1 

### Rulemaking Framework

for Commercial and Industrial Air Compressors

U.S. Department of Energy Office of Energy Efficiency and Renewable Energy Building Technologies Office

January 24, 2014i TABLE OF CONTENTS

1. INTRODUCTION .................................................................................................................. .. 1

1.1 The Appliances and Commercial Equipment Standards Program ................................... 2

1.2 Equipment for which the Department of Energy is Considering Standards .................... 2

1.2.1 Type of Gas Compressed ..................................................................................... 3

1.2.2 Compression Principle ......................................................................................... 4

1.2.3 Input Energy Forms Used .................................................................................... 5

1.2.4 Equipment Size .................................................................................................... 6

1.2.5 Equipment System Boundary .............................................................................. 6

1.3 Equipment Definitions ..................................................................................................... 8

1.3.1 Positive Displacemen t Compressors .................................................................... 8

1.3.2 Dynamic Compressors ......................................................................................... 9

1.4 Efficiency Metrics and Implementation Methods.......................................................... 10

1.4.1 “Bare” Compressor Efficiency .......................................................................... 10

1.4.2 Compressor “Package” Efficiency ..................................................................... 11

1.4.3 Compressed Air System Efficiency ................................................................... 11

1.5 Test Procedures .............................................................................................................. 11

1.6 Overview of the Rulemaking Process ............................................................................ 13

1.7 Preliminary Analysis ...................................................................................................... 14

1.8 Notice of Proposed Rulemaking .................................................................................... 15

1.9 Final Rule .................................................................................................................... ... 15

1.10 Labeling ...................................................................................................................... ... 16

2. ANALYSES FOR RULEMAKING ....................................................................................... 16

3. MARKET AND TECHNOLOGY ASSESSMENT ............................................................... 19

3.1 Market Assessment ........................................................................................................ 19

3.2 Equipment Classes ......................................................................................................... 19

3.3 Technology Assessment ................................................................................................. 20

3.4 Baseline Units ................................................................................................................ 21

4. SCREENING ANALYSIS ..................................................................................................... 21

5. ENGINEERING ANALYSIS ................................................................................................. 22

5.1 Engineering Analysis Overview .................................................................................... 22

5.2 Baseline Models ............................................................................................................. 2 4

5.3 Approach for Determining the Cost-Efficiency Relationship ....................................... 24

5.4 Efficiency Levels ........................................................................................................... 2 7

5.5 Proprietary Designs ........................................................................................................ 28

5.6 Outside Regulatory Changes Affec ting the Engineering Analysis ................................ 28

6. MARKUPS ANALYSIS ........................................................................................................ 29

7. ENERGY USE ANALYSIS ................................................................................................... 30

8. LIFE-CYCLE COST AND PAYB ACK PERIOD ANALYSIS ............................................ 32

8.1 Analytical Approach ...................................................................................................... 33

8.2 Installation Costs ............................................................................................................ 34

8.3 Energy Prices ................................................................................................................. 34

8.4 Maintenance and Repair Costs....................................................................................... 34

8.5 Equipment Lifetime ....................................................................................................... 35ii 8.6 Discount Rates ............................................................................................................... 35

9. SHIPMENTS ANALYSIS...................................................................................................... 36

9.2 Standards Impacts on Shipments ................................................................................... 36

10. NATIONAL IMPACT ANALYSIS ....................................................................................... 36

10.1 Energy Efficiency Trends .............................................................................................. 37

10.2 National Energy Savings................................................................................................ 37

10.3 Net Present Value .......................................................................................................... 38

11. CUSTOMER SUBGROUP ANALYSIS ................................................................................ 38

12. MANUFACTURER IMPA CT ANALYSIS........................................................................... 39

12.1 Sources of Information for the Ma nufacturer Impact Analysis ..................................... 39

12.2 Industry Cash-Flow Analysis ......................................................................................... 40

12.3 Manufacturer Subgroup Analysis .................................................................................. 40

12.4 Competitive Impacts Assessment .................................................................................. 41

12.5 Cumulative Regulatory Burden ..................................................................................... 41

13. UTILITY IMPACT ANALYSIS ............................................................................................ 42

14. EMPLOYMENT IMPACT ANALYSIS ................................................................................ 43

15. EMISSIONS ANALYSIS ....................................................................................................... 44

16. MONETIZING REDUCED CO 2 AND OTHER EMISSIONS .............................................. 46

17. REGULATORY IMPACT ANALYSIS ................................................................................. 47

LIST OF TABLES

Table 1.1 Overview of Currently Availa ble Compressor Test Procedures ...................... 12

Table 6.1 Air Compressor Distribution Channe l Magnitudes and Power Ranges ......... 29

LIST OF FIGURES

Figure 2.1 Flow Diagram of Analyses for th e Commercial and Industrial Air Compressors Energy Conservation St andards Rulemaking Process ............................................ 18iii LIST OF ACRONYMS

AEC annual energy consumption AEO Annual Energy Outlook acfm actual cubic feet per minute

BLS Bureau of Labor Statistics CAGI Compressed Air and Gas Institute

CAIR Clean Air Interstate Rule CAS compressed air system CFR Code of Federal Regulations

CO 2 carbon dioxide COGS cost of goods sold

D.C. District of Columbia DOE U.S. Department of Energy DOJ U.S. Department of Justice EERE Office of Energy Efficiency and Renewable Energy EGU electric generating unit EIA Energy Information Administration EPA U.S. Environmental Protection Agency EPCA Energy Policy and Conservation Act EU European Union

FOIA Freedom of Information Act FFC full-fuel-cycle GHG greenhouse gas GREET Greenhouse Gases, Regulated Emissions, and Energy Use in Transportation GRIM Government Regulatory Impact Model HAP hazardous air pollutants Hg mercury HCFC hydrochlorofluorocarbon HP horsepower ImSET Impact of Sector Energy Technologies ISO International Organi zation for Standardization LBNL Lawrence Berkeley National Laboratory LCC life-cycle cost MATS Mercury and Air Toxics Standards MIA manufacturer impact analysis MPC manufacturer production cost MSP manufacturer selling price NCI Navigant Consulting Incorporated NEMS National Energy Modeling System NES national energy savings NOPR notice of proposed rulemaking

NO

x oxides of nitrogen NPV net present value OMB U.S. Office of Management and Budgetiv PBP payback period PM particulate matter PNNL Pacific Northwest National Laboratory POS point-of-sale promotion psig pounds per square inch gauge R&D research and development

RoHS Reduction of Hazardous Substances

SCC social cost of carbon SEC Securities and Exchange Commission SG&A selling, general, and administrative costs

SO 2 sulfur dioxide TSD technical support document

TSL trial standard level

U.S. United States

U.S.C. United States Code VSD variable speed drive1 

### RULEMAKING FRAMEWORK FOR COMMERCIAL AIR

COMPRESSORS

1. INTRODUCTION

The purpose of this document is to describe th e procedural and analytical approaches the U.S. Department of Energy (DOE) anticipates us ing to evaluate energy conservation standards

for commercial and indust rial air compressors.

The DOE Appliances and Commercial Equipm ent Standards Program, in the Office of Energy Efficiency and Renewabl e Energy’s (EERE’s) Building T echnologies Office, develops and promulgates test procedures and energy conservation standard s for consumer appliances and commercial equipment. The process for developi ng standards involves an alyses, public notice, and consultation with interested parties. Such partie s, collectively referred to as interested parties or stakeholders, include manu facturers, consumers, energy conservation and environmental advocates, State and Federal agenci es, and any other groups or indi viduals having an interest in the energy efficiency standards and test procedures.

This document is intended to inform stakehol ders of the standards rulemaking process for commercial and industrial air compressors and to encourage and facilitate stakeholder input during the rulemaking. This document is the starti ng point for developing standards and is not a definitive statement with respect to any i ssue to be determined in the rulemaking.

Section 1 provides an overview of the rulemaking process. Sections 2 through 17 discuss analyses DOE intends to conduct to follow the statutory guidance and requirements for this standards rulemaking. In determining whether ne w energy conservation standards are feasible and justified, DOE will conduct an engineering an alysis, a life-cycle co st (LCC) and payback period (PBP) analysis, a national impact analysis , and a manufacturer im pact analysis (MIA), among others.

Information regarding this rulemaking effo rt, along with any formal proposal and accompanying analyses, will be maintained on the DOE website at: http://www1.eere.energy.gov/bu ildings/appliance_standards/ residential/commercial air compressors.html

This document contains comment boxes that highlight issues on which DOE seeks comment and requests feedback from intere sted parties. The comment boxes also are used to ask specific questions on the appr oaches the DOE is proposing to follow to conduct the analyses required for the standa rds rulemaking. Such requests for stakeholder feedback are numbered according to the section in which they appear.2 1.1 The Appliances and Commercial Equipment Standards Program

Title III of the Energy Policy and Conser vation Act (EPCA) of 1975, Pub. L. 94-163, as amended (42 U.S.C. 6291 et seq. ), sets forth various provisi ons designed to improve energy efficiency. Part C of Title III of EPCA ( 42 U.S.C. 6311-6317), which was re-designated for

editorial reasons as Part A- 1 upon codification in the U.S. Code, establishes the “Energy Conservation Program for Certain Industrial Eq uipment,” which covers certain commercial and industrial equipment (her eafter referred to as “covered equipment”).

EPCA specifies a list of equipment that constitutes covered commercial and industrial equipment. (42 U.S.C. 6311(1)(A) – (L)). The list identif ies 11 types of equipment and sets forth a twelfth provision for any othe r type of industrial equipment which the Secretary of Energy (Secretary) classifies as covered equipment. EPCA also specifies the types of industrial equipment that can be classified as covered in addition to those already enumerated in 42 U.S.C. 6311(1). This equipment includes compressors. (42 U.S.C. 6311(2)(B)(i)). Industrial equipment must also, without regard to wh ether such equipment is in fact distributed in commerce in the

United States for industrial or comm ercial use, be of a type that:

1. in operation consumes, or is designed to consume, energy;

2. to any significant extent, is distributed in commerce for industrial or commercial use, and;

3. is not covered equipment as defined in 42 U.S.C. 6291(a)(2) of EPCA, other than a component of covered equipment with respect to which there is in effect a determination under 42 U.S.C. 6312(c). (42 U.S.C. 6311(2)(A)).

In general, to classify equipment as covered commercial or industrial equipment, the Secretary of Energy must determine that classi fying the equipment as covered equipment is necessary for the purposes of Part A-1 of EPCA. The purpose of Part A-1 of EPCA is to improve the efficiency of electric motors, pumps, and certa in other industrial equipment to conserve the energy resources of the Nation. ( 42 U.S.C. 6312(a),(b)). In cons idering whether to establish standards for commercial air compressors, DOE i ssued a Proposed Determination of Coverage on December 31, 2012. (77 FR 76972). DOE received comments from interested parties and stakeholders, which are available in the relevant docket (EERE-2012-BT-STD-0040) and have been considered in developing this framewor k document. In addition, DOE attended a meeting sponsored by the Alliance to Save Energy rega rding potential energy cons ervation standards for commercial and industrial air compressors. Meeting participants included compressor manufacturers and energy conser vation advocates such as the Appliance Standards Awareness Project (ASAP) and the National Re sources Defense Council (NRDC).

1.2 Equipment for which the Department of Energy is Considering Standards

The general term “commercial and industrial compressors” covers a wide range of equipment and applications. There is currently no statutory definition of compressors. As a result, in the Proposed Determination of Coverage discussed above, DOE considered the following definition for “commercial and industrial compressors” to clarify th e coverage of any potential test procedure or energy conservation standard:3 Compressor: A compressor is an electric-powered device that takes in air or gas at atmospheric pressure and delivers the air or gas at a higher pressure. Compressors typically have a specific ratio, the ratio of delivery pressure to supply pressure, greater than 1.20.

After further evaluating this definition and considering the comments it received, DOE is now considering the following definition, taken from the International Organization for Standardization (ISO) Technical Report (TR) 12942:

Compressor: A machine or apparatus converting different types of energy into the potential energy of gas pressure for displacement a nd compression of gaseous media to any higher pressure values above atmospheric pressure with pressure-increase ratios exceeding 1.1. 1

Based on the information DOE has reviewed to this point, DOE is considering the possibility of setting energy conservation standards for a subset of commercially available compressors that accounts for a significant share of energy use, as described in section 1.2.1. ISO/TR 12942 provides the means to further categorize and classify compressors based on a variety of equipment characteristics. DOE is considering further clarifying the scope of coverage based on the following equipment characteristics, as described in ISO/TR 12942:

 Type of gas compressed,

 Compression principles,

 Input energy forms used (electricity, fuel heat, etc.) and driver types,

 Equipment capacity, and

 Equipment system boundary.

Item 1-1 DOE requests comment on its proposed de finition for “compressor.” DOE is also specifically requesting comment regarding the pre ssure ratio of 1.1 specified in the definition for “comp ressor,” as specified by ISO/TR 12942.

Item 1-2 DOE requests comments on whether it should cover positive-displacement, dynamic, and combined compressors, and whether any other types of compressors should be considered fo r inclusion in the scope of this rulemaking effort.

1.2.1 Type of Gas Compressed

Compressors can be used to compress many di fferent types of gases, depending upon the application in which the unit is being use d. DOE does not have a substantial amount of information regarding the prevalence of air vs . non-air compressing equipment. However, the limited data DOE has indicate that non-air compre ssing equipment represents a relatively small fraction of the overall compressors market. As su ch, DOE is currently co nsidering covering only compressors intended to compress air. DOE request s additional data regard ing the prevalence of compressors other than air compressors.4 DOE is also concerned about the possibility of creating a situati on in which standards could be circumvented by manufact urers attempting to market “air compressors” as “non-air (or gas) compressors” to avoid coverage. To address th is possibility, DOE is in terested in additional feedback regarding what technical differe nces there may be be tween air and non-air compressors, as well as if there is any differe nce in relative energy use between the two.

Item 1-3 DOE requests comment on the scope of coverage for compressors, whether it should be limited to only “air comp ressors,” and the potential for

circumvention.

Item 1-4 DOE requests shipping data for compre ssor equipment based on the type of gas compressed. DOE also seeks comment regarding the technical and relative energy use differences (if any) be tween air and non-air compressors.

