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CHAPTER 2. ANALYTICAL FRAMEWORK

TABLE OF CONTENTS

2.1 INTRODUCTION .............................................................................................................. 2

2.2 Background......................................................................................................................... 3

2.3 REGIONS FOR ANALYSIS.............................................................................................. 4

2.4 MARKET AND TECHNOLOGY ASSESSMENT........................................................... 7

2.4.1 Product Classes and Scope of Coverage................................................................. 7

2.4.2 Technology Assessment.......................................................................................... 8

2.5 SCREENING ANALYSIS ................................................................................................. 8

2.6 ENGINEERING ANALYSIS............................................................................................. 8

2.6.1 Baseline Models...................................................................................................... 9

2.6.2 Manufacturing Cost Analysis ................................................................................. 9

2.7 MARKUPS ANALYSIS .................................................................................................. 10

2.8 ENERGY USE ANALYSIS............................................................................................. 10

2.9 LIFE-CYCLE COST AND PAYBACK PERIOD ANALYSES ..................................... 10

2.10 SHIPMENTS ANALYSIS ............................................................................................... 12

2.11 NATIONAL IMPACT ANALYSIS................................................................................. 12

2.11.1 Efficiency Scenarios and Trends .......................................................................... 12

2.11.2 National Energy Savings Analysis........................................................................ 13

2.11.3 Net Present Value Analysis .................................................................................. 13

2.12 CONSUMER SUBGROUP ANALYSIS ......................................................................... 14

2.13 MANUFACTURER IMPACT ANALYSIS..................................................................... 14

2.14 UTILITY IMPACT ANALYSIS...................................................................................... 14

2.15 EMPLOYMENT IMPACT ANALYSIS.......................................................................... 15

2.16 ENVIRONMENTAL ASSESSMENT ............................................................................. 15

2.16.1 Carbon Dioxide..................................................................................................... 15

2.16.2 Sulfur Dioxide....................................................................................................... 16

2.16.3 Nitrogen Oxides.................................................................................................... 16

2.16.4 Mercury................................................................................................................. 16

2.16.5 Particulate Matter.................................................................................................. 17

2.17 Monetization of Emissions Reduction Benefits................................................................ 17

2.18 REGULATORY IMPACT ANALYSIS .......................................................................... 18

2.19 REGIONAL STANDARDS IMPACT ANALYSIS ........................................................ 19

List of Tables

Table 2.3.1 Regions for Direct Final Rule Analysis of Furnace Standards................................... 5

Table 2.3.2 Regions for Direct Final Rule Analysis of Split-System Central Air Conditioner and 

Heat Pump Standards...................................................................................................................... 6

List of Figures

Figure 2.3.1 Map of the Regions for Direct Final Rule Analysis of Furnace Standards................5

Figure 2.3.2 Map of the Regions for Direct Final Rule Analysis of Split-System Central Air 

Conditioner and Heat Pump Standards............................................................................................6
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CHAPTER 2. ANALYTICAL FRAMEWORK

2.1 INTRODUCTION 

Section 6295(o)(2)(A) of the Energy Policy and Conservation Act, as amended, 42 USC 

6291 et. seq.

The following analyses were performed as part of the preliminary analyses and described 

in the preliminary technical support document (TSD) for central air conditioners and heat pumps

before the direct final rule stage and are newly developed for furnaces for the direct final rule. 

For central air conditioners and heat pumps the analyses were revised for the direct final rule and 

are reported in this TSD. 

, requires that when prescribing new or amended energy conservation standards for 

covered products, the U.S. Department of Energy (DOE) promulgate standards that achieve the 

maximum improvements in energy efficiency that are technologically feasible and economically 

justified. This chapter provides a description of the analytical framework that DOE is using to 

evaluate amended energy conservation standards for residential furnaces and central air 

conditioners and heat pumps. This chapter sets forth the methodology, analytical tools, and 

relationships among the various analyses that are part of this rulemaking. 

• A market and technology assessment to characterize the relevant products, their markets 

and technology options for improving their energy efficiency, including prototype 

designs.

• A screening analysis to review each technology option and determine if it is 

technologically feasible; is practicable to manufacture, install, and service; would 

adversely affect product utility or product availability; or would have adverse impacts on 

health and safety.

• An engineering analysis to develop relationships that show the manufacturer’s cost of 

achieving increased efficiency. 

• An energy use analysis to determine the annual energy use of the considered products in 

a representative set of users.

• A markup analysis to develop the distribution channel markups used to determine final 

customer prices.

• LCC and payback period (PBP) analyses to calculate the savings in operating costs (less 

any increase in maintenance and repair costs) at the consumer level throughout the life of 

the covered products compared with any increase in the installed cost for the products 

likely to result directly from imposition of a standard.

• A shipments analysis to forecast product shipments, both with and without amended 

energy conservation standards.

• A national impact analysis (NIA) to assess the aggregate impacts at the national level of

considered standards in terms of the NPV of total consumer benefits and national energy 

savings (NES).
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• A preliminary manufacturer impact analysis (MIA) to assess the potential impacts of 

energy conservation standards on manufacturers, such as impacts on capital conversion 

expenditures, marketing costs, shipments, and research and development costs.

The analyses performed in the subsequent direct final rule stage include those listed 

below. 

• A consumer subgroup analysis to evaluate variations in customer characteristics that 

might cause a standard to affect particular consumer sub-populations (such as lowincome households) differently than the overall population.

• An MIA to estimate the financial impact of standards on manufacturers and calculated

impacts on competition, employment, and manufacturing capacity.

• A utility impact analysis to estimate selected effects of the considered standards on 

electric utilities.

• An employment impact analysis to assess the aggregate impacts of the considered

standards on national employment.

