After a regulatory action has been completed, Executive Order 12866 requires agencies to identify the substantive changes between the draft submitted to Office of Information and Regulatory Affairs (OIRA) for review and the action subsequently announced, and to identify those changes made at the suggestion or recommendation of OIRA. The document b elow provides more information.1 [6450
- 01
- P] DEPARTMENT OF ENERGY 10 CFR Part s 429 and 430 [Do cket Number EERE

– 2010

– BT

– STD

– 0011] RIN: 1904

– AC22

Energy Conservation Program for Consumer Products : Energy Conservation Standards for Residential Furnace Fans

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

ACTION: Notic e of proposed rulemaking and announcement of public meeting.

SUMMARY: Pur su ant to t he Energy Policy and Conservation Act of 1975 (EPCA), as amended, the U.S. Department of Energy (DOE) must prescribe energy conservation standards for various consumer prod ucts and certain commercial and industrial equipment, including residential furnace f ans. EPCA requires DOE to determine whether such standards would be technologically feasible and economically justified, and would save a significant amount of energy. I n this notice, DOE is propos ing new energy conservation standards for residential furnace fan s. The notice also announces a public meeting to receive comment on these proposed standards and associated analyses and results.2 DATES: Meeting

VII : DOE will hold a public meeting on [Day of week, Month, Day, Year ], from 9:00 a.m. to 4:00 p.m ., in Washington, DC. The meeting will also be broadcast as a webinar. See section , “ Public Participation ,” for webinar registration information, participant instructions, and information about the capabilities available to webinar participants.

Comments

VII : DOE will accept comments, data, and information regarding t his notice of proposed rulemaking (NOPR) before and after the public meeting, but no later than [ INSERT DATE 60 DAYS AFTER DATE OF PUBLICATION IN THE FEDERAL REGISTER ]. See section , “Public Participation,” for details.

ADDRESSES: The public meeting will be held at the U.S. Department of Energy, Forrestal Building, Room [NUMBER ], 1000 Independence Avenue, SW., Washington, DC 20585. To attend, please notify Ms. Brenda Edwards at (202) 586

– 2945. Please note that foreign nationals visiting DOE Headquarters are subject to advance security screening procedures. Any foreign national wishing to participate in the meeting should advise DOE as soon as possible by contacting Ms. Edwards at the phone number above to initiate the necessary procedures. Please also note that any person wishing to bring a laptop computer into the Forrestal Building will be required to obtain a property pass. Visitors should avoid bringing laptops, or allow an extra 45 minutes. Persons may also attend the public meeting via webinar. For more information, refer to section VII ,

“ Public Participation ,” near the end of this notice.3 Instructions : Any comments submitted must identify the NOPR for Energy Conservation Standards for Residential Furnace Fans , and provide docket number EE

2010

– BT

– STD

– 0011 and/or regulatory info rmation number (RIN) 1904

- AC22. Comments may be submitted using any of the following methods:

1. Federal eRulemaking Portal : www.regulations.gov

. Follow the instructions for submitting comments.
2. E

- mail : residential_furnace_fans@ee.doe.gov

. Include the docket number and/or RIN in the subject line of the message. Submit electronic comments in Word Perfect, Microsoft Word, PDF, or ASCII file format, and avoid the use of special characters or any form of encryption.
3. Postal M ail

4. : Ms. Brenda Edwards, U.S. Department of Energy, Building Technologies Program, Mailstop EE

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

- 0121. If possible, please submit all items on a compact disc ( CD ), in which case i t is not necessary to include printed copies. Hand Delivery/Courier : Ms. Brenda Edwards, U.S. Department of Energy, Building Technologies Program, 950 L’Enfant Plaza, SW., Suite 600, Washington, DC, 20024. Telephone: (202) 586

- 2945. If possible, please submit all items on a CD, in which case it is not necessary to include printed copies.

Written comments regarding the burden

- hour estimates or other aspects of the collection

- of

- information requirements contained in this proposed rule may be submitted4 to Office of Energy Efficiency and Renewable Energy through the methods listed above and by e

- mail to Chad_S._Whiteman @omb.eop.g ov .

No telefacsimilies (faxes) will be accepted. For detailed instructions on submitting comments and additional information on the rulemaking process, see section
VII of this document (Public Participation).

Docket : The docket is available for review at www.regulations.gov , including Federal Register notices, framework documents, public meeting attendee l ists and transcripts, comments, and other supporting documents/materials. All documents in the docket are listed in the www.regulations.gov index. However, not all documents listed in the index may be publicly ava ilable, such as information that is exempt from public disclosure.

A link to the docket web page can be found at: http://www1.eere.energy.gov/buildings/appl iance_standards/rulemaking.aspx/ruleid/41

. This web page contain s a link to the docket for this notice on the www.regulations.gov site. The www.regulations.gov web page contain s simple instructions on how to access all documents, including public comments, in the docket. See section VII , “Public Participation,” fo r further information on how to submit comments through www.regulations.gov

.5 For further information on how to submit a comment, review other public comments and the docket, or participate in the public meeting, contact Ms. Brenda Edwards at (202) 586

- 2945 or by email: Brenda.Edwards@ee.doe.gov

.

FOR FURTHER INFORMATION CONTACT: Mr. Ron Majette , U.S. Department of Energy, Office of Energy Efficiency and Renewable Energy, Building Technologies Program, EE

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

- 0121. Telephone: (202) 586

- 7 935

. E

- mail: Ronald.Majette @ee.doe.gov

.

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

- 71, 1000 Independence Avenue, SW., Washington, DC, 20585

- 0121. Telephone: (202) 586

- 9507

. E

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

.

For information on how to submit or review public comments, contact Ms. Brenda Edwards at (202) 586

- 2945 or by email: Brenda.Edwards@ee.doe.gov

.

SUPPLEMENTARY INFORMATION: Table of Contents I. Summary of the Proposed Rule A. Benefits and Costs to Consumers B. Impact on Manufacturers C. National Benefits II. Introduction A. Authority B. Background 1. Current Standards 2. History of Standards Rulemaking for Residential Furnace Fans III. General Discussion A. Test Procedure6 B. Product Classes and Scope of Coverage C. Technological Feasibility 1. General 2. Maximum Technologically Feasible Levels D. Energy Savings 1. Determination of Savings 2. Significance of Savings E. Economic Justification 1. Specific Criteria

a. Economic Impact on Manufacturers and Consumers b. Life

- Cycle Costs c. Energy Savings d. Lessening of Utility or Performance of Products e. Impact of Any Lessening of Competition f. Need for National Energy Conservation g. Other Factors 2. Rebuttable Presumption IV. Methodology and Discussion A. Market and Technology Assessment 1. Definition and Scope of Coverage 2. Product Classes 3. Technology Options

a. Fan H ousing and Airflow Path Design Improvements b. Inverter Controls for PSC Motors c. High

- Efficiency Motors d. Multi

- Stage or Modulating Heating Controls e. Backward

- Inclined Impellers B. Screening Analysis 1. Screened

- Out Technologies 2. Remaining Technologies

a. High

- Efficiency Motors b. Backward

- Inclined Impellers C. Engineering Analysis 1. Efficiency Levels

a . Baseline b. Percent Reduction in FER 2. Manufacturer Production Cost (MPC)

a. Production Volume Impacts on MPC b. Inverter

- Driven PSC Costs c. Furnace Fan Motor MPC d. Motor Control Costs e. Backward

- Inclined Impeller MPC D. Markups Analysis E. Energy Use Analysis F. Life

- Cycle Cost and Payback Period Analysis 1. Installed Cost7 2. Operating Costs 3. Other Input s 4. Base

- Case Efficiency Distribution 5. Rebuttable Presumption Payback Period G. Shipments Analysis H. National Impact Analysis 1. National Energy Savings Analysis 2. Net Present Value Analysis I. Consumer Subgroup Analysis J. Manufacturer Impact Analysis 1. Overview 2. Government Regulatory Impact Model

a. Government Regulatory Impact Model Key Inputs b. Government Regulatory Impact Model Scenarios 3. Discussion of Comments

a. Testing and Certification Burdens b. Cumulative Regulatory Burden c. Compliance Date and Implementatio n Period d. Small Businesses e. Conversion Costs 4. Manufacturer Interviews

a. Testing and Certification Burdens b. Market Size c. Cumulative Regulatory Burden d. Consumer Confusion e. Motors K. Emissions Analysis L. Monetizing Carbon Dioxide and Other Emissions Impacts 1. Social Cost of Carbon

a. Monetizing Carbon Dioxide Emissions b. Social Cost of Carbon Values Used in Past Regulatory Analyses c. Current Approach and Key Assumptions 2. Valuation of Other Emissions Reductions M. Utility Impact Analysis N. Employment Impact Analysis V. Analytical Results and Conclusions A. Trial Standard Levels B. Economic Justification and Energy Savi ngs 1. Economic Impacts on Consumers

a. Life

- Cycle Cost and Payback Period b. Consumer Subgroup Analysis c. Rebuttable Presumption P ayback 2. Economic Impact on Manufacturers

a. Industry Cash

- Flow Analysis Results b. Impacts on Employment c. Impacts on Manufacturing Capacity8 d. Impacts on Subgroups of Manufacturers e. Cumulative Regulatory Burden 3. National Impact Analysis

a. Signi ficance of Energy Savings b. Net Present Value of Consumer Costs and Benefits c. Indirect Impacts on Employment 4. Impact on Product Utility or Performance 5. Impact of Any Lessening of Competition 6. Need of the Nation to Conserve Energy 7. Other Factors C. Proposed Standards 1. Benefits and Burdens of Trial Standard Levels Considered for Residential Furnace Fans 2. Summary of Benefits and Costs (Annualized) of the Proposed Standards VI. Procedural Issues and Regulatory Review A. Review Under Executive Orders 12866 and 13563 B. Review Under the Regulatory Flexibility Act C. Review Under the Paperwork Reductio n Act of 1995 D. Review Under the National Environmental Policy Act of 1969 E. Review Under Executive Order 13132 F. Review Under Executive Order 12988 G. Review Under the Unfunded Mandates Reform Act of 1995 H. Review Under the Treasury and General Government Appropriations Act, 1999 I. Review Under Executive Order 12630 J. Review Under the Treasury and General Government Appropriations Act, 2001 K. Review Under Executive Order 13211 L. Review Under the Information Quality Bulletin f or Peer Review VII. Public Participation A. Attendance at the Public Meeting B. Procedure for Submitting Requests to Speak and Prepared General Statements For Dist ribution C. Conduct of the Public Meeting D. Submission of Comments E. Issues on Which DOE Seeks Comment VIII. Approval of the Office of the Secretary

I. Summary of the Proposed Rule Title III, Part B 1

1 For editorial reasons, upon codification in the U.S. Code, Part B was redesignated Part A. of the Energy Policy and Conservation Act of 1975 (EPCA or the Act), Pub. L. 94

- 163 (42 U.S.C. 6291

- 6309, as codified), established the Energy9 Conservation Program for Consumer Products Other Than Automobiles , a program covering most major household appliances, including the residential furnace fans that are the focus of this notice

. Pursuant to EPCA, any new or amended energy conservation standard that DOE prescribes for certai n products, such as residential f urn ace f ans, shall be designed to achieve the maximum improvement in energy efficiency that is technologically feasible and economically justified. (42 U.S.C. 6295(o)(2)(A)) Furthermore, the new or amended standard must r esult in a significant conservation of
energy. (42 U.S.C. 6295(o)(3)(B)) EPCA specifically provides that DOE must consider and prescribe energy conservation standards or energy use standards for electricity used for purposes of circulating air through du ct work (products for which DOE has adopted the term “furnace fans” as shorthand) not later than December 31, 2013. (42 U.S.C. 6295(f)(4)(D))

In accordance with these and other statutory provisions discussed in this notice,
DOE is propos ing new energy co nservation standards for residential furnace f ans. Table
I

. 1 below presents t he proposed standards, which represent the “estimated annual electrical energy consumption” normalized by the estimated total number of annual operating hours (1870) and the a irflow in the maximum airflow

- control setting to produce a fan energy rating (FER). These proposed standards, if adopted, would apply to all products listed in Table I

. 1 and manufactured in, or imported into, the United States on or after the date five years from the publication of the final rule

.10 Table I . 1 . Proposed Energy Conservation Standards for Res idential Furnace Fans (Compliance Starting Five Years from Final Rule Publication ) Product

Class Product Class Description Proposed Standard: FER * (W/1000 cfm) 1 Non

- W eatherized, Non

- Condensing Gas Furnace Fan (NWG

- NC) FER = 0.029 x Q Max + 180
2 Non

- W eatherized, Condensing Gas Furnace Fan (NWG

- C) FER = 0.029 x Q Max + 196
3 Weatherized Non

- Condensing Gas Furnace Fan (WG

- NC) FER = 0.029 x Q Max + 135
4 Non

- Weatherized, Non

- Condensing Oil Furnace Fan (N W O

- NC) FER = 0.051 x Q Max + 301
5 Non

- W eatherized Electric Furnace / Modular Blower Fan (NWEF/NWMB) FER = 0.029 x Q Max + 165
6 Manufactured Home Non

- Weatherized, Non

Condensing Gas Furnace Fan (MH

- NWGNC) FER = 0. 0 51 x Q Max + 242
7 Manufactured Home Non

- Weatherized, Condensing Gas Furnace Fan (MH

- NWG

- C) FER = 0. 051 x Q Max + 262
8 Manufactured Home Electric Furnace/ Modular Blower Fan (MH

- EF/MB) FER = 0.0 29 x Q Max + 105
9 Manufactured Home Weatherized Gas Furnace Fan (MH

- WG) Reserved
10 Manufactured Home Non

- Weatherized Oil Furnace Fan (MH

- NWO) Reserved

* Q Max is the airflow, in cfm, at the maximum airflow

- control setting measured us ing the proposed DOE test procedure. 78 FR 19606 , 19627 (April 2, 2013).

A. Table I

. 2 Benefits and Costs to Consumers presents DOE’s evaluation of the economic impacts of the proposed standards on consumers of residential furnace f ans , as measured by the average life

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

. In overview, t he average LCC savings are positive for all product classes.11 Table I . 2 Impacts of Proposed Standards on Consumers of Residential Furnace Fans Product Class Average LCC Savings ( 2012 $) Median Payback Period (years) Non

- Weatherized, Non

- Condensing Gas Furnace Fan (NWG

- NC) 474 5.38 Non

- Weatherized, Condensing Gas Furnace Fan (NWG

- C) 371 5.39 Weatherized Non

- Condensing Gas Furnace Fan (WG

- NC) 247 6.39 Non

- Weatherized, Non

- Condensing Oil Furnace Fan (NWO

- NC) 40 5.49 Non

- Weatherized Electric Furnace / Modular Blower Fan (NWEF/NWMB) 185 3.55 Manufactured Home Non

- Weatherized, Non

Condensing Gas Furnace Fan (MH

- NWGNC) 26 3.35 Manufactured Home Non

- Weatherized, Condensing Gas Furnace Fan (MH

- NWG

- C) 27 2.73 Manufactured Home Electric Furnace/ Modular Blower Fan (MH

- EF/MB) 78 4.61

B. The industry net present value (INPV) is the sum of the discounted cash flows to the industry from the base year through the end of the analysis period ( 2013 to 2048). Using a real discount rate of 7.8 percent, DOE estimates that the INPV for manufacturers of residential furnace fans is $ 252.2 million in 2012$. Under the proposed standards , DOE expects that manufac turers may lose up to 21.6 percent of their INPV, which is approximately $ 54.4 million

. Total conversion costs incurred by industry prior to the compliance date are expected to reach $3.1 million.

. Impact on Manufacturers

Comment [A1]: Change recommended by OIRA.12 C. DOE’s analyses indicate that the proposed standards would save a significant amount of energy

. The cumulative energy savings for residential furnace fan products purchased in the 30

- year period that begins in the first full year of compliance with new standards (201 9

– 20 4 8 ) amount to 4.58 quads

. National Benefits and Costs

2 This For comparison, the estimated annual energy savings in 2030 (0.074 quads) is equivalent equal to approximately 23 0.3 percent of total U.S. projected residential energy use in 201 2 2030

. 3

The cumulative net present value (NPV) of total consumer costs and savings for the proposed residential furnace fan standards in 20 1 2 $ ranges from $ 8.51 billion (at a 7

- percent discount rate) to $ 26.16 billion (at a 3

- percent discount rate)

. This NPV expresses the estimated total value of future operating

- cost savings minus the estimated increased product costs for residential furnace fans purchased in 20 19

– 20 48 , discounted
to 20 13

.

In addition, the proposed standards would have significant environmental benefits. 4 The energy savings would result in cumulative emission reductions of 429.8 million metric tons (Mt) 5

2 A quad is equal to 10 15 British thermal units (Btu). of carbon dioxide (CO 2 ) , 230.9 thousand tons of nitrogen oxides (NO X ) , 313. 5 thousand tons of sulfur di oxide ( S O 2 ) , and 1.77 tons of mercury

3 Energy Information Administration (EIA), Monthly Energy Review: Table 2.2 Residential Energy Consumption (May 17, 2013) (Available at: http://www.eia.gov/totalenergy/data/monthly/pdf/sec2_5.pdf ). Projected residential energy use in 2030 in the Annual Energy Outlook 2013 is 21.65 quads. 4 DOE calculates emissions reductions relative to the Annual Energy Outlook 2012 ( AEO 2012 ) Reference case, which incorporated projected effects of all emissions regulations promulgated as of January 31, 2012

. 5 A metric ton is equivalent to 1.1 short tons. Results for emissions other than CO 2 are presented in short tons. Comment [A2]: Change recommended by OIRA.

Comment [A3]: Change recommended by OIRA. Comment [A4]: Change recommended by OIRA. Comment [A5]: Change recommended by OIRA. Comment [A6]: Change recommended by OIRA. Comment [A7]: Change recommended by OIRA. Comment [A8]: Change recommended by OIRA.13 (Hg ) , 913.7 thousand tons of methane (CH 4 ), and 5.12 thousand tons of nitrous oxide (N 2 O )

. 6

The value of the CO 2 reductions is calculated using a range of values per metric ton of CO 2 (otherwise known as the Social Cost of Carbon, or SCC) developed by a n interagency process. The For today’s NOPR, DOE used an updated set of SCC values 7 (t he derivation of the SCC values is discussed in section IV.L ). DOE estimates that the present monetary value of the CO 2 emissions reduction is between $ 2.2 5 and $ 35.56 billion , e xpressed in 20 12 $ and discounted to 20 13

. DOE also estimates the net present monetary value of the NO X emissions reduction, expressed in 20 12 $ and discounted to
20 13 , is $ 0.109 billion at a 7

- percent discount rate and $ 0.3 14 billion at a 3

- percent discount rate. 8

Table I

. 3 summarizes the national economic benefits and costs expected to result from today’s proposed standards for residential furnace fans

.

6 DOE calculates emiss ions reductions relative to the Annual Energy Outlook 2012 ( AEO 2012 ) Reference case, which incorporated projected effects of all emissions regulations promulgated as of January 31, 2012

. DOE also estimated CO 2 and, for CH 4 and N 2 O, CO 2 equivalent (CO 2 eq) emissions that occur through 2030. The estimated emissions reductions through 2030 are 4 0 million metric tons CO 2 , 2. 3 million tons CO 2 eq for CH 4 , and 1 67 thousand tons CO 2 eq for N 2 O. 7 Technical Update of the Social Cost of Carbon for Regulatory Impact Analy sis Under Executive Order 12866, Interagency Working Group on Social Cost of Carbon, United States Government (May 2013)(Available at: http://www.whitehouse.gov/sites/default/files/omb/inforeg/social_cost_of_carbon_for_ria_2013_update.pdf ). 8 DOE did not monetize Hg or SO 2 emission reductions for today’s NOPR because it is currently evaluating appropriate valuation of reduction in th ese emissions. Comment [A9]: Change recommended by OIRA.

Comment [A10]: Change recommended by OIRA.

Formatted: Not Highlight14 Table I . 3 : Summary of National Economic Benefits and Costs of Proposed Residential Furnace Fans Energy Conservation Standards (TSL 4 ) ) , in Billion 2012$*
Category Present Value Discount Rate Billion 201 2 $
Benefits Consumer Operating Cost Savings 11.6 7% 32.0 3% CO 2 Reduction Monetized Value ($ 12.9 /t case )* )* * 2.2 5%
CO 2 Reduction Monetized Value ($ 40.8 /t case )* )* * 11.5 3%
CO 2 Reduction Monetized Value ($ 62.2 /t case )* )* * 18.8 2.5%
CO 2 Reduction Monetized Value ($ 117 /t case )* )* * 35.6 3%
NO X Reduction Monetized Value (at $2,639/ton )** ) 0.1 7% 0.3 3%
Total Benefits† 23.2 7%
43.8 3%
Costs Consumer Incremental Installed Costs 3.1 7% 5.8 3% Net Benefits Including CO 2 and NO X Reduction Monetized Value 20.1 7%
38.0 3%

* * This table presents the costs and benefits associated with residential furnace fans shipped in 2019 −2048. These results include benefits to consumers which accrue after 2048 from the products purchased in 2019 −2048. The results account for the incremental variable and fixed costs incurred by manufacturers due to the standard , some of which may be incurred in preparation for the rule

. * * The CO 2 values represent global monetized values of the SCC , in 2012 $, in 201 5 under several scenarios

. of the updated SCC values

. The first three cases use the averages of SCC distributions calculated using 5%, 3%, and 2.5% discount rates, respectively. The fourth case represents the 95 th percentile of the SCC distribution calculated using a 3% discount rate. The SCC time series used by DOE incorporate an es calation factor. ** The value represents for NO X is the average of the low and high NO X values used in DOE’s analysis. † Total Benefits for both the 3% and 7% cases are derived using the series corresponding to SCC value in 2015 of $ 40.8 /t

. Comment [A11]: Change recommended by OIRA.

Comment [A12]: Change recommended by OIRA.
Comment [A13]: Change recommended by OIRA. Comment [A14]: Change recommended by OIRA. Comment [A15]: Change recommended by OIRA. Comment [A16]: Change recommended by OIRA. Comment [A17]: Change recommended by OIRA.

Comment [A18]: Change recommended by OIRA.

Comment [A19]: Change recommended by OIRA. Comment [A20]: Change recommended by OIRA.15 The benefits and costs of today’s proposed standards, for products sold in 2019

- 2048, can also be expressed in terms of annualized values. The annualized monetary values are the sum of : (1) the annualized national economic value of the benefits from

consumer operation of products that meet the proposed standards (consisting primarily of operating cost savings from using less energy, minus increases in equipment purchase and installation costs, which is another way of representing consumer NPV) ; and (2) the

ann ualized monetary value of the benefits of emission reductions, including CO 2 emission reductions. 9

Although com bin ing the value s of operating savings and CO 2 emission reductions provides a useful perspective, two issues should be considered. First, t he national operating savings are domestic U.S. consumer monetary savings that occur as a result of market transactions , whereas the value of CO 2 reductions is based on a global value. Second, t he assessments of operating cost savings and CO 2 savings are performed with different methods that use different time frames for analysis. The national operating cost savings is measured for the lifetime of residential furnace fans shipped in 2019

– 20 4 8

.

9 DOE used a two

- step calculation process to convert the time

- series of costs and benefits into annualized values. First, DOE calculated a present value in 2013 , the present year used for discounting the NPV of total consumer costs and savin gs, for the time

- series of costs and benefits using discount rates of three and seven percent for all costs and benefits except for the value of CO 2 reductions. For the latter, DOE used a range of discount rates, as shown in Table I.4. From the present value, DOE then calculated the fixed annual payment over a 30

- year period ( 2019 through 2048 ) that yields the same present value. The fixed annual payment is the annualized value. Although DOE calculated annualized values, this does not i mply that the time

- series of cost and benefits from which the annualized values were determined is a steady stream of payments. Formatted: Indent: First line: 0.5", Don't adjust space between Latin and Asian text

Formatted: Font: Bold16 The SCC value s , on the other hand, reflect the p resent value of some future climate

related impacts resulting from the emission of one ton of carbon dioxide in each year. These impacts continue well beyond 2100.

The benefits and costs of today’s proposed standards, for products sold in 2019

- 2048, can also be expressed in terms of annualized values. The annualized monetary values are the sum of : (1) the annualized national economic value of the benefits from consumer operation of products that meet the proposed standards (consisting primarily of operat ing cost savings from using less energy, minus increases in equipment purchase and installation costs, which is another way of representing consumer NPV) ; and (2) the annualized monetary value of the benefits of emission reductions, including CO 2 emission reductions. 10

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

. 4

. The results under the primary estimate are as follows. (All monetary values below are expressed in 201 2 $.) Using a 7

- percent discount rate for benefits and costs other than CO 2 reduction ( for which DOE used a 3

- percent discount rate along with the
SCC series corresponding to a value of $ 40.8 /ton in 201 5 ) , the cost of the residential

10 DOE used a two

- step calculation process to convert the time

- series of costs and benefits into annualized values. First, DOE c alculated a present value in 2013 , the present year used for discounting the NPV of total consumer costs and savings, for the time

- series of costs and benefits using discount rates of three and seven percent for all costs and benefits except for the value of CO 2 reductions. For the latter, DOE used a range of discount rates, as shown in Table I.4. From the present value, DOE then calculated the fixed annual payment over a 30

- year period ( 2019 through 2048 ) that yields the same present value. The fixed annua l payment is the annualized value. Although DOE calculated annualized values, this does not imply that the time

- series of cost and benefits from which the annualized values were determined is a steady stream of payments. Formatted: Font: Not Bold Formatted: Indent: First line: 0.5" Formatted: Indent: First line: 0.5", Don't adjust space between Latin and Asian text

Comment [A21]: Ch ange in paragraph location recommended by OIRA. Formatted: Font: Bold17 furnace fan standards proposed in today’s rule is $ 231 million per year in increased equipment costs, while the benefits are $ 872 million per year in reduced equipment
opera ting costs, $ 571 million in CO 2 reductions, and $ 8.24 million in reduced NO X emissions

. In this case, the net benefit amounts to $ 1, 220 million per year . Using a 3

- percent discount rate for all benefits and costs and the SCC series corresponding to a val ue of $ 40.8 /ton in 2015, the cost of the residential furnace fans standards proposed in today’s rule is $ 290 million per year in increased equipment costs, while the benefits are $ 1 , 585 million per year in reduced operating costs, $ 571 million in CO 2 reduc tions, and $ 15.56 million in reduced NO X emissions

. In this case, the net benefit amounts to $ 1,882 million per year.18 Table I . 4 : Annualized Benefits and Costs of Proposed Standards for Residential Furnace Fans (TSL 4 ) ) , in Million 2012$

Discount

Rate Primary Estimate* Low Net Benefits Estimate High Net Benefits Estimate million 2012$/year Benefits Consumer Operating Cost Savings 7% 872 710 1082 3% 1585 1264 2011 CO 2 Reduction Monetized Value ($ 12.9 /t case)** 5% 139 117 171 CO 2 Reduction Monetized Value ($ 40.8 /t case)** 3% 571 477 702 CO 2 Reduction Monetized Value ($ 62.2 /t case)** 2.5% 877 732 1079 CO 2 Reduction Monetized Value ($ 117 /t case)** 3% 1761 1471 2167
NO X Reduction Monetized Value (at $2,639/ton)** 7% 8.24 6.97 9.99 3% 15.56 13.03 19.09

Total Benefits† 7% plus CO 2 range 1,019 to 2,641 834 to 2,188 1,263 to 3,259 7% 1,451 1,194 1,794 3% plus CO 2 range 1,740 to 3,362 1,394 to 2,748 2,201 to 4,197 3% 2,172 1,754 2,732 Costs Consumer Incremental Product Installed Costs 7% 231 273 201 3% 290 346 250 Net Benefits

Total† 7% plus CO 2 range 788 to 2,410 561 to 1,915 1,062 to 3,058 7% 1,220 921 1,593 3% plus CO 2 range 1,450 to 3,072 1,047 to 2,402 1,951 to 3,947 3% 1,882 1,407 2,482 Comment [A22]: Change recommended by OIRA.

Comment [A23]: Change recommended by OIRA.

Formatted: Subscript

Comment [A24]: Change recommended by OIRA. Comment [A25]: Change recommended by OIRA.19 * This table presents the annualized costs and benefits associated with residential furnace f ans shipped in 2019

− 204 8 . These results include benefits to consumers which accrue after 204 8 from the products purchased in 2019 −204 8

. Costs The results account for the incremental variable and fixed costs incurred by manufacturers due to the standard , some of which may be incurred in preparation for the rule , are not directly included, but are indirectly incl uded as part of incremental equipment costs . The Primary, Low Benefits, and High Benefits Estimates utilize projections of energy prices and housing starts from the AEO 201 2

* * The CO 2 values represent global values of the S CC, in 201 2 $, in 2015 under several scenarios. The first three cases use the averages of SCC distributions calculated using 5%, 3%, and 2.5% discount rates, respectively. The fourth case represents the 95 th percentile of the SCC distribution calculated usi ng a 3% discount rate. The SCC values increase over time

. The value for NO X (in 201 2 $) is the average of the low and high values used in DOE’s analysis. Reference case, Low Estimate, and High Estimate, respectively. I ncremental product costs reflect a constant product price trend in the Primary Estimate, a n increasing price trend in the Low Benefits Estimate, and a decreasing price trend in the High Benefits Estimate.

† Total Benefits for both the 3 % and 7 % cases are derived using the series corresponding to SCC value of $ 40.8 /t in 2015

. In t he rows labeled “7% plus CO 2 range” and “3% plus CO 2 range , ” the operating cost and NO X benefits are calculated using the labeled discount rate , and those values are add ed to the full range of CO 2 values.

DOE has tentatively concluded that the proposed standards represent the maximum improvement in energy efficiency that is technologically feasible and economically justified, and would result in the significant conservation of energy. DOE further notes that products achieving these standard levels are already commercially available for at least some, if not most, product classes covered by today’s proposal

. Based on the analyses described above , DOE has tentatively concluded that the b enefits of the proposed standards to the Nation (energy savings, positive NPV of consumer benefits, consumer LCC savings, and emission reductions) would outweigh the burdens (loss of INPV for manufacturers and LCC increases for some consumers).

DOE also considered more - stringent energy efficiency levels as trial standard levels , and is still considering them in this rulemaking

. However , DOE has tentatively concluded that the potential burdens of the more - stringent energy eff ic iency levels would Comment [A26]: Change recommended by OIRA. Comment [A27]: Change recommended by OIRA. Comment [A28]: Change recommended by OIRA.20 outweigh the projected benefits. B ased on consideration of the public comments DOE receives in response to this notice and related information collected and analyzed during the course of this rulemaking effort , DOE may adopt energy efficiency levels presented in t his notice that are either higher or lower than the proposed standards, or some combination of level(s) that incorporate the proposed standards in part

.

II. Introduction The following section briefly discusses the statutory authority underlying today’s
prop osal, as well as some of the relevant historical background related to the establishment of standards for residential furnace fans.

A. Title III, Part B Authority

11 of the Energy Policy and Conservation Act of 1975 (EPCA or the Act), Pub. L. 94

- 163 (42 U.S.C. 6291

- 6309, as codified) established the Energy Conservation Program for Consumer Products Other Than Automobiles, a program covering most major household applia nces (collectively referred to as “covered products”)

. 12 These include products that use electricity for purposes of circulating air through duct work, hereafter referred to as “residential furnace fans” or simply “furnace fans,” the subject of this rulema king. (42 U.S.C. 6295(f)(4)(D))

11 For editorial reasons, upon cod ification in the U.S. Code, Part B was redesignated Part A

. 12 All references to EPCA in this document refer to the statute as amended through the American Energy Manufacturing Technical Corrections Act, Pub. L. 112

- 210 (enacted December 18, 2012).21 Pursuant to EPCA, DOE’s energy conservation program for covered products consists essentially of four parts: (1) testing; (2) labeling; (3) the establishment of Federal energy conservation standards; and (4) certification and enforcement procedures. The Federal Trade Commission (FTC) is primarily responsible for labeling, and DOE implements the remainder of the program. Subject to certain criteria and conditions, DOE is required by EPCA to consider and establish energy c onservation standards for residential furnace fans by December 31, 2013. (42 U.S.C. 6295(f)(4)(D)) DOE is also required to develop test procedures to measure the energy efficiency, energy use, or estimated annual operating cost of each covered product pr ior to the adoption of an energy conservation standard

. (42 U.S.C. 629 5(o)(3)(A) and (r) ) Manufacturers of covered products must use the prescribed DOE test procedure as the basis for certifying to DOE that their products comply with the applicable energ y conservation standards adopted under EPCA and when making representations to the public regarding the energy use or efficiency of those products. (42 U.S.C. 6293(c) and 6295(s)) Similarly, DOE must use these test procedures to determine whether the pro ducts comply with standards adopted pursuant to EPCA. (42 U.S.C. 6295(s)) DOE does not currently have a test procedure for furnace fans. Accordingly, t o fulfill the statutory requirements, DOE is simultaneously conducting a test procedure rulemaking for residential furnace fans. DOE published a notice of proposed rulemaking (NOPR) in the Federal Register for a residential furnace fans test procedure on May 15, 2012. 77 FR 28674. After considering public comments, DOE subsequently published in the Fede ral Register a supplemental notice of proposed rulemaking (SNOPR) on April 2 , 201 3, which contained

a revised test procedure proposal for furnace fans

. 78 FR 19606. In accordance with the22 statutory requirements outlined in EPCA, DOE will establish a test procedure for residential furnace fan s at or before the time it prescribes furnace fan energy conservation standard s Details on the furnace fan test procedure rulemaking are available at: http://www1.eere.energy.gov/buildings/appliance_standards/rulemaking.aspx/ruleid/40

.

DOE must follow specific statutory criteria for prescribing new or amende d standards for covered products , including residential furnace fans

. As indicated above, any new or amended standard for a covered product must be designed to achieve the maximum improvement in energy efficiency that is technologically feasible and

econo mically justified. (42 U.S.C. 6295(o)(2)(A) and (3)(B) ) Furthermore, DOE may not adopt any standard that would not result in the significant conservation of energy. (42 U.S.C. 6295(o)(3)) Moreover, DOE may not prescribe a standard: (1) for certain prod ucts, including residential furnace fans, if no test procedure has been established for the product, or (2) if DOE determines by rule that the proposed standard is not technologically feasible or economically justified. (42 U.S.C. 6295(o)(3)(A)

- (B)) In d eciding whether a proposed standard is economically justified, after receiving comments on the proposed standard, DOE must determine whether the benefits of the standard exceed its burdens by, to the greatest extent practicable, considering the following s even factors:

( 1 ) The economic impact of the standard on manufacturers and consumers of the products subject to the standard; Comment [A29]: Change recommended by OIRA.23 ( 2 ) The savings in operating costs throughout the estimated average life of the covered products in the type (or class) compare d to any increase in the price, initial charges, or maintenance expenses for the covered products that are likely to result from the standard; ( 3 ) The total projected amount of energy ( or as applicable, water ) savings likely to result directly from the standard; ( 4 ) Any lessening of the utility or the performance of the covered products likely to result from the standard; ( 5 ) The impact of any lessening of competition, as determined in writing by the Attorney General, that is likely to result from the standard; ( 6 ) The need for national energy and water conservation; and ( 7 ) Other factors the Secretary of Energy (Secretary) considers relevant.

(42 U.S.C. 6295(o)(2)(B)(i)(I)

– (VII))

EPCA, as codified, also contains what is known as an “anti

- backsliding” provision, which prevents the Secretary from prescribing any standard that either increases the maximum allowable energy use or decreases the minimum required energy efficiency of a co vered product. (42 U.S.C. 6295(o)(1)) Also, the Secretary may not prescribe an amended or new standard if interested persons have established by a preponderance of the evidence that the standard is likely to result in the unavailability in the United Sta tes of any covered product type (or class) of performance characteristics24 (including reliability), features, sizes, capacities, and volumes that are substantially the same as those generally available in the United States. (42 U.S.C. 6295(o)(4))

Further , EPCA, as codified, establishes a rebuttable presumption that a standard is economically justified if the Secretary finds that the additional cost to the consumer of purchasing a product complying with an energy conservation standard level will be less th an three times the value of the energy savings during the first year that the consumer will receive as a result of the standard, as calculated under the applicable test procedure. ( See 42 U.S.C. 6295(o)(2)(B)(iii) )

Additionally, under 42 U.S.C. 6295(q)(1 ) , the statute specifies requirements when promulgating a n energy conservation standard for a covered product that has two or more subcategories. DOE must specify a different standard level for a type or class of covered product that ha s the same function or intended use , if DOE determines that products within such group : (A) consume a different kind of energy from that consumed by other covered products within such type (or class); or (B) have a capacity or other performance

- related feature which other pr oducts within such type (or class) do not have and such feature justifies a higher or lower standard. (42 U.S.C. 629 5 (q)(1)). In determining whether a performance

- related feature justifies a different standard level , DOE must consider such factors as the utility to the consumer of the feature and other factors DOE deems appropriate. Id

. Any rule prescribing such a standard must include an explanation of the basis on which such higher or lower level was established. (42 U.S.C. 6295(q)(2))25 Federal ener gy conservation requirements generally supersede State laws or regulations concerning energy conservation testing, labeling, and standards. (42 U.S.C. 6297(a)

– (c)) DOE may, however, grant waivers of Federal preemption for particular State laws or regulat ions, in accordance with the procedures and other provisions set forth under 42 U.S.C. 6297(d)).

Finally, pursuant to the amendments contained in the Energy Independence and Security Act of 2007 (EISA 2007), Pub. L. 110

- 140, any final rule for new or amended energy conservation standards promulgated after July 1, 2010, is required to address standby mode and off mode energy use. (42 U.S.C. 6295(gg)(3)) Specifically, when DOE adopts a standard for a covered product after that date, it must, if justified by the criteria for adoption of standards under EPCA (42 U.S.C. 6295(o)), incorporate standby mode and off mode energy use into a single standard, or, if that is not feasible, adopt a separate standard for such energy use for t hat product. (42 U.S.C. 6295(gg)(3)(A)

- (B)) The proposed furnace fan energy rating metric would not account for the electrical energy consumption in standby mode and off mode, because energy consumption in those modes is already fully accounted for in th e DOE energy conservation standards rulemaking for residential furnaces and residential central air conditioners (CAC) and heat pumps (HP). 76 FR 37408 (June 27, 2011) ; 76 FR 67037 (Oct. 31, 2011)

. Manufacturers will be required to use the new metrics an d methods adopted in those rulemakings for the purposes of certifying to DOE that their products comply with the applicable energy conservation standards adopted pursuant to EPCA and for making26 representations about the efficiency of those products. (42 U .S.C. 6293(c); 42 U.S.C. 6295(s))

DOE has also reviewed this regulation pursuant to Executive Order 13563, issued on January 18, 2011 (76 FR 3281 ( Jan. 21, 2011 ) ). E xecutive O rder 13563 is supplemental to and explicitly reaffirms the principles, structu res, and definitions governing regulatory review established in Executive Order 12866. To the extent permitted by law, agencies are required by Executive Order 13563 to: (1) propose or adopt a regulation only upon a reasoned determination that its benefit s justify its costs (recognizing that some benefits and costs are difficult to quantify); (2) tailor regulations to impose the least burden on society, consistent with obtaining regulatory objectives, taking into account, among other things, and to the ext ent practicable, the costs of cumulative regulations; (3) select, in choosing among alternative regulatory approaches, those approaches that maximize net benefits (including potential economic, environmental, public health and safety, and other advantages; distributive impacts; and equity); (4) to the extent feasible, specify performance objectives, rather than specifying the behavior or manner of compliance that regulated entities must adopt; and (5) identify and assess available alternatives to direct reg ulation, including providing economic incentives to encourage the desired behavior, such as user fees or marketable permits, or providing information upon which choices can be made by the public.

DOE emphasizes as well that Executive Order 13563 requires agencies to use the best available techniques to quantify anticipated present and future benefits and costs as27 accurately as possible. In its guidance, the Office of Information and Regulatory Affairs (OIRA), within in the Office of Management and Budget (OMB), has emphasized that such techniques may include identifying changing future compliance costs that might result from technological innovation or anticipated behavioral changes. For the reasons stated in the preamble, DOE believes that today’s NOPR is consistent with these principles, including the requirement that, to the extent permitted by law, benefits justify costs and that net benefits are maximized. Consistent with E xecutive O rder 13563, and the range of impacts analyzed in this rulemaking, t he energy conservation standard proposed herein by DOE would achieve maximum net benefits.

B. Background
1. Current Standards Currently, no Federal energy conservation standards apply to residential furnace fans.

2. History of Standards Rulemaking for Residential Furnace Fans
Pursuant to 42 U.S.C. 6295(f)(4)(D), DOE must consider and prescribe new energy conservation standards or energy use standards for electricity used for purposes of circulating air through duct work. DOE has interpreted this statut ory language to allow regulation of the electricity use of any electrically

- powered device applied to residential central heating, ventilation, and air

- conditioning (HVAC) systems for the purpose of circulating air through duct work. Comment [A30]: Change (deletion) recommended by OIRA.

Formatted: Normal, Line spacing: Double28 DOE initiated the cu rrent rulemaking by issuing an analytical F ramework
Document , “Rulemaking Framework for Furnace Fans” (June 1, 2010). DOE then published the Notice of Public Meeting and Availability of the Framework Document for furnace fans in the Federal Register on Ju ne 3, 2010. 75 FR 31323. See http://www1.eere.energy.gov/buildings/appliance_standards/rulemaking.aspx/ruleid/41

. The F ramework D ocument explained the issues, analyses, and process that DOE anticipated using to develop energy conservation standards for residential furnace fans. DOE held a public meeting on June 18, 2010 to solicit comments from interested parties regarding DOE’s analytical approach. DOE originally scheduled the comment period on the Framework Document to close on July 6, 2010 , but due to the large number and broad scope of questions and issues raised, DOE subsequently published a notice in the Federal Register reopening the comment period from July 15, 2010 until July 27, 2010, to allow additional time for interested parties to submit c omments. 75 FR 41102 (July 15, 2010).

As a concurrent effort to the residential furnace fan energy conservation standard rulemaking , DOE also initiated a test procedure rulemaking for residential furnace fans. On May 15, 2012, DOE published a notice of proposed rulemaking for the test procedure in the Federal Register

. 77 FR 28674

. In th at NOPR, DOE proposed to establish methods to measure the performance of covered furnace fans and to obtain a value for the proposed metric, referred to as the “ fan efficiency rating ” (FER)

. 13

13 In th e May 15, 2012 NOPR for the test procedure, DOE referred to FER as “fan efficiency rating.” However, in the April 2, 2013 test procedure SNOPR, DOE proposed to rename the metric as “fan energy rating,” thereby keeping the same abbreviation (FER). DOE held the test29 procedure NOPR public meeting on June 15, 2012 , and the comment period closed on July 30 , 2012. After receiving comments on the NOPR alleging significant manufacturer burden associated with the proposed test p rocedure, DOE determined that an alternative test method should be developed. DOE published in the Federal Register a supplemental notice of proposed rulemaking ( a n SNOPR ) on April 2 , 201 3, which contained its revised test procedure proposal and an explan ation of the changes intended to reduce burden. 78 FR 19606. DOE propose d to adopt a modified version of the alternative test method recommended by the Air

- Conditioning, Heating, and Refrigeration Institute ( AHRI ) and other furnace fan manufacturers to r ate the electrical energy consumption of furnace fans. DOE has tentatively concluded that t he AHRI

- proposed method provides a framework for accurate and repeatable determinations of FER that is comparable to the test method previously proposed by DOE, but at a significantly reduced test burden. As required by EPCA, DOE will complete its final rule for residential fu rnace fan test procedures in advance of the final rule adopting energy conservation standards for those products. (42 U.S.C. 629 5(o)(3)(A) and (r))

To further develop the energy conservation standard s for residential furnace fans, DOE gathered addition al information and performed a preliminary technical analysis. This process culminated in publication in the Federal Register Comment [A31]: Change recommended by OIRA.

of a Notice of Public Meeting and the A vailability of the Preliminary Technical Support Document (TSD) on July 10, 2012 . 77 FR 4 0530. In that document, DOE requested comment on the following matters discussed in the TSD: (1) the selected product classes; (2) the analytical framework, models, and tools that DOE i s using to evaluate standards; and (3) Comment [A32]: Change recommended by OIRA.30 the results of the preliminary analyses performed by DOE. Id

. DOE also invited written comments on these subjects , as well as any other relevant issues, and announced the availability of the TSD on its website. Id

. at 40530

- 31. A PDF copy of the preliminary TSD is available at http: //www.regulations.gov/#!documentDetail;D=EERE

- 2010

- BT

STD

- 0011

- 0037

.

The preliminary TSD provided an overview of the activities DOE undertook in developing potential energy conservation standards for residential furnace fans, and discussed the comments DOE received in response to the F ramework D ocument. It also described the analytical methodology that DOE used and each analysis DOE had performed up to that point. These analyses were as follows:

**•** A market and tec hnology assessment addressed the scope of this rulemaking, identified the potential product classes of residential furnace fans, characterized the markets for these products, and reviewed techniques and approaches for improving their efficiency;

**•** A screenin g analysis reviewed technology options to improve the efficiency of furnace fans, and weighed these options against DOE’s four prescribed screening criteria;

**•** An engineering analysis estimated the increase in manufacturer selling prices (MSPs) associated wi th more energy

- efficient furnace fans;

**•** An energy use analysis estimated the annual energy use of furnace fans at various potential standard levels ;

**•** A markups analysis converted estimated MSPs to consumer

- installed prices.31 **•** A life

- cycle cost (LCC) analysis c alculated, at the consumer level, the discounted savings in operating costs throughout the estimated average life of the product, compared to any increase in installed costs likely to result directly from the ado ption of a given standard;

**•** A payback period (PBP) analysis estimated the amount of time it would take consumers to recover the higher expense of purchasing more

- energy - efficient products through lower operating costs;

**•** A shipments analysis estimated shipments of residential furnace fans over the time period examined in the analysis ( 30 years ), which were used in performing the national impact analysis;

**•** A national impact analysis assessed the aggregate impacts at the national level of potential energy conservation standards for residential furnace fans , as measured by the net present value of total consumer economic impacts and national energy savings; and

**•** A preliminary manufacturer impact analysis took the initial steps in evaluating the effects new energy conservation standards may have on furnace fan manufacturers.

The nature and function of the analyses in this rulemaking, including the engineering analysis, energy

- use characterization, markups to determine installed prices, LCC and PBP analyses, and national impact analysis, are summarized in the July 2012 notice. 77 FR 40530, 40532

- 33 (July 10, 2012)

.32 The preliminary analysis public meeting took place on July 27, 2012. At this meeting, DOE presented the methodologies and results of the analyses set forth in the preliminary TSD. The numerous comments received si nce publication of the July 2012 notice, including those received at the preliminary analysis public meeting, have contributed to DOE’s proposed resolution of the issues noted by interested parties.

The submitted comments include a joint comment from the American Council for an Energy

- Efficiency Economy (ACEEE), Adjuvant Consulting, on behalf of the Northwest Energy Efficiency Alliance (NEEA), the Appliance Standards Awareness Project (ASAP), the National Consumer Law Center (NCLC), and the Natural Resour ces Defense Council (NRDC); a comment from the Air

- Conditioning, Heating, and Refrigeration Institute (AHRI); a second joint comment from California Investor

- Owned Utilities (CA IOU s ) including Pacific Gas and Electric Company (PG&E), Southern California Edison (SCE), Southern California Gas Company, and San Diego Gas and Electric (SDGE); a comment from Earthjustice; a comment from ebm

- pa p st Inc. (ebm

papst) ; a comment from Edison Electric Institute (EEI); and a comment from the Northeast Energy Efficiency Partnership (NEEP). Manufacturers submitting written comments included: First Company, Goodman Global, Inc. (Goodman) , Ingersoll Rand, Lennox International, Inc. (Lennox) , Morrison Products, Inc. (Morrison) , Mortex Product, Inc. (Mortex) , National Motor C orporation (NMC), and Rheem Manufacturing Company (Rheem)

. Comments made during the public meeting by those not already listed include the U.S. Environmental Protection Agency (EPA), the motor manufacturer Regal Beloit, and Unico Incorporated. This NOPR summarizes and responds to the33 issues raised in these comments. A parenthetical reference at the end of a quotation or paraphrase provides the location of the item in the public record.