1.2.2 Compression Principle

DOE is considering further clarifying the scope of covered equipment based on the primary physical compression principle used. ISO/TR 12942 describes two primary physical compression principles: "positive displacement" and "dynamic." The ISO/TR 12942 definitions for each are provided below:

 Positive-displacement compressor: a compressor machine in which the admission and compression of successive volumes of the gase ous medium are perfor med periodically by forced expansion and diminuti on of at least one closed sp ace in at least one working chamber by means of displacement of at least one moving member or by the displacement and forced discharge of the ga seous medium into the high-pressure area. a

 Dynamic compressor: a compressor machine in which the gas pressure increase is

achieved in continuous flow e ssentially by increasing its kine tic energy in the flow path

of the machine due to acceleration to the hi gh velocities by mechanical action of blades placed on a rapid rotating wheel and further tr ansformation of the kinetic energy into the potential energy of the elevated pressure by successive decelerati on of the said flow.

ISO/TR 12942 also describes a third-type of compressor – a “combined compressor machine”:

 Combined compressor machine: a compresso r machine in which the compression of gaseous medium or media is performed simu ltaneously or successively by dynamic and positive-displacement compressors dr iven by a common prime mover.”

At this time, DOE is considering covering positive-displacement, dynamic, and combined

compressors.

a Note: The closed spaces with variab le or displaceable volumes represent compression chambers. In one working chamber, there can be one or several variable-volume compression chambers5 Item 1-5 DOE requests comments on whether it should cover positive-displacement, dynamic, and combined compressors, and whether any other types of compressors should be considered fo r inclusion in the scope of this rulemaking effort.

1.2.3 Input Energy Forms Used

Compressors can be powered by using different types of energy, which can serve as the basis for dividing this equipment into two categor ies: electrically driven and fossil fuel-driven compressors. Depending upon the size of the compre ssor, electrically driven equipment can be powered by either single-phase or three-phase power. Fossil fuel powered air compressors can be can be powered by using several different kinds of fuels including diesel fuel, gasoline, and natural gas.

Currently, DOE is considering covering only el ectrically driven equipment that operate on three-phase alternating line current. Preliminary estimates from the EU Lot 31 ongoing work suggest that "hobby" compressors (~1.5 horsepower (HP) and lo wer, single-phase) represent 78.3 percent of all comp ressor sales (in units) 2 ) b but account for only 0.7 percent of air

compressor energy use. 3 This limited scope will exclude main ly these single (and two-phase, if applicable) “hobby compressors,” which have an insignificant impact on the estimated overall energy consumption of compressors . Most industrial equipment, re sponsible for over 99 percent of estimated compressor energy c onsumption, use three-phase power. 4

Diesel fuel- or gasoline-driven air compresso rs are generally portabl e and designed to be

used in environments where access to electricit y is limited or non-existent. These fuels are used to power an internal combustion engine that direc tly drives the compressor, instead of an electric motor. Gasoline is typically used to power sma ller capacity units (wheel-barrow style, vehicle mounted), while diesel is used for la rger units (trailer, skid-mounted).

Natural gas-driven air compressors are generally stationary and used in operations where safety and reliability are of primary importan ce – such as the chemical and petrochemical industries. This equipment runs the entire spec trum of size from 25 to greater than 20,000 HP. Publicly available sources of e quipment specifications have been difficult to find, but anecdotal information suggests that this equipment tends to be larger and often engineered-to-order, resulting in lower sales compared to electrically driven equipment.

DOE is considering covering all types of comp ressors regardless of the input energy form used. Currently, DOE does not have a substa ntial amount of information regarding the prevalence of fossil fuel-driven equipment. Howeve r, the limited data DOE has indicate that this equipment represents a relatively small market fraction of the overall compressors market. As such, DOE requests additional data regarding th e prevalence of fossil fuel-driven equipment.

b See Lot 31 - Ecodesign Preparatory Study on Compressors Task 2, pg 16, February 2013, http://www.ecocompressors.eu/ . Lot 31 is a draft of the EU’s preparatory st udy on electric motor systems/compressors in the context of the Ecodesign Directive.6 Item 1-6 DOE requests comment on its proposal to cover all types of compressors regardless of the input energy form used. In addition, DOE requests comment on its proposal, for electrically driven compressors, to cover only those that operate on three-phase alternating current.

Item 1-7 DOE requests shipment data for compressor equipment based on the input energy form used.

1.2.4 Equipment Size

DOE is also considering clar ifying the scope of coverage based on equipment size as measured in rated HP. DOE is considering aligning its efforts with the current energy efficiency standards for electric motors, as codified in subpart B of Title 10 of the Code of Federal Regulations, Part 431 (10 CFR Part 431) and co vering equipment rated from 1 through 500 HP.

Item 1-8 DOE seeks comment on its proposal to cover compressors rated from 1 through 500 HP.

1.2.5 Equipment System Boundary

There may be greater potentia l for energy savings if the en ergy conservation standards addressed compressors as a system of components. Compressor sy stems are subject to a variety of inefficiencies, and those inhe rent in the compressor are often among the smallest. As a result, addressing other system inefficiencies in any DOE regulations could si gnificantly increase energy savings.

DOE gave serious consideration to the fo llowing options in regulating compressors, depending in part on how this equipment is us ed and sold. These options reflect DOE’s understanding that there are thr ee different ways in which this equipment is manufactured:

1. Compressor: This option refers to the “bare” compressor or singular machine responsible for the change in air pressure and is someti mes referred to as an “air end,” which is the compression chamber where air is compressed. ISO 12942 refers to this level of equipment as th e "mechanical compressor."1 This term would be exclusive of any other devi ces, such as an electric motor.

2. Compressor inclusive of ancillary equipm ent: This option includes a driver, such as an electric motor, and may include othe r equipment, such as gears, drains, airtreatment (filtering) equipment, onboard controls, et c. This configuration is considered the single largest piece of equipment brought to market by an

individual manufacturer.7 3. Compressor inclusive of all componentry or compressed air system (CAS): This term would treat the compressor as being inclusive of all componentry that would be attached and would include compone nts starting from the air intake and including the final ‘point-of-use.” U nder this approach, the compressor could include the many configuration packages that could be attached such as the distribution (piping) network, air-treatm ent systems, sequencers, storage tanks, and any end-use equipment (e.g., pneumatic tools).

DOE received public comments in response to its Proposed Determination of Coverage noted above (77 FR 76972). Among other things, t hose comments stated that greater savings could be attained by covering th e entire CAS (Kaeser, No. 2 at p. 2, Ingersoll Rand, No. 2 at p. 2, and CAGI, No. 3 at p. 3). This approach woul d include the air compressor, the network of compressed air piping, and any equipment c onnected to the compressed air network.

While the assertions correctly assess the pot ential reduction in ener gy use and (2) have been largely substantiated, the savings identifi ed by these commenters are achieved using several

different measures – all of which exist outside the compressor package. Examples of such energy-reduction improvements to the CAS incl ude: leak detection a nd reduction, removal of inappropriate compressed air end-uses, prope r pipe sizing, proper centralized control configuration, and so forth. Coverage of the CAS has the following signi ficant drawbacks that weigh against its adoption as the basis for an e quipment classification for the following reasons:

1. Each CAS is unique to a specific installation;

2. Each CAS includes equipment from se veral different manufacturers; and

3. A single CAS can include several different compressors, of different types, that may all have different operating pressures.

Implementing a broader approach with respec t to compressor efficiency would require DOE to (1) establish a methodology for measuring lo sses in an arbitrary ai r-distribution network; and (2) assess what certification, compliance, or enforcement prac tices would be required for various systems, standard and non-sta ndard, and potential waiver criteria.

In view of (1) the paucity of potential en ergy savings from bare compressors; (2) a myriad of unique installation configurations for CAS leading to testing and compliance certification concerns; and (3) potentially m eaningful efficiency improvements for the compressor package, DOE is adopting an appro ach that would cover the compressor “package” rather than focusing solely on the compressor co mponent – or the entire compressor “system”.

Item 1-9 DOE requests comment on its proposal to cover the compressor “package” and rather than the “bare” compressor or the entire CAS.8 1.3 Equipment Definitions

DOE is considering how to define commerc ial and industrial ai r compressors, and definitions for specific types of compressors. In addition to the definition for the term “compressor” previously addressed in section 1.1, DOE bases the following definitions on those in the EU Draft Lot 31 Task 1 Report, whic h are, in turn, based on ISO/TR12942. DOE is considering definitions for additional equipment that would extend beyond that which is addressed by the EU regulation. DOE may includ e additional necessary parameters determined appropriate to these air compressor definitions . The definitions under consideration are as

follows.

Compressor is a machine or apparatus convertin g different types of energy into the potential energy of gas pressure for displacem ent and compression of gaseous media to any higher pressure values above atmospheric pressu re with pressure-increase ratios exceeding 1.1. 1

Pressure-increase Ratio is the ratio of the absolute di scharge pressure to the absolute inlet pressure.

Positive displacement compressor is a compressor machine in which the admission and compression of successive volumes of the gaseous medium are performed periodically by forced expansion and diminution of a closed space(s) in a working chamber(s) by means of displacement of a moving member(s) or by disp lacement and forced discharge of the gaseous medium into the high-pressure area.

Dynamic compressor is a compressor machine in which the gas pressure increase is

achieved in continuous flow essent ially by increasing its kinetic energy in the flow path of the machine due to acceleration to the high veloci ties by mechanical action of blades placed on a rapid rotating wheel and further tr ansformation of the kinetic ener gy into the potential energy of the elevated pressure by successive deceleration of the said flow.

1.3.1 Positive Displacement Compressors

DOE is also considering including the followi ng definitions for several subcategories of positive displacement compressors. If included, DOE w ould use these definitions to help provide a basis for dividing products into different equipment classes, as described in Section 3.2. DOE may also consider other definitions as appropriate.

Rotary compressor is a positive displacement compressor in which gas admission and diminution of its successive volumes or its forced discharge are performed cyclically by rotation of one or several rotors in a compressor casing.

Scroll compressor is a compressor in which closed-space compression chambers are formed between two identical spiral bands inserted eccentrically in each other and their flat end cover plates, the volumes of said spaces being cyclically decreased and increased from periphery to the center by orbital non-rotating plane-parallel motion of one spiral band inside the fixed one along the circular path.9 Screw compressor is an externally meshing double-rotor compressor in which the rotors have helical lobes and grooves, volumes of said grooves being cyclically decreased and increased byengagement and disengagement of each groove-lobe pair, and their simultaneous shifting from lowpressure rotor end to the high-pressure end due to their synchronized rotation.

Reciprocating compressor is a displacement compressor in which gas admission and diminution of its successive volumes are performed cyclically by straight-line alternating movement of a moving member(s) in a compression chamber(s).

Piston compressor is a reciprocating compressor in which the moving member constitutes a piston reciprocating in a cylinder.

Diaphragm (membrane) compressor is a reciprocating compressor in which the moving member constitutes a peripherally clamped and sealed flexible membrane or diaphragm in essentially concavo-concave compression chamber.

1.3.2 Dynamic Compressors

DOE is also considering, but is not lim ited to, including the following definitions for several subcategories of dynamic compressors. If included, DOE would use these definitions to help provide a further basis for dividing products into different equipment classes, as described

in Section 3.2.

Radial compressor is a dynamic compressor in which th e acceleration of the gas stream in the meridional plane is performe d in radial direction with respect to the axis of rotation of the

bladed wheel.

Axial compressor is a dynamic compressor in which th e acceleration of the gas stream in the meridional plane is performed in the direction parallel to the axis of rotation of the bladed

wheel.

Item 1-10 DOE seeks comment on the proposed definitions for compressors.

Item 1-11 DOE seeks comment on the proposed definition for positive displacement compressors and the definitions for all associated subcategories. DOE also seeks comment if there are any additional subcategories of positive displacement compressors that it should consider when weighing whether to set energy conservation standards for compressors.10 Item 1-12 DOE seeks comment on the proposed definition for dynamic compressors and

the definitions for all associated subc ategories. DOE also seeks comment if there are any additional subcategories of dynamic compressors that should be considered as part of its efforts to ev aluate whether to set energy conservation standards for compressors.

1.4 Efficiency Metrics and Implementation Methods

To establish a metric c to determine efficiency for compressors, DOE reviewed the metrics

that can be calculated for these devices base d on basic thermodynamic principles, as well as those used in other regulatory or voluntary programs. Depending on the final equipment system boundary, as discussed in Sec tion 1.2.5, chosen for coverage (i.e., “bare” compressor, compressor “package,” or CAS), DOE is cons idering several different metrics.

1.4.1 “Bare” Compressor Efficiency

If DOE chooses to cover “bare” compressors , DOE is considering using one of the following efficiency metrics. The efficiency of a “bare” compressor can typically be measured by comparing the performance of an actual comp ressor unit to a theoreti cally ideal isentropic (adiabatic and reversible) compression process or a theoretically ideal isothermal compression

process.

1.4.1.1 Isentropic Efficiency
The compressor efficiency can be expressed as isentropic efficiency, or the ratio of the required theoretical isentropic power to actual shaf t power used. The isentropic efficiency is the amount of work needed by the ideal isentropic compression divided by th e power input of the real compressor for the same compression task. Th e isentropic efficiency assumes that no heat exchange to the surroundings takes place, but in reality, the gas is often cooled down to certain operating temperatures. This heat can be recovered, but this aspe ct is not considered in the isentropic efficiency. While cooling after comp ression does not affect the efficiency of the compression process itself, compression using oi l-injection or multiple staging in conjunction with intercooling does aff ect energy efficiency.

1.4.1.2 Isothermal Efficiency

The compressor efficiency can also be expresse d as isothermal efficiency, or the ratio of the required theoretical isothermal power to actual shaft power use d. The isothermal efficiency is

the amount of work needed for a theoretical is othermal compression divi ded by the power input of the real compressor for the same compression task.

c A metric is a standard of measurement, or the parameter DOE will use to determine if a compressor meets an energy conservation standard.11 Both efficiency metrics provide reasonable ex pressions of a compressor unit’s efficiency; however, many consider the use of isentropic effi ciency to be more suitable for the following

reasons:

 It provides a simplified comparison between di fferent operating pressu res/pressure ratios;

 Isentropic efficiency is widely accepted in ot her (i.e., non-industrial air) technical fields like energy technology; and

 Compressors without internal or interstage cooling are phys ically not able to compress isothermally.

