equipment 

Gas Wall 

Fan 

Gas Hearth 

Benefit 

(Lifetime Operating Cost Savings) 

Increase in Installed Cost 

B/C Ratio Without Rebate 

$347 

$120 

2.9 

$259 

$59 

4.4 

Rebate Amount 

Increase in Installed Cost with Rebate 

B/C Ratio with Rebate 

$89 

$31 

11.1 

$70 

$0 

Infinite 

DOE used the B/C ratios along with the penetration curves shown in Figures 15.3.3 and 

15.3.4 to estimate the percentage of consumers who would purchase direct heating equipment 

units that meet the target efficiency level both with and without a rebate incentive. 

0% 

10% 

20% 

30% 

40% 

50% 

60% 

70% 

80% 

90% 

100% 

0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 

Participant Benefit-Cost Ratio 

Maximum Penetration Rate

Moderate Barriers 

Curve 

Penetration Rate = 12.1% 

at B/C ratio of 2.9 

Penetration Rate = 35.6% 

at B/C ratio of 11.1 

Figure 15.3.3 Market Penetration Curve for Gas Wall Fan DHE 

Note that the part of the penetration curve shown in Figure 15.3.4 does not show the 80 

percent penetration that would result from the infinite B/C ratio produced when a rebate covers 

the entire incremental cost of a target-level unit. 

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0% 

10% 

20% 

30% 

40% 

50% 

60% 

70% 

80% 

90% 

100% 

0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 

Participant Benefit-Cost Ratio 

Maximum Penetration Rate

Moderate Barriers 

Curve 

Penetration Rate = 12.1% 

at B/C ratio of 2.9 

Penetration Rate = 35.6% 

at B/C ratio of 11.1 

Figure 15.3.4 Market Penetration Curve for Gas Hearth DHE 

For gas wall fan DHE, DOE selected the moderate barriers curve, reasoning that while 

the consumer utility of the target-level unit (which uses electronic ignition and an improved heat 

exchanger) is similar to that of the baseline unit and the price difference is fairly small relative to 

total installed cost, efficient units--while readily available--are marketed as a premium product 

and hence reach a modest market share. In 2013 the base-case market share for units that meet 

the target level is projected as 13.6 percent, which is closest to the market share of 12.1 percent 

on the moderate barriers curve for a unit having a B/C ratio of 2.9. 

For gas hearth DHE, DOE selected the low barriers curve because the consumer utility of 

the target-level unit (which uses electronic ignition) is similar to that of the baseline unit; the 

price difference is fairly small relative to total installed cost; and efficient units are readily 

available. In 2013 the base-case market share for units that meet the target level is projected as 

50.9 percent, which is closest to the market share of 54.6 percent on the low barriers curve for a 

unit having a B/C ratio of 4.3. 

For each product class, DOE estimated the relative percent increase represented by the 

change in penetration rate shown on the penetration curves. It then multiplied the market share of 

units meeting the target level in the base case by that percent increase to obtain the market share 

of units that meet the target level under a rebate policy. DOE applied a constraint that the market 

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penetration of units in the rebate case would not exceed the highest market share on the 

penetration curve. 

For gas wall fan DHE, DOE estimated that a rebate policy would result in a 40.2 percent 

market share of products that meet the target efficiency level. For gas hearth DHE, DOE 

estimated that a rebate policy would result in a 74.6 percent market share of products that meet 

the target efficiency level. For both product classes DOE also assumed that the base-case market 

shares of products that meet the target efficiency level would remain constant throughout the 

forecast period. Therefore, DOE also assumed that for both product classes the policy case 

market shares would be constant throughout the forecast period. Table 15.3.5 summarizes market 

shares of gas wall fan DHE and gas hearth DHE predicted for 2013 for units that meet target 

efficiency levels. 

Table 15.3.4	 Market Penetration in 2013 Without and with Rebates for Direct Heating 

Equipment 

Market Penetration Without Rebate 

Gas Wall 

Fan % 

Gas 

Hearth 

% 

(Low Barriers Penetration Curve) 

Market Penetration with Rebate 

12.1 54.6 

(Low Barriers Penetration Curve) 35.6 80.0 

Relative Percent Increase in Market Penetration 195.1 46.6 

Base-Case Market Share of Units That Meet Target Level 

Market Share of Units That Meet Target Level under 

13.6 50.9 

Rebate Policy 

Increased Market Share of Units That Meet Target Level 

40.2 74.6 

under Rebate Policy 26.6 23.7 

To calculate the impacts of the rebate policy, DOE subtracted the market shares of direct 

heating equipment that meet target efficiencies in the base case from the estimated market shares 

that meet target efficiencies in the rebate case for each year. The increased market shares 

attributable to the rebate policy, shown in Table 15.3.5, were used as inputs to the RIA model. 

Section 15.4 presents the resulting efficiency trends for the policy case of consumer rebates for 

direct heating equipment. 

15.3.2.3 Pool Heaters 

For pool heaters, DOE estimated the effect of increasing the B/C ratio via a rebate that 

would pay part or all of the increased installed cost of a unit that meets the target efficiency level 

compared to one meeting the baseline efficiency level. DOE based the rebate amounts on a small 

sample of utility and agency rebate programs for pool heaters. 

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For gas-fired pool heaters, DOE gathered data on rebate programs provided by five 

utilities or agencies in five States. (Appendix 15-A, section 15.3.5, identifies the rebate 

programs.) The rebates were offered for natural gas-fired pool heaters. None of the rebates 

stipulated an efficiency level. The rebates appeared to be incentives for installing new gas-fired 

pool heaters or replacing non-gas heaters with gas-fired units, rather than incentives for 

purchasing efficient units. Given the paucity of identified rebate programs, however, DOE used 

the data from all five programs as representative of the rebate amount for this policy case. The 

simple average of the rebate amounts in the programs, $199, was 55 percent of the increase in 

installed price of $356 for pool heaters that meet the target efficiency level compared to those at 

baseline levels. DOE therefore assumed that a rebate program for pool heaters would provide 55 

percent of the incremental installed cost of the target-level unit compared to the baseline unit. 

DOE assumed the rebates would remain in effect until the market had been transformed; 

that is, the shift in market share of efficient units seen in the first year of the program would be 

maintained throughout the forecast period (2013–2043). 

For pool heaters, DOE first calculated B/C ratios without a rebate using the difference in 

lifetime operating costs and total installed costs between the unit meeting the target level and the 

baseline unit. DOE then calculated B/C ratios given a rebate for the unit meeting the target level. 

Because the rebate reduced the incremental cost, the unit receiving the rebate had a larger B/C 

ratio. Table 15.3.6 shows the effects of consumer rebates on lifetime operating cost savings, 

incremental installed costs, and B/C ratios for gas-fired pool heaters that meet the target 

efficiency level. 