• An environmental impact analysis to assess the effects of amended energy conservation 

standards on emissions of carbon dioxide (CO2), nitrogen oxides (NOx

• An emissions monetization that estimates the economic value of reductions in CO

), and mercury 

(Hg).

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NOX

• A regulatory impact analysis (RIA) to evaluate major alternatives to amended energy 

conservation standards, to assess whether such alternatives could achieve substantially 

the same regulatory goal at a lower cost.

emissions from the considered standards.

• A regional standards impact analysis to examine the impacts of regional standards on 

distributors, dealers, contractors and installers. Analysis of potential impacts of regional 

standards on manufacturers and consumers, as required by EPCA, was conducted as part 

of the MIA and LCC and PBP analyses, respectively.

2.2 BACKGROUND

The analytical framework pertaining to residential furnaces was developed in the Energy 

Conservation Standards for Residential Furnaces Rulemaking Analysis Plan (March 11, 2010). 

DOE announced the availability of the residential furnaces rulemaking analysis plan on its 

website. DOE presented this information during a public meeting held on March 31, 2010. A 

PDF of the rulemaking analysis plan is available at 

http://www1.eere.energy.gov/buildings/appliance_standards/residential/furnaces_nopm_rulemak

ing_analysis.html. 

DOE developed the analytical framework pertaining to residential central air conditioners 

and heat pumps in the Rulemaking Framework for Residential Central Air Conditioners and Heat 

Pumps (June 2, 2008). DOE announced the availability of the residential central air conditioners 

and heat pumps framework document in a Notice of Public Meeting and Availability of a 

Framework Document published in the Federal Register on June 6, 2008. 73 FR 32243–45. 
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DOE presented the analytical approach to interested parties during a public meeting held on June 

12, 2008. The framework document is available at 

http://www1.eere.energy.gov/buildings/appliance_standards/residential/pdfs/cac_framework.pdf. 

DOE used comments gathered during the framework public meeting as well as additional 

information for the preliminary analysis stage. DOE announced the notice of public meeting and 

the availability of the preliminary technical support document (TSD) on March 25, 2010. 75 FR 

14368. The preliminary TSD is available at 

http://www1.eere.energy.gov/buildings/appliance_standards/residential/cac_tsd_031010.html. 

DOE received numerous comments in response to the public meetings for both central air 

conditioners and heat pumps and furnaces and decided to combine the two rulemakings for the 

final rule stage. 

The following sections provide a brief overview of the different analytical approaches of 

this rulemaking analysis plan. DOE has used the most reliable data available at the time of each 

analysis in this rulemaking. DOE has also considered the submissions of additional data from 

interested parties during the rulemaking process. 

2.3 REGIONS FOR ANALYSIS

EISA 2007 amended EPCA to allow for the establishment of a single more-restrictive 

regional standard in addition to the base national standard for furnaces and up to two morerestrictive regional standards in addition to the base national standard for residential central air 

conditioners and heat pumps. (42 U.S.C. 6295(o)(6)(B)) Further, EPCA mandates that a regional 

standard must produce significant energy savings in comparison to a single national standard and 

provides that DOE must determine that the additional standards are economically justified and 

consider the impact of the additional regional standards on consumers, manufacturers, and other 

market participants, including product distributors, dealers, contractors, and installers. 

Accordingly, DOE has addressed the potential impacts from regional standards in the relevant 

direct final rule analyses, including the mark-ups to determine product price, the LCC and 

payback period analysis, the national impact analysis (NIA), and the manufacturer impact 

analysis (MIA). 

The allocation of individual States to the regions is similar to the evaluation methodology 

DOE used in exploring regional standards in the November 2007 Rule, which was largely based 

on whether a State’s annual heating HDD average is above or below 5,000. 72 FR 65136, 65146-

65147 (Nov. 19, 2007). This level offers a rough threshold point at which space heating 

demands are significant enough to require longer operation of heating systems, which provides a 

basis for utilization of higher-efficiency systems. For the direct final rule analysis, DOE made 

two changes from the November 2007 Rule methodology to establish regions for furnaces, which 

are contained in Table 2.3.1 and displayed in Figure 2.3.1. The first was moving Nevada from 

the Northern region to the Southern region, and the second was moving West Virginia from the 

Southern region to the Northern region. These changes better reflect the climate characteristics of 

these two States; West Virginia has on average more than 5,000 HDD, and Nevada’s major 

population areas have fewer than 5,000 HDD. 
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Table 2.3.1 Regions for Direct Final Rule Analysis of Furnace Standards

Northern Region States (Rest of Country) Southern Region States

Alaska Pennsylvania Alabama

Colorado Rhode Island Arizona

Connecticut South Dakota Arkansas

Idaho Utah California

Illinois Vermont Delaware

Indiana Washington Dist. of Columbia

Iowa West Virginia Florida

Kansas Wisconsin Georgia

Maine Wyoming Hawaii

Massachusetts Kentucky

Michigan Louisiana

Minnesota Maryland

Missouri Mississippi

Montana Nevada

Nebraska New Mexico

New Hampshire North Carolina

New Jersey Oklahoma

New York South Carolina

North Dakota Tennessee

Ohio Texas

Oregon Virginia

Figure 2.3.1 Map of the Regions for the Final Rule Analysis of Furnace Standards

Since similar manufacturers produce both furnaces and central air conditioners and heat 

pumps and use the same distribution network, using the same regional allocation of States, as 
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compared to the “rest of country” national standard for the northern region, would be easier for 

manufacturers and distributors to implement and would also help to minimize consumer 

confusion. Additionally, regional standards may shift enforcement from the manufacturer to the 

point of sale or place of installation; and a single boundary between regions would reduce the 

motivation for non-compliance while simplifying the overall enforcement of regional standards. 