1.4.2 Compressor “Package” Efficiency

If DOE chooses to cover compressor “packages ,” DOE is considering using the following

metric:

1.4.2.3 Specific Power Requirement

The specific power requirement or kilowatt per cubic foot per minute (kW/cfm) is commonly used in the field of i ndustrial compressed air packages ( e.g ., ISO 1217:2009 Displacement compressors - Acceptance tests 5 ). The specific power requirement is what is currently being used by the Compressed Air and Ga s Institute (CAGI) as part of its voluntary equipment testing and certification program. d

1.4.3 Compressed Air System Efficiency

As described in Section 1.2.5, th ere are several obstacles inhe rent in developing a metric for CAS’s. Furthermore, DOE is currently unawa re of any industry metric for measuring the efficiency of CAS’s. As such, if DOE choos es to cover CAS’s, DOE would develop a new

metric that could measure and describe th e efficiency of any arbitrary air system.

Item 1-13 DOE seeks input regarding whether the efficiency metrics listed effectively characterize the efficiency for each equipment system boundary. DOE also requests input on whether any other effici ency metrics should be considered as part of its efforts in evaluating whet her to set standards for this equipment.

1.5 Test Procedures

Manufacturers would be require d to use a DOE-prescribed test procedure to establish compliance with any standards adopted and make representations of energy efficiency for commercial and industrial air compressors. DOE woul d also use the prescribed test procedure to verify the performance of the covered equipm ent once standards have been set. Thus, in

d See http://cagi.org/performance-verification/overview.aspx

.12 conjunction with considering sett ing standards for commercial and industrial air compressors, DOE is also considering a test procedure rule making that would define the requisite test procedure for all covered commercial and indus trial compressors. DOE intends for the test procedure to include an efficien cy descriptor and the methods ne cessary to adequately measure the performance of the compressor for the pur poses of determining compliance with the applicable energy conservation standards.

When establishing or amending test procedur es for particular equipment, DOE reviews industry test procedures that m easure the energy use or energy e fficiency of the equipment. DOE then considers whether to: (1) adop t a test procedure in its entire ty, (2) adopt portions of a test procedure (or procedures) with m odifications or additions, or (3) develop a new test procedure if the existing test procedures do not provide the means necessary to calc ulate the applicable energy use or efficiency metric that may be prescribed by st atute. In addition, DOE’s test procedures consider ambient test conditions, repe atability and tolerances on test conditions and results, along with test equipment ca libration and accuracy, among other things.

Table 1.1 shows a number of test procedures that relate to the compressors for which DOE is considering esta blishing standards.

Table 1.1 Overview of Currently Ava ilable Compressor Test Procedures Test Procedure Origin Notes ISO 1217:2009 Displacement compressors – Acceptance Tests International Used by CAGI for voluntary compressor certification program

ISO 5389:2005 Turbocompressors –

Performance test code International Used by CAGI for voluntary compressor certification program

DOE will review these test procedures, along w ith additional test procedures that may not necessarily be listed in Table 1.1 , in the test procedure rulemaking. In discussions with stakeholders,

DOE determined that ISO 1217:2009 – Displacement compressors – Acceptance Tests 5 and ISO

5389:2005 – Turbocompressors – Performance test code 6 are the most widely used in the industry. DOE, in its test procedure development, aims to align its test procedure with existing and widely used industry test procedures to the extent po ssible, to limit unnecessary burden on manufacturers.

Item 1-14 DOE requests comment on the use of the ISO 1217 and ISO 5389 test procedures, as well as any other te st procedures, as a basis for the development of a DOE test procedur e, including any modifications or additions that may be necessary.

Item 1-15 DOE requests comment on the scope of each test procedure with respect to the equipment for which DOE is considering st andards, as well as any limitations of these test procedures.13 1.6 Overview of the Rulemaking Process

The process for establishing the regulatory re quirements for commercial and industrial air compressors comprises several steps, including: (1) establishing test procedures to evaluate energy consumption of the covere d equipment; (2) performing vari ous preliminary analyses of the technological and economic feas ibility of energy efficiency sta ndards; (3) issuing a notice of proposed rulemaking; and (3) issuing a final ru le. DOE encourages in terested parties to participate in each of these steps.

Under EPCA, when DOE establishes new or ame nded standards, it must consider, to the greatest extent practicable: (1) the economic impact of the st andard on the manufacturers and consumers of the affected equipment; (2) the sa vings in operating costs throughout the estimated average life of equipment compared to any increases in the initial cost, or maintenance expense; (3) the total projected amount of energy savings likely to result directly from the imposition of the standard; (4) any lessening of the utility or the performance of the equipment likely to result from the imposition of the sta ndard; (5) the impact of any lessening of competition, as determined in writing by the Attorney General, th at is likely to result from the imposition of the standard; (6) the need for national energy conser vation; and (7) other factors the Secretary of Energy considers relevant. (42 U.S.C. 6295(o)(2)(B )(i)) Other statutory considerations include those set forth in 42 U.S.C. 6295(o)(1)– (2)(A), (2)(B)(ii)–(iii), and (3)–(4).

DOE considers the participation of all interested parties to be a very important part in the process for setting forth energy conservati on standards. DOE actively encourages the participation and interaction of interested parties during the comment periods provided at each step. Beginning with public comment on the Framework Document and during subsequent comment periods, interactions amon g interested parties provide a ba lanced discussion of critical information required to conduct the standards rulemaking. Additionally, DOE encourages the development and submission of consensu s agreements between stakeholders.

In its efforts to set energy conserva tion standards, DOE publishes through the Federal Register notices to inform the public about its activi ties in this effort. Subsequent to announcing the availability of the Framework Document, DOE typically publishes three additional public

notices that further advance DOE’s efforts to se t standards for a given pr oduct or equipment. The publication of the Preliminary Analysis (see s ection 1.7) describes in detail the analytical framework DOE plans to apply and presents the public with the opportunity to vet the models and tools that DOE plans to use in developing its proposed standard s. This step is designed to help facilitate additional public participation before DOE form ally proposes a rule for public consideration. The approach laid out in the Preliminary Analys is also addresses stakeholder comments to the Framework Document. Next, DOE publishes a notice of proposed rulemaking (NOPR) (see section 1.4), which presents DOE’s proposed standards. In doing so, the notice addresses comments received in response to the Preliminary Analysis, analyzes the impacts of standards on consumers, manufacturers and th e Nation, and details DOE’s balancing of those impacts. Finally, DOE publishes the final rule (s ee section 1.5), which contains any standards DOE may adopt along with the ap plicable compliance dates. Th e final rule notice addresses comments submitted in response to the NOPR, pres ents any revised analyses of the projected impacts from these standards, and discu sses DOE’s balancing of the impacts.14 1.7 Preliminary Analysis

As part of its efforts at preparing a propos ed rule, DOE typically identifies equipment design options or efficiency levels that it will an alyze in detail and those it should eliminate from further consideration. This proc ess includes a market and technology assessment (see section 3) and a screening analysis (see sect ion 4). These activities include identifying the key issues and design options or efficiency levels to be consid ered by DOE as it considers the development of a rulemaking proposal.

At the start of the Preliminary Analysis, DOE considers potential efficiency levels for each equipment class. DOE uses these efficiency levels to collect manufacturer cost data, historical shipment data, shipment-weighted average efficiency data, and preliminary manufacturer impact data ( e.g. , capital conversion e xpenditures, marketing costs, research and development costs). During the Preliminary Analys is stage, DOE presents consumer LCC impact and PBP results (see section 8); national energy savings (NES) and consumer net present value (NPV) results (see section 10) for a range of e fficiency or energy use levels; and a preliminary manufacturer impact anal ysis (see section 12).

DOE bases the selection of efficiency or en ergy use levels to analyze on the costs and benefits of efficiency levels or design options. In addition to the efficiency corresponding to the maximum technologically feasible (“max tech”) design and the efficiency corresponding to the minimum life-cycle-cost point, DOE generally selects levels or design options for consideration that span the full range of tec hnologically achievable efficiencies.

The range of levels analyzed typically includes:

• The least efficient model or model with the highest energy consumption in the market. • The current efficiency level, as applicable under 10 CFR Part 431.

• The highest energy efficiency level or lo west energy consumption level that is technologically feasible (the max-tech level);

• The level with the lowest LCC; and

• Levels that incorporate noteworthy technologi es or fill in large gaps between other efficiency levels considered.

The efficiency or energy use levels analy zed serve to demonstrate the functions and outputs of the models and tools used by DOE. Du ring the Preliminary An alysis, these models and tools are tested for the different equipment classes at each efficiency or energy use level analyzed.

DOE will make the results of the analyses available on its website for review and will consider comments on them after publication of the Preliminary Analysis. As part of this process, DOE also makes available for public comment a preliminary technical support document (TSD) containing the details of all the analyses pe rformed to date.15 1.8 Notice of Proposed Rulemaking

After the publication of the Preliminary Anal ysis, there is a public comment period and a public meeting. DOE also conducts further econo mic impact analyses. These analyses may include refinements of previous analyses, and will include a co nsumer LCC sub-group analysis (see section 11), a complete manufacturer impact analysis (see section 12), a utility impact analysis (see section 13), an employment impact an alysis (see section 14), an emissions analysis (see section 15), and a regulatory im pact analysis (see section 17).

DOE will make the results of all the analyses available on its website for review and will consider comments after the pub lication of the NOPR. This review and comment process may result in revisions to the preliminary analyses that DOE performed. The analytical process ends with the selection of proposed standard levels presented in the NOPR. DOE selects the proposed

standard levels from the trial standard leve ls (TSLs) analyzed. The NOPR, published in the Federal Register , will document the evaluation and sele ction of any proposed standards.

For each equipment class, DOE will identify the maximum improvement in energy efficiency or maximum reduction in energy use that is technologi cally feasible. If DOE proposes a level that is below the max-tech level, it w ill sequentially explain the reasons for eliminating higher levels beginning with the highest level considered. The DOE will present the analysis results in the NOPR and the analysis details in an accompanying TSD.

DOE considers many factors in selecting its pr oposed standards. These factors or criteria are established by statute and capture the many be nefits and costs of the standards. When the DOE publishes the NOPR, it will provide the Department of Justice (DOJ) with a copy of the

NOPR and TSD and solicit feedback on the im pact of the proposed standard level on competition. DOJ will review these standard levels in light of any lessening of competition that is likely to result from the imposition of standards. DOE will consider DOJ’s determination on the impacts of the proposed standard on competiti on in preparing the final rule. The NOPR is followed by a public comment period that includes a public meeting.

1.9 Final Rule

In view of any comments received on the NOPR, DOE may revise its analyses. On the basis of these comments, DOE will review the engineering and economic impact analyses and proposed standards and make modifications as necessary.

After the publication of the NOPR, DOE will conduct a thoro ugh review of all analyses performed, and of the TSLs. Final revisions to the analyses and TSLs will be made as appropriate.

Before the final rule is issued, DOE will consider any comments from DOJ on the NOPR relating to the impacts of the proposed standard levels on competition to determine whether changes to these standard levels are needed.

The standards rulemaking will conclude with the publication of the final rule. DOE will select any final standard levels based on the co mplete record before it, including any comments16 or data submitted in response to the Framework Document and Preliminary Analysis. The final rule will promulgate any standard levels and the accompanying compliance date for

manufacturers to meet. The final rule notice will also explain the basis for their selection. A final

TSD will also be made available once the rule is issued.

1.10 Labeling

Section 344 of EPCA, as amended, 42 U.S.C. 6315, provides labeling requirements for commercial and industrial equipment. Where DOE prescribes test procedures for compressors, DOE must then determine whether the following criteria are met before prescribing a labeling rule: (1) labeling in accordance wi th this section is technologi cally and economically feasible with respect to such class of compressors; (2) si gnificant energy savings will likely result from such labeling; and (3) la beling in accordance with this sectio n is likely to assist consumers in making purchasing decisions (42 U.S.C. 6315(h)). At a minimum, such labels must include the energy efficiency of the subject equipment, as tested under the prescribed test procedure. In addition, the labeling rule may a ddress other requirements, includi ng: how to display the label; requirements to display additional informati on related to energy efficiency or energy consumption

− which may include instructions for maintenance and repair of the covered equipment; and requirements that any printed matte r displayed or distributed with the equipment at the point of sale also incl ude the same information as requi red on the label (42 U.S.C. 6315(b) and 42 U.S.C. 6315(c)). See also 77 FR 75400 (December 20, 2012) (DOE notice seeking

information related to commercial and industrial equipment labeling).

DOE may analyze the appropriate ness of a labeling rule in co njunction with the analyses

for standards described in the remainder of this document.

Item 1-16 DOE seeks comment on whether a labeli ng rule would be technologically or economically feasible, result in significan t energy savings, or assist customers in making purchasing decisions.

Item 1-17 DOE seeks comment on information that it should consider requiring for display on any prospective label, as well as factors DOE should consider regarding the size, format, and placement of a ny such label.

2. ANALYSES FOR RULEMAKING

EPCA requires DOE to establish energy c onservation standards that achieve the maximum improvement in energy efficiency that is technologically feas ible and economically justified. Economic justification includes consid eration of the economic impacts on domestic manufacturers and consumers, na tional benefits (including environmental impacts) issues of consumer utility, and impacts from any lesseni ng of competition. The analyses conducted in support of the standards rulemaking effort help to ensure that the fina l standards meet these criteria of technological feasib ility and economic justification.17 This section offers an overview of DOE’s analytical methodology and discusses the major components of the analyses DOE will conduct. A consistent analytical approach will be applied by DOE through its consideration of each an alysis as a part of the overall standardssetting framework.

Figure 1 summarizes the analytical component s of the standards-setting process. The analyses are presented in the cente r column. Each analysis has a se t of key inputs, which are data and information required for the analysis. “Appro aches” are the methods that will be used to obtain key inputs. For example, so me key inputs exist in public data bases, some will be collected from stakeholders, and some will be develope d by the project team in support of DOE’s evaluation efforts. The results of each analysis are key outputs, which woul d feed directly into the analytical framework that DOE would apply if it determines that standards would satisfy the statutory requirements (i.e., technological feas ibility and economic prac ticability). Dotted lines connecting one analysis to another indicate the flow of information.18 Figure 2.1 Flow Diagram of Analyses for the Commercial and Industrial Air Compressors Energy Conservation Standards Rulemaking Process19 3. MARKET AND TECHNOLOGY ASSESSMENT

The market and technology assessment will pr ovide information about the commercial air compressor equipment industry. This assessment is used to determine equipment classes and identify potential design options or effici ency levels for each equipment class.