Table 15.3.5 Benefit/Cost Ratios Without and with Rebates for Pool Heaters 

Benefit 

(Lifetime Operating Cost Savings) 

Increase in Installed Cost 

B/C Ratio Without Rebate 

Gas-Fired 

Pool Heaters 

$374 

$359 

1.1 

Rebate Amount 

Increase in Installed Cost with Rebate 

B/C Ratio with Rebate 

$199 

$160 

2.3 

DOE used the B/C ratios along with the penetration curve shown in Figure 15.3.5 to 

estimate the percentage of consumers who would purchase units that meet the target efficiency 

level with and without a rebate incentive. Note that the part of the penetration curve shown in 

Figure 15.3.5 does not show the 80 percent penetration that would result from the infinite B/C 

ratio produced when the rebate covers the entire incremental cost of the high efficiency unit. 

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0% 

10% 

20% 

30% 

40% 

50% 

60% 

70% 

80% 

90% 

100% 

0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 

Participant Benefit-Cost Ratio 

Maximum Penetration Rate 

Low Barriers 

Curve 

Penetration Rate = 23.0% 

at B/C ratio of 1.0 

Penetration Rate = 41.7% at 

B/C ratio of 2.3 

Figure 15.3.5 Market Penetration Curve for Gas-Fired Pool Heaters 

For pool heaters, DOE selected the low barriers curve because the consumer utility of the 

unit meets the target level (via an improved heat exchanger) is similar to that of the baseline unit 

and efficient units are readily available. In 2013 the base-case market share for units that meet 

the target level is predicted to be 21.6 percent, which is closest to the market share of 23 percent 

on the low-barriers penetration curve for a unit having a B/C ratio of 1.0. 

DOE estimated the relative percent increase represented by the change in penetration rate 

shown on the penetration curve. It then multiplied the market share of units that meet the target 

efficiency level in the base case by that percent increase to obtain the market share of units that 

meet the target level under a rebate policy. DOE applied a constraint that the market penetration 

of units in the rebate case would not exceed the highest market share on the penetration curve. 

Table 15.3.7 summarizes the market shares of target-level pool heaters in 2013. DOE 

estimated that a rebate policy would result in a 39.1 percent market share of products that meet 

the target efficiency level. DOE assumed that this market share would remain constant 

throughout the forecast period because the base-case market shares of pool heaters that meet the 

target level remain constant throughout the forecast period. 

The increased market shares attributable to the rebate policy, shown in Table 15.3.7, were 

used as inputs to the RIA model. Section 15.4 presents the resulting efficiency trends for the 

policy case of consumer rebates for gas-fired pool heaters. 

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Table 15.3.6 Market Penetrations in 2013 Without and with Rebates for Gas-Fired 

Pool Heaters That Meet Target Efficiency Levels 

Market Penetration Without Rebate 

Market 

Share % 

(Low Barriers Penetration Curve) 

Market Penetration with Rebate 

23.0 

(Low Barriers Penetration Curve) 41.7 

Relative Percentage Increase in Market Penetration 81.1 

Base-Case Market Share of Units That Meet Target Level 

Market Share of Units That Meet Target Level under 

21.6 

Rebate Policy 39.1 

Increased Market Share of Units That Meet Target Level 

under Rebate Policy 

17.5 

15.3.3 Consumer Tax Credits 

DOE estimated the effects of tax credits on consumer purchases based on its previous 

analysis of consumer participation in tax credits. DOE supported its approach using data from 

Oregon State’s tax credit program for energy efficient appliances. DOE also incorporated 

previous research that disaggregated the effect of rebates and tax credits into a direct price effect, 

which derives from the savings in purchase price, and an announcement effect, which is 

9, 10 independent of the amount of the incentive. The announcement effect derives from the 

credibility that a technology receives from being included in an incentive program, as well as 

changes in product marketing and modifications in markup and pricing. DOE assumed that the 

rebate and consumer tax credit policies would encompass both direct price effects and 

announcement effects, and that half the increase in market penetration associated with either 

policy would be due to the direct price effect and half to the announcement effect. 

In estimating the effects of a tax credit on purchases of consumer products that meet new 

efficiency standards, DOE assumed the amount of the tax credit would be the same as the 

corresponding rebate. That is, DOE assumed that a tax credit would equal 56 percent of the 

incremental cost of a gas-fired storage water heater that meets the target level, 73 percent of the 

incremental cost of an electric storage water heater, and 100 percent of the incremental cost of 

gas wall fan DHE, gas hearth DHE, or gas-fired pool heaters that meet the target level. 

DOE estimated that fewer consumers would participate in a tax credit program than 

would take advantage of a rebate. Research has shown that the delay required for a consumer to 

receive a tax credit, plus the added time and cost in preparing the tax return, make a tax credit 

incentive less effective than a rebate received at the time of purchase. Based on previous 

analyses, DOE assumed that only 60 percent of the consumers who would take advantage of a 

11 rebate would take advantage of a tax credit.

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DOE also reviewed its analysis of Oregon State tax credits, in particular those for clothes 

washers.12 (Additional discussion of Oregon State tax credits is below.) DOE compared the 

market shares of ultra-high efficiency (UHE) residential clothes washers in Oregon, which 

offered both State tax credits and utility rebates, with those in Washington State, which offered 

only rebates during the same period. Based on this analysis, DOE estimated that in Oregon the 

impact of tax credits was 62 percent of the impact of rebates for UHE clothes washers having the 

same efficiency. This finding supports the assumption that participation in a tax credit program 

would be about 60 percent of participation in a rebate program. 

DOE also reviewed other tax credit programs that have been offered at both the Federal 

and State levels for energy efficient appliances. The Energy Policy Act of 2005 (EPACT 2005) 

included Federal tax credits for consumers who purchase gas, oil, or electric heat pump water 

13, 14 heaters for new or existing homes. Those tax credits were in effect in 2006 and 2007, 

expired in 2008, and were reinstated for 2009–2010 by ARRA.15 The tax credits for water 

heaters, however, apply to units much more efficient than stipulated in the proposed standards. 

Natural gas, propane, or oil water heaters are required to have 0.82 EF or greater to receive a tax 

credit; electric water heaters must be heat pump water heaters having 2.0 EF or greater. As of 

this writing, the IRS had not published data on the numbers of taxpayers who claimed the tax 

credits during tax years 2006 and 2007. Hence, in this analysis DOE was unable to use data 

related to the Federal tax credits for water heaters. Appendix 15-A, section 15.4.1, gives details 

on the products eligible for Federal tax credits for various residential appliances. 

The States of Oregon and Montana have offered consumer tax credits for efficient 

appliances for several years, and the States of Indiana and Kentucky began offering such credits 

in 2009. The Oregon Department of Energy (ODOE) has separated out data on taxpayer 

participation in credits for water heaters. (Montana’s Department of Revenue does not 

disaggregate participation data by appliance). The Oregon tax credits, however, are for units 

having efficiencies higher than the levels stipulated in the proposed standards. The Oregon tax 

credits apply to advanced technologies such as tankless gas-fired or heat pump electric water 

heaters, whereas there are conventional gas-fired or electric storage water heaters that can meet 

the target efficiency levels analyzed in this RIA. Participation in Oregon’s tax credits for water 

heaters has been much lower than for other residential appliances such as clothes washers or 

dishwashers. ODOE speculates that this difference reflects the fact that water heaters often are 

replaced at failure, requiring a quick decision and a readily available product. The advanced 

technologies required to earn a tax credit also are more expensive and more complex to install 

than are conventional storage water heaters.16 Hence, DOE did not use ODOE tax credit data on 

water heaters to predict consumer response to this policy. Appendix 15-A, section 15-A.4.2, 

provides details of the products covered and the amounts of State tax credits offered for 

residential appliances. 

