# R egulatory Impact Analysis for Fossil Fuel Reduction Rule

Prepared for the U.S. Department of Energy Federal Energy Management Program

By Pacific Northwest National Laboratory

July 2014DISCLAIMER

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## Regulatory Impact Analysis for Fossil Fuel
Reduction Rule

MA Halverson
DB Belzer

July 2014

Prepared for U.S. Department of Energy Federal Energy Management Program
under Contract DE

- AC05

- 76RL01830

Pacific Northwest National Laboratory Richland, Washington 99352

## Summary

Section 433 of the Energy Independence and Security Act of 2007 (Pub. L. 110

- 140) ( EISA) directed the U.S. Department of Energy (DOE) to establish fossil fuel

- generated energy consumption limits for new Federal buildings and Federal buildings undergoing major renovation (42 U.S.C. 6834(a)(3)(D)(i)). 1
The statute requires fossil fuel

- generated energy 2 consumption reductions starting at 55% in f iscal y ear (FY) 2010 and increasing to 100% in FY 2030 and beyond. These reduction targets are measur ed relative to “typical” building energy use, as measured by DOE’s Commercial Building Energy Consumption Survey (CBECS) and Residential Energy Consumption Survey (RECS). These targets only apply to new construction or major renovations with a total cost of $2.5 million (in 2007 dollars) or more and “public buildings” (as defined at 40 U.S.C. 3301) for which a prospectus to Congress is required under 40 U.S.C.

3307. The proposed rule is estimated to save 1.9 million metric tons of carbon dioxide emissions in
2030.

DOE has determined that the standards for Federal buildings outlined in the fossil fuel reduction rule constitute an “economically significant regulatory action” under Executive Order (E.O.) 12866, Regulatory Planning and Review . DOE has there fore committed to comparing regulatory alternatives to the rule by performing a Regulatory Impact Analysis ( RIA ) . This RIA, which DOE has prepared pursuant to E.O. 12866, examines the economic impact of the F ossil F uel

- R eduction R ule on the
construction c ost and total life

- cycle construction and operating costs of Federal construction. DOE notes that the $2.5 million construction cost threshold for this fossil fuel

- reduction rule almost certainly rules out application of this rule to Federal low

- rise resi dential buildings as does the “public building” requiring a prospectus threshold because the definition at 40 U.S.C. 3301 specifically excludes residential buildings. Thus, the remainder of this RIA will focus on Federal commercial and multifamily high

- ris e residential buildings.

In addition to analyzing the impacts on Federal buildings of the provisions in the proposed rule, DOE
also performed analyses for the impacts for two alternatives to the rule: (1) a “no

- action” alternative that
assumes this rule is not published, but that existing energy efficiency requirements for new Federal construction remain in effect; and, (2) a more stringent “zero fossil fuel” alternative that requires Federal buildings to go immediately to the level of performance requir ed in the rule as of FY 2030, i.e., a 100%

1 The proposed Fossil Fuel

- Reduction Rule includes the following definition of a New Federal Building: “ New Federal building means any new building (including a complete replacement of an existing building from the foundation up) to be constructed by, or fo r the use of, any Federal agency. Such term shall include buildings built for the purpose of being leased by a Federal agency, and privatized military housing. ” The same document also includes the definition of Major Renovation: “ Major renovation means cha nges to a building that provide significant opportunities for substantial improvement in energy efficiency. This may include, but is not limited to, replacement of the HVAC system, the lighting system, the building envelope, and other components of the bu ilding that have a major impact on energy usage. Major renovation also includes a renovation of any kind that provides significant opportunities for compliance with other applicable requirements in this part. ”

2 Fossil fuel

- generated energy consumption i s the sum of fossil fuel used directly on site and the fossil fuel used to generate electricity that is used on site. For this rule, the fossil fuel used on site is the source fossil fuