CHAPTER 17. REGULATORY IMPACT ANALYSIS 

TABLE OF CONTENTS

17.1 INTRODUCTION ........................................................................................................ 17-1

17.2 NON-REGULATORY POLICIES ............................................................................... 17-2

17.2.1 Methodology ..................................................................................................... 17-2

17.2.2 Assumptions Regarding Non-Regulatory Policies ........................................... 17-3

17.2.3 Policy Interactions ............................................................................................ 17-4

17.3 NON-REGULATORY POLICY ASSUMPTIONS ..................................................... 17-4

17.3.1 No New Regulatory Action .............................................................................. 17-4

17.3.2 Consumer Rebates ............................................................................................ 17-4

17.3.2.1 Methodology ...................................................................................... 17-5

17.3.2.2 Analysis .............................................................................................. 17-6

17.3.3 Consumer Tax Credits ...................................................................................... 17-7

17.3.4 Manufacturer Tax Credits ................................................................................. 17-9

17.3.5 Voluntary Energy Efficiency Targets ............................................................. 17-10

17.3.6 Early Replacement .......................................................................................... 17-12

17.3.7 Bulk Government Purchases ........................................................................... 17-14

17.4 IMPACTS OF NON-REGULATORY ALTERNATIVES ........................................ 17-14

LIST OF TABLES

Table 17.1.1 Non-Regulatory Alternatives to National Standards ...................................... 17-1

Table 17.2.1 Efficiency Levels in Proposed Standard Level for SPVAC <65 .................... 17-4

Table 17.3.1 Benefit/Cost Ratios Without and With Rebates for SPVAC <65 ................... 17-6

Table 17.3.2 Market Penetrations in 2019 Attributable to Consumer Rebates for 

SPVAC <65 .................................................................................................... 17-7

Table 17.3.3 Market Penetrations in 2019 Attributable to Consumer Tax Credits for 

SPVAC <65 .................................................................................................... 17-9

Table 17.3.4 Market Penetrations in 2019 Attributable to Manufacturer Tax Credits 

for SPVAC <65 ............................................................................................. 17-10

Table 17.3.5 Market Penetrations in 2019 Attributable to Voluntary Energy 

Efficiency Targets for SPVAC <65 .............................................................. 17-11

Table 17.3.6 Market Penetrations in 2019 Attributable to Early Replacements for 

SPVAC <65 .................................................................................................. 17-13

Table 17.4.1 Impacts of Non-Regulatory Alternatives for SPVAC <65 (TSL 2) ............. 17-15

LIST OF FIGURES

Figure 17.3.1 Market Penetration Curve for SPVAC <65 .................................................... 17-7

Figure 17.4.1 Market Penetration of SPVAC <65 Units Meeting the Target Level in 

Policy Cases .................................................................................................. 17-14

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CHAPTER 17. REGULATORY IMPACT ANALYSIS

17.1 INTRODUCTION

 The U.S. Department of Energy (DOE) has determined that the regulatory action

described in the Federal Register notice associated with this TSD constitutes a “significant 

regulatory action” under Executive Order (E.O.) 12866, Regulatory Planning and Review. 58 FR 

51735 (October 4, 1993). DOE followed the guidance of E.O. 12866 to provide “an assessment, 

including the underlying analysis, of costs and benefits of potentially effective and reasonably 

feasible alternatives to the planned regulation, identified by the agencies or the public (including 

improving the current regulation and reasonably viable non-regulatory actions), and an 

explanation why the planned regulatory action is preferable to the identified potential 

alternatives.” 58 FR 51735, 51741. 

 To conduct this analysis, DOE used an integrated National Impact Analysis (NIA)-RIA 

model built on the NIA model discussed in Chapter 10 for its analysis. DOE studied the impacts 

of the non-regulatory policies on the SPVU product classes with the predominant market shares, 

which are 1-phase and 3-phase single package vertical air conditioners less than 65 KBtu 

(SPVAC <65). 