Additonally, for cooling equipment performance, the annual number of operating hours 

and relative humidity during those operating hours are the most important regional variations for 

cooling equipment performance; therefore, DOE established two regions (i.e., a “hot-dry” region 

and a “hot-humid” region) in the south based upon these factors, in addition to a “rest of 

country” region (i.e., northern region), composed of the remaining States.

Table 2.3.2 Regions for Direct Final Rule Analysis of Split-System Central Air Conditioner 

and Heat Pump Standards

Northern Region States 

(Rest of Country)

Southeastern 

Region States 

(Hot-Humid)*

Southwestern 

Region States 

(Hot-Dry)*

Alaska New York Alabama Arizona

Colorado North Dakota Arkansas California

Connecticut Ohio Delaware Nevada

Idaho Oregon District of 

Columbia

New Mexico

Illinois Pennsylvania Florida

Indiana Rhode Island Georgia

Iowa South Dakota Hawaii

Kansas Utah Kentucky

Maine Vermont Louisiana

Massachusetts Washington Maryland

Michigan West Virginia Mississippi

Minnesota Wisconsin North Carolina

Missouri Wyoming Oklahoma

Montana South Carolina

Nebraska Tennessee

New Hampshire Texas

New Jersey Virginia

*The combined southeastern and southwestern regions for split-system central air conditioners and heat pumps 

correspond to the southern region for furnaces.
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Figure 2.3.2 Map of the Regions for the Direct Final Rule Analysis of Split-System Central 

Air Conditioners and Heat Pumps

2.4 MARKET AND TECHNOLOGY ASSESSMENT

When DOE begins an energy conservation standards rulemaking, it develops information 

that provides an overall picture of the market for the products considered, including the nature of 

the products, market characteristics, and industry structure. This activity consists of both 

quantitative and qualitative efforts based primarily on publicly available information. The market 

assessment examined manufacturers, trade associations, and the quantities and types of products 

sold and offered for sale.

DOE reviewed relevant literature and interviewed manufacturers to develop an overall 

picture of the residential furnaces and central air conditioners and heat pumps industries in the 

United States. Industry publications and trade journals, government agencies, and trade 

organizations provided the bulk of the information, including (1) manufacturers and their market 

shares, (2) shipments by product type and cooling capacity, (3) product information, and (4) 

industry trends. The analyses developed as part of the market and technology assessment are

described in chapter 3 of the TSD.

2.4.1 Product Classes and Scope of Coverage

When evaluating and establishing energy conservation standards, DOE generally divides 

covered products into product classes by the type of energy used, capacity, or other performancerelated features that affect efficiency. Different energy conservation standards may apply to 

different product classes. (42 U.S.C. 6295(q)). 
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Regarding residential air conditioners and heat pumps, DOE identified seven product 

classes for this rulemaking: (1) split-system air conditioners, (2) split-system heat pumps, (3) 

single-package air conditioners, (4) single-package heat pumps, (5) small-duct high-velocity 

(SDHV) systems, (6) space-constrained air conditioners, and (7) space-constrained heat pumps. 

For furnaces, DOE considered the following product classes: (1) non-weatherized gas 

furnaces, (2) weatherized gas furnaces (3) non-weatherized oil fired furnaces (4) weatherized oil 

furnaces (5) gas fired mobile home furnaces (6) oil mobile home furnaces, and (7) electric 

furnaces. 

2.4.2 Technology Assessment

As part of the market and technology assessment, DOE developed a list of technologies 

to consider for improving the efficiency or reducing the standby and off mode power 

consumption of central air conditioners and heat pumps and furnaces. DOE removed from 

consideration those technology options whose energy consumption could not be adequately 

measured by the existing DOE test procedure. Then DOE removed technologies that do not 

change or affect the energy efficiency metrics of central air conditioners and heat pumps or

furnaces. Chapter 3 of the TSD includes the detailed list of all technology options DOE 

identified for this rulemaking.

2.5 SCREENING ANALYSIS

The purpose of the screening analysis is to evaluate the technologies identified in the 

technology assessment to determine which options to consider further in the analysis and which 

options to screen out. DOE consulted with industry, technical experts, and other interested 

parties in developing a list of energy-saving technologies for the technology assessment. DOE 

then applied the screening criteria to determine which technologies were unsuitable for further 

consideration in this rulemaking. Chapter 4 of the TSD, the screening analysis, contains details 

about DOE’s screening criteria.

The screening analysis examines whether various technologies (1) are technologically 

feasible; (2) are practicable to manufacture, install, and service; (3) have an adverse impact on 

product utility or availability; and (4) have adverse impacts on health and safety. In consultation 

with interested parties, DOE reviewed the list of residential furnace and central air conditioner 

and heat pump technologies according to these criteria. In the engineering analysis, DOE further 

considers the efficiency-enhancement technologies that it did not eliminate in the screening 

analysis.