DOE identified no State consumer tax credits for direct heating equipment or pool heaters 

to use in estimating the impacts of consumer tax credits for those products. As mentioned above, 

however, DOE used its analysis of ODOE data for residential clothes washers as support for its 

assumption that tax credits induce the participation of about 60 percent as many consumers as do 

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rebates. DOE applied that percentage to consumer tax credits for water heater, direct heating 

equipment, and pool heater products. 

DOE applied the assumed 60 percent participation described above to the penetration 

rates estimated for the rebate policy to estimate penetration rates attributable to consumer tax 

credits. In doing so, DOE incorporated the assumptions for consumer response to financial 

incentives from the XENERGY penetration curves selected for each product class. In response to 

a tax credit, the 2015 market share of gas-fired storage water heaters that meet target-level 

efficiency would increase from 17.4 percent (the base-case market share) to an estimated 36.9 

percent. For efficient electric storage water heaters, the 2015 market share would increase from 

10.1 percent to 34.0 percent. For gas wall fan DHE, the 2013 market share of efficient units 

would increase from 13.6 percent to 29.6 percent. For gas hearth DHE, the market share of 

efficient units would increase from 50.9 percent to 65.1 percent. For gas-fired pool heaters, the 

2013 market share of efficient units would increase from 21.6 percent to 32.1 percent. 

Table 15.3.8 summarizes DOE’s assumptions regarding the market penetration of each 

product given a consumer tax credit in 2015 for water heaters and in 2013 for direct heating 

equipment and pool heaters that meet target efficiency levels. 

Table 15.3.7	 Start-Year Market Penetrations Attributable to Consumer Tax Credits 

for Heating Products 

Base-Case Market Share of Units 

That Meet Target Level 

Gas-Fired 

Storage 

Water 

Heaters 

% 

Electric 

Storage 

Water 

Heaters % 

Gas Wall 

Fan 

DHE* % 

Gas 

Hearth 

DHE % 

GasFired 

Pool 

Heaters 

% 

17.4 10.1 13.6 50.9 21.6 

Market Share of Units That Meet 

Target Level Given Consumer 

Tax Credits 

36.9 34.0 29.6 65.1 32.1 

Increased Market Share of Units 

That Meet Target Level Given 

Consumer Tax Credits 

19.6 24.0 16.0 14.2 10.5 

* Direct heating equipment. 

DOE assumed that this policy would transform the market permanently, so that the 

increase in market share seen in the first year of the program for direct heating equipment and 

pool heaters would be maintained throughout the forecast period. Because the base-case market 

share of water heaters that meet target levels changes annually, the increases in market 

penetration under the policy case also change annually. See Appendix 15-A, Table 15-A.1.2, for 

the annual increases in market shares for both gas-fired and electric storage water heaters that 

meet target efficiency levels. 

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The increased market shares attributable to a consumer tax credit shown in Tables 15.3.8
 

and 15-A.1.2 were used as inputs to the RIA model. Section 15.4 presents the resulting 

efficiency trends for the policy case of consumer tax credits for water heaters, direct heating 

equipment, and gas-fired pool heaters that meet target efficiency levels. 

15.3.4 Manufacturer Tax Credits 

To analyze the potential effects of a policy that offers tax credits to manufacturers that 

produce heating products that meet target efficiency levels, DOE assumed that a manufacturer 

tax credit would lower the consumer’s purchase cost by an amount equivalent to that provided by 

the consumer rebates or tax credits described above. DOE further assumed that manufacturers 

would pass on some of their reduced costs to consumers, causing a direct price effect. DOE 

assumed that no announcement effect would occur, because the program would not be visible to 

consumers. Because the direct price effect is approximately equivalent to the announcement 

effect,9 DOE estimated that a manufacturer tax credit would induce half the number of 

consumers assumed to take advantage of a consumer tax credit to purchase more efficient 

products. This assumed participation rate is equal to 30 percent of the number of consumers who 

would participate in a rebate program. 

DOE also attempted to investigate manufacturer responses to the Energy Efficient 

Appliance Credits for manufacturers mandated by EPACT 2005.14 Those manufacturer tax 

credits were in effect in 2006 and 2007 (and reinstated for 2009 and 2010). DOE was unable to 

locate data from the Internal Revenue Service or other sources on manufacturer response to the 

Federal credits. Appendix 15-A presents details on Federal manufacturer tax credits. 

DOE applied the assumption of 30 percent participation to the penetration rates predicted 

for the rebate policy to estimate the effects of a manufacturer tax credit policy. In doing so, the 

Department incorporated the assumptions for consumer response to financial incentives from the 

XENERGY penetration curves selected for each product class. A manufacturer tax credit was 

estimated to increase the 2015 market share of target-level gas-fired storage water heaters from 

the base-case level of 17.4 percent to 27.1 percent. For electric storage water heaters, the 2015 

market share of target-level units would increase from 10.1 percent to 22.0 percent. A 

manufacturer tax credit would increase the 2013 market share of efficient gas wall fan DHE from 

13.6 percent to 21.6 percent and the market share of gas hearth DHE from 50.9 percent to 58.0 

percent. The 2013 market share of efficient gas-fired pool heaters would increase from 21.6 

percent to 26.8 percent. 

Table 15.3.10 summarizes DOE’s assumptions regarding the market penetration of each 

product in 2015 for water heaters and in 2013 for direct heating equipment and pool heaters that 

meet target efficiency levels given a manufacturer tax credit. 

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Table 15.3.8 Start-Year Market Penetrations Attributable to Manufacturer Tax 

Credits for Heating Products 

Base-Case Market Share of Units 

That Meet Target Level 

Gas-Fired 

Storage 

Water 

Heaters % 

Electric 

Storage 

Water 

Heaters % 

Gas Wall 

Fan DHE % 

Gas 

Hearth 

DHE % 

Gas-Fired 

Pool 

Heaters % 

17.4 10.1 13.6 50.9 21.6 

Market Share of Units That Meet 

Target Level Given a Manufacturer 

Tax Credit 

27.1 22.0 21.6 58.0 26.8 

Increased Market Share of Units 

That Meet Target Level Given a 

Manufacturer Tax Credit 

9.8 12.0 8.0 7.1 5.2 

DOE assumed that this policy would transform the market permanently, so that the 

increase in market share seen in the first year of the program for direct heating equipment and 

pool heaters would be maintained throughout the forecast period. Because the base-case market 

share of water heaters that meet target levels changes annually, their increases in market 

penetration under the policy case would also change annually. See Appendix 15-A, Table 15­

A.1.3, for the annual increases in market shares for both gas-fired and electric storage water 

heater that meet target efficiency levels. 

The increased market shares attributable to a manufacturer tax credit, shown in Tables 

15.3.10 and 15-A.1.3 were used as inputs to the RIA model. Section 15.4 presents the resulting 

efficiency trends for the policy case of manufacturer tax credits for water heaters, direct heating 

equipment, and gas-fired pool heaters. 