3.1 Market Assessment

DOE will qualitatively and quantitatively char acterize the structure of the commercial air compressor equipment industries and markets. In the market assessment, the DOE will identify

and characterize the manufacturers of commercial air compressors; estimate market shares and trends in the market; address regulatory and non-regulatory initia tives intended to improve the energy efficiency or reduce the energy consump tion of commercial air compressors; and explore the potential for technological improvements in the design and manufactur ing of commercial air

compressors.

DOE will use historical equipment shipments and prices as an aid to create shipment scenarios and predicting future prices. Market st ructure data will be used to assess competitive impacts as part of the manufacturer impact analysis.

Item 3-1 DOE requests information that would c ontribute to the market assessment ( e.g. , current equipment features and e fficiencies, equipment-feature and efficiency trends, historical eq uipment shipments and prices).

3.2 Equipment Classes

DOE intends to separate commercial air compressors into equipment classes. DOE will consider a separate energy conservation standard for each equipment class. The criteria for separation into different classe s are: type of energy used a nd capacity or other performancerelated features that justify a separate energy conservation standard. In determining equipment classes, DOE is required to consider the utility of the feature to the consumer and other factors deemed appropriate by the Secretary. (42 U.S.C. 6295(q))

For commercial air compressors, there are no pr eviously specified equipment classes. As such, DOE is considering establishing equipmen t classes based on one or more of the following design characteristics:

 The size of the unit, as meas ured in rated horsepower;

 The capacity of the unit as measured in th e volume of compresse d air delivered in cubic feet per minute;

 The compression principle (as described in section 1.2.1);

 The method (or lack thereof) of inter- and post-cooling;

 The absolute gauge output pressure of the delivered air, and

 The method of lubrication.20 DOE will analyze whether there are unique de sign constraints associated with these design characteristics that would warrant the creation of separate equipment classes.

Item 3-2 DOE requests input from interested pa rties about the desi gn characteristics and criteria that it is considering us ing when creating equipment classes. In particular, should additional or fewer cr iteria beyond those identified above be used as a basis for developing equipment classes?

Item 3-3 DOE requests input from interested parties about how commercial compressors should be separated into equipment classes using the listed design characteristics.

3.3 Technology Assessment

DOE uses information about commercially available technology op tions and prototype designs as input in identifyi ng technologies manufacturers coul d use to attain higher energy efficiency levels. In consultation with interest ed parties, DOE intends to develop a list of technologies to consider in the an alysis. Initially, this list will in clude all those t echnologies that may improve energy efficiency and will serve to establish the maximum technologically feasible (i.e., max-tech) design. In the screening anal ysis, DOE will eliminate from consideration technologies that are not technologically feasible, or that fail to meet certain criteria as to practicability to manufacture, inst all and service, impacts on equipm ent utility or availability, or impacts on health or safety.

DOE has identified the following designs that may be used to improve commercial and industrial air compressor performance:

• Improved controls,

• Improved "air end" efficiency,

• Improved cooling fan efficiency,

• Improved part-load efficiency,

• Improving drivers (high efficiency moto rs and variable speed drives), and

• Including the use of multiple staged compressors.

Item 3-4 Of the technologies listed above, are th ere any that DOE should not consider because of their impacts on safety, perf ormance, or consumer utility of the equipment?

Item 3-5 Are there other unlisted technologies th at DOE should consider as design options and what, if any, impacts do the design options have on safety, performance, and consumer utility?21 3.4 Baseline Units

Once DOE establishes equipment classes, it wi ll select a baseline model as a reference point for each equipment class, against which it can measure changes resulting from energy

conservation standards. The baseli ne model in each equipment cla ss represents the characteristics of products in that class. Typical ly, a baseline model would be a model that just meets currently required energy conservation standards. Howeve r, for compressors there are no required energy

conservation standards. Conse quently, a baseline would be selected on the basis of DOE’s market and technology analysis of compressors with the lowest efficiency and high volume production, where there is opportunity for improv ed efficiency and si gnificant energy savings.

Once DOE has established the baseline models, DOE will determine representative efficiencies for each of these models using one of the primary metrics described earlier in this Framework Document (see section 1.4).

DOE will use these baseline models and efficiencies in the engineering analysis and the LCC and PBP analysis. To determine energy savi ngs and changes in price, DOE will compare each higher-energy-efficiency or lower-energy- consumption design option with the baseline

model.

Item 3-6 DOE seeks input from interested parties about the selection of representative equipment classes and baseline mode ls and their efficiencies for the engineering and LCC analys es. In particular, DOE is interested in receiving information on which types and sizes of compressors are most common, and whose efficiency levels would be most easily generalized an d applied to other categories.

4. SCREENING ANALYSIS

The purpose of the screening analysis is to screen out design options that DOE will not consider in examining potential standards, if any, for commerci al air compressors.

As an initial matter, DOE will develop a lis t of design options (t hrough its own research

and in consultation with interest ed parties) for consideration in the engineering analysis (see section 5). The identified candidate design options will encompass all those technologies that may improve energy efficiency. Thereafter, DOE will review each design op tion in light of the following four criteria:

1. Technological feasibility. DOE will not further consider technologies unless they are not incorporated in commerci ally-available products or in working prototypes.

2. Practicability to manufacture, install, and service. If DOE determines that mass production of a technology in commercial product s and reliable installation and servicing of the technology could not be achieved on th e scale necessary to serve the relevant22 market by the time of the effective date of th e standard, then it will not consider that technology further.

3. Adverse impacts on equipment utility or availability. If DOE determines a technology to have significant adverse impact on the uti lity of equipment to significant subgroups of consumers, or result in the unavailability of any covered equipment type with performance characteristics (including reliability), features, size, capacities, and volumes that are substantially the same as products gene rally available in the United States at the time, it will not consider that technology further.

4. Adverse impacts on health or safety. If DOE determines that a technology will have significant adverse impacts on health or sa fety, it will not consider that technology

further.

DOE will document the reasons for eliminati ng any design options during the screening analysis and will publish this documentation for st akeholder review and comment as part of the Preliminary Analysis.

5. ENGINEERING ANALYSIS

After conducting the screening analysis described above, DOE will perform an engineering analysis based on the remaining design options that would improve equipment efficiency. The engineering analys is consists of estimating the energy consumption and cost of compressor equipment at various levels of in creased efficiency. This section provides an overview of the engineering analysis (section 5.1), and discusses baseli ne units (section 5.2), DOE’s proposed approach for determining the cost-efficiency relationship (section 5.3), efficiency levels (section 5.4), proprietary desi gns (section 5.5), and cumulative regulatory burdens that might affect the e ngineering analysis (section 5.6).

5.1 Engineering Analysis Overview

The purpose of the engineering analysis is to determine the relationship between manufacturer selling price (MSP) and air comp ressor efficiency. In determining the costefficiency relationship, DOE estimates the increase in MSP associated with design changes that increase the efficiency of compressors relative to the baseline models (whi ch in most cases are the most typical low efficiency equi pment currently sold on the market).

As a preliminary step in this analysis, DOE may determine an appropriate subset of representative equipment classes to analyze. DOE would extrapolat e the results of this analysis to the remaining equipment classes. Typicall y, each representative equipment class would represent the majority of the shipments in its category. The number of re presentative equipment classes will depend on the availa bility of data that would a llow DOE to develop appropriate relationships between the engineering analysis re sults of the representative equipment class and the other equipment classes not directly analyzed.

Once DOE establishes the representative e quipment classes and re presentative units, it selects a baseline model as a reference point for each representative unit from which to measure23 changes resulting from the design options. DOE will then develop separate cost efficiency relationships for each baseline model analyzed.

DOE will derive cost estimates for the engineer ing analysis (which it also will use in the manufacturer impact analysis) from a re verse-engineering process, supplemented by manufacturer-supplied data. The re verse-engineering process consis ts of a detailed equipment disassembly process, where: (1) representative units are to rn down; (2) all components, processes, assembly, and manufactur ing steps are noted in an activ ities-based cost model; and (3) all manufacturing costs are calculated. Represen tative units are chosen based on the range of efficiencies, design options, and capacities.

The result is a “green-field” model e of the subject unit and the factory in which it would be built. These unit-specific fact ory requirements can then be a ggregated by market share, unit shipments, or any other method DOE wishes to utilize to derive industry-wide estimates.

The industry-wide estimates will consist of de tailed incremental cost data, disaggregated into the incremental costs of material, f labor, g and overhead. h DOE will associate incremental costs with specific design opti ons or design option combinations required to achieve a given efficiency level or with the efficiency levels themselves, depending on the analysis approach, as

described in section 5.3.

DOE seeks design, efficiency, and cost inform ation to determine the cost of improving the efficiency of the baseline models. In addition, in tandem with a review of the efficiencies of units currently on the market, DOE will use the reverse-engineering to identify design options or design option combinations associat ed with the most efficient pr oducts to establish the highest efficiency that is technologically feasible (i.e

. , the max-tech level) with in each equipment class.

Item 5-1 DOE seeks input on the methods and a pproaches used by manufacturers to improve the efficiency of compressors and, in particular, how frequently equipment re-design would be the only method employed.

e A “green-field” model estimates the cost of a product as if it were built in a brand-new facility that had just broken ground. DOE accounts separately for items such as depreciation and one-time costs that may be incurred.

f Direct material costs are the costs of raw materials such as steel, copper, and insulation, and also include scrap

metal that can be traced to final or end equipment. Direct material costs do no t include indirect material costs which are attributed to supplies that may be used in the production process, but are not assigned to final pieces of equipment ( e.g. , lubricating oil for production machinery).

g Labor costs are the earnings of workers who assemble pa rts into a finished good or operate machines in the production process. Direct labor includes the fringe benefits of direct laborers such as group health care, as well as overtime pay. Direct labor does not include indirect labor, which is defined as the earnings of employees who do not work directly in assembling a piece of equipment—such as supervisors, janitors, stockroom personnel, inspectors, and forklift operators.

h Factory overhead excludes depreciation, but includes indirect labor, downtime, set-up costs, indirect material, expendable tools, maintenance, property taxes, insurance on assets, and utility costs. Factory overhead does not include selling, general, and administrative costs (SG&A) , research and development (R&D), interest, or profit (which DOE accounts for separately).24 5.2 Baseline Models

DOE selects baseline models that represent th e characteristics of compressors in a given equipment class used in common commercial or industrial applica tions. Typically, the baseline model would be a model that just meets current energy conservation sta ndards. Because energy conservation standards for compressors do not exist, however, DOE will select baseline models representative of the least e fficient and highest production vo lume, most typical compressor

offered for sale in the market. Selection of th e baseline model for each representative unit will encompass consideration of compressor f eatures and performance characteristics.

DOE is considering the appropriate method to develop baseline efficiency levels representative of the least efficient, most typical compressors offered for sale in each equipment class, recognizing that each equipment class contains compressors with a broad range of pressure

ratios and delivered air volumes.

DOE’s determination of the appropriate baseline efficiency levels will be determined by compressor model data, pricing data, and shipment data by efficiency that are publicly available or provided to DOE. Shipment data may indicate more appropriate baseline levels than model availability data, as the least efficient compressors may not have significant shipments and, therefore, would not be considered the least efficient, most typical compressors in the market.

At a subsequent stage in its analysis, DOE will use the baseline models to conduct the engineering analysis and the LCC and PBP anal yses. To determine energy savings and changes in manufacturer selling price, DOE will comp are each higher-energy-efficiency equipment design against the baseline model.

Item 5-2 DOE seeks input on appropriate baseline unit efficiencies for commercial air

compressors.

Item 5-3 DOE seeks information regarding the sp ecific technological ch aracteristics of the baseline model for each equipmen t class, including the technologies

described in section 3.3.

5.3 Approach for Determining the Cost-Efficiency Relationship

DOE uses a manufacturing cost structure that follows the traditional manufacturing process and includes:

1. Equipment Costs: Recurring costs associated with manufacturing.

a. Full production cost (manufactur er production cost (MPC)), i.e ., direct labor, direct material, overhead (indirect labo r, indirect material, maintenance, depreciation, taxes, insura nce related to assets).25 b. Non-production cost, i.e., selling (market research, advertising, point-of-sale (POS) promotion, sales person compensa tion and travel, logistics such as warehousing, delivery, record keeping), general and administration (costs for service and staff units, general corporat e costs such as compensation, etc.), research and development (R&D) (costs a ssociated with efforts to find new or improved products or production processes) and interest (costs of borrowing funds). DOE typically uses manufactur er markups calculated from publicly available financial information ( e.g ., Securities and Exchange Commission 10-K reports) to account fo r non-production costs.

2. Conversion Costs: Investments to bring produc tion facilities and e quipment designs in compliance with the new regulation.

a. Equipment conversion costs, i.e., investme nts in research, development, testing, and marketing focused on making equipment designs comply with the new

standard.

b. Capital conversion costs, i. e., investments in property, plant, and equipment to adapt or change existing pr oduction facilities so that the new equipment designs

can be fabricated and assembled.

c. Stranded assets, i.e., equipment or tooling that become obsolete as a result of new regulation.

To derive the material and labor cost porti ons of the full production cost, DOE plans to purchase, test, and tear down selected compresso rs within each represen tative equipment class. DOE will disassemble and inventory the compressor components, creating a bill of materials and identifying manufacturing processes re quired to fabricate the compressors.

DOE may supplement the findings from its test s and teardowns through: (1) a review of

data collected from manufacturers about prices, efficiencies, and ot her features of various models of compressors, and (2) intervie ws with manufacturers about the techniques and associated costs used to improve efficiency. If possible, DOE w ill then aggregate the cost numbers by weighing individual data points by company-level sales volumes for each equipment class.

DOE recognizes that there may be limited public information on national shipments, manufacturing costs, channels of distribution, and manufactur ers’ market shares of air compressors. DOE encourages interested parties to submit any available data that pertain to these

areas of interest and that w ould improve DOE’s understanding of the air compressor market.

DOE is sensitive to manufacturer concerns regarding proprietary designs and will make provisions to maintain the confidentiality of proprietary data submitted by manufacturers or discussed during manufacturer inte rviews. Materials provided to Lawrence Berkeley National Laboratory (LBNL) and Navigant Consulting, Inc. (NCI), DOE cont ractors for this effort, are generally subject to the terms of the applicable n on-disclosure agreement under which those26 materials are submitted. In the case of materials provided to LBNL or NCI in the context of a DOE rulemaking and subject to a non-disclosure agreement, those materials are generally not shared with DOE, apart from aggregated data that do not identify particular submitters. These materials may also be subject to a variety of laws and regulati ons governing the disclosure of Federal agency information. Information submitte d to DOE will be protected in accordance with all applicable federal laws, rule s, or regulations, including, but not limited to, the Trade Secrets Act, 18 U.S.C. §1905, and the Freedom of Info rmation Act (FOIA), 5 U.S.C. §552, and DOE's implementing regulations at 10 CFR 1004.