2.6 ENGINEERING ANALYSIS

The engineering analysis (chapter 5 of the TSD) establishes the relationship between the 

manufacturing production cost and the efficiency for each residential furnace and central air 

conditioner and heat pump. This relationship serves as the basis for cost-benefit calculations in 

terms of individual consumers, manufacturers, and the nation. Chapter 5 discusses the product 

classes analyzed, representative baseline units, incremental efficiency levels, methodology used 
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to develop manufacturing production costs, cost-efficiency relationships, impact of efficiency 

improvements on the considered products, and methodology used to extend the analysis to lowshipment-volume product classes. To determine the cost to consumers of furnaces, central air 

conditioners and heat pumps, DOE estimated manufacturing costs, markups in the distribution 

chain, installation costs, and maintenance costs. Efficiency levels (both AFUE and standby and 

off mode levels) for furnaces included in this rulemaking were calculated according to the 

applicable sections of DOE test procedure, 10 CFR Part 430, subpart B, Appendix N, Uniform 

Test Method for Measuring the Energy Consumption of Furnaces and Boilers. SEER efficiency 

levels for central air conditioners and heat pumps were calculated according to 10 CFR Part 430, 

subpart B, Appendix M, Uniform Test Method for Measuring the Energy Consumption of 

Central Air Conditioners and Heat Pumps, and off mode energy consumption was calculated 

according to the proposals in the March 2011 supplemental notice of proposed rulemaking 

(SNOPR) which proposes amendments to DOE’s test procedures for central air conditioners and 

heat pumps to account for standby and off mode power consumption 

In the engineering analysis pertaining to residential furnaces and central air conditioners 

and heat pumps, DOE evaluated a range of product efficiency levels and associated 

manufacturing costs. The purpose of the analysis is to estimate the incremental increase to

selling prices that would result from increasing efficiency levels above the baseline model in 

each product class. The engineering analysis considers technologies not eliminated in the 

screening analysis. The LCC analysis uses the cost-efficiency relationships developed in the 

engineering analysis.

2.6.1 Baseline Models 

In order to analyze design options for energy efficiency improvements, DOE defined a 

baseline model unit for each product class. DOE defined baseline models as appliances with the 

most popular and cost-effective features that just meet the current minimum efficiency standard. 

For standby and off mode, the baseline model was the model with the highest standby and off 

mode power consumption. In its selection process, DOE considered technical descriptions of the 

covered equipment, definitions of the product classes as described in the framework document, 

results of the market assessment, and suggestions from stakeholders.

2.6.2 Manufacturing Cost Analysis 

There are several ways to develop the relationship between cost and performance. DOE

chose to use a component-based engineering analysis, or teardown analysis. This approach 

identifies potential technological paths manufacturers could use to achieve increased equipment 

energy efficiency. DOE purchased “off-the-shelf” units commercially available on the market 

and dismantled them component-by-component to determine what technologies and designs 

manufacturers currently employ to increase energy efficiency. DOE then used independent 

costing methods, along with manufacturer and component-supplier data, to estimate the costs of 

the components. 

DOE determined the efficiency levels corresponding to various design options from 

commercially available information on products, data submitted by manufacturers, engineering 
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calculations, and/or product testing. DOE obtained cost estimates from detailed incremental 

manufacturer cost data, which include the cost of the equipment components, labor, purchased 

parts and materials, shipping/packaging, and investment. DOE estimated manufacturing costs 

using a combination of teardown analysis, manufacturer-supplied estimates, and direct 

estimates. See chapter 5 for details on DOE’s engineering analysis.

2.7 MARKUPS ANALYSIS

To carry out the engineering and life-cycle cost (LCC) analyses, DOE needed to 

determine the cost to the consumer of a baseline model furnace and the cost of more-efficient 

units. The customer price of such units is not generally known. By applying a multiplier, referred 

to as a “markup,” to the manufacturers’ costs estimated in the engineering analysis, DOE 

estimated the consumers’ prices for the baseline model and more-efficient equipment. In addition 

to estimating average markups, DOE characterized the markups with probability distributions, 

which it used in the LCC analysis. 

To develop markups, DOE identified how the products are distributed from the 

manufacturer to the consumer (the distribution channels). After establishing appropriate 

distribution channels for each product, DOE used economic data from the U.S. Census Bureau, 

HARDI, ACCA, and other sources to define how prices are marked up as the products pass from 

manufacturers to customers. See Chapter 6 for details on the development of markups.

2.8 ENERGY USE ANALYSIS

The energy use analysis assesses the energy savings potential from adopting higher 

efficiency standards. The analysis provides the basis for the energy savings values DOE uses in 

the LCC and subsequent analyses. DOE estimated the annual energy consumption of residential 

furnaces and central air conditioners and heat pumps at specified energy efficiency levels for a 

representative set of users of these products. DOE considered energy use for both residential and 

commercial users of these products. 

DOE used data from the 2005 Residential Energy Consumption Survey (RECS) produced 

by the Energy Information Administration (EIA), the most recent survey available, to estimate 

the energy use of the covered products. DOE used 30 years of state weather data statistics from 

the National Climatic Data Center to weather-normalize the 2005 RECS cooling and heating 

energy use in selected household records to represent long-term average cooling and heating 

energy. RECS survey data provide information on the age of the products, as well as associated 

energy use in residential housing units in the United States.

As part of the analysis, DOE made certain assessments about product application, 

including how the products are operated and under what conditions. These assessments, along 

with the methods used, are documented in chapter 7 of the TSD.

2.9 LIFE-CYCLE COST AND PAYBACK PERIOD ANALYSES
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In determining whether an energy efficiency standard is economically justified, EPCA 

directs DOE to consider the economic impact of potential standards on customers. The effect of 

amended standards on individual customers usually includes a reduction in operating cost and an 

increase in purchase cost. DOE used the following two metrics to measure consumer impacts:

• LCC (life-cycle cost) is the total customer cost of an appliance or product, generally over 

the life of the appliance or product, including purchase and operating costs. The latter 

consist of maintenance, repair, and energy costs. Future operating costs are discounted to 

the time of purchase and summed over the lifetime of the appliance or product.

• PBP (payback period) measures the amount of time it takes customers to recover the 

assumed higher purchase price of a more energy-efficient product through reduced 

operating costs.

DOE evaluated the net LCC to analyze the net effect of amended residential furnaces and 

central air conditioner and heat pump standards on consumers. DOE used the cost-efficiency 

relationship derived from the engineering analysis along with the energy costs derived from the 

energy use characterization. Inputs to the LCC calculation include the installed consumer cost of 

a product (consumer purchase price plus installation cost), operating expenses (energy, repair, 

and maintenance costs), the lifetime of the unit, and a discount rate.