15.3.5 Voluntary Energy Efficiency Targets 

For each product, DOE assumed that voluntary energy efficiency targets would be 

achieved as manufacturers gradually stopped producing units that operated below their target 

levels. DOE assumed that the impetus for phasing out production of low-efficiency units would 

be a program similar to the ENERGY STAR labeling program conducted by the Environmental 

Protection Agency (EPA) and DOE. The ENERGY STAR program specifies the minimum 

energy efficiencies that various products, including residential water heaters, must have to 

receive the ENERGY STAR label. ENERGY STAR encourages consumers to purchase efficient 

products via marketing that promotes consumer label recognition, various incentive programs 

that adopt the ENERGY STAR specifications, and manufacturers’ promotion of their qualifying 

appliances. ENERGY STAR projects market penetration of compliant appliances and estimates 

the percentage of sales of compliant appliances that are attributable to the ENERGY STAR 

program. 

Researchers have analyzed the ENERGY STAR program’s effects on sales of several 

consumer products. Program efforts generally involve a combination of information 

dissemination and utility or agency rebates. The analyses have been based on State-specific data 

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on percentages of shipments of various appliances that meet ENERGY STAR specifications. The 

analyses generally have concluded that the market penetration of ENERGY STAR-qualifying 

appliances is higher in regions or States where ancillary promotional programs have been 

17, 18, 19 active.

15.3.5.1 Water Heaters 

To model the effects of a voluntary energy efficiency policy for water heaters, DOE 

assumed an expansion of current ENERGY STAR efforts for this product. Because the 

ENERGY STAR program for gas-fired storage water heaters began only in 2008, historical and 

long-term forecast data on the program’s effects were not available as of this writing.f DOE 

therefore developed assumptions regarding market penetration of ENERGY STAR-compliant 

gas-fired storage water heaters based on EPA experience with a product for which historical and 

forecast data were available. DOE chose to evaluate gas boilers as an analogous product to gasfired storage water heaters because the efficiency difference between the ENERGY STARcompliant units and units meeting current Federal efficiency standards is relatively small, as is 

the case for the ENERGY STAR specifications for gas-fired storage water heaters. The 

ENERGY STAR program has developed projections for 1996–2025 of increased market 

penetration attributable to its program for efficient gas boilers.20 DOE estimated that an 

expanded ENERGY STAR program (as applied to gas-fired storage water heaters) would 

increase the annual market share of efficient units by 50 percent more than the increase 

attributable to the current ENERGY STAR program for gas boilers beginning in 2002. DOE 

chose that year because the program had been in effect for 7 years and there was an increase in 

the specified efficiency that year, similar to the likely situation of gas-fired water heaters in 2015 

prior to an expansion of the program under this policy case. DOE calculated the annual relative 

percent increases in market share for gas boilers represented by the additional 50 percent market 

share increases described above that would result from an enhanced program. DOE multiplied 

the market shares of gas-fired storage water heaters that meet the target level in the RIA base 

case, starting in 2015, by those relative percent increases to obtain the annual market shares of 

units meeting the target efficiency level in the voluntary targets policy case. (From 2039–2044 

DOE used the value for 2038, which corresponded to 2025, the last year of the ENERGY STAR 

forecast.) The Department performed an adjustment of these market shares to reflect the 

difference between the assumed market shares of ENERGY STAR-qualified gas boilers not 

attributable to the ENERGY STAR program in the Energy Star gas boiler projection and the gasfired storage water heaters assumed to meet the target level due to the existing ENERGY STAR 

program in the RIA base case; this adjustment also avoided double-counting of those base case 

shipments in the policy case market shares. DOE assumed that the programs resulting from the 

expanded voluntary targets policy would produce the projected increases in market share shown 

in Table 15.3.12. 

f The base case for the NIA for gas-fired storage water heaters assumes that the ENERGY STAR program causes the 

market share of gas condensing water heaters to increase each year of the forecast period. This assumption is 

reflected in the RIA analysis of the voluntary energy efficiency policy. 

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Although the ENERGY STAR program does not include efficiency criteria for electric 

storage water heaters, to analyze this policy case DOE assumed that ENERGY STAR would 

extend its scope to those products. g DOE based its estimates of market penetration of efficient 

electric storage water heaters on the ENERGY STAR projections of increased market 

penetration attributable to the program for efficient gas boilers.20 DOE estimated that beginning 

in 2015, a new ENERGY STAR program for electric storage water heaters would produce the 

same annual increases in market share as demonstrated by the current program for gas boilers 

beginning in 1996. DOE chose 1996, the year the program began, to match the conditions of 

initial low market share for a new program and used the ENERGY STAR projections from 1996 

through 2025 to estimate the impacts of a new program for electric storage water heaters. From 

the ENERGY STAR forecast for gas boilers in those years, DOE calculated the annual relative 

percent increases in market share for gas boilers represented by the shipments attributed to 

ENERGY STAR. DOE multiplied the market shares of electric storage water heaters that meet 

the target level in the RIA base case, starting in 2015, by those percent increases to obtain the 

annual market shares of units meeting the target efficiency level in the voluntary targets policy 

case. The Department performed an adjustment of these market shares to reflect the difference 

between the assumed market shares of ENERGY STAR-qualified gas boilers not attributable to 

the ENERGY STAR program in the ENERGY STAR gas boiler forecast and the electric storage 

water heaters assumed to meet the target level due to the existing ENERGY STAR program in 

the RIA base case; this adjustment also avoided double-counting of those base case shipments in 

the policy case market shares. 

DOE estimated that the programs developed in support of the voluntary targets policy 

would increase market shares of efficient units by the percentages shown in Appendix 15-A, 

Table 15-A.1.4. Section 15.4 presents the resulting efficiency trends for the policy case of 

voluntary energy efficiency targets for water heaters that meet target efficiency levels. 

15.3.5.2 Direct Heating Equipment 

Because there is no ENERGY STAR program for direct heating equipment, DOE based 

its assumptions regarding increased market penetration on EPA’s experience with air source heat 

pumps. DOE chose air source heat pumps (ASHP) because the initial market share of ENERGY 

STAR-qualified units was already substantial at the beginning of the program, as it was for gas 

wall fan DHE and gas hearth DHE. DOE therefore based its estimates of market penetration for 

these direct heating equipment product classes on the ENERGY STAR projections for 1996– 

2025 of market penetration attributable to its program for ASHP.20 DOE estimated that an 

ENERGY STAR program for gas wall fan DHE and for gas hearth DHE would produce the 

same patterns of annual increases in market penetration beginning in 2013. From the ENERGY 

STAR forecast for ASHP, DOE calculated the annual relative percent increases in market share 

for ASHP units represented by the shipments attributed to ENERGY STAR. DOE multiplied the 

market shares of gas wall fan DHE and gas hearth DHE that met the target levels in their RIA 

g The base case for the NIA for electric storage water heaters assumes that the ENERGY STAR program causes the 

market share of heat pump water heaters, for which there is an ENERGY STAR specification, to increase each year 

of the forecast period. This assumption is reflected in the RIA analysis of the voluntary energy efficiency policy. 