 

DOE identified six non-regulatory policy alternatives that possibly could provide 

incentives for the same energy efficiency levels as the proposed standards for the products that 

are the subject of this rulemaking. The non-regulatory policy alternatives are listed in Table 

17.1.1, which includes the “no new regulatory action” alternative. DOE evaluated each 

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

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

very small market share of SPVAC <65 in government buildings, DOE did not analyze impacts

from the Bulk Government Purchases policy for this product. 

Table 17.1.1 Non-Regulatory Alternatives to National Standards 

No New Regulatory Action

Consumer Rebates

Consumer Tax Credits

Manufacturer Tax Credits

Voluntary Energy Efficiency Targets

Early Replacement

Bulk Government Purchases

 

Sections 17.2 and 17.3 discuss the analysis of five selected policies listed above

(excluding the alternatives of bulk government purchases and no new regulatory action). Section

17.4 presents the results of the policy alternatives. 

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17.2 NON-REGULATORY POLICIES

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

effectiveness of the non-regulatory policy alternatives for the identified SPVUs. DOE analyzed 

the SPVAC <65 product classes, which comprise the majority of the market share of SPVUs. 

This section also describes the assumptions underlying the analysis. 

17.2.1 Methodology 

DOE used its integrated NIA-RIA spreadsheet model to calculate the national energy 

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

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

model. Appendix 17-A discusses the NIA-RIA integrated model approach. 

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

target efficiency level, which is defined as the efficiency level in the proposed standards. After 

establishing the quantitative assumptions underlying each alternative, DOE appropriately revised 

inputs to the NIA-RIA spreadsheet model. The primary model inputs revised were market shares 

of products meeting target efficiency level. The shipments of products for any given year reflect 

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

percent of the shipments of products that did not meet target level in the base case,a whereas the 

non-regulatory policies would affect a smaller percentage of those shipments. DOE made certain 

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

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

SPVUs attributable to each policy alternative. 

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

operating costs generally decrease because energy consumption declines. DOE therefore 

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

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

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

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

benefit when calculating national NPV. DOE’s analysis also excluded any administrative costs 

for the non-regulatory policies; including such costs would decrease the NPVs slightly.

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

a

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

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• National Energy Savings (NES), given in trillion Btus (quads), describes the cumulative 

national primary energy saved over the lifetime of equipment purchased during the 30-

year analysis period starting in the effective date of the policy (2019-2048).b

• Net Present Value (NPV), represents the value of net monetary savings in 2014, 

expressed in 2013$, from equipment purchased during the 30-year analysis period 

starting in the effective date of the policy (2019-2048). DOE calculated the NPV as the 

difference between the present value of installed equipment cost and operating 

expenditures in the base case and the present value of those costs in each policy case. 

DOE calculated operating expenses (including energy costs) for the life of equipment. 

17.2.2 Assumptions Regarding Non-Regulatory Policies 

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

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

the projected effects depend on assumptions regarding the rate of consumer participation, they 

are subject to more uncertainty than are the impacts of mandatory standards, which DOE 

assumes will be met with full compliance. To increase the robustness of the analysis, DOE 

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

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

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

DOE sought to make credible assumptions regarding potential market impacts. Section 17.3 

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

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

alternative policy. 

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

of new SPVUs relative to their base case efficiency scenario (which involves no new regulatory 

action). The analysis considered that each alternative policy would induce consumers to purchase 

units having the same efficiency level as required by the proposed standards (the target level). As 

opposed to the standards case, however, the policy cases may not lead to 100 percent market 

penetration of units that meet the target level. 

b The analysis period is 2015-2044 for ASHRAE efficiency level, and 2019-2048 for higher efficiency levels. Since 

this RIA targets an efficiency level higher than the ASHRAE level, the 2019-2048 period is used.

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Table 17.2.1 shows the efficiency level stipulated in the proposed standards for SPVAC 

<65 units. 

Table 17.2.1 Efficiency Levels in Proposed Standard Level for SPVAC <65 

Equipment Class Cooling Capacity

Btu/h Efficiency Level

Single Package Vertical Air Conditioner <65,000 Btu/h EER =11.0

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

date of standards—2019—through the end of the analysis period, which is 2048. 