Manufacturer cost information should reflect th e variability in baseline models, design strategies, and cost structures that exist among manufacturers. If necessary, DOE will qualify any aggregated cost-efficiency data using information obtained th rough follow-up discussions with manufacturers. These interviews will provi de a deeper understa nding of the various combinations of technologies used to increase co mpressor efficiency, as we ll as their associated manufacturing costs.

During the interviews with manufacturers, DOE will gather informa tion about the capital expenditures needed to increase the efficiency of baseline models to various efficiency levels (i.e., conversion expenditures by efficiency). DOE will also gather information about the depreciation method(s) used to expense the c onversion expenditures. DOE will then estimate the contribution of the depreciation of conversion ca pital expenditures to the incremental overhead portion of the full production cost.

This approach will enable DOE to characterize the cost-efficiency relationship for compressors across the entire efficiency range fo r all equipment classes and allow the public to examine the aggregated cost and design assumpti ons that underlie the cost-efficiency estimates, while maintaining the confidentiality of pr oprietary data as described above.

DOE typically uses markups to represent non-production costs and convert the MPC to

the MSP. DOE intends to estimate manufacturer markups from publicly available financial information ( e.g ., Securities and Exchange Commission 10-K reports) and from information

obtained in manufact urer interviews.

DOE typically does not include conversion co sts in the engineeri ng analysis. Although these costs may be passed along to the customer , they are traditionally considered during the manufacturer impact analysis. DOE understands, however, that some primary methods used to increase the efficiency of compressors may not represent any differen ce in manufacturing cost, but which incurs primarily up-front R&D and c onversion costs. If DOE decides to account for some or all of these conversion costs, these cost s would be included as part of the manufacturer markups (see section 6).27 Item 5-4 For each equipment class, DOE seeks comments on methods and approaches that DOE intends to employ to determine potential efficiency improvements for air compressors. Detailed information on air compressor performance and the related incremental manufacturing costs ( e.g ., material costs, labor costs, overhead costs, building conversion capit al expenditures, capital expenditures for tooling or equipment conversion asso ciated with more efficient designs, R&D expenses, and marketing expenses) would be useful.

Item 5-5 DOE seeks comment on the markup approach proposed for developing estimates of manufacturer selling prices.

Item 5-6 DOE seeks comment on the approach to determining the relationship between manufacturer selling price and air compressor efficiency.

Item 5-7 DOE seeks comment on appropriate tr ansportation and shipping costs to include in the analysis and whether th ose costs are likely to vary for higherefficiency equipment.

Item 5-8 DOE seeks comment on the conversion costs required to improve the efficiency of the air compressors to vari ous levels, as well as what portion of these costs would be passed on to the consumer.

5.4 Efficiency Levels

To establish the efficiency levels DOE intends to consider in this rulemaking, DOE will identify the highest efficiency th at is technologically feasible within each equipment class (i.e., the max-tech level) and analyze the design opt ions and costs associated with improving compressor efficiency from the baseline through the max-tech model. DOE intends to collect compressor efficiency data from various manuf acturer catalogs to es tablish the range of efficiencies currently available on the market. DOE will also use these data to categorize relationships between efficiency and technological options where the technological options used

can be identified.

DOE notes that the maximum efficiency levels available in current compressor equipment may not necessarily correspond to the max- tech levels. It is possi ble that some of the design options that have met th e screening criteria (i.e., passed the screening analysis) may be working prototypes that ar e not yet commercially available an d, therefore, would not be found in today’s available maximum efficiency compressors. DOE seeks stakeholder input to determine the appropriate max-tech efficiency le vels to apply. (42 U.S.C. § 6295(p)(2))

Item 5-9 DOE seeks comment from interested pa rties about the range of efficiency levels that should be examined as part of its analysis.28 Item 5-10 DOE seeks comment from interested parties about a methodology that would be appropriate for determining the max-tech models for each compressor analyzed.

5.5 Proprietary Designs

DOE will consider in its engineering and ec onomic analyses all design options that are commercially available or present in a worki ng prototype, including proprietary designs and technologies. However, DOE will consider a proprietary design in the subsequent analyses only if the achieved efficiency level can also be reach ed using other non-propriet ary design options. If the proprietary design is the only approach available to achieve a given efficiency level, then DOE will reject that efficiency level, as the analytical results would appear to favor one

manufacturer over others.

DOE is sensitive to manufacturer concerns regarding proprietary designs and will make provisions to maintain the confidentiality of proprietary data submitted by manufacturers or discussed during manufacturer inte rviews. Materials provided to Navigant Consulting, Inc., a DOE contractor for this effort, are generally subject to the term s of the applicable agreement under which those materials are submitted. In the case of materials provided to NCI in the context of a DOE rulemaking and subject to a non-disclosure agreement, those materials are generally not shared with DOE, apart from aggr egated data that do not identify particular submitters. These materials may also be subject to a variety of laws and regulations governing the disclosure of Federal agency information. In formation submitted to DOE will be protected in accordance with all applicable federal laws, rules, or regulations, including but not limited to the Trade Secrets Act, 18 U.S.C. §1905, and the Freed om of Information Act (FOIA), 5 U.S.C. §552, and DOE's implementing re gulations at 10 CFR 1004.

Item 5-11 Are there proprietary designs or tech nologies of which DOE should be aware for any of the commercial air compressors under consideration as part of its efforts in evaluating whether to set standards for commercial and industrial compressors? If so, how should DOE ac quire the cost data necessary for evaluating these designs?

5.6 Outside Regulatory Changes Affe cting the Engineering Analysis

In conducting an engineering analysis, DOE considers the effects of regulatory changes outside DOE’s statutory energy c onservation standards rulemaking process that can impact the manufacturers of the covered equipment. Some of these changes can also affect the energy efficiency or energy consumption of the produc ts that would be covered under a rulemaking proposal to set standards for commercial and industrial compressors. DOE will attempt to identify all cumulative engineering issues that could impact the engineering analysis. The

consideration of these issues is closely related to the cumula tive regulatory burden assessment that DOE will carry out as part of the manufact urer impact analysis. Based on consideration of29 the comments received on the engineering anal ysis documented in the Preliminary Analysis, DOE will update the analysis as needed. It will re flect those changes in the documentation of the

NOPR.

Item 5-12 Are there outside regulatory issues that DOE should cons ider in its analysis of commercial air compressors?

6. MARKUPS ANALYSIS

DOE uses customer price estimates in its LCC, PBP, and national impact analyses. DOE typically uses manufacturer-to- customer markups to convert estimates of the manufacturer selling price derived from the engineering analysis (section 5) to customer prices. The manufacturer-to-customer markups are in addi tion to the manufacturer markups on production costs that DOE uses in estimating manufacturer selling price in the engineering analysis.

Before developing markups, DOE identifie s distribution channels (i.e., how the equipment is distributed from the manufacturer to the custome r). DOE’s consultations with industry experts indicate that compressor manufac turers provide compressors to the marketplace through a variety of channels.

Based on discussions with industry experts, DOE believes there are three main channels that air compressors move through between the ma nufacturer and final c onsumer. Channels are defined by the air compressor's power rating, in horsepower, and by the general method of compression. Table 6.1 approximates what DOE be lieves to be the distribution channels for

compressors.

Direct Sales: This channel represents direct sales fr om a manufacturer to the final

consumer.

Authorized Distributor: This channel represents a mix of businesses that are authorized by specific manufacturers to sell their equipmen t. These may be independent businesses, or manufacturer/company-owned stores. Authorized di stributors will generally have the ability to sell the complete line of a manu facturer's equipment, and o ffer full-service and parts.

Retail Merchants: This channel represents a mix of businesses, including: catalog sales, internet sales, big-box retail, or other merchant retail sales. These sales can be either through manufacturer authorized agents or non-authorized distributor s. Equipment sold through nonauthorized distributors is sold with limited support.

Table 6.1 Air Compressor Distribution Ch annel Magnitudes and Power Ranges

Type of Compressor Channel Size of Channel (% units) Power Range (HP)

Min Max Rotary Positive Direct Sales 5 All30 Authorized Dealer 90 0 500

Retail Merchant 5 0 150

Reciprocating Direct Sales 2 5 30

Authorized Dealer 48 5 30

Retail Merchant 50 0 15

Centrifugal Direct Sales 50 300 and above

Authorized Dealer 50 100 500

Retail Merchant 0 None

Consistent with the approach followed fo r other products and equipment, DOE will determine an average manufacturer markup by ex amining the annual Securities and Exchange Commission (SEC) 10-K reports filed by publicly traded manufacturers of appliances and commercial equipment to include air compresso rs. DOE will also use current industry-level financial data reported in the Economic Census produced by the U.S. Census Bureau to estimate markups for distribut ors and catalog sales. 7, 8 If available, DOE will also make use of financial data included in industry reports.

The baseline markup relates th e manufacturer sales price of baseline pr oducts to the distributor sales price. DOE calculates the baseline markup as an average ratio of selling price to cost. Incremental markups are coefficients that re late the change in the manufacturer sales price of higher-efficiency models to th e change in the distributor sale s price. The incremental markup

reflects a situation in which the distributor faces an increase in cost of goods sold (CGS) for particular equipment because of manufactur ing changes necessitated by new or amended

standards.

In addition to developing markups, DOE will de velop and include sales taxes to calculate final prices to customers. DOE will use an annually updated Internet source, the Sales Tax Clearinghouse, to calculate applicable sales taxes. i

,

Item 6-1 DOE seeks comment on the distribution channels and the share of industry shipments for each distribution channel described in this document as it applies to the range of compressors that DOE is considering regulating.

7. ENERGY USE ANALYSIS

DOE establishes the annual energy consump tion of equipment and assesses the energysavings potential of various equipment efficiencies . As part of the energy use analysis, certain engineering assumptions may be required regard ing equipment applicatio n, including how often the equipment is operated and under what conditi ons. DOE uses the annual energy consumption and energy-savings potential in th e LCC and PBP analyses to esta blish the savings in customer operating costs at various e quipment efficiency levels.

i Source: http://www.thestc.com/31 The annual energy consumption (AEC) associated with an air compressor in actual use depends primarily on the power drawn by the compressor and its air demand profile. DOE uses the term “air demand profile” to represent the tem poral variation of the useful output from the compressor at the point of discha rge—that is, the variation in de livered air volume at a given pressure, over a period of time, relative to a pr edetermined fixed output power, which may be the “full load,” “full operating pressure,” or ot her well-defined useful output point for the compressor at its rated operating pressure. T hus, the air demand profile represents the time variability in the ratio of the actual air volu me output to a predetermined fixed output.

If there is little variation in the total airflow volume a nd air pressure on a compressor over the period of usage, only the number of a nnual operating hours needs to be determined to estimate the AEC. For example, DOE expects th is situation to occu r in some industrial applications where a compressor is run almost consta ntly to supply air for ba se load applications.

The demands for air required by a facility or end-use are often dynamic (changing over time), which can create highly variable air dema nds across equipment classes and applications. A compressor being used as a "trim" compressor as part of a multi-compressor compressed air system would have constantly changing airflo w rates and total volume air flow variation throughout the year. The annual energy consumption in this case would be based on a summation of the number of hours run for specific flow rate bins and the co rresponding hourly energy consumption in each bin.

A related issue is how a compressor is sized to an application. From an energy efficiency standpoint, optimally sized compressors would be se lected to provide thei r peak efficiency for each application. In practice, however, DOE rec ognizes that the use of discrete compressor designs and sizes, as well as pr actical application constraints, results in many, if not most, compressors typically operating at poin ts other than their peak efficiency. 9

The useful work done by any compressor will vary widely across a range of possible applications. The energy used by the compressor in producing the useful work equals the flow energy transferred to air compression plus all energy losses associated with the compressor package (including the air-head, the motor, controls , cooling fans, and the transmission system).

DOE intends for this analysis to capture a nd estimate energy consumption in the field for a variety of applications. For applications not specifically considered, DOE will apply a generic air demand profile for the equipment class. DOE will develop statistical models describing the expected range of end-use air demand profiles for compressors in different applications. DOE will determine whether the model parameters should also vary with the compressor equipment class or rated power (in HP). DOE will use manufacturer performance data to determine the energy use of a compressor under the expected deviat ion from the peak efficiency. This approach will provide a statistical distribut ion of AEC values for each compressor type and application for use in the LCC and payback pe riod analysis (section 8).32 Item 7-1 DOE requests comment and recommenda tions for identifying high sales volume and large installed base appl ication segments corresponding tospecific applications for which the compressors used may have similar enduse air demand profiles.

Item 7-2 DOE seeks recommendations on sources of data or analysis methods that would provide end-use air demand profile s for each of the equipment classes of compressors falling within the majo r application segmen ts that are under consideration as potentia l regulated equipment.

Item 7-3 DOE requests input on ways to charact erize compressor sizing and selection practices for different equipmen t classes and applications.

Item 7-4 DOE requests comment on the degree of equipment overs izing that is prevalent in different application segments. 8

Item 7-5 DOE seeks comment on methods for determining nominal (non-market segment specific) end-use air demand profiles for compressor equipment

classes under considerati on in this document.

Item 7-6 DOE seeks comment on the current penetra tion level of variable speed drives (VSDs) in the installed base of equipm ent in each application segment for the various types of compressors that DOE is considering regulating. DOE also

seeks comment on the baseline condition for applications without VSDs, such as running at full load, use of controls, etc.

Item 7-7 DOE requests comment and recommenda tion on the range and number of sizes over which the analysis shoul d be carried out for each specific compressor capacity in actual cubic f eet per minute (acfm), and rated air pressure in pounds per square inch gauge (psig).

Item 7-8 DOE requests comment and estimates to establish the mean value and the ranges of likely values for transmission, motor, motor control, and compressor control efficiencies, as well as the impact of a contro l on compressor and motor performance and efficiency.

8. LIFE-CYCLE COST AND PAYB ACK PERIOD ANALYSIS

This section describes the life-cycle cost (L CC) and payback period (PBP) analysis that DOE will perform for commercial and industrial air compressors, including how DOE develops the inputs to the calculation. The LCC analysis establishes the tota l cost of an appliance over its lifetime (including purchase pri ce and operating costs). The PBP analysis calculates the amount33 of time required for energy cost savings to pay back any increased cost of higher-efficiency equipment.