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base cases, starting in 2013, by those percent increases to obtain the annual market shares of 

units meeting the target efficiency level in the voluntary policy case. Table 15-A.1.4 in Appendix 

15-A shows the annual projected increases in market shares of direct heating equipment that 

would result from a voluntary energy efficiency policy. Section 15.4 presents the resulting 

efficiency trends for the policy case of voluntary energy efficiency targets for direct heating 

equipment. 

15.3.5.3 Pool Heaters 

Because there is no ENERGY STAR program for pool heaters, DOE based its 

assumptions about market penetration of efficient units on EPA experience with air source heat 

pumps. DOE chose air source heat pumps (ASHP) because the initial market share of ENERGY 

STAR-qualified units was already substantial at the beginning of the program, as it was for gasfired pool heaters. DOE therefore based its estimates of market penetration for pool heaters on 

ENERGY STAR projections for 1996–2025 of market penetration attributable to its program for 

ASHP.20 DOE estimated that the ENERGY STAR program for pool heaters would produce the 

same pattern of annual increases in market penetration beginning in 2013. From the ENERGY 

STAR forecast for ASHP, DOE calculated the annual relative percent increases in market share 

for ASHP units represented by the shipments attributed to ENERGY STAR. DOE multiplied the 

market shares of gas-fired pool leaders that met the target levels in the RIA base case, starting in 

2013, by those percent increases to obtain the annual market shares of units meeting the target 

efficiency level in the voluntary policy case. Table 15-A.1.4 in Appendix 15-A shows the annual 

projected increases in market share of efficient units resulting from a voluntary energy efficiency 

policy. Section 15.4 presents the resulting efficiency trends for the policy case of voluntary 

energy efficiency targets for gas-fired pool heaters. 

15.3.6 Early Replacement 

The non-regulatory policy of early replacement refers to a program to replace residential 

appliances before the ends of their useful lives. The purpose of such a policy is to replace old, 

inefficient units with higher efficiency units. The economic feasibility of early replacement 

depends on the vintage of the unit being replaced, the installed cost of the new unit, and the 

energy cost savings. 

Although the United States has limited experience with early replacement programs for 

appliances, DOE examined several resources to inform its analysis of the policy. One report 

detailed the Connecticut Appliance Retirement Program (ARP), which was conducted in 2004.21 

Another was a study of the potentials for electric energy efficiency performed in 2006 for the 

State of Vermont.22 DOE also had performed an earlier study on the effectiveness of Federal 

programs supporting early retirement of appliances under the Energy Policy Act of 1992 

(EPACT 1992). 

The Connecticut ARP was conducted from June through December 2004 by Nexus 

Market Research, Inc., and RLW Analytics, Inc., for Northeast Utilities–Connecticut Light and 

Power and the United Illuminating Company’s State programs. The purpose of the ARP was to 

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help Connecticut utility customers overcome barriers to recycling room air conditioners (RACs), 

secondary refrigerators, and freezers. The program picked up used appliances at customers’ 

homes or at turn-in events, paid participants to retire their units, and educated customers about 

the costs of operating older appliances. In addition, the program provided consumers with 

financial incentives to replace inefficient RACs with ENERGY STAR-qualified units. DOE 

considered the RAC program to most closely resemble the early replacement policy scenario for 

the three heating products considered herein, because consumers replaced primary units rather 

than retiring second units. Nexus/RLW used program data and surveys to estimate the number of 

RACs retired by ARP participants, the percentage of retired units that were replaced with an 

ENERGY STAR model, and the number of RACs replaced by non-participants during the 

program. According to the Nexus/RLW analysis, about 7 percent of all RACs retired during the 

program were retired through the ARP, and 63 percent of those were replaced with ENERGY 

STAR models. Thus the program resulted directly in about 4 percent of total eligible RAC 

consumers deciding on early replacement of inefficient units. 

In 2006, GDS Associates, Inc., conducted a study for the State of Vermont of the 

potentials for reducing electricity use and peak demand through energy efficiency and fuel 

conversion measures. The study took an aggressive, multi-program approach, one aspect of 

which was early replacement of appliances. GDS considered that under the program residential 

appliances, including RACs, would be replaced during 4 years (2006–2009). GDS estimated 

achievable market penetrations assuming that consumers would receive a financial incentive 

equal to 50 percent of the incremental cost of each measure. GDS assumed an 80 percent 

penetration limit. For early replacement of RACs, GDS estimated a maximum achievable 

participation of 5 percent of eligible single-family or multi-family homes in the year before the 

program began (2005). 

DOE also reviewed a study it conducted in the 1990s, under EPACT 1992, which 

analyzed the feasibility of a Federal program to promote early replacement of appliances.23 The 

study identified policy options for early replacement that included a direct national program; 

replacement of Federally-owned appliances; and promotion through equipment manufacturers, 

consumer incentives, incentives to utilities, and building regulations.h 

For this RIA analysis, DOE analyzed a program that would target installed units having 

efficiency levels that are lower than target levels and encourage their early replacement with 

products that perform at target levels. For each product, DOE modeled the effects of the early 

replacement policy by increasing by 4 percent per year the retirement rate of units that were in 

the stock in the first year of the analysis period (2015 for water heaters and 2013 for direct 

heating equipment and pool heaters). DOE used the 4 percent rate from the Connecticut study, 

because it was based on real-world experience. DOE assumed that the early replacement 

h The analysis concluded that, although cost-effective opportunities for early replacement exist, a widespread 

Federal program was not justified economically. Because early retirement means that a unit may be replaced by an 

appliance less efficient than the eventual replacement would have been, energy savings would be less than 

anticipated. Early replacement programs also could increase long-term sales volatility by encouraging a temporary 

increase in production, followed by a lull in demand. Early replacement could be economical in localities subject to 

high energy costs or environmental constraints; when replacement appliances are much more efficient than existing 

stock; or when a major technology breakthrough has occurred, creating the need for a ready market. 

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program would continue until it had facilitated the replacement of all eligible residential water 

heaters, direct heating equipment, and pool heaters in the stock in the year the program began 

(2015 or 2013). Shipments of new units in 2015/2013 and beyond were not affected by the 

program, but remained at base-case efficiency levels. After the stock of inefficient units was 

completely replaced, the policy would produce no additional impacts. 

An early replacement policy would create a fairly immediate jump in shipments of 

products that meet target efficiency levels relative to the base case, as shown in Figures 15.3.6 

through 15.3.10. High-efficiency units would be brought quickly into the stock, leading to an 

immediate gain in the market share of efficient units compared to the base case. As opposed to 

the policy cases discussed previously, however, an early replacement policy results in market 

shares of efficient units returning to base-case percentages as the eligible market is depleted. In 

addition, as the figures illustrate, because units removed early from the stock would have been 

replaced later (at the ends of their useful lives) without the program, the number of shipments in 

later years drops below the base-case shipments forecast. The shipments shown in Figures 15.3.6 

through 15.3.10 represent units that replace existing units (replacement shipments). Section 15.4 

presents the resulting efficiency trends for the policy case of early replacement for water heaters, 

direct heating equipment, and gas-fired pool heaters. 