17.2.3 Policy Interactions 

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

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

such as early replacement implemented with consumer rebates. However, DOE attempted to 

make conservative assumptions to avoid double-counting policy impacts. The resulting policy 

impacts are not additive; the combined effect of several or all policies cannot be inferred from 

summing their results. 

Section 17.4 presents graphs that show the market penetration estimated under each nonregulatory policy for the identified SPVU product class. 

17.3 NON-REGULATORY POLICY ASSUMPTIONS

 The following subsections describe DOE’s analysis of the impacts of the five nonregulatory policy alternatives to proposed standards for SPVUs. (Because the alternative of No 

New Regulatory Action has no energy or NPV impacts, essentially representing the NIA base 

case, DOE did not perform any additional analysis for that alternative.) DOE developed 

estimates of the market penetration of high-efficiency products both with and without each of the 

non-regulatory policy alternatives. 

17.3.1 No New Regulatory Action 

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

of SPVUs constitutes the base case, as described in chapter 10, National Impact Analysis. The 

base case provides the basis of comparison for all other policies. By definition, no new 

regulatory action yields zero NES and an NPV of zero dollars. 

17.3.2 Consumer Rebates

DOE considered the scenario in which the Federal government would provide financial 

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

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policy provides a consumer rebate for purchasing SPVAC <65 that operate at the same efficiency

as stipulated in proposed standards (target level).

17.3.2.1 Methodology 

DOE based its evaluation methodology for consumer rebates on a comprehensive study 

of California’s potential for achieving energy efficiency. This study, performed by XENERGY, 

Inc.,c summarized experiences with various utility rebate programs.1 XENERGY’s analytical 

method utilized graphs, or penetration curves, that estimate the market penetration of a 

technology based on its benefit/cost (B/C) ratio. DOE consulted with experts and reviewed other 

methods of estimating the effect of consumer rebate programs on the market penetration of 

efficient technologies. The other methods, developed after the referenced XENERGY report was 

published,2, 3, 4, 5, 6, 7 used different approaches: other economic parameters (e.g., payback 

period), expert surveys, or model calibration based on specific utility program data rather than 

multi-utility data. Some models in use by energy efficiency program evaluation experts were so 

client-specific that generic relationships between economic parameters and consumer response 

could not be established.5 DOE decided that the most appropriate available method for this RIA 

analysis was the XENERGY approach of penetration curves based on B/C ratio, which 

incorporates lifetime operating cost savings. 

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

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

Internal sources of information encourage consumers to purchase new products primarily 

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

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

17-A contains additional details on internal and external information diffusion. 

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

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

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

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

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

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

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

barriers (from no barriers to extremely high barriers) to consumer purchase of high-efficiency 

products. DOE adjusted the XENERGY penetration curves based on expert advice founded on 

more recent utility program experience.5, 8

 

 DOE modeled the effects of a consumer rebate policy for SPVUs by determining the 

increase in market penetration of products meeting the target level relative to their market 

penetration in the base case. It used the interpolation method presented in Blum et al (2011)9 to 

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

17-5

 
create customized penetration curves based on relationships between actual base case market 

penetrations and actual B/C ratios. To inform its estimate of consumer B/C ratios provided by a 

rebate program, DOE performed a thorough nationwide search for existing rebate programs for 

SPVUs. Since it did not find rebates for SPVUs, it instead gathered data on utility or agency 

rebates for commercial unitary air conditioning units (CUACs), which it considered to have 

similar market behavior in response to consumer rebates. DOE gathered data on utility or agency 

rebates throughout the nation, and used this data to calibrate the customized penetration curves it 

developed for SPVUs so they can best reflect the market barrier level faced in the proposed 

standard. Section 17.3.2.2 shows the interpolated curve used in the analysis. 