III. General Discussion
A. In the SNOPR for the residential f urnace fan test procedure published in the Test Procedure

Federal Register on April 2 , 2013 (78 FR 19606) , DOE proposed to adopt a modified version of a test method recommended by AHRI and supported by other furnace fan manufacturers in the written comments on the May 20 12 Test Procedure NOPR. (Docket
No. EERE

- 2010

- BT

- TP

- 0010, AHRI, No. 16 at p. 3) DOE agrees with AHRI’s assessment that its method provides a framework for accurate and repeatable determinations of FER that is comparable to the test method previously propo sed by DOE, but at a significantly reduced test burden. In general, the test burden of the AHRI method is reduced relative to the test procedure originally proposed in the NOPR because it: (1) does not require airflow to be measured directly; (2) avoids t he need to make multiple determinations in each airflow

- control setting because outlet restrictions to achieve the specified reference system external static pressure (ESP) would be set in the maximum airflow

- control setting and maintained for measurements in subsequent airflow

- control settings; and (3) can be conducted using the test setup currently required to rate furnace annual fuel utilization efficiency (AFUE) for compliance with residential furnace standards.34 In the April 2, 2013 test procedure SN OPR , DOE proposed to incorporate by reference the definitions, test setup and equipment, and procedures for measuring steady

state combustion efficiency provisions of American National Standards Institute (ANSI)/ American Society of Heating, Refrigerating and Air Conditioning Engineers ( ASHRAE) Standard 103

- 2007, Method of Testing for Annual Fuel Utilization Efficiency of Residential Central Furnaces and Boilers (ASHRAE Standard 103)

. In addition to these provisions, DOE proposed additional provisions for apparatuses and procedures for measuring throughput temperature, external static pressure, and furnace fan electrical input power. DOE also proposed calculations to derive FER based on the results of testing for each basic model

. 78 FR 19606, 1960 8

- 0 9 (Ap ril 2, 2013)

.

In the SNOPR, DOE proposed to define “ fan energy rating ” ( FER ) as the estimated annual electrical energy consumption of the furnace fan normalized by: (a) the estimated total number of annual fan operating hours (1,870); 14 and (b) the airflow in the maximum airflow

- control setting

. Id

. at 19608. The estimated annual electrical energy consumption, as proposed, is a weighted average of the furnace fan electrical input power (in Watts) measured separately for multiple airflow

- control settings at different external static pressures (ESPs). These ESPs are determined by a reference system that represents national average duct work system characteristics. Id. Table III

. 1 below includes the proposed reference system ESP values by installation type.

14 Detail s about the derivation of operating hours used to calculate FER are found in the test procedure NOPR. 77 FR 28674, 28680 (May 15, 2012). Comment [A33]: Change (added footnote) recommended by OIRA.35 Table III . 1 : Proposed Reference System ESP Values by Furnace Fan Installation Type Installation Type Weighted Average ESP (in. w.c.) Units with an internal evaporator coil 0.50 Units designed to be paired with an evaporator coil 0.65 Units installed in a m anufactured homes 15 0.30
The proposed rated airflow

- control settings correspond to operation in cooling mode (which DOE finds is predominantly associated with the maximum airflow

- control setting), heating mode, and constant

- circulation mode. Table III

. 2 illustrates the airflow

control settings that would be rated for various product types.

Table III . 2 : Proposed Rated Airflow
- control Settings by Product Type Product Type Rated Airflow
- control Setting 1 Rated Airflow
- control Setting 2 Rated Airflow
- control Setting 3 Single

- stage Heating Default constant

circulation Default heat Absolute maximum Multi

- stage or Modulating Heating Default constant

circulation Default low heat Absolute maximum

As shown in Table III

. 2 , for products with single

- stage heating, the three proposed
rat ed airflow

- control settings are the default constant

- circulation setting, the default heating setting, and the absolute maximum setting. 78 FR 19606, 19609 (April 2, 2013)

. For products with multi

- stage heating or modulating heating, the proposed rat ed air flow

control settings are the default constant

- circulation setting, the default low heating setting, and the absolute maximum setting. The absolute lowest default airflow

- control

15 M anufactured home external static pressure is much lower than non

- manufactured home installations because there is no return air duct work in manufactured homes. Also , the United States Department of Housing and Urban Development ( HUD ) requirements for manufactured homes stipulate that the duct work for cooling should be set at 0.3 in. w.c.36 setting is used to represent constant circulation if a default constant

- circ ulation setting is not specified. DOE proposed to define “default airflow

- control settings” as the airflow

control settings specified for installed use by the manufacturer in the product literature shipped with the product in which the furnace fan is inte grated. Id. Manufacturers typically provide detailed instructions for setting the default heating airflow

- control setting to ensure that the product in which the furnace fan is integrated operates safely. Manufacturer installation guides also provide det ailed instructions regarding compatible thermostats and how to wire them to achieve the specified default settings.

In the SNOPR, DOE proposed to weight the Watt measurements using designated annual operating hours for each function ( i.e. Table III

. 3 , cooling, hea ting, and constant circulation) that are intended to represent national average operation. shows the proposed estimated national average o perating hours for each function to be used to calculate FER

.

Table III . 3 : Estimated National Average Operating Hour Values for Calculating FER

Operating Mode Variable Single
- stage (hours) Multi
- stage or Modulating

(hours) Heating HH (heating hours) 830 830/HCR (heat capacity ratio) Cooling CH (cooling hours) 640 640
Constant Circulation CCH (constant

circulation hours) 400 400 Total 1,870 (830/HCR) + 1,040
The specified operating hours for the heating mode for multi

- stage heating or modulating heating products are divided by the heat capacity ratio (HCR) to account for variation in time spent in this mode associated with turndown of heating output. The Comment [A34]: Change recommended by OIRA.37 HCR is the ratio of the reduced heat output capacity to maximum heat output capacity. The proposed FER equation is:

Where: CH= annual furnace fan cooling operating hours;
E Max = furnace fan electrical consumption at maximum airflow

- control setting operating point; HH= annual furnace fan heating operating hours;
E Heat = furnace fan electrical consumption at the default heating airflow

- control setting operating point for units with single

- stage heating or the default low

- heating airflow control setting operating point for units with multi

- stage heating; CHH= annual furnace f an constant circulation hours;
E Circ = furnace fan electrical consumption at the default constant

- circulat ion airflow

control setting operating point (or minimum airflow

- control setting operating point if a default constant

- circulation airflow

- control setting is not specified); Q Max = airflow at maximum airflow

- control setting operating point; and
1000= consta nt to put metric in terms of watts/1000cfm, which is consistent with industry practice.

The public meeting for the energy conservation standard s preliminary analysis occurred only two months after the public meeting for the test procedure NOPR. At the38 t ime of the preliminary analysis meeting, the comment period for the test procedure
NOPR was still open. Consequently, many of the written comments and oral comments made during the preliminary analysis public meeting focused on test procedure issues and

e cho ed comments in the test procedure rulemaking proceeding

. While these test procedure issues are germane to the regulation of residential furnace fans more broadly, they are beyond the scope of the present energy conservation standards rulemaking.
Accor dingly, DOE addressed these test procedure

- related comments, with detailed
responses , in the April 2 , 2013 test procedure SNOPR. Any additional comments made during the preliminary analysis relating to the test procedure that we re not discussed in the tes t procedure SNOPR ( i.e. , did not result in changes to DOE’s proposed test procedure) will be addressed in the test procedure f inal r ule

.

B. Although the title of 42 U.S.C 6295(f) refers to “furnaces and boilers,” DOE notes that 42 U.S.C. 6295(f)(4)(D) was written using notably broader language than the other provisions within the same section. Specifically, that statutory provision directs DOE to “consider and prescribe energy conservation standards or en ergy use standards for electricity used for purposes of circulating air through duct work .” Such language could be interpreted as encompassing electrically

- powered devices used in any residential HVAC product to circulate air through duct work , not just f urnaces, and DOE has received numerous comments on both sides of this issue. At the present time, however, DOE is only proposing to cover those circulation fans that are used in furnaces and Product Classes and Scope of Coverage39 modular blowers

. DOE is using the term “modular blower” to refer to HVAC products powered by single

- phase electricity that comprise an encased circulation blower that is intended to be the principal air

- circulation source for the living space of a residence. A modular blower is not contained within the same cabinet as a residential furnace, CAC, or heat pump. Instead, modular blowers are designed to be paired with separate residential HVAC products that provide heating and cooling, typically a separate CAC/HP coil

- only unit. DOE finds that modular blowers and electric furnaces are very similar in design. In many cases, the only difference between a modular blower and electric furnace is the presence of an electric resistance heating kit. DOE is aware that some modular blower manufacturers offer electric resistance heati ng kits to be installed in their modular blower models so that the modular blowers can be converted to stand

- alone electric furnaces. In addition, FER values for modular blowers can be easily calculated using the proposed test procedure. DOE proposes to ad dress the furnace fans used in modular blowers in this rulemaking for these reasons. As a result of the extent of the current rulemaking, DOE is not addressing public comments that pertain to fans in other types of HVAC products.

When evaluating and esta blishing energy conservation standards, DOE divides covered products into product classes by the type of energy used or by capacity or other performanc e - related features that justify a different standard. In making a determination whether a performance

- re lated feature justifies a different standard, DOE must consider such factors as the utility to the consumer of the feature and other factors DOE determines are appropriate. (42 U.S.C. 6295(q)) For this rulemaking, DOE proposes to differentiate between pr oduct classes based on internal structure and application

- specific40 design differences that impact furnace fan energy consumption

. Details regarding how internal structure and application

- specific design differences that impact furnace fan energy consumpti on are included in chapter 3 of the NOPR technical support document (TSD). DOE proposes the following product classes for this rulemaking.

**•** Non

- Weatherized, Non

- Condensing Gas Furnace Fan (NWG

- NC)

**•** Non

- Weatherized, Condensing Gas Furnace Fan (NWG

- C)

**•** Weatherized Non

- Condensing Gas Furnace Fan (WG

- NC)

**•** Non

- Weatherized, Non

- Condensing Oil Furnace Fan (N W O

- NC)

**•** Non

- Weatherized Electric Furnace / Modular Blower Fan (NWEF/NWMB)

**•** Manufactured Home Non

- Weatherized, Non

- Condensing Gas Furnace Fan (MH

- NWG

- NC)

**•** Ma nufactured Home Non

- Weatherized, Condensing Gas Furnace Fan (MH

- NWG

- C)

**•** Manufactured Home Electric Furnace / Modular Blower Fan (MH

EF/MB)

**•** Manufactured Home Weatherized Gas Furnace Fan (MH

- WG)

**•** Manufactured Home Non

- Weatherized Oil Furnace Fan (MH

- NWO )

Each product class title includes descriptors that indicate the application

- specific design and internal structure of its included products. “ Weatherized ” and “ non weatherized ” are descriptors that indicate whether the HVAC product is installed41 outdoors or in doors, respectively. Weatherized products also include an internal evaporator coil, while non

- weatherized products are not shipped with an evaporator coil but may be designed to be paired with one. “ Condensing ” refers to the presence of a secondary, cond ensing heat exchanger in addition to the primary combustion heat exchanger in certain furnaces. The presence of an evaporator coil or secondary heat exchanger significantly impacts the internal structure of an HVAC product, and in turn , the energy performa nce of the furnace fan integrated in that HVAC product.

“ Manufactured home ” products meet certain design requirements that allow them to be installed in manufactured homes ( e.g. , a more compact cabinet size). Descriptors for

“ gas, ” “ oil, ” or “ electric ” in dicate the type of fuel that the HVAC product uses to produce heat, which determines the type and geometry of the primary heat exchanger used in the HVAC product.

C.
1. General Technological Feasibility

In each energy conservation standards rulemaking, DOE c onducts a screening analysis based on information gathered on all current technology options and prototype designs that could improve the efficiency of the products or equipment that are the subject of the rulemaking. As the first step in such an analysis, DOE develops a list of technology options for consideration in consultation with manufacturers, design engineers, and other interested parties. DOE then determines which of those means for improving efficiency are te chnologically feasible. DOE considers technologies42 incorporated in commercially

- available products or in working prototypes to be technologically feasible. 10 CFR part 430, subpart C, appendix A, section 4(a)(4)(i).

After DOE has determined that particu lar technology option s are technologically feasible, it further evaluates each technology option in light of the following additional screening criteria : (1) practicability to manufacture, install, and service; (2) adverse impacts on product utility or ava ilability; and (3) adverse impacts on health or safety. 10 CFR part 430, subpart C, appendix A, section 4(a)(4)(ii)

- (iv). Additionally, it is DOE policy not to include in its analysis any proprietary technology that is a unique pathway to achieving a cer tain efficiency level. Section IV.B of thi s notice discusses the results of the screening analysis for residential furnace f ans, particularly the designs DOE considered, those it screened out, and those that are the basis for the trial standard levels ( TS Ls ) in this rulemaking. For further details on the screening analysis for this rulemaking, see chapter 4 of the NOPR TSD.

2. Maximum Technologically Feasible Levels When DOE proposes to adopt a new standard for a type or class of covered product, it must determine the maximum improvement in energy efficiency or maximum reduction in energy use that is technologically feasible for such product. (42 U.S.C. 6295(p)(1)) Accordingly, in the engineering analysis , DOE determined the maximum technologically feasible (“max

- tech”) improvements in energy efficiency for residential furnace f ans , using the design parameters for the most

- efficient products available on the market or in working prototypes

. The max

- tech levels that DOE determined for this43 rulemaking are described in section IV.C of this proposed rule and in chapter 5 of the
NOPR TSD

.

D. 1. Determination of Savings Energy Savings

For each TSL, DOE project ed energy savings from the products that are the subject of this rulemaking purchased in the 30

- year period that begins in the anticipated year of compliance with new standards (2019

– 2048). The se savings are measured over the entire lifetime of products p urchased in the 30

- year analysis period. 16 DOE quantified the energy savings attributable to each TSL as the difference in energy consumption between each standards case and the base case. The base case represents a projection of energy consumption in the absence of mandatory energy conservation standards, and it considers market forces and policies that affect demand for more

efficient products.

DOE used its national impact analysis (NIA ) spreadsheet model to estimate energy savings from potential standards for the products that are the subject of this rulemaking

. The NIA spreadsheet model (described in section IV.H of this notice) calculates energy savings in site energy, which is the e nergy directly consumed by products at the locations where they are used. DOE reports national energy savings on an

16 In the past, DO E presented energy savings results for only the 30

- year period that begins in the year of compliance . In the calculation of economic impacts, however, DOE considered operating cost savings measured over the entire lifetime of products purchased in the 30

- y ear period. DOE has chosen to modify its presentation of national energy savings to be consistent with the approach used for its national economic analysis.44 annual basis in terms of the primary (source) energy savings, which is the savings in the energy that is used to generate and transmit the site energy. To convert site energy to primary energy, DOE derived annual conversion factors from the model used to prepare the Energy Information Administration’s (EIA’s) Annual Energy Outlook 2012 ( AEO
2012 ).

DOE has begun to also estimate energy savings using full

- fuel

- cycle metrics. 76 FR 51282 (Aug. 18, 2011), as amended at 77 FR 49701 (August 17, 2012). The full

- fuel

cycle (FFC) metric includes the energy consumed in extracting, processing, and transportin g primary fuels , (i.e., coal, natural gas, petroleum fuels) , and , thus , presents a more complete picture of the impacts of efficiency standards. DOE’s approach is based on calculation of an FFC multiplier for each of the primary fuels used by covered prod ucts and equipment , as presented in DOE’s statement of policy published in the Federal Register on August 1 7 , 201 2

. 77 FR 49701

. For more information on FFC energy savings, see section IV.H.1

.

2. Significance of Savings As noted above, 42 U.S.C. 6295(o)( 3)(B) prevents DOE from adopting a standard for a covered product unless such standard would result in “significant” energy savings. Although the term “significant” is not defined in the Act, the U.S. Court of Appeals for the District of Columbia Circuit , in Natural Resources Defense Council v. Herrington , 768 F.2d 1355, 1373 (D.C. Cir. 1985), opined that Congress intended “significant” energy savings in this context to be savings that were not “genuinely trivial.” The energy45 savings for all of the TSLs c onsidered in this rulemaking are nontrivial, and, therefore, DOE considers them “significant” within the meaning of section 325 of EPCA.

E. 1. Specific Criteria

Economic Justification

As discussed above, EPCA provides seven factors to be evaluated in determini ng whether a potential energy conservation standard is economically justified. (42 U.S.C. 6295(o)(2)(B)(i) (I)

- (VII) ) The following sections discuss how DOE has addressed each of those seven factors in this rulemaking.

a. Economic Impact on Manufacturers and Consumers In deter mining the impacts of a potential new or amended standard on manufacturers, DOE conducts a manufacturer impact analysis (MIA), as discussed in section IV.J

. DOE first uses an annual cash

- flow approach to determine the quantitative
i mpacts. This step includes both a short

- term assessment

— based on the cost and capital requirements during the period between when a regulation is issued and when entities must comply with the regulation

— and a long

- term assessment over a 30

- year period.
T he industry

- wide impacts analyzed include : (1) industry net present value (INPV), which values the industry on the basis of expected future cash flows; (2) cash flows by
year; (3) changes in revenue and income; and (4) other measures of impact, as appropri ate. Second, DOE analyzes and reports the impacts on different types of manufacturers, including impacts on small manufacturers. Third, DOE considers the impact of standards on domestic manufacturer employment and manufacturing capacity,46 as well as the p otential for standards to result in plant closures and loss of capital investment , as discussed in section IV.N

. Finally, DOE takes into account cumulative impacts of various DOE regulations and other regulatory requirements on manufacturers.

For indivi dual consumers, measures of economic impact include the changes in life

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

. The LCC, which is specified separately in EPCA as one of the seven factors to be considered in dete rmining the economic justification for a new or amended standard, 42 U.S.C. 6295(o)(2)(B)(i)(II), is discussed in the following section. For consumers in the aggregate, DOE also calculates the national net present value of the economic impacts applicable to a particular rulemaking.

b. Life

- Cycle Costs The LCC is the sum of the purchase price of a product (including its installation) and the operating expense (including energy, maintenance, and repair expenditures) discounted over the lifetime of the product

. The LCC savings for the considered efficiency levels are calculated relative to a base case that reflects projected market trends in the absence of standards. The LCC analysis requires a variety of inputs, such as product prices, product energy consump tion, energy prices, maintenance and repair costs, product lifetime, and consumer discount rates. For its analysis, DOE assumes that consumers will purchase the considered products in the first year of compliance with new standards.47 To account for unce rtainty and variability in specific inputs, such as product lifetime and discount rate, DOE uses a distribution of values, with probabilities attached to each value. DOE identifies the percentage of consumers estimated to receive LCC savings or experience an LCC increase, in addition to the average LCC savings associated with a particular standard level. DOE also evaluates the LCC impacts of potential standards on identifiable subgroups of consumers that may be affected disproportionately by a national st andard. DOE’s LCC analysis is discussed in further detail in section IV.F

.

c. Energy Savings Although significant conservation of energy is a separate statutory requirement for adopting an energy conservation standard, EPCA requires DOE, in determining the economic justification of a standard, to consider the total projected energy savings that are expected to result directly from the standard. (42 U.S.C. 6295(o)(2)(B)(i)(III)) As discussed in section IV.H , DOE uses the NIA spreadsheet to project national energy savings.

d. Lessening of Utility or Performance of Products In establishing classes of products, and in evaluating design options and the impact of potential standard levels, DOE evaluates potential standards that would not lessen the utility or performance of the considered products. (42 U.S.C. 6295(o)(2)(B)(i)(IV)) The standards proposed in today’s notice will not reduce the utility or performance of the products under consideration in this rulema king.48 e. Impact of Any Lessening of Competition EPCA directs DOE to consider any lessening of competition that is likely to result from standards. It also directs the Attorney General of the United States (Attorney General) to determine the impact, if any, of any lessening of competition likely to result from a proposed standard and to transmit such determination to the Secretary within 60 days of the publication of a proposed rule, together with an analysis of the nature and extent of the impact. (42 U.S. C. 6295(o)(2)(B)(i)(V) and (ii)) DOE will transmit a copy of today’s proposed rule to the Attorney General with a request that the Department of Justice (DOJ) provide its determination on this issue. DOE will publish and respond to the Attorney General’s determination in the final rule.

f. Need for National Energy Conservation In evaluating the need for national energy conservation, DOE notes that t he energy savings from the proposed standards are likely to provide improvements to the security and reliabil ity of the nation’s energy system. (42 U.S.C. 6295(o)(2)(B)(i)(VI)) Reductions in the demand for electricity also may result in reduced costs for maintaining the reliability of the nation’s electricity system

. DOE conducts a utility impact analysis
to e stimate how standards may affect the nation’s needed power generation capacity , as discussed in section IV.M

.

T he proposed standards also are likely to result in environmental benefits in the form of reduced emissions of air pollutants and greenhouse ga ses associated with energy49 production. DOE reports the emissions impacts from each TSL it considered in section
IV.K of this notice. DOE also reports estimates of the economic value of emissions reductions resulting from the considered TSLs , as discussed in section IV.L

.

g. Other Factors EPCA allows the Secretary of Energy, in determining whether a standard is economically justified, to consider any other factors that the Secretary deems to be relevant. (42 U.S.C. 6295(o)(2)(B)(i)(VII)) To the extent interested parties submit any relevant information regarding economic justification that does not fit into the other categories described above , DOE could consider s uch information under “other factors.”

2. Rebuttable Presumption As set forth in 42 U.S.C. 6295(o)(2)(B)(iii), EPCA creates a rebuttable presumption that an energy conservation standard is economically justified if the additional cost to the consumer of a product that meets the standard is less than three times the value of the first y ear ’s energy savings resulting from the standard , as calculated under the applicable DOE test procedure

. DOE’s LCC and PBP analys i s generate s values used to determine which of the considered standard levels meet the three

- year payback period contemplated under the rebuttable presumption test

. The rebuttable presumption payback calculation is discussed in section V.B.1 of this notice

. In addition, DOE routinely conducts an economic analysis that considers the full range of impacts to consumers, manufacturer s, the N ation, and the environment, as required under 42 U.S.C. 6295(o)(2)(B)(i). The results of this analysis serve as the basis for DOE’s50 evaluation of the economic justification for a potential standard level (thereby supporting or rebutting the result s of any preliminary determination of economic justification).

IV. Methodology and Discussion This section addresses the analyses DOE has performed for this rulemaking with regard to residential furnace fans. After a brief discussion of the spreadsheet too ls and models used, separate subsections will address each component of DOE’s analysis.

DOE used three spreadsheet tools to estimate the impact of today’s proposed standards. The first spreadsheet calculates LCCs and payback periods of potential standard s. The second provides shipments forecasts, and then calculates national energy savings and net present value impacts of potential standards. Finally, DOE assessed manufacturer impacts, largely through use of the Government Regulatory Impact Model (GRIM)

. All three spreadsheet tools are available online at the rulemaking portion of DOE’s web site: http://www1.eere.energy.gov/buildings/appliance_standards/rul emaking.aspx/ruleid/41.

Additionally, DOE estimated the impacts on utilities and the environment that would be likely to result from potential standards for residential furnace fans. DOE used a version of EIA’s National Energy Modeling System (NEMS) for the utility and51 environmental analyses. 17 The NEMS simulates the energy sector of the U.S. economy. EIA uses NEMS to prepare its Annual Energy Outlook , a widely

- known energy forecast for the United States. NEMS offers a sophisticated picture of the effect of standards because it accounts for the interactions between the various energy supply and demand sectors and the economy as a whole.

A. DOE develops information that provides an overall picture of the market for the products concerned, including the purpose of the products, the industry structure, manufacturers, market characteristics , and technologies used in the products

. This activity includes both quantitative and qualitative assessments, based primarily on publicly

- available information. The subjects addressed in the market and technology assessment for this residential furnace fans rulemaking include : (1) a determination of the scope of this rul emaking; (2) product classes and manufacturers; (3) quantities and types of products sold and offered for sale; (4) retail market trends; (5) regulatory and non

regulatory programs; and (6) technologies or design options that could improve the energy effic iency of the product(s) under examination. The key findings of DOE’s market assessment are summarized below. See chapter 3 of the NOPR TSD for further discussion of the market and technology assessment. Market and Technology Assessment

17 For more information on NEMS, refer to the U.S. Department of Energy, Energy Information Administ ration documentation. A useful summary is National Energy Modeling System: An Overview 2003 , DOE/EIA

- 0581(2003) (March, 2003).52 1. Definition and Scope of Coverage EPCA provides DOE with the authority to consider and prescribe new energy conservation standards for electricity used to circulate air through duct work. (42 U.S.C. 6295(f)(4)(D)) In the preliminary analysis, DOE defined a “ f urnace fan ” as “any electrically

- powered device used in residential, central heating, ventilation, and air

conditioning ( HVAC ) systems for the purpose of circulating air through duct work.” 77 FR 40530 , 40532 (July 10, 2012)

. DOE considered a typical furnace fan a s consisting of a fan motor and its controls, an impeller, and a housing, all of which are components of an HVAC product that includes additional components, including the cabinet.

Interested parties disagreed with DOE’s approach to set component

- level

re gulations, which they warned would ignore system effects that could impact both fan and system energy consumption. CA IOUs suggested that “ furnace fan ” be defined as a unit consisting of a fan motor, its controls, an impeller, shroud, and cabinet that hous es all of the heat exchange material for the furnace. According to CA IOUs, their suggested definition would reduce ambiguity and ensure that the components in HVAC products that affect furnace fan energy consumption are considered in this rulemaking. (C A IOUs, No. 56 at p. 1) Ingersoll Rand went further and suggest ed a system

- level regulatory approach, where the entire duct and furnace system would be regulated, maintaining that such approach would produce a more useful metric to consumers when evaluati ng performance. (Ingersoll Rand, No. 43 at p. 42) Conversely, NEEP observed that by regulating fan energy use separately, the individual efficiency of the component is considered when it would otherwise be ignored by manufacturers. (NEEP, No. 51 at p.53 3 ) Rheem commented that some designs require higher air velocity to improve heat transfer but also require more electrical consumption to drive the blower at the higher velocity. (Rheem, No. 43 at p. 63) Rheem commented that turbulent flow is considerabl y more efficient for heat transfer than laminar flow , but more energy is required to move turbulent air. (Rheem, No. 54 at p. 10) Similarly, Lennox and Morrison commented that in order to improve heating and cooling efficiency, often a second heating coi l is added , but this also leads to higher electrical consumption by the furnace fan. (Lennox, No. 43 at p. 64; Morrison, No. 43 at p. 64) Ingersoll Rand argued that as the efficiency of the furnace fan motor increases, it dissipates less heat and a furnace consumes more gas to compensate and meet house heat load. (Ingersoll Rand, No. 43 at p. 66)

In response, DOE is required by EPCA to consider and prescribe new energy conservation standards or energy use standards for electricity used for purpo ses of circulating air through duct work

. (42 U.S.C. 6295(f)(4)(D)) Pursuant to this statutory mandate, DOE plans to establish energy conservation standards for circulation fans used in residential central HVAC systems. DOE does not interpret its author ity as including the duct work itself

. DOE is aware that component

- level regulations could have system

level impacts. Accordingly, DOE plans to conduct its analyses and set standards in such a way that meets the statutory requirements set forth by EPCA w ithout ignoring system effects, which otherwise might compromise the thermal performance of the HVAC products that incorporate furnace fans. For example, the proposed test procedure outlined in the April 2, 2013 SNOPR specifies that the furnace fan be tes ted as factory

- installed in54 the HVAC product, thereby enabling the rating metric to account for system effects on airflow delivery and, ultimately, energy performance. 78 FR 19606, 196 12

- 13. In addition, the product class structure allows for differentia tion of products with designs that achieve higher thermal efficiency but may have lower fan performance , such as condensing furnaces.

The scope of the preliminary analysis included furnace fans used in furnaces, modular blowers, and hydronic air handlers

. Even though DOE has interpreted its authority as encompassing any electrically

- powered device used in residential HVAC products to circulate air through duct work , the preliminary analysis scope excluded single package central air conditioners (CAC) and heat pumps (HP) and split

- system CAC/HP blower

- coil units. At the time of the preliminary analysis, DOE determined that it may consider these and other such products in a future rulemaking as data and information to develop credible analyses becomes avai lable.

Efficiency advocates expressed concern at the exclusion of packaged and split

system CAC products because they believe current standards for these products do not maximize the technologically feasible and economically justified energy savings for the circulation fans integrated in these products. ASAP and Adjuvant stated that the metric used for CAC products does not accurately represent field conditions and request ed that they be added to the scope. (ASAP, No. 43 at p. 17; Adjuvant, No. 43 at p. 39) Specifically, efficiency advocates found that the reference external static pressures (ESPs) used to determine the seasonal energy efficiency ratio ( SEER ) and heating55 seasonal performance factor ( HSPF ) , which already rate these products, did not reflect field

- installed conditions. (ASAP, No. 43 at p. 38; Earthjustice, No. 49 at p. 1) In a joint comment from ACEEE, ASAP, NCLC, NEEA, and NRDC (hereafter referred to as ACEEE, et al .), in addition to a co mment from CA IOU, efficiency advocates and utilities stated that the reference ESP of 0.1

– 0.2 in. w.c. was too low when compared to the average field ESP of 0.73 in. w.c. identified in the TSD. (ACEEE, et al ., No. 55 at p. 1; CA IOU, No. 56 at p. 2) A CEEE, et al . also noted that SEER and HSPF do not account for continuous

- circulation operation which is expected to increase as stricter building codes call for tighter building envelopes. (ACEEE, et al ., No. 55 at p. 2; CA IOU, No. 56 at p. 3) NEEP comm ented that SEER and HSPF do not reward for any efficiency gains made by the furnace fan. (NEEP, No. 51 at p. 3) By excluding these products from the analysis, ACEEE, et al

. argued that DOE is ignoring a significant fraction of the furnace fan market. (AC EEE, et al ., No. 55 at p. 1)

In contrast, many manufacturers believe that the scope of coverage presented in the preliminary analysis exceeds the statutory authority granted to DOE because the statutory language for this rulemaking is found in 42 U.S.C 62 95(f) under the title “Standards for furnaces and boilers.” Consequently, manufacturers stated that DOE should not include any non

- furnace products such as central air conditioners, heat pumps, or condensing unit

- blower

- coil combinations. Lennox , Mortex , and First Co. explicitly stated that no equipment other than residential furnaces and boilers should be included , as doing so is beyond DOE’s statutory authority

. (Lennox, No. 47 at p. 4; Mortex, No. 59 at p. 1 ; First Co., No. 53 at p. 1 ) Mortex furthe r stated that the electricity used to circulate56 air through duct work is already adequately accounted for in existing energy efficiency metrics, and that if DOE insists on proceeding on new energy conservation standards for furnace fans, DOE should limit i t to residential warm air furnaces until there is a change made by Congress to include additional products. (Mortex, No. 59 at p. 1) Goodman and Ingersoll Rand arg ued that packaged equipment and air handlers should not be included in the scope because the electrical energy consumed by these products to circulate air through duct work is already accounted for in SEER and HSPF. (Goodman, No. 50 at p. 7; Ingersoll Rand, No. 57 at pp. A

- 1) Rheem and Morrison re commended that hydronic air handlers and modular blowers be excluded from the scope because these products have not been previously covered by an energy conservation standard and cannot be defined as furnaces. (Morrison, No. 43 at p. 94; Morrison, No. 58 at p. 9; Rheem, No. 54 at p. 2)

Manufacturers al so argued that the electricity used to circulate air through duct work for warm air furnaces with cooling capabilities is already covered by SEER. (Goodman, No. 50 at p. 7; Mortex, No. 59 at p. 1) Additionally, f or a residential warm air furnace, Mortex stated that E ae already accounts for heating

- mode

- related energy consumption, including energy consumed by the fan. (Mortex, No. 59 at p. 2) Additionally, by including annual furnace fan cooling and heating electricity consumption in the FER metric, central air conditioner and heat pumps product s will be covered by multiple metrics. (Goodman, No. 50 at p. 6; Mortex, No. 59 at p. 2)57 As discussed in the furnace fan test procedure April 2 , 2013 SNOPR, DOE notes that, although the title of this statutor y section refers to “furnaces and boilers,” the applicable provision at 42 U.S.C. 6295(f)(4)(D) was written using notably broader language than the other provisions within the same section. 78 FR 19606, 196 11

. Specifically, that statutory provision dire cts DOE to “consider and prescribe energy conservation standards or energy use standards for electricity used for purposes of circulating air through duct work .” Such language could be interpreted as encompassing electrically

- powered devices used in any r esidential HVAC product to circulate air through duct work, not just furnaces, and DOE has received numerous comments on both sides of this issue. At the present time, however, DOE is only proposing energy conservation standards for t h ose circulation fans that are used in residential furnaces and modular blowers (see discussion below). As a result, DOE is not addressing public comments that pertain to fans in other types of HVAC products. The following list describes the furnace fans which DOE proposes t o address in this rulemaking.

**•** Products addressed in this rulemaking

**•** : furnace fans used in weatherized and non

weatherized gas furnaces, oil furnaces, electric furnaces, and modular blowers. Products not addressed in this rulemaking : furnace fans used in other products, such as split

- system CAC and heat pump air handlers, through

- the

- wall air handlers, small

- duct, high

- velocity ( SDHV ) air handlers, energy recovery ventilators ( ERVs ) , heat recovery ventilators ( HRVs ) , draft inducer fans, exhaust fans, or hydronic air handlers.58 DOE is using the term “modular blower” to refer to HVAC products powered by single

- phase electricity that comprise an encased circulation blower that is intended to be the principal air circulation source for the living space of a residence. A modular blower is not contained within the same cabinet as a residential furnace, CAC, or heat pump. Instead, modular blowers are designed to be paired with separate residential HVAC products that provide heating and co oling, typically a separate CAC/HP coil

- only unit. DOE finds that modular blowers and electric furnaces are very similar in design. In many cases, the only difference between a modular blower and electric furnace is the presence of an electric resistance h eating kit. DOE is aware that some modular blower manufacturers offer electric resistance heating kits to be installed in their modular blower models so that the modular blowers can be converted to stand

- alone electric furnaces. In addition, FER values for modular blowers can be easily calculated using the proposed test procedure. DOE proposes to address the furnace fans used in modular blowers in this rulemaking for these reasons.

After considering available information and public comments regarding fan operation in cooling mode, DOE maintains its proposal to account for the electrical consumption of furnace fans while performing all active mode functions ( i.e. , heating, cooling, and constant circulation). DOE recognizes that furnace fans are used not ju st for circulating air through duct work during heating operation, but also for circulating air during cooling and constant

- circulation operation. DOE anticipates that higher airflow

control settings are factory set for cooling operation. Therefore, DOE expects that the electrical energy consumption of a furnace fan is generally higher while performing the59 cooling function. Additionally, the design of the fan as well as its typical operating characteristics ( i.e. , ESP levels during operation in different modes) is directly related to the performance requirements in cooling mode. DOE is also concerned that excluding some functions from consideration in rating furnace fan performance would incentivize manufacturers to design fans that are optimized to perf orm efficiently at the selected rating airflow

- control settings but that are not efficient over the broad range of field operating conditions. In DOE’s view, in order to obtain a complete assessment of overall performance and a metric that reflects the pr oduct’s electrical energy consumption during a representative average use cycle, the metric must account for electrical consumption in a set of airflow

- control settings that spans all active mode functions. This would ensure a more accurate accounting of the benefits of improved furnace fans.

DOE is aware that fan electrical consumption is accounted for in the SEER and HSPF metrics that DOE uses for CAC and heat pump products. However, DOE does not agree with manufacturers’ comments suggesting that the electricity used to circulate air through duct work is already adequately accounted for in existing energy efficiency metrics of other covered products, particularly the SEER and HSPF metrics of CAC/HP

. This is because SEER and HSPF are used to test cool ing and heating performance of a CAC or heat pump product, whereas FER rates airflow performance of a furnace fan product. While furnace fan airflow performance contributes to cooling and heating performance, manufacturers can improve SEER and HSPF withou t improving fan performance. In short, SEER and HSPF

- based standards do not directly regulate the efficiency of furnace fans, as required by 42 U.S.C. 6295(f)(4)(D). DOE recognizes that60 the energy savings in cooling mode from higher

- efficiency furnace fa ns used in some higher

- efficiency CAC and heat pumps is already accounted for in the analysis of energy conservation standards for those products. As a result, DOE conducted its analysis in this current rulemaking in such a way as to avoid double

- counting these benefits by excluding furnace fan electricity savings that were already included in DOE’s analys e s for CAC and heat pump products. Chapter 7 of the NOPR TSD provides a more detailed discussion of this issue.

2. Product Classes DOE identified nine ke y product classes in the preliminary analysis, each of which was assigned its own candidate energy conservation standard and baseline FER. DOE identified twelve additional product classes that represent significantly fewer shipments and significantly less overall energy use. DOE grouped each non

- key product class with a key product class to which it is closely related in application

- specific design and internal structure ( i.e. , the primary criteria used to differentiate between product classes). DOE assigned the analytical results of each key product class to the non

- key product classes with which it is grouped because DOE expected the energy use and incremental manufacturer production costs (MPCs) of improving efficiency to be similar within each gro uping

. Table IV

. 1 lists the 21 preliminary analysis product classes.

Table IV . 1 : Preliminary Analys is Product Classes Key Product Class Additional Product Classes Non

- Weatherized, Non

- Condensing Gas Furnace Fan (NWG

- NC) Non

- weatherized, Condensing Gas Furnace61 Fan (NWG

- C)

Weatherized Non

- Condensing Gas Furnace Fan (WG

- NC) Weatherized, Non

- Condensing Oil Furnace Fan (WO

- NC) Weatherized Electric Furnace/Modular Blower Fan (WEF/WMB) Manufactured Home Weatherized Gas Furnace Fan (MH

- WG) Manufactured Home Weatherized Oil Furnace Fan (MH

- WO) Manufactured Home Weatherized Electric Furnace/Modular Blower Fan (MH

WEF/WMB)
Non

- weatherized, Non

- Condensing Oil Furnace Fan (NWO

- NC) Non

- Weatherized, Condensing Oil Furnace Fan (NWO

- C) Manufactured Home Non

- Weatherized Oil Furnace Fan (MH

- NWO) Non

- weatherized Electric Furnace / Modular Blower Fan (NWEF/NWMB)

Heat/Cool Hydronic Air Handler Fan (HAH

HC) Heat

- Only Hydronic Air Handler Fan (HAH

H) Hydronic Air Handler Fan with Coil (HAH

- C) Manufactured Home Heat/Cool Hydronic Air Handler Fan (MH

- HAH

- HC) Manufactured Home Heat

- Only Hydronic Air Handler Fan (MH

- HAH

- H) Manufactured Home Hydronic Air Handler Fan with Coil (MH

- HAH

- C) Manufactured Home Non

- Weatherized, Non

Condensing Gas Furnace Fan (MH

- NWG

NC) Manufactured Home Non

- Weatherized, Condensing Gas Furnace Fan (MH

- NWG

- C) Manufactured Home Electric Furnace/ Modular Blower Fan (MH

- EF/MB)

Goodman and Rheem agreed that the selected key product classes are an accurate representation of the market , with Rheem commenting that it manufactures six of the nine proposed key produ ct classes. (Goodman, No. 50 at p. 1; Rheem, No. 54 at p. 4) NEEP found that the proposed key product class structure appropriately allows for62 differentiation of products with higher thermal efficiency. (NEEP, No. 51 at p. 2) Goodman, Rheem, and Ingers oll Rand disagreed with DOE’s approach to specify additional product classes within a key product class, stating that shipment data indicates that th e additional product classes are too small to be covered

. (Goodman, No. 50 at p. 1; Ingersoll Rand, No. 57 at pp. A

- 1; Rheem, No. 54 at p. 4)

Mortex expressed concern that the key product class es only represent furnace fan products with the most shipments and , if the energy conservation standard s are set inappropriately high for these key product classes, the additional products classes (some of which serve unique applications) may also have trouble meeting any scaled standards levels based thereon

. (Mortex, No. 43 at p. 53)

DOE agrees with Goodman, Rheem, and Ingersoll Rand that the additional product classes represent products with few and in many cases, no shipments

. Individual discussions with manufacturers for the MIA confirm DOE’s assumption. Additionally, review of the AHRI appliance directory reveals that only two of the additional product classe s have active models listed : (1) m anufactured home weatherized gas furnace f an s (MH

- WG) and (2) manufactured h ome non - weatherized oil furnace f an s (MH

- NWO)

. The number of active basic models for MH

- WG and MH

- NWO are 4 and 16, respectively. For this reason, DOE proposes to eliminate the additional product classes except for MH

- WG and MH

- NWO

. Due to the limited number of basic models for MH

WG and MH

- N W O, DOE did not have data to directly analyze and establish standards for these additional product classes. As a result, DOE proposes to reserve space to63 establish standards for MH

- WG and MH

- NWO furnace fans in the future as sufficient data become available.

As discussed previously in s ection IV.A.1 , DOE proposes to also exclude hydronic air handlers from cons ideration in this rulemaking , th ereby further reducing the number of product classes addressed by this rulemaking to eight. Table IV

. 2 includes a list of the revised set of product classes for residential furnace fans.

Table IV . 2 : Proposed Product Classes for Residential Furnace Fans Product Class Non

- Weatherized, Non

- Condensing Gas Furnace Fan (NWG

- NC) Non

- Weatherized, Condensing Gas Furnace Fan (NWG

- C) Weatherized Non

- Condensing Gas Furnace Fan (WG

- NC) Non

- Weatherized, Non

- Condensing Oil Furnace Fan (NWO

- NC) Non

- Weatherized Electric Furnace / Modular Blower Fan (NWEF/NWMB) Manufactured Home Non

- Weatherized, Non

- Condensing Gas Furnace Fan (MH

- NWG

- NC) Manufactured Home Non

- Weatherized, Condensing Gas Furnace Fan (MH

NWG

- C) Manufactured Home Electric Furnace / Modular Blower Fan (MH

- EF/MB) Manufactured Home Weatherized Gas Furnace Fan (MH

- WG) Manufactured Home Non

- Weatherized Oil Furnace Fan (MH

- NWO)

3. Technology Options In the preliminary analysis, DOE considered seven technology options that would be expected to improve the efficiency of furnace fans: (1) f an housing and airflow path design modifications ; (2) h igh

- efficiency fan motors (in some cases paired with multi

stage or modulating heating controls) ; (3) i nverter

- driven permanent

- split capacitor ( PSC ) fan motors ; (4) b ackward

- inclined impellers ; (5) c onstant

- airflow brushless permanent magnet (BPM) motor control relay s; (6) t oroidal transformer s; and (7)64 s witching mode power suppl ies

. Since that time, DOE notes that its propose d scope of
coverage no longer includes hydronic air handlers , the only furnace fan product class for which sta ndby mode and off mode energy consumption is not accounted for in a separate DOE rulemaking . Consequently, t he standby mode and off mode technology options (options 5 through 7 in the list above) are no longer applicable , because energy consumption in tho se modes is already fully accounted for in the DOE energy conservation standards rulemaking for residential furnaces and residential CAC and HP for the remaining proposed product classes

. 76 FR 37408 (June 27, 2011) ; 76 FR 67037 (Oct. 31, 2011)

. In addition, DOE found that multi

- staging and modulating heating controls can also improve FER, so hence DOE evaluated multi

- staging and modulating heating controls as a separate technology option for the NOPR. Th us, th e resultant list of potential techno logy options identified for the NOPR include: (1) f an housing and airflow path design modifications ; (2) i nverter

- driven PSC fan motors ; (3) h igh

- efficiency fan
motors ; (4) multi

- staging and modulating heating controls ; and (5) b ackward

- inclined impellers. Each identified technology option is discussed below and in more detail in chapter 3 of the NOPR TSD.

a. Fan Housing and Airflow Path Design Improvements The preliminary analysis identified fan housing and airflow path design modifications as potential technology options for improving the energy efficiency of furnace fan s . Optimizing the shape of the inlet cone 18

18 The inlet cone is the opening of the furnace fan housing through which return air enters the housing. The inlet cone is typic ally curved inward, forming a cone

- like shape around the perimeter of the opening, to provide a smooth surface to direct air from outside the housing to inside the housing and into the impeller. of the fan housing , minimizing65 gaps between the impeller and fan housing inlet, and optimizing cut

- off location and manufacturing tolerances we re identified as enhancements to a fan housing that could improve efficiency. Separately, modification of elements in the airflow path, such as the heat exchanger, could reduce internal static pressure and as a result, reduce energy consumption. Manufact urer input was requested to determine the use and practicability of these potential technology options.

ASAP expressed support for DOE ’s consider ation of the aerodynamics of furnace fan cabinets in its initial analysis of technology options. (ASAP, No. 43 at p. 16) In particular, ASAP cited a 2003 GE study 19 that quantified energy savings produced by modifying fan housing as justification for its inclusion as an option. (ASAP, No. 43 at p. 71) ACEEE, et al. also cited a Lawrence Berkeley Nat ional Lab oratory ( LBNL ) study 20 that linked changes in efficiency to modifying the clearance between fan housing and an air handler cabinet wall. (ACEEE, et al ., No. 55 at p. 2) According to Ingersoll Rand, there are proprietary fan housing designs on the market that already improve mechanical efficiency by 10

- 20 percent at a cost much lower than the cost to implement high

efficiency motors or make changes to the impeller and its tolerances. (Ingersoll Rand, No. 57 at pp. A

- 3)

DOE is aware of the studies cited by ASAP and ACEEE, as well as the proprietary housing design mentioned by Ingersoll Rand. For the NOPR, DOE decided

19 Wiegman, Herman , Final Report for the Variable Speed Integr ated Intelligent HVAC Blower (2003) (Available at: http://www.osti.gov/bridge/servlets/purl/835010

- GyvYDi/native/835010.pdf ). 20 Walker, I.S, State

- of

- the

- art in Resident ial and Small Commercial Air Handler Performance (2005) LBNL 57330 (Available at: http://epb.lbl.gov/publications/pdf/lbnl

- 57330plus.pdf ).66 to include fan housing design modifications as a technology to be evaluated further in the screening analysis because of these indica tions that each could improve fan efficiency.

M an y interested parties requested that DOE keep airflow path design as a technology option. (Unico, No. 43 at p. 72; EPA, No. 43 at p. 76; ASAP, No. 43 at p. 77; CA IOU, No. 56 at p. 3; ACEEE, et al. , No. 55 at p. 2) Manufacturers stated that improving airflow path design, like modifying fan housing, is highly cost

- effective when compared to other enhancements. (Rheem, No. 43 at p. 74; Lennox, No. 43 at p. 74; Adjuvant, No. 43 at p. 74) Lennox noted a 10

- 2 0 percent improvement in efficiency could be achieved by changing the airflow path when evaluated against a baseline design coupled with a PSC motor. (Lennox, No. 47 at p. 9; Morrison, No. 58 at p. 5) However,
t he EPA questioned whether considering modif ied airflow path as a technology option was appropriate when DOE plans to only regulate the fan itself and not the entire air handler

. (EPA, No. 43 at p. 62)

While Morrison agreed that airflow path and fan housing design affect performance and efficiency , it argued that establishing a baseline design ( over which to determine improvement ) might be difficult because parameters used to select an individual manufacturer’s design may have taken into account considerations outside the scope of the furnace fan r ulemaking. (Morrison, No. 43 at p. 75) Rheem suggested that
AHRI should present airflow path and fan housing design data to the DOE in order to help establish the two technology options. (Rheem, No. 43 at p. 79)67 Similar to the fan housing design modifi cations, DOE decided to include airflow path design as a technology option to be evaluated further in the screening analysis as a result of these claims of potential fan efficiency improvement. In response to the comment received from the EPA, DOE believe s including airflow path design is appropriate because of its potential to impact fan efficiency . Airflow path design will impact the proposed rating metric, FER, because DOE is proposing to test the furnace fan as it is factory installed in the HVAC produ ct. As discussed previously in section IV.A.1 , DOE has conducted its NOPR analyses in such a way as to meet the statutory requirements set forth by EPCA without ignoring system effects. Chapter 3 of the NOPR TSD provides more technical detail regarding fan housing and airflow path design modifications and how these measures could reduce furnace fan energy consumption.

b. Inverter Controls for PSC Motors In the preliminary analysis, DOE identified inverter

- driven PSC motors as a technology option. DOE is a ware of a series of non

- weatherized gas furnaces with inverter

- driven PSC furnace fan motors that was once commercially available. DOE has determined that inverter controls provide efficiency improvement by offering additional intermediate airflow

- control settings and a wider range of airflow

- control settings ( i.e. , lower turndown ratio) than conventional PSC controls. The additional airflow

- control settings and range enable the furnace fan to better match demand. Publically

- available performance data for the series of furnaces using inverter

- driven PSCs demonstrate that the use of this technology results in reduced FER values compared to baseline PSC68 furnace fans. Consequently, DOE considered inverter

- driven PSCs as a technologically feasible option for reducing furnace fan energy consumption.