The effects of energy conservation standards on customers include a change in operating expense (usually decreased) and a change in pur chase price (usually increased). DOE analyzes the net effect on customers by calculating the L CC and PBP using the en gineering performance data, the equipment prices, and the energy-use an d end-use load characterization data. Inputs to

the LCC calculation include the cost to the custom er of the installed equipment (purchase price plus installation cost), operati ng expenses (energy expenses and, if applicable, repair costs and maintenance costs), the lifetime of th e equipment, and a discount rate.

8.1 Analytical Approach

DOE plans to conduct an LCC and PBP analysis for each of the representative units for each air compressor design line. DOE conducts the LCC and PBP analysis by modeling both the uncertainty and variability in the inputs using Monte Carlo simulation and probability

distributions. The Monte Carlo a pproach identifies the percentage of customers benefiting from and being burdened by a prospective standard.

The LCC model uses Monte Carlo simulation to sample probability distributions for several of the parameters that affect the LCC. The Monte Carl o simulation may be implemented using Microsoft Excel spreadsheets and the Cr ystal Ball add-in program. Each Monte Carlo simulation would typically consist of 10,000 co mputer-generated LCC and PBP calculations. Each calculation uses input values sampled from a probability distributi on or defined as single point values. The analysis results are presente d as a distribution of LCC values and summary statistics such as average LCC and standard deviation.

DOE expects to use probability distributions to characterize equipmen t lifetime, discount rates, and annual energy use and to represent the degree to which equipment is optimally sized for a given demand of air volume. DOE may also use probability distribu tions for distributor markups. DOE expects to use point values to characterize the other L CC inputs, including the manufacturer markup, as these data ar e available only as single values.

To accurately estimate the percentage of custom ers that would be affected by a particular standard level, DOE accounts for the distribution of equipment e fficiencies expected for the compliance year. In other words, ra ther than analyzing the impacts of a particular standard level assuming that all customers are currently purch asing equipment at the baseline level, DOE conducts the analysis by taking into account th e full range of equipment efficiencies that customers would purchase under the base case ( i.e. , the case without new energy efficiency standards). By accounting for customers who alr eady purchase more-efficient equipment, DOE avoids overstating the potential benefits from st andards. DOE determines the LCC and PBP for a particular standard level relative to the base case distribution of equipment efficiencies. Hence, if the equipment chosen in the base case has an effi ciency that meets a given standard level, the customer is not affected by a gi ven candidate standard level; th e LCC savings are zero and the payback period is not defined.34 DOE also performs an analysis to dete rmine whether the three-year rebuttable presumption of economic justificat ion applies, that is, whether th e additional cost of purchasing equipment that meets the standard level would be less than three times the value of the energy savings in the first year. (42 U. S.C. § 6295(o)(2)(B)(iii)) For this analysis, DOE determines the value of the first year’s energy savings using the DOE test procedure. Although DOE examines the rebuttable-presumption criteria, the economic ju stification of standard levels are based on the analysis conducted pursuant to section 325(o)(2)(B)(i) of EPCA. (42 U.S.C. § 6295(o)(2)(B)(i))

The following sections discuss how DOE plan s to develop key inputs to the LCC and PBP analysis, including (1) insta llation costs, (2) energy prices, (3 ) maintenance and repair costs, (3) equipment lifetime, and (4) discount rates. The other inputs to the LCC and PBP analysis— namely, manufacturer costs, annual energy consum ption, and markups for the determination of equipment prices—have been previously addressed.

8.2 Installation Costs

The installation cost includes labor, overhead, and any other miscellaneous materials and parts. DOE is aware that there is variability in the costs for co mmercial and industr ial sector air compressor installations. However, DOE does not have information to suggest that existing installation practices would n ecessarily change under an energy conservation standard.

Item 8-1 DOE seeks comment on whether installation costs for air compressors increase with higher-efficiency equipment.

8.3 Energy Prices

DOE will use tariff-based marginal energy (whe re available, average if not available) prices to value energy savings fo r commercial and industr ial customers. Marginal prices will be developed for the commercial and industrial s ectors for 13 geographic areas—the nine U.S. Census divisions, with four larg e states (New York, Florida, Texas, and California) treated separately. For Census divisions that contain one of the large st ates, DOE calculates the regional average values leaving out data for the large st ate—for example, the Pacific region average does not include California, and the West South Ce ntral region average does not include Texas.

DOE will then use projections of energy pric es for commercial and industrial customers by census division from the most recent versi on of the Energy Information Administration’s (EIA’s) Annual Energy Outlook ( AEO ) to estimate future energy prices.

8.4 Maintenance and Repair Costs

DOE will consider any expected changes to ma intenance and repair costs for the covered equipment. Small incremental changes in equipmen t efficiency are expected to incur little or no change in repair and maintenance costs over ba seline equipment. For eq uipment with significant energy efficiency improvements over the base line, there may be increased repair and35 maintenance costs because such equipment may incorporate technologies that are not widely

available.

Item 8-2 DOE invites comment on whether repair costs may change for more efficient air compressors.

8.5 Equipment Lifetime

DOE will use information from catalogs and various literature sources, and input from

manufacturers and other stakeholde rs, to establish air compressor lifetimes (measured in years) for use in the LCC and subsequent analyses. DOE believes that the average air compressor lifetime in the field is between 10 and 20 years, depending on air compre ssor type and size. A European study from 2001 estimated average life times for air-compressors between 10 and 100 KW (13 and 147 HP) to be 13 years, and those between 110 and 300 KW ( 147 and 495 HP) to be 16 years. 10 Further, research done by the California Utilities' Statewide Codes and Standards Team in support of California building energy efficiency standards used an average 15 year lifetime for all air compressors. 11 DOE expects to use probability distributions to characterize equipment lifetime, to represent the variance of lifetimes that this equipment experiences in the field. DOE may consider the correlation between air compressor lifetime and annual operating hours, or equipment maintenance, if quantitative evidence is found that thes e factors in the field affect air compressor lifetimes.

Item 8-3 DOE seeks comment on appropriate air compressor lifetimes for the equipment under consideration, as well as data regarding correlation between compressor hours of use and air compressor lifetime.

8.6 Discount Rates

The calculation of LCC require s the use of an appropriate discount rate for those commercial or industrial companies that purchase air compressors. DOE will derive the discount

rates for these commercial and industrial custom ers by estimating the capital costs for companies that purchase air compressors. The cost of capital is commonly used to estimate the present value of cash flows to be derived from a typical comp any project or investment. Most companies use both debt and equity capital to fund investments, so the cost of capital is the weighted-average cost of equity and debt financing, which is referred to as the wei ghted-average cost of capital.

Item 8-4 DOE seeks input on the proposed appro ach for estimating discount rates for air compressor customers.36 9. SHIPMENTS ANALYSIS

DOE uses shipment projections by equipment cl ass to calculate the national impacts of standards on energy consumption, NPV, and future manufact urer cash flows. DOE’s approach considers that shipments of air compressors ar e driven by the economic growth of commercial and industrial sectors that use this equipment. Historical data will be used to establish the relationship between shipments of air compressors and the appropriate in dex for sector growth. DOE intends to use historical shipments data of air compressors from the U.S. Department of Commerce's Census Bureau to characterize the shipments of this equipment. 12, 13

DOE typically projects shipments for a 30-ye ar period beginning with the expected compliance date of any standards.

Item 9-1 DOE seeks comment on the shipment s forecast methodology. DOE invites comments regarding the selection of appropriate economic drivers.

Item 9-2 DOE requests historical shipments data for the equipment proposed in this framework, with further breakdowns where available including, but not limited to, delivered air volume (acfm), ai r pressures (psig), motor HP, and/or efficiency.

9.2 Standards Impacts on Shipments

DOE plans to derive standards-case forecasts using the same data used in the development of the base-case fo recasts. Often, DOE standards cas es forecasts take into account the usual increase in purchase price and the usua l decrease in operating costs caused by a new standard. The magnitude of the difference betw een the standards-case and base-case shipment forecasts depends on the estimated purchase price increase, as well as the operating-cost savings from the standard. DOE plans to assess whether ther e are sufficient data to estimate the impact of the considered standard on air compresso r shipments relative to the base case.

Item 9-3 DOE seeks comment on how an energy conservation standard for air compressors might impact shipments of the equipment.

10. NATIONAL IMPACT ANALYSIS

The NIA assesses the aggregate impacts of pot ential efficiency standards at the national level. Impacts that DOE will report include th e NES from potential air compressor standards ( i.e. , the cumulative incremental energy savings from air compressor efficiency standards) and

the NPV of the total customer benefits.37 10.1 Energy Efficiency Trends

A key component of DOE’s estimates of NES and NPV is the equipment energy efficiency forecasted over time for the base case (without new standards) and for each of the standards cases. To develop the various cases, DOE plans to develop market-share efficiency data ( i.e. , data on the distribution of equipment ship ments by efficiency) for the air compressor equipment classes DOE is considering. DOE will es timate the change in efficiency in the base case by considering historical tre nds and input fro m stakeholders.

The market-share efficiency data will allow DOE to estimate the efficiency impact that standards may have in the standards’ compliance year. DOE expects to use a “roll-up” scenario in developing potential standards for air comp ressors. Under this scenario, DOE assumes (1) equipment efficiencies in the ba se case that do not meet the st andard level under consideration would “roll up” to meet the new standard le vel; and (2) equipment efficiencies above the

standard level under consideration would not be affected. DOE plans to use this scenario because it does not believe air compressor manufacturers w ould not take on the addition costs associated with re-tooling and make modifications to air co mpressor lines with efficiency higher than the

new standard level.

Once DOE establishes the shipment-weighted e fficiency for each considered standard level for the assumed compliance date of the sta ndard, it can estimate future shipment-weighted efficiencies using the same rate of forecasted ef ficiency growth as in the base case, or if appropriate, a different rate.

Item 10-1 DOE seeks comment on how the efficiency of air compressors is likely to change over the long run in the absence of standards.

10.2 National Energy Savings

DOE intends to calculate national air co mpressor energy consumption for each year beginning with the expected compliance date of any standards. It will calculate national air compressor energy consumption for the base cases and each efficiency standard level analyzed, and the energy savings will be calculated as th e difference in energy consumption between the base case and the standards cases. DOE plans to perform this calculati on through the use of a spreadsheet model that accounts for the st ock of equipment affected by standards. j The energy savings are measured over the entire lifetime of products purchased in the 30-year projection period. k

j Several examples of NES spreadsheet models from previous rulemakings can be found on DOE’s website at: http://www.eere.energy.gov/buildings/appliance_standards/

. k In the past DOE presented energy savings results for only the 30-year period that begins in the year of compliance. In the calculation of economic impact s, however, DOE considered operating co st savings measured over the entire lifetime of products purchased in the 30-year period. DOE has chosen to modify its presentation of national energy savings to be consistent with the approach used for its national economic analysis.38 DOE intends to consider whether there may be a rebound effect l associated with more efficient commercial air compressors in its determination of NES. Increased equipment utilization may result from an increase in energy efficiency. If data indicat e that there may be a

rebound effect and the data are suffi cient to allow quantif ication of this effect for commercial air compressors, DOE will account for the rebound effect in its calc ulation of NES.

Item 10-2 DOE seeks comment on the likelihood of increased air compressor usage as a direct result of improved air compressor efficiency.

10.3 Net Present Value

To determine the NPV of potential energy cons ervation standards, DOE calculates annual energy expenditures based on annual energy cons umption by incorporating forecasted energy prices, using the forecasts of shipments and av erage energy efficiency described in section 9. DOE calculates annual equipment expenditures by multiplying the price per unit by the number of forecasted shipments. The difference between a base case and a standards-case scenario gives the national energy cost savings and increased equipment expenditu res in dollars. The difference each year between energy cost savings and increa sed equipment expenditures is the net savings (if positive) or net costs (if ne gative). DOE discounts those annual values to the present time and

sums them to obtain a NPV.

Consistent with guidelines set by the U.S. Office of Ma nagement and Budget (OMB), DOE will conduct two NPV calculations, one using a real discount rate of 3-percent and the other using a real discount ra te of 7-percent (OMB, Circul ar A-4: Regulatory Analysis (September 17, 2003). The discount rates for the de termination of NPV differ from the discount rates used in the LCC analysis (which are de veloped from a customer’s perspective). The 7- percent real value is an estimate of the average befo re-tax rate of return on private capital in the U.S. economy. The 3-percent real value represents the “societal rate of time preference,” which is the rate at which society discounts future consumption flows to their present value.

11. CUSTOMER SUBGROUP ANALYSIS

The LCC analysis described in section 8 an alyzes the impacts of energy conservation

standards on all users of comme rcial and industrial air compressor. For the subgroup analysis, DOE divides users into subgroups, which comprise a subset of the population that is likely, for one reason or another, to be affected dispr oportionately by new or revised energy conservation standards ( e.g. , small businesses or firms that use air comp ressor in particular applications where energy savings are likely to be small). m The purpose of a subgroup anal ysis is to determine the

l The rebound effect describes a situation in which users incr ease their use of products as a result of this reduction in operating costs, thereby reducing the energy savings achieved.

m

These firms differ from any air compressor manufactur ers who may qualify as a small business under the size standards established by the Small Business Administratio n. DOE analyzes impacts to these small businesses,39 extent of this disproportional impact. DOE will wo rk with stakeholders to identify any subgroups for this consideration and will conduct a subgroup analysis once a NOPR is prepared .

Item 11-1 DOE seeks comment on what, if any, user subgroups are appropriate in considering standards for air compressors.

12. MANUFACTURER IMPACT ANALYSIS

DOE will collect, evaluate, and report preliminary information and data on manufacturer impacts in the preliminary TSD. Such prel iminary information includes the anticipated conversion capital expenditures by efficiency le vel and the correspondi ng anticipated impacts on employment in the commercial air compressor industry. DOE will solicit further information during the preliminary engineering analysis manufacturer interviews.

DOE intends for the manufacturer impact anal ysis to provide an assessment of the potential impacts of energy conservation st andards on manufacturer s of commercial air compressors. In addition to financial impacts, a wi de range of quantitativ e and qualitative effects may occur following adoption of a standard that may require changes to the manufacturing practices for these products. DOE will identify these effects through interviews with manufacturers, as well as other interested parties and experts.