3.500 

3.700 

3.900 

4.100 

4.300 

4.500 

4.700 

4.900 

5.100 

5.300 

2005 2010 2015 2020 2025 2030 2035 2040 

Shipments (Millions) 

Early Replacement 

Base Case 

Figure 15.3.6 Estimated Replacement Shipments of Gas-Fired Storage Water 

Heaters With and Without an Early Replacement Program 

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3.000 

3.500 

4.000 

4.500 

5.000 

5.500 

6.000 

6.500 

7.000 

2005 2010 2015 2020 2025 2030 2035 2040 

Shipments (Millions) 

Early Replacement 

Base Case 

Figure 15.3.7 Estimated Replacement Shipments of Electric Storage Water 

Heaters With and Without an Early Replacement Program 

0.015 

0.020 

0.025 

0.030 

0.035 

0.040 

0.045 

2005 2010 2015 2020 2025 2030 2035 2040 

Shipments (Millions)

Early Replacement 

Base Case 

Figure 15.3.8 Estimated Replacement Shipments of Gas Wall Fan DHE With 

and Without an Early Replacement Program 

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0.000 

0.100 

0.200 

0.300 

0.400 

0.500 

0.600 

0.700 

0.800 

0.900 

2005 2010 2015 2020 2025 2030 2035 2040 

Shipments (Millions)

Early Replacement 

Base Case 

Figure 15.3.9 Estimated Replacement Shipments of Gas Hearth DHE With 

and Without an Early Replacement Program 

0.070 

0.080 

0.090 

0.100 

0.110 

0.120 

0.130 

0.140 

0.150 

0.160 

2005 2010 2015 2020 2025 2030 2035 2040 

Shipments (Millions) 

Base Case 

Early Replacement 

Figure 15.3.10	 Estimated Replacement Shipments of Gas-Fired Pool Heaters 

With and Without an Early Replacement Program 

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15.3.7 Bulk Government Purchases 

DOE assumed that a policy requiring bulk government purchases would lead to Federal, 

State, and local governments purchasing products that meet target efficiency levels. Combining 

the demands of multiple public sectors also would provide a market signal to manufacturers and 

vendors that some of their largest customers seek products that meet an efficiency target at 

favorable prices. Such a program also could induce “market pull,” whereby manufacturers and 

vendors would achieve economies of scale for high-efficiency products. 

Most of the previous bulk government purchase (procurement) initiatives at the Federal, 

State, and municipal levels have not tracked data on number of purchases or degree of 

compliance with procurement specifications. In many cases, procurement programs are 

decentralized, being part of larger State or regional initiatives. DOE based its assumptions 

regarding the effects of a policy calling for bulk government purchases on studies the Federal 

Energy Management Program (FEMP) performed regarding the savings potential of its 

procurement specifications for appliances and other equipment. FEMP, however, does not track 

purchasing data, because of the range of complex the purchasing systems, number of vendors, 

etc. States, counties, and municipalities have demonstrated increasing interest and activity in 

“green purchasing." Although many of the programs target office equipment, the growing 

infrastructure for developing and applying efficient purchasing specifications indicates that bulk 

24, 25 government purchase programs are feasible.

15.3.7.1 Water Heaters 

DOE assumed that government agencies, such as the Department of Housing and Urban 

Development, would administer a bulk purchasing program for gas-fired and electric storage 

water heaters. The bulk purchasing policy also could be incorporated at the Federal level into the 

FEMP program, which has established procurement guidelines. Federal construction 

requirements include the FEMP guidelines for installing or replacing equipment. The current 

FEMP procurement guidelines for gas-fired storage water heaters of 50 gallons or less are a 

minimum energy factor (EF) of 0.62 and maximum energy use of 242 therms per year.26 Current 

guidelines for electric storage water heaters of less than 60 gallons are a minimum EF of 0.93 

and maximum energy use of 4,721 kilowatt-hours (kWh) per year. For electric storage water 

heaters of 60 gallons or more, the minimum EF is 0.91 and maximum annual energy use is 4,825 

kWh per year.27 

DOE also reviewed its own previous research on the potential for market transformation 

through bulk government purchases. Its major study analyzed several scenarios based on the 

assumption that 20 percent of Federal equipment purchases in the year 2000 already incorporated 

energy efficiency requirements based on FEMP guidelines. One scenario in the DOE report 

showed energy efficient Federal purchasing ramping up during 10 years from 20 percent to 80 

percent of all Federal purchases.28 

DOE estimated that government-owned residential buildings would have the same 

percentages of gas-fired and electric storage water heaters that meet target efficiency levels as 

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those of the general population in the base case. DOE estimated that a bulk government purchase 

program instituted within a 10-year period eventually would result in 80 percent of governmentpurchased water heaters meeting target efficiency levels. 

DOE assumed that bulk government purchases would affect a subset of housing units for 

which government agencies purchase or influence the purchase of water heaters. This subset 

would consist primarily of public housing and housing on military bases. DOE defined this 

subset based on publicly owned housing identified in the American Housing Survey (AHS) for 

2005, which was 2.0 million households, or about 1.6 percent of all U.S. households.29 ( the The 

AHS reports 124.4 million U.S. households.30) According to the 2005 Residential Energy 

Consumption Survey (RECS 2005), 34.5 percent of publicly owned households used gas-fired 

water heaters and 17 percent used electric water heaters.31 DOE assumed that the same 

percentages of publicly owned housing units would operate gas-fired or electric storage water 

heaters during the forecast period. DOE therefore estimated that 0.6 percent of U.S. housing 

units represent publicly owned households using gas-fired storage water heaters, and 0.3 percent 

of units are publicly owned households using electric storage water heaters, which together 

constitute the populations to which this policy would apply. 

Based on the above percentages, DOE estimated that, by the end of the first year of the 

bulk government purchase policy (2015), an additional 6.3 percent of shipments of governmentpurchased gas-fired storage and 7.0 percent of electric storage water heaters beyond the base 

cases for those products would meet target efficiency levels. DOE estimated that by 2024 bulk 

government purchasing programs would result in 80 percent of the water heater market for 

publicly owned housing meeting target levels. DOE modeled the bulk government purchase 

program assuming that the market share for each product achieved in 2024 would be maintained 

throughout the rest of the forecast period. Section 15.4 presents the resulting efficiency trends for 

the policy case of bulk government purchase of water heaters. Appendix 15.A, Table 15-A.5, 

shows the projected market shares due to the bulk government purchases policy. 

15.3.7.2 Direct Heating Equipment 

DOE did not analyze the potential effects of bulk government purchases of direct heating 

equipment, because the market share of those products in publicly owned housing is small. 

According to RECS 2005, only 2.5 percent of publicly owned housing units use direct heating 

equipment. 

15.3.7.3 Pool Heaters 

DOE did not analyze the potential impacts of bulk government purchases of pool heaters, 

because those products are not used in publicly owned housing. RECS 2005 does not report any 

pool heaters in use in publicly owned housing units. 

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15.3.8 State Building Codes—Water Heaters 

DOE evaluated the potential impacts of a policy scenario that would allow States through 

their building codes to require that electric storage water heaters installed in new homes would 

have an efficiency level higher than the proposed Federal standard. At present, States are 

prohibited to require efficiency levels higher than the Federal standard; this policy scenario 

would remove this prohibition in the case of residential electric storage water heaters. In 

addition, in this scenario, the proposed standards for electric storage water heaters would be in 

effect, so that electric storage water heaters destined for existing homes would have to meet the 

proposed standard level. Therefore, the energy savings for this scenario with the State building 

code requirement for new homes would be greater than the savings from the proposed standard 

for this product. This contrasts with the RIA policies discussed above, whose savings are lower 

than those of the proposed standards and are being compared with savings from those standards. 