Manufacturers were opposed to listing inverter

- driven PSCs as a viable technology option. Goodman commented that there are alternate, more cost

- effective solutions to reduce energy consumption for air

- moving system s, such as airflow path design. (Goodman, No. 50 at p. 2) Ingersoll Rand and Morrison commented that the small energy savings provided by inverter

- driven PSCs are not worth the added cost and complexity when ECM (referred to herein by DOE as a “ constant

- airflow BPM motor ” ) technology is available at a comparable cost and greater efficiency. (Ingersoll Rand, No. 57 at pp. A

- 1; Morrison, No. 58 at p. 2; Rheem, No. 54 at p. 6) Morrison suggested that the motor industry was seeking lower

- cost alternatives t o ECM motors, such as fractional horsepower switched reluctance motors or inverter

- driven PSCs , but that no low

- cost alternative currently exists. (Morrison, No. 58 at p. 2) NMC, a motor manufacturer, went further , stat ing that inverter

- driven PSC motors using wave chopper controls are not typically more efficient than multi

- tap PSC motors and that they are not a practical alternative to brushless permanent magnet technology. (NMC, No. 60 at p. 2)

DOE recognizes manufacturers ’ concerns with the cost

- eff ectiveness of inverter

driven PSC fan motors. However, DOE decided to include inverter

- driven PSC motors as a technology option to be evaluated further in the screening analysis due to their potential to reduce furnace fan energy consumption. DOE evaluat es in the engineering analysis the cost

- effectiveness of all energy - saving technology options that are not69 screened out. Chapter 3 of the NOPR TSD provides a more detailed discussion of inverter

- driven PSC furnace fan motors.

c. High

- Efficiency Motors In the p reliminary a nalysis, DOE identified four motor types that are typically used in furnace fan assemblies: (1) PSC motors; (2) PSC motors that have more than 3 airflow

- control settings and sometimes improved materials (hereinafter referred to as “impr oved PSC” motors); (3) constant

- torque BPM motors (often referred to as “ X13
motors ” ); and (4) constant

- airflow BPM motors (often referred to as “ ECMs ” ). 21

**•** Functioning more efficiently at a given operating condition; DOE finds that furnace fans using high

- efficiency motor technology options operate more efficiently than furnace fans using baseline PSC motors by:

**•** M aintaining efficiency throughout the expected operating range; and

**•** A chieving a lower turndown ratio 22 ( i.e. , ratio of airflow in lowest setting to airflow in highest setting).

Ingersoll Rand commented that a PSC motor will use less energy at higher static
pressures , while an ECM increases energy use as static pressure rises . Ingersoll Rand stated that a s a result, understanding the impact of switch ing to an ECM at higher static
pressures may confuse the consumer. (Ingersoll Rand, No. 43 at p. 67)

21 “ ECM ” and “X13” refer to the constant

- airflo w and constant torque (respectively) BPM offerings of a specific motor manufacturer. Throughout this notice, DOE will refer to these technologies using generic terms, which are introduced in the list above. However, DOE’s summaries of interested

- party subm itted comments include the terminology used by the interested party when referring to motor technologies. 22 A lower turndown ratio can significantly improve furnace fan efficiency because fan input power has a cubic relationship with airflow.70 DOE is aware that consumers may be confused when BPM motors (referred to as ECMs by Ingersoll Rand above) consume more energy than PSC motors at higher s tatic pressures, because consumers expect BPM motors to consume less energy than PSC motors under the same operating conditions

. In general, input power to the fan motor increases as static pressure increases to provide a given airflow ( i.e. , the fan motor has to work harder in the face of increased resistance to provide a desired amount of air). 23
DOE agrees with Ingersoll Rand that as static pressure increases, input power to a PSC

driven furnace fan will decrease , which is seemingly contradictory to the principle described above

. DOE finds that input power to a PSC

- driven furnace fan decreases because the airflow provided by the fan decreases as static pressure rises ( i.e. , the fan does not have to work as hard in the face of increased resistance because the fan is not providing as much air)

. Input power to a constant

- airflow BPM motor

- driven furnace fan, on the other hand, will increase as static pressure rises because the BPM motor

- driven fan is designed to maintain the desired level of airflow

. Recogn izing that this behavior could complicate comparing the relative performance of these motor technologies, DOE’s proposed rating metric, FER, is normalized by airflow to result in ratings that are in units of watts/cfm

. DOE believes that a comparison using a watts/cfm metric will mitigate confusion by accurately reflecting that even though a constant

- airflow BPM motor is consuming more power at higher statics, it is also providing more airflow, which is useful to the consumer.

23 See chapter 3 of the TSD for more details regarding fan operation.71 Interested parties recognized the benefits provided by constant

- torque and
constant

- airflow BPM motor s. NMC agreed that variable

- speed technology is useful in furnace fan applications , because the airflow settings can be adjusted and optimized for a range of static pressure levels. (NMC, No. 60 at p. 1) NEEP supported DOE's proposal for an efficiency level based on a constant

- torque ECM as part of the furnace fan analysis , given that these motors are widely available and less expensive than "full blown" ECM motors. (NEEP, No. 51 at p. 3) Morrison commented that ECM technology offers the best cost for performance value. (Morrison, No. 58 at p. 2)

Interested parties agreed that the BPM motor variations ( i.e. , constant

- torque and
constant

- airflow) and inverter

- driven PSC motors gen erally have lower turndown ratios than a three

- speed PSC motor. Table IV

. 3 contains the turndown ratio estimates supplied publicly by interested parti es. M anufacturers generally provided similar feedback during interviews. NMC stated that the turndown ratios achieved by ECM technology allow for continuous circulation at optimal CFM levels, unlike PSC options, which cannot achieve low enough CFM. (NMC, No. 60 at p. 1) Lennox commented that including constant circulation as part of FER will penalize PSCs and artificially inflate the performance of ECMs. (Lennox, No. 47 at p. 9) Ingersoll Rand stated that furnace fan turndown ability is limited b y the physical characteristics of the impeller and bearings. (Ingersoll Rand, No. 57 at pp. A

- 2)72 Table IV . 3 : Stakeholder Estimated Fan Motor Turndown Ratios

Stakeholder PSC Wave chopper controller

PSC Const ant

torque ECM Constant

airflow ECM NMC (NMC, No. 60 at p. 1) 0.45 0.36 0.45 0.20 Goodman (Goodman, No. 50 at p. 2) 0.70

- 0.75

- 0.40

- 0.50 0.25

- 0.35 Rheem (Rheem, No. 54 at p. 6) 0.60

- 0.30 0.20

Overall, comments regarding high

- efficiency motor turndown ratio validated DOE’s expectation that lower turndowns are associated with improved PSCs, inverter

driven PSCs , and BPM motor variations

. These motors consume significantly less energy over a typical residential furnace fan operating range

. DOE disagrees with Lennox that including constant circulation as part of FER would “artificially” inflate the performance of BPM motors compared to PSC motors , because DOE concludes that there is non

- trivial use of this mode by consumers

. As part of the test p rocedure rulemaking, DOE estimates that on average, consumers operate furnace fans in constant

circulation mode 400 hours annually . This estimate is used to weight fan constant

circulation electrical energy consumption in FER. Excluding this mode from the rating metric would underestimate the potential efficiency improvements of technology options, such as BPM motors, that could reduce fan electrical consumption while performing this function

. A detailed discussion of DOE’s estimate for national average co nstant

circulation furnace fan operating hours can be found in the test procedure NOPR

. 77 FR 28674, 28682 (May 15, 2012). DOE did not revise these estimates in the test procedure SNOPR published on April 2, 2013. 78 FR 19606.73 d. Multi

- Stage or Modulating Heating Controls In the p reliminary a nalysis ( 77 FR 40530 (July 10, 2012)) , DOE identified two

stage and modulating heating controls ( hereinafter collectively referred to as “multi

stage” controls ) as a method of reducing residential furnace fan energy con sumption. Multi

- stage furnaces typically operate at lower heat input rates and, in turn, a lower airflow

- control setting for extended periods of time compared to single

- stage furnaces to heat a residence. 24 Due to the cubic relationship between fan input power and airflow, operating at the reduced airflow

- control setting reduces overall fan electrical energy consumption for heating despite the extended hours

. In the p reliminary a nalysis, DOE analyzed multi

- staging controls paired with use of a constant

- ai rflow BPM fan motor as one technology option, because DOE found the two to be almost exclusively used together in commercially

- available products

.

ASAP, ACEEE, NCLC, NRDC, and NEEA encouraged DOE to consider X13

- level motors applied with multi

- stage furna ce control s as a technology option. ACEEE et al . added that they expect an X13

- level motor paired with multi

- stage furnace controls to operate at a lower speed (corresponding to the lower burner output) in heating mode for a greater number of hours compar ed to an X13

- level motor applied with single

- stage furnace controls. According to ACEEE et al ., the net effect of operating at a lower speed for a greater number of hours could be electricity savings , because motor power decreases with the cube of the spe ed. (ACEEE et al ., No. 55 at p. 3) Rheem commented

24 A further discussion of multi

- stage heating controls is found in chapter 3 of the preliminary analysis TSD, which can be found at the following web address: http://www.regulations.gov/#!documentDetail;D=EERE

- 2010

- BT

- STD

- 0011

- 0037

.74 that it does use modulating furnace controls with PSC and X13 motors , not just ECM
motors. (Rheem, No. 43 at p. 81) During interviews, o ther manufacturers also commented that multi

- stage heating contro ls can be and are used regardless of motor type.

Based on comments from Rheem and other manufacture r s, DOE recognizes that multi

- stage controls can be paired with other motor types, not just constant

- airflow BPM
motors. DOE agrees with ACEEE et al. that implementing multi

- stage heating controls independent of motor type could result in residential furnace fan efficiency improvements. Consequently, DOE has decided to de

- couple multi

- staging controls from the constant

- airflow BPM motor technology opt ion . Accordingly, DOE has evaluated multi

- staging controls as a separate technology option for the NOPR.

e. Backward

- Inclined Impellers DOE determined in the preliminary analysis that using backward

- inclined impellers could lead to possible residential fur nace fan energy savings. Although limited commercial data regarding backward

- inclined impeller performance w ere available, DOE cited research by General Electric that showed large improvements in efficiency were achievable under certain operating conditio ns. 25

Morrison disagreed with the DOE’s findings, stating that literature indicates there are varying degrees of performance improvement when backward

- inclined impellers are

25 Wiegman, Herman , Final Report for the Variable Speed Integrated Intelligent HVAC Blower (2003) (Available at: http://www.osti.gov/bridge/servlets/purl/835010

- GyvYDi/native/835010.pdf ).75 used in place of forward

- curved impellers. (Morrison, No. 43 at p. 132) Specific ally, Morrison cited an LBNL study 26 where a furnace with a backward

- inclined impeller exhibited no efficiency gains compared to a low efficiency forward

- curved impeller

. (Morrison, No. 58 at p. 3) According to Morrison, l imitations on operating speed als o make it necessary to couple backward

- inclined impellers with high

- efficiency motors. (Morrison, No. 58 at p. 2) Other commenters asserted that t he optimal range of operation for backward

- inclined impellers may fall outside that of typical residential f urnace fan

use. (SCE, No. 43 at p. 59; Ingersoll Rand, No. 57 at p. A

- 3; EEI, No. 60 at p. 2; CA IOU, No. 56 at p. 4) CA IOU testing showed that backward

- inclined impellers are more sensitive to external static pressures , which could also limit their use

. (CA IOU, No. 56 at p. 4) Rheem stated that improved efficiency of backward

- inclined impellers is often achieved at mid

- flow rates and high static levels. (Rheem, No. 54 at p. 7) Rheem commented that research by the replacement part manufacturer ( Lau ) reveal s that backward

- inclined impellers, at diameters typically used in residential applications, offer no significant efficiency improvements. (Rheem, No. 43 at p. 132)

E bm

- papst, a company that provides custom air

- movement products, offered a diverging opinion from most manufacturers regarding the energy

- saving potential of backward

- inclined impellers. Th at compan y retrofitted several HVAC products with furnace fan assemblies that incorporated backward

- inclined impellers without increasing cab inet size and tested them. Depending on the application and the external static pressure load (typically 0.5 in.w. c . to 1 in.w. c .), ebm

- papst found that the backward

-

26 Walker , I.S., Laboratory Evaluation of Residential Furnace Blower Performance (2005) (Available at: http://www.escholarship.org/uc/item/7tx9c86s#page

- 1 ).76 inclined impeller achieved input power reductions from 15

- 30 percent

. (ebm

- papst Inc.,
N o. 52 at p. 1) E bm

- papst did note that for backward

- inclined impellers to match the performance of forward

- curved impellers without increasing impeller dimensions, fan speed must increase. However, ebm

- papst did not anticipate that this would be an obsta cle to implementation using available motor technologies. (ebm

- papst Inc., No. 52 at p. 1)

DOE recognizes that backward

- inclined impellers may not be more efficient than forward

- curved impellers under all operating conditions and that there may be consi derable constraints to implementation

. However, the GE prototype and ebm

- papst prototype both demonstrate that significant energy consumption reduction is achievable at some points within the range of residential furnace fan operation. For this reason,
D OE has include d backward

- inclined impellers as a technology option to be evaluated further in the screening analysis , where DOE investigates any other concerns regarding the use of a technology option, such as the practicability to manufacture or impacts o n reliability, utility, and safety in the screening analysis.

B. DOE uses the following four screening criteria to determine which technology options are suitable for further consideration in a n energy conservation standards rulemaking: Screening Analysis

1. T echnological feasibility. Technologies that are not incorporated in commercial products or in working prototypes will not be considered further.77 2. Practicability to manufacture, install, and service. If it is determined that mass production and reliable in stallation and servicing of a technology in commercial products could not be achieved on the scale necessary to serve the relevant market at the time of the compliance date of the standard, then that technology will not be considered further.
3. Impacts on pr oduct utility or product availability

. If it is determined that a technology would have significant adverse impact on the utility of the product to significant subgroups of consumers or would result in the unavailability of any covered product type with p erformance characteristics (including reliability), features, sizes, capacities, and volumes that are substantially the same as products generally available in the U nited S tates at the time, it will not be considered further.
4. Adverse impacts on health or s afety. If it is determined that a technology w ould have significant adverse impacts on health or safety, it will not be considered further.

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

In sum, if DOE determines that a technology, or a comb ination of technologies , fails to meet one or more of the above four criteria, it will be screened out from further consideration in the engineering analysis. The reasons for eliminating any technology are discussed below

.78 The subsequent sections include comments from interested parties pertinent to the screening criteria, DOE’s evaluation of each technology option against the screening analysis criteria, and whether DOE determined that a technology option should be excluded (“screened out”) based on the screening criteria.

1. Screened

- Out Technologies DOE screened out fan housing and airflow path design improvements in the
p reliminary a nalysis. DOE had little quantitative data to correlate specific fan housing alterations with efficiency improvements. Ad ditionally, DOE anticipated that any improvements to airflow path design that would result in fan efficiency improvement would require an increase in furnace fan cabinet size or negatively impact heat exchanger performance, thereby compromising the practic ability to manufacture or reducing utility
to consumers.

Interested parties stated many concerns associated with modifying airflow path designs to reduce residential furnace fan electrical energy consumption. Morrison provided an example illustrating the tradeoffs in thermal performance of selecting an airflow path that enhances fan performance. Specifically, Morrison stated that, “a 90%+ efficient furnace will have higher pressure drop through the furnace than a similarly sized 80%+ efficient furnace be cause of the added heat transfer surface area.” (Morrison, No. 58 at p. 5) Conversely, manufacturers noted that higher SEER requirements call for increased central air conditioner or heat pump indoor coil size, leaving reduced space for other HVAC system components. Having to decrease the size of the fan due to these79 additional regulations could also make the furnace fan less efficient. (Morrison, No. 43 at p. 62) Mortex and Morrison also commented that the primary concern when selecting an airflow pat h design is usually safety or impact on heat transfer, not efficiency. (Mortex, No. 43 at p. 135 ; Morrison, No. 58 at p. 5 ) AHRI and Rheem outlined all of the possible housing design modifications that would affect airflow path design , including housing shape, distance between components, size of duct openings, and motor mounting. (AHRI, No. 48 at p. 3; Rheem, No. 54 at p. 9) AHRI emphasized that some modifications could improve or decrease efficiency, but all would require an increase in product size a nd , thus , manufacturing costs. (AHRI, No. 48 at p. 3) During manufacturer interviews, many manufacturers reiterated or echoed that airflow path design modifications would likely require increasing HVAC product size

. Manufacturers explained that increasin g HVAC products size would have adverse impacts on practicability to install and consumer utility , because the furnace fan market is predominantly a replacement market. Installing HVAC products that are larger in size compared to the products they are purchased to replace would likely present issues, mainly significant increases in installation costs or minimizing product availability to

consumers.

DOE did not receive or find additional quantitative data that shows a measurable increase in fan efficien cy as a result of a specific fan housing or airflow path design modification

. Even after individual discussion with manufacturers, DOE was not able to identify a case where fan housing or airflow path design modifications could lead to potential fan energ y savings without increasing the size of the HVAC product in which80 the furnace fan is used or compromising thermal performance or safety. In response to Morrison’s comment, DOE assumes that the “added heat transfer surface area” in the 90%+ efficient furn ace that Morrison refers to is the secondary heat exchanger typically used in condensing furnaces. DOE is aware of the impacts on thermal efficiency and furnace fan performance of the additional heat exchanger in condensing furnaces. As discussed in sectio n III.B , DOE accounted for these impacts in its criteria for differentiating product classes. The 90%+ furnace (condensing) and 80%+ furnace (non

condensing) that Morrison refers to would not be in the same product class according to DOE’s proposed product classes. In addition, DOE concurs with manufacturers’ observations that an increase in envelope size would adversely impact practicability to manufacture and install, as well as product utility. Accordingly, DOE has decided to screen out fan housing and airflow path design modifications until quantitative data become available to show that a fan housing or airflow path design modification results in improved fan efficiency without increasing HVAC product size or compromising thermal performance or safety.

2. Remaining Technologies Through a review of each technology, DOE found that all of the other identified technologies met all four screening criteria to be examined further in DOE’s analysis. In
summary, DOE did not screen out the following technology opt ions: (1) inverter

- driven PSC fan motors; (2) high

- efficiency fan motors; (3) multi

- stage heating controls; and (4) backward

- inclined impellers. DOE understands that all of these technology options are technologically feasible , given that t he evaluated te chnologies are being used (or have81 been used) in commercially

- available products or working prototypes. These technologies all incorporate materials and components that are commercially available in today’s supply markets for the residential furnace fans that are the subject of this NOPR. Therefore, DOE believes all of the efficiency levels evaluated in this notice are technologically feasible. For additional details, please see chapter 4 of the NOPR TSD.

DOE finds that all of the remaining technology o ptions also meet the other screening criteria ( i.e. , practicable to manufacture, install, and service and do not result in adverse impacts on consumer utility, product availability, health, or safety)

. Interested parties, however, voiced concerns regardin g these screening criteria as they apply to BPM fan motors and backward

- inclined impellers. DOE addresses these concerns in the sections immediately below

. DOE did not receive public comments relevant to the screening analysis criteria for the other rema ining technology options.

a. High

- Efficiency Motors AHRI stated that there are a limited number of ECM motor suppliers to furnace fan manufacturers

. (AHRI, No. 48 at p. 2) Lennox commented that the technology is proprietary and dominated by a single motor manufacturer. Lennox add ed that industry competition is adversely affected as a result. (Lennox, No. 47 at p. 6) AHRI and Lennox noted that furnace fan manufacturers already have difficulties securing an adequate supply , so mandating ECM use would impact product availability. (Lennox, No. 47 at p. 8; AHRI, No. 48 at p. 2) AHRI and Mortex stated that no alternative ECM exists at the scale of Regal Beloit ECMs and that limiting PSC applicability would reduce product82 flexi bility. (AHRI, No. 48 at p. 2; Mortex, No. 43 at p. 129) Both Goodman and Ingersoll Rand do not expect that a technology with better or equivalent performance to brushless permanent magnet motors will be available at a reasonable cost in the next decade. (Goodman, No. 50 at p. 2; Ingersoll Rand, No. 57 at pp. A

- 2)

Regal Beloit disagreed with residential furnace fan manufacturers , claim ing that there is more than just a single motor manufacturer offering ECM technology. (Regal Beloit, No. 43 at p. 130) NMC concurred with Regal Beloit , stating that it too sells brushless permanent magnet motors in high volume s to furnace fan manufacturers. (NMC, No. 60 at p. 2) NMC supported DOE’s assumption that after implementation of furnace fan efficiency standard s, brushless permanent magnet motor technologies will become increasingly available over time. (NMC, No. 60 at p. 2) Ingersoll Rand confirmed that brushless DC motors are an ECM alternative available from several suppliers , although prices vary. (Ingers oll Rand, No. 57 at pp. A

- 2) Although Rheem commented that they have applied brushless DC motors produced by more than just a single vendor, their current designs and production processes have been developed to be specifically paired with Regal Beloit pro ducts. (Rheem, No. 54 at p. 7) DOE discovered during interviews with manufacturers that there are multiple suppliers of BPM motors. DOE also found further evidence that some manufacturers purchase BPM motors from multiple suppliers. EEI stated that the expiration of Regal Beloit ECM patents around
2020 may increase the availability of this motor type while decreasing cost. (EEI, No. 43 at p. 127)83 In the p reliminary a nalysis, DOE requested comment as to whether manufacturers could alternatively develop BPM motor controls in

- house when using high

- efficiency motors from other, non

- Regal Beloit, suppliers. Currently, Regal Beloit offers BPM motors packaged with controls. Manufacturers may buy BPM motors that are not pre

packaged with controls from a suppli er other than Regal Beloit, and develop their own controls. DOE anticipated that if furnace fan manufacturers had the ability to develop controls independently of Regal Beloit, this might drive down costs as well as dependency on a single manufacturer.

M ost furnace fan manufacturers claimed that development of in

- house controls for BPM motor s is not an option. For example, Rheem uses General Electric and Regal Beloit software tools to program motors and does not currently have the capability to design mo tor controls without this tool. (Rheem, No. 54 at p. 6) Lennox and Mo rrison noted that having to design, build, and test motor controls would increase burden for large manufacturers and be prohibitively expensive to small manufacturers, neither of which have the expertise to develop these type of complex controls internally. (Lennox, No. 47 at p. 6; Morrison, No. 58 at p. 2) Lennox was also fearful that ECM suppliers might find motor control development an attempt to develop a replacement product and

cu t ties with furnace fan manufacturers. (Lennox, No. 47 at p. 7)

NMC confirmed that many U

. S

. motor suppliers bring in equipment from a fan manufacturer and develop unique ECM controls tailored to the manufacturer. (NMC, No. 43 at p. 128)84 While DOE rec ognizes that Regal Beloit possesses a number of patents in the
BPM motor space, other motor manufacturers ( e.g. , Broad Ocean or NMC ) also offer BPM models. Additionally, DOE is aware that in years past, residential furnace fans paired with constant

- airflow BPM motors accounted for 30 percent of the market. While DOE estimates that constant

- airflow BPM motors represent only 10

- 15 percent of the current furnace fan market, the manufacturing capability to meet BPM motor demand exists. Thus, D OE has tentatively concluded that BPM motor technology is currently available from more than one source and will become increasingly available to residential furnace fan manufacturers.

Some fan manufacturers expressed concern that high

- efficiency motor r eliance on rare earth metals would impact supply. However, DOE is aware of high

- efficiency motors that do not contain rare earth materials. DOE is also confident, after manufacturer discussions, that if BPM motors are adopted as a means to meet a future residential furnace fan energy conservation standard, manufacturers would have a number of cost

and performance

- competitive suppliers from which to choose who have available , or could rapidly develop , control systems independently of the motor manufacture r.

b. Backward

- Inclined Impellers According to Rheem, backward

- inclined impellers must have larger diameter and operat e at higher speed than forward

- curve impellors in order to attain equivalent performance ( i.e. , flow and pressure rise). (Rheem, No. 54 at p. 7) Goodman asserted85 that a 40

- 50 percent increase in diameter would be necessary for backward

- inclined impellers to outperform their forward

- curved counterparts. (Goodman, No. 50 at p. 2) According to AHRI, an impeller diameter increase would lead t o an increase in overall product size, a change which may not be possible without redesigning the product. (AHRI, No. 48 p. 2) Morrison and Rheem argued that the larger evaporator coil size required to meet higher SEER requirements already limits the spa ce available for furnaces, so an increase in product size due to backward

- inclined impellers would severely restrict product application. (Morrison, No. 58 at p. 3; Rheem, No. 54 at p.7) Ingersoll Rand stated that when used with backward

- inclined impeller s, motors typically operate at twice the RPM of forward

- curved impellers for the same air delivery and static pressure. (Ingersoll Rand, No. 57 at pp. A

- 3) However, ebm

- papst stated that they retrofitted existing equipment with backward

- curved impellers , which only required making minor changes to the airflow path within the equipment. Ebm

- papst also stated that it tested the retrofitted products, which achieved reductions of input power to the furnace fan in the range of 15

- 30 percent, depending on the sp ecific equipment and the external static pressure (typically tested at 0.5 in.w.c. and 1.0 in.w.c.). (ebm

- papst, No. 52 at p. 1)

AHRI and Rheem were also concerned with the potential impacts that backward

inclined impellers could have on heat exchanger te mperatures . AHRI and Rheem stated that t he air distribution out of a blower housing with a forward

- c urved wheel is maximum at the outside edges of the wheel and decreases at the center of the wheel. The air distribution out of a blower housing with a backward

- i nclined wheel is maximum at the86 center of the wheel and tapers off at the outside edges. The modified air distribution out of the blower housing would require assessment of heat exchanger temperatures for reliability and safety , as temperature li mit s operation. (AHRI, No. 48 at p. 2; Rheem, No. 54 at p. 8)

Some commenters also argued that b ackward

- inclined impellers may affect furnace fan utility, because the noise produced by this impeller type may limit product application. Utilities have clai med that a backward

- inclined impeller, in combination with increased fan motor speeds to achieve higher efficiency, leads to amplified noise levels. (EEI, No. 60 at p. 3; SCE, No. 43 at p. 59) However, during its testing of HVAC products retrofitted with a backward

- inclined impeller, ebm

- papst expressed a contrary view, observing that noise levels produced by the backward

- inclined impeller were not significantly different from forward

- curved impellers. (ebm

- papst Inc., No. 52 at p. 1)

DOE finds that the re are multiple approaches to implementing backward

- inclined impellers to reduce furnace fan energy consumption. DOE recognizes that one approach is to use a backward

- inclined impeller that is larger than a standard forward

- curved impeller, which may lead to larger HVAC products. Another approach is to pair the backward

- inclined impeller with a motor that operates at increased RPM. E bm

- papst
tests show a significant potential to reduce fan electrical energy consumption for a backward

- inclined impeller as sembly that uses existing motor technology at higher RPMs and is implemented in existing HVAC products ( i.e. , no increase in product size required). E bm

- papst does not believe that achieving higher RPMs with existing motor87 technology is an obstacle for implementing this technology. DOE believes that this prototype represents a backward

- inclined implementation approach that could achieve fan energy savings while avoiding the negative impacts listed by manufacturers. Consequently, DOE decided not to screen out the backward

- inclined impeller technology option.

C. In the engineering analysis (corresponding to chapter 5 of the NOPR TSD), DOE establishes the relationship between the manufacturer selling price (MSP) and improved residential furnace fan efficiency. This relationship serves as the basis for cost

- benefit calculations for individual consumers, manufacturers, and the Nation. DOE typically structures the engineering analysis using one of three approaches: (1) design option; (2)

e fficiency level; or (3) reverse engineering (or cost

- assessment). The design

- option approach involves adding the estimated cost and efficiency of various efficiency

improving design changes to the baseline to model different levels of efficiency. The effic iency

- level approach uses estimates of cost and efficiency at discrete levels of efficiency from publicly

- available information, and information gathered in manufacturer interviews that is supplemented and verified through technology reviews. The reverse

e ngineering approach involves testing products for efficiency and determining cost from a detailed bill of materials derived from reverse engineering representative products. The efficiency values range from that of a least

- efficient furnace fan sold today ( i.e. , the baseline) to the maximum technologically feasible efficiency level. For each efficiency Engineering Analysis88 level examined, DOE determines the MSP; this relationship is referred to as a cost

efficiency curve.

1. Efficiency Levels In this rulemaking, DOE used an effi ciency

- level approach in conjunction with a design

- option approach to identify incremental improvements in efficiency for each product class. An efficiency

- level approach enabled DOE to identify incremental improvements in efficiency for efficiency

- improv ing technologies that furnace fan manufacture r s already incorporate in commercially

- available models. A design

- option approach enabled DOE to model incremental improvements in efficiency for technologies that are not commercially available in residential furnace fan applications. In combination with these approaches, DOE used a cost

- assessment approach to determine the manufacturing production cost (MPC) at each efficiency level identified for analysis. This methodology estimates the incremental cost of in creasing product efficiency. When analyzing the cost of each efficiency level , the MPC is not for the entire HVAC product , because furnace fans are a component of the HVAC product in which they are integrated. The MPC includes costs only for the components of the HVAC product that impact FER.

a. Baseline During the preliminary analysis, DOE selected baseline units typical of the least

efficient furnace fans used in commercially

- available, residential HVAC models that have a large number of annual shipments. This sets the starting point for analyzing89 potential technologies that provide energy efficiency improvements. Additional details on the selection of baseline units may be found in chapter 5 of the NOPR TSD. DOE compared the FER at higher energy efficie ncy levels to the FER of the baseline unit and compared baseline MPCs to the MPCs at higher efficiency levels

.

DOE reviewed FER values that it calculated using test data and performance information from publicly

- available product literature to determine baseline FER ratings. Table IV. 4 presents the baseline FER values identified in the preliminary analysis for each product class.

Table IV . 4 : Preliminary Analysis Baseline FER

Product Class FER (W/1000 cfm) Non

- W eatherized, Non

- condensing Gas Furnace Fan 380 Non

- W eatherized, Condensing Gas Furnace Fan 393 Weatherized, Non

- Condensing Gas Furnace Fan 333 Non

- Weatherized, Non

- Condensing Oil Furnace Fan 333 Electric Furnace / Modular Blower Fan 312 Manufactured Home Non

- weatherized, Non

condensing Gas Furnace Fan 295 Manufactured Home Non

- weatherized, Condensing Gas Furnace Fan 319 Manufactured Home Electric Furnace / Modular Blower Fan 243

Manufacturers asserted that the baseline FER values presented in the preliminary analysis were not representative of the furnace fans in the least

- efficient residential HVAC models offered for sale today. Specifically, manufacturers stated that non

weatherized, non

- condensing gas furnac es should be assigned a baseline FER of 451 instead of 380 and that non

- weatherized, condensing gas furnaces should have an FER of90 494 rather than 393. (AHRI, No. 48 at p. 5; Morrison, No. 58 at p. 6; Goodman, No. 50 at p. 5) Rheem also doubted that the difference in efficiency between non

- condensing and condensing gas furnaces was only 13 points, a FER of 380 versus 393, as presented in the DOE’s preliminary analysis. (Rheem, No. 43 at p. 96) Mortex calculated that their manufactured home, non

- weatheri zed, non

- condensing gas furnace had an FER of 420, not 295 as suggested by the DOE. Mortex also stated that published data used to calculate FER values w ere generated using ASHRAE Standard 103, not AMCA Standard 210, and that calculating FER based on publ ished data may not be the best approach

. (Mortex, No. 59 at p. 3; Mortex, No. 43 at p. 25) In contrast, Ingersoll Rand stated that the baseline FER presented in the preliminary analysis was consistent with the figures presented in AHRI S tandard 2 10 / 240. (Ingersoll Rand, No. 57 at pp. A

- 7) Unico emphasized that the DOE should consider the broad range of designs fitting the “baseline” definition, lest the selected FER only be achievable by one manufacturer’s design. (Unico, No. 43 at p. 79) Mortex disag reed with the DOE’s key product approach, arguing that the selected product classes will have huge variation in efficiency ( i.e. , baseline FER). (Mortex, No. 43 at p. 50) Manufacturers also provided additional baseline FER estimates during manufacturer interviews.

Some manufacturers also requested that DOE alter FER to better reflect unit capacity. Goodman suggested that DOE should consider using only one metric for all furnace fan capacities falling within the residential range (< 130 kBtuh) after making adjustments to the metric to include higher capacity units. (Goodman, No. 50 at p. 2) Alternatively, Mortex recommended that DOE should set maximum FER values for sub

-91 product classes based on cooling capacity and cabinet size. (M ortex, No. 59 at p. 3) Similarly, AHRI stated that residential furnace fans having a 5

- ton capacity also ha ve higher FERs and recommended that DOE adjust baseline FER values to include the largest

- capacity fan within a product class. (AHRI, No. 48 at p. 2) Rheem calculated FER for 19 models of gas

- fired furnaces that used the same blower housing design , and it found that FER was generally not dependent on capacity. A graphic summary of Rheem’s results are available in the written comment that Rheem subm itted

. 27 (Rheem, No. 54 at p. 5).

DOE evaluated the feedback it received and used the data provided by interested parties to generate new FER values and to revise its baseline, intermediate efficiency level s , and max

- tech FER estimates. DOE’s revisions in cluded FER results for furnace fan models that span the capacity range of residential products. After reviewing all of the available FER values based on new data, DOE concluded that FER can best be represented as a linear function of airflow capacity ( i.e. , a first constant added to airflow multiplied by a second constant )

. The slope characterizes the change in FER for each unit of airflow capacity increase, and the y

- intercept represents where the FER line intersects the y

- axis (where airflow capacity is t heoretically zero). DOE proposes to use such linear functions to represent FER for the different efficiency levels of the different product classes. A more detailed description of the analysis and the methodology DOE used to generate FER equations for each efficiency level can be found in chapter 5 of the NOPR
TSD.

27 Publically available at: http://www.regulations .gov/#!documentDetail;D=EERE

- 2010

- BT

- STD

- 0011

- 0054

.92 Table IV.5 shows the revised FER baseline efficiency levels estimates that DOE used for the NOPR.

Table IV . 5 : NOPR Baseline FER Estimates

Product Class FER * (W/1000 cfm) Non

- W eatherized, Non

- condensing Gas Furnace Fan FER = 0.057 x Q Max + 362 Non

- W eatherized, Condensing Gas Furnace Fan FER = 0.057 x Q Max + 395 Weatherized Non

- Condensing Gas Furnace Fan FER = 0.057 x Q Max + 271 Non

- Weatherized, Non

- Condensing Oil Furnace Fan FER = 0.057 x Q Max + 336 Electric Furnace / Modular Blower Fan FER = 0.057 x Q Max + 331 Manufactured Home Non

- weatherized, Non

condensing Gas Furnace Fan FER = 0.057 x Q Max + 271 Manufactured Home Non

- weatherized, Condensing Gas Furnace Fan FER = 0.057 x Q Max + 293 Manufactured Home Electric Furnace / Modular Blower Fan FER = 0.057 x Q Max + 211 Manufactured Home Weatherized Gas Furnace Fan Reserved Manufactured Home Non

- Weatherized Oil Furnace Fan Reserved

* Q Max is the airflow, in cfm, at the maximum airflow

- control setting measured us ing t he proposed DOE test procedure. 78 FR 19606, 19627 (April 2, 2013)

. b. Percent Reduction in FER For the preliminary analysis, DOE determined average FER reductions for each efficiency level for a subset of key product classes and applied these reductions to all product classes. DOE found from manufacturer feedback and its review of publically

availa ble product literature that manufacturers use similar furnace fan components and follow a similar technology path to improving efficiency across all product classes. DOE does not expect the percent reduction in FER associated with each design option, whet her commercially available or prototype, to differ across product classes as a result. Table93 IV.6 includes DOE’s preliminary analysis estimates for t he percent reduction in FER from baseline for each efficiency level.

Table IV . 6 : Preliminary Analysis Estimates for Percent Reduction in FER from Baseline for Each Efficiency Level Efficiency Level (EL) Desi gn Option Percent Reduction in FER from Baseline 1 Improved PSC 2% 2 Inverter

- Driven PSC 10% 3 Constant

- Torque BPM Motor 45% 4 Constant

- Airflow BPM Motor + Multi

- Staging 59%

5 Premium Constant

- Airflow BPM Motor + Multi

Staging + Backward

- I nclined Impeller 63%*
*DOE estimates that implementing a backward

- inclined impeller at EL 5 results in a 10% reduction in FER from EL 4. This is equivalent to a reduction of 4% percent of the baseline FER. The total percent reduction in FER from baseline for E L 5 includes the 59% reduction from EL 4 and the 4% net reduction of the backward

- inclined impeller for a total percent reduction of 63% from baseline.
Interested parties questioned DOE’s estimates for the FER reduction for high

efficiency motors. NMC commented that the company offers a special high

- efficiency PSC motor line called PEP® that can achieve 10 points of efficiency improvement over standard P SC motors rather than 1.6

- percent improvement shown in the preliminary analysis. (NMC, No. 60 at p. 1) Other interested parties provided similar estimates for improved PSC motors during manufacturer interviews. Unico noted that the high

efficiency BPM m otor technology options in the Engineering Analysis (constant

- torque
or constant

- air

- flow BPM) do not improve fan efficiency as much as DOE’s percent reduction in FER estimates suggest. (Unico, No. 43 at p. 109) Lennox suggested that a more accurate esti mate of reduction in FER resulting from PSC to X13 motor conversions would be 30 percent as opposed to the 45 percent presented in the94 preliminary analysis. (Lennox, No. 47 at p. 2) Goodman provided a reference to a report from Advanced Energy of North C arolina 28 that stated that replacing PSC motors with full

- ECM motors results in a 51

- percent reduction in full

- load efficiency. (Goodman, No. 50 at p. 3) Goodman would expect that the reduction in FER for X13 and ECM conversions be lower than presented in the preliminary analysis such as 35

- 50 percent for X13s and 45

- 50 percent for ECM. (Goodman, No. 50 at p. 5)

DOE reviewed its estimates of percent reduction in FER from baseline for each efficiency level based on interested party feedback. In addition to the comments presented above, interested parties also provided FER values for higher

- efficiency products in manufacturer interviews. DOE used these data to revise its percent reduction estimates. Table IV.7 shows DOE’s revised estimates for the percent reduction in FER for each efficiency level that DOE used in the NOPR analyses. For a given product class, DOE applied the percent reductions belo w to both the slope and y

- intercept of the baseline FER equation to generate FER equations to represent each efficiency level above baseline.

Table IV . 7 : NOPR Estimates for Percent Reduction in FER from Base line for Each Efficiency Level Efficiency Level (EL) Design Option Percent Reduction in FER from Baseline 1 Improved PSC 10% 2 Inverter

- Driven PSC 25%

28 Fitzpatrick and Murray, Residential HVAC Electronically Commutated Motor Retrofit Report (2012) (Available at: http://www.advancedenergy.org/ci/services/testing/files/Residential%20HVAC%20Electronically%20Com mutated%20Motor%20Retrofit%20Final%20Report.pdf ).95 3 Constant

- Torque BPM Motor 42% 4 Constant

- Torque BPM Motor and Multi

- Staging 50%
5 Constant

- Airflow BPM Motor and Multi

- Staging 53%
6 Premium Constant

- Airflow BPM Motor and Multi

- Staging + Backward

- I nclined Impeller 57%* *DOE estimates that implementing a backward

- inclined impeller at EL 6 results in a 10% reduction in FER from EL 5. This is equivalent to a 4% percent reduction in FER from baseline. The total percent reduction in FER from baseline for EL 6 includes the 53% reduction from EL 5 and the 4% net reduction from the backward

- inclined impeller for a total percent reduction of 57% fro m baseline.

DOE believes that these revised estimates are consistent with the comments received from interested parties. Note that EL 4 in the table above is a newly proposed eff iciency level. As discussed in section IV.A.3 , DOE analyzed multi

- staging a s a separate technology option. For the NOPR, DOE also has evaluated a separate efficiency level representing applying multi

- staging to a furnace fan s with a constant

- torque BPM motor. DOE recognizes that the percent reduction in FER for inverter

- driven PSC increased considerably. However, since the baseline FER values increased for the NOPR, DOE believes that the percent reductions cannot directly be compared to those proposed in the preliminary analysis. DOE notes that the cited reductions may not appe ar to be fully consistent with stakeholder comments in part because they are FER reductions rather than reductions in full

- load electrical efficiency. DOE expects that FER reductions may be significantly higher than full

- load input power reductions, espec ially for efficiency levels based on use of BPM motors, because FER includes electrical energy consumption at reduced operating modes, for which these motors achieve much greater power reduction than PSC designs.96 2. Manufacturer Production Cost (MPC) In the preliminary analysis, DOE estimated the manufacturer production cost associated with each efficiency level to characterize the cost

- efficiency relationship of improving furnace fan performance. The MPC estimates are not for the entire HVAC product becaus e furnace fans are a component of the HVAC product in which they are integrated. The MPC estimates includes costs only for the components of the HVAC product that impact FER, which DOE considered to be the:

**•** Fan motor and integrated controls;

**•** Primary cont rol board (PCB);

**•** Multi

- staging components;

**•** Impeller;

**•** Fan housing; and

**•** Components used to direct or guide airflow.

DOE separated the proposed product classes into high

- volume and low

- volume product classes and generated high

- volume and low

- volume MPC estimates to account for the increased purchasing power of high

- volume manufacturers. 29

a. Production Volume Impacts on MPC Morrison stated that DOE’s assumption that large manufacturers have the same purchasing power across product types, even when those pro ducts are low volume, may

29 High

- volume and low

- volume product cla sses are discussed further in chapter 5 of the NOPR TSD.97 or may not be true, because low

- volume products may run through different processes. (Morrison, No. 43 at p. 118) Rheem stated that, in some cases, it uses the same blower system in low

- volume products that it uses in high

- volum e products. (Rheem, No. 43 at p. 118) Unico commented that it uses different manufacturing processes than those presented in DOE’s analysis and recommended that a different metric should be used to evaluate technologies that differ by process. (Unico, N o. 43 at p. 122) Mortex stated that the motor costs for smaller manufacturers can be 15

- 20 percent greater than for large manufacturers because they do not, as stated by NEMA, benefit from economies of scale. (Mortex, No. 59 at p. 3; NEMA, No. 43 at p. 1 13)

DOE recognizes that high

- volume manufacturers may use different processes to manufacture low

- volume products than to manufacture high

- volume products. However, DOE finds that 94 percent of the MPC for furnace fan s is attributed to materials (includin g purchased parts like fan motors), which are not impacted by process differences. DOE’s estimates also already account for process differences between manufacturers for high

- volume and low

- volume products. The products that DOE evaluated to support calc ulation of MPC included furnace fans from various manufacturers, including both high

- volume and low

- volume models. Observed process differences are reflected in the bills of materials for those products. DOE agrees with Mortex that low

- volume manufacture rs experience higher costs for materials, such as motors. DOE believes that its approach to distinguish between high

- volume and low

-98 volume product classes accounts for the expected difference in MPC between high

volume and low

- volume product classes. 30

b. In verter

- Driven PSC Costs In the preliminary analysis, DOE estimated that the MPC of inverter control for a
PSC motor is $10

- $12, depending on production volume. Ingersoll Rand stated that an inverter cannot be added to a PSC for only $10

- $12. (Ingersoll Ra nd, No. 57 at pp. A

- 7) NMC also questioned the validity of the inverter controller cost estimate, stating that the cost of an inverter driven controller is significantly higher than $12, unless DOE is erroneously equating inverters to wave chopper technol ogy, which is far less efficient. (NMC, No. 60 at p. 1)

DOE’s preliminary analysis estimate for the MPC of an inverter

- driven PSC was indeed based on a wave chopper drive. DOE finds that more sophisticated and costly inverters are required to achieve th e efficiencies reflected in DOE’s analysis. Consequently, DOE has adjusted its cost estimate for PSC inverter technology. DOE gathered more information about the cost of inverters that are suited for improving furnace fan efficiency. In addition to receiv ing cost estimates during manufacturer interviews, DOE also reviewed its cost estimates for inverter drives used in other residential applications, such as clothes washers. DOE finds that $30 for high

- volume products and $42.29 for low

- volume products are better estimates of the MPC for

30 High

- volume and low

- volume product classes are discussed further in chapter 5 of the NOPR TSD.99 inverters used to drive PSC furnace fan motors. Accordingly, DOE has updated these values for the NOPR.

c. Furnace Fan Motor MPC Manufacturers stated that DOE underestimated the incremental MPC to implement high

- efficiency m otors in HVAC products, other than oil furnaces. (Rheem, No. 54 at p. 10) Most manufacturers stated that the cost increase to switch from PSCs to

more - efficient motor technologies was at least twice that of the DOE’s estimate. (Lennox, No. 43 at p. 23, 113 and No. 47 at p. 1; Mortex, No. 43 at p. 25; Rheem, No. 43 at p. 112; Goodman, No. 50 at p. 3) AHRI and Morrison claimed incremental costs associated with an X13 motor should be $60, instead of the $22.73 reported by DOE and in the case of ECMs, $133 instead of the $91.95 reported by DOE. (AHRI, No. 48 at p. 6; Morrison, No. 58 at p. 6) Nidec, a motor manufacturer, commented that DOE should directly contact motor suppliers to confirm motor prices. (NMC, No. 43 at p. 112) Regal Beloit requested DOE review its assumption on motor horsepower range to explain why Rheem and other manufacturers claim their motors cost twice what is shown in DOE’s preliminary analysis. (Regal Beloit, No. 52 at p. 242) DOE received additional feedback regarding its estima ted motor prices during NOPR

- phase manufacturer interviews.

Based upon the input received from interested parties, DOE adjusted its motor cost estimates. In general, DOE increased its estimates by approximately 10 to 15 percent, which is consistent with the feedback DOE received. Details regarding DOE’s revised motor MPC estimates are provided in chapter 5 of the NOPR TSD.100 d. Motor Control Costs In the preliminary analysis, DOE estimated that the MPC of the primary control board ( PCB ) increases with each c onversion to a more

- efficient motor type ( i.e. , from
PSC to constant

- torque BPM motor and from constant

- torque to constant

- airflow BPM motor). Both Lennox and Goodman confirmed that higher

- efficiency motors require more sophisticated and costly controls. These manufacturers stated that control costs for an X13 motor application increase from 50

- 100 percent, as compared to controls for PSC motors. (Lennox, No. 47 at p. 8; Goodman, No. 50 at p. 2) Rheem stated that the controls of one of its modulating fu rnace models that uses a variable speed furnace fan are costly , although no quantified estimate was provided . (Rheem, No. 54 at p. 7) Rheem also responded that Regal Beloit’s Evergreen 31 motors, which are designed as replacements for PSCs, may be used wit h the same primary controls developed for the original PSC motor. 32

31 Evergreen is a constant

- airflow BPM motor that is meant to be installed as an on

- site replacement o f outdated PSC motors. (Rheem, No. 54 at p. 7) Ingersoll Rand stated that boards supporting modulating motors and communication are the most costly. (Ingersoll Rand, No. 57 at pp. A

- 2) DOE also received feedba ck regarding the cost of the PCBs associated with each motor type during manufacturer interviews. In general, manufacturers commented that the PCBs used with constant

- torque BPM motors are more costly. However, other manufacturer interview participants s tated that the MPC of the PCB used with these motors should be equivalent or even less expensive than the PCBs used with
PSC motors.