For the NOPR, DOE will supplement the result s of the preliminary manufacturer impact analysis conducted as part of the Preliminary Anal ysis with more detailed analyses, described in sections 12.1 through 12.5. Specifically, DOE will ca rry out an industry-wide cash-flow analysis using the Government Regulatory Impact Mode l (GRIM), identify and analyze subgroups of

manufacturers whose business va ries significantly from the i ndustry as a whole, perform a competitive impacts assessment, and review the cumulative regulatory burden for the industry.

12.1 Sources of Information for the Manufacturer Impact Analysis

Many of the analyses described earlier provide important information that DOE uses as inputs for the manufacturer impact analysis. Su ch information includes financial parameters developed in the market assessment (section 3.1), manufacturing costs from the engineering analysis (section 5.3), retail pri ce forecasts (section 6), and ship ments forecasts (section 9). DOE supplements this information with informa tion gathered during ma nufacturer interviews.

DOE will conduct detailed interviews with manuf acturers to gain insight into the range of potential impacts of standards. Th e interview process plays a key ro le in the manufacturer impact analysis, since it provides an opportu nity for directly affected pa rties to expre ss their views on important issues. During the interviews, DOE will solicit information on the possible impacts of standards on manufacturing costs, equipment prices, sales, di rect employment, capital assets, and industry competitiveness. Both qualitative and quan titative information are valuable in terms of

which would be directly impacted by any final standards DOE might establish, as required by the Regulatory Flexibility Act (see section 12.3 below).40 this analysis. DOE prefers an in teractive interview process, becau se it helps clarify responses and provides the opportunity to identify additional issues.

DOE will ask interview participants to identif y all confidential information provided in writing or orally, and DOE will determine whethe r the information submitted is entitled to

confidential treatment. It will consider inform ation gathered, as appropriate, in the energy conservation standards decision-making process. However, DOE will not make confidential information available in the public record. DOE also will ask particip ants to identify all information that they wish to have included in the public record but do not want to have individually attributed to them ; DOE will incorporate this inform ation into the public record, but will report it wit hout attribution.

DOE will prepare a summary of the major issues and outcomes resulting from the manufacturer interviews. This summary will be come part of the TSD that DOE will produce to accompany any proposal that may be issued.

12.2 Industry Cash-Flow Analysis

The industry cash-flow analysis relies primar ily on the GRIM. DOE uses the GRIM to analyze the financial impacts of new energy conservation standards on the industries that produce the products covered by the standard.

The GRIM analysis uses a number of input s—annual expected revenues; manufacturer costs such as costs of goods sold; selling, genera l, and administrative costs; taxes; and capital expenditures (both ordinary capita l expenditures and those related to standards)—to determine a series of annual cash flows beginning from the announcement of the new standard and continuing for several years after its implement ation. DOE compares the results against basecase projections that involve no new standards. The financial impact of new standards is the

difference between the two sets of discounted annual cash flows. Other performance metrics, such as return on invested capital, are also available from the GRIM.

DOE will gather the inputs needed for the GR IM from two primary sources: the analyses conducted up to this point and interviews with manufacturers and other interested parties. Information gathered from previous analyses will include financial parameters, manufacturing costs, price forecasts, and shipments forecasts. Interviews with manufacturers and other interested parties will be essentia l in supplementing this information.

12.3 Manufacturer Subgroup Analysis

Average industry cost values may not ad equately assess differential impacts among subgroups of manufacturers. DOE recognizes that smaller manuf acturers, niche players, and manufacturers exhibiting a cost structure that differs significan tly from the industry average may be affected differently by the imposition of stan dards. Ideally, DOE would consider the impact on every firm individually. In high ly concentrated industries, this may be possible. In industries having numerous participants, however, DOE uses the results of the market and technology assessment to group manufacturers into subgr oups, as appropriate. For commercial air compressors, DOE is interested in feedb ack about potential s ubgroups, including small41 businesses. The detailed manuf acturer subgroup impact analysis will entail calculating cash flows separately for each defi ned class of manufacturer.

Item 12-1 DOE seeks comment on appropriate ma nufacturer subgroups, if any, that

DOE should consider in a manufacturer subgroup analysis for commercial and industrial air compressors.

Item 12-2 DOE seeks comment on small businesses that could be impacted by energy

conservation standards for commercial and industrial air compressors, and what the impacts on small businesse s of potential standards might be.

12.4 Competitive Impacts Assessment

EPCA directs DOE to consider any lessening of competition likely to result from an imposition of standards. (42 U.S.C. § 6295(o)(2)(B)(i)(V)) It furthe r directs the Attorney General to determine in writing the impacts, if any, of any lessening of competition. (42 U.S.C. § 6295(o)(2)(B)(ii))

DOE will gather and report available firm-specific financial information and impacts, and it will then report the aggregat ed impact of the standard on manufacturers. The competitive impacts analysis will focus on assessing the imp acts to smaller, yet significant, manufacturers. DOE will base the assessment on manufacturing cost data and on information collected from

interviews with manufacturers. The manufacturer interviews will focus on gathering information that will help in assessing asymmetrical cost increases to some manufacturers, increased proportion of fixed costs potentially increasing business risks, and potential barriers to market entry ( e.g. , proprietary technologies). DOE will provide the Attorney General with a copy of the

NOPR for consideration in his/he r evaluation of the impact of standards on the lessening of competition.

12.5 Cumulative Regulatory Burden

DOE is aware that other regulations may appl y to the equipment that it is considering regulating as part of today’s effort, as we ll as to other equipment produced by the same manufacturers. Multiple regul ations may result in a cumula tive regulatory burden on these manufacturers. Accordingly, DOE will analyze and seek to mitigate the overlapping effects of amended DOE standards and other regulatory actions on manufacturers of commercial air compressors manufactured (alone or as a component of another piece of equipment) . DOE will consider these issues during the manufacturer impact analysis.

Regulations that could affect the industries impacted by a proposal to set standards for compressors include:

 Energy efficiency standards for electric motors. DOE recently published a NOPR for

the electric motors standard s rulemaking. DOE understands th at any standards set for42 electric motors will affect the compressors industry and will take this into account when performing any and all of its analyses.

 Environmental Protection Agency ( EPA)-mandated phase-out of HCFCs. The EPAmandated phase-out of hydroc hlorofluorocarbon (HCFC) refrigerants affected multiple residential products ( i.e. , refrigerators, room air-conditioners, and commercial air compressors), requiring manufacturers to switch to non-ozonedepleting refrigerants as of January 1, 2010.

 Reduction of Hazardous Substances (RoHS) directive. The Directive on the Restriction of the Use of Certain Hazar dous Substances in El ectrical and Electronic Equipment was adopted in February 2003 by the European Union (EU) and became effective July 1, 2006. n RoHS identifies specific cate gories of products that can

contain no more than threshold amounts of mercury, lead, cadmium, hexavalent chromium, and certain fire retardan ts (e.g., polybrominated biphenyls and polybrominated diphenyl ethers). While this legislation does not extend to products in the United States, domestic manufacturers selling to the EU market must produce RoHS-compliant appliances. These manuf acturers may choose to promulgate the associated design changes across their entire equipment line.

Item 12-3 What other regulations or pending regul ations should DOE consider in its examination of cumulative regulatory burden?

13. UTILITY IMPACT ANALYSIS

To estimate the effects of energy conservation standards for air compressors on the electric and gas utilities indus tries, DOE plans to use a variant of EIA’s NEMS, called NEMSBT. NEMS is a large, multi-sectoral partial equi librium model of the U.S. energy sector, used primarily for the purpose of preparing EIA’s AEO . NEMS produces a widely recognized

reference case forecast for the United States through 2040 and is available in the public domain.

The effect of reducing site energy use is modeled by making NEMS runs that deviate

from the most recent AEO Reference case. Each year, DOE de velops response coefficients using the NEMS-BT which give changes in capacity and generation by fuel type for a given quantity of site energy use reduction to a particular energy en d use. DOE develops response coefficients for several different energy end uses. To model the im pact of this standard on the electric and gas utilities industries, the response coefficients will be weighted by end use, and then they will be applied to the site energy savi ngs for air compressors which is generated from the NIA analysis.

Item 13-1 DOE seeks comment from interested parties about its proposed use of NEMSBT to conduct the utility impact analysis.

n Available at http://ec.europa.eu/environment/waste/weee/index_en.htm

.43 14. EMPLOYMENT IMPACT ANALYSIS

The employment impact analysis examines i ndirect employment impacts from standards, which consist of the net jobs created or elimin ated in the national econo my, other than in the manufacturing sector being regulated, caused by: (1) reduced spending by end users on energy; (2) reduced spending on new energy supply by the utility industry; (3) increased spending on new equipment to which the new standards apply; and (4) the effects of those three factors throughout the economy. (Direct employment im pacts are any changes in the number of employees of manufacturers of th e equipment subject to standard s, their suppliers, and related service firms. The MIA will address impacts on the number of employees working for the manufacturers.)

One method for assessing the possible effects on the demand for labor of such shifts in economic activity is to compare sector empl oyment statistics developed by the Labor Department’s Bureau of Labor St atistics (BLS). The BLS regularly publishes its estimates of the number of jobs per million dollars of economic ac tivity in different sectors of the economy, as well as the jobs created elsewh ere in the economy by this same economic activity. Data from BLS indicate that expenditures in th e utility sector generally create fewer jobs (both directly and indirectly) than expenditures in other sectors of the economy. o There are many reasons for these differences, including wage diffe rences and the fact that the utility sector is more capitalintensive and less labor-intensive than other se ctors. Energy conservation standards have the effect of reducing consumer utility bills. Because reduced consumer expenditures for energy likely lead to increased expend itures 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).

Once DOE issues a NOPR, DOE plans to estima te indirect national employment impacts using an input/output model of the U.S. econom y called Impact of Sector Energy Technologies version 3.1.1 (ImSET). p ImSET is a special-purpose versi on of the “U.S. Benchmark National Input-Output” (I–O) model, which was designe d 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 th at characterize economi c flows among 187 sectors most relevant to industrial, commercial , and residential building energy use.

DOE notes that ImSET is not a general e quilibrium forecasting model and understands the uncertainties involved in projecting employmen t 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-estimate ac tual job impacts over the long run. DOE may

consider the use of other mode ling approaches for examining long-run employment impacts.

o See Bureau of Economic Analysis, Regional Multipliers: A User Handbook for the Regional Input-Output Modeling System (RIMS II). Washington, DC. U.S. Department of Commerce, 1992.

p J. M. Roop, M. J. Scott, and R. W. Schultz, ImSET 3.1: Impact of Sector Energy Technologies, PNNL-18412, Pacific Northwest National Laboratory, 2009. Available at: www.pnl.gov/main/publications/external/technical_reports/PNNL-18412.pdf44 Item 14-1 DOE seeks comments about its propos ed approach to assessing national employment impacts.

15. EMISSIONS ANALYSIS

In the emissions analysis, DOE will estimate 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 th e considered products. In addition, DOE will estimate emissions impacts in production activi ties (extracting, proces sing, and transporting fuels) that provide the energy i nputs to power plants. These ar e referred to as “upstream” emissions. Together, these emissions account for th e full-fuel-cycle (FFC). In accordance with DOE’s FFC Statement of Policy (76 FR 51281), th e FFC analysis includes impacts on emissions of methane and nitrous oxide, both of whic h are recognized as gr eenhouse gases.

DOE conducts the emissions analysis using em issions factors derived from data in the

latest version of EIA’s Annual Energy Outlook (AEO) , supplemented by data from other sources. EIA prepares the Annual Energy Outlook usi ng NEMS. Each annual version of NEMS incorporates the projected impacts of existing air quality regulations on emissions. The text

below refers to AEO 2013, which generally represents current legislation and environmental regulations, including recent gove rnment actions, for which implementing regulations were available as of December 31, 2012.

Because the on-site operation of air compre ssors may require use of fossil fuels and

results in emissions of CO 2 , NO

x , and SO 2 at the sites where these appliances are used, DOE will

also account for the reduction in these site emissions and the associated upstream emissions due to potential standards.

SO 2 emissions from affected electric genera ting units (EGUs) are subject to nationwide and regional emissions cap and trading programs. Title IV of the Clean Air Act sets an annual emissions cap on SO 2 for affected EGUs in the 48 contiguous states and the Dist rict of Columbia (D.C.). SO 2 emissions from 28 eastern states and D.C. were also limited under the Clean Air Interstate Rule (CAIR), which created an allowance-based trad ing program that operates along with the Title IV program in those States and D.C. 70 FR 25162 (May 12, 2005). CAIR was remanded to 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). On July 6, 2011 EPA issued a replacement for CAIR, the Cross-State Air Po llution Rule (CSAPR). 76 FR 48208 (August 8, 2011). On August 21, 2012, the D.C. Circuit issued a decision to vacate CSAPR. See EME Homer City Generation, LP v. EPA, 696 F.3d 7, 38 (D.C. Cir. 2012). The court ordered EPA to continue administering CAIR. AEO 2013 assumes that CAIR remains a binding regulation through 2040.

The attainment of emissions caps is typical ly flexible among EGUs and is enforced through the use of emissions allo wances and tradable permits. Under existing EPA regulations,45 any excess SO 2 emissions allowances resulting from th e lower electricity demand caused by the adoption of an efficiency st andard could be used to pe rmit offsetting increases in SO 2 emissions by any regulated EGU. In past rulemaking effo rts, 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 no reductions in power sector emissions would occur for SO 2 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 December 21, 2011. 77 FR 9304 (February 16, 2012). In the final MA TS rule, EPA established a standard for hydrogen chloride as a surrogate for acid gas hazardous air pollutants (HAP), and also

established a standard for SO 2 (a non-HAP acid gas) as an al ternative equivalent surrogate standard for acid gas HAP. The same controls are used to reduce HAP and non-HAP acid gas; thus, SO 2 emissions will be reduced as a result of the control technologies installed on coal-fired power plants to comply with the MATS requirements for acid gas. AEO 2013 assumes that, in order to continue operating, coal plants must have either flue gas desulf urization or dry sorbent injection systems installed by 2015. Both techno logies, 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 result of energy efficiency standards). Emissions will be far below the cap that would be 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.

CAIR established a cap on NO X emissions in eastern States and the District of Columbia. Energy conservation standards are e xpected to have little or no phys ical effect on these emissions in those States covered by CAIR 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 estimates NO X emissions reductions from potential standards in the 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 st andards would likely reduce Hg emissions. DOE will estimate mercury emissions reduction using emissions factors based on AEO 2013 , which incorporates the MATS.