Because the installed cost of a product typically increases while operating cost typically 

decreases in response to amended standards, there is a time in the life of products with higherthan-baseline efficiency when the net reduction in operating costs (in dollars) since the time of 

purchase is equal to the increase in the purchase price of the higher efficiency product. The 

length of time required for products to reach this cost-equivalence point is known as the PBP.

DOE conducted the LCC and PBP analyses using typical values to reflect energy 

consumption in the field. DOE identified several input values for estimating the LCC, including 

retail prices; electricity prices; discount rate; maintenance, repair, and installation costs; and 

product lifetimes. DOE generated LCC and PBP results as probability distributions using a 

simulation based on Monte Carlo analysis methods in which certain key inputs consist of 

probability distributions rather than single-point values. Therefore, the outcomes can be 

expressed as probability distributions. As a result, the Monte Carlo analysis produces a range of 

LCC and PBP results. A distinct advantage of this type of approach is that DOE can identify the 

percentage of customers achieving LCC savings or attaining certain PBP values; the approach 

also allows the DOE to identify the average LCC savings or average PBP for a particular 

efficiency level. 

DOE developed discount rates from estimates of the finance cost applicable to product 

purchases. Following accepted principles of financial theory, the finance cost of raising funds to 

purchase such products can be interpreted as either (1) the financial cost of any debt incurred to 

purchase products (interest charges on debt) or (2) the opportunity cost of any equity used to 

purchase products (interest earnings on household or business equity).

The electricity cost savings comprise the benefit side of the cost-benefit analysis used to 

estimate the LCC impacts of more efficient central air conditioners and heat pumps. To value the 

electricity cost savings, DOE developed marginal electricity prices. The marginal electricity 
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price for a given consumer is the cost of the next increment of electricity use on their utility bill 

and is the correct estimate of the value of savings that a consumer would see in the real world. 

An important feature of the LCC and PBP analyses is that it has been conducted at both 

the regional and national levels. Aside from energy use, other important factors influencing the 

analyses include energy prices, installation costs, product distribution markups, and sales tax. At 

the national and regional levels, the LCC spreadsheets explicitly model the uncertainty and 

variability in the model’s inputs using probability distributions based on the shipment of 

products to different regions of the country. 

2.10 SHIPMENTS ANALYSIS

DOE uses forecasts of product shipments to calculate the national impacts of standards 

on energy use, NPV, and future manufacturer cash flows. DOE developed shipment forecasts 

based on an analysis of key market drivers for each considered product. In DOE’s shipments 

model, shipments of products are driven by new construction, replacement of the existing stock 

of installed products, and existing households or buildings that do not already own the product. 

For furnaces, the shipments forecast produces the total number of furnaces of all fuel types 

purchased in a year and the market shares by product class For central air conditioners and heat 

pumps, DOE accounted for shipments to commercial buildings as well as residential households.

The shipments model takes an accounting approach by tracking market shares of each 

product class and the vintage of units in the existing stock. Stock accounting uses product 

shipments as inputs to estimate the age distribution of in-service product stocks for all years. The 

age distribution of in-service product stocks is a key input to NES and NPV calculations because 

operating costs for any year depend on the age distribution of the stock. DOE used historical 

product shipments to assist in calibrating the shipments model. DOE also relied on historical

regional product stock saturation data from past RECS surveys as well as past U.S. Census 

Bureau American Housing Surveys (AHS). 

Chapter 9 of the TSD provides additional details on the shipments analysis and the 

impact that the considered standards may have on product shipments.

2.11 NATIONAL IMPACT ANALYSIS

The NIA assesses the NES and the NPV from a national perspective of total consumer costs and 

savings expected to result from standards at specific efficiency levels. DOE determined the NPV 

and NES for the standard levels considered for the product classes analyzed. To make the 

analysis more accessible and transparent to all interested parties, DOE prepared a Microsoft 

Excel spreadsheet that uses typical values (as opposed to probability distributions) as inputs. To 

assess the effect of input uncertainty on NES and NPV results, DOE has developed its 

spreadsheet model to conduct sensitivity analyses by running scenarios on specific input 

variables. DOE conducted its NIA to assess impacts for the specific regions considered for 

central air conditioners and heat pumps and furnaces.

2.11.1 Efficiency Scenarios and Trends
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Several of the inputs for determining NES and NPV depend on product efficiency. DOE 

developed efficiency trends for the base case without new standards and the standards cases. 

These trends specify the average annual historical and forecasted shipments-weighted product 

efficiencies.

DOE used a “roll-up” efficiency scenario in developing its forecasts of efficiency trends 

after standards take effect. Under this scenario, all products that perform at levels below a 

prospective standard are moved, or rolled up, to the minimum performance level allowed under 

the standard. The distribution of products that meet the higher efficiency standard levels is 

unaffected. Chapter 10 of the TSD details the approach DOE used to forecast product 

efficiencies.

2.11.2 National Energy Savings Analysis

The inputs for determining the national energy savings for each product analyzed are: (1) 

annual energy consumption per unit; (2) shipments; (3) product/equipment stock; (4) national 

energy consumption; and (5) site-to-source conversion factors. DOE calculated the national 

energy consumption by multiplying the number of units (stock) of each product (by vintage or 

age) by the unit energy consumption (also by vintage). Vintage represents the age of the 

equipment. DOE calculated annual NES based on the difference in national energy consumption 

for the base case (without new efficiency standards) and for each higher efficiency standard. 