32 The constant

- airflow BPM motors that DOE analyzed for EL 5 and EL 6 cannot be used with the same primary controls for a PSC motor. See chapter 3 and chapter 5 of the NOPR TSD.101 DOE agrees with interested parties that the MPC of the PCB needed for a
constant

- airflow BPM motor is higher than for the PCB paired with a PSC motor. DOE maintained this assumption for the NOPR. DOE estimates that the MPC of a PCB paired with a constant

- airflow BPM motor is roughly twice as much as for a PCB paired with a
constant

- torque BPM motor or PSC. DOE also agrees with the interested parties that stated that the MPC for a PCB paired with a constant

- torque BPM motor is equivalent to that of a PCB needed for a PSC motor. DOE revised its analysis to reflect this assumption in the NOPR as a result.

e. Backward

- Inclined Im p eller MPC Interested parties commented that DOE’s preliminary analysis estimate for the incremental MPC associated with implementing a backward

- inclined impeller, in combination with a premium constant

- airflow BPM motor and multi

- staging, is too low. ( AHRI, No. 48 at p. 2; Ingersoll Rand, No. 57 at p. 2) Morrison and AHRI commented that tighter tolerances and increased impeller diameter lead to increased material costs, as well as increased costs associated with motor mount structure and reverse formin g fabrication processes. (AHRI, No. 48 at p. 3; Morrison, No. 43 at p. 120) Rheem and Morrison stated that the dimensional clearance for a backward

- inclined impeller would be 0.04

- 0.05 inches instead of 0.24

- 0.5 for a forward

- curved impeller. (Rheem, No . 54 at p. 8; Morrison, No. 58 at p. 3) This increase in product size and tolerance could lead to increased production costs. Ingersoll Rand, Morrison, and Rheem all cited increased material, assembly controls, reverse forming processes, and the strength ening of motor102 mounting systems (necessary at increased motor speeds) as potential costs associated with backward

- inclined impellers. (Ingersoll Rand, No. 57 at pp. A

- 3; Morrison, No. 58 at p. 4; Rheem, No. 54 at p. 8)

DOE reviewed its manufacturer pro duction cost estimates for the backward

inclined impeller technology option based on interested party comments. During manufacturer interviews, some manufacturers reiterated or echoed that DOE’s estimated MPC for backward

- inclined impellers is too low, bu t they did not provide quantification of the total MPC of backward

- inclined impellers or the incremental MPC associated with the changes needed to implement them. Other manufacturers did quantify the MPC of backward

- inclined impeller solutions and their e stimates were consistent with DOE’s preliminary analysis estimate. Consequently, DOE did not modify its preliminary analysis estimated MPC for backward

- inclined impellers.

D. DOE uses manufacturer

- to

- consumer markups to convert the manufac turer selling price estimates from the engineering analysis to consumer prices, which are then used in the LCC and PBP analysis and in the manufacturer impact analysis. Before developing markups, DOE defines key market participants and identifies distribution channels. Generally, the furnace distribution chain (which is relevant to the residential furnace fan distribution chain) includes distributors , dealers , general contractors , mechanical
contractors , installers , and builders. For the markups analysis, DOE combined mechanical contractors, dealers, and installers in a single category labeled “mechanical Markups Analysis103 contractors,” because these terms are used interchangeably by the industry. Because builders serve the same function in the HVAC market as gene ral contractors, DOE included builders in the “general contractors” category.

In the preliminary analysis, DOE used the same distribution channels for furnace fans as it used for furnaces in the recent energy conservation standards rulemaking for those pr oducts. 76 FR 37408 , 37464 (June 27, 2011). DOE believes that this is an appropriate approach , because the vast majority of the furnace fans covered in this rulemaking is a component of a furnace. Manufactured housing furnace fans in new construction ha ve a separate distribution channel in which the furnace (and fan) go directly from the furnace manufacturer to the producer of manufactured homes.

In the preliminary analysis, DOE requested comment on whether the market for replacement fans is large enoug h to merit a separate distribution channel, and, if so, what would be an appropriate assumption for its market share. Goodman expressed their belief that there is no market for replacing and/or upgrading only the furnace fan component of the furnace. (Go odman, No. 50 at p. 3) Goodman and AHRI commented that they are opposed to field replacements and retrofits of motors and blowers because such practices could have product safety implications

. (Goodman, No. 50 at p. 3; AHRI, No. 48 at p. 4) In contrast, Nidec recommend ed that DOE should consider a distribution channel for replacing furnace fans in already installed equipment. (Nidec, No. 60 at pp. 2

- 3)104 DOE has tentatively concluded that there is insufficient evidence of a replacement market for furnac e fans.

DOE develops baseline and incremental markups to transform the manufacturer selling price into a consumer product price. DOE uses the baseline markups, which cover all of a distributor’s or contractor’s costs, to determine the sales price of baseline models. Incremental markups are separate coefficients that DOE applies to reflect the incremental cost of higher

- efficiency m odels.

AHRI and Morrison voiced concerns with DOE's approach to incremental markups. (AHRI, No. 48 at p. 6 ; Morrison, No. 58, at p. 7 ) The se commenters stated that while the concept of profits constrained to the long

- run cost of capital is a basic tenet of microeconomics, it has not been validated empirically and that there are enough exceptions and alternative concepts to question the use of th at concept in a normative

manner . AHRI also stated that DOE’s basic theoretical framework requires that the

re levant industry must be highly competitive, and AHRI believes that there are reasons to question this assumption in the context of residential furn a ce fans

. Goodman concurred with the concerns noted by AHRI in regards to the markups analysis. (Goodman, N o. 50 at p. 5)

DOE acknowledges that detailed information on actual distributor and contractor practices would be helpful in evaluating their markups on furnaces. However, DOE finds it implausible that profit per unit would increase in the medium and long run if the cost of105 goods sold increases due to efficiency standards. Thus, in the absence of evidence to the contrary, DOE continues to assume that markups would decline slightly, leaving profit unchanged, and , thus , it uses lower markups on incremental costs of higher

- efficiency products. Regarding the competitiveness of the HVAC distribution industry and the HVAC contractor industry, DOE does not have any empiri cal measures of competitiveness, but its impression, based on experience with these industries, is that there is sufficient competition to validate DOE’s assumptions with respect to the difficulty of distributors and contractors increasing profits as a res ult of standards.

AHRI and Morrison disagreed with DOE’s prediction that margins should be going up over time as equipment prices decrease. (AHRI, No. 48 at p. 6; Morrison, No. 58, at p. 7) DOE did not project a decrease in furnace fan prices in the pre liminary analysis, and the markups are assumed to remain the same over time.

Lennox believes that DOE’s claim that incremental costs will be discounted on markups through the distribution chain by approximately 50 percent understates the amount of increas ed costs that manufacturers will seek to pass through to consumers. (Lennox, No. 47 at p. 1) DOE does not apply a separate markup on the incremental manufacturer selling price. DOE assumes that manufacturers will be able to pass on the full incremental costs of higher

- efficiency furnace fans.

Morrison stated that the markups analysis does not accurately calculate the costs for installers/contractors. Morrison noted that with increase in efficiency standards, there106 will be added labor and an associated cost to assure the buyer of the efficiency gains; the added labor of installation and commissioning is not included in the markups analysis , and , thus , the final markup is too small. (Morrison, No. 58, at p. 6) In response, t he labor for installation and commissioning , including specific costs for higher

- efficiency furnace fans, is included in the LCC and PBP analysis, as DOE assumes that this cost is not part of the consumer cost of the furnace itself.

E. The purpose of the energy use a nalysis is to determine the annual energy consumption of residential furnace fans in representative U.S. homes and to assess the energy savings potential of increased furnace fan efficiency. In general, DOE estimated the annual energy consumption of furnace fans at specified energy efficiency levels across a range of climate zones. The annual energy consumption includes the electricity use by the fan, as well as the change in natural gas, liquid petroleu m gas (LPG), electricity, or oil use for heat production as result of the change in the amount of useful heat provided to the conditioned space as a result of the furnace fan. The annual energy consumption of furnace fans is used in subsequent analyses, i ncluding the LCC and PBP analysis and the national impact analysis. Energy Use Analysis

DOE used the existing DOE test procedures for furnaces and air conditioners to estimate heating and cooling mode operating hours for the furnace fan. The power consumption of the furnace fan is determined using the individual sample housing unit operating conditions (the pressure and airflow) at which a particular furnace fan will107 operate when performing heating, cooling, and constant

- circulation functions. The methodology and the data a re fully described in chapter 7 of the NOPR TSD.

DOE used the Energy Information Administration’s (EIA) Residential Energy Consumption Survey (RECS) 33 to establish a sample of households using furnace fans for each furnace fan product class. RECS data pro vide information on the age of furnaces with furnace fans, as well as heating and cooling energy use in each household. The survey also includes household characteristics such as the physical characteristics of housing units, household demographics, infor mation about other heating and cooling products, fuels used, energy consumption and expenditures, and other relevant data. DOE uses the household samples not only to determine furnace fan annual energy consumption, but also as the basis for conducting the LCC and PBP analysis.

For the NOPR, DOE us ed RECS 200 9 34 heating and cooling energy use data to determine heating and cooling operating hours. DOE used data from RECS 2009, American Housing Survey (AHS) 20 11 , 35 and the Census Bureau 36 to project househol d weights in 201 9 , which is the anticipated compliance date of any new energy efficiency standard for residential furnace fans. These adjustments account for housing market changes since 200 9 , as well as for projected product and demographic changes.

33 Energy Information Administration, 2009 Residential Energy Consumption Survey (Available at: http://www.eia.doe.gov/emeu/recs ). 34 See http://www.eia.gov/consumption/residential/data/2009/

. 35 See http://www.census.gov/housing/ahs/data/national.html

. 36 See http://www.census.gov/popest/

.108 The power consumption (and overall efficiency) of a furnace fan depends on the speed at which the motor operates, the external static pressure difference across the fan, and the airflow through the fan. To calculate furnace fan electricity consumption, DOE d etermined the operating conditions (the pressure and airflow) at which a particular furnace fan will operate in each RECS housing unit when performing heating, cooling, and constant

- circulation functions.

DOE gathered field data from available studies and research reports to determine an appropriate distribution of external static pressure (ESP) values. DOE compiled over 1,300 field ESP measurements from several studies that included furnace fans in single

family and manufactured homes in different region s of the country. The average ESP value in the cooling operating mode from these studies results in an average 0.65 in. wc for single

- family households and 0.30 in. wc for manufactured homes.

DOE determined furnace fan operating hours in heating mode by calculating the furnace burner operating hours and adjusting them for delay times between burner and fan operation. Burner operating hours are a function of annual house heating load, furnace efficiency, and furnace input capacity.

EEI stated that DOE s hould take into consideration the impact of more

- stringent building energy codes when estimating energy use baselines and projected energy savings. (EEI, No. 65 at p. 4) In response, DOE’s analysis accounts for the likelihood that, compared to recently

- b uilt homes in the RECS sample, new homes in the year of109 compliance will have both a lower heating load per square foot and more square footage using the building shell efficiency index from AEO 2012

.

In the preliminary analysis, to estimate use of constant circulation in the sample homes, DOE evaluated the available studies, which include a 2010 survey in Minnesota 37 and a 2003 Wisconsin field monitoring of residential furnaces. 38 DOE did not use these data directly, however, because it believes they are not representative of consumer practices for the U.S. as a whole. In these northern States, many homes have low air infiltration , and there is a high awareness of indoor air quality issues, which could lead to significant use of constant circulation. To develop appropriate assumption s for other regions, DOE modified the data from these States using information from manufacturer product literature (which suggests very little use in humid climates) and co nsideration of climat e conditions in other regions.

Several parties stated that DOE overestimated the use of constant

- circulation mode, thereby overcounting the energy savings from higher

- efficiency furnace fans. AHRI commented that continuous circulati on is used significantly less than estimated in DOE’s technical support document. In particular, AHRI pointed out that DOE’s estimate of constant

- circulation hours is based on surveys taken in only two S tates

-- Wisconsin and Minnesota

-- where there is h igh occurrence of indoor air quality issues that make use of the continuous fan feature more likely. To overcome this perceived deficiency,

37 Provided in CEE, No. 22 at pp. 1

- 2. 38 Pigg, S. , “ Electricity Use by New Furnaces: A Wisconsin Field Study ” (October 2003) (Available at http://www.doa.state.wi.us/docview.asp?docid=1812 ).110 AHRI recommended a study of constant

- circulation hours in areas of the country that do not have high occurrences of indoor air quality issues, leading to an allocation that is more representative of behavior in the U

. S. (AHRI, No. 48 at p. 4) Ingersoll Rand also stated that Wisconsin is not a good representation of the full national population, noting that DOE partia lly acknowledges this by assuming that the North is different from the South in terms of the use of constant circulation. (Ingersoll Rand Residential Solutions, No. 57, at p. 8) Goodman concurred that the values proposed for constant

- circulation hours ar e unrealistically high. Based on Goodman’s experience, the commenter stated that a more typical value for the percentage of U.S. households that use the fan in
constant

- circulation mode would likely be in the low single digits. (Goodman, No. 50 at p. 3) Morrison also stated that allocation of a large percentage of furnace fan time in the circulatory mode (21 percent of total time) is excessive. (Morrison, No. 58, at p. 7)

In contrast, CA IOUs stated that constant

- circulation mode on the air handler is a primary means for mechanical ventilation of homes. CA IOUs argued that as S tates increasingly adopt building codes that call for more airtight building envelopes, the need for mechanical ventilation increases as na tural ventilation decreases. Based upon this reasoning, CA IOUs stated that 400 hours per year in constant

- circulation mode (approximately the average that DOE estimated for non

- weatherized gas furnace fans) would be a conservative estimate. (CA IOU's, N o. 56, at p. 3) NEEA stated that based on recent trends in ventilation and in the sales of filtration systems, there is a substantial increase in the use of constant circulation , especially in new home construction. (Transcript, No. 43 at p. 193)111 DOE ack nowledges that it would be desirable to have additional data on the use of constant circulation in other parts of the country, but DOE was not able to conduct a study as suggested by AHRI for the NOPR analysis , nor did any commenter provide such data

. DOE concurs with the CA IOUs that the use of constant circulation may increase in new homes. For the NOPR, DOE used the same assumptions for use of constant circulation as it did in the preliminary analysis, which are also used in the proposed DOE test proce dure for furnace fans. 77 FR 28674 (May 15, 2012)

. The shares of homes using the various constant

- circulation modes are presented in Table IV .8

. However, DOE also performed a sensitivity analysis to estimate the effect on the LCC results if it assumed half as much use of constant circulation. These results are discussed in section
V.B.1 of this notice.

Table IV . 8 Constant
- Circulation Proposed Test Procedure Assumptions Used for NOPR Analysis

Constant
- Circulation Fan Use Assumed Average Number of

Hours Estimated Share of Homes in North and South
- Hot Dry Regions Estimated Share of Homes in South
- Hot Humid Region No constant fan 0 84% 97% Year

- round 7290 7% 1% During heating season 1097 2% 0.4% During cooling season 541 2% 0.4% Other (some constant fan) 365 5% 1% Total

-- 100% 100%112 Commenting on the preliminary analysis, EEI stated that DOE should balance fan energy savings with the potential for additional fuel use of the HVAC product

. (EEI, No. 65 at p. 3) With improved fan efficiency , there may be less heat from the motor, which means that the heating system needs to operate more and the cooling system needs to operate less. In response, DOE did account for the effect of improved furnace fan efficiency on the heating and cooling load of the sample homes. Goodman noted that DOE’s assumptions are technically correct with regard to the effect on heating or cooling requirements from the change in fan energy consumption, and the adjustments appear to be appropriate. (Goodman, No. 50 at p. 4)

In the preliminary analysis, DOE recognized that the energy savings in cooling mode from higher

- efficiency furnace fans used in some higher

- efficiency CAC and heat pumps was already accounted for in the analysis related to the energy conservation standards for those products. To avoid double

- counting, the analysis for furnace fans does not include furnace fan electricity savings that were counted in DOE’s analysis for CAC and heat pump products.

AHRI and Morrison commented that the LCC analysis includes furnace fan operating hours and furnace fan power operation in the cooling mode in the total energy consumption calculation. AHRI and Morrison noted that regulated metrics such as SEER and Heating Seasonal Performance Factor (HSPF) already addre ss fan energy consumption in air conditioners and heat pumps respectively. (AHRI, No. 48 at p. 6 ; Morrison, No. 58, at p. 8 ) Morrison commented that including this energy savings for113 this standard would result in the saving s be ing counted under two regul atory standards. Mortex commented that : (1) the electricity used to circulate air in the summer is already being accounted for as part of the SEER metric for central air conditioners and heat pumps; (2) in the winter , the E AE metric for furnaces account s for all electricity being used, including by the furnace fan; and (3) for heat pumps, the electricity used to circulate air is accounted for in the winter heating mode by the HSPF metric. (Mortex, No. 59, at pp. 1

- 2) Ingersoll Rand stated that heating and cooling should not be combined , as it does not accurately portray the cooling performance for all possible capacities and duplicates the furnace fan inclusion in the SEER determination. (Ingersoll Rand Residential Solutions, No. 57, at p. 1)

The sta ndards for CAC and heat pump products that will be effective in 2015 do not require a furnace with BPM motor

- driven fan . However, DOE’s rulemaking analysis for CAC and heat pump products included savings from those households purchasing a CAC or heat pump at SEER 15 or above , that would need to have an BPM motor

- driven fan in their furnace to achieve that efficiency level

. T he base

- case efficiency distribution of fans used in the current analysis includes the presence of those BMP motor

- driven fans
in home s with the higher

- efficiency CAC or heat pump s . Because the energy savings from the considered fan efficiency levels are measured relative to the base

- case efficiencies, any savings reported here for furnace fans are over and above those counted in the CA C and heat pump rulemaking

.114 Recognizing the possibility of consumers using higher

- efficiency furnace fans more than baseline furnace fans, DOE included a rebound effect in its preliminary analysis. DOE used a 2009 program evaluation report from Wisconsi n 39 to estimate the extent to which increased use of constant circulation under a standard requiring ECM furnace fans is likely to cancel out some of the savings from such a fan.

Commenters presented differing views on the likelihood of a rebound effect f or furnace fans. Rheem believes that the Wisconsin study is reasonable in its estimate of the fraction of households that may switch to continuous circulation use under a standard requiring ECM furnace fans. (Rheem, No. 54, at p. 13) Goodman does not be lieve there has been a significant shift in terms of increased usage of continuous fan with customers that have an ECM product versus an X13 product versus a PSC product. (Goodman, No. 50 at p. 4) Ingersoll Rand commented that if there were any comfort b asis for the use of continuous fan mode , more use might lead to a lower heat ing set

- point and a higher cooling set

- point, offsetting the added energy consumption for continuous fan. Ingersoll Rand commented that the rebound effect, if it exists, is uncert ain in direction and magnitude and should be deleted from the analysis. (Ingersoll Rand Residential Solutions, No. 57, at p. 8)

DOE acknowledges that the magnitude of a rebound effect for furnace fans across the country is uncertain. However, because th ere is some evidence for the existence of a

39 State of Wisconsin, Public Service Commission of W isconsin, Focus on Energy Evaluation Semiannual Report, Final ( April 8, 2009 ) (Available at: http://www.focusonenergy.com/files/document_management_system/evaluation/emcfurnaceimpactassessm ent_evaluationreport.pdf ).115 rebound effect, DOE prefers to include such an effect rather than risk overstating the energy savings from higher

- efficiency furnace fans. The specific assumptions are described in chapter 7 of the NOPR TSD.

F. In determining whether an energy conservation standard is economically justified, DOE considers the economic impact of potential standards on c onsumer s. The effect of new or amended energy conservation standards on individual c onsumer s usually in volve s a reduction in operating cost and an increase in purchase cost. DOE uses the following two metrics to measure consumer impacts: Life

- Cycle Cost and Payback Period Analysis

**•** L ife

- cycle cost

**•** (LCC ) is the total c onsu mer cost of an appliance or product, generall y over the life of the appliance or product. The LCC calculation includes total installed cost (equipment manufacturer selling price, distribution chain markups, sales tax and installation cost), operating costs (energy, repair, and maintenance costs), eq uipment lifetime, and discount rate. Future operating costs are discounted to the time of purchase and summed over the lifetime of the product. Payback period ( PBP) measures the amount of time it takes c onsu mers to recover the assumed higher purchase pric e of a more energy

- efficient product through reduced operating costs. Inputs to the payback period calculation include the installed cost to the consumer and first

- year operating costs.116 DOE analyzed the net effect of potential residential furnace fan standards on consumers by calculating the LCC and PBP for each efficiency level for each sample household. DOE performed the LCC and PBP analyses using a spreadsheet model combined with Crystal Ball (a commercially

- available software program used to condu ct stochastic analysis using Monte Carlo simulation and probability distributions) to account for uncertainty and variability among the input variables ( e.g. , energy prices, installation
costs, and repair and maintenance costs)

. It uses weighting factors to account for distributions of shipments to different building types and States to generate LCC savings by efficiency level. Each Monte Carlo simulation consists of 10,000 LCC and PBP calculations. The model performs each calculation using input values that are either sampled from probability distributions and household samples or characterized with single

- point values. The analytical results include a distribution of points showing the range of LCC savings and PBPs for a given efficiency level relative to the base

- case efficiency forecast. The results of DOE’s LCC and PBP analysis are summarized in section IV.F and described in detail in chapter 8 of the NOPR TSD.

1. Installed Cost The installed cost at each efficiency level is based on the MSP, distribu tion chain markups, sales tax, and installation cost.

In the preliminary analysis, DOE found that the historic real ( i.e. , adjusted for inflation) producer price index (PPI) for integral horsepower electric motors has been relatively flat except for the last few years, and elected to use prices held constant at the117 2011 level as the default price assumption to project future motor (and furnace fan) prices. Goodman commented that specifically looking at fractional motor ( i.e. , the type used in furnace fan s) instead of integral horsepower motors would provide a better comparison for furnace fans, and that prices of such motors will not remain flat, but will continue to grow in the trend from the last five years. (Goodman, No. 50 at p. 5)

For the NOPR, DO E evaluated the historic real PPI of fractional horsepower electric motors instead of integral horsepower electric motors. DOE found that this index has been decreasing except for the last few years, when it started to increase. Given the uncertainty abou t whether the recent trend will continue or instead revert to the historical mean, for the NOPR, DOE elected to continue using constant prices at the most recent level as the default price assumption to project future prices of furnace fans. Appendix
10

- C of the NOPR TSD describes the historic PPI data.

In the preliminary analysis, DOE assumed that a fraction of ECM furnace fan installations will require up to an hour of extra labor. Goodman commented that based on its experience, at least two hours of ex tra labor will be required in the majority of ECM furnace fan installations. It notes this is particularly true in light of the fact that many regulatory authorities, such as California Energy Commission via Title 24, are requiring more verification of pr oper airflow, which may be more challenging with advanced technologies such as ECM motors. (Goodman, No. 50 at p. 5)118 For the NOPR, DOE modified its approach and assumed that up to two hours of extra labor will be required for all ECM furnace fan installa tions. Details of the updated approach are available in chapter 8 of the NOPR TSD.

2. Operating Costs In the preliminary analysis, DOE used the same maintenance costs for furnace fans at different efficiency levels. T o estimate rates of fan motor failure, DOE developed a distribution of fan motor lifetime (expressed in operating hours) by motor size using data developed for DOE’s small electric motors final rule ( 75 FR 10874 (March 9, 2010) )

. 40 DOE then paired these da ta with the calculated number of annual operating hours for each sample furnace, including constant circulation for some of the homes

. Replacement motor costs were based on costs develo ped in the engineering analysis, and
t he labor time and costs were based on RS Means data. 41 , 42 DOE had no information indicating the extent to which consumers would replace a fan PSC motor with an ECM, so it assumed that when replacement is necessary, consumers replace the failed motor with the same type of motor.

Nidec estimate d that three percent of the motors operating the furnace fan fail each year

. (Nidec, No. 60 at pp. 2

- 3) DOE agrees that the fan motor may fail and included motor replacement in the LCC and PBP analysis.

40 See : http://www1.eere.en ergy.gov/buildings/appliance_standards/commercial/sem_finalrule_tsd.html 41 RS Means Company Inc., RS Means Residential Cost Data (2012). 42 RS Means Company Inc., Facilities Maintenance & Repair Cost Data (2012).119 AHRI, Goodman, and Rheem commented that high er - efficiency motors have increased failure rates. AHRI and Rheem noted that the failure rate for a high

- efficiency motor is typically higher than the failure rate of a PSC motor , because the electronics added to a high

- efficiency motor introduce new fail ure modes associated with the life of electronic controls in damp, very cold , and very hot conditions. (AHRI, No. 48 at p. 6; Rheem, No. 54, at p. 14) Goodman commented that generally, more complex motors contain more components that can potentially brea k, which is true of the additional controls in X13 and ECM technologies. The commenter recommended that DOE estimate that service requirements will be 20 to 50 percent greater for higher

- efficiency motors and related controls, and that the cost of such se rvice will be more for X13 and ECM than for PSC motors. Goodman also suggested that DOE should use a reduced lifetime (by five to ten percent) for X13 and ECM furnace fan motor s, as PSC motor technologies are very mature and X13 and ECM are relatively you ng. (Goodman, No. 50 at p. 6)

DOE agrees that the electronics of higher

- efficiency motors are likely to have increased failure rates. For the NOPR, DOE included repair to electronics for PSC
motors with controls, constant

- torque BPM motors , and especi ally constant

- airflow BPM
motors. DOE added an extra cost for the cases that require control updates for these efficiency levels. DOE also applied an additional labor hour to account for cases when it is necessary to replace the motors for the constant

- torque BPM and constant

- airflow
BPM efficiency levels. See chapter 8 of the NOPR TSD for further details.120 DOE did not have a firm basis for quantifying the degree to which constant

torque BPM motors and constant

- airflow BPM motors have a shorter lifetime than PSC
motors. Although DOE used the same motor lifetime for each fan efficiency level in terms of total operating hours, the lifetime in terms of years is lower for constant

- torque BPM and constant

- airflow BPM motors , because they are more frequently used in multi

stage heating mode

. In addition, DOE included additional labor hours to repair constant

torque BPM and constant

- airflow BPM motors , as well as higher equipment cost for the
BPM motors. Thus, on average, consumers with constant

- torque BPM mo tors or
constant

- airflow BPM motors have higher life

- cycle repair costs.

Goodman commented that DOE excluded annual repair and maintenance costs from its payback analyses, and it believes those annualized costs should be included. (Goodman, No. 50 at p. 6) In response, DOE’s rulemaking analysis, and this NOPR, use a simple payback period, which does not account for changes in operating expense over time. This payback period is the amount of time it takes the consumer to recover the additional installed cost of more

- efficient products, compared to baseline products, through energy cost savings

. Repair costs are generally most significant in the later years of a product’s lifetime. Thus, they are not necessarily relevant to the payback periods that consu mers actually experience.121 3. Other Inputs DOE modeled furnace fan lifetime based on the distribution of furnace lifetimes developed for the recent energy conservation standards rulemaking for furnaces

. 43 76 FR 37408 , 37476

- 77 (June 27, 2011). DOE used the same lifetime for furnace fans at different efficiency levels because there are no data that indicate variation of lifetime with efficiency

. However, DOE modeled fan motor failure and replacement as a repair cost that affects a certain percen tage of furnace fans, as discussed above. Ingersoll Rand commented that there should be no reason for an electric furnace to have a shorter lifetime than a fossil

- fueled furnace. (Ingersoll Rand Residential Solutions, No. 57, at p. 9) For the NOPR analy sis , DOE assumed that the lifetime for the fans installed in electric furnaces and gas furnaces is the same.

DOE used the same distribution of discount rates for furnace fans as it used in the
recent energy conservation standards rulemaking for furnaces. For replacement furnaces, the average rate is 5.0 percent.

4. Base

- Case Efficiency Distribution
To estimate the share of consumers that would be affected by an energy conservation standard at a particular efficiency level, DOE’s LCC and PBP analysis conside rs the projected distribution ( i.e. , market shares) of product efficiencies in the first compliance year under the base case ( i.e. , the case without new or amended energy

43 Available at: http://www1.eere.energy.gov/buildings/appliance_standards/residential/residential_furnaces_central_ac_hp _direct_final_rule_tsd.html

.122 conservation standards). For the preliminary analysis, DOE found very limited data w ith which to estimate either current shares or recent trends. DOE requested comments on its estimate of the base

- case efficiency distribution of furnace fans in 2019 , as well as data that might suppor t use of different assumptions.

Several parties commented that DOE’s estimates of constant

- torque BPM motor and constant

- airflow BPM motor market growth seem overly optimistic. Ingersoll Rand commented that DOE overestimated the future market share of these motors. (Ingersoll Rand Resi dential Solutions, No. 57, at p. 2) Lennox stated that the preliminary TSD’s market growth assumptions are overstated for both constant

- torque and variable

- speed (ECM) motors. Lennox believes other factors increased adoption of higher

- efficiency products between 2009 and 2011 , namely , that was the period when a $1,500 Federal tax
credit was available for furnaces with an AFUE rate of 95 percent or more . (Lennox, No. 47 at p. 2) Morrison commented that the projections for ECM market penetration are based on information from 2010 that presents an overly positive picture for the growth absent incentives. It stated that the market share of ECM motors has fallen in 2012 and will likely remain around that level without additional incentives, al though it noted that regional furnace and air conditioner standards would likely increase market penetration of ECM and X13 motors. (Morrison, No. 58 at p. 8) AHRI and Morrison conceded that DOE's regional standards for central air conditioners, heat pumps and furnaces may slightly increase the usage of ECM and X13 motors, but such an increase would still not match DOE's projected ECM market share. (AHRI, No. 48 at p. 4; Morrison, No. 58 at p. 8) Rheem presented a forecast from its procurement group that shows the sha re of123 variable

- speed motors declining to the 20

- 25 percent range in 2012 and remaining at that level in 2013. (Rheem, No. 54, at p. 13) EEI stated that DOE should take into consideration the impact of tax incentives for the purchase of energy

- efficient h eating and cooling equipment when estimating energy use baselines and projected energy savings. (EEI, No. 65 at p. 4) AHRI included a chart showing a declining trend in the usage of ECM and X13 motors after the expiration of the Federal tax credits. (AH RI, No. 48 at p. 4)

AHRI commented that current trends suggest that the ECM and X13 market shares will be 25

- 30 percent and 10

- 15 percent respectively by 201 9 , assuming there are no further tax credit incentives in coming years. (AHRI, No. 48 at p. 4) Goodman commented that DOE’s assumed market shares for X13 and ECM fans are significantly higher than Goodman’s estimates, and that recent values are probably skewed as a result of Federal tax credits. Goodman estimates that about 70 percent of shipments in 201 9 are expected to be PSC, and ECM motors are likely to be twice the volume of X13 motors ( i.e. , 20 percent ECM and 10 percent X13). (Goodman, No. 50 at p. 4)

For the NOPR, DOE reviewed the information provided by the manufacturers and modified its estimate of market shares in 2019

. The NOPR analysis assumes that the combined market share of constant

- torque BPM fans and constant

- airflow BPM fans will be 35 percent in 2019

. The shares are 13 percent for constant

- torque BPM fans and 2 2 percent for c onstant

- airflow BPM fans. DOE estimated separate shares for replacement and new home applications.124 The market shares of efficiency levels within the constant

- torque BPM motor and
constant

- airflow BPM motor categories were derived from AHRI data on number of models. 44 No such data were available for the PSC fan efficiency levels, so DOE used the number of models it tested or could measure using product literature to estimate that 40 percent of shipments are at the baseline level and 60 percent are improved PSC fans. There are currently no models of PSC with a controls design, so DOE assumed zero market share for such units. The details of DOE’s approach are described in chapter 8 of the NOPR TSD.

5. Rebuttable Presumption Payback Period As discussed in section III.E.2 , EPCA provides that a rebuttable presumption is established that an energy conservation standard is economically justified if the additional cost to the consumer of a product that meets the standard is less than three times the value of the first year ’s energy savings resulting from the standard , as calculated under the applicable DOE test procedure

. (42 U.S.C. 6295(o)(2)(B)(i)) The calculation of this so

- called rebuttable presumption payback period uses the same inputs

as the calculation of the regular PBP for each sample household, but it uses average values instead of distributions, and the derivation of energy consumption and savings only uses the parameters specified by the proposed DOE test procedure for furnace fans

r ather than the method applied in the energy use analysis ( described in section IV.E) , which considers the characteristics of each sample household

.

44 DOE used the AHRI Directory of Certified Furnace Equipment (Available at: http://www.ahridirectory.org/ahridirectory/pages/home.aspx ) as well as manufacturer product literature.125 DOE’s LCC and PBP analyses generate values that calculate the payback period for consumers of potential energy conservation standards, which includes, but is not limited to, the three

- year payback period contemplated under the rebuttable presumption test discussed above. However, DOE routinely conducts a full economic analysis that considers the full range of impacts, including those to the consumer, manufacturer, Nation, and environment, as required under 42 U.S.C. 6295(o)(2)(B)(i). The results of this analysis serve as the basis for DOE to definitively evaluate the economic justification for a potential s tandard level (thereby supporting or rebutting the results of any preliminary determination of economic justification).

G.
DOE uses forecasts of product shipments to calculate the national impacts of standards on energy use, NPV, and futu re manufacturer cash flows. DOE develops shipment projections based on historical data and an analysis of key market drivers for each product. Shipments Analysis

The vast majority of furnace fans are shipped installed in furnaces, so DOE estimated furnace fan shipments by projecting furnace shipments in three market segments: (1) replacements; (2) new housing; and (3) new owners in buildings that did not previously have a central furnace.126 To project furnace replacement shipments, DOE developed retirement functions for furnaces from the lifetime estimates and applied them to the existing products in the housing stock. The existing stock of products is tracked by vintage and developed from historical s hipments data. The shipments analysis uses a distribution of furnace lifetimes to estimate furnace replacement shipments.

To projec t shipments to the new housing market, DOE utilized projected new housing construction and historic saturation rates of var ious furnace and cooling product types in new housing. DOE used AEO 2012 for projections of new housing. Furnace saturation rates in new housing are provided by the U.S. Census Bureau’s Characteristics of New Housing

. 45

DOE also included a small market s egment consisting of households that become “new owners” of a gas furnace. This segment consists of households that have central air conditioning and non

- central heating or central air conditioning and electric heating and choose to install a gas furnace

.

Several parties stated that DOE’s shipments estimates appear to be too high

. (AHRI, No. 48 at p. 5; Goodman, No. 50 at p. 6; Rheem, No. 54, at p. 15; Ingersoll Rand Residential Solutions, No. 57, at p. 2; Morrison, No. 58 at p. 6) Goodman stated that
DO E projects growth from approximately 3 million units in 2011 to more than 4 million in 2020, whereas Goodman estimates about 3.7 million units in 2020, or less if new

45 Available at: http://www.census.gov/const/www/charindex.html

.127 energy conservation standards affect sales. (Goodman, No. 50 at p. 6) AHRI, Morrison ,

a nd Rheem stated that prior to 2006, the demand for large homes with multiple furnace systems was more common than it is today, and it is not clear that the demand for homes with multiple furnace systems can be projected into the future. The se commenters a lso argued that the shipment projections do not show an echo effect loss in replacement sales for the drop in furnace sales in 2009

- 2013. (AHRI, No. 48 at p. 5; Morrison, No. 58 at p. 6; Rheem, No. 54 at p. 15) EEI stated that DOE’s projected shipments o f furnace fans do not appear consistent with other estimates of furnace shipments that EEI has observed. (EEI, No. 65 at p. 4) Lennox noted that DOE has projected significant market growth starting in 2012 and continuing forward, which does not appear to be supported by recent sales figures. (Lennox, No. 47 at p. 2)

For the NOPR, DOE utilized more recent historical shipments data for gas

- fired and oil

- fired furnaces, which show a decline in 2012. DOE also reviewed and modified its projection of furnace shipments

. T he new projection (depicte d in chapter 9 of the NOPR TSD) shows a lower level of replacement shipments in the 2025

- 30 period, which is a consequence ( i.e., an echo) of the decline in historical shipments in 2007

- 2009. The
NOPR projection for 2 020 shows total shipments of 3. 7 million , which is the same as the
3.7 million estimate d by Goodman.

Regarding the comment from AHRI, Morrison , and Rheem , DOE's methodology does not presume that past demand for homes with multiple furnace systems will continue in the future. However, it does assume that furnaces installed in the past will be128 replaced, so the installation of multiple furnaces in the past would contribute to future growth in shipments.

In the preliminary analysis, DOE considered w hether standards that require more

efficient furnace fans would have an impact on furnace shipments. Lennox stated that an overly

- stringent standard for furnace fans would bring further increased costs to

consumers , beyond the added product cost from tigh tened AFUE standards for furnaces , venting and drainage for condensing furnaces (required in northern S tates by regional standards), and standby mode and off mode power regulations. Lennox stated that higher purchase prices cause consumers to defer purcha se s , repair existing furnaces, and/or find less

- efficient, higher

- polluting alternate sources of heat. (Lennox, No. 47 at p. 3) Goodman commented that it would expect reduction in furnace sales after implementation of a new furnace fan standard, since ma ny consumers will choose to repair instead of replac ing products currently in their home , thereby avoiding the need to pay the initial cost of a more expensive , higher

- efficiency product. (Goodman, No. 50 at p. 6) Morrison also commented that higher upfr ont costs could lead to consumer switching to less

- efficient products and push consumers to repair rather than replace units. (Morrison, No. 58, at p. 9)

DOE agrees that it is reasonable to expect that energy conservation standards for residential furnac e fans that result in higher furnace prices would have some dampening effect on sales. Some consumers might choose to repair their existing furnace rather than purchase a new one, or perhaps install an alternative space heating product. To estimate129 the i mpact on shipments of the price increase for the considered efficiency levels, DOE used the relative price elasticity approach that was applied in the 2011 furnace standards rulemaking. 46 76 FR 37408 , 37483 (June 27, 2011). This approach also gives some weight to the operating cost savings from higher

- efficiency products. Chapter 9 in the NOPR TSD describes the method applied.

H. The NIA assesses the NES and the NPV from a national perspective of total consumer costs and savings ex pected to result from new or amended energy conservation standards at specific efficiency levels. DOE determined the NPV and NES for the potential standard levels considered for the furnace fan product classes analyzed. To make the analysis more accessib le and transparent to all interested parties, DOE prepared

a computer 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 spreads heet model to conduct sensitivity analyses by running scenarios on specific input variables. National Impact Analysis

Analyzing impacts of potential energy conservation standards for residential furnace fans requires comparing projections of U.S. energy consumption with new or

a mended energy conservation standards against projections of energy consumption without the standards. The forecasts include projections of annual appliance shipments,

46 Available at: http://www1.eere.energy.gov/buildings/appliance_standards/residential/residential_furnaces_central_ac_hp _direct_final_rule_tsd.html

.130 the annual energy consumption of new appliances, and the purchase price of new appliance s.

A key component of DOE’s NIA analysis is the energy efficiencies projected over time for the base case (without new standards) and each of the standards cases. The projected efficiencies represent the annual shipment

- weighted energy efficiency of the products under consideration during the shipments projection period ( i.e. , from the assumed compliance date of a new standard to 30 years after compliance is required).

In the preliminary analysis, DOE derived a growth rate in the market share of ECM fan s by extrapolating the trend from 2005, when the ECM share was 10 percent, to 2010, when it was approximately 30 percent. In so doing, DOE considered the favorable
cost

- effectiveness of ECM fans and assumed that their market share would peak and level off at 79 percent.

AHRI and Rheem stated that DOE’s assumption that the market share for furnace fans with ECM technology will increase to 75 percent is not supported by the industry data, especially since the Federal residential tax credits have expired. (AHRI, No. 48 at p 5; Rheem, No. 54, at p. 15) Goodman also stated that a 75 percent peak market penetration of ECM motors as estimated by DOE seems high. Goodman estimates a value in the range of 40

- 50 percent by mid

- century. (Goodman, No. 50 at p. 4)131 For the NOPR, DOE reviewed the information provided by the manufacturers and modified its estimate of the long

- run trend in market shares of constant

- torque BPM and
constant

- airflow BPM motor furnace fans. The NOPR analysis assumes a long

- run trend that results in market share of the constant

- torque BPM and constant

- air flow BPM furnace fans reaching 45 percent in 204 8

.

For the preliminary analysis, DOE used a “roll up” scenario for estimating the impacts of the potential energy conservation standards for residential furnace fans. Under the “roll

- up” scenario, DOE assumes: (1) product efficiencies in the base case that do not meet the standard level under consideration would “roll

- up” to meet the new standard level; and (2) product efficiencies above the standard level under consideration would not be affected. To be consistent with the assumption regarding base

- case efficiency after the compliance year, DOE assumed that for each standards case, the efficiency distribution in each product class remains unchanged after 2019

. DOE used the same approach for the NOP R.

1. National Energy Savings Analysis The national energy savings analysis involves a comparison of national energy consumption of the considered products in each potential standard s case (TSL) with consumption in the base case with no new or amended energy conservation standards. 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 product. DOE calcul ated annual NES based132 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 electr icity consumption and savings to primary energy using annual conversion factors derived from the AEO
2012 version of the NEMS. Cumulative energy savings are the sum of the NES for each year over the timeframe of the analysis.

DOE has historically presen ted NES in terms of primary energy savings. In response to the recommendations of a committee on “Point

- of

- Use and Full

- Fuel

- Cycle Measurement Approaches to Energy Efficiency Standards” appointed by the National Academy of Science, DOE announced its inten tion to use full

- fuel

- cycle (FFC) measures of energy use and greenhouse gas and other emissions in the national impact analyses and emissions analyses included in future energy conservation standards rulemakings. 76 FR 51281 (August 18, 2011)

. While DOE stated in that notice that it intended to use the Greenhouse Gases, Regulated Emissions, and Energy Use in Transportation (GREET) model to conduct the analysis, it also said it would review alternative methods, including the use of EIA’s National Energy Mo deling System (NEMS)

. After evaluating both models and the approaches discussed in the August 18, 2011 notice, DOE published a statement of amended policy in the Federal Register in which DOE explained its determination that NEMS is a more appropriate too l for this specific use

. 77 FR 49701 (August 17, 2012). Therefore, DOE is using NEMS model to conduct FFC analyses.133 Goodman questioned the introduction of FFC measures of energy use. It noted that, under 42 U.S.C. 6291(4), “energy use” is defined as “the quantity of energy directly consumed by a consumer product at point of use...” (Goodman, No. 50 at p. 4)

The definition of “energy use” cited by Goodman is intended to apply at the product level. This is apparent from the complete definition: “ The te rm ‘ energy use ’ means the quantity of energy directly consumed by a consumer product at point of use, determined in accordance with test procedures under section 6293 of this title

. ” ( 42 U.S.C. 6291(4) ) The law also requires DOE, in determining the econo mic justification of a standard, to consider the total projected energy savings that are expected to result directly from the standard. ( 42 U.S.C. 6295(o)(2)(B)(i)(III) ) The term “energy” means electricity or fossil fuels , but the Secretary may, by rule, include other fuels within the meaning of the term “energy” if he determines that such inclusion is necessary or appropriate to carry out the purposes of this chapter.

. ( 42 U.S.C. 6291(3) ) The inclusion of energy used in the full fuel cycle of electricity or FFC metric provides a more complete accounting of the fossil fuels used at the building is within the purposes of chapter 77, which include conservation of energy supplies through energy con servation
programs. ( 42 U.S.C. 6201(4) ) saved by standards, and its use is in keeping with DOE’s statutory authority

. The approach used for today’s NOPR, and the to derive FFC multipliers that were applied , are for today’s NOPR is described in appendix 10

- B of the
NOPR TSD. DOE requests comment on the FCC multipliers and the assumptions made to derive the multipliers. Comment [A35]: Change recommended by OIRA.134 2. 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 to calculate the present value of costs and savings; (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 terms of total savings in operating costs versus total increases in installed costs. DOE calculated savings over the lifetime of products shipped in the fo recast period. 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 an d savings to present values.

For the NPV analysis, DOE calculates 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).

DOE assumed no change in residential furnace fan prices over the 201 9

− 204 8 period. In addition, DOE conducted a sensitivity analysis using alternative price trends, specifically one in which prices decline over time, and another in which prices rise. These price trends are descri bed in a ppendix 10

- C of the NOPR TSD.

DOE expresses savings in operating costs as decreases associated with the lower energy consumption of products bought in the standards case compared to the base135 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.

DOE estimates the NPV of consumer benefits using both a 3

- percent and a 7

- percent real discount rate. DOE uses these discount rates in accordance with g uidance provided by the Office of Management and Budget (OMB) to Federal agencies on the development of regulatory analysis. 47 The NPV results for the residential furnace fan TSLs are presented in section V.B.3 of this notice.

I.
I n the NOPR stage of a rulemaking, DOE conducts a consumer subgroup analysis. A consumer subgroup comprises a subset of the population that may be affected disproportionately by new or revised energy conservation standards ( e.g. , low

- income consumers, seni ors). The purpose of a subgroup analysis is to determine the extent of any such disproportional impacts.

Consumer Subgroup Analysis

For today’s NOPR, DOE evaluated impacts of potential standards on two subgroups: (1) senior

- only households and (2) low

- income households. DOE identified these households in the RECS sample and used the LCC spreadsheet model to estimate the impacts of the considered efficiency levels on these subgroups. The consumer subgroup results for the residential furnace fan TSLs are presented in sectio n V.B.1 of this notice.

47 OMB Circular A

- 4 (Sept. 17, 2003), section E, “Identifying an d Measuring Benefits and Costs .”136 J. 1. Overview

Manufacturer Impact Analysis

DOE performed an MIA to estimate the financial impact of new energy conservation standards on manufacturers of residential furnace fans and to calculate the potential impact of such standards o n employment and manufacturing capacity. The MIA has both quantitative and qualitative aspects. The quantitative part of the MIA primarily relies on the Government Regulatory Impact Model (GRIM), an industry cash

flow model with inputs specific to this r ulemaking. The key GRIM inputs are data on the industry cost structure, product costs, shipments, and assumptions about markups and conversion expenditures. The key output is the industry net present value (INPV). Different sets of assumptions (markup sc enarios) will produce different results. The qualitative part of the MIA addresses factors such as product characteristics, impacts on particular subgroups of firms, and important market and product trends. The complete MIA is outlined in chapter 12 of t he NOPR TSD.

For this rulemaking, DOE considers the “furnace fan industry” to consist of manufacturers who assemble furnace fans as a component of the HVAC products addressed in this rulemaking.

DOE conducted the MIA for this rulemaking in three phases. In Phase 1 of the MIA, DOE prepared a profile of the residential furnace fans industry that includes a top

down cost analysis of manufacturers used to derive preliminary financial inputs for the137 G RIM ( e.g., sales, general, and administration (SG&A) expenses; research and development (R&D) expenses; and tax rates). DOE used public sources of information, including company SEC 10

- K filings, 48 corporate annual reports, the U.S. Census
Bureau’s Econom ic Census, 49 and Hoover’s reports. 50

In Phase 2 of the MIA, DOE prepared an industry cash

- flow analysis to quantify the potential impacts of a new energy conservation standard. In general, energy conservation standards can affect manufacturer cash flow in three distinct ways: (1) create a need for increased investment; (2) raise production costs per unit; and (3) alter revenue due to higher per

- unit prices and possible changes in sales volumes.

In Phase 3 of the MIA, DOE conducted structured, detailed interviews with a representative cross

- section of manufacturers. During these interviews, DOE discussed engineering, manufacturing, procurement, and financial topics to validate assumptions used in the GRIM and to identify key issues or concerns. See section IV.J.4 for a description of the key issues manufacturers raised during the interviews.

Additionally, in Phase 3, DOE evaluated subgroups of manufacturers that may be disproportionately impacted by new standards or that may not be accurately repres ented by the average cost assumptions used to develop the industry cash

- flow analysis. For

48 U.S. Securities and Exchange Commission , Annual 10

- K Reports ( Various Years ) (Available at: http://sec.gov ). 49 U.S.Census Bureau , Annual Survey of Manufacturers: General Statistics: Statistics for Indus try Groups and Industries (Available at: http://factfinder2.census.gov/faces/nav/jsf/pages/searchresults.xhtml?refresh=t ). 50 Hoovers Inc. Company Profiles ( Vario us Companies ) (Available at: http://www.hoovers.com ).138 example, small manufacturers, niche players, or manufacturers exhibiting a cost structure that largely differs from the industry average could be more negatively af fected. DOE identified one subgroup ( i.e. , small manufacturers) for a separate impact analysis.

DOE applied the small business size standards published by the Small Business Administration (SBA) to determine whether a company is considered a small busine ss. 65 FR 30836, 30848 (May 15, 2000), as amended at 65 FR 53533, 53544 (Sept. 5, 2000) and codified at 13 CFR part 121. To be categorized as a small business under North American Industry Classification System (NAICS) code 333415, “Air

- Conditioning and Warm Air Heating Equipment and Commercial and Industrial Refrigeration Equipment Manufacturing,” a residential furnace fan manufacturer and its affiliates may employ a maximum of 750 employees. The 750

- employee threshold includes all employees in a busine ss’s parent company and any other subsidiaries. Based on this classification, DOE identified at least 14 residential furnace fan manufacturers that qualify as small businesses. The residential furnace fan small manufacturer subgroup is discussed in chapt er 12 of the NOPR TSD and in section V.B.2.d of this notice.