Power plants may emit particulates from th e smoke stack, which are known as direct 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. The great majority of ambient PM associated with power plants is in the form of secondary sulfates and nitrates, which are produce d at a significant distance from power plants by complex atmospheric chemical reactions that ofte n 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 ar e in fact primarily related to the

health benefits of reduced ambient PM.46 Item 15-1 DOE seeks comment about its approach to conduct the emissions analysis for the equipment that would be covered under this rulemaking.

16. MONETIZING REDUCED CO 2 AND OTHER EMISSIONS

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

emissions of CO 2 and NO X that are expected to result fr om each of the standard levels

considered.

To estimate the monetary value of benefits resulting from reduced emissions of CO 2 , DOE plans to use the most current social cost of carbon (SCC) values deve loped and/or agreed to by an interagency process. The SCC is intended to be a monetary measure of the incremental damage resulting from greenhouse gas (GHG) emissions, including, but not limited to, net agricultural productivity loss, human health effects, propert y damage from sea level rise, and changes in ecosystem services. Any effort to qua ntify and to monetize the harms associated with climate change will raise serious questions of science, economics, and ethics. But with full regard for the limits of both qua ntification and monetization, the SCC can be used to provide

estimates of the social benefits of reductions in GHG emissions.

The Interagency Working Group on Social Cost of Carbon released an update of its previous report in 2013. q The most recent estimates of th e SCC in 2015, expressed in 2012$, are $11.8, $39.7, $61.2, and $117 per metric ton of CO 2 avoided. For emissions reductions that occur in later years, these values grow in real terms over time. Additionally, the interagency group determined that a range of values from 7-per cent to 23-percent should be used to adjust the global SCC to calculate domestic effects, although DOE will give preference to consideration of the global benefits of reducing CO 2 emissions.

DOE multiplies the CO 2 emissions reduction estimated for each year by the SCC value for that year in each of the four cases. To calcu late a present value of the stream of monetary values, DOE discounts the values in each of the four cases using th e discount rates that had been

used to obtain the SCC values in each case.

DOE recognizes that scientific and economic knowledge continue s to evolve rapidly as to

the contribution of CO 2 and other GHG to changes in the futu re global climate and the potential resulting damages to the world economy. Thus , these values are subject to change.

DOE also estimates the potential monetary benefit of reduced NO X emissions resulting

from the standard levels it considers. For NO

x emissions, estimates suggest a very wide range of

q Technical Update of the Social Cost of Carbon for Regulatory Impact Analysis Under Executive Order 12866

. Interagency Working Group on Social Cost of Carbon, United States Government, May 2013; revised November

2013. http://www.whitehouse.gov/sites/default/files/omb/in foreg/social_cost_of_carbon_for_ria_2013_update.pdf47 monetary values, ranging from $468 to $4,809 per ton in 2012$). r In accordance with OMB guidance, s DOE calculates a range of monetary benef its using each of the economic values for

NO X and real discount rates of 3-percent and 7-percent.

DOE is evaluating the appropria te valuation of avoided SO 2 and Hg emissions. Whether

monetization of reduced SO 2 and Hg emissions will occur as part of any proposed rule that DOE issues for compressors is yet to be determined.

Item 16-1 DOE requests comment about the appro ach it plans to use for estimating monetary benefits associated with emissions reductions.

17. REGULATORY IMPACT ANALYSIS

If DOE issues a proposal to set standards for commercial and industrial compressors, it will prepare a regulatory impact analysis to address the potential for non-regulatory approaches to supplant or augment energy c onservation standards to improve the efficiency of commercial air compressors. DOE recognizes that vol untary or other non-regulatory efforts by manufacturers, utilities, and ot her interested parties can result in substantial improvements in efficiency. DOE intends to analyze the likely effects of non-regulatory initiatives on equipment energy use, customer utility, and LCC. DOE will a ttempt to base its assessment on the impacts of any such initiatives to date, but will also cons ider information presented regarding the impacts that an initiative might have in the future.

If DOE proposes energy conservation standard s for commercial air compressors, and the NOPR constitutes a significant regulatory acti on as defined under section 3(f) of Executive Order 12866, “Regulatory Planning and Review ,” 58 FR 51735 (October 4, 1993), DOE will prepare and submit to OMB for review the assess ment of costs and benefits required under section 6(a)(3) of the order.

r For additional information, refer to U.S. Office of Management and Budget, Office of Information and Regulatory Affairs, 2006 Report to Congress on the Costs and Benefits of Federal Regulations and Unfunded Mandates on
State, Local, and Tribal Entities , Washington, DC.

s OMB, Circular A-4: Regulatory Analysis (Sept. 17, 2003).48 APPENDIX A: LIST OF ITEMS FOR COMMENT

Item 1-1 DOE requests comment on its proposed definition for “compressor.” DOE is also specifically requesting comment regarding the pressure ratio of 1.1 specified in the definition for “compressor,” as specified by ISO/TR 12942.Item 1-2

Item 1-2 DOE requests comments on whethe r it should cover posi tive-displacement, dynamic, and combined compressors, and wh ether any other types of compressors

should be considered for inclusion in the scope of this rulemaking effort.

Item 1-3 DOE requests comment on the scope of coverage for compressors, whether it should be limited to only “air compressors,” and the potential fo r circumvention.

Item 1-4 DOE requests shipping data for comp ressor equipment based on the type of gas compressed. DOE also seeks comment rega rding the technical and relative energy use differences (if any) betw een air and non-air compressors.

Item 1-5 DOE requests comments on whethe r it should cover posi tive-displacement, dynamic, and combined compressors, and wh ether any other types of compressors

should be considered for inclusion in the scope of this rulemaking effort.

Item 1-6 DOE requests comment on its propo sal to cover all types of compressors regardless of the input energy form used. In addition DOE requests comment on its proposal, for electrically driven compressors, to cover only those that operate on three-phase alternating current.

Item 1-7 DOE requests shipment data for co mpressor equipment based on the input energy

form used.

Item 1-8 DOE seeks comment on its proposal to cover compressors rated from 1 through

500 HP.

Item 1-9 DOE requests comment on its propo sal to cover the compressor “package” and not the “bare” compressor or the entire CAS.

Item 1-10 DOE seeks comment on the proposed definitions for compressors.

Item 1-11 DOE seeks comment on the propos ed definition for positive displacement compressors and the definitions for all a ssociated subcategories. DOE also seeks comment if there are any additional subcategories of positive displacement compressors that it should consider when weighing whether to set energy conservation standards for compressors.

Item 1-12 DOE seeks comment on the proposed definition for dynamic compressors and the definitions for all associated subcategories. DOE also seeks comment if there are any additional subcategories of dynamic co mpressors that should be considered as part of its efforts to evaluate whet her to set standards for compressors49 Item 1-13 DOE seeks input regarding whether the efficiency metrics listed effectively characterize the efficiency for each equipment system boundary. DOE also requests input on whether any other efficien cy metrics should be considered as part of its efforts in evaluating whethe r to set standards for this equipment.

Item 1-14 DOE requests comment on the use of the ISO 1217 and ISO 5389 test procedures, as well as any other test procedures, as a basis for the development of a DOE test procedure, including any modifications or additions that may be necessary.

Item 1-15 DOE requests comment on the scope of each test procedure with respect to the equipment for which DOE is considering sta ndards, as well as any limitations of these test procedures.

Item 1-16 DOE seeks comment on whether a la beling rule would be technologically or economically feasible, result in significant energy savings, or assist customers in making purchasing decisions.

Item 1-17 DOE seeks comment on information th at it should consider requiring for display on any prospective label, as well as f actors DOE should consider regarding the size, format, and placement of any such label.

Item 3-1 DOE requests information that woul d contribute to the market assessment (e.g., current equipment features and efficien cies, equipment-feature and efficiency trends, historical equipment shipments and prices).

Item 3-2 DOE requests input from interested parties about the desi gn characteristics and criteria that it is considering using when creating equipment classes. In particular, should additional or fewer criteria beyond those identified above be used as a basis for developing equipment classes?

Item 3-3 DOE requests input from interested parties about how commercial compressors should be separated into equipment classe s using the listed de sign characteristics.

Item 3-4 Of the technologies listed above, are there any that DOE should not consider because of their impacts on safety, perf ormance, or consumer utility of the equipment?

Item 3-5 Are there other unlisted technologies that DOE should consider as design options and what, if any, impacts do the design options have on safety, performance, and consumer utility?

Item 3-6 DOE seeks input from interested pa rties about the selecti on of representative equipment classes and baseline models a nd their efficiencies for the engineering and LCC analyses. In particular, DOE is interested in receiving information about which types and sizes of compressors are most common, and whose efficiency levels would be most easily generali zed and applied to other categories.50 Item 5-1 DOE seeks input on the methods a nd approaches used by manufacturers to improve the efficiency of compressors , and in particular, how frequently equipment re-design would be the only method employed.

Item 5-2 DOE seeks input on appropriate base line unit efficiencies for commercial air

compressors.

Item 5-3 DOE seeks information regarding the specific technological ch aracteristics of the baseline model for each equipment class, including the technologies described in

section 3.3.

Item 5-4 For each equipment class, DOE seek s comments on methods and approaches that DOE intends to employ to determine poten tial efficiency improvements for air compressors. Detailed information on air compressor performance and the related incremental manufacturing costs (e.g., materi al costs, labor costs, overhead costs, building conversion capital expenditures, capital expenditure s for tooling or equipment conversion associated with mo re efficient designs, R&D expenses, and marketing expenses) would be useful.

Item 5-5 DOE seeks comment on the markup a pproach proposed for developing estimates of manufacturer selling prices.

Item 5-6 DOE seeks comment on the approach to determining the relationship between manufacturer selling price and air compressor efficiency.

Item 5-7 DOE seeks comment on appropriate tr ansportation and shipping costs to include in the analysis and whether those costs are likely to vary for higher-efficiency equipment.

Item 5-8 DOE seeks comment on the conversion costs required to improve the efficiency of the air compressors to va rious levels, as well as wh at portion of these costs would be passed on to the consumer.

Item 5-9 DOE seeks comment from interested pa rties about the range of efficiency levels that should be examined as part of its analysis.

Item 5-10 DOE seeks comment from interested parties about a methodology that would be appropriate for determining the max-tech models for each compressor analyzed.

Item 5-11 Are there proprietary designs or technologies of which DOE should be aware for any of the commercial air compressors under consideration as part of its efforts in evaluating whether to set standards for co mmercial and industrial compressors? If so, how should DOE acquire the cost data necessary for evaluating these designs?

Item 5-12 Are there outside regul atory issues that DOE should c onsider in its analysis of commercial air compressors?51 Item 6-1 DOE seeks comment on the proposed distribution channels and the share of industry shipments for each distribution channel for the range of compressors proposed under this rulemaking.

Item 7-1 DOE requests comment and recommenda tions for identifying high sales volume and large installed base application segments corresponding to specific applications for which the compressors us ed may have similar end-use air demand profiles.

Item 7-2 DOE seeks recommendations on sources of data or analysis methods that would provide end-use air demand profiles for each of the equipment classes of compressors falling within the major application segments that are under consideration as potentia l regulated equipment.

Item 7-3 DOE requests input on ways to ch aracterize compressor sizing and selection practices for different equipmen t classes and applications.

Item 7-4 DOE requests comment on the degree of equipment oversizing th at is prevalent in different application segments.

Item 7-5 DOE seeks comment on methods for determining nominal (non-market segment specific) end-use air demand profiles for compressor equipment classes under

consideration in this document.

Item 7-6 DOE seeks comment on the current pe netration level of variable speed drives (VSDs) in the installed base of equipm ent in each application segment for the various types of compressors that DOE is considering regulating. DOE also seeks comment on the baseline condition for applications without VSDs, such as running at full load, use of controls, etc.

Item 7-7 DOE requests comment and recomme ndation on the range and number of sizes over which the analysis should be carr ied out for each specific compressor capacity in actual cubic feet per minute (acfm), and rated air pressure in pounds per square inch gauge (psig).

Item 7-8 DOE requests comment and estimates to establish the mean value and the ranges of likely values for transmission, motor, motor control, and compressor control efficiencies, as well as the impact of a control on compressor and motor performance and efficiency.

Item 8-1 DOE seeks comment on whether installation costs for air compressors increase with higher-efficiency equipment.

Item 8-2 DOE invites comment on whether repair costs may change for more efficient air

compressors.52 Item 8-3 DOE seeks comment on appropriate ai r compressor lifetimes for the equipment proposed in this rulemaking, as well as data regarding correlation between compressor hours of use and air compressor lifetime.

Item 8-4 DOE seeks input on the proposed appr oach for estimating discount rates for air

compressor customers.

Item 9-1 DOE seeks comment on the sh ipments forecast methodology. DOE invites comments regarding the selection of appropriate economic drivers.

Item 9-2 DOE requests historical shipments data for the equipment proposed in this framework, with further breakdowns where available including, but not limited to, delivered air volume (acfm), air pressure s (psig), motor HP, and/or efficiency.

Item 9-3 DOE seeks comment on how an energy conservation standard for air compressors might impact shipments of the equipment.

Item 10-1 DOE seeks comment on how the efficiency of air compressors is likely to change over the long run in the absence of standards.

Item 10-2 DOE seeks comment on the likeliho od of increased air compressor usage as a direct result of improved air compressor efficiency.

Item 11-1 DOE seeks comment on what, if any, user subgroups are appropriate in considering standards for air compressors.

Item 12-1 DOE seeks comment on appropriate manufacturer subgroups , if any, that DOE

should consider in a manufacturer su bgroup analysis for commercial and industrial air compressors.

Item 12-2 DOE seeks comment on small businesses that could be impacted by energy

conservation standards for commercial a nd industrial air compressors, and what the impacts on small businesses of potential standards might be.

Item 12-3 What other regulations or pendi ng regulations should DOE consider in its examination of cumulative regulatory burden?

Item 13-1 DOE seeks comment from interested parties about its proposed use of NEMS-BT to conduct the utility impact analysis.

Item 14-1 DOE seeks comment about its pr oposed approach to assessing national employment impacts.

Item 15-1 DOE seeks comment about its approach to conduct the emissions analysis for the equipment that would be cove red under this rulemaking.

Item 16-1 DOE requests comments about the approach it plans to use for estimating monetary benefits associated with emissions reductions.5354 REFERENCES

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, Second ed.: Compressed Air Challenge, 2009.