DOE estimated the impacts for a policy scenario in which several States adopted 

provisions in their building codes that would require electric storage water heaters to meet 

efficiency level 6 (2.0 EF). DOE assumed that such codes would affect 25 percent of electric 

storage water heaters in all new homes built in the United States in 2015 and that the percentage 

would increase linearly to 75 percent by 2045. (DOE did not attempt to define the specific 

geographic areas that would be affected.) In this scenario, those electric storage water heaters 

bought for replacement in existing homes would meet the proposed standard level of 0.95 EF 

(efficiency level 5). DOE’s NIA analysis assumes that in the base case some homes would have 

a water heater with 2.0 EF or greater in the absence of any amended standards or new policies. 

The assumed fraction of homes, including new homes, with heat pump water heaters in the base 

case is 5 percent in 2015, with the percentage increasing linearly to 17 percent by 2045. 

15.4 IMPACTS OF NON-REGULATORY ALTERNATIVES 

Figures 15.4.1 through 15.4.5 show the effects of each of the non-regulatory policy cases 

on market shares (penetration rates) of gas-fired storage water heaters, electric storage water 

heaters, gas wall fan DHE, gas hearth DHE, and gas-fired pool heaters, respectively. 

Figure 15.4.1 shows the effects of each non-regulatory policy on market penetration of 

gas-fired storage water heaters. Note that the market share of products that meet the target level 

is forecasted to increase over time in the base case (i.e., the case with neither standards nor nonregulatory policies). Relative to the base case, every policy case increases the market share of 

products that meet the target level. As shown in Figure 15.4.1, consumer rebates are most 

effective in increasing the market share of gas-fired storage water heaters that meet the target 

level, while early replacement is least effective. Recall that the proposed standards (not shown in 

Figure 15.4.1) would result in a 100 percent market penetration of products that meet target 

efficiency levels. 

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0% 

10% 

20% 

30% 

40% 

50% 

60% 

2015 2020 2025 2030 2035 2040 2045 

% Shipments Meeting Target Level

Base Case 

Consumer Rebates 

Consumer Tax Credits 

Manufacturer Tax Credits 

Voluntary Energy Efficiency Targets 

Bulk Government Purchases 

Early Replacement 

Figure 15.4.1 Market Penetration of Gas-Fired Storage Water Heaters in 

Policy Cases 

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Figure 15.4.2 shows the effects of each non-regulatory policy on market penetration of 

electric storage water heaters. The market share of products that meet the target level is 

forecasted to increase over time in the base case. Relative to the base case, all policy cases 

increase the market share of electric storage water heaters that meet the target level, with 

consumer rebates being the most effective and bulk government purchases the least effective. 

Recall that the proposed standards (not shown in Figure 15.4.2) would result in a 100 percent 

market penetration of products that meet the target efficiency level. 

0% 

10% 

20% 

30% 

40% 

50% 

60% 

2015 2020 2025 2030 2035 2040 2045 

% Shipments Meeting Target Level

Base Case 

Consumer Rebates 

Consumer Tax Credits 

Manufacturer Tax Credits 

Voluntary Energy Efficiency Targets 

Bulk Government Purchases 

Early Replacement 

Figure 15.4.2 Market Penetration of Electric Storage Water Heaters in Policy 

Cases 

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Figure 15.4.3 shows the effects of each non-regulatory policy on the market penetration 

of gas wall fan direct heating equipment. In the base case, the market share of products that meet 

the target level is forecasted to be constant over time. Relative to the base case, all policy cases 

increase the market share of gas wall fan units that meet target efficiency levels, with consumer 

rebates being the most effective throughout the forecast period and early replacement the least 

effective. Recall that the proposed standards (not shown in Figure 15.4.3) would result in a 100 

percent market penetration of products that meet the target efficiency level. 

0% 

5% 

10% 

15% 

20% 

25% 

30% 

35% 

40% 

45% 

2013 2018 2023 2028 2033 2038 

% Shipments Meeting Target Level

Base Case 

Consumer Rebates 

Consumer Tax Credits 

Manufacturer Tax Credits 

Voluntary Energy Efficiency 

Targets 

Early Replacement 

Figure 15.4.3 Market Penetration of Gas Wall Fan DHE in Policy Cases
 

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Figure 15.4.4 shows the effects of each non-regulatory policy on the market penetration 

of gas hearth DHE. In the base case, the market share of products that meet the target level is 

forecasted to be constant over time. Relative to the base case, the non-regulatory policy cases 

increase the market share of gas hearth DHE that meet the target efficiency level. Consumer 

rebates are the most effective policy throughout the forecast period, and early replacement is the 

least effective. Recall that the proposed standards (not shown in Figure 15.4.4) would result in a 

100 percent market penetration of products that meet the target efficiency level. 

0% 

10% 

20% 

30% 

40% 

50% 

60% 

70% 

80% 

2013 2018 2023 2028 2033 2038 

% Shipments Meeting Target Level

Base Case 

Consumer Rebates 

Consumer Tax Credits 

Manufacturer Tax Credits 

Voluntary Energy Efficiency 

Targets 

Early Replacement 

Figure 15.4.4 Market Penetration of Gas Hearth DHE in Policy Cases
 

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Figure 15.4.5 shows the effects of each non-regulatory policy on the market penetration 

of gas-fired pool heaters. In the base case, the market share of products that meet the target level 

is forecasted to be constant over time. Relative to the base case, the non-regulatory policy cases 

except for early replacement increase the market share of gas-fired pool heaters that meet the 

target efficiency level. Consumer rebates are the most effective policy throughout the forecast 

period, and early replacement is the least effective. Recall that the proposed standards (not 

shown in Figure 15.4.5) would result in a 100 percent market penetration of products that meet 

the target efficiency level. 

0% 

5% 

10% 

15% 

20% 

25% 

30% 

35% 

40% 

45% 

2013 2018 2023 2028 2033 2038 

% Shipments Meeting Target Level

Base Case 

Consumer Rebates 

Consumer Tax Credits 

Manufacturer Tax 

Credits 

Voluntary Energy 

Efficiency Targets 

Early Replacement 

Figure 15.4.5 Market Penetration of Gas-Fired Pool Heaters in Policy Cases 

15.5 SUMMARY OF RESULTS FOR NON-REGULATORY ALTERNATIVES 

Tables 15.5.1 through 15.5.5 show the national energy savings and net present value 

(NPV) for each of the six non-regulatory policies analyzed in detail for residential water heaters, 

direct heating equipment, and pool heaters, where the target level for each policy equals the 

efficiency level in the corresponding proposed standard. Table 15.5.6 shows the national energy 

savings and NPV for the special case in which State building codes require high-efficiency 

electric storage water heaters (e.g. heat pump technology) for new homes. 