2. Government Regulatory Impact Model DOE uses the GRIM to quantify the changes in cash flow due to new standards that result in a higher or lower industry value. The GRIM analysis uses a standar d, annual cash

- flow analysis that incorporates manufacturer costs, markups, shipments, and industry financial information as inputs. The GRIM models changes in costs, distribution of shipments, investments, and manufacturer margins that could result from new energy139 conservation standards. The GRIM spreadsheet uses the inputs to arrive at a series of annual cash flows, beginning in 2013 (the base year of the analysis) and continuing to 2048. DOE calculated INPVs by summing the stream of annual discounted cash flows during this period. For residential furnace fan manufacturers, DOE used a real discount rate of 7.8 percent, which was derived from industry financials and then modified according to feedback received during manufacturer interviews.

The GRIM calculate s cash flows using standard accounting principles and
compare s changes in INPV between a base case and each standards case

. T he difference in INPV between the base case and a standards case represents the financial impact of the

new energy conser vation standard on manufacturers. As discussed previously, DOE collected this information on the critical GRIM inputs from a number of sources, including publicly

- available data and interviews with a number of manufacturers (described in the next section) . The GRIM results are shown in section V.B.2.a

. Additional details about the GRIM, the discount rate, and other financial parameters can be found in chapter 12 of the NOPR TSD.

a. Government Regulatory Impact Model Key Inputs

Manufacturing a higher

- efficiency product is typically more expensive than manufacturing a baseline product due to the use of more complex components, which are typically more costly than baseline components. The changes in the MPCs of the Manufacturer Production Cost s140 analyzed prod ucts can affect the revenues, gross margins, and cash flow of the industry, making these product cost data key GRIM inputs for DOE’s analysis.

In the MIA, DOE used the MPCs for each considered efficiency level calculated in the engineering analysis, as described in section IV.C and further detailed in chapter 5 of the NOPR TSD. In addition, DOE used information from its teardown analysis, descri bed in chapter 5 of the TSD , to disaggregate the MPCs into material, labor, and overhead costs. To calculate the MPCs for equipment above the baseline, DOE added the incremental material, labor, and overhead costs from the engineering cost

- efficiency

curv es to the baseline MPCs. These cost breakdowns and product markups were validated and revised with manufacturers during manufacturer interviews.

Shipments Forecast The GRIM estimates manufacturer revenues based on total unit shipment forecasts and the distribution of these values by efficiency level. Changes in sales volumes and efficiency mix over time can significantly affect manufacturer finances. For this analysis, the GRIM uses the NIA’s annual shipment forecasts derived from the shipments analys is from 2013 (the base year) to 2048 (the end year of the analysis period). See chapter 9 of the NOPR TSD for additional details.

For the standards

- case shipment forecast, the GRIM uses the NIA standards

- case shipment forecasts. DOE assumes a new efficie ncy distribution in the standards case, in which product efficiencies in the base case that did not meet the standard under141 consideration would “roll up” to meet the new standard in the year that compliance is required

.

Product and Capital Conversion Co sts New energy conservation standards would cause manufacturers to incur one

- time conversion costs to bring their production facilities and product designs into compliance. DOE evaluated the level of conversion

- related expenditures that would be needed t o comply with each considered efficiency level in each product class. For the MIA, DOE classified these conversion costs into two major groups: (1) product conversion costs; and (2) capital conversion costs. Product conversion costs are one

- time investme nts in research, development, testing, marketing, and other non

- capitalized costs necessary to make product designs comply with the new energy conservation standard. Capital conversion costs are one

- time investments in property, plant, and equipment neces sary to adapt or change existing production facilities such that new product designs can be fabricated and assembled.

To evaluate the level of capital conversion expenditures manufacturers would likely incur to comply with new energy conservation standar ds, DOE used manufacturer interviews to gather data on the anticipated level of capital investment that would be required at each efficiency level. DOE validated manufacturer comments through estimates of capital expenditure requirements derived from the product teardown analysis and engineering analysis described in chapter 5 of the TSD

.142 DOE assessed the product conversion costs at each considered efficiency level by integrating data from quantitative and qualitative sources. DOE considered market

share

- weighted feedback regarding the potential costs of each efficiency level from multiple manufacturers to determine conversion costs such as R&D expenditures and certification costs. Manufacturer data were aggregated to better reflect the industry as a who le and to protect confidential information.

In general, DOE assumes that all conversion

- related investments occur between the year of publication of the final rule and the year by which manufacturers must comply with the new standard. The investment fig ures used in the GRIM can be found in section
IV.J.2 of this notice. For additional information on the estimated product and capital conversion costs, see chapter 12 of the NOPR TSD.

b. Government Regulatory Impact Model Scenarios

In the NIA, DOE modeled shipments with a roll

- up scenario to represent possible standards

- case efficiency distributions for the years beginning 2019 ( the year that compliance with new standards is proposed to be required ) through 2048 (the end of the analysis per iod)

. The roll

- up scenario represents the case in which all shipments in the base case that do not meet the new standard would roll up to meet the new standard level , with the efficiency of products already at the new standard level remaining unchanged

. Consumers in the base case who purchase products above the standard level are not Shipment Scenarios143 affected as they are assumed to continue to purchase the same product in the standards case. See chapter 9 of the NOPR TSD for more information.
Markup Scenarios As discuss ed above, MSPs include direct manufacturing production costs ( i.e. , labor, materials, and overhead estimated in DOE’s MPCs) and all non

- production costs ( i.e ., SG&A, R&D, and interest), along with profit. To calculate the MSPs in the GRIM, DOE applied non

- production cost markups to the MPCs estimated in the engineering analysis for each product class and efficiency level. Modifying these markups in the standards case yields different sets of impacts on manufacturers. For the MIA, DOE modeled two standard s - case markup scenarios to represent the uncertainty regarding the potential impacts on prices and profitability for manufacturers following the implementation of new energy conservation standards: (1) a preservation of gross margin percentage markup scena rio; and (2) a preservation of operating profit markup scenario. These scenarios lead to different markups values that, when applied to the inputted MPCs, result in varying revenue and cash flow impacts.

Under the preservation of gross margin percentage scenario, DOE applied a single uniform “gross margin percentage” markup across all efficiency levels, which assumes that manufacturers would be able to maintain the same amount of profit as a percentage of revenues at all efficiency levels within a produc t class. As production costs increase with efficiency, this scenario implies that the absolute dollar markup will increase as well. Based on publicly

- available financial information for manufacturers of residential furnace fans and comments from manufact urer interviews, DOE assumed the non

-144 production cost markup

— which includes SG&A expenses, R&D expenses, interest, and profit

— to be the following for each residential furnace fan product class:

Table IV . 9 : Manufacturer Markup by Residential Furnace Fan Product Class Product Class Markup NWG

- NC 1.30 NWG

- C 1.31 WG

- NC 1.27 NWO

- NC 1.35 EF/MB 1.19 MH

- NWG

- NC 1.25 MH

- NWG

- C 1.25 MH

- EF/MB 1.15
Because this markup scenario assumes that manufacturers would be able to maintain their gross margin percentage markups as production costs increase in response to a new energy conservation standard, it represents a high bound to industry profitability.

In the preservation of operating profit scenario, manufacturer markups are set so that operating profit one year after the compliance date of the new energy conservation standard is the same as in the base case. Under this scenario, as the costs of production increase under a standards case, manufacturers are general ly required to reduce their markups to a level that maintains base

- case operating profit. The implicit assumption behind this markup scenario is that the industry can only maintain its operating profit in absolute dollars after compliance with the new sta ndard is required. Therefore, operating margin in percentage terms is squeezed (reduced) between the base case and standards case. DOE adjusted the manufacturer markups in the GRIM at each TSL to yield145 approximately the same earnings before interest and taxes in the standards case as in the base case. This markup scenario represents a low bound to industry profitability under a new energy conservation standard.

3. Discussion of Comments During the preliminary analysis public meeting, interested parties commented on the assumptions and results of the preliminary analysis TSD. Oral and written comments addressed several topics, including testing and certification burdens, cumulative regula tory burdens, compliance date, impacts on small businesses, and conversion costs.

a. Testing and Certification Burdens Manufacturers expressed concerns about the potential testing and certification burdens that may be associated with a new furnace fan energy conservation standard. Ingersoll Rand commented that the rulemaking would result in additional burden from testing, certification, and compliance, leading to an increased cost for consumers. (Ingersoll Rand, No. 57 at p. 2) Rheem stated that, in the past, there has been no requirement for manufacturers to test and report furnace airflow data according to a ny industry or governmental standard. In addition, Rheem added that there have been no certification requirements that require the testing of m ultiple samples. Therefore, Rheem concluded that it is not reasonable to assume that manufacturers already have the data available to rate hundreds of current furnace models. For companies like Rheem, which have a large number of basic models, the commen ter lamented that compliance with new testing requirements would create a significant burden. (Rheem, No. 54 at p. 3) In order146 to relieve some of the testing burden, Mortex recommended that DOE should allow manufacturers to use Alternative Efficiency Det ermination Methods (AEDMs). (Mortex, No. 43 at p. 25) Mortex also recommended that DOE should use an alternative test procedure that is integrated with AFUE testing so that all models do not have to be tested separately under the residential furnace fan test procedure. (Mortex, No. 59 at p. 3) Manufacturers were also concerned that the time needed to certify all their products would reduce investment in innovative technologies, because fewer resources would be available for R&D. (Rheem, No. 54 at p. 16 )

DOE recognizes the concerns that manufacturers have regarding test burden

. As discussed in section III.A , DOE propose d in the April 2, 2013 test procedure SNOPR to adopt a modified version of an alternative test method recommended by AHRI and other fu rnace fan manufacturers that align s the residential furnace fan test procedure with the DOE test procedure for residential furnaces to significantly reduce burden on industry

. 78 FR 19606

. DOE also estimated the capital expenditure, time to test, and cost to test according to the proposed residential furnace fan test procedure in the SNOPR. DOE found that the proposed test procedure would not result in significant capital expenditures for m anufacturers , because they would not have to acquire or use any test equipment beyond the equipment already use d to conduct the test method specified in the DOE residential furnace test procedure ( i.e. , the A FUE test setup). DOE also found that the time t o conduct a single furnace fan test according to its proposed furnace fan test procedure would be less than 3 hours and cost less than one percent of the manufacturer selling price of the product in to which the furnace fan is integrated. Consequently, DOE147 does not find that testing furnace fans according to this proposed test procedure would be unduly burdensome. Id. at 19619

- 21

b. Cumulative Regulatory Burden Interested parties expressed concern over the cumulative regulatory burden that would result from a residential furnace fan energy conservation standard. Morrison commented that the energy conservation standards that already apply to residential HVAC products, in combination with a standard for furnace fans, would significantly increase manufacturer burden. (Morrison, No. 43 at p. 23) Both AHRI and Morrison stated that DOE’s current estimation of the incremental cost of testing furnace fans (at less than 2 percent of the manufacturer selling price) does not account for the additional burden placed o n furnace manufacturers that must now also certify standby mode and off mode energy consumption, along with AFUE. (AHRI, No. 48 at p.7; Morrison, No. 58 at p. 10) Furthermore, Morrison commented that several of the manufacturers who are impacted by this residential furnace fans rulemaking face even greater cumulative regulatory burden, because they also produce other products regulated by DOE. (Morrison, No. 58 at p. 10)

Instead of creating a set of residential furnace fan standards through a separate

e nergy conservation rulemaking, manufacturers and efficiency experts advocated for combining all furnace

- related standards into one rulemaking or to have only one metric for all furnace

- related products. California Investor Owned Utilities CA IOU recommende d that DOE should, in future iterations of furnace

- related standards, combine148 CAC/HP, furnaces, and furnace fans into a single rulemaking, given their interrelated performance and energy consumption. (CA IOU, No. 56 at p. 2) Morrison and Rheem were also concerned that the cost of certifying furnace fan efficiency ratings would increase upfront costs for consumers and therefore lead them to choose less

- efficient products ( e.g. , space heaters) or repair HVAC units instead of replacing them. (Morrison,
No. 58 at p. 9; Rheem, No. 54 at p. 16) Furthermore, Morrison believes a single combined metric would prevent consumer confusion that can arise from having multiple metrics assigned to a single product, and Morrison opined that such approach would also reduce the regulatory burden imposed on manufacturers. (Morrison, No. 43 at p. 24)

DOE realizes that the cumulative effect of multiple regulations on an industry may significantly increase the burden faced by manufacturers that need to comply with regulations and testing requirements from different organizations and levels of government. DOE takes into account the cumulative cost of multiple regulations on manufacturers in the cumulative regulatory burden section of its analysis. Additionally, DOE considers t he cumulative regulatory burden as part of its decision process in setting proposed standards. Further information on cumulative regulatory burden can be found in section V.B.2.e of this notice and in chapter 12 of the NOPR TSD.

c. Compliance Date and Implem entation Period Efficiency advocates expressed support for a compliance date sooner than five years after publication of the final rule, because it would result in additional energy savings. Earthjustice commented that EPCA does not mandate a lead time of five years149 for furnace fans because furnace fans are not listed in section 325(m) (42 U.S.C. 6295(m)(4)(A)(ii)) as a product to which a 5

- year lead time applies. (Earthjustice, No. 49 at p. 2) In a joint comment (hereinafter referred to as the joint com ment), the Appliance Standards Awareness Project, American Council for an Energy

- Efficient Economy, National Consumer Law Center, Natural Resources Defense Council, and Northwest Energy Efficiency Alliance encouraged DOE to consider a compliance date three years after publication of the final rule. According to the joint commenters, a three

- year lead time for manufacturers is feasible, because the efficiency levels that DOE evaluated for the preliminary analysis are based on technologies that are already w idely employed in current HVAC products

– namely ECM and X13 motors. (ACEEE, et al. , No. 55 at p. 3) NEEP also recommended a compliance date three years after publication of the final rule. (NEEP, No. 51 at p. 3)

However, according to Goodman, EPCA ma ndates a lead time of greater than five years. Goodman commented that EPCA prohibits a manufacturer from being forced to apply new standards to a product that has had other new standards applied to it within a
6

- year period. (42 U.S.C. 6295(m)(4)(B)) Th erefore, the earliest effective date for new energy conservation standards for residential furnace fans, pursuant to EPCA, would be January 1, 2021 because a new AFUE standard will become effective on May 1, 2013 and a new SEER/HSPF standard will become ef fective January 1, 2015. (Goodman, No. 50 at p. 8 )150 In response to these comments regarding the appropriate compliance date for residential furnace fan standards, DOE agrees with the joint commenters’ observation that under 42 U.S.C. 6295(m)(4)(A)(ii), E PCA does not specify furnace fans as a product with a 5

- year lead time. DOE does not agree with Goodman’s interpretation of 42 U.S.C. 6295(m)(4) as prohibiting a compliance date prior to January 2021. DOE has tentatively concluded that 42 U.S.C. 6295(m)( 4) is only applicable to amendments to existing standards , but and residential furnace fans are covered products that have not been previously regulated. Furnace fans are explicitly addressed only at 42 U.S.C. 6295(f)(4)(D), which does not specify any compliance dates. Therefore, since EPCA does not mandate a specific l ead time for furnace fans, DOE considered the actions required by manufacturers to comply with the proposed standard to determine an appropriate lead

- time. During manufacturer interviews, DOE found that standards would result in manufacturers’ extending R& D beyond the furnace fan assembly to understand the impacts on the design and performance of the furnace or modular blower in which the furnace fan is integrated. To comply with the proposed standard, manufacturers may have to alter not only the designs an d fabrication processes for the furnace fan assembly, but also for the furnace or modular blower in to which the furnace fan is integrated. Similar products that require similar actions for compliance typically have lead times of five
years. For these reas ons, DOE selected a 5

- year compliance date

.

d. Small Businesses DOE received comments regarding its analysis of small businesses. Mortex formally requested that DOE prepare a regulatory flexibility analysis since it believes that Comment [A36]: Change recommended by OIR A.151 DOE has not certified that the amendments in the test procedure proposed rule do not have a significant economic impact on a substantial number of small entities. (Mortex, No. 59 at p. 3) During the preliminary analysis public meeting, Unico asked whether small manufacturers will be included in DOE’s cost

- benefit analysis. (Unico, No. 43 at p. 56) However, Ingersoll Rand is concerned that DOE limits the manufacturer analysis to only small manufacturers. (Ingersoll Rand, No. 57 at p. 2)

For the manufacturer impact analysis, DOE determined the impact of a new standard on the entire residential furnace fans industry, including manufacturers of all sizes. However, DOE also evaluated subgroups of manufacturers that may be disproportionately impacted by new standards. For this rulem aking, DOE identified small businesses as a subgroup and discusses the impacts on this subgroup in the initial regulatory flexibility analysis, which can be found in section VI.B of today’s notice. DOE’s decision to prepare a regulatory flexibility analysi s for the residential furnace fans standards rulemaking NOPR is separate from its decision to not prepare a regulatory flexibility analysis for the residential furnace fans test procedures NOPR. DOE did previously certify t o SBA that its proposed test pro cedure for residential furnace fans would not have a significant economic impact on a substantial number of small entities.

e. Conversion Costs Several manufacturers expressed concerned as to the capital conversion costs that may be associated with a new sta ndard. Rheem stated that stringent standards may require significant capital conversion costs and that this is a key issue for the MIA.152 (Rheem, No. 54 at p. 16) Morrison expressed a similar concern, stating that manufacturers may incur significant capit al conversion costs at “overly burdensome” regulation levels. (Morrison, No. 58 at p. 9)

DOE acknowledges manufacturer s ’ concerns regarding capital conversion costs and carefully took this matter into account in developing its proposal . During manufactu rer interviews, DOE requested information about potential conversion costs at each efficiency level for each product class. DOE evaluated the information gathered during the interviews, as well as data from the engineering analysis, to determine capital

c onversion costs. Conversion costs are discussed in detail in section V.B.2.a of today’s notice and in chapter 12 of the TSD.

4. Manufacturer Interviews DOE considers the manufacturer of the HVAC product in which the residential furnace fan is integrated to be the furnace fan manufacturer. DOE is aware that HVAC product manufacturers purchase many of the components in the furnace fan assembly ( e.g. , the motor and impeller ) from separate component manufacturers. However, the HVAC product manufacturer determines the design requirements, selects the purchased components based on these requirements, and performs the final assembly and integration of the fan assembly into the HVAC product. For these reasons, DOE cons iders the HVAC product manufacturer to be the furnace fan manufacturer

. Accordingly , DOE interviewed manufacturers representing approximately 90 percent of residential gas furnace and central air conditioner sales, approximately 15 percent of residential o il153 furnace sales, 51 over 85 percent of electric furnace/modular blower sales, and approximately 90 percent of manufactured home furnace sales. These interviews were in addition to those DOE conducted as part of the engineering analysis. The information
g athered during these interviews enabled DOE to tailor the GRIM to reflect the unique financial characteristics of the residential furnace fan industry. All interviews provided information that DOE used to evaluate the impacts of potential new energy conse rvation standards on manufacturer cash flows, manufacturing capacities, and employment levels.

During the manufacturer interviews, DOE asked manufacturers to describe their major concerns about this rulemaking. The following sections describe the most si gnificant issues identified by manufacturers. DOE also considered all other concerns expressed by manufacturers in its analyses. However, manufacturer interviews are conducted under non - disclosure agreements ( NDA s) , so DOE does not document these discussio ns in the same way that it does public comments in the comment summaries and DOE’s responses throughout the rest of this notice.

a. Testing and Certification Burdens All interviewed manufacturers expressed concerns about testing and certification burdens. I n particular, manufacturers were concerned about the additional time required to test products for compliance with the new standard. Because the test procedure proposed in the May 15, 2012 furnace fan test procedure NOPR (77 FR 28674) is

51 DOE did reach out to a number of residential oil

- fired furnace manufacturers, but most declined to be interviewed. However, DOE notes that fan assemblies and th e processes by which they are fabricated do not change significantly across furnace type.154 different from te sting methods that are currently being used for residential furnaces , manufacturers argued that a significant amount of time would need to be invested. Some manufacturers suggested that the testing burden could be reduced if the testing for FER could be c oordinated with testing for AFUE. In general, manufacturers were more concerned about the additional time and labor required to conduct the testing rather than the cost of testing equipment and stations, which were expected to be minimal.

As explained i n section IV.K.3.a, DOE recognizes the concerns that manufacturers have regarding test burden and has issued a test procedure SNOPR that would align the proposed residential furnace fan test procedure with the DOE test procedure for residential furnaces, thereby reduc ing the burden on manufacturers

. 78 FR 19606 (April 2, 2013)

.

b. Market Size During interviews, manufacturers raised concerns about the potential of new furnace fan energy conservations standards to cause the residential furnace fan market to contract. Manufacturers claimed that an increase in overall product costs, resulting from component changes or increased test burden, would lead to a reduced volume of furnace sales. They stated that higher costs could drive consumers to purchase refurbi shed or repaired units instead of new products. Higher costs might also push consumers towards using alternative heating technologies ( e.g. , space heaters or radiant heat) which may be less efficient. One manufacturer also noted that the market for resid ential furnace fan products has already shrunk 6

- 7 percent and is expected to have slow growth over the155 next few years. Given that manufacturers expect slow or no growth in the near future for most of the product classes even without new energy conservati on standards, the addition of new standards could lead to further market contraction.

Although the production costs for furnace fans are estimated to increase with higher efficiency levels, DOE does not expect overall shipments of furnaces to decrease du e to an increase in standards. On the contrary, based on the shipments analysis, total shipments for the furnace fan industry are not expected to decrease in the years following the standards compliance year. Chapter 9 of the NOPR TSD provides more infor mation on shipment estimates during the analysis period.

c. Cumulative Regulatory Burden DOE identified a number of cumulative regulations that may affect residential furnace fan manufacturers. Interviewed manufacturers mentioned the following regulations a s potentially having an impact and contributing to burden: (1) DOE Energy Conservation Standards for Furnaces and Central Air Conditioners and Heat Pumps; (2) DOE’s Certification, Compliance, and Enforcement rulemaking; (3) DOE’s Alternative Efficiency De termination Methods and Alternate Rating Methods rulemaking; (4) EPA’s phaseout of Hydrochlorofluorocarbons (HCFCs); (5) EPA’s Energy Star program; (6) State regulations such as California Title 24; (7) the South Coast Air Quality Management District Rule 1111; (8) Canadian energy efficiency regulations; and (9) ASHRAE Standard 90.1. Some manufacturers indicated that the largest portion of their research and development budget goes toward meeting the various DOE standards. One156 manufacturer also recommend ed that DOE standards should be spread apart by at least five year periods so that manufacturers can allocate appropriate time to meet standards and develop new products.

DOE also asked manufacturers under what circumstances they would be able to coordin ate expenditures related to other regulations. Manufacturers emphasized the benefits of having fewer metrics to evaluate and limiting the scope of coverage for residential furnace fans to strictly those units housed in furnaces. In addition, manufacturer s requested that DOE consider harmonizing with international standards to lessen the cumulative burden. Manufacturers also requested that the compliance date for some standards be pushed out to allow enough time for product development and limit stranded assets.

DOE recognizes and takes into account the cumulative cost of multiple regulations on manufacturers in the cumulative regulatory burden section of its analysis. Further information on cumulative regulatory burden can be found in section V.B.2.e of this notice and in chapter 12 of the NOPR TSD.

d. Consumer Confusion In addition to the regulatory burden imposed by multiple standards, manufacturers were concerned with issues arising from multiple metrics that all apply to a single product. Furnaces a lone already have energy efficiency rating metrics for AFUE and standby power, so with an additional FER metric, furnaces would be labeled with three157 different metrics. Manufacturers stated during interviews that three metrics are too many for a single pr oduct, and that consumers who use these rating metrics to evaluate and compare product performance may get confused if multiple metrics are labeled on one furnace. Manufacturers recommended that DOE should focus on the thermal performance of the furnace a nd not the fan energy consumption, which is a small fraction of a furnace’s overall energy use.

In response, DOE is required by EPCA to consider and establish energy conservation standards for residential furnace fans by December 31, 2013. (42 U.S.C.
62 95(f)(4)(D)) DOE is also required to develop test procedures to measure the energy efficiency, energy use, or estimated annual operating cost of each covered product prior to the adoption of an energy conservation standard. (42 U.S.C. 6295(o)(3)(A) and ( r)) Pursuant to these statutory requirements in EPCA, DOE proposes new energy conservation standards in this notice, based on its proposed rating metric ( FER ). Commenters have provided no DOE requests comment and information to demonstrate o n the potential for significant consumer confusion regarding the FER metric for residential furnace fans , beyond speculation

.

e. Motors Manufacturers questioned the use of X13 and ECM motors as a design option to improve furnace fan efficiency. As these motors employ more complex controls and have higher maintenance costs than PSC motors, it was suggested that long

- term reliability may be an issue. Manufacturers expect that the number of warranty claims, as Comment [A37]: Change recommended by OIRA.158 well as warranty

- associat ed costs, would increase if use of X13s and ECMs increased. X13s and ECMs are also more

- expensive components that would increase the initial cost of the products in which they are used. Since these motors would increase product price but reduce reliabili ty, manufacturers anticipate more consumers seeking to repair or refurbish existing products rather than purchase new ones. Furthermore, manufacturers may face challenges in obtaining a sufficient supply of motors due to the potential supply limitations o f ECMs.

DOE recognizes the concerns that manufacturers have about the reliability of ECM motors. However, DOE did not receive sufficient quantitative data from manufacturers regarding the failure rates and number of warranty claims for the different
moto r types to make any firm conclusions about their reliability. Consequently, DOE retained X13 and ECM motors as a design option for consideration.

K. In the emissions analysis, DOE estimates the reduction in power sector emissions of carbon dioxide (CO 2 ), nitrogen oxides (NO X ), sulfur dioxide (SO 2 ), and mercury (Hg) from potential energy conservation standards for the considered products. In addition to estimating impacts of standards on power sector emissions, DOE estimated emissions impacts in production activities (extracting, processing, and transporting fuels) that provide the energy inputs to power plants

. These are referred to as “upstream” emissions

. Together, these emissions account for the full

- fuel

- cycle. In accordance with DOE’s FFC Emissions Analysis159 Statement of Policy (76 FR 51281 (August 18, 2011)), this FFC analysis also includes impacts on emissions of methane (CH 4 ) and nitrous oxide (N 2 O), both of which are recognized as greenhouse gases

.

DOE conducted the emissions analysis using emissions factors that were derived from data in EIA’s AEO 2012 , supplemented by data from other sources. DOE developed separate emissions factors for power sector emissions and upstream emissions.
For residential furnace fans, DOE also c alculated site and upstream emissions from the additional use of natural gas associated with some of the efficiency levels. The method that DOE used to derive emissions factors is described in chapter 1 3 of the NOPR TSD.

For CH 4 and N 2 O, DOE calculated e missions reduction in tons and also in terms of units of carbon dioxide equivalent (CO 2 e q ). Gases are converted to CO 2 e q by multiplying the tons of the gas by the gas' s global warming potential (GWP) over a 100

- year time horizon. Based on the Fourth Assessment Report of the Intergovernmental Panel on Climate Change, 52 DOE used GWP values of 25 for CH 4 and 298 for N 2 O.

EIA prepares the Annual Energy Outlook using NEMS

. Each annual version of NEMS incorporates the projected impacts of existing air quality regulations on emissions.
AEO 2012

52 Forster, P., V. Ramaswamy, P. Artaxo, T. Berntsen, R. Betts, D.W. Fahey, J. Haywood, J. Lean, D.C. Lowe, G. Myhre, J. Nganga, R. Prinn,G. Raga, M. Schulz and R. Van Dorland. 2007: Changes in Atmospheric Constituents and in Radiative Forcing. In Climate Cha nge 2007: The Physical Science Basis

. Contribution of Working Group I to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change. S. Solomon, D. Qin, M. Manning, Z. Chen, M. Marquis, K.B. Averyt, M.Tignor and H.L. Miller, Editors. 200 7. Cambridge University Press, Cambridge, United Kingdom and New York, NY, USA. p. 212. generally represents current legislation and environmental regulations, Comment [A38]: Change recommended by OIRA.160 including recent government actions, for which implementing regulations were available as of December 31, 2011.

SO 2 emissions from affected electric generating units (EGUs) are subject to nationwide and regional emissions cap

- and

- trade programs. Title IV of the Clean Air Act sets an annual emissions cap on SO 2 f or affected EGUs in the 48 contiguous States and the District of Columbia (D.C.). SO 2 emissions from 28 eastern S tates and D.C. were also limited under the Clean Air Interstate Rule (CAIR; 70 FR 25162 (May 12, 2005)), which created an allowance

- based trading program that operates along with the Title IV
program . CAIR was remanded to the U.S. Environmental Protection Agency (EPA) by the U.S. Court of Appeals for the District of Columbia Circuit (D.C. Circuit) but it remained in effect. See North Caroli na v. EPA , 550 F.3d 1176 (D.C. Cir. 2008); North Carolina v. EPA , 531 F.3d 896 (D.C. Cir. 2008). 53 On July 6, 2011 , EPA issued a replacement for CAIR, the Cross

- State Air Pollution Rule (CSAPR ). 76 FR 48208 (August 8, 2011)

. The AEO On August 21, 2012 e missions factors used for today’s
NOPR assume , the implementation of D.C. Circuit iss ued a decision to vacate CSAPR , and ordered EPA to continue administering CAIR

. 54

53 CAIR was remanded to the U.S. Environmental Protection Agency (EPA) by the U.S. Court of Appeals for the District of Columbia Circuit (D.C. Circuit) but it remained in effect. See North Carolina v. EPA , 550 F.3d 1176 (D.C. Cir. 2008); North Carolina v. EPA , 531 F.3d 896 (D.C. Cir. 2008). 54 On December 30, 2011, the D.C. Circuit stayed the new rules while a panel of judges reviews them, and told EPA to continue admi nistering CAIR

. S ee EME Homer City Generation, LP v. EPA , Order, No. 11

- 1302 , Slip Op. at *2 (D.C. Cir. Dec. 30 , 2011) . On August 21, 2012, the D.C. Circuit issued a decision to vacate CSAPR. See EME Homer City Generation, LP v. EPA , No. 11

- 1302 , 2012 WL 3570721 at *24 (D.C. Cir. Aug. 21, 2012). The court again ordered EPA to continue administering CAIR. AEO 2012 had been finalized prior to both these decisions, however. DOE understands that CAIR and CSAPR are similar with respect to their effect on emissi ons impacts of energy conservation standards. . See EME Homer City Generation, LP v. EPA , 696 F.3d 7, 38 (D.C. Cir. 2012 ) cert. granted, 81 USLW 3567 (U.S. Jun. 24 2013) (No. 12

- 1182)

. . Comment [A39]: Change recommended by OIRA.

Formatted: No underline

Comment [A40]: Change recommended by OIRA. Formatted: Underline, Not Highlight161 AEO 2012 had been finalized prior to CSAPR being vacated. T he AEO 2012 emissions factors used for today’s NOPR assume the implementation of CSAPR

. As a result, for the purpose of calculating emissions reductions of SO 2 and NO X in this NOPR, DOE refers to impacts under CSAPR even though CSAPR is not currently in effect. Thi s should not alter the accuracy of DOE’s projections, however, because DOE expects that the impacts of energy conservation standards on SO 2 and NO x emissions would be similar regardless of whether CAIR or CSAPR are in effect. 55

The attainment of emissions caps is typically flexible among EGUs and is enforced through the use of emissions allowances and tradable permits. Under existing EPA regulations, any excess SO 2 emissions allowances resulting from the lower electricity demand caused by the adoption of an energy conservation standard could be used to permit offsetting increases in SO 2 emissions by any regulated EGU. In past rulemakings, DOE recognized that there was uncertainty about the effects of efficiency standards on SO 2 emissions covered by the existing cap

- and

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

Beginning in 2015, however, SO 2 emissions will fall as a result of the Mercury and Air Toxics Standards (MATS) for power plants, which were announced by EPA on

55 This is because SO 2 emissions will be well below the cap under either rule, such that emissions reductions will be realized to the same extent; the caps on NO X emission s in the 22 states regulated under both rules will have the same effect such that reductions in electricity generation from efficie ncy standards would result in little change in NO X levels (as explained further below)

. Comment [A41]: Change recommended by OIRA.162 December 21, 2011. 77 FR 9304 (Feb. 16, 2012). In the final MATS rule, EPA established a standard for hydrogen chloride as a su rrogate for acid gas hazardous air pollutants (HAP), and also established a standard for SO 2 (a non

- HAP acid gas) as an alternative equivalent surrogate standard for acid gas HAP

. The same controls are used to reduce HAP and non

- HAP acid gas; thus, SO 2 em issions will be reduced as a result of the control technologies installed on coal

- fired power plants to comply with the MATS requirements for acid gas. AEO 2012 assumes that, in order to continue operating, coal plants must have either flue gas desulfuriz ation or dry sorbent injection systems installed by 2015. Both technologies, which are used to reduce acid gas emissions, also reduce
SO 2 emissions. Under the MATS, NEMS shows a reduction in SO 2 emissions when electricity demand decreases ( e.g . , as a res ult of energy efficiency standards). Emissions will be far below the cap established by CSAPR, so it is unlikely that excess SO 2 emissions allowances resulting from the lower electricity demand would be needed or used to permit offsetting increases in SO 2 emissions by any regulated EGU. Therefore, DOE believes that efficiency standards will reduce SO 2 emissions in 2015 and beyond.

CSAPR established a cap on NO x emissions in 28 eastern States and the District of Columbia. Energy conservation standards ar e expected to have little effect on NO x emissions in those States covered by CSAPR because excess NO x emissions allowances resulting from the lower electricity demand could be used to permit offsetting increases
in NO x emissions. However, standards would be expected to reduce NO x emissions in the States not affected by the caps, so DOE estimated NO x emissions reductions from the163 potential standards considered in today’s NOPR for these States where emissions are not capped

.

The MATS limit mercury emissions from power plants, but they do not include emissions caps , and, as such, DOE’s energy conservation standards would likely reduce Hg emissions. For this rulemaking, DOE estimated mercury emissions reduction using emissions factors based on AEO 2012 , which incorporates the MATS.

Power plants may emit particulates from the smoke stack, which are known as dir ect particulate matter (PM ) emissions. NEMS does not account for direct PM emissions from power plants. DOE is investigating the possibility of using other methods to estimate reduction in PM emissions due to standards. T he great majority of ambient PM associated with power plants is in the form of secondary sulfates and nitrates , which are produced at a significant distance from power plants by complex atmospheric chemical reactions that often involve the gaseous emissions of power plants, mainly SO 2 and NO x . The monetary benefits that DOE estimates for reductions in SO 2 and NO x emissions resulting from standards are in fact primarily related to the hea lth benefits of reduced ambient PM.

L. As part of the development of this NOPR, DOE considered the estimated monetary benefits from the reduced emissions of CO 2 and NO X that are expected to result from ea ch of the considered efficiency levels

. In order to make this calculation similar to Monetizing Carbon Dioxide and Other Emissions Impacts164 the calculation of the NPV of consumer benefit, DOE considered the reduced emissions expected to result over the lifetime of products shipped in the forecast period for e ach efficiency level

. This section summarizes the basis for the monetary values used for CO 2 and NO X emissions and presents the values considered in this rulemaking.

For today’s NOPR, DOE is relying on a set of values for the social cost of carbon (SCC) that was developed by an interagency process

. A summary of the basis for those values is provided below, and a more detailed description of the methodologies used is provided as an appendix to chapter 14 of the NOPR TSD.

1. Social Cost of Carbon The SCC is an estimate of the monetized damages associated with an incremental increase in carbon emissions in a given year. It is intended to include (but is not limited to) changes in net agricultural productivity, human health, property damages from increased f lood risk, and the value of ecosystem services. Estimates of the SCC are provided in dollars per metric ton of carbon dioxide. A domestic SCC value is meant to reflect the value of damages in the United States resulting from a unit change in carbon dioxide emissions, while a global SCC value is meant to reflect the value of damages worldwide.

Under section 1(b)(6) of Executive Order 12866, “Regulatory Planning and Review,” 58 FR 51735 (Oct. 4, 1993), agencies must, to the extent permitted by law, assess b oth the costs and the benefits of the intended regulation and, recognizing that165 some costs and benefits are difficult to quantify, propose or adopt a regulation only upon a reasoned determination that the benefits of the intended regulation justify its cos ts. The purpose of the SCC estimates presented here is to allow agencies to incorporate the monetized social benefits of reducing CO 2 emissions into cost

- benefit analyses of regulatory actions that have small, or “marginal,” impacts on cumulative global

em issions. The estimates are presented with an acknowledgement of the many uncertainties involved and with a clear understanding that they should be updated over time to reflect increasing knowledge of the science and economics of climate impacts.

As part of the interagency process that developed the SCC estimates, technical experts from numerous agencies met on a regular basis to consider public comments, explore the technical literature in relevant fields, and discuss key model inputs and assumptions. The main objective of this process was to develop a range of SCC values using a defensible set of input assumptions grounded in the existing scientific and economic literatures. In this way, key uncertainties and model differences transparently and consistent ly inform the range of SCC estimates used in the rulemaking process.

a. Monetizing Carbon Dioxide Emissions When attempting to assess the incremental economic impacts of carbon dioxide emissions, the analyst faces a number of serious challenges. A recent re port from the National Research Council points out that any assessment will suffer from uncertainty, speculation, and lack of information about: (1) future emissions of greenhouse gases; (2) the effects of past and future emissions on the climate system; ( 3) the impact of changes166 in climate on the physical and biological environment; and (4) the translation of these environmental impacts into economic damages. As a result, any effort to quantify and monetize the harms associated with climate change will rai se serious questions of science, economics, and ethics and should be viewed as provisional.

Despite the serious limits of both quantification and monetization, SCC estimates can be useful in estimating the social benefits of reducing carbon dioxide emiss ions. Most Federal regulatory actions can be expected to have marginal impacts on global emissions. For such policies, the agency can estimate the benefits from reduced emissions in any future year by multiplying the change in emissions in that year by the SCC value appropriate for that year. The net present value of the benefits can then be calculated by multiplying the future benefits by an appropriate discount factor and summing across all affected years. This approach assumes that the marginal damages f rom increased emissions are constant for small departures from the baseline emissions path, an approximation that is reasonable for policies that have effects on emissions that are small relative to cumulative global carbon dioxide emissions. For policies that have a large (non

- marginal) impact on global cumulative emissions, there is a separate question of whether the SCC is an appropriate tool for calculating the benefits of reduced emissions. This concern is not applicable to this rulemaking, however.

It is important to emphasize that the interagency process is committed to updating these estimates as the science and economic understanding of climate change and its impacts on society improves over time. In the meantime, the interagency group167 will conti nue to explore the issues raised by this analysis and consider public comments as part of the ongoing interagency process.

b. Social Cost of Carbon Values Used in Past Regulatory Analyses Economic analyses for Federal regulations have used a wide range of v alues to estimate the benefits associated with reducing carbon dioxide emissions. In the final model year 2011 CAFE rule, the U.S. Department of Transportation (DOT) used both a “domestic” SCC value of $2 per metric ton of CO 2 and a “global” SCC value of $ 33 per metric ton of CO 2 for 2007 emission reductions (in 2007$), increasing both values at 2.4 percent per year. DOT also included a sensitivity analysis at $80 per metric ton of CO 2 . 56 A 2008 regulation proposed by DOT assumed a domestic SCC value of $7 per metric ton
of CO 2 (in 2006$) for 2011 emission reductions (with a range of $0

**−** $14 for sensitivity analysis), also increasing at 2.4 percent per year. 57

56 See Average Fuel Economy Standards Passenger Cars and Light Trucks Model Year 2011 , 74 FR 14196 (March 30, 2009) (Final Rule); Final Environmental Impact Statement Co rporate Average Fuel Economy Standards, Passenger Cars and Light Trucks, Model Years 2011

- 2015 at 3

- 90 (Oct. 2008) (Available at: A regulation for packaged terminal air conditioners and packaged terminal heat pumps finalized by DOE in October of 2008 used a domestic SCC range of $0 to $20 per metric ton CO 2 for 2007 emission reductions (in 2007$). 73 FR 58772, 58814 (Oct. 7, 2008). In addition, EPA’s 2008 Advance Notice of Proposed Rulemaking on Regulating Greenhouse Gas Emissions U nder the Clean Air Act identified what it described as “very preliminary” SCC estimates subject to revision. 73 FR 44354 (July 30, 2008). EPA’s global mean values were $68 and $40 per metric ton

http://www.nhtsa.gov/fuel

- economy ) (Last accessed December 2012).

57 See Avera ge Fuel Economy Standards, Passenger Cars and Light Trucks, Model Years 2011

- 2015 , 73 FR 24352 (May 2, 2008) (Proposed Rule); Draft Environmental Impact Statement Corporate Average Fuel Economy Standards, Passenger Cars and Light Trucks, Model Years 2011

- 2 015 at 3

- 58 (June 2008) (Available at: http://www.nhtsa.gov/fuel

- economy ) (Last accessed December 2012).168 CO 2 for discount rates of approximately 2 percent and 3 perce nt, respectively (in 2006$ for 2007 emissions).

In 2009, an interagency process was initiated to offer a preliminary assessment of how best to quantify the benefits from reducing carbon dioxide emissions. To ensure consistency in how benefits are evaluat ed across agencies, the Administration sought to develop a transparent and defensible method, specifically designed for the rulemaking process, to quantify avoided climate change damages from reduced CO 2 emissions. The interagency group did not undertake a ny original analysis. Instead, it combined SCC estimates from the existing literature to use as interim values until a more comprehensive analysis could be conducted. The outcome of the preliminary assessment by the interagency group was a set of five inte rim values: global SCC estimates for 2007 (in 2006$) of $55, $33, $19, $10, and $5 per metric ton of CO 2 . These interim values represented the first sustained interagency effort within the U.S. government to develop an SCC for use in regulatory analysis. T he results of this preliminary effort were presented in several proposed and final rules.

c. Current Approach and Key Assumptions Since the release of the interim values, the interagency group reconvened on a regular basis to generate improved SCC estimate s. Specifically, the group considered public comments and further explored the technical literature in relevant fields. The interagency group relied on three integrated assessment models commonly used to estimate the SCC: the FUND, DICE, and PAGE models. T hese models are frequently169 cited in the peer

- reviewed literature and were used in the last assessment of the Intergovernmental Panel on Climate Change. Each model was given equal weight in the SCC values that were developed.

Each model takes a slightly different approach to model how changes in emissions result in changes in economic damages. A key objective of the interagency process was to enable a consistent exploration of the three models while respecting the different approaches to quantifying damag es taken by the key modelers in the field. An extensive review of the literature was conducted to select three sets of input parameters for these models: climate sensitivity, socio

- economic and emissions trajectories, and discount rates. A probability dist ribution for climate sensitivity was specified as an input into all three models. In addition, the interagency group used a range of scenarios for the socio

- economic parameters and a range of values for the discount rate. All other model features were left unchanged, relying on the model developers’ best estimates and judgments.

The interagency group selected four sets of SCC values for use in regulatory analyses. Three sets of values are based on the average SCC from three integrated assessment models, a t discount rates of 2.5 percent, 3 percent, and 5 percent. The fourth set, which represents the 95th

- percentile SCC estimate across all three models at a 3

- percent discount rate, is included to represent higher

- than

- expected impacts from climate change fur ther out in the tails of the SCC distribution. The values grow in real terms over time

. Additionally, the interagency group determined that a range of values from 7170 percent to 23 percent should be used to adjust the global SCC to calculate domestic effect s, although preference is given to consideration of the global benefits of reducing
CO 2 emissions. Table IV

. 10 presents the values in the 2010 interagency group repor t, 58 which is reproduced in appendix 14

- A of the NOPR TSD.

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

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

Year Discount Rate % 5 3 2.5 3 Average Average Average 95 th Percentile 2010 4.7 21.4 35.1 64.9 2015 5.7 23.8 38.4 72.8 2020 6.8 26.3 41.7 80.7 2025 8.2 29.6 45.9 90.4 2030 9.7 32.8 50.0 100.0 2035 11.2 36.0 54.2 109.7 2040 12.7 39.2 58.4 119.3 2045 14.2 42.1 61.7 127.8 2050 15.7 44.9 65.0 136.2

The SCC values used for today’s notice were generated using the most recent versions of the three integrated assessment models that have been published in the peer

reviewed literature. 59

58 Social Cost of Carbon for Regulatory Impact Analysis Under Executive Order 12866 . Interagency Working Group on Social Cost of Carbon, United States Government , February 2010. Table IV.1 1 shows the updated sets of SCC estimates in five

- year increments from 2010 to 2050. Appendix 14

- B of the NOPR TSD provides the full set of

http://www.whitehouse.gov/sites/default/files/omb/inforeg/for

- a gencies/Social

- Cost

- of

- Carbon

- for

- RIA.pdf 59 Technical Update of the Social Cost of Carbon for Regulatory Impact Analy sis Under Executive Order 12866 . Interagency Working Group on Social Cost of Carbon, United States Government , April 2013. See appendix 14

- B of the NOPR TSD. . May 2013. http://www.whitehouse.gov/sites/default/files/omb/inforeg/social_cost_of_carbon_for_ria_2013_update.pdf

.171 SCC estimates , as well as the 2013 report from the interagency group

. The central value that emerges is the average SCC across models at the 3

- percent discount rate. However, for purposes of capturing the uncertainties involved in regulatory impact analysis, the interagency group emphasizes the importance of including all four sets of SCC values.

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

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

Year Discount Rate % 5 3 2.5 3 Average Average Average 95 th Percentile 2010 11 33 52 90 2015 12 38 58 109 2020 12 43 65 129 2025 14 48 70 144 2030 16 52 76 159 2035 19 57 81 176 2040 21 62 87 192 2045 24 66 92 206 2050 27 71 98 221
It is important to recognize that a number of key uncertainties remain, and that current SCC estimates should be treated as provisional and revisable since they will evolve with improved scientific and economic understanding. The interagency group also

rec ognizes that the existing models are imperfect and incomplete. The National Research172 Council report mentioned above points out that there is tension between the goal of producing quantified estimates of the economic damages from an incremental ton of carbo n and the limits of existing efforts to model these effects. There are a number of concerns and problems that should be addressed by the research community, including research programs housed in many of the Federal agencies participating in the interagency process to estimate the SCC. The interagency group intends to periodically review and reconsider those estimates to reflect increasing knowledge of the science and economics of climate impacts, as well as improvements in modeling.

In summary, in consider ing the potential global benefits resulting from reduced
CO 2 emissions, DOE used the values from the 2013 interagency report, adjusted to 2012$ using the Gross Domestic Product price deflator. For each of the four cases specified, the values used for emiss ions in 2015 were $12.9, $40.8, $62.2, and $117 per metric ton avoided (values expressed in 2012$). DOE derived values after 2050 using the relevant growth rate s for the 2040

- 2050 period in the interagency update.

DOE multiplied the CO 2 emissions reduction estimated for each year by the SCC value for that year in each of the four cases. To calculate a present value of the stream of monetary values, DOE discounted the values in each of the four cases using the specific discount rate that had been us ed to obtain the SCC values in each case.

AHRI agreed that the monetization of emission reductions is an important factor to consider, but it state d that DOE has no statutory responsibility to establish a monetary173 value for potential environmental benefit s of appliance and equipment standards. It added that there is currently no consensus on any single estimate of the value of CO 2 emissions, and , therefore , DOE should not indulge in speculation to determine a value when it has no statutory obligation to d o so . (AHRI, No. 48 at p. 7)

In response, it is noted that EPCA directs DOE to achieve the maximum improvement in energy efficiency that is technologically feasible and economically justified. (42 U.S.C. 6295(o)(2)(A)) DOE determines whether a standard is economically justified by considering, to the greatest extent practicable, a number of factors. (42 U.S.C. 6295(o)(2)(B)(i)(I)

– (VII)) Among these factors is “ o ther factors the Secretary [ of Energy ] considers relevant.” The Secretary considers the ec onomic benefits that may accrue to society from reduction of CO 2 emissions a relevant factor. DOE further notes that the incorporation of environmental externalities, such as damage from climate change, is a well

- established principle in cost

- benefit anal ysis by Federal agencies. DOE acknowledges that the value to place on a ton of avoided CO 2 emissions in future years is very uncertain, and for this reason it uses a wide range of monetary values (from $ 12.9 per ton to $ 117 per ton for emissions avoided i n 2015).

AHRI also stated that DOE should not allow evaluation of environmental impacts to negate or make moot what has always been, and should remain, the core analysis in appliance and equipment standards rulemakings: the consumer payback period and lif e cycle cost analysis. (AHRI, No. 48 at p. 7) In response, DOE notes that e nvironmental174 and other impacts associated with reduced emissions are but one of the factors that DOE considers in determining whether a standard is economically justified.