17.3.2.2 Analysis 

For the SPVAC <65 product classes, DOE estimated the effect of increasing their B/C 

ratio via a rebate that would pay part of the increased installed cost of a unit that met the target 

efficiency level compared to one meeting the baseline efficiency level.

d

 DOE based the rebate 

amounts on a sample of utility and agency rebate programs for single package CUACs. DOE 

gathered data on 7 rebates for CUACs initiated by 4 utilities or agencies in various States. 

(Appendix 17-A identifies the rebate programs.) To represent the rebate level, DOE used the 

simple average of the rebate amounts offered by these programs. DOE assumed that this average 

rebate amount would apply to models with efficiency level at the target level for these product 

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

forecast period (2019–2048). 

DOE first calculated the B/C ratio without a rebate using the difference in total installed 

costs (C) and lifetime operating cost savings (B) between a unit meeting the target level and a 

baseline unit. It then calculated the B/C ratio given a rebate for the unit meeting the target 

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

had a larger B/C ratio. Table 17.3.1 shows the effect of consumer rebates on the B/C ratio for the 

proposed TSL (TSL 2). 

Table 17.3.1 Benefit/Cost Ratios Without and With Rebates for SPVAC <65

B/C Ratio Without Rebate 2.1

Rebate Amount (2013$) 205.71

B/C Ratio With Rebate 2.8

Calculated Market Barriers Curve High - xHigh

 DOE used these B/C ratios along with the penetration curve shown in Figure 17.3.1 to 

estimate the percentage of consumers who would purchase SPVUs that meet the target level both 

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

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

current Federal energy conservation standards and provides basic consumer utility. 

17-6

 
with and without a rebate incentive. The penetration curve calculated by DOE to represent the 

market behavior for SPVAC <65 units was close to the high barriers penetration curve. 

Figure 17.3.1 Market Penetration Curve for SPVAC <65

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

shown on the penetration curve. It then added that percent increase to the market share of units 

that meet the target level in the base case to obtain the market share of units that meet the target 

level in the rebate policy case. 

Table 17.3.2 summarizes DOEs assumptions for SPVAC <65 regarding the market 

penetration of SPVAC <65 in 2019 that meet the target efficiency level at the proposed TSL 

given a consumer rebate. DOE assumed that the increase in market share seen in the first year of 

the program would be maintained throughout the forecast period. 

Table 17.3.2 Market Penetrations in 2019 Attributable to Consumer Rebates for 

SPVAC <65

Base-Case Market Share 1.1

Policy Case Market Share 1.9

Increased Market Share 0.8

DOE used the resulting annual increase in market share as the input to represent the 

rebate policy case scenario in its NIA-RIA model. Appendix 17-A shows the annual market 

share increases due to this policy. Section 17.4 presents the resulting efficiency trends for the 

policy case of consumer rebates for SPVAC <65. 

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0 10 20 30 40 50 60 70 80 90 100

Penetration Rate

Benefit/Cost Ratio

High Estimated xHigh No Rebate With Rebate

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17.3.3 Consumer Tax Credits

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

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

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

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

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

independent of the amount of the incentive.10,11 The announcement effect derives from the 

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

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

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

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

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

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

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

corresponding rebate amount discussed above. 

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

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

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

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

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

rebate would take advantage of a tax credit.12 

In preparing its assumptions to estimate the effects of tax credits on consumer purchases 

of SPVAC <65, DOE also reviewed other tax credit programs that have been offered at both the 

Federal and State levels for energy-efficient appliances.

 

 The Energy Policy Act of 2005 (EPACT 2005) included Federal tax credits for 

consumers who purchase energy-efficient products, including home heating and cooling products 

for new or existing homes.13 Those tax credits were in effect in 2006 and 2007, expired in 2008, 

reinstated for 2009–2010 by ARRA, extended by Congress for 2011 with some modifications, 

and expired at the end of 2011.14, 15 DOE reviewed Internal Revenue Service data on the 

numbers of taxpayers who claimed the tax credits during tax years 2006 and 2007. DOE also 

reviewed data from an earlier Federal energy conservation tax credit program in place in the 

1980s. However, DOE did not find data specific enough to SPVUs to warrant adjusting its 

analysis method for the Consumer Tax Credits policy case. Appendix 17-A contains more 

information on Federal consumer tax credits. 