The cases in which no regulatory action is taken with regard to residential water heaters, 

direct heating equipment, and pool heaters constitute the base cases (or "No New Regulatory 

Action" scenarios), in which energy savings and NPV are zero by definition. For comparison, the 

tables include the impacts of the proposed standards. Energy savings are given in quadrillion 

British thermal units (quads). The NPVs shown in Tables 15.5.1 through 15.5.5 are based on two 

discount rates (7 percent and 3 percent). 

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Table 15.5.6 shows the estimated national energy savings and NPV for the policy 

allowing States to incorporate requirements for high-efficiency electric water heaters into their 

building codes. 

Note that the early replacement scenario produces a negative NPV all products at both a 7 

percent and a 3 percent discount rate. The negative NPVs reflect the fact that energy cost savings 

occur during the first part of the analysis period, when the projected cost of electricity or gas is 

lowest. The negative NPV occurs when the projected growth rate of fuel prices exceeds the 

discount rate. 

Table 15.5.1	 Impacts of Non-Regulatory Alternatives for Gas-Fired Storage Water 

Heaters that Meet the Proposed Standard (Efficiency Level 2) 

Policy Alternative 

Primary Energy 

Savings 

quads 

Net Present Value* 

billion 2008$ 

7% discount 

rate 

3% discount 

rate 

No New Regulatory Action 0.00 0.00 0.00 

Consumer Rebates 0.51 1.19 3.46 

Consumer Tax Credits 0.31 0.72 2.08 

Manufacturer Tax Credits 0.15 0.36 1.04 

Voluntary Energy Efficiency Targets 0.12 0.29 0.83 

Early Replacement 0.001 -0.02 -0.04 

Bulk Government Purchases 0.005 0.01 0.04 

Proposed Standards at Efficiency Level 2 1.29 3.09 9.04 

* Net present value (NPV) is the value of a time series of costs and savings. DOE determined the NPV from 

2015 to 2045. 

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Table 15.5.2 Impacts of Non-Regulatory Alternatives for Electric Storage Water 

Heaters that Meet the Proposed Standard (Efficiency Level 5) 

Policy Alternative 

Primary Energy 

Savings 

quads 

Net Present Value* 

billion 2008$ 

7% discount 

rate 

3% discount 

rate 

No New Regulatory Action 0.00 0.00 0.00 

Consumer Rebates 0.42 0.47 1.87 

Consumer Tax Credits 0.25 0.28 1.12 

Manufacturer Tax Credits 0.13 0.14 0.56 

Voluntary Energy Efficiency Targets 0.09 0.19 0.60 

Early Replacement 0.0023 -0.03 -0.05 

Bulk Government Purchases 0.0017 0.004 0.01 

Proposed Standards at Efficiency Level 5 1.21 1.59 6.02 

* Net present value (NPV) is the value of a time series of costs and savings. DOE determined the NPV from 

2015 to 2045. 

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Table 15.5.3 Impacts of Non-Regulatory Alternatives for Gas Wall Fan DHE that Meet 

the Proposed Standard (Efficiency Level 3) 

Policy Alternative 

Primary Energy 

Savings 

quads 

Net Present Value* 

billion 2008$ 

7% discount 

rate 

3% discount 

rate 

No New Regulatory Action 0.00 0.00 0.00 

Consumer Rebates 0.003 0.010 0.023 

Consumer Tax Credits 0.002 0.006 0.006 

Manufacturer Tax Credits 0.001 0.003 0.003 

Voluntary Energy Efficiency Targets 0.0003 0.001 0.001 

Early Replacement <0.0001 -0.00001 -0.00003 

Bulk Government Purchases† NA NA NA 

Proposed Standards at Efficiency Level 3 0.013 0.042 0.11 

* Net present value (NPV) is the value of a time series of costs and savings. DOE determined the NPV from 2013 to 

2043. 

† DOE did not evaluate the bulk government purchase alternative for gas wall fan direct heating equipment because 

the market share associated with publicly owned housing is minimal. 

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Table 15.5.4 Impacts of Non-Regulatory Alternatives for Gas Hearth DHE that Meet 

the Proposed Standard (Efficiency Level 1) 

Policy Alternative 

Primary Energy 

Savings 

quads 

Net Present Value* 

billion 2008$ 

7% discount 

rate 

3% discount 

rate 

No New Regulatory Action 0.00 0.00 0.00 

Consumer Rebates 0.03 0.15 0.36 

Consumer Tax Credits 0.02 0.09 0.22 

Manufacturer Tax Credits 0.01 0.05 0.11 

Voluntary Energy Efficiency Targets 0.012 0.06 0.15 

Early Replacement <0.001 -0.005 -0.006 

Bulk Government Purchases† NA NA NA 

Proposed Standards at Efficiency Level 1 0.14 0. 64 1.52 

* Net present value (NPV) is the value of a time series of costs and savings. DOE determined the NPV from 2013 to 

2043. 

† DOE did not evaluate the bulk government purchase alternative for gas hearth DHE because the market share
 

associated with publicly owned housing is minimal.
 

Table 15.5.5	 Impacts of Non-Regulatory Alternatives for Pool Heaters that Meet 

Proposed Standards (Efficiency Level 5) 

Policy Alternative 

Primary 

Energy 

Savings 

quads 

Net Present Value* 

billion 2008$ 

7% discount 

rate 3% discount rate 

No New Regulatory Action 0.00 0.00 0.00 

Consumer Rebates 0.02 0.01 0.04 

Consumer Tax Credits 0.01 0.003 0.03 

Manufacturer Tax Credits 0.005 0.002 0.01 

Voluntary Energy Efficiency Targets 0.004 0.005 0.02 

Early Replacement <0.001 -0.002 -0.003 

Bulk Government Purchases† NA NA NA 

Proposed Standards at Efficiency 

Level 5 0.10 0.03 0.25 

* Net present value (NPV) is the value of a time series of costs and savings. DOE determined the NPV from 2013 to 

2043. 

† DOE did not evaluate the bulk government purchase alternative for pool heaters because there is no market share 

associated with publicly owned housing. 

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Table 15.5.6 shows the estimated national energy savings and NPV for electric storage 

water heaters under the proposed standards. The table also shows the additional national energy 

savings that would result from the policy allowing States to incorporate requirements for highefficiency electric water heaters in building codes, as well as the net present value of additional 

benefits to consumers. In this case, those consumers are the purchasers of new homes that have 

electric water heaters that have an EF of at least 2.0 (e.g. heat pump technology). 

Table 15.5.6	 Impacts of Policy Allowing States to Incorporate Requirements For HighEfficiency Electric Storage Water Heaters In Building Codes 

Policy Alternative 

Primary 

Energy 

Savings 

quads 

Net Present Value* 

billion 2008$ 

7% discount 

rate 

3% discount 

rate 

No New Regulatory Action 0.00 0.00 0.00 

Proposed Standards at Efficiency Level 5 

(Electric Storage Water Heaters) 1.21 1.59 6.02 

Proposed Standards at Efficiency Level 5 AND 

Policy Allowing States to Require HigherEfficiency Electric Storage Water Heaters in 

New Homes 

1.69 2.13 8.33 

* Net present value (NPV) is the value of a time series of costs and savings. DOE determined the NPV from 

2015 to 2045. 

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