2. Valuation of Other Emissions Reductions DOE investigated the potential monetary benefit of reduced NO X emissions from the potential standards it considered

. As noted above, DOE has taken into account how

new energy conservation standards would reduce NO X emissions in those 22 States not affected by the CSAPR

. DOE estimated the monetized value of NO X emissions reductions resulting from each of the TSLs considered for today’s NOPR based on estimates found in the relevant scientific literature

. Available es timates suggest a wide range of benefit per ton values for NO x from stationary sources, ranging from $46 8 to $4, 809 per ton in 201 2 $. 60 In accordance with OMB guidance, DOE conducted two calculations of calcul ated the monetary benefits derived from NO x reductions using each of the an average benefit per ton values value for NO X , one using a real and discount
rate rate s of 3 percent and the other using a real discount rate of 7 percent. 61

DOE did not monetize Hg or S O 2 emission reductions for today’s NOPR because it is currently evaluating appropriate valu ation of reduction in these emissions.

60 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 (2006)

. 61 OMB, Circular A

- 4: Regulatory Analysis ( Sept. 17, 2003).175 M. The utility impact analysis estimates several effects on the power generation industry that would result from the adoption of new or amended energy conservation standards. In the utility impact analysis, DOE analyzes the changes in electric installed capacity and generation that result for each trial standard level

. The utility impact analysis uses a variant of NEMS, which is a public domain, multi

- sectored, partial equilibrium model of the U.S. energy sector. DOE uses a variant of this model, referred
to as NEMS

- BT, Utility Impact Analysis

62 to account for selected utility impacts of new or amended energy conservation standards

. DOE’s analysis consists of a compari son between model results for the most recent AEO Reference Case and for cases in which energy use is decremented to reflect the impact of potential standards. The energy savings inputs associated with each TSL come from the NIA

. Chapter 15 of the NOPR T SD describes the utility impact analysis in further detail

.

NEEP recommended estimating the value of capacity reduction due to appliance standards as part of the NOPR , because reducing the need for electricity capacity is an important benefit that minimum efficiency standards bring to the country and various regions. Noting that t he NOPR provide s estimates of the expected reduction in electricity capacity due to residential furnace fan standards, NEEP urge d the Department to also

62 DOE/EIA approves use of the name NEMS to describe only an official version of the model without any modification to code or data. Because this analysis entails some minor code modifications and the model is run under various policy scenarios that are vari ations on DOE/EIA assumptions, DOE refers to it by the name “NEMS

- BT” (“BT” is DOE’s Building Technologies Program, under whose aegis this work has been performed).176 include a financial benefit estimate associated with these capacity reductions. (NEEP, No. 51 at p. 3)

For the NOPR, DOE used NEMS

- BT, along with EIA data on the capital cost of various power plant types, to estimate the reduction in national expenditure s for electricity generating capacity due to potential residential furnace fan standards. The method used and the results are described in chapter 15 of the NOPR TSD.

DOE is evaluating whether parts of the cost reduction are a transfer and thus, accordi ng to guidance provided by OMB to Federal agencies, should not be included in the estimates of the benefits and costs of a regulation. 63

63 OMB Circular A

- 4 (Sept. 17, 2003), p. 38. T ransfer payments are monetary payments from one group to another that do not affect total resources available to socie ty ( i.e. , exchanges that neither decrease nor increase total welfare )

. Benefits occur when savings to consumers result from real savings to producers, which increases societal benefits

. Cost savings from reduced or delayed capital expenditure on power pl ants are a benefit, and not a transfer, to the extent that the reduced expenditure provides savings to both producers and consumers without affecting other groups. There would be a transfer to the extent that the delayed construction caused some other gro up ( e.g. , equipment suppliers or landowners who might have assets committed to the projects ) to realize a lower return on those assets. DOE is evaluating these issues to determine the extent to177 which the cost savings from delayed capital expenditure on po wer plants are a benefit to society. 64

EEI stated that as part of it s analysis on the potential impact of new residential furnace fan efficiency standards on utilities, DOE should consider the impacts of increased demands on gas and oil systems, especially during peak fossil fuel demand days. (EEI, No. 65 at p. 2) In response, DOE has tentatively concluded that t he increase in gas and oil use associated with higher furnace fan efficiency levels is expected to be very small in the context of overall gas and oil demand, and as such, DOE believes that the impact on gas and oil systems would be insignificant.

EEI stated that wi th respect to electric utilities, DOE should ensure that it does not overestimate the potential for residential furnace fan energy conservation standards to reduce peak load demand. According to EEI, the vast majority of electric utilities in the
U.S. rea ch peak demand during the summer air conditioning season. (EEI, No. 65 at p. 2) In response, DOE’s analysis with NEMS uses a demand load shape that approximates the daily and seasonal load of residential furnace fans. Thus, the resulting estimates of ch anges in generating capacity due to higher residential furnace fan efficiency are reasonable.

64 Although delayed investment implies a saving s in total cost, the savings may be less than the savings in capital cost because the delay may also cause increases in other costs . For example, if the delayed investment was the replacement of an existing facility with a larger, more

- efficient facility, the increased cost of operating the old facility during the period of delay might offset much of the savings from delayed investment. That the project was delayed is evidence that doing so decreased overall cost, but it does not indicate that the decrease was equal to the entire savings in capital cost.178 N. Employment impacts from new or amended energy conservation standards include direct and indirect impacts

. D irect employment impacts are any changes in the number of employees of manufacturers of the products subject to standards ; the MIA addresses those impacts

. Indirect employment impacts are changes in national employment that occur due to the shift in expenditures and capital investment caused by the purchase and operation of more

- efficient appliances

. Indirect employment impacts from standards consist of the jobs created or eliminated in the national economy due to: (1) reduced spending by end users on energy; (2) reduced spe nding on new energy supply by the utility industry; (3) increased consumer spending on the purchase of new products; and (4) the effects of those three factors throughout the economy. Employment Impact Analysis

One method for assessing the possible effects on the demand for labor of such shifts in economic activity is to compare sector employment statistics developed by the Labor Department’s Bureau of Labor Statistics (BLS)

. BLS regularly publishes its estimates of the number of jobs per million dollars of economic activity in di fferent sectors of the economy, as well as the jobs created elsewhere in the economy by this same economic activity

. Data from BLS indicate that expenditures in the utility sector generally create fewer jobs (both directly and indirectly) than expenditure s in other sectors of the economy. 65

65 See Bureau of Economic Analysis, “Regional Multipliers: A User Handbook for the Regional Input

Output Modeling System (RIMS II),” U.S. Department of Commerce (1992). There are many reasons for these differences, including wage differences and the fact that the utility sector is more capital

- intensive and less labor

intensive than other sectors

. Energy conservation standards have th e effect of reducing179 consumer utility bills

. Because reduced consumer expenditures for energy likely lead to increased expenditures in other sectors of the economy, the general effect of efficiency standards is to shift economic activity from a less labor

- intensive sector ( i.e. , the utility sector) to more labor

- intensive sectors ( e.g. , the retail and service sectors)

. Thus, based on the BLS data alone, DOE believes net national employment may increase because of shifts in economic activity resulting from energy conservation standards for residential furnace fans

.

For the standard levels considered in today’s NOPR , DOE estimated indirect national employment impacts using an input/output model of the U.S. economy called Impact of Sector Energy Technologies version 3.1.1 (ImSET). 66

66 J. M. Roop, M. J. Scott, and R. W. Schultz, ImSET 3.1: Impact of Sector Energy Technologies , PNNL

1 8412, Pacific Northwest National Laboratory ( 200 9) ( Available at: ImSET is a special

purpose version of the “U.S. Benchmark National Input

- Output” (I

– O) model, which was designed to estimate the national employment and income effects of energy

- saving technologies

. The ImSET software includes a computer

- based I

– O model having structural coefficients that characterize economic flows among the 187 sectors

. ImSET’s national economic I

– O structure is based on a 2002 U.S. benchmark table, specially aggregated to the 187 sectors most relevant to indus trial, commercial, and residential building energy use. DOE notes that ImSET is not a general equilibrium forecasting model, and understands the uncertainties involved in projecting employment impacts, especially changes in the later years of the analysis

. Because ImSET does not incorporate price changes, the employment effects predicted by ImSET may over

www.pnl.gov/main/publications/ex ternal/technical_reports/PNNL

- 18412.pdf ).180 estimate actual job impacts over the long run. For the NOPR, DOE used ImSET only to estimate short

- term (2019 and 2024) employment impacts.

For more details on the employment impact analysis, see chapter 16 of the NOPR
TSD.

V. Analytical Results and Conclusions This section addresses the results from DOE’s analyses with respect to potential energy conservation standards for residential furnace f ans. It addresses the TSLs examined by DOE, the projected impacts of each of these levels if adopted as energy conservation standards for furnace fans, and the proposed standard levels that DOE sets forth in today’s NOPR. Additional details regarding DOE ’s analyses are contained in the TSD supporting this notice.

A. DOE developed trial standard levels (TSLs) that combine efficiency levels for each product class of residential furnace fans. Trial Standard Levels

Table V

. 1 presents the efficiency levels for each product class in each TSL

. TSL 6 consists of the max

- tech efficiency levels. TSL 5 consists of those efficiency levels that provide the maximum NPV using a 7

- percent discount rate (see section V.B.3 for NPV results). TSL 4 consists of those efficiency levels that provide the highest NPV using a 7

- percent discount rate, and that also result in a higher percentage of consumers that receive an LCC benefit than experience an LCC loss (see section V.B.1 for LCC results). TSL 3 uses efficiency level 3 for all product181 classes

. TSL 2 consists of efficiency levels that are the same as TSL 3 for non

weatherize d gas furnace fans, weatherized gas furnace fans, and electric furnace fans, but

are at efficiency level 1 for oil

- fired furnace fans and manufactured home furnace fan s. TSL 1 consists of the most common efficiency levels in the current market. In summar y, Table V.1 presents the six TSLs which DOE has identified for residential furnace fans, including the efficiency level associated with each TSL, the technology options anticipated to achieve those levels, and the expected resulting percent age reduction i n FER from the b aseline corresponding to each efficiency level.

Table V . 1 Trial Standard Levels for Residential Furnace Fans

Product Class Trial Standard Levels (Efficiency Level) * 1 2 3 4 5 6 Non

- Weatherized, Non

Condensing Gas Furnace Fan 1 3 3 4 4 6
Non

- weatherized, Condensing Gas Furnace Fan 1 3 3 4 4 6 Weatherized Non

- Condensing Gas Furnace Fan 1 3 3 4 4 6 Non

- Weatherized, Non

Condensing Oil Furnace Fan 1 1 3 1 3 6 Non

- weatherized Electric Furnace/Modular Blower Fan 1 3 3 4 4 6 Manufactured Home Non

Weatherized, Non

- Condensing Gas Furnace Fan 1 1 3 1 3 6
Manufactured Home Non

Weatherized, Condensing Gas Furnace Fan 1 1 3 1 3 6
Manufactured Home Electric Furnace/Modular Blower Fan 1 1 3 4 4 6
* Efficiency level (EL) 1 = Improved PSC (12 percent). (For each EL, the percentages given refer to percent reduction in FER from the baseline level.) EL 2 = Inverter

- d riven PSC ( 25 percent). EL 3 = C onstant

- torque BPM motor (38 percent). EL 4 = C onstant

- torque BPM motor + Multi

- Staging (51 percent). EL 5 = C onstant

- airflow BPM motor (57 percent). EL 6 = C onstant

- airflow BPM motor + Multi

Staging ( 6 1 percent ).182 B. 1. Economic Impacts on Consumers Economic Justification and Energy Savings

a. Life

- Cycle Cost and Payback Period To evaluate the economic impact of the considered efficiency levels on consumers, DOE conducted an LCC analysis for each efficiency level

. More

- efficient

res idential furnace fans would affect these consumers in two ways: (1) annual operating expense would decrease; and (2) purchase price would increase. Inputs used for calculating the LCC include total installed costs ( i.e. , equipment price plus installation costs), operating expenses ( i.e. , energy costs , repair costs, and maintenance costs), product lifetime, and discount rates.

The output of the LCC model is a mean LCC savings (or cost) for each product class, relative to the baseline base case efficiency levels distribution for residential furnace fans. The LCC analysis also provides information on the percentage of consumers for whom an increase in the minimum efficiency standard would have a positive impact (net benefit), a negative impact (net cost), or no impact.

DOE also performed a PBP analysis as part of the LCC analysis. The PBP is the number of years it would take for the consumer to recover the increased costs of higher

efficiency products as a result of energy savings based on the operating cost savings. The PBP is an economic benefit

- cost measure that uses benefits and costs without Comment [A42]: Change recommended by OIRA.183 discounting. Chapter 8 of the NOPR TSD provides detailed information on the LCC and PBP analyses.

DOE’s LCC and PBP analyses provide five key outputs for eac h efficiency level above the baseline, as reported in Table V .2 through Table V .9

. for the considered TSLs

. (Results for all efficiency levels are reported in chapter 8 of the NOPR TSD.) These outputs include the proportion of residential furnace fan purchases in which the purchase of a furnace fan compliant with the new energy conservation standard creates a net LCC increase, no impact, or a net LCC savings for the consumer

. Another output is the
average net LCC savings from standards

- compliant products, as well as the median PBP for the consumer investment in standards

- compliant products. Savings are measured relative to the base case efficiency distribution (see section IV.F.4), not the baseline efficiency l evel. Comment [A43]: Change recommended by OIRA.

Comment [A44]: Change recommended by OIRA.184 Table V . 2 LCC and PBP Results for Non
- Weatherized, Non
- Condensing Gas Furnace Fans

Efficiency

Level TSL Life
- Cycle Cost Life
- Cycle Cost Savings 2012 $ Median Payback Period Installed

Cost years Discounted Operating Cost LCC Average Savings % of Consumers that Experience 2012 $ Net Cost No Impact Net Benefit Baseline $343 $2,146 $2,489 $0 0% 100% 0%

--- 1 1 $354 $1,943 $2,297 $64 2% 68% 30% 1.34 2 $403 $1,649 $2,052 $253 25% 25% 50% 3.98 3 2, 3 $414 $1,389 $1,803 $442 18% 25% 57% 2.69 4 4, 5 $496 $1,273 $1,769 $474 33% 14% 53% 5.38 5 $662 $1,333 $1,995 $275 53% 12% 35% 11.53 6 6 $697 $1,260 $1,957 $313 58% 0% 42% 11.20

Table V . 3 LCC and PBP Results for Non
- Weatherized, Condensing Gas Furnace Fans

Efficiency

Level TSL Life
- Cycle Cost Life
- Cycle Cost Savings 201 2 $ Median Payback Period Installed

Cost years Discounted Operating Cost LCC Average Savings % of Consumers that Experience 201 2 $ Net Cost No Impact Net Benefit Baseline $339 $2,259 $2,598 $0 0% 100% 0%

--- 1 1 $351 $2,066 $2,417 $49 1% 75% 24% 1.35 2 $398 $1,775 $2,173 $203 21% 41% 38% 4.13 3 2, 3 $408 $1,506 $1,914 $361 10% 41% 49% 2.73 4 4, 5 $490 $1,414 $1,904 $371 24% 34% 42% 5.39 5 $658 $1,488 $2,146 $199 45% 29% 27% 11.73 6 6 $692 $1,415 $2,107 $238 57% 0% 43% 11.03185 Table V . 4 LCC and PBP Results for Weatherized , Non
- Condensing Gas Furnace Fans

Efficiency

Level TSL Life
- Cycle Cost Life
- Cycle Cost Savings 201 2 $ Median Payback Period Installed

Cost years Discounted Operating Cost LCC Average Savings % of Consumers that Experience 201 2 $ Net Cost No Impact Net Benefit Baseline $329 $1,944 $2,273 $0 0% 100% 0%

--- 1 1 $340 $1,759 $2,099 $35 0% 81% 18% 1.27 2 $387 $1,549 $1,936 $104 13% 56% 31% 4.94 3 2, 3 $397 $1,276 $1,673 $228 7% 56% 37% 2.65 4 4, 5 $476 $1,170 $1,645 $247 25% 33% 41% 6.39 5 $636 $1,290 $1,926 $39 51% 27% 22% 15.53 6 6 $670 $1,228 $1,898 $67 63% 0% 37% 13.32

Table V . 5 LCC and PBP Results for Non
- weatherized , Non
- Condensing Oil Furnace Fans

Efficiency

Level TSL Life
- Cycle Cost Life
- Cycle Cost Savings 2012 $ Median Payback Period Installed

Cost years Discounted Operating Cost LCC Average Savings % of Consumers that Experience 201 2 $ Net Cost No Impact Net Benefit Baseline $387 $2,540 $2,927 $0 0% 100% 0%

--- 1 1, 2, 4 $404 $2,389 $2,794 $40 12% 71% 18% 5.49 2

- $470 $2,042 $2,512 $245 46% 28% 26% 12.33 3 3, 5 $482 $1,896 $2,378 $344 43% 28% 29% 6.97 4

- $570 $1,833 $2,402 $326 49% 28% 23% 12.07 5

- $798 $1,887 $2,685 $120 58% 28% 14% 27.47 6 6 $833 $1,840 $2,673 $132 79% 0% 21% 25.41186 Table V . 6 LCC and PBP Results for Non
- Weatherized Electric Furnace/Modular Blower Fans

Efficiency

Level TSL Life
- Cycle Cost Life
- Cycle Cost Savings 201 2 $ Median Payback Period Installed

Cost years Discounted Operating Cost LCC Average Savings % of Consumers that Experience 201 2 $ Net Cost No Impact Net Benefit Baseline $241 $1,198 $1,439 $0 0% 100% 0%

--- 1 1 $252 $1,100 $1,352 $21 5% 73% 21% 2.39 2

- $295 $954 $1,249 $84 28% 37% 34% 6.16 3 2, 3 $294 $830 $1,124 $160 20% 37% 42% 3.15 4 4, 5 $315 $771 $1,086 $185 27% 25% 48% 3.55 5

- $450 $855 $1,305 $18 52% 25% 23% 12.83 6 6 $482 $824 $1,306 $17 68% 0% 32% 13.45

Table V . 7 LCC and PBP Results for Manufactured Home Non
- Weatherized, Non
Condensing Gas Furnace Fans

Efficiency

Level TSL Life
- Cycle Cost Life
- Cycle Cost Savings 201 2 $ Median Payback Period Installed

Cost years Discounted Operating Cost LCC Average Savings % of Consumers that Experience 201 2 $ * Net Cost No Impact Net Benefit Baseline $254 $1,144 $1,398 $0 0% 100% 0%

--- 1 1, 2, 4 $265 $1,070 $1,335 $26 13% 56% 32% 3.35 2

- $310 $955 $1,265 $97 62% 0% 38% 10.74 3 3, 5 $315 $901 $1,216 $146 58% 0% 42% 7.02 4

- $391 $876 $1,267 $95 70% 0% 30% 13.10 5

- $537 $927 $1,464 ( $102 ) 85% 0% 15% 26.22 6 6 $569 $909 $1,478 ( $116 ) 85% 0% 15% 26.73 *Parentheses indicate negative values.187 Table V . 8 LCC and PBP Results for Manufactured Home Non
- Weatherized, Condensing Gas Furnace Fans

Efficiency

Level TSL Life
- Cycle Cost Life
- Cycle Cost Savings 201 2 $ Median Payback Period Installed

Cost years Discounted Operating Cost LCC Average Savings % of Consumers that Experience 201 2 $ * Net Cost No Impact Net Benefit Baseline $271 $1,355 $1,626 $0 0% 100% 0%

--- 1 1, 2, 4 $282 $1,261 $1,543 $27 7% 68% 26% 2.73 2

- $326 $1,123 $1,449 $96 43% 29% 28% 10.47 3 3, 5 $334 $1,039 $1,373 $152 38% 29% 32% 6.46 4

- $410 $1,005 $1,416 $111 68% 4% 27% 14.82 5

- $564 $1,053 $1,618 ( $82 ) 82% 4% 14% 34.31 6 6 $597 $1,025 $1,622 ( $86 ) 84% 0% 16% 32.23 *Parentheses indicate negative values.

Table V . 9 LCC and PBP Results for Manufactured Home Electric Furnace/Modular Blower Fan

Efficiency

Level TSL Life
- Cycle Cost Life
- Cycle Cost Savings 201 2 $ Median Payback Period Installed

Cost years Discounted Operating Cost LCC Average Savings % of Consumers that Experience 201 2 $ * Net Cost No Impact Net Benefit Baseline $192 $663 $855 $0 0% 100% 0%

--- 1 1, 2 $202 $608 $810 $14 8% 71% 21% 2.49 2

- $243 $561 $804 $20 37% 38% 25% 9.99 3 3 $241 $499 $739 $64 28% 38% 34% 4.35 4 4, 5 $259 $464 $723 $78 34% 26% 40% 4.61 5

- $382 $539 $921 ( $70 ) 59% 26% 15% 16.75 6 6 $412 $525 $937 ( $86 ) 82% 0% 18% 17.11 * Parentheses indicate negative values.188 The results in the above tables reflect the assumptions for use of constant circulation in the proposed DOE test procedure for furnace fans. As discussed in section
IV.E , DOE also performed a sensitivity analysis for non

- weatherized gas furnace fans to estimate the effect on the LCC results if it assumed half as much use of conti nuous circulation. 67

Table V

. 10 Under this revised assumption, f or non - weatherized, non

- condensing gas furnace fans, the average LCC savings decline somewhat in the sensitivity analysis, and the share of consumers that experience an LCC benefit declines slightly ( see ). The same changes occur for non

- weatherized, condensing gas furnace fans, but the magnitude of the effect is somewhat larger than for non

- condensing gas furnace fans ( see Table V

. 11 ).

67 Non

- weatherized gas furnace fans account for the vast majority of furnace fans used in constant

circulation mode.189 Table V . 10 LCC and PBP Results for Non
- Weatherized, Non
- Condensing Gas Furnace Fans Under Alternative Constant
- Circulation Scenarios Constant
- Circulation Scenario

Efficiency

Level TSL Current Test Procedure Assumptions Half of Current Test Procedure Assumptions
Average

LCC Savings % of Consumers that Experience
201 2 $ Average LCC Savings % of Consumers that Experience
201 2 $ Net Cost No Impact Net Benefit Net Cost No Impact Net Benefit 1 1 $64 2% 68% 30% $59 2% 68% 29% 2

- $253 25% 25% 50% $189 27% 25% 48% 3 2, 3 $442 18% 25% 57% $362 19% 25% 56% 4 4, 5 $474 33% 14% 53% $376 34% 14% 51% 5

- $275 53% 12% 35% $173 55% 12% 33% 6 6 $313 58% 0% 42% $204 60% 0% 40%

Table V . 11 LCC and PBP Results for Non
- Weatherized, Condensing Gas Furnace Fans Under Alternative Constant
- Circulation Scenarios Constant
- Circulation Scenario

Efficiency

Level TSL Current Test Procedure Assumptions Half of Current Test Procedure Assumptions
Average

LCC Savings % of Consumers that Experience
201 2 $ Average LCC Savings % of Consumers that Experience
201 2 $ Net Cost No Impact Net Benefit Net Cost No Impact Net Benefit 1 1 $49 1% 75% 24% $41 1% 75% 24% 2 $203 21% 41% 38% $127 22% 41% 37% 3 2, 3 $361 10% 41% 49% $266 11% 41% 48% 4 4, 5 $371 24% 34% 42% $256 25% 34% 40% 5 $199 45% 29% 27% $78 47% 29% 24% 6 6 $238 57% 0% 43% $107 60% 0% 40%190 b. Consumer Subgroup Analysis DOE estimated the impacts of the considered efficiency levels (TSLs) on the following consumer subgroups: (1) senior

- only households ; and (2) low

- income households. The results of the consumer subgroup analysis indicate that for residential furnace fans, senior

- only households and low

- income households experience lower average LCC savings and longer payback periods than consumers overall , with the difference being larger for low

- income households. The difference between the two subgroups and all consumers is larger for non

- weatherized, non

- condensing gas furnace fans (see Table V

. 12 ) than for non

- weatherized, condensing gas furnace fans (see Table
V

. 13 ). Chapter 11 o f the NOPR TSD provides more detailed discussion on the consumer subgroup analysis and results for the other product classes

.

Table V . 12 Comparison of Impacts for Consumer Subgroups with All Consumers, Non
- Weatherized, Non
- Condensing Gas Furnace Fans Average Life
- Cycle Cost Savings Median Payback Period 2012$ Efficiency

Level years TSL Senior
Only Low
Income All Consumers Senior
Only Low
Income All Consumers 1 1 $47 $35 $64 1.8 2.1 1.3 2 $200 $123 $253 5.4 6.3 4.0 3 2, 3 $344 $232 $442 3.7 3.8 2.7 4 4, 5 $343 $206 $474 7.2 7.8 5.4 5 $142 $7 $275 15.6 17.2 11.5 6 6 $164 $14 $313 15.3 16.5 11.2191 Table V . 13 Comparison of Impacts for Consumer Subgroups with All Consumers, Non
- Weatherized, Condensing Gas Furnace Fans Average Life
- Cycle Cost Savings Median Payback Period 2012$ Efficiency

Level years TSL Senior
Only Low
Income All Consumers Senior
Only Low
Income All Consumers 1 1 $41 $32 $49 1.6 2.2 1.4 2 $173 $129 $203 5.1 6.6 4.1 3 2, 3 $313 $245 $361 3.2 4.0 2.7 4 4, 5 $301 $212 $371 6.6 8.5 5.4 5 $121 $35 $199 14.5 18.3 11.7 6 6 $151 $52 $238 12.2 16.4 11.0

c. Rebuttable Presumption Payback As discussed in section IV.F.5 , EPCA provides a rebuttable presumption that, in essence, an energy conservation standard is economically justified if the increased purchase cost for a product that meets the standard is less than three times the value of the first

- year energy savings resulting from the standard

. However, DOE routinely conducts a full economic analysis that considers the full range of impact s, including those to the consumer, manufacturer, Nation, and environment, as required under 42 U.S.C. 6295(o)(2)(B)(i)

. The results of this analysis serve as the basis for DOE to definitively evaluate the economic justification for a potential standard l evel, thereby supporting or rebutting the results of any preliminary determination of economic justification

. For comparison with the more detailed analytical results, DOE calculated a rebuttable presumption payback period for each TSL. Table V

. 14 shows the rebuttable presumption payback periods for the residential furnace fans product classes.192 Table V . 14 Rebuttable Presumption Payback Periods for Residential Furnace Fan Product Classe s Product Class Rebuttable Presumption Payback TSL 1 y ears TSL 2 TSL 3 TSL 4 TSL 5 TSL 6 Non

- Weatherized, Non

Condensing Gas Furnace Fan 1.13 1.65 1.65 3.08 3.08 6.21
Non

- weatherized, Condensing Gas Furnace Fan 1.06 1.49 1.49 2.82 2.82 5.72
Weatherized Non

- Condensing Gas Furnace Fan 1.41 2.02 2.02 3.78 3.78 7.62
Non

- Weatherized, Non

Condensing Oil Furnace Fan 1.84 1.84 2.46 1.84 2.46 8.16
Non

- weatherized Electric Furnace/Modular Blower Fan 1.14 1.60 1.60 1.80 1.80 4.97
Manufactured Home Non

Weatherized, Non

Condensing Gas Furnace Fan 1.33 1.33 1.91 1.33 1.91 7.26

Manufactured Home Non

Weatherized, Condensing Gas Furnace Fan 1.25 1.25 1.79 1.25 1.79 6.85

Manufactured Home Electric Furnace/Modular Blower Fan 1.51 1.51 2.13 2.39 2.39 6.59

2. Economic Impact on Manufacturers As noted above, DOE performed an MIA to estimate the impact of new energy conservation standards on manufacturers of residential furnace fans. The following section describes the expected impacts on manufacturers at each considered TSL. Chapter 12 of the NOPR TSD explains the analysis in further detail.

a. Industry Cash

- Flow Analysis Results Table V

. 15 and Table V

. 16 depict the financial impacts (represented by changes in INPV) of new energy standards on manufacturers of residential furnace fans, as well as the conversion costs that DOE expects manufacturers would incur for all product classes193 at each TSL. To evaluate the range of cash flow impacts on the reside ntial furnace fans industry, DOE modeled two different mark

- up scenarios using different assumptions that correspond to the range of anticipated market responses to potential new energy conservation standards: (1) the preservation of gross margin percentag e; and (2) the preservation of operating profit. Each of these scenarios is discussed immediately below.

To assess the lower (less severe) end of the range of potential impacts, DOE modeled a preservation of gross margin percentage markup scenario, in w hich a uniform “gross margin percentage” markup is applied across all potential efficiency levels. In this scenario, DOE assumed that a manufacturer’s absolute dollar markup would increase as production costs increase in the standards case.

To assess the higher (more severe) end of the range of potential impacts, DOE modeled the preservation of operating profit markup scenario, which assumes that manufacturers would be able to earn the same operating margin in absolute dollars in the standards case as in the base case. In this scenario, while manufacturers make the necessary investments required to convert their facilities to produce new standards

compliant products, operating profit does not change in absolute dollars and decreases as a percentage of rev enue.

The set of results below shows potential INPV impacts for residential furnace fan manufacturers; Table V

. 15 reflects the lower bound of impacts, and Table V

. 16 represents the upper bound.194 Each of the modeled scenarios results in a unique set of cash flows and corresponding industry values at each TSL. In the following discussion, the INPV results refer to the difference in industry value between the base case and each standards case that resul ts from the sum of discounted cash flows from the base year 2013 through 2048, the end of the analysis period. To provide perspective on the short

- run cash flow impact, DOE includes in the discussion of the results below a comparison of free cash flow bet ween the base case and the standards case at each TSL in the year before new standards would take effect. This figure provides an understanding of the magnitude of the required conversion costs relative to the cash flow generated by the industry in the ba se case.195 Table V . 15 Manufacturer Impact Analysis for Residential Furnace Fans
- Preservation of Gross Margin Percentage Markup Scenario * Units Base Case Trial Standard Level 1 2 3 4 5 6 INPV 2012 $ Millions 252.2 252.9 265.7 265.1 286.0 286.5 310.4 Change in INPV 2012 $ Millions - 0.7 13.5 12.9 33.8 34.2 58.2

(%)

- 0.3 5.3 5.1 13.4 13.6 23.1 Product Conversion Costs 2012 $ Millions - 1.1 2.8 2.9 3.1 3.2 9.3 Capital Conversion Costs 2012 $ Millions - - - - - - 155.0
Total Conversion Costs 2012 $ Millions - 1.1 2.8 2.9 3.1 3.2 164.3

Free Cash Flow 2012 $ Millions 12.1 2 11. 7 8 11. 28 11.2 5 11. 17 11.1 5 (60.4 4 ) Free Cash Flow (change from Base Case) % 0.0 (2.82) (6.94) (7.21) (7.85) (8.02) (598.66)

* Values in parentheses are negative values.

Table V . 16 Manufacturer Impact Analysis for Residential Furnace Fans
- Preservation of Operating Profit Markup Scenario* Units Base Case Trial Standard Level 1 2 3 4 5 6 INPV 2012 $ Millions 252.2 249.2 225.5 223.6 197.8 196.7 82.1 Change in INPV 2012 $ Millions - (3.0) (26.7) (28.6) (54.4) (55.5) (170.1)

(%)

- ( 1.2 ) ( 10.6 ) ( 11.3 ) ( 21.6 ) ( 22.0 ) ( 67.5 ) Product Conversion Costs 2012 $ Millions - 1.1 2.8 2.9 3.1 3.2 9.3 Capital Conversion Costs 2012 $ Millions - - - - - - 155.0
Total Conversion Costs 2012 $ Millions - 1.1 2.8 2.9 3.1 3.2 164.3
Free Cash Flow 2012 $ Millions 12.1 2 11. 7 8 11. 28 11.2 5 11. 17 11.1 5 (60.4 4 )196 Free Cash Flow (change from Base Case) % 0.0 (2.82) (6.94) (7.21) (7.85) (8.02) (598.66) * Values in parentheses are negative values.
TSL 1 represents the most common efficiency levels in the current market for all product classes. At TSL 1, DOE estimates impacts on INPV for residential furnace fan manufacturers to range from

- $3.0 million to $0.7 million, or a change in INPV of

- 1.2 percent to 0.3 percent. At this potential standard level, industry free cash flow is estimated to decrease by approximately 2.8 percent to $11.78 million, c ompared to the base

- case value of $12.12 million in the year before the compliance date (2018).

DOE anticipates no capital conversion costs at TSL 1, because manufacturers would be able to use a different motor type without making significant changes to t heir manufacturing equipment or production processes. DOE anticipates minor product conversion costs associated with redesigning products that are currently below the proposed efficiency level and updating product literature.

TSL 2 represents EL 1 for t he oil and manufactured home product classes, and EL 3 for all other product classes. At TSL 2, DOE estimates impacts on INPV for residential furnace fan manufacturers to range from

- $26.7 million to $13.5 million, or a change in
INPV of

- 10.6 percent to 5 .3 percent. At this potential standard level, industry free cash flow is estimated to decrease by approximately 6.9 percent to $11.28 million, compared
to the base

- case value of $12.12 million in the year before the compliance date (2018).197 DOE anticipate s no capital conversion costs at TSL 2, because manufacturers would be able to use a different motor type without making significant changes to their manufacturing equipment or production processes. DOE anticipates product conversion costs at TSL 2 to be higher than those at TSL 1 , because more products in the market ( with the exception of oil furnaces and manufactured housing products ) would need to be redesigned in order to meet the higher proposed efficiency levels. Additional product literature would a lso need to be updated for the redesigned products.

TSL 3 represents EL 3 for all product classes. At TSL 3, DOE estimates impacts on INPV for residential furnace fan manufacturers to range from

- $28.6 million to $12.9 million, or a change in INPV of

- 11 .3 percent to 5.1 percent. At this potential standard level, industry free cash flow is estimated to decrease by approximately 7.2 percent to $11.25 million, compared to the base

- case value of $12.12 million in the year before the compliance date (2018).

DOE anticipates no capital conversion costs at TSL 3, because manufacturers would be able to use a different motor type without making significant changes to their manufacturing equipment or production processes. DOE anticipates product conversion
costs at TSL 3 to be slightly higher than those at TSL 2 because more manufactured housing products in the market would need to be redesigned in order to meet the higher proposed efficiency levels. Additional product literature would also need to be updated for the redesigned products.198 TSL 4 represents the efficiency levels that provide the highest NPV using a 7

- percent discount rate, and that also result in a higher percentage of consumers receiving an LCC benefit rather than an LCC loss. At TSL 4, DOE estima tes impacts on INPV for residential furnace fan manufacturers to range from

- $54.4 million to $33.8 million, or a change in INPV of

- 21.6 percent to 13.4 percent. At this potential standard level, industry free cash flow is estimated to decrease by approx imately 7.9 percent to $11.17 million, compared to the base

- case value of $12.12 million in the year before the compliance date (2018).

DOE anticipates no capital conversion costs at TSL 4, because manufacturers would be able to use a different motor type without making significant changes to their manufacturing equipment or production processes. DOE anticipates product conversion costs at TSL 4 to be higher than those at TSL 3 , because more products in the market ( with the exception of oil furnaces ) woul d need to be redesigned in order to meet the higher proposed efficiency levels. Additional product literature would also need to be updated for the redesigned products.

TSL 5 represents the efficiency levels that provide the maximum NPV using a 7

- percent discount rate. At TSL 5, DOE estimates impacts on INPV for residential furnace fan manufacturers to range from

- $55.5 million to $34.2 million, or a change in INPV of

- 22.0 percent to 13.6 percent. At this potential standard level, industry free cash flow is estimated to decrease by approximately 8.0 percent to $11.15 million, compared to the
base

- case value of $12.12 million in the year before the compliance date (2018).199 DOE anticipates no capital conversion costs at TSL 5, because manufacturer s would be able to use a different motor type without making significant changes to their manufacturing equipment or production processes. DOE anticipates product conversion costs at TSL 5 to be slightly higher than those at TSL 4 , because more oil furnac es and manufactured housing electric furnaces in the market would need to be redesigned in order to meet the higher proposed efficiency levels. Additional product literature would also need to be updated for the redesigned products.

TSL 6 represents the m ax - tech efficiency level for all product classes. At TSL 6, DOE estimates impacts on INPV for residential furnace fan manufacturers to range from

- $170.1 million to $58.2 million, or a change in INPV of

- 67.5 percent to 23.1 percent. At this potential sta ndard level, industry free cash flow is estimated to decrease by approximately 598.7 percent to

- $60.44 million, compared to the base

- case value of $12.12 million in the year before the compliance date (2018).

DOE anticipates very high capital conversion costs at TSL 6 because manufacturers would need to make significant changes to their manufacturing equipment and production processes in order to accommodate the use of backward

- inclined impellers. This design option would require modifying, or potentiall y eliminating, current fan housings. DOE also anticipates high product conversion costs to develop new designs with backward

- inclined impellers for all their products. Some manufacturers200 may also have stranded assets from specialized machines for buildin g fan housing that can no longer be used.

b. Impacts on Employment To quantitatively assess the impacts of energy conservation standards on direct employment in the residential furnace fan industry , DOE used the GRIM to estimate the domestic labor expenditur es and number of employees in the base case and at each TSL from 2013 through 204 8

. DOE used statistical data from the U.S. Census Bureau’s 2011 Annual Survey of Manufacturers (ASM), 68 the results of the engineering analysis, and interviews with manufactur ers to determine the inputs necessary to calculate industry

wide labor expenditures and domestic employment levels. Labor expenditures related to manufacturing of the product are a function of the labor intensity of the product, the sales volume, and an a ssumption that wages remain fixed in real terms over time. The total labor expenditures in each year are calculated by multiplying the MPCs by the labor percentage of MPCs.

The total labor expenditures in the GRIM were then converted to domestic product ion employment levels by dividing production labor expenditures by the annual payment per production worker (production worker hours times the labor rate found in the U.S. Census Bureau’s 2011 ASM). The estimates of production workers in this section cove r workers, including line

- supervisors who are directly involved in fabricating and assembling a product within the manufacturing facility. Workers performing

68 "Annual Survey of Manufactures (ASM) , " U.S. Census Bureau (2011) (Available at: http://www.census.gov/manufacturing/asm/ ).201 services that are closely associated with production operations, such as materials handling tasks using forklifts, are also included as production labor. DOE’s estimates only account for production workers who manufacture the specific products covered by this rulemaking.

T he total direct employment impacts calculated in the GRIM are the sum of the changes in the number of production workers resulting from the new energy conservation standards for residential furnace fans, as compared to the base case.

For residential furnace fans, DOE does not expect significant changes in domestic employment leve ls from baseline to EL 5. One manufacturer commented during interviews that employment may be affected if their profit margins decreased due to a new standard, in which case consider ation may be given to moving production facilities to another country, but changes in employment due to standards are generally not a major concern for manufacturers of residential furnace fans , because all efficiency levels from baseline to EL 5 can be achieved by substituting a higher

- efficiency component for an existing compo nent. DOE found during manufacturer interviews that the assembly processes for integrating the higher

- efficiency components do not differ significantly from those used for existing components. For instance, manufacturers design their housings and motor m ounts to be compatible with all motor types. Consequently, no additional labor is required to integrate higher

- efficiency motors and controls to reach EL 1 through EL 3, and labor costs will be equivalent to the baseline at those levels. The202 same is true f or integration of components that enable multi

- stage heating capabilities (in addition to higher

- efficiency motors) to reach EL 4 and EL 5.

The only standard level at which significant changes in employment would possibly be expected to occur is at EL6, t he max

- tech level. At EL 6, DOE estimates increases in labor costs because backwards

- inclined impeller assemblies are heavier and require more robust mounting approaches than are currently used for forward

- curved impeller assemblies. The alternate mounting approaches needed to integrate backward

inclined impeller assemblies could require manufacturers to modify their current assembly processes, resulting in increased labor. However, DOE received limited feedback from manufacturers regarding the labor requir ed to produce furnace fans with backward

- curved impellers , because they generally do not have any experience in working with this design option.

DOE notes that the employment impacts discussed here are independent of the indirect employment impacts t o the broader U.S. economy, which are documented in chapter 15 of the NOPR TSD.

c. Impacts on Manufacturing Capacity According to the residential furnace fan manufacturers interviewed, the new energy conservation standards proposed in today’s NOPR would not significantly affect manufacturers’ production capacities. Some manufacturers mentioned that capacity could potent ially be impacted by additional testing requirements and bottlenecks with203 sourcing if motor suppliers cannot keep up with demand, but concerns were not generally expressed about manufacturing capacity until max

- tech levels. Thus, at the proposed TSL, DOE believes manufacturers would be able to maintain manufacturing capacity levels and continue to meet market demand under new energy conservation standards.

d. Impacts on Subgroups of Manufacturers Small manufacturers, niche equipment manufacturers, and manufa cturers exhibiting a cost structure substantially different from the industry average could be affected disproportionately. As discussed in section IV.J using average cost assumptions developed for an industry cash

- flow estimate is inadequate to assess di fferential impacts among manufacturer subgroups.

For the residential furnace fans industry, DOE identified and evaluated the impact of new energy conservation standards on one subgroup, specifically small manufacturers. The SBA defines a “small busines s” as having 750 employees or less for NAICS 333415,
“Air

- Conditioning and Warm Air Heating Equipment and Commercial and Industrial Refrigeration Equipment Manufacturing.” Based on this definition, DOE identified 14 manufacturers in the residential furnac e fans industry that qualify as small businesses. For a discussion of the impacts on the small manufacturer subgroup, see the regulatory flexibility analysis in section VI.B of this notice and chapter 12 of the NOPR TSD.204 e. Cumulative Regulatory Burden While any one regulation may not impose a significant burden on manufacturers, the combined effects of recent or impending regulations may have serious consequences for some manufacturers, groups of manufacturers, or an entire industry. Assessing the impa ct of a single regulation may overlook this cumulative regulatory burden. In addition to energy conservation standards, other regulations can significantly affect manufacturers’ financial operations. Multiple regulations affecting the same manufacturer c an strain profits and lead companies to abandon product lines or markets with lower expected future returns than competing products. For these reasons, DOE conducts an analysis of cumulative regulatory burden as part of its rulemakings pertaining to appli ance efficiency.

During previous stages of this rulemaking, DOE identified a number of requirements in addition to new energy conservation standards for residential furnace fans. The following section briefly summarizes those identified regulatory requi rements and addresses comments DOE received with respect to cumulative regulatory burden, as well as other key related concerns that manufacturers raised during interviews.

This notice proposes CC&E requirements for residential furnace fans. In addition, t he April 2, 2013 test procedure SNOPR included proposed sampling requirements for CC&E testing of residential furnace fans that mandate that, unless DOE Certification, Compliance, and Enforcement (CC&E) Rule205 otherwise specified, a minimum of two units need to be tested for each basic model. 78
FR 19606, 19625

.

M anufacturers indicated during interviews that the regulatory burden from certification and compliance testing is one of the biggest problems they face. One manufacturer stated that it could potentially shut down the industry due to the large number of basic models that need to be tested. DOE recognizes that the CC&E requirements contribute to cumulative regulatory burden. However, for the reasons discussed in section IV.J.3 , DOE does not find that testing furnace fans according to its proposed test procedure would be unduly burdensome.

On June 27, 2011, DOE published a direct final rule in the DOE Energy Conservation Standards for Furnaces and Central Air Conditioners and Heat Pumps Federal Register to amend the energy conservation standards for residential furnaces, central air conditioners, and heat pumps (the “HVAC rule”) . 76 FR 37408. In addition to setting a base national standard, the June 27, 2011 direct final rule also implemented r egional standard levels, where the minimum efficiency level for a product is determined by the geographic region in which it is sold. (DOE subsequently confirmed adoption of these standards through publication of a notice of effective date and compliance dates for this rulemaking in the Federal Register on October 31, 2011. 76 FR 67037.) Compliance with these standards206 wa s required on May 1, 2013 for non

- weatherized furnaces and will be required on January 1, 2015 for weatherized furnaces, central air co nditioners, and heat pumps. 69

Since furnace fan manufacturer s are also manufacturer s of the HVAC product in which the furnace fan is used, furnace fan manufacturers are subject to the amended energy conservation standards for residential furnaces, central air conditioners, and heat pumps. At the minimum energy efficiency levels selected for the direct final rule, DOE estimated that the total industry investment required to meet th e amended energy conservation standards would be $28 million (in 2009$). At the minimum energy efficiency levels selected for this notice of proposed rulemaking, DOE estimates that the total industry investment would be $3.1 million. Manufacturers of fur nace fans face product conversion costs related to standards for furnace fans, as well as product and capital conversion costs related to standards for residential furnaces, central air conditioners, and heat pumps.

The direct final rule for energy conse rvation standards for residential furnaces, central air conditioners, and heat pumps includes standards for energy efficiency as well as standards for standby mode and off mode energy consumption. DOE has completed a test procedure final rule for standby mode and off mode energy consumption in residential furnaces. 7 7 FR 768 3 1 ( Dec. 31 , 201 2 ). DOE is also preparing a test

69 DOE notes that the American Public Gas Association (APGA) brought a lawsuit challenging the energy conservation standards pertaining to non

- weatherized gas furnaces, and that lawsuit is currently pending before the U.S. Court of Appeals for the District of Columbia Circuit (D.C. Circuit). There is also a settlement agreement before the Court regarding this matter . On May 1, 2013, the D.C. Circuit granted a motion requesting a stay of the May 1, 2013 compliance date for non

- weatherized gas furnaces . In its order, the Court stayed the compliance deadline for six months following the issuance of any opinion by the Court in this case upholding the standards.207 procedure for standby mode and off mode energy consumption in residential central air conditioners and heat pumps.

The U.S. is obligated under the Montreal Protocol to limit production and consumption of HCFCs through incremental reductions, culminating in a complete phaseout of HCFCs by 2030. O n December 15, 2009, EPA published the “201 0 HCFC Allocation Rule,” which allocates production and consumption allowances for HCFC

- 22 for each year between 2010 and 2014. 74 FR 66412. On January 4. 2012, EPA published the “2012 HCFC Allocation Proposed Rule,” which proposes to lift the regulatory ban on the production and consumption of HCFC

- 22 (following a court decision EPA Phaseout of Hy drochlorofluorocarbons (HCFCs)

70 in August 2010 to vacate a portion of the “2010 HCFC Allocation Rule”) by establishing company

- by

- company HCFC

- 22 baselines and allocating allowances for
2012

- 2014. 77 FR 237.

HCFC

- 22, which is also known as R

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

- conditioning products. Manufacturers of residential furnace fans who also manufacture residential central air conditioners must comply with the allowances establis hed by the allocation rule, thereby facing a cumulative regulatory burden.

70 See Arkema v. EPA , 618 F.3d 1 (D.C. Cir. 2010). EPA ENERGY STAR208 During interviews, some manufacturers stated that ENERGY STAR specifications for residential furnaces, central air conditioners, and heat pumps would be a source of cumulative regulatory burden. ENERGY STAR specifications are as follows:

Table V . 17 : ENERGY STAR Specifications for HVAC Products that Use Furnace Fans Gas Furnaces Rating of 90% AFUE or greater for U.S. South gas furnaces Rating of 95% AFUE or greater for U.S. North gas furnaces Less than or equal to 2.0% furnace fan efficiency * Oil Furnaces Rating of 85% AFUE or greater Less than or equal to 2.0% furnace fan efficiency * Air

- Source Heat Pumps >= 8.2 HSPF/ >=14.5 SEER/ >=12 EER for split systems >= 8.0 HSPF/ >=14 SEER/ >=11 EER for single

- package equipment Central Air Conditioners >=14.5 SEER/ >=12 EER for split systems >=14 SEER/ >=11 EER for single

- package equipment

* Furnace fan efficiency in this context is furnace fan electrical consumption as a percentage of total furnace energy consumption in heating mode.
DOE realizes that the cumulative effect of several regulations on an industry may significantly increase the burden faced by manufactu rers that need to comply with multiple regulations and certification programs from different organizations and levels of government. However, DOE notes that certain standards, such as ENERGY STAR, are optional for manufacturers. Furthermore, for certain products listed in the table above, ENERGY STAR standards are equivalent to the standards set in DOE’s June 27, 2011 direct final rule for energy conservation standards for residential furnaces, central air conditioners, and heat pumps.