DOE estimated energy consumption and savings based on site energy and converted the 

electricity consumption and savings to source energy. Cumulative energy savings are the sum of 

the NES for each year over the timeframe of the analysis.

2.11.3 Net Present Value Analysis

The inputs for determining NPV are: (1) total annual installed cost; (2) total annual 

savings in operating costs; (3) a discount factor; (4) present value of costs; and (5) present value 

of savings. DOE calculated net savings each year as the difference between the base case and 

each standards case in total savings in operating costs and total increases in installed costs. DOE 

calculated savings over the life of each product, accounting for differences in annual energy 

rates. DOE calculated NPV as the difference between the present value of operating cost savings 

and the present value of total installed costs. DOE used a discount factor based on real discount 

rates of 3 and 7 percent to discount future costs and savings to present values.

DOE calculated increases in total installed costs as the difference in total installed cost 

between the base case and standards case (i.e., once the standards take effect). Because the more 

efficient products bought in the standards case usually cost more than products bought in the 

base case, cost increases appear as negative values in the NPV.

DOE expressed savings in operating costs as decreases associated with the lower energy 

consumption of products bought in the standards case compared to the base efficiency case. 

Total savings in operating costs are the product of savings per unit and the number of units of 

each vintage that survive in a given year.

Chapter 10 of the TSD provides additional details on the national impacts analysis.
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2.12 CONSUMER SUBGROUP ANALYSIS

The consumer subgroup analysis evaluates economic impacts on selected consumers 

groups who might be adversely affected by a change in the national energy conservation 

standards for the considered products. DOE evaluates impacts on particular subgroups of 

consumers in part by analyzing the LCC impacts and PBP for those particular consumers. DOE 

used the LCC spreadsheet model to evaluate impacts on consumer subgroups. DOE can analyze 

the LCC for any subgroup by applying the LCC spreadsheet model to only that subgroup. DOE 

is particularly sensitive to increases in the consumer price of the considered products, wishing to 

avoid a negative economic impact on any identified consumer subgroup. 

Where data permitted, DOE conducted a regional consumer subgroup analysis that 

sampled particular subgroups to determine the potential for the considered standards to 

disproportionately affect them. 

2.13 MANUFACTURER IMPACT ANALYSIS 

DOE performed an MIA to estimate the financial impact of higher energy conservation 

standards on residential furnace and central air conditioner and heat pump manufacturers, as well 

as to calculate the impact of such standards on employment and manufacturing capacity. The 

MIA has both quantitative and qualitative aspects. The quantitative part of the MIA relies on the 

government regulatory impact model (GRIM), an industry-cash-flow model customized for these 

three industries. The GRIM inputs are information on the industry cost structure, shipments, and 

revenues. This includes information from many of the analyses described above, such as 

manufacturing costs and prices from the engineering analysis and shipments forecasts from the 

shipments analysis. The key GRIM output is the industry net present value (INPV). Different 

sets of assumptions (scenarios) will produce different results. The qualitative part of the MIA 

addresses factors such as product characteristics, characteristics of particular firms, and market 

and product trends, and includes assessment of the impacts of standards on manufacturer 

subgroups. 

DOE conducts each MIA in three phases. In Phase I, DOE creates an industry profile to 

characterize the industry and identify important issues that require consideration. In Phase II, 

DOE prepares an industry cash-flow model and interview questionnaire to guide subsequent 

discussions. In Phase III, DOE interviews manufacturers and assesses the impacts of standards 

quantitatively and qualitatively. DOE assesses industry and subgroup cash flow and NPV using 

the GRIM. DOE then assesses impacts on competition, manufacturing capacity, employment, 

and regulatory burden based on manufacturer interview feedback and discussions. Chapter 12 of 

the TSD describes the complete MIA.

2.14 UTILITY IMPACT ANALYSIS

The utility impact analysis includes an analysis of selected effects of new energy 

conservation standards on the electric and the gas utility industries. For this analysis, DOE 

adapted National Energy Modeling System (NEMS), a large multi-sectoral, partial-equilibrium 
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model of the U.S. energy sector that the EIA developed throughout the past decade primarily for 

preparing EIA’s AEO. In previous rulemakings, a variant of NEMS (currently termed NEMSBT, BT referring to DOE’s Building Technologies Program) was developed to address the 

specific impacts of an energy conservation standard. 

Available in the public domain, NEMS produces a widely recognized baseline energy 

forecast for the United States through 2030. The typical NEMS outputs include forecasts of 

electricity sales, prices, and electric generating capacity. DOE conducts the utility impact 

analysis as a scenario that departs from the latest AEO reference case. In other words, the energy 

savings impacts from amended energy conservation standards are modeled using NEMS-BT to 

generate forecasts that deviate from the AEO reference case. 

2.15 EMPLOYMENT IMPACT ANALYSIS

The imposition of standards can affect employment both directly and indirectly. Direct 

employment impacts are changes in the number of employees at plants that produce the covered

products and at the affiliated distribution and service companies. DOE evaluated direct 

employment impacts in the manufacturer impact analysis. Indirect employment impacts may 

result from consumers shifting expenditures between goods (the substitution effect) and from 

changes in income and overall expenditure levels (the income effect). DOE used PNNL’s impact 

of sector energy technologies (ImSET) model to investigate the combined direct and indirect 

employment impacts. The ImSET model, which was developed for DOE’s Office of Planning, 

Budget, and Analysis, estimates the employment and income effects energy-saving technologies 

produce in buildings, industry, and transportation. Compared with simple economic multiplier 

approaches, ImSET allows for more complete and automated analysis of the economic impacts 

of energy conservation investments.