 DOE also reviewed its previous analysis on Oregon’s tax credits for clothes washers to 

provide support for its assumptions.16 In that previous analysis, DOE compared the market 

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

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

17-8
rebates during the same period. Based on this analysis, DOE estimated that in Oregon the impact 

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

efficiency. This finding supports its original assumption that participation in a tax credit program 

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

tax credits for Oregon and other states is in Appendix 17-A. 

 

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

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

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

incentives from the penetration curve selected for SPVAC <65. 

Table 17.3.3 summarizes DOE’s assumptions for SPVAC <65 regarding the market 

penetration of units in 2019 that meet the target efficiency level given a consumer tax credit.

DOE assumed that the increase in market share seen in the first year of the program would be 

maintained throughout the forecast period. 

Table 17.3.3 Market Penetrations in 2019 Attributable to Consumer Tax Credits for 

SPVAC <65

Base-Case Market Share 1.1

Policy Case Market Share 1.6

Increased Market Share 0.5

The increased market share attributable to consumer tax credits shown in Table 17.3.3 

was used as an input to the NIA-RIA model. Appendix 17-A shows the annual market share 

increases due to this policy. Section 17.4 presents the resulting efficiency trends for the policy 

case of consumer tax credits for SPVAC <65 that meet the target efficiency level. 

17.3.4 Manufacturer Tax Credits 

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

produce SPVAC <65 that meet the target efficiency level, DOE assumed that a manufacturer tax 

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

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

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

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

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

effect,

10 DOE estimated that a manufacturer tax credit would induce half the number of 

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

e Note that this is a conservative assumption, since it is possible that manufacturers or utility/agency efficiency 

programs might promote the models for which manufacturers increase production due to the tax credits, which in 

turn might induce some announcement effect. However, DOE found no data on such programs on which to base an 

estimate of the magnitude of this possible announcement effect on consumer behavior.

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

who would participate in a rebate program. 

DOE attempted to investigate manufacturer response to the Energy Efficient Appliance 

Credits for manufacturers mandated by EPACT 2005.17 Those manufacturer tax credits were in 

effect for SPVU models produced in 2006 and 2007, reinstated for 2009 and 2010, extended to 

2011 with modifications in the eligibility requirements, and expired at the end of 2011. DOE was 

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

response to the Federal credits. Appendix 17-A presents details on Federal manufacturer tax 

credits.

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

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

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

penetration curve selected for SPVUs. 

Table 17.3.4 summarizes DOE’s assumptions for SPVAC <65 regarding the market 

penetration of units in 2019 meeting the target efficiency level given a manufacturer tax credit.

DOE assumed that the increase in market share seen in the first year of the program would be 

maintained throughout the forecast period. 

Table 17.3.4 Market Penetrations in 2019 Attributable to Manufacturer Tax Credits

for SPVAC <65

Base-Case Market Share 1.1

Policy Case Market Share 1.3

Increased Market Share 0.2

The increased market share attributable to a manufacturer tax credit shown in Table 

17.3.4 was used as an input to the NIA-RIA model. Appendix 17-A shows the annual market 

share increases due to this policy. Section 17.4 presents the resulting market penetration trends 

for the policy case of manufacturer tax credits for SPVAC <65. 

17.3.5 Voluntary Energy Efficiency Targets 

DOE assumed that voluntary energy efficiency targets would be achieved as 

manufacturers gradually stopped producing units that operated below the target efficiency level. 

DOE assumed that the impetus for phasing out production of low-efficiency units would be a 

program with impacts similar to those of the ENERGY STAR labeling program conducted by 

the Environmental Protection Agency (EPA) and DOE in conjunction with industry partners. 

The ENERGY STAR program specifies the minimum energy efficiencies that various products 

must have to receive the ENERGY STAR label. ENERGY STAR encourages consumers to 

purchase efficient products via marketing that promotes consumer label recognition, various 

incentive programs that adopt the ENERGY STAR specifications, and manufacturers’ promotion 

of their qualifying appliances. ENERGY STAR projects market penetration of compliant 

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appliances and estimates the percentage of sales of compliant appliances that are attributable to 

the ENERGY STAR program. 