Canadian Energy Ef ficiency Regulations209 In June 2010, the Office of Energy Efficiency of National Resources Canada (NRCan) published a bulletin to announce the proposal of new electricity reporting requirements for air handlers used in residential central heating and cooling systems that are imported into Canada for sale or lease. 71 In November 2011, NRCan published a regulatory update which stated that NRCan intends to apply reporting requirements to only air handlers used in residential gas furnaces, and that requirements f or air handlers used in other heating and cooling systems would be expanded in a future regulatory amendment. 72 In this update, NRCan proposed to use Canadian Standards Association (CSA) C823

- 11 ( Performance of air handlers in residential space conditioning systems ) as the test method for determining efficiency. Consequently, manufacturers of furnace fans used in residential gas furnaces may face additional reporting requirements if they sell their products in Canada.

Title 24, Part 6, of the California Code of Regulations includes building energy efficiency standards for residential and nonresidential buildings. The California Energy Commission (CEC) published new standards in 2008, which became effective January 1, 2010, t hat include watts per cubic foot per minute (W/CFM) limits for fans used in central, residential HVAC systems. California Title 24

73

71 Air Handlers

– June 2010 , Natural Resources Canada (Available at: http://oee.nrcan.gc.ca/regulations/bulletins/14551 ) (Last accessed May 6, 2013). 72 Regulatory Update

- November 2011 , Natural Resources Canada (Availa ble at: http:// http://oee.nrcan.gc.ca/regulations/bulletins/17839 ) (Last accessed May 6, 2013). 73 Building Energy Efficiency Program , California Energy Commission (Available at: < http://www.energy.ca.gov/title24/ >) (Last accessed May 6, 2013 ).210 ASHRAE Standard 90.1, “Energy Standard for Buildings Except Low

- Rise Residential Buildings,” sets minimum efficiency standards for buildings, except low

- rise residential buildings. On May 16, 2012, DOE published the final rule in the ASHRAE Standard 90.1

Federal Register for Energy Conservation Standards and Test Procedures for Commercial Heating, Air

- Conditioning, and Water

- Heating Equipment, through which DOE adopted the efficiency levels specified in ASHRAE Standard 90.1

– 2010. 77 FR 28928.

Included in the ASHRAE standards are minimum efficiency levels for commercial heating, air

- conditioning, and water

- heating equipment. Several manufacturers of residential furnace fans also manufacture this equipment.

Rule 1111 of the South Coast Air Quality Manag ement District (AQMD) currently requires residential furnaces installed in the District to meet a NO X emission limit of 40 nanograms per joule (ng/J) of heat output. Low

- NO X requirements

74 The development of this rule is an ongoing process to evaluate low

- NO X technologies for combustion equipment. In 1983, the rule was amended to limit applicability to furnaces with a heat input of less than 175,000 Btu per hour, or for combination heating and cooling units, a cooling rate of less than 65,000 Btu per hour. 75

74 South Coast AQMD List of Current Rules , California Environmental Protection Agency Ai r Resouorces Board (Available at: However, the rule was again amended in 2009 to

http://www.arb.ca.gov/drdb/sc/cur.htm ) (Last accessed May 6, 2013 ). 75 See https://aqmd.gov/hb/attachments/2011

- 2015/2013Mar/2013

- Mar1

- 019.pdf

.211 establish a new limit of 14 ng/J for non

- condensing, condensing, weatherized, and mobile home furnaces, with the following compliance schedule: 76

Table V . 18 : Low NO X Compliance Schedule Compliance Date Furnace Type Oct 1, 2014 Condensing Furnace Oct 1, 2015 Non

- condensing Furnace Oct 1, 2016 Weatherized Furnace Oct 1, 2018 Mobile Home Furnace
The Proposed Amended Rule (PAR) 1111 affects manufacturers, distributors, wholesalers, builders, and installers of residential furnaces. AHRI indicates that, although there are currently no manufacturers of fan

- type gas

- fired residential furnaces within t he AQMD jurisdiction, some of these manufacturers do sell and distribute products installed in this District.

PAR 1111 also provides manufacturers with an alternative compliance option. For any furnace type, a manufacturer may request a delayed complian ce date of up to three years if they submit a plan and pay an emission mitigation fee.

DOE discusses these and other requirements, and includes the full details of the cumulative regulatory burden analysis, in chapter 12 of the NOPR TSD. DOE also discus ses the impacts on the small manufacturer subgroup in the regulatory flexibility analysis in section VI.B of this NOPR.

76 See http://www.arb.ca.gov/DRDB/SC/CURHTML/R1111.pdf

.212 3. National Impact Analysis

a. Significance of Energy Savings For each TSL, DOE projected energy savings for residential furnace fans purchased in the 30

- year period that begins in the first f u ll year of compliance with amended standards ( 2019

- 2048 )

. The savings are measured over the entire lifetime of products purchased in the 30

- year period

. DOE quantified the energy sav ings attributable to each TSL as the difference in energy consumption between each standards case and the base case

. Table V

. 19 presents the estimate d primary energy savings for each considered TSL, and Table V

. 20 presents the estimated FFC energy savings for each considered
TSL

. The energy saving s in the tables below are net savings that reflect the subtraction of the additional gas or oil use d by the furnace associated with higher

- efficiency furnace fans. With imp roved fan efficiency, there is less heat from the motor, which means that the furnace needs to operate more

. Th e approach for estimating national energy savings is further described in section IV.H.1

.

The difference between primary energy savings and FFC energy savings for all TSLs is small (less than 1%), because the upstream energy savings associated with the electricity savings are partially (or fully, for TSL 2 and 3) offset by the upstream energy

u se from the additional gas or oil use d by the furnace due to higher

- efficiency furnace fans

. The ranking of TSLs is not impacted by the use of FFC energy savings. Comment [A45]: Change recommended by OIRA. Formatted: English (U.S.)

Comment [A46]: Change recommended by OIRA.213 Table V . 19 Cumulative National Primary Ene rgy Savings for Trial Standard Levels for Residential Furnace Fans Sold in 2019
- 204 8 Product Class Trial Standard Level 1 2 3 4 5 6
Non

- Weatherized, Non

Condensing Gas Furnace Fan quads 0.254 1.021 1.021 1.861 1.861 2.404
Non

- weatherized, Condensing Gas Furnace Fan 0.276 0.877 0.877 2.003 2.003 2.793
Weatherized Non

- Condensing Gas Furnace Fan 0.032 0.138 0.138 0.264 0.264 0.338
Non

- Weatherized, Non

Condensing Oil Furnace Fan 0.005 0.005 0.025 0.005 0.025 0.051
Non

- weatherized Electric Furnace/Modular Blower Fan 0.042 0.202 0.202 0.357 0.357 0.451
Manufactured Home Non

Weatherized, Non

Condensing Gas Furnace Fan 0.010 0.010 0.039 0.010 0.039 0.089

Manufactured Home Non

Weatherized, Condensing Gas Furnace Fan 0.002 0.002 0.008 0.002 0.008 0.022

Manufactured Home Electric Furnace/Modular Blower Fan 0.009 0.009 0.034 0.060 0.060 0.073
Total

– All Classes 0.631 2.265 2.344 4.562 4.617 6.221 Note: Components may not sum to total due to rounding.

Table V . 20 Cumulative National Full
- Fuel
- Cycle Energy Savings for Trial Standard Levels for Residential Furnace Fans Sold in 2019
- 204 8 Product Class Trial Standard Level 1 2 3 4 5 6
Non

- Weatherized, Non

Condensing Gas Furnace Fan quads 0.256 1.021 1.021 1.870 1.870 2.421
Non

- weatherized, Condensing Gas Furnace Fan 0.277 0.866 0.866 2.005 2.005 2.802
Weatherized Non

- Condensing Gas Furnace Fan 0.032 0.138 0.138 0.266 0.266 0.340
Non

- Weatherized, Non

Condensing Oil Furnace Fan 0.005 0.005 0.024 0.005 0.024 0.050
Non

- weatherized Electric Furnace/Modular Blower Fan 0.042 0.202 0.202 0.357 0.357 0.452
Manufactured Home Non

Weatherized, Non

Condensing Gas Furnace Fan 0.010 0.010 0.039 0.010 0.039 0.089214 Manufactured Home Non

Weatherized, Condensing Gas Furnace Fan 0.002 0.002 0.008 0.002 0.008 0.022

Manufactured Home Electric Furnace/Modular Blower Fan 0.010 0.010 0.034 0.061 0.061 0.074
Total

– All Classes 0.635 2.254 2.332 4.576 4.629 6.250 Note: Components may no t sum to total due to rounding.

OMB Circular A

- 4 77 requires agencies to present analytical results, including separate schedules of the monetized benefits and costs that show the type and timing of benefits and costs. Circular A

- 4 also directs agencies to consider the variability of key elements underlyi ng the estimates of benefits and costs. For this rulemaking, DOE undertook a sensitivity analysis using 9 rather than 30 years of product shipments. The choice of a 9

- year period is a proxy for the timeline in EPCA for the review of certain
energy conservation standards and potential revision of and compliance with such revised standards. 78

77 U.S. Office of Management and Budget , "Circular A

- 4: Regulatory An alysis" (Sept

. 17, 2003) (Last accessed September 17, 2013 from http://www.whitehouse.gov/omb/circulars_a004_a

- 4/ )

. This time frame may We would note that the review timeframe established in EPCA generally does not be statistically relevant with regard to overlap with the pro duct lifetime, product manufacturing cycles, or other factors specific to residential furnace fans

. Thus, such results are presented for informational purposes only and are not indicative of any change in DOE’s analytical methodology. The NES results bas ed on a

78 EPCA requires DOE to review its energy conservation standards at least once every 6 years, and requires, for certain products, a 3

- year pe riod after any new standard is promulgated before compliance is required, except that in no case may any new standards be required within 6 years of the compliance date of the previous standards . (42 U.S.C. 6295(m ) ) While adding a 6

- year review to the 3

- year compliance period adds up to 9 years, DOE notes that it may undertake reviews at any time within the 6

- year period and that the 3

- year compliance date may yield to the 6

- year backstop . A 9

- year analysis period may not be appropriate given the variab ility that occurs in the timing of standards reviews and the fact that for some consumer products, the compliance period is 5 years rather than 3 years. Comment [A47]: Change recommended by OIRA.

Comment [A48]: Change recommended by OIRA.215 9

- year analytical period are presented in Table V

. 21

. The impacts are counted over the lifetime of products purchased in 2019

– 202 7

.

Table V . 21 Cumulative National Primary Energy Savings for Trial Standard Levels for Residential Furnace Fans Sold in 2019
- 2027 Product Class Trial Standard Level 1 2 3 4 5 6
Non

- Weatherized, Non

Condensing Gas Furnace Fan quads 0.085 0.348 0.348 0.642 0.642 0.846
Non

- weatherized, Condensing Gas Furnace Fan 0.076 0.239 0.239 0.545 0.545 0.755
Weatherized Non

- Condensing Gas Furnace Fan 0.010 0.046 0.046 0.086 0.086 0.111
Non

- Weatherized, Non

Condensing Oil Furnace Fan 0.002 0.002 0.009 0.002 0.009 0.021
Non

- weatherized Electric Furnace/Modular Blower Fan 0.012 0.058 0.058 0.102 0.102 0.130
Manufactured Home Non

Weatherized, Non

Condensing Gas Furnace Fan 0.003 0.003 0.013 0.003 0.013 0.030

Manufactured Home Non

Weatherized, Condensing Gas Furnace Fan 0.001 0.001 0.002 0.001 0.002 0.006

Manufactured Home Electric Furnace/Modular Blower Fan 0.003 0.003 0.012 0.020 0.020 0.025
Total

– All Classes 0.193 0.700 0.727 1.402 1.421 1.924 Note: Components may not sum to total due to rounding.

b. Net Present Value of Consumer Costs and Benefits DOE estimated the cumulative NPV of the total costs and savings for consumers that would result from the TSLs considered for residential furnace fans

. In accordance2 16 with OMB’s guidelines on regulatory analysis, 79
Table V

. 22 DOE calculated NPV using both a 7

- percent and a 3

- percent real discount rate

. shows the consumer NPV results for each TSL considered for residential furnace fans

. In each case, the impacts cover the lifetime of products purchased in 2019

- 204 8

.

Table V . 22 Cumulative Net Present Value of Consumer Benefit for Trial Standard Levels for Residential Furnace Fans Sold in 2019
- 204 8
Product Class Discount Rate

% Trial Standard Level 1 2 3 4 5 6
Non

- Weatherized, Non

Condensing Gas Furnace Fan billion 201 2 $ *

3% 1.46 9.86 9.86 11.09 11.09 8.28
Non

- weatherized, Condensing Gas Furnace Fan 1.49 11.16 11.16 12.23 12.23 9.20
Weatherized Non

Condensing Gas Furnace Fan 0.17 1.12 1.12 1.30 1.30 0.49
Non

- Weatherized, Non

Condensing Oil Furnace Fan 0.02 0.02 0.19 0.02 0.19 0.10
Non

- weatherized Electric Furnace/Modular Blower Fan 0.15 1.05 1.05 1.29 1.29 0.12
Manufactured Home Non

Weatherized, Non

Condensing Gas Furnace Fan 0.04 0.04 0.25 0.04 0.25 ( 0.06 )

Manufactured Home Non

Weatherized, Condensing Gas Furnace Fan 0.01 0.01 0.05 0.01 0.05 ( 0.02 )

Manufactured Home Electric Furnace/Modular Blower Fan 0.03 0.03 0.13 0.17 0.17 ( 0.17 )
Total

– All Classes 3.37 23.30 23.81 26.16 26.57 17.95 Non

- Weatherized, Non

Condensing Gas Furnace Fan

7% 0.53 3.52 3.52 3.71 3.71 1.98
Non

- weatherized, Condensing Gas Furnace Fan 0.51 3.78 3.78 3.91 3.91 2.11
Weatherized Non

Condensing Gas Furnace Fan 0.06 0.39 0.39 0.41 0.41 ( 0.01 )
Non

- Weatherized, Non

Condensing Oil Furnace Fan 0.01 0.01 0.07 0.01 0.07 0.01

79 OMB Circular A

- 4, section E (Sept. 17, 2003) ( Available at: http://www.whitehouse.gov/omb/circulars_a004_a

- 4 )

.217 Non

- weatherized Electric Furnace/Modular Blower Fan 0.05 0.33 0.33 0.40 0.40 ( 0.20 )
Manufactured Home Non

Weatherized, Non

Condensing Gas Furnace Fan 0.02 0.02 0.08 0.02 0.08 ( 0.09 )

Manufactured Home Non

Weatherized, Condensing Gas Furnace Fan 0.00 0.00 0.02 0.00 0.02 ( 0.02 )

Manufactured Home Electric Furnace/Modular Blower Fan 0.01 0.01 0.04 0.05 0.05 ( 0.13 )
Total

– All Classes 1.19 8.07 8.23 8.51 8.64 3.65 * Numbers in parentheses indicate negative NPV.

The NPV results based on the aforementioned 9

- year analytical period are presented in Table V

. 23

. The impacts are counted over the lifetime of produc ts purchased in 201 9

– 2027

. As mentioned previously, this information is presented for informational purposes only and is not indicative of any change in DOE’s analytical methodology or decision criteria

.

Table V . 23 Cumulative Net Present Value of Consumer Benefit for Trial Standard Levels for Residential Furnace Fans Sold in 2019
- 2027
Product Class Discount Rate % Trial Standard Level 1 2 3 4 5 6
Non

- Weatherized, Non

Condensing Gas Furnace Fan billion 201 2 $ *

3% 0.63 4.32 4.32 4.88 4.88 3.75
Non

- weatherized, Condensing Gas Furnace Fan 0.55 4.11 4.11 4.51 4.51 3.51
Weatherized Non

Condensing Gas Furnace Fan 0.07 0.48 0.48 0.56 0.56 0.27
Non

- Weatherized, Non

Condensing Oil Furnace Fan 0.01 0.01 0.09 0.01 0.09 0.07
Non

- weatherized Electric Furnace/Modular Blower Fan 0.05 0.39 0.39 0.48 0.48 0.04
Manufactured Home Non

Weatherized, Non

Condensing Gas Furnace Fan 0.02 0.02 0.11 0.02 0.11 ( 0.01 )

Manufactured Home Non

Weatherized, Condensing 0.00 0.00 0.02 0.00 0.02 0.00218 Gas Furnace Fan Manufactured Home Electric Furnace/Modular Blower Fan 0.01 0.01 0.06 0.07 0.07 ( 0.07 )
Total

– All Classes 1.35 9.36 9.59 10.53 10.72 7.55 Non

- Weatherized, Non

Condensing Gas Furnace Fan

7% 0.29 1.98 1.98 2.09 2.09 1.17
Non

- weatherized, Condensing Gas Furnace Fan 0.26 1.87 1.87 1.94 1.94 1.11
Weatherized Non

Condensing Gas Furnace Fan 0.03 0.22 0.22 0.23 0.23 0.02
Non

- Weatherized, Non

Condensing Oil Furnace Fan 0.00 0.00 0.04 0.00 0.04 0.02
Non

- weatherized Electric Furnace/Modular Blower Fan 0.02 0.17 0.17 0.20 0.20 ( 0.10 )
Manufactured Home Non

Weatherized, Non

Condensing Gas Furnace Fan 0.01 0.01 0.05 0.01 0.05 ( 0.05 )

Manufactured Home Non

Weatherized, Condensing Gas Furnace Fan 0.00 0.00 0.01 0.00 0.01 ( 0.01 )

Manufactured Home Electric Furnace/Modular Blower Fan 0.01 0.01 0.02 0.03 0.03 ( 0.07 )
Total

– All Classes 0.63 4.26 4.35 4.50 4.58 2.09 * Numbers in parentheses indicate negative NPV.

As noted in section IV.H.2 , DOE assumed no change in residential furnace fan prices over the 2019 −2048 period. In addition, DOE conducted a sensitivity analysis using alternative price trends: one in which prices decline over time, and one in which prices increase over time

. These price trends, and the NPV results from the associated sensitivity cases, are described in A ppendix 10

- C of the NOPR TSD.

c. Indirect Impacts on Employment
DOE expects energy conservation standards for residential furnace fans to reduce energy costs for consumers, with the resulting net savings being redirected to other forms of economic activity. Those shifts in spending and economic activity could affect the219 demand for labor. As describ ed in section IV.N , DOE used an input/output model of the U.S. economy to estimate indirect employment impacts of the TSLs that DOE considered in this rulemaking. DOE understands that there are uncertainties involved in projecting employment impacts, especially changes in the later years of the analysis

. Therefore, DOE generated results for near

- term time frames ( 2019 and 202 4 ), where these uncertainties are reduced.

The results suggest that the proposed standards would b e likely to have negligible impact on the net demand for labor in the economy

. The net change in jobs is so small that it would be imperceptible in national labor statistics and might be offset by other, unanticipated effects on employment

. Chapter 16 of the NOPR TSD presents more detailed results about anticipat ed indirect employment impacts.

4. Impact on Product Utility or Performance DOE has tentatively concluded that the standards it is proposing in this NOPR w ould not lessen the utility or performance of residential furnace fan s .

5. Impact of Any Lessening of Competition DOE has also considered any lessening of competition that is likely to result from new and amended standards

. The Attorney General determines the impact, if any, of any lessening of competition likely to result from a proposed standard, and transmits such determination in writing to the Secretary, together with an analysis of the nature and extent of such impact. (42 U.S.C. 6295(o)(2)(B)(i)(V) and (ii))220 To assist the Attorney General in making such a determina tion, DOE has provided DOJ with copies of this notice and the TSD for review

. DOE will consider DOJ’s comments on the proposed rule in preparing the final rule, and DOE will publish and respond to DOJ’s comments in that document.

6. Need of the Nation to Co nserve Energy An improvement in the energy efficiency of the products subject to this rule is likely to improve the security of the nation’s energy system by reducing overall demand for energy

. Reduc tion in the growth of electricity demand resulting from energy conservation standards may also improve the reliability of the electricity system

. Reductions in national electric generating capacity estimated for each considered TSL are reported in chapter 15 of the NOPR TSD.

Energy savings from standards for the residential furnace fan products covered in today’s NOPR could also produce environmental benefits in the form of reduced emissions of air pollutants and greenhouse gases associated with electricity production

. Table V

. 24 provides DOE’s estimate of cumulative emissions reductions projected to result from the TSLs considered in this rulemaking. The table include s both power sector emi ssions and upstream emissions. The emissions were calculated using the multipliers discussed in section IV.K

. DOE reports annual emissions reductions for each TSL in chapter 13 of the NOPR TSD.221 As discussed in section IV.K , DOE did not include NO X emissions reduction from power plants in States subject to CSAPR, because an energy conservation standard would not affect the overall level of NO X emissions in those States due to the emissions caps mandated by CSAPR. For SO 2 , projected e missions will be far below the cap established by CSAPR, so it is unlikely that excess SO 2 emissions allowances resulting from the lower electricity demand would be needed or used to permit offsetting increases in SO 2 emissions by any regulated EGU. Therefore, DOE believ es that efficiency standards will reduce SO 2 emissions.222 Table V . 24 Cumulative Emissions Reduction for Potential Standards for Residential Furnace Fans TSL 1 2 3 4 5 6 Primary Energy Emissions* CO 2 (million metric tons) 57.12 214.17 221.76 416.41 421.74 563.75 SO 2 (thousand tons) 31.17 117.04 121.28 227.23 230.23 307.77 NO X (thousand tons) 30.66 122.38 126.31 227.18 229.86 303.72 Hg (tons) 0.24 0.95 0.98 1.76 1.79 2.36 N 2 O (thousand tons) 0.67 2.65 2.75 4.96 5.03 6.66 CH 4 (thousand tons) 4.65 18.24 18.91 34.24 34.72 46.01 Upstream Emissions CO 2 (million metric tons) 1.88 5.99 6.11 13.37 13.42 18.50 SO 2 (thousand tons) 12.18 38.30 39.17 86.23 86.63 119.61 NO X (thousand tons) 0.50 2.00 2.04 3.72 3.75 4.95 Hg (tons) 0.00 0.00 0.00 0.01 0.01 0.01 N 2 O (thousand tons) 0.02 0.09 0.09 0.16 0.17 0.22 CH 4 (thousand tons) 127.91 352.80 365.71 879.41 887.59 1249.3 Total Emissions CO 2 (million metric tons) 59.01 220.16 227.87 429.78 435.16 582.25 SO 2 (thousand tons) 43.36 155.34 160.44 313.46 316.86 427.38 NO X (thousand tons) 31.16 124.38 128.35 230.90 233.60 308.67 Hg (tons) 0.24 0.95 0.99 1.77 1.80 2.38 N 2 O (thousand tons) 0.70 2.74 2.84 5.12 5.19 6.88 N 2 O 207.2 thousand tons CO 2 eq* * 816.0 845.0 1527.0 1547.7 2049.3 CH 4 (thousand tons) 132.56 371.04 384.62 913.65 922.31 1295.3 CH 4 3.314 million tons CO 2 eq* * 9.276 9.616 22.84 23.06 32.38 * Includes emissions from additional gas use associated with more - efficient furnace fans

. ** CO 2 eq is the quantity of CO 2 that would have the same global warming potential (GWP).
As part of the analysis for this NOPR, DOE estimated monetary benefits likely to result from the reduced emissions of CO 2 and NO X estimated for each of the TSLs considered for re sidential furnace fans

. As discussed in section IV.L , for CO 2 , DOE used four sets of values for the SCC developed by an interagency process. Three sets of values are based on the average SCC from three integrated assessment models, at discount rates of 2 .5 percent, 3 percent, and 5 percent. The fourth set represents the 95th

percentile SCC estimate across all three models at a 3

- percent discount rate

. The SCC Formatted Table

Formatted Table

Formatted Table

Formatted Table223 values for CO 2 emissions reductions in 2015, expressed in 2012 $, are $ 12.9 /ton, $ 40.8 /ton, $ 62.2 /ton, and $ 117 /ton

. The values for later years are higher due to increasing damages as the magnitude of projected climate change increases. Table V

. 25 presents the global value of CO 2 emissions reductions at each TSL

. DOE calculated domestic values as a range from 7 percent to 23 percent of the global values, and these results are presented in chapter 14 of the NOPR TSD.

Table V . 25 Global Present Value of CO 2 Emissions Reduction for Potential Standards for Residential Furnace Fans

TSL SCC Case * 5% discount

rate, average 3% discount

rate, average 2.5% discount

rate, average 3% discount rate, 95 th percentile Primary Energy Emissions** million 201 2 $
1 298.5 1531.1 2498.9 4724.6 2 1121.1 5746.8 9377.5 17732.7 3 1161.1 5951.3 9710.9 18363.5 4 2177.1 11165.3 18221.5 34451.9 5 2205.1 11308.6 18455.1 34893.8 6 2943.6 15103.4 24651.6 46603.0 Upstream Emissions 1 9.9 50.5 82.4 155.9 2 31.3 160.5 261.9 495.0 3 32.0 163.9 267.5 505.7 4 70.0 358.6 585.1 1106.2 5 70.3 360.1 587.6 1110.8 6 97.0 496.6 810.1 1531.5 Total Emissions 1 308.3 1581.7 2581.3 4880.5 2 1152.4 5907.3 9639.4 18227.7 3 1193.1 6115.2 9978.5 18869.2 4 2247.2 11524.0 18806.6 35558.1 5 2275.5 11668.7 19042.7 36004.6 6 3040.6 15599.9 25461.7 48134.5 * For each of the four cases, the corresponding SCC value for emissions in 2015 is $ 12.9 , $ 40.8 , $ 62.2 , and $ 117 per metric ton ( 201 2 $). The values are for CO 2 only ( i.e Comment [A49]: Change recommended by OIRA. ., not CO 2 eq of other greenhouse gases).224 ** Includes site emissions from additional use of natural gas associated with more efficient furnace fans

.
DOE is well aware that scientific and economic knowledge about the contribution of CO 2 and other greenhouse gas (GHG) emissions to changes in the future global climate and the potential resulting damages to the world economy continues to evolve rapidly

. Thus, any value placed in this rulemaking on red ucing CO 2 emissions is subject to change

. DOE, together with other Federal agencies, will continue to review various methodologies for estimating the monetary value of reductions in CO 2 and other GHG emissions

. This ongoing review will consider the comme nts on this subject that are part of the public record for this and other rulemakings, as well as other methodological assumptions and issues

. However, consistent with DOE’s legal obligations, and taking into account the uncertainty involved with this particular issue, DOE has included in this NOPR the most recent values and analyses resulting from the interagency review process.

DOE also estimated a range for the cumulative monetary value of the economic benefits associated with NO X emissions reductio ns anticipated to result from standards for the residential furnace fan products that are the subject of this NOPR. The dollar

- per ton values that DOE used are discussed in section IV.L

. Table V

. 26 presents the present value of cumulative NO X emissions reductions for each TSL calculated using the average dollar

- per - ton values and 7

- percent and 3

- percent discount rates.225 Table V . 26 Present Value of NO X Emissions Reduction for Potential Standards for Residential Furnace Fans TSL 3% Discount Rate 7% Discount Rate
Power Sector and Site Emissions* million 201 2 $
1 31.0 10.7 2 116.4 40.0 3 120.7 41.4 4 226.2 77.8 5 229.2 78.8 6 306.1 105.3 Upstream Emissions 1 12.4 4.4 2 39.0 13.9 3 39.9 14.3 4 88.0 31.6 5 88.4 31.7 6 122.3 44.0 Total Emissions ** 1 43.4 15.1 2 155.4 53.9 3 160.5 55.7 4 314.2 109.4 5 317.6 110.6 6 428.3 149.3 * Includes site emissions from additional use of natural gas associated with more - efficient furnace fans

. ** Components may not sum to total due to rounding

.
The NPV of the monetized benefits associated with emissions reductions can be viewed as a complem ent to the NPV of the consumer savings calculated for each TSL considered in this rulemaking

. Table V

. 27 presents the NPV values that result from adding the estimates of the potential economic benefits resulting from reduced full

- fuel

cycle CO 2 and NO X emissions in each of four valuation scenari os to the NPV of consumer savings calculated for each TSL considered in this rulemaking, at both a 7

- percent and a 3

- percent discount rate

. The CO 2 values used in the columns of each table226 correspond to the four scenarios for the valuation of CO 2 emission reductions discussed above.

Table V . 27 Potential Standards for Residential Furnace Fans : Net Present Value of Consumer Savings Combined with Present Value of Monetized Benefits from CO 2 and NO X Emissions Re ductions

TSL Consumer NPV at 3% Discount Rate added with: SCC Case $ 12.9 /metric ton CO 2 * and Low Value for NO X ** SCC Case $ 40.8 /metric ton CO 2 * and Medium Value for NO X ** SCC Case $ 62.2 /metric ton CO 2 * and Medium Value for NO X ** SCC Case $ 117 /metric ton CO 2 * and High Value for NO X **

1 billion 201 2 $ 3.7 5.0 6.0 8.3 2 24.5 29.4 33.1 41.8 3 25.0 30.1 34.0 43.0 4 28.5 38.0 45.3 62.3 5 28.9 38.6 45.9 63.2 6 21.1 34.0 43.8 66.9

TSL Consumer NPV at 7% Discount Rate added with: SCC Case $ 12.9 /metric ton CO 2 * and Low Value for NO X ** SCC Case $ 40.8 /metric ton CO 2 * and Medium Value for NO X ** SCC Case $ 62.2 /metric ton CO 2 * and Medium Value for NO X ** SCC Case $ 117 /metric ton CO 2 * and High Value for NO X **

1 billion 2012 $ 1.5 2.8 3.8 6.1 2 9.2 14.0 17.8 26.4 3 9.4 14.4 18.3 27.2 4 10.8 20.1 27.4 44.3 5 10.9 20.4 27.8 44.8 6 6.7 19.4 29.3 52.1

* These label values represent the global SCC in 2015, in 201 2 $.
** Low Value corresponds to $46 8 per ton of NO X emissions. Medium Value corresponds to $2, 639 per ton , and High Value corresponds to $4, 809 per ton

. Although adding the value of consumer savings to the values of emission reductions provides a valuable perspective, two issues should be considered

. First, the national operating cost savings are d omestic U.S. consumer monetary savings that occur227 as a result of market transactions, while the value of CO 2 reductions is based on a global value

. Second, the assessments of operating cost savings and the SCC are performed with different methods that use quite different time frames for analysis

. The national operating cost savings is measured for the lifetime of products shipped in 2019

– 204 8

. The SCC values, on the other hand, reflect the present value of future climate

- related impacts resulting from th e emission of one metric ton of CO 2 in each year. Because of the long residence time of CO 2 in the atmosphere, these impacts continue well beyond
2100.

7. Other Factors The Secretary of Energy, in determining whether a standard is economically justified, may consider any other factors that the Secretary deems to be relevant

. (42 U.S.C. 6295(o)(2)(B)(i)(VI)) No other factors were considered in this analysis.

C. When considering proposed standards, the new or amended energy conservation
st andard that DOE adopts for any type (or class) of covered product shall be designed to achieve the maximum improvement in energy efficiency that the Secretary determines is technologically feasible and economically justified

. (42 U.S.C. 6295(o)(2)(A)) I n determining whether a standard is economically justified, the Secretary must determine whether the benefits of the standard exceed its burdens by, to the greatest extent practicable, considering the seven statutory factors discussed previously

. (42 U.S. C. 6295(o)(2)(B)(i)) The new or amended standard must also “result in significant conservation of energy.” (42 U.S.C. 6295(o)(3)(B)) Proposed Standards228 For today’s NOPR, DOE considered the impacts of standards at each TSL, beginning with the maximum technologically feas ible level, to determine whether that level was economically justified

. Where the max

- tech level was not justified, DOE then considered the next most efficient level and undertook the same evaluation until it reached the highest efficiency level that is b oth technologically feasible and economically justified and saves a significant amount of energy.

To aid the reader in understanding the benefits and/or burdens of each TSL, tables in this section summarize the quantitative analytical results for each TSL , based on the assumptions and methodology discussed herein

. The efficiency levels contained in each TSL are described in section V.A

. In addition to the quantitative results presented in the tables, DOE also considers other burdens and benefits that affe ct economic justification

. These include the impacts on identifiable subgroups of consumers who may be disproportionately affected by a national standard, and impacts on employment

. Section V.B.1.b presents the estimated impacts of each TSL for these subgroups

. DOE discusses the impacts on direct employment in residential furnace fan manufacturing in section V.B.2.b, and discusses the indirect employment impacts in section V.B.3.c.

DOE also notes that the economics literature provides a wide

- ranging discussion of how consumers trade off upfront costs and energy savings in the absence of government intervention. Much of this literature attempts to explain why consumers appear to unde rvalue energy efficiency improvements. There is evidence that consumers229 undervalue future energy savings as a result of : (1) a lack of information; (2) a lack of sufficient salience of the long

- term or aggregate benefits; (3) a lack of sufficient savings to warrant delaying or altering purchases; (4) excessive focus on the short term, in the form of inconsistent weighting of future energy cost savings relative to available returns on other investments; (5) computational or other difficulties associated wit h the evaluation of relevant tradeoffs; and (6) a divergence in incentives (for example, renter versus owner or builder versus purchaser). Other literature indicates that with less than perfect foresight and a high degree of uncertainty about the future, consumers may trade off at a higher than expected rate between current consumption and uncertain future energy cost savings. This undervaluation suggests that regulation that promotes energy efficiency can produce significant net private gains (as well as producing social gains by, for example, reducing pollution).

In DOE’s current regulatory analysis, potential changes in the benefits and costs of a regulation due to changes in consumer purchase decisions are included in two ways. First, if consumers fo rego a purchase of a product in the standards case, this decreases sales for product manufacturers and the cost to manufacturers is included in the MIA. Second, DOE accounts for energy savings attributable only to products actually used by consumers in th e standards case; if a standard decreases the number of products purchased by consumers, this decreases the potential energy savings from an energy conservation standard. DOE provides estimates of changes in the volume of product purchases in chapter 9 of the NOPR TSD. DOE’s current analysis does not explicitly control for heterogeneity in consumer preferences, preferences across subcategories of230 products or specific features, or consumer price sensitivity variation according to household income (Reiss an d White, 2005). 80

While DOE is not prepared at present to provide a fuller quantifiable framework for estimating the benefits and costs of changes in consumer purchase decisions due to an energy conservation standard, DOE is committed to developing a frame work that can support empirical quantitative tools for improved assessment of the consumer welfare impacts of appliance standards. DOE has posted a paper that discusses the issue of consumer welfare impacts of appliance standards, and potential enhancemen ts to the methodology by which these impacts are defined and estimated in the regulatory
process. 81 DOE welcomes comments on how to more fully assess the potential impact of energy conservation standards on consumer choice and how to quantify this impact i n its regulatory analysis.

1. Benefits and Burdens of Trial Standard Levels Considered for Residential Furnace
Fans Table V

. 28 through Table V

. 30 summarize the quantitative impacts estimated for each TSL for resid ential furnace fans

. The national impacts are measured over the lifetime of furnace fans purchased in the 30

- year period that begins in the first full year of compliance with amended standards ( 2019

- 204 8 )

. The energy savings, emissions

80 P.C. Reiss and M.W. White. Household Electricity Demand, Revisited. Review of Economic Studies (2005) 72, 853

– 883

. 81 Alan Sanstad, Notes on the Economics of Household Energy Consu mption and Technology Choice

. Lawrence Berkeley National Laboratory (2010) (Available at: http://www1.eere.energy.gov/buildings/appliance_standards/pdfs/co nsumer_ee_theory.pdf (Last accessed May 3, 2013).231 reductions , and value of emissions reductions refer to full

- fuel

- cycle results. Results that refer to primary energy savings are presented in chapter 10 of the NOPR TSD.

Table V . 28 Summary of Analytical Results for Re sidential Furnace Fan Standards : National Impacts Category TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6 National Full
- Fuel
- Cycle Energy Savings quads 0.635 2.254 2.332 4.576 4.629 6.250 NPV of Consumer Benefits 3% discount rate 201 2 $ billion 3.37 23.30 23.81 26.16 26.57 17.95 7% discount rate 1.19 8.07 8.23 8.51 8.64 3.65 Cumulative Emissions Reduction (Total FFC Emissions) CO 2 59.01 million metric tons 220. 2 227. 9 429. 8 435. 2 582. 3 SO 2 43.36 thousand tons 155.3 160.4 313. 5 316. 9 427. 4 NO X 31.16 thousand tons 124. 4 128. 4 230.9 233.6 308. 7 Hg 0.24 tons 0.95 0.99 1.77 1.80 2.38 N 2 O 0.70 thousand tons 2.74 2.84 5.12 5.19 6.88 N 2 O 207.2 thousand tons CO 2 eq* 816.0 845.0 1527.0 1547.7 2049.3 CH 4 132. 6 thousand tons 371.0 384.6 913. 7 922.3 1295 CH 4 3

. 314 million tons CO 2 eq* 9

. 276 9

. 61 6 22

. 84 23

. 0 6 32

. 38 Value of Emissions Reduction (Total FFC Emissions) CO 2 * * * 201 2 $ billion 0.308 to

4.880 1.152 to 18.23 1.193 to 18.87 2.247 to 35.56 2.275 to 36.01 3.041 to 48.13 NO X – 3% discount rate 0.043 0.155 0.161 0.314 0.318 0.428 NO X – 7% discount rate 0.015 0.054 0.056 0.109 0.111 0.149

* * CO 2 eq is the quantity of CO 2 that would have the same global warming potential (GWP).

* * Range of the economic value of CO 2 reductions is based on interagency estimates of the global benefit of reduced CO 2 emissions.232 Table V . 29 Summary of Analytical Results for Residential Furnace Fan Standards : Manufacturer and Average or Median Consumer Impacts* Category TSL 1 TSL 2 TSL 3 T SL 4 TSL 5 TSL 6 Manufacturer Impacts Industry NPV ( 3.0 ) to 0.7 201 2 $ million ( 26.7 ) to 13.5 ( 28.6 ) to 12.9 ( 54.4 ) to 33.8 ( 55.5 ) to 34.2 ( 170.1 ) to 58.2 Industry NPV ( 1.2) to 0.3 % change ( 10.6 ) to 5.3 ( 11.3 ) to 5.1 ( 21.6 ) to 13.4 ( 22.0 ) to 13.6 ( 67.5 ) to 23.1 Consumer Average LCC Savings Non

- weatherized, Non

c ondensing Gas Furnace Fan 201 2 $ $64 $442 $442 $474 $474 $313

Non

- weatherized, Condensing Gas Furnace Fan $49 $361 $361 $371 $371 $238

Weatherized Non

Condensing Gas Furnace Fan $35 $228 $228 $247 $247 $67

Non

- Weatherized, Non

Condensing Oil Furnace Fan $40 $40 $344 $40 $344 $132

Non

- weatherized Electric Furnace/Modular Blower Fan $21 $160 $160 $185 $185 $17

Manufactured Home Non

- w eatherized , Non

c ondensing Gas Furnace Fan $26 $26 $146 $26 $146 ( $116 )

Manufactured Home Non

- w eatherized, Condensing Gas Furnace Fan $27 $27 $152 $27 $152 ( $86 )

Manufactured Home Electric Furnace/Modular Blower Fan $14 $14 $64 $78 $78 ( $86 )

Consumer Median PBP Non

- w eatherized, Non

c ondensing Gas Furnace Fan years 1.34 2.69 2.69 5.38 5.38 11.20

Non

- weatherized, Condensing Gas Furnace Fan 1.35 2.73 2.73 5.39 5.39 11.03

Weatherized Non

Condensing Gas Furnace Fan 1.27 2.65 2.65 6.39 6.39 13.32

Non

- Weatherized, Non

- 5.49 5.49 6.97 5.49 6.97 25.41233 Condensing Oil Furnace Fan Non

- weatherized Electric Furnace/Modular Blower Fan 2.39 3.15 3.15 3.55 3.55 13.45

Manufactured Home Non

- w eatherized , Non

c ondensing Gas Furnace Fan 3.35 3.35 7.02 3.35 7.02 26.73

Manufactured Home Non

- w eatherized, Condensing Gas Furnace Fan 2.73 2.73 6.46 2.73 6.46 32.23

Manufactured Home Electric Furnace/Modular Blower Fan 2.49 2.49 4.35 4.61 4.61 17.11

*Parentheses indicate negative values.

Table V . 30 Summary of Analytical Results for Residential Furnace Fan Standards : Distribution of Consumer LCC Impacts Product Class TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6 Non

- Weatherized, Non

- Condensing Gas Furnace Fan Net Cost 2% 18% 18% 33% 33% 58% No Impact 68% 25% 25% 14% 14% 0% Net Benefit 30% 57% 57% 53% 53% 42% Non

- weatherized, Condensing Gas Furnace Fan Net Cost 1% 10% 10% 24% 24% 57% No Impact 75% 41% 41% 34% 34% 0% Net Benefit 24% 49% 49% 42% 42% 43% Weatherized Non

- Condensing Gas Furnace Fan Net Cost 0% 7% 7% 25% 25% 63% No Impact 81% 56% 56% 33% 33% 0% Net Benefit 18% 37% 37% 41% 41% 37% Non

- Weatherized, Non

- Condensing Oil Furnace Fan234 Net Cost 12% 12% 43% 12% 43% 79% No Impact 71% 71% 28% 71% 28% 0% Net Benefit 18% 18% 29% 18% 29% 21% Non

- weatherized Electric Furnace/Modular Blower Fan Net Cost 5% 20% 20% 27% 27% 68% No Impact 73% 37% 37% 25% 25% 0% Net Benefit 21% 42% 42% 48% 48% 32% Manufactured Home Non

- Weatherized, Non

- Condensing Gas Furnace Fan Net Cost 13% 13% 58% 13% 58% 85% No Impact 56% 56% 0% 56% 0% 0% Net Benefit 32% 32% 42% 32% 42% 15% Manufactured Home Non

- Weatherized, Condensing Gas Furnace Fan Net Cost 7% 7% 38% 7% 38% 84% No Impact 68% 68% 29% 68% 29% 0% Net Benefit 26% 26% 32% 26% 32% 16% Manufactured Home Electric Furnace/Modular Blower Fan Net Cost 8% 8% 28% 34% 34% 82% No Impact 71% 71% 38% 26% 26% 0% Net Benefit 21% 21% 34% 40% 40% 18%
Note: Components may not sum to total due to rounding.

First, DOE considered TSL 6, which would save an estimated total of 6. 25 quads of energy, an amount DOE considers significant

. TSL 6 has an estimated NPV of consumer benefit of $ 3.65 billion using a 7

- percent discount rate, and $ 17.95 billion using a 3

- p ercent discount rate.

The cumulative CO 2 emissions reduction at TSL 6 is 582. 3 million metric tons. The estimated monetary value of the CO 2 emissions red uctions ranges from $ 3.041 billion to $ 48.13 billion

. The other emissions reductions are 427. 4 thousand tons of SO 2, 308. 7 thousand tons of NO X , 2.38 tons of Hg, 6.88 thousand tons of N 2 O, and 1.295 thousand tons of CH 4.235 At TSL 6, the average LCC savings are positive for Non

- weatherized, Non

condensing Gas Furnace Fans, Non

- weatherized, Condensing Gas Furnace Fans, Weatherized Non

- Condensing Gas Furnace Fan , Non

- Weatherized, Non

- Condensing Oil
Furnace Fan , and Non

- weatherized Electric Furnace/Modular Blower Fans. The LCC savings are negative for Manufactured Home Non

- weatherized, Non

- condensing Gas Furnace Fans, Manufactured Home Non

- weatherized, Condensing Gas Furnace Fans, and Manufactured Home Electric Furnace/Modular Blower Fans. The median payback period is lower than the median product lifetime (which is 22.6 years for gas and electric furnace fans) for all of the product class es . The share of consumers experiencing an LCC cost (increase in LCC) is higher than the share experiencing an LCC benefit (decrease in
LC C) for all of the product class es .

At TSL 6, manufacturers may expect diminished profitability due to large increases in product costs, stranded assets, capital investments in equipment and tooling, and expenditures related to engineering and testing. Th e projected change in INPV ranges from a decrease of $170.1 million to an increase of $58.2 million based on DOE’s manufacturer markup scenarios. The upper bound of $58.2 million is considered an optimistic scenario for manufacturers because it assumes man ufacturers can fully pass on substantial increases in product costs. DOE recognizes the risk of large negative impacts on industry if manufacturers’ expectations concerning reduced profit margins are realized. TSL 6 could reduce INPV in the residential fur nace fan industry by up to 67.5 percent if impacts reach the lower bound of the range.236 Accordingly, t he Secretary tentatively concludes that at TSL 6 for residential furnace fans, the benefits of significant energy savings, positive NPV of consumer benefit, emission reductions and the estimated monetary value of the CO 2 emissions reductions, as well as positive average LCC savings for most product classes would be outweighed by the high percentage of consumers that would experience an LCC cost in all of the product classes, and the substantial reduction in INPV for manufacturers. Consequently, DOE has concluded that TSL 6 is not economicall y justified.

Next, DOE considered TSL 5, which would save an estimated total of 4.629 quads of energy, an amount DOE considers significant . TSL 5 has an estimated NPV of consumer benefit of $ 8.64 billion using a 7

- percent discount rate, and $ 26.57 billi on using a 3

- percent discount rate.

The cumulative CO 2 emissions reduction at TSL 5 is 435.2 million metric tons. The estimated monetary value of the CO 2 emissions reductions ranges from $ 2.275 billion to $ 36.01 billion

. The other emissions reductions are 316. 9 thousand tons of SO 2, 233.6 thousand tons of NO X , 1.8 0 tons of Hg, 5.19 thousand tons of N 2 O, and 922.3 thousand tons of CH 4.

At TSL 5, the average LCC savings are positive for all of the product classes. The median payback period is lower than the average product lifetime for all of the product classes. The share of consumers experiencing an LCC benefit (decrease in LCC)237 is hig her than the share experiencing an LCC cost (increase in LCC) for five of the product classes ( Non

- Weatherized, Non

- Condensing Gas Furnace Fans, Non

weatherized, Condensing Gas Furnace Fans, Weatherized Non

- Condensing Gas Furnace
Fan s , Non

- weatherized Elec tric Furnace/Modular Blower Fans, and Manufactured Home Electric Furnace/Modular Blower Fans ), but lower for the other three product classes

.

At TSL 5, the projected change in INPV ranges from a decrease of $55.5 million to an increase of $34.2 million. At TSL 5, DOE recognizes the risk of negative impacts if manufacturers’ expectations concerning reduced profit margins are realized. If the lower bound of the range of impacts is reached, as DOE expects, TSL 5 could result in a net loss of 22.0 percent in INPV for residential furnace fan manufacturers.
Accordingly, the Secretary tentatively concludes that at TSL 5 for residential furnace fans, the benefits of significant energy savings, positive NPV of consum er benefit, positive average LCC savings for al l of the product classes, emission reductions and the estimated monetary value of the CO 2 emissions reductions, would be outweighed by the high percentage of consumers that would be negatively impacted for some of the product classes , and the substantial r eduction in INPV for manufacturers. Consequently, DOE has concluded that TSL 5 is not economically justified.

Next, DOE considered TSL 4, which would save an estimated total of 4.576 quads of energy, an amount DOE considers significant . TSL 4 has an est imated NPV of consumer benefit of $ 8.51 billion using a 7

- percent discount rate, and $ 26.16 billion using a 3

- percent discount rate.238 The cumulative CO 2 emissions reduction at TSL 4 is 429. 8 million metric tons. The estimated monetary value of the CO 2 emissions reductions ranges from $ 2.247 billion to $ 35.56 billion

. The other emissions reductions are 313. 5 thousand tons of SO 2, 230.9 thousand tons of NO X , 1.77 tons of Hg, 5.12 thousand tons of N 2 O, and 913. 7 thousand tons of CH 4.

At TSL 4, the average LCC savings are positive for all of the product classes. The median payback period is lower than the average product lifetime for all of the product classes. The share of consumers experiencing an LCC benefit (decrease in LCC) is higher than the share ex periencing an LCC cost (increase in LCC) for all of the product classes

.

At TSL 4, the projected change in INPV ranges from a decrease of $ 54.4 million to an increase of $ 33.8 million. At TSL 4, DOE recognizes the risk of negative impacts if manufacturers ’ expectations concerning reduced profit margins are realized. If the lower bound of the range of impacts is reached, as DOE expects, TSL 4 could result in a net loss of 21.6 percent in INPV for residential furnace fan manufacturers.

After considering the analysis and weighing the benefits and the burdens, the Secretary tentatively concludes that at TSL 4 for residential furnace fans, the benefits of significant energy savings, positive NPV of consum er benefit, positive average LCC savings for all of the p roduct classes, emission reductions and the estimated monetary239 value of the CO 2 emissions reductions would outweigh the reduction in INPV for manufacturers. The Secretary has tentatively concluded that TSL 4 would save a significant amount of energy and i s technologically feasible and economically justified. Therefore, DOE today proposes to adopt the energy conservation standards for residential furnace fans at TSL 4. Table V

. 31 presents the proposed energy conservation standards for residential furnace fans.