2.16 ENVIRONMENTAL ASSESSMENT

Pursuant to the National Environmental Policy Act of 1969 and the requirements of 42 

U.S.C. 6295(o)(2)(B)(i)(VI) and 6316(a), DOE prepared an environmental assessment of the 

impacts of amended energy conservation standards for residential furnaces and central air 

conditioners and heat pumps. The primary environmental effects of these standards would be 

reduced power plant emissions resulting from reduced consumption of electricity. DOE assessed

these environmental effects by using NEMS-BT to provide key inputs to its analysis. The portion 

of the environmental assessment produced by NEMS-BT considers carbon dioxide (CO2), 

nitrogen oxides (NOX), and mercury (Hg). The environmental assessment also considers impacts 

on SO2

2.16.1 Carbon Dioxide

emissions. After a brief discussion of general methodology, this section will address each 

of the relevant emissions. The following section then explains how DOE plans to monetize the 

benefits associated with emissions reductions.

In the absence of any Federal regulation of power plant emissions of CO2, a DOE 

standard is likely to result in reductions of these emissions. The CO2 emission reductions likely 

to result from a standard was estimated using NEMS-BT and national energy savings estimates 

drawn from the NIA spreadsheet model. The net benefit of the standard is the difference between 
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emissions estimated by NEMS-BT at each standard level considered and the AEO Reference 

Case. NEMS-BT tracks CO2

2.16.2 Sulfur Dioxide

emissions using a detailed module that provides results with broad 

coverage of all sectors and inclusion of interactive effects. 

SO2 emissions from affected electric generating units (EGUs) are subject to nationwide 

and regional emissions cap and trading programs, and DOE has preliminarily determined that 

these programs create uncertainty about the potential standards’ impact on SO2 emissions. Title 

IV of the Clean Air Act sets an annual emissions cap on SO2 for affected EGUs in the 48 

contiguous states and the District of Columbia (D.C.). SO2 emissions from 28 eastern states and 

D.C. are also limited under the Clean Air Interstate Rule (CAIR, 70 Fed. Reg. 25162 (May 12, 

2005)), which created an allowance-based trading program. Although CAIR has been remanded 

to EPA by the U.S. Court of Appeals for the District of Columbia Circuit (D.C. Circuit), see 

North Carolina v. EPA, 550 F.3d 1176 (D.C. Cir. 2008), it remains in effect temporarily, 

consistent with the D.C. Circuit’s earlier opinion in North Carolina v. EPA, 531 F.3d 896 (D.C. 

Cir. 2008). On July 6, 2010, EPA issued the Transport Rule proposal, a replacement for CAIR, 

which would limit emissions from EGUs in 32 states, potentially through the interstate trading of 

allowances, among other options. 75 FR 45210 (Aug. 2, 2010). 

The attainment of emissions caps is typically flexible among EGUs and is enforced 

through the use of emissions allowances and tradable permits. Under existing EPA regulations, 

and under the Transport Rule if it is finalized, any excess SO2 emissions allowances resulting 

from the lower electricity demand caused by the imposition of an efficiency standard could be 

used to permit offsetting increases in SO2 emissions by any regulated EGU. However, if the 

standard resulted in a permanent increase in the quantity of unused emissions allowances, there 

would be an overall reduction in SO2 emissions from the standards. While there remains some 

uncertainty about the ultimate effects of efficiency standards on SO2 emissions covered by the 

existing cap and trade system, the NEMS-BT modeling system that DOE uses to forecast 

emissions reductions currently indicates that no physical reductions in power sector emissions 

would occur for SO2.

2.16.3 Nitrogen Oxides

A cap on NOx emissions, affecting electric generating units in the CAIR region, would 

mean that the amended central air conditioner, heat pump, and furnace standards may have little 

or no physical effect on NOx emissions in the 28 eastern states and the D.C. covered by CAIR or 

any states covered by the proposed Transport Rule if the Transport Rule if finalized. The 

standards would, however, reduce NOx

2.16.4 Mercury

emissions in those 22 states not affected by the CAIR. 

As a result, DOE used NEMS-BT to estimate the emissions reductions from possible standards 

in the 22 States where emissions are not capped. 

Similar to emissions of SO2 and NOX, future emissions of Hg would have been subject to 

emissions caps. In May 2005, EPA issued the Clean Air Mercury Rule (CAMR). 70 FR 28606 

(May 18, 2005). CAMR would have permanently capped emissions of mercury for new and 
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existing coal-fired power plants in all States by 2010. However, on February 8, 2008, the DC 

Circuit issued its decision in New Jersey v. Environmental Protection Agency, in which it

vacated CAMR. 517 F.3d 574 (DC Cir. 2008). EPA has decided to develop emissions standards 

for power plants under the Clean Air Act (Section 112), consistent with the DC Circuit’s opinion 

on the CAMR. See http://www.epa.gov/air/mercuryrule/pdfs/certpetition_withdrawal.pdf. 

Pending EPA's forthcoming revisions to the rule, DOE is excluding the CAMR from its 

environmental assessment. In the absence of CAMR, a DOE standard would likely reduce Hg 

emissions and DOE used NEMS-BT to estimate these emission reductions. However, DOE 

continues to review the impact of rules that reduce energy consumption on Hg emissions, and 

may revise its assessment of Hg emission reductions in future rulemakings.

2.16.5 Particulate Matter

DOE acknowledges that particulate matter (PM) exposure can impact human health. 

Power plant emissions can have either direct or indirect impacts on PM. A portion of the 

pollutants emitted by a power plant are in the form of particulates as they leave the smoke stack. 