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

consumer products. Program efforts generally involve a combination of information 

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

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

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

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

active.18, 19,20 

Since ENERGY STAR does not have a program aimed at SPVUs, DOE based its 

estimates of market penetration on its previous estimates of the impact of a voluntary energy 

efficiency targets program on shipments of CUACs. DOE chose CUACs as a product with a 

similar base case market share projection to that of SPVUs. In its prior analysis DOE assumed 

that the ENERGY STAR program would lead to a 0.6 percentage point annual increase in the 

market share of ENERGY STAR-compliant CUAC equipment from throughout the forecast 

period.21 DOE assumed that SPVUs would experience this level of annual increase in market 

penetration beginning in 2019 and lasting throughout the forecast period. DOE added those 

percent increases to the market shares of SPVAC <65 that met the target level in the RIA base 

case, starting in 2019, to obtain the annual market shares of units meeting the target efficiency 

level in the voluntary energy efficiency targets policy case. 

Table 17.3.5 summarizes DOE’s assumption for SPVAC <65 regarding the market 

penetration of units in 2019 that meet the target efficiency level given voluntary energy 

efficiency targets.

Table 17.3.5 Market Penetrations in 2019 Attributable to Voluntary Energy Efficiency 

Targets for SPVAC <65

Base-Case Market Share 1.1

Policy Case Market Share 1.7

Increased Market Share 0.6

 The increased market share attributable to voluntary energy efficiency targets shown in 

Table 17.3.5 was used as an input to the NIA-RIA model. Appendix 17-A shows the annual 

market share increases due to this policy. Section 17.4 presents the resulting market penetration 

trends for the policy case of voluntary energy efficiency targets for SPVAC <65 that meet the 

target efficiency level. 

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17.3.6 Early Replacement 

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

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

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

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

energy cost savings. DOE examined several resources to inform its analysis of the policy. One 

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

2004.22 Another was a 2006 study of the potentials for electric energy efficiency performed for 

the State of Vermont.23 

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

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

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

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

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

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

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

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

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

SPVUs, because consumers replaced primary units rather than retiring second units. Nexus/RLW 

used program data and surveys to estimate the number of RACs retired by ARP participants, the 

percentage of retired units that were replaced with an ENERGY STAR model, and the number of 

RACs replaced by non-participants during the program. According to the Nexus/RLW analysis, 

about 7 percent of all RACs retired during the program were retired through the ARP, and 63 

percent of those were replaced with ENERGY STAR models. Thus the program resulted directly 

in about 4 percent of total eligible RAC consumers deciding on early replacement of inefficient 

units. 

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

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

measures. The study took an aggressive, multi-program approach, one aspect of which was early 

replacement of appliances. GDS considered that under the program residential appliances, 

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

market penetrations assuming that consumers would receive a financial incentive equal to 50 

percent of the incremental cost of each program measure. GDS assumed a maximum 80-percent 

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

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

(2005). 

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

analyzed the effectiveness of Federal programs that supported early retirement of appliances.

24

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

17-12
replacement of Federally-owned appliances; and promotion through product manufacturers, 

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

 For this RIA analysis, DOE analyzed a program to target installed units having efficiency 

levels lower than the target level and encourage their early replacement with products that 

perform at the target level. DOE modeled the effects of the early replacement policy by 

increasing by 4 percent per year the retirement rate of units that were in the stock in the first year 

of the analysis period (2019). DOE chose the 4-percent rate from the Connecticut study, because 

it was based on actual program experience. DOE assumed that the early replacement program 

would continue until it had facilitated the replacement of all eligible SPVAC <65 in the stock in 

the year the program began (2019). Shipments of new units in 2019 and beyond were not 

affected by the program, but remained at base-case efficiency levels. After the stock of 

inefficient units was replaced completely, the policy would produce no additional impacts. 