Table V . 31 Proposed Energy Conservation Standards for Residential Furnace Fans Product Class Proposed Standard: FER * (W/1000 cfm) Non

- Weatherized, Non

- Condensing Gas Furnace Fan FER = 0.029 x Q Max + 180 Non

- weatherized, Condensing Gas Furnace Fan FER = 0.029 x Q Max + 196 Weatherized Non

- Condensing Gas Furnace Fan FER = 0.029 x Q Max + 135 Non

- Weatherized, Non

- Condensing Oil Furnace Fan FER = 0.051 x Q Max + 301 Non

- weatherized Electric Furnace / Modular Blower Fan FER = 0.029 x Q Max + 165
Manufactured Home Non

- Weatherized, Non

- Condensing Gas Furnace Fa n FER = 0.0 51 x Q Max + 242

Manufactured Home Non

- Weatherized, Condensing Gas Furnace Fan FER = 0.0 51 x Q Max + 262
Manufactured Home Electric Furnace/Modular Blower Fan FER = 0.0 29 x Q Max + 1 05 Manufactured Home Weatherized Non

Condensing Gas Furnace Fan Reserved Manufactured Home Non

- Weatherized Non

- Condensing Oil Furnace Fan Reserved

* Q Max is the airflow, in cfm, at the maximum airflow

- control setting measured us ing the proposed DOE test procedure. 78 FR 19606, 19627 (April 2, 2013).240 2. Summary of Benefits and Costs (Annualized) of the Proposed Standards The benefits and costs of today’s proposed standards can also be expressed in terms of annualized values

. The annualized monetary values are the sum of: (1) the annualized national economic value, expressed in 201 2 $, of the benefits from operating products that meet the proposed standards (consisting primarily of operating cost savings from using less energy, minus increases in equipment purchase costs, which is another way of representing consumer NPV), and (2) the monetary value of the benefits of emission reductions, including CO 2 emission reductions. 82 The value of the CO 2 reductions, otherwise known as the Social Cost of Carbon (SCC), is calculated using a range of values per metric ton of CO 2 developed by a recent interagency process.

Although combining the values of operating savings and CO 2 reductions provides a useful perspective, two issues should be considered

. First, the national operating savings are domestic U.S. consumer monetary s avings that occur as a result of market transactions while the value of CO 2 reductions is based on a global value

. Second, the assessments of operating cost savings and SCC are performed with different methods that use different time frames for analysis

. The national operating cost savings is measured for the lifetime of products shipped in 201 9

– 204 8

. The SCC values, on the other hand,

82 DOE used a two

- step calculation process to convert the time

- series of costs and benefits into annualized values. First, DOE calculated a present value in 2013, the year used for discounting the NPV of to tal consumer costs and savings , for the time

- series of costs and benefits using discount rate s of 3 and 7 percent for all costs and benefits except for the value of CO 2 reductions

. For the latter, DOE used a range of discount rates. From the present value, DOE then calculated the fixed annual payment over a 30

- year period , starting in 2013, that yield s the same present value. The fixed annual payment is the annualized value. Although DOE calculated annualized values, this does not imply that the time

- series of cost and benefits from which the annualized values were determined would be a steady stream of payments

.241 reflect the present value of future climate

- related impacts resulting from the emission of one metric ton of CO 2 in each year over a very long period

.

Table V

. 32 shows the annualized values for the proposed standards for residential furnace fans

. The results under th e primary estimate are as follows. (All monetary values below are expressed in 201 2 $.) Using a 7

- percent discount rate for benefits and costs other than CO 2 reduction ( for which DOE used a 3

- percent discount rate along with the SCC series corresponding to a value of $ 40.8 /ton in 2015 ) , the cost of the residential furnace fan standards proposed in today’s rule is $ 231 million per year in increased equipment costs, while t he benefits are $ 872 million per year in reduced equipment operating costs, $ 571 million in CO 2 reductions, and $ 8.24 million in reduced NO X emissions

. In this case, the net benefit amounts to $ 1, 220 million per year .

Using a 3

- percent discount rate for all benefits and costs and the SCC series corresponding to a value of $ 40.8 /ton in 2015, Table V.32 shows the cost of the residential furnace fans standards proposed in today’s rule is $ 290 million per year in increased equipment costs, while the benefits are $ 1585 million per year in reduced operating costs, $ 571 million in CO 2 reductions, and $ 15.56 million in reduced NO X emissions

. In this case, the net benefit amounts to $ 1,882 million per year.242 Table V . 32 Annualized Benefits and Costs of Proposed Standards (TSL 4 ) for Residential F urnace Fans

Discount Rate Primary Estimate* Low Net Benefits Estimate High Net Benefits Estimate million 2012$/year Benefits Operating Cost Savings 7% 872 710 1082 3% 1585 1264 2011 CO 2 Reduction Monetized Value ($ 12.9 /t case)** 5% 139 117 171
CO 2 Reduction Monetized Value ($ 40.8 /t case)** 3% 571 477 702
CO 2 Reduction Monetized Value ($ 62.2 /t case)** 2.5% 877 732 1079
CO 2 Reduction Monetized Value ($ 117 /t case)** 3% 1761 1471 2167

NO X Reduction Monetized Value (at $2,639/ton)** 7% 8.24 6.97 9.99 3% 15.56 13.03 19.09

Total Benefits† 7% plus CO 2 range 1,019 to 2,641 834 to 2,188 1,263 to 3,259
7% 1,451 1,194 1,794 3% plus CO 2 range 1,740 to 3,362 1,394 to 2,748 2,201 to 4,197
3% 2,172 1,754 2,732 Costs
Incremental Product Costs 7% 231 273 201 3% 290 346 250 Net Benefits

Total† 7% plus CO 2 range 788 to 2,410 561 to 1,915 1,062 to 3,058
7% 1,220 921 1,593 3% plus CO 2 range 1,450 to 3,072 1,047 to 2,402 1,951 to 3,947
3% 1,882 1,407 2,482 Formatted: Subscript243 * This table presents the annualized costs and benefits associated with residential furnace fans shipped in 2019 −2048. These results include benefits to consumers which accrue after 2048 from the products purchased in 2019 −2048. Costs incurred by manufactu rers, some of which may be incurred in preparation for the rule, are not directly included, but are indirectly included as part of incremental equipment costs. The Primary, Low Benefits, and High Benefits Estimates utilize projections of energy prices and housing starts from the AEO 2012

** The CO 2 values represent global values of the SCC, in 2012$, in 2015 under several scenarios. The first three cases use the averages of SCC distributions calculated using 5%, 3%, and 2.5% discount rates, re spectively. The fourth case represents the 95 th percentile of the SCC distribution calculated using a 3% discount rate. The SCC values increase over time. The value for NO X (in 2012$) is the average of the low and high values used in DOE’s analysis. Reference case, Low Estimate, and High Estimate, respectively. Incremental product costs reflect a constant product price trend in the Primary Estimate, an increasing price trend in the Low Benefits Estimate, and a decreasi ng price trend in the High Benefits Estimate.

† Tot al Benefits for both the 3% and 7% cases are derived using the series corresponding to SCC value of $ 40.8 /t in 2015. In the rows labeled “7% plus CO 2 range” and “3% plus CO 2 range,” the operating cost and NO X benefits are calculated using the labeled disc ount rate, and those values are added to the full range of CO 2 values.

VI. Procedural Issues and Regulatory Review
A. Section 1(b)(1) of Executive Order 12866, “Regulatory Planning and Review,” 58 FR 51735 (Oct. 4, 1993), requires each agency to identify the problem that it intends to address, including, where applicable, the failures of private markets or public institut ions that warrant new agency action, as well as to assess the significance of that problem. The problems that today’s proposed standards address are as follows: Review Under Executive Orders 12866 and 13563

(1) There is a lack of consumer information and/or information processing capability about ener gy efficiency opportunities in the home appliance market. (2) There is asymmetric information (one party to a transaction has more and better information than the other) and/or high transactions costs (costs of gathering information and effecting exchanges of goods and services).244 (3) There are external benefits resulting from improved energy efficiency of

r esidential f urnace f ans that are not captured by the users of such equipment. These benefits include externalities related to environmental protection and

ene rgy security that are not reflected in energy prices, such as reduced emissions of greenhouse gases.

In addition, DOE has determined that today’s regulatory action is an “economically significant regulatory action” under section 3(f)(1) of E xecutive Order
12866. Accordingly, section 6(a)(3) of the Executive Order requires that DOE prepare a regulatory impact analysis (RIA) on today’s rule and that the Office of Information and Regulatory Affairs (OIRA) in the Office of Management and Budget (OMB) review this rule. DOE presented to OIRA for review the draft rule and other documents prepared for this rulemaking, including the RIA, and has included these documents in the rulemaking record

. The assessments prepared pursuant to Executive Order 1 2866 can be found in the technical support document for this rulemaking

.

DOE has also reviewed this regulation pursuant to Executive Order 13563, issued on January 18, 2011 (76 FR 3281 ( Jan. 21, 2011 ) )

. E xecutive O rder 13563 is supplemental to and expl icitly reaffirms the principles, structures, and definitions governing regulatory review established in Executive Order 12866. To the extent permitted by law, agencies are required by Executive Order 13563 to: (1) propose or adopt a regulation only upon a reasoned determination that its benefits justify its costs (recognizing that some benefits and costs are difficult to quantify); (2) tailor regulations245 to impose the least burden on society, consistent with obtaining regulatory objectives, taking into acc ount, among other things, and to the extent practicable, the costs of cumulative regulations; (3) select, in choosing among alternative regulatory approaches, those approaches that maximize net benefits (including potential economic, environmental, public health and safety, and other advantages; distributive impacts; and equity); (4) to the extent feasible, specify performance objectives, rather than specifying the behavior or manner of compliance that regulated entities must adopt; and (5) identify and ass ess available alternatives to direct regulation, including providing economic incentives to encourage the desired behavior, such as user fees or marketable permits, or providing information upon which choices can be made by the public

.

DOE emphasizes as well that Executive Order 13563 requires agencies to use the best available techniques to quantify anticipated present and future benefits and costs as accurately as possible. In its guidance, the Office of Information and Regulatory Affairs has emphasiz ed that such techniques may include identifying changing future compliance costs that might result from technological innovation or anticipated behavioral changes. For the reasons stated in the preamble, DOE believes that today’s NOPR is consistent with t hese principles, including the requirement that, to the extent permitted by law, benefits justify costs and that net benefits are maximized.

B. The Regulatory Flexibility Act (5 U.S.C. 601 Review Under the Regulatory Flexibility Act et seq. ) requires preparation of an initial regulatory flexibility analysis (IRFA) for any rule that by law must be proposed for246 public comment, unless the agency certifies that the rule, if promulgated, will not have a significant economic impact on a substantia l number of small entities. As required by Executive Order 13272, “Proper Consideration of Small Entities in Agency Rulemaking , ” 67 FR 53461 (August 16, 2002), DOE published procedures and policies on February 19, 2003, to ensure that the potential impact s of its rules on small entities are properly considered during the rulemaking process. 68 FR 7990. DOE has made its procedures and policies available on the Office of the General Counsel’s website ( http://energy.gov/gc/office

- general

- counsel ). DOE has prepared the following IRFA for the products that are the subject of this rulemaking.

1. Description and Estimated Number of Small Entities Regulated

a. Methodology for Estimating the Number of Small Entities For the manufacturers of residential furnace fans, the Small Business Administration ( SBA ) has set a size threshold, which defines those entities classified as “small businesses” for the purposes of the statute. DOE used the SBA’s small business size standards to determine whether any small entities would be subject to the requirements of the rule. 65 FR 30836, 30848 (May 15, 2000), as amended at 65 FR 53533, 53544 (Sept. 5, 2000) and codified at 13 CFR part 121. The size standards are listed by NAICS code and industry description and are available at: www.sba.gov/idc/groups/public/documents/sba_homepage/serv_sstd_tablepdf.pdf

. Residential furnace fa n manufacturing is classified under NAICS 333415, “Air

Conditioning and Warm Air Heating Equipment and Commercial and Industrial247 Refrigeration Equipment Manufacturing.” The SBA sets a threshold of 750 employees or less for an entity to be considered as a small business for this category.

To estimate the number of companies that could be small business manufacturers of products covered by this rulemaking, DOE conducted a market survey using available public information to identify potential small manufac turers. DOE’s research involved industry trade association membership directories (including AHRI), public databases ( e.g. , AHRI Directory, 83 the SBA Database 84 ), individual company websites, and market research tools ( e.g. , Hoovers reports) to create a lis t of companies that manufacture or sell products covered by this rulemaking. DOE also asked stakeholders and industry representatives if they were aware of any other small manufacturers during manufacturer interviews and at DOE public meetings. DOE reviewed publicly

- available data and contacted select companies on its list, as necessary, to determine whether they met the SBA’s definition of a small business manufacturer of covered residential furnace fans. DOE screened out companies that do not offe r products covered by this rulemaking, do not meet the definition of a “small business,” or are foreign owned and operated

.

DOE initially identified at least 40 potential manufacturers of residential furnace fan products sold in the U.S. DOE then determ ined that 26 were large manufacturers, manufacturers that are foreign owned and operated, or manufacturers that do not produce products covered by this rulemaking. DOE was able to determine that approximately 14

83 See www.ahridirectory.org/ahriDirectory/pages/home.aspx

. 84 See http://dsbs.sba.gov/dsbs/search/dsp_dsbs.cfm

.248 manufacturers meet the SBA’s definition of a “small business” and manufacture products covered by this rulemaking.

b. Manufacturer Participation Before issuing this NOPR, DOE attempted to contact all the small business manufacturers of residential furnace fans it had identified. One of the small bus inesses consented to being interviewed during the MIA interviews. DOE also obtained information about small business impacts while interviewing large manufacturers.

c. Industry Structure The 14 identified domestic manufacturers of residential furnace fans t hat qualify as small businesses under the SBA size standard account for a small fraction of industry shipments. Generally, manufacturers of furnaces are also manufacturers of furnace fan products. The market for domestic gas furnaces is almost completely held by seven large manufacturers, and small manufacturers in total account for only 1 percent of the market. These seven large manufacturers also control 97 percent of the market for central air conditioners. The market for manufactured home furnaces i s primarily held by one large manufacturer. In contrast, t he market for domestic oil furnaces is almost entirely comprised of small manufacturers.

d. Comparison B etween Large and Small Entities The proposed standards for residential furnace fans could ca use small manufacturers to be at a disadvantage relative to large manufacturers. One way in which249 small manufacturers could be at a disadvantage is that they may be disproportionately affected by product conversion costs. Product redesign, testing, and c ertification costs tend to be fixed and do not scale with sales volume. For each product model, small businesses must make investments in research and development to redesign their products, but because they have lower sales volumes, they must spread thes e costs across fewer units. In addition, because small manufacturers have fewer engineers than large manufacturers, they would need to allocate a greater portion of their available resources to meet a standard. Since engineers may need to spend more time redesigning and testing existing models as a result of the new standard, they may have less time to develop new products.

Furthermore, smaller manufacturers may lack the purchasing power of larger manufacturers. For example, since motor suppliers give discounts to manufacturers based on the number of motors they purchase, larger manufacturers may have a pricing advantage because they have higher volume purchases. This purchasing power differential between high

- volume and low

- volume orders applies to ot her furnace fan components as well, including the impeller fan blade, transformer, and capacitor.

2. Description and Estimate of Compliance Requirements Since the proposed standard for residential furnace fans could cause small manufacturers to be at a dis advantage relative to large manufacturers, DOE cannot certify that the proposed standards would not have a significant impact on a significant number of small businesses, and consequently, DOE has prepared this IRFA.250 At TSL 4, the level proposed in today’ s notice, DOE estimates no capital conversion costs and product conversion costs of $0. 01 4 million for a typical small manufacturer, compared to product conversion costs of $0.431 million for a typical large manufacturer. These costs and their impacts are described in detail below.

To estimate how small manufacturers would be potentially impacted, DOE used the market share of small manufacturers to estimate the annual revenue, earnings before interest and tax (EBIT), and research and development (R&D) expense for a typical small manufacturer. DOE then compared these costs to the required product conversion costs at each TSL for both an average small manufacturer and an average large manufacturer ( see Tables VI.1 and Table VI

. 2 ). In the following tables, TSL 4 represents the proposed standard.

Although conversion costs can be considered substantial for all companies, the impacts could be relatively greater for a t ypical small manufacturer because of much lower production volumes and the relatively fixed nature of the R&D resources required per model. Small manufacturers also have less engineering staff and lower R&D budgets. As a result, the product conversion cost s incurred by a small manufacturer would likely be a larger percentage of its revenues, R&D expenses, and EBIT, than those for a large manufacturer. Table VI

. 1 shows the product conversion costs for a typical large manufacturer versus those of a typical small manufacturer. Table VI

. 2 compares the to tal251 conversion costs of a typical large manufacturer as a percentage of annual R&D expense, annual revenue, and EBIT to those of a typical small manufacturer.

Table VI . 1 : Comparison of a Typical Small and La rge Residential Furnace Fan Manufacturer’s Product Conversion Costs Product Conversion Costs for a Typical Large Manufacturer (2012$ millions) Product Conversion Costs for a Typical Small Manufacturer (2012$ millions) Baseline $0.000 $0.000 TSL 1 $0.154 $0.00 7 TSL 2 $0.378 $0.0 12 TSL 3 $0.391 $0.01 4 TSL 4 $0.431 $0.01 4 TSL 5 $0.438 $0.01 9 TSL 6 $1.261 $0.0 45

Table VI . 2 : Comparison of a Typical Small and Large Residential Furnace Fan Manufacturer’s Product Conversion Costs to Annual R&D Expense, Annual Revenue, and EBIT Large Manufacturer Small Manufacturer Product Conversion Costs as a Percentage of Annual

R&D Expense Product Conversion Costs as a Percentage of Annual Revenue Product Conversion Costs as a Percentage of Annual

EBIT Product Conversion Costs as a Percentage of Annual

R&D Expense Product Conversion Costs as a Percentage of Annual Revenue Product Conversion Costs as a Percentage of Annual

EBIT Baseline 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% TSL 1 14.7% 0.3% 4.0% 137.9% 2.6% 37.4% TSL 2 36.1% 0.7% 9.8% 226.3% 4.3% 61.4% TSL 3 37.3% 0.7% 10.1% 267.7% 5.1% 72.7% TSL 4 41.1% 0.8% 11.2% 267.7% 5.1% 72.7% TSL 5 41.8% 0.8% 11.3% 368.4% 7.0% 100.0% TSL 6 120.4% 2.3% 32.7% 850.6% 16.2% 230.9%252 Based on the results in Table VI

. 1 and Table VI

. 2 , DOE understands that the potential product conversions costs faced by small manufacturers may be proportionally greater than those faced by larger manufacturers. However, the total cost at TSL 4 of approximately $ 14 ,000 per small manufacturer is still a small percentage of a small manufacturer’s total annual revenues ( 5.1 pe rcent ) and product conversion costs would also only be a one

- time expense. Furthermore, TSLs lower than the proposed TSL would not result in significantly lower product conversion costs for small manufacturers.

3. Duplication, Overlap, and Conflict with Other Rules and Regulations DOE is not aware of any rules or regulations that duplicate, overlap, or conflict with the rule being proposed today.

4. Significant Alternatives to the Rule The discussion above analyzes impacts on small businesses that would r esult from the other TSLs DOE considered. Alt hough TSLs lower than the proposed TSLs would be expected to reduce the impacts on small entities, DOE is required by EPCA to establish standards that achieve the maximum improvement in energy efficiency that i s technically feasible and economically justified, and result in a significant conservation of
energy. Thus , DOE rejected the lower TSLs.

In addition to the other TSLs being considered, the NOPR TSD includes a regulatory impact analysis in chapter 17. For residential furnace fans, this report discusses the following policy alternatives: (1) no standard, (2) consumer rebates, (3)253 consumer tax credits, (4) manufacturer tax credits, and (5) early replacement. DOE does not intend to consider these alternatives further because they are either not feasible to implement without authority and funding from Congress , or are expected to result in
energy savings that are much smaller (ranging from less than 1 percent to approximately 33 percent) than those that would be achieved by the proposed energy conservation standards.

DOE continues to seek input from small businesses that would be affected by th is rulemaking and will consider comments received in the development of any final rule.

C.
1. Description of the Requirements Review Under the Paperwork Reduction Act of 1995

DOE is developing regulations to implement reporting requirements for energy

conse rvation, water conservation, and design standards, and to address other matters including compliance certification, prohibited actions, and enforcement procedures for covered consumer products and commercial and industrial equipment covered by EPCA.

DOE is adopting provisions to require manufacturers of covered consumer products and commercial and industrial equipment to maintain records about how they determined the energy efficiency, energy consumption, water consumption or design features of their prod ucts. DOE is also going to require manufacturers to submit a certification report indicating that all basic models currently produced comply with the applicable standards using DOE’s testing procedures, as well as include the necessary254 product specific cer tification data. The certification reports are submitted for each basic model, either when the requirements go into effect (for models already in distribution) or when the manufacturer begins distribution of a particular basic model, and annually thereafte r. Reports must be updated when a new model is introduced or a change affecting energy efficiency or use is made to an existing model. The collection of information is necessary for monitoring compliance with the energy conservation standards and testing r equirements for the consumer products and commercial and industrial equipment mandated by EPCA.

The information that would be required by these regulations, once effective, and that is the subject of the collection of information, would be submitted by ma nufacturers to certify compliance with energy conservation, water conservation, and design standards established by DOE. DOE would also use the information to determine whether an enforcement action is warranted and to better inform DOE during a test proce dure and energy conservation standards rulemaking.

DOE received OMB approval for collecting certification, compliance, and enforcement information for residential furnace fans on XXX , under OMB C ontrol
N umber 1910

- 1400

.

2. Method of Collection Respond ents must submit electronic forms using DOE’s on

- line Compliance Certification Management System ( CCMS ) system.255 3. Data The following are DOE estimates of the total annual reporting and recordkeeping burden imposed on manufacturers of residential furnace fans subject to certification, compliance, and enforcement provisions. These estimates take into account the time necessary to develop testing documentation, complete the certification, and submit all required documents to DOE electronically. OMB Control Number: 1910

- 1400

. Form Number: None. Type of Review: Regular submission. Affected Public: Manufacturers of residential furnace fans covered by this rule making

. Estimated Number of Respondents: 37

. Estimated Time per Response: Certification reports, 20 hours. Estimated Total Annual Burden Hours: 740

. Estimated Total Annual Cost to the Manufacturers: $55,000 in recordkeeping/reporting costs.

Notwithstanding any other provision of the law, no person is required to respond to, nor shall any person be subject to a penalty for failure to comply with, a collection of information subject to the requirements of the PRA, unless that collection of information displays a curr ently valid OMB Control Number.256 D. Pursuant to the National Environmental Policy Act (NEPA) of 1969, DOE has determined that the proposed rule fits within the category of actions included in Categorical Exclusion (CX) B5.1 and otherwise meets the requirements for application of
a CX

. Review Under the National Environmental Policy Act o f 1969

See 10 CFR Part 1021, App. B, B5.1(b); 1021.410(b) and Appendix B, B(1)

- (5)

. The proposed rule fits within the category of actions because it is a rulemaking that establishes energy conservation standards for consumer products or industrial equipment, and for which none of the exceptions identified in CX B5.1(b) apply

. Therefore, DOE has made a CX determination for this rulemaking, and DOE does not need to prepare an Environmental Assessment or Environmental Impact Statement for this proposed rule

. DOE’s CX determination for this proposed rule is available at http://cxnepa.energy.gov/

.

E. Executive Order 13132, “Federalism , ” 64 FR 43255 (Aug ust 10 , 1999) , imposes certain requirements on Federal agencies formulating and implementing policies or regulations that preempt State law or that have Federalism implications. The Executive Order requires agencies to examine the constitutional and statutory authority supporting any action that would limit the policymaking discretion of the States and to carefully assess the necessity for such actions. The Executive Order also requires agencies to have an accountable process to ensure meaningful and timely input by St ate and local officials in the development of regulatory policies that have F ederalism implications. On March 14, 2000, DOE published a statement of policy describing the intergovernmental consultation process that it will follow in the development of suc h regulations. 65 FR Review U nder Executive Order 13132257 13735. DOE has examined this proposed rule and has tentatively determined that it would not have a substantial direct effect on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government. EPCA governs and prescribes Federal preemption of State regulations as to energy conservation for the products that are the subject of today’s proposed rule. States can petition DOE for exemption from such preemption to the extent, and based on criteria, set forth in EPCA. ( 42 U.S.C. 6297 ) Therefore, Executive Order 13132 require s no further action

.

F. With respect to the review of existing regulations and the promulgation of new regulations, section 3(a) of Executive Order 12988, “ Civil Justice Reform , ” imposes on Federal agencies the general duty to adhere to the following requirements: (1) eliminate drafting errors and ambiguity; (2) write regulations to minimize litigation; (3) provide a clear legal standard for affected conduct rather than a general standard ; and (4) promote simplification and burden reduction

. 61 FR 4729 (Feb

. 7, 1996)

. Regarding the review required by section 3(a), s ection 3(b) o f Executive Order 12988 specifically requires that Executive agencies make every reasonable effort to ensure that the regulation: (1) clearly specifies the preemptive effect, if any; (2) clearly specifies any effect on existing Federal law or regulation; ( 3) provides a clear legal standard for affected conduct while promoting simplification and burden reduction; (4) specifies the retroactive effect, if any; (5) adequately defines key terms; and (6) addresses other important issues affecting clarity and gene ral draftsmanship under any guidelines issued by the Attorney General. Review Under Executive Order 12988258 Section 3(c) of Executive Order 12988 requires Executive agencies to review regulations in light of applicable standards in section 3(a) and section 3(b) to determine whether they

are met or it is unreasonable to meet one or more of them. DOE has completed the required review and determined that, to the extent permitted by law, this proposed rule meets the relevant standards of Executive Order 12988.

G. Title II of the Unfunded Mandates Reform Act of 1995 (UMRA) requires each Federal agency to assess the effects of Federal regulatory actions on State, local, and Tribal governments and the private sector

. Pub. L. 104

- 4, sec. 201 (codif ied at 2 U.S.C. 1531)

. For a proposed regulatory action likely to result in a rule that may cause the expenditure by State, local, and Tribal governments, in the aggregate, or by the private sector of $100 million or more in any one year (adjusted annuall y for inflation), section 202 of UMRA requires a Federal agency to publish a written statement that estimates the resulting costs, benefits, and other effects on the national economy. (2 U.S.C. 1532(a), (b)) The UMRA also requires a Federal agency to dev elop an effective process to permit timely input by elected officers of State, local, and Tribal governments on a proposed “significant intergovernmental mandate,” and requires an agency plan for giving notice and opportunity for timely input to potentiall y affected small governments before establishing any requirements that might significantly or uniquely affect them

. On March 18, 1997, DOE published a statement of policy on its process for intergovernmental consultation under UMRA

. 62 FR 12820

. DOE’s policy statement is also available at Review Under the Unfunded Mandates Reform Act of 1995

http://energy.gov/sites/prod/files/gcprod/documents/umra_97.pdf

.259 Although today’s proposed rule , which proposes new energy conservation
st andards for residential furnace fans, does not contain a Federal intergovernmental mandate, it may require annual expenditures of $100 million or more by the private
sector. Specifically, the proposed rule w ould likely result in a final rule that could

re quire expenditures of $100 million or more , includ ing : (1) investment in research and development and in capital expenditures by residential furnace f ans manufacturers in the years between the final rule and the compliance date for the new standard s , and ( 2) incremental additional expenditures by consumers to purchase higher

- efficiency residential furnace f ans , starting at the compliance date for the applicable standard.

Section 202 of UMRA authorizes a Federal agency to respond to the content requirement s of UMRA in any other statement or analysis that accompanies the proposed rule

. 2 U.S.C. 1532(c). The content requirements of section 202(b) of UMRA relevant to a private sector mandate substantially overlap the economic analysis requirements that apply under section 325(o) of EPCA and Executive Order 12866

. The SUPPLEMENTARY INFORMATION section of the NOPR and the “Regulatory Impact Analysis” section of the TSD for this proposed rule respond to those requirements.

Under section 205 of UMRA, the Depar tment is obligated to identify and consider a reasonable number of regulatory alternatives before promulgating a rule for which a written statement under section 202 is required

. 2 U.S.C. 1535(a)

. DOE is required to260 select from those alternatives the mos t cost

- effective and least burdensome alternative that achieves the objectives of the proposed rule unless DOE publishes an explanation for doing otherwise , or the selection of such an alternative is inconsistent with law

. As required by 42 U.S.C. 6295 (f) and (o), today’s proposed rule would establish energy conservation standards for residential furnace f ans that are designed to achieve the maximum improvement in energy efficiency that DOE has determined to be both technologically feasible and economicall y justified. A full discussion of the alternatives considered by DOE is presented in the “Regulatory Impact Analysis” section of the TSD for today’s proposed rule.

H. Section 654 of the Treasury and General Government Appropriations Act, 1999 (Pub. L. 105

- 277) requires Federal agencies to issue a Family Policymaking Assessment for any rule that may affect family well

- being. This rule would not have any impact on the autonomy or integ rity of the family as an institution. Accordingly, DOE has concluded that it is not necessary to prepare a Family Policymaking Assessment. Review Under the Treasury and General Government Appropriations Act, 1999

I.
Pursuant to Executive Order 12630, “Governmental Actions and Interference with Constitutionally Protected Property Rights , ” 53 FR 8859 (Mar ch 15 , 1988), DOE has determined that this proposed rule would not result in any takings that might require compensation under the Fifth Amendment to the U.S. Constitution.

Review Under Executive Order 12630261 J. Section 515 of the Treasury and General Government Appropriations Act, 2001 (44 U.S.C. 3516 note) provides for Federal agencies to review most disseminations of information to the public under infor mation quality guidelines established by each agency pursuant to general guidelines issued by OMB. OMB’s guidelines were published at 67 FR 8452 ( Feb. 22, 2002), and DOE’s guidelines were published at 67 FR 62446 ( Oct. 7, 2002). DOE has reviewed today’s NOPR under the OMB and DOE guidelines and has concluded that it is consistent with applicable policies in those guidelines.

Review Under the Treasury and General Government Appropriations Act, 2001

K. Executive Order 13211, “Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use , ” 66 FR 28355 (May 22, 2001) , requires Federal agencies to prepare and submit to OIRA at OMB, a Statement of Energy Effects for any proposed significant energy action. A “significant energy action” is defined as any action by an agen cy that promulgates or is expected to lead to promulgation of a final rule, and that : (1) is a significant regulatory action under Executive Order 12866, or any successor order; and (2) is likely to have a significant adverse effect on the supply, distribu tion, or use of energy, or (3) is designated by the Administrator of OIRA as a significant energy action. For any proposed significant energy action, the agency must give a detailed statement of any adverse effects on energy supply, distribution, or use

s hould the proposal be implemented, and of reasonable alternatives to the action and their expected benefits on energy supply, distribution, and use. Review Under Executive Order 13211262 DOE has tentatively concluded that today’s regulatory action, which sets forth proposed energy conservat ion standards for residential furnace f ans , is not a significant energy action because the proposed standards are not likely to have a significant adverse effect on the supply, distribution, or use of energy, nor has it been designated as such by the Admin istrator at OIRA. Accordingly, DOE has not prepared a Statement of Energy Effects on th is proposed rule.

L. On December 16, 2004, OMB, in consultation with the Office of Science and Technology Policy (OSTP), issued its Final Information Quality Bulletin for Peer Review (the Bulletin)

. 70 FR 2664 ( Jan. 14, 2005)

. The Bulletin establishes that certain scientific information shall be peer reviewed by qualified specialists before it is disseminate d by the Federal Government, including influential scientific information related to agency regulatory actions. The purpose of the bulletin is to enhance the quality and credibility of the Government’s scientific information. Under the Bulletin, the

ener gy conservation standards rulemaking analyses are “influential scientific information,” which the Bulletin defines as “ scientific information the agency reasonably can determine will have or does have a clear and substantial impact on important public poli cies or private sector decisions

. ” Review Under the Information Quality Bulletin for Peer Review

Id. at 2667.

In response to OMB’s Bulletin, DOE conducted formal in

- progress peer reviews of the energy conservation standards development process and analyses and has prepared a Peer Review Report pertaining to the energy conservation standards rulemaking263 analyses. G eneration of this report involved a rigorous, formal, and documented evaluation using objective criteria and qualified and independent reviewers to make a judgment as to the technical/scientific/business merit, the actual or anticipated results, and the pr oductivity and management effectiveness of programs and/or projects. The “Energy Conservation Standards Rulemaking Peer Review Report” dated February 2007 has been disseminated and is available at the following Web site: www1.eere.energy.gov/buildings/appliance_standards/peer_review.html

.

VII. Public Participation
A. The time, date , and location of the public meeting are listed in the DATES a nd ADDRESSES sections at the beginning of this notice

. If you plan to attend the public meeting, please notify Ms. Brenda Edwards at (202) 586

- 2945 or Attendance at the Public Meeting

Brenda.Edwards@ee.doe.gov

. As explained in the ADDRESSES section, foreign nationals visiting DOE Headqu arters are subject to advance security screening procedures. Any foreign national wishing to participate in the meeting should advise DOE of this fact as soon as possible by contacting Ms. Brenda Edwards to initiate the necessary procedures.

In addition, you can attend the public meeting via webinar. Webinar registration information, participant instructions, and information about the capabilities available to webinar participants will be published on DOE’s website at: [INSERT LINK].264 Participants are responsible for ensuring their systems are compatible with the webinar software.

B.

Any person who has an interest in the topics addressed in this no tice, or who is representative of a group or class of persons that has an interest in these issues, may request an opportunity to make an oral presentation at the public meeting

. Such persons may hand

- deliver requests to speak to the address shown in the ADDRESSES section at the beginning of this notice between 9:00 a.m. and 4:00 p.m., Monday through Friday, except Federal holidays. Requests may also be sent by mail or email to: Ms. Brenda Edwards, U.S. Department of Energy, Building Technologies Program, Mailstop EE

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

- 0121, or Procedure for Submitting Requests to Speak and Prepared General Statements For Distribution

Brenda.Edwards@ee.doe.gov . Persons who wish to speak should include with their request a computer diskette or CD

- ROM in WordPerfect , Microsoft Word, PDF, or text (ASCII) file format that briefly describes the nature of their interest in this rulemaking and the topics they wish to discuss. Such persons should also provide a daytime telephone number where they can be reached

.

DOE re quests persons scheduled to make an oral presentation to submit an advance copy of their statements at least one week before the public meeting. DOE may permit persons who cannot supply an advance copy of their statement to participate, if those persons h ave made advance alternative arrangements with the Building265 Technologies Program. As necessary, requests to give an oral presentation should ask for such alternative arrangements.

C. DOE will designate a DOE official to presid e at the public meeting and may also use a professional facilitator to aid discussion. The meeting will not be a judicial or evidentiary

- type public hearing, but DOE will conduct it in accordance with section 336 of EPCA ( 42 U.S.C. 6306 )

. A court reporte r will be present to record the proceedings and prepare a transcript. DOE reserves the right to schedule the order of presentations and to establish the procedures governing the conduct of the public meeting. There shall not be discussion of proprietary i nformation, costs or prices, market share, or other commercial matters regulated by U.S. anti

- trust laws. After the public meeting, interested parties may submit further comments on the proceedings , as well as on any aspect of the rulemaking , until the en d of the comment period. Conduct of the Public Meeting

The public meeting will be conducted in an informal, conference style. DOE will present summaries of comments received before the public meeting, allow time for prepared general statements by participants, and encourage all inte rested parties to share their views on issues affecting this rulemaking. Each participant will be allowed to make a general statement (within time limits determined by DOE), before the discussion of specific topics. DOE will allow , as time permits, other participants to comment briefly on any general statements.266 At the end of all prepared statements on a topic, DOE will permit participants to clarify their statements briefly and comment on statements made by others. Participants should be prepar ed to answer questions by DOE and by other participants concerning these issues. DOE representatives may also ask questions of participants concerning other matters relevant to this rulemaking. The official conducting the public meeting will accept addit ional comments or questions from those attending, as time permits. The presiding official will announce any further procedural rules or modification of the above procedures that may be needed for the proper conduct of the public meeting.

A transcript of the public meeting will be included in the docket, which can be viewed as described in the Docket section at the beginning of this notice and will be accessible on the DOE website

. In addition, any person may buy a copy of the transcript from the transcr ibing reporter.

D. DOE will accept comments, data, and information regarding this proposed rule before or after the public meeting, but no later than the date provided in the DATES section at the beginning of this proposed rule. Int erested parties may submit comments , data, and other information using any of the methods described in the ADDRESSES section at the beginning of this notice

. Submission of Comments

Submitting comments via www.regulations.gov

. The www.regulations.gov web page will require you to provide your name and contact information. Your contact267 information will be viewable to DOE Building Technologies staff only

. Your contact information will not be publicly viewable except for your first and last names, organization name (if any), and submitter representative name (if any). If your comment is not processed properly because of technical difficulties, DOE will use this information to contact you. If DOE cannot read your comment due to technical difficulties and cannot contact you for clarification, DOE may not be able to consider your comment.

However, your contact information will be publicly viewable if you include it in the comment itself or in any documents attached to your comment

. Any information that you do not want to be publicly viewable should not be included in your comment, nor in any document attached to your comment

. Otherwise, p ersons viewing comments will see only first and last na mes, organization names, correspondence containing comments, and any documents submitted with the comments.

Do not submit to www.regulations.gov information for which disclosure is restricted by statute, such as t rade secrets and commercial or financial information (hereinafter referred to as Confidential Business Information (CBI)). Comments submitted through www.regulations.gov cannot be claimed as CBI. Comments received through the website will waive any CBI claims for the information submitted. For information on submitting CBI, see the Confidential Business Information section below

.

DOE processes submissions made through www. regulations.gov before posting. Normally, comments will be posted within a few days of being submitted

. However, if268 large volumes of comments are being processed simultaneously, your comment may not be viewable for up to several weeks. Please keep the c omment tracking number that www.regulations.gov provides after you have successfully uploaded your comment.

Submitting comments via email, hand delivery /courier , or mail

. Comments and documents submitted via email, hand delivery /courier , or mail also will be posted to www.regulations.gov

. If you do not want your personal contact information to be publicly viewable, do not include it in your comment or any accompanying documents. Instead, provide your contact information i n a cover letter. Include your first and last names, email address, telephone number, and optional mailing address. The cover letter will not be publicly viewable as long as it does not include any c omments

.

Include contact information each time you submit comments, data, documents, and other information to DOE

. If you submit via mail or hand delivery /courier , please provide all items on a CD, if feasible , in which case i t is not necessary to submit printed copies. No tele facsimiles (faxes) will be accepted.

C omments, data, and other information submitted to DOE electronically should be provided in PDF (preferred), Microsoft Word or Excel, WordPerfect, or text (ASCII) file format. Provide docume nts that are not secured, that are written in English , and that

are free of any defects or viruse s . Documents should not contain special characters or any form of encryption and, if possible, they should carry the electronic signature of the author

.269 Ca mpaign form letters

. Please submit campaign form letters by the originating organization in batches of between 50 to 500 form letters per PDF or as one form letter with a list of supporters’ names compiled into one or more PDFs. This reduces comment processing and posting time.

Confidential Business Information

. Pursuant to 10 CFR 1004.11, any person submitting information that he or she believes to be confidential and exempt by law from public disclosure should submit via ema il, postal mail, or hand delivery /courier two well

marked copies: one copy of the document marked “ confidential ” including all the information believed to be confidential, and one copy of the document marked “ non confidential ” with the information believed to be confidential deleted. Submit these documents via email or on a CD, if feasible. DOE will make its own determination about the confidential status of the information and treat it according to its determination.

Factors of interest to DOE when eva luating requests to treat submitted information as confidential include: (1) A description of the items; (2) whether and why such items are customarily treated as confidential within the industry; (3) whether the information is generally known by or availa ble from other sources; (4) whether the information has previously been made available to others without obligation concerning its confidentiality; (5) an explanation of the competitive injury to the submitting person which would result from public disclos ure; (6) when such information might lose its270 confidential character due to the passage of time; and (7) why disclosure of the information would be contrary to the public interest.

It is DOE’s policy that all comments may be included in the public docket , without change and as received, i ncluding any personal information provided in the comments (except information deemed to be exempt from public disclosure).

E. Although DOE welcomes comments on any aspect of this proposa l, DOE is particularly interested in receiving comments and views of interested parties concerning the following issues : Issues on Which DOE Seeks Comment

1. Additional FER value data that are generated using the DOE residential furnace fans test procedure proposed in the April 2, 2013 SNOPR ( 78 FR 19606 ) , as well as the product class , measured airflow capacity in the maximum airflow control setting, and technology options of the model for which each FER value is calculated

.

2. DOE’s methodology for accounting for the relationship between FER and airflow capacity, and the resulting efficiency levels that are represented by equations for FER as a function of airflow capacity. (See Chapter 5 of the NOPR TSD)

3. The reasonableness of the values that DOE used to characte rize the rebound effect with higher

- efficiency residential furnace fans.271 4. DOE’s estimate of the base

- case efficiency distribution of residential furnace fans in 2018.

5. The long

- term market penetration of higher

- efficiency residential furnace fans.

6. DOE per formed physical teardowns on a selection of units currently on the market. From the bills of materials and cost model developed using this teardown data, DOE calculated an estimate of the manufacturer production cost for each covered product class in the engineering analysis. DOE also developed estimates of the costs for components that affect energy consumption, namely those it considered as design options. These estimates were obtained from a combination of sources, including publicly available prices fr om vendors and confidential estimates provided by manufacturers. Th ese price data are aggregated for use in the engineering analysis. DOE seeks comment and data regarding the manufacturer production costs for furnace fan equipment an d components and the te chnological feasibility of applying technologies identified in the engineering analysis to meet the proposed standards.

7. To estimate the impact on shipments of the price increase for the considered efficiency levels, DOE used the relative price elasticity approach that was applied in the 2011 energy conservation standards rulemaking for residential furnaces

. DOE welcomes stakeholder input and estimates on the effect of amended standards on future furnace fan equipment shipments. DOE also welcomes input and data on the demand elasticity estimates used in the analysis. Formatted: List Paragraph, Line spacing: single272 8. DOE requests comment on whether there are features or attributes of the
more energy - efficient furnace fans that manufacturers would produce to meet the standards i n this proposed rule that might affect how they would be used by consumers. DOE requests comment specifically on how any such effects should be weighed in the choice of standards for furnace fans f or the final rule.

9. For this rulemaking, DOE analyzed the effects of this proposal assuming that the furnace fans would be available to purchase for 30 years , and it undertook a sensitivity analysis using 9 years rather than 30 years of product shipments. The choice of a 30

- y ear period of shipments is consistent with the DOE analysis for other products and commercial equipment. The choice of a 9

- year period is a proxy for the timeline in EPCA for the review of certain energy conservation standards and potential revision of an d compliance with such revised standards. We are seeking input, information and data on whether there are ways to refine the analytic timeline further.

10. DOE define s lifetime as the age at which residential furnace fan equipment is retired from service. DOE modeled furnace fan lifetime based on the distribution of furnace lifetimes developed for the recent energy conservation standards rulemaking for residential furnaces

. DOE welcomes further input on the average equipment lifetimes for the LCC analysis and NIA.273 11. DOE solicits comment on the application of the new SCC values used to determine the social benefits of CO 2 emissions reductions over the rulemaking analysis period. The rulemaking analysis period covers from 2017 to 2046 plus an additional 5 0 y ears to account for the lifetime operation of the equipment purchased in that period . In particular, the agency solicits comment on it s derivation of SCC values after 2050 , where the agency applied the average annual growth rate of the SCC estimates in 2040 −2050 associated with each of the four sets of values.

12. The agency also seeks input on the cumulative regulatory burden that may be imposed on industry either from re cently implemented rulemakings for these product s or other rulemakings that affect the same industry.

VIII. Approval of the Office of the Secretary The Secretary of Energy has approved publication of today’s notice of proposed rule making

.

List of Subject s

10 CFR Part 429 Administrative practice and procedure, Commercial equipment, Confidential business information, Energy conservation, Household appliances, Imports, Reporting and recordkeeping requirements.

10 CFR Part 430 Comment [A50]: Change recommended by OIRA.274 Administrative practice and procedure, Confidential business information, Energy conservation, Household appliances, Imports, Intergovernmental relations, Small businesses.

Issued in Washington, DC, on

________________________________ David T. Daniels on Assistant Secretary Energy Efficiency and Renewable Energy275 For the reasons s tated in the preamble, DOE proposes to amend part s 429 and 430 of chapter II, subchapter D , of title 10 of the Code of Federal Regulations, as set forth below:

PART 429

— CERTIFICATION, COMPLIANCE, AND ENFORCEMENT FOR CONSUMER PRODUCTS AND COMMERCIAL AND INDUSTRIAL EQUIPMENT

a. The authority citation for part 429 continues to read as follows: Authority: 42 U.S.C. 6291

- 6317.
2. Section 429.12 is amended by :

a. A mending paragraph (d) table, first column, second row ( i.e.

b. Removing in paragraph (b)(13) “429.54” and adding in its place 429.58”; and , for products with a submission deadline of May 1 st ) by removing the word “and” and by adding “and Residential furnace fans” at the end of the listed products.

c. Adding paragraph (i)(5). The addition reads as follows:
§ 429.12 General requirements applicable to certification reports.

* * * * * (i) Compliance dates

. * * * (5) Residential furnace fans, [ date five years after publication of the final rule ]

.276 3. Section 429.58 is a dded to read as follows :
§ 429.58 Furnace fans. (a) Sampling plan for selection of units for testing

. [Reserved]
(b) Certification reports. (1) The requirements of §429.12 are applicable to residential furnace fans; and (2) Pursuant to §429.12(b)(13), a certification report shall include the following public product

- specific information: The fan energy rating (FER) in watts per thousand cubic feet per minute (W/1000 cfm); the calculated m aximum airflow at the reference system external static pressure ( ESP ) in cubic feet per minute (cfm); the control system configuration for achieving the heating and constant

- circulation airflow

- control settings required for determining FER as specified in the furnace fan test procedure (10 CFR part 430, subpart B, appendix AA) ; the measured steady

- state gas, oil, or electric heat input rate (Q IN ) in the heating setting required for determining FER; and for modular blowers, the manufacturer and model number of the the electric heat resistance kit with which it is equipped for certification testing

.

PART 430
- ENERGY CONSERVATION PROGRAM FOR CONSUMER PRODUCTS

4 . The authority citation for p art 430 continues to read as follows:

Authority: 42 U.S.C. 6291

- 6309; 28 U.S.C. 2461 note.277 5

. Section 430.32 is amended by adding paragraph ( y ) to read as follows: §430.32 Energy and water conservation standards and their effective dates.

* * * * * ( y ) Residential f urnace f ans . Residential furnace fa ns manufactured on or after ( date five years after date of final rule publication in the Federal Register ) , shall have a fan energy rating (FER) value that meets or is less than the following values:

Product Class FER * (Watts/cfm) Non

- Weatherized, Non

- Condensing Gas Furnace Fan (NWG

- NC) FER = 0.029 x Q Max + 180
Non

- Weatherized, Condensing Gas Furnace Fan (NWG

- C) FER = 0.029 x Q Max + 196
Weatherized Non

- Condensing Gas Furnace Fan (WG

- NC) FER = 0.029 x Q Max + 135

Non

- Weatherized, Non

- Condensing Oil Furnace Fan (N W O

- NC) FER = 0.051 x Q Max + 301

Non

- Weatherized Electric Furnace / Modular Blower Fan (NWEF/NWMB) FER = 0.029 x Q Max + 165
Manufactured Home Non

- Weatherized, Non

Condensing Gas Furnace Fan (MH

- NWG

- NC) FER = 0. 051 x Q Max + 242
Manufactured Home Non

- Weatherized, Condensing Gas Furnace Fan (MH

- NWG

- C) FER = 0.0 51 x Q Max + 262
Manufactured Home Electric Furnace / Modular Blower Fan (MH

- EF/MB) FER = 0.0 29 x Q Max + 1 0 5
Manufactured Home Non

- Weatherized Oil Furnace Fan (MH

- NWO) Reserved Manufactured Home Weatherized Gas Furnace Fan (MH

- WG) Reserved

* Q Max is the airflow, in cfm, at the maximum airflow

- control setting

.

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