These are direct, or primary, PM emissions. However, the great majority of PM emissions 

associated with power plants are in the form of secondary sulfates, which are produced at a 

significant distance from power plants by complex atmospheric chemical reactions that often 

involve the gaseous (non-particulate) emissions of power plants, mainly SO2 and NOx. The 

quantity of the secondary sulfates produced is determined by a very complex set of factors 

including the atmospheric quantities of SO2 and NOx, and other atmospheric constituents and 

conditions. Because these highly complex chemical reactions produce PM comprised of different 

constituents from different sources, EPA does not distinguish direct PM emissions from power 

plants from the secondary sulfate particulates in its ambient air quality requirements, PM 

monitoring of ambient air quality, or PM emissions inventories. For these reasons, it is not 

currently possible to determine how the amended standard impacts either direct or indirect PM 

emissions. Therefore, DOE did not assess the impact of these standards on PM emissions. 

Further, as described previously, it is uncertain whether efficiency standards will result in a net 

decrease in power plant emissions of SO2, which are now largely regulated by cap and trade 

systems.

2.17 MONETIZATION OF EMISSIONS REDUCTION BENEFITS

DOE plans to consider the estimated monetary benefits likely to result from the reduced 

emissions of CO2 and other pollutants that are expected to result from each of the standard levels 

considered. 

In order to estimate the monetary value of benefits resulting from reduced emissions of 

CO2 emissions, DOE used in its analysis the most current Social Cost of Carbon (SCC) values 

developed and/or agreed to by interagency reviews. The SCC is intended to be a monetary 

measure of the incremental damage resulting from greenhouse gas (GHG) emissions, including, 

but not limited to, net agricultural productivity loss, human health effects, property damage from 

sea level rise, and changes in ecosystem services. Any effort to quantify and to monetize the 

harms associated with climate change will raise serious questions of science, economics, and 
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ethics. But with full regard for the limits of both quantification and monetization, the SCC can be 

used to provide estimates of the social benefits of reductions in GHG emissions. 

At the time of this notice, the most recent interagency estimates of the potential global 

benefits resulting from reduced CO2 emissions in 2010, expressed in 2009$, were $4.9, $22.1, 

$36.3, and $67.1 per metric ton avoided. For emission reductions that occur in later years, these 

values grow in real terms over time. Additionally, the interagency group determined that a range 

of values from 7 percent to 23 percent should be used to adjust the global SCC to calculate 

domestic effects, although DOE will give preference to consideration of the global benefits of 

reducing CO2 emissions. To calculate a present value of the stream of monetary values, DOE 

will discount the values in each of the four cases using the discount rates that had been used to 

obtain the SCC values in each case.

DOE recognizes that scientific and economic knowledge continues to evolve rapidly as to 

the contribution of CO2 and other GHG to changes in the future global climate and the potential 

resulting damages to the world economy. Thus, these values are subject to change. 

DOE also estimated the potential monetary benefit of reduced NOX, and Hg emissions 

resulting from the standard levels it considers. For NOX emissions, available estimates suggest a 

very wide range of monetary values for NOX emissions, ranging from $370 per ton to $3,800 per 

ton of NOX from stationary sources, measured in 2001$ (equivalent to a range of $447 to $4,591 

per ton in 2009$).a In accordance with U.S. Office of Management and Budget (OMB) guidance, 

DOE will conduct two calculations of the monetary benefits derived using each of the economic 

values used for NOx, one using a real discount rate of 3 percent and another using a real discount 

rate of 7 percent.b

DOE did not monetize estimates of Hg reduction in this rulemaking. DOE is aware of 

multiple agency efforts to determine the appropriate range of values used in evaluating the 

potential economic benefits of reduced Hg emissions. DOE has decided to await further guidance 

regarding consistent valuation and reporting of Hg emissions before it once again monetizes Hg 

in its rulemakings.

2.18 REGULATORY IMPACT ANALYSIS

In the direct final rule, DOE prepared an RIA pursuant to Executive Order 12866, 

Regulatory Planning and Review, 58 FR 51735, October 4, 1993. The RIA is subject to review 

under the Executive Order by the Office of Information and Regulatory Affairs at the Office of 

Management and Budget. The RIA addresses the potential for non-regulatory approaches to 

supplant or augment energy conservation standards in order to improve the energy efficiency or 

reduce the energy consumption of the products covered under this rulemaking. 

 

a For additional information, refer to U.S. Office of Management and Budget, Office of Information and Regulatory 

Affairs, 2006 Report to Congress on the Costs and Benefits of Federal Regulations and Unfunded Mandates on 

State, Local, and Tribal Entities, Washington, DC. b OMB, Circular A-4: Regulatory Analysis (Sept. 17, 2003).
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DOE recognizes that non-regulatory efforts by manufacturers, utilities, and other 

interested parties can substantially affect energy efficiency or reduce energy consumption. DOE 

not only based its assessment on the actual impacts of any such initiatives to date, but also 

considered information presented by interested parties on the impacts existing initiatives might 

have in the future.

2.19 REGIONAL STANDARDS IMPACT ANALYSIS

In establishing a framework for regional standards, EISA 2007 appears to recognize that 

DOE has not dealt with these issues previously, as the appliance standards programs historically 

set only national standards, and states that DOE shall consider the impact of additional regional 

standards on consumers, manufacturers, and other market participants, including product 

distributors, dealers, contractors, and installers.

DOE addresses impacts on consumers in chapter 8 and chapter 11 of the TSD. DOE 

analyzed the impacts of regional standards on consumers within these chapters by calculating 

consumer LCCs and subgroup LCCs on a regional basis. For the direct final rule, DOE analyzed 

the impacts of regional standards on manufacturers as part of the manufacturer impact analysis 

(chapter 12 of the TSD). DOE developed a new regional standards impacts analysis as a separate 

TSD chapter that identifies specific impacts of concern and examines the significance and scale 

of these impacts on the affected parties. See chapter 18 of the TSD for an assessment of the 

impacts of regional standards on market participants other than manufacturers and consumers.