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

products that meet the target efficiency level relative to the base case. High-efficiency units 

would be brought quickly into the stock, leading to an immediate gain in the market share of 

efficient units compared to the base case. As opposed to the policy cases discussed previously, 

however, an early replacement policy results in market shares of efficient units returning to basecase percentages as the eligible market is depleted. In addition, because units removed early from 

the stock would have been replaced later (at the ends of their useful lives) without the program, 

the number of shipments in later years drops slightly below the base-case shipments forecast. 

DOE used the additional shipments for early replacements to calculate the increase in 

market penetration of more efficient units that would result from an early replacement policy. 

Table 17.3.6 summarizes DOE’s assumptions for SPVAC <65 regarding the market penetration 

of units in 2019 meeting the target efficiency level given early replacement incentives.

Table 17.3.6 Market Penetrations in 2019 Attributable to Early Replacements for 

SPVAC <65

Base-Case Market Share 1.1

Policy Case Market Share 1.1

Increased Market Share 0.0

The resulting increase in market share attributable to early replacement shown in Table 

17.3.6 was used as an input to the NIA-RIA model. Appendix 17-Ashows the annual market 

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

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

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

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

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

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

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

17-13

 
share increases due to this policy. Section 17.4 presents the resulting market penetration trends 

for the policy case of early replacement for SPVAC <65. 

17.3.7 Bulk Government Purchases 

 Bulk government purchases can lead to Federal, State, and local governments purchasing 

large quantities of products that meet the target efficiency level. Combining the market demands 

of multiple public sectors also can provide a market signal to manufacturers and vendors that 

some of their largest customers seek products that meet an efficiency target at favorable prices. 

Such a program also can induce “market pull,” whereby manufacturers and vendors would 

achieve economies of scale for high efficiency products. 

DOE assumed that the market penetration of SPVUs in government-owned buildings was

very small and therefore that the energy savings would be minimal. Therefore it did not analyze 

the Bulk Government Purchases policy for this product. 

17.4 IMPACTS OF NON-REGULATORY ALTERNATIVES 

Figure 17.4.1 shows the effects of each non-regulatory policy on market penetration for 

SPVAC <65. Relative to the base case, the policy cases slightly increase the market shares that 

meet the target level. Note that the proposed standards (not shown in the figures) would result in 

a 100-percent market penetration of products that meet the target efficiency level. 

Figure 17.4.1 Market Penetration of SPVAC <65 Units Meeting the Target 

Level in Policy Cases 

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

201920202021202220232024202520262027202820292030203120322033203420352036203720382039204020412042204320442045204620472048

Consumer Rebate

Consumer Tax Credit

Manufacturer Tax Credit

Voluntary Efficiency Targets

Early Replacement

Base case

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Table 17.4.1 shows the national energy savings (NES) and net present value (NPV) for 

five non-regulatory policies analyzed in detail for SPVAC <65. The target level for each policy 

equals the efficiency level in the corresponding proposed standard. 

The case in which no regulatory action is taken with regard to SPVUs constitutes the base 

case (or "No New Regulatory Action" scenario), in which NES and NPV are zero by definition. 

For comparison, the tables include the impacts of the proposed standards. Energy savings are 

given in trillion British thermal units (quads). The NPVs shown in Table 17.4.1 are based on two 

discount rates, 7 percent and 3 percent. 

Table 17.4.1 Impacts of Non-Regulatory Alternatives for SPVAC <65 (TSL 2) 

Policy Alternative

Primary Energy 

Savings* 

(trillion BTU)

Net Present Value*

(million 2013$)

7% Discount 

Rate

3% Discount 

Rate

Consumer Rebates 0.8 0.8 2.4

Consumer Tax Credits 0.5 0.5 1.4

Manufacturer Tax Credits 0.2 0.2 0.7

Voluntary Energy Efficiency Targets 0.6 0.6 1.9

Early Replacement 0.0 0.0 0.0

Proposed Standards 125.7 13.4 129.6

*For products shipped 2019 – 2048.

17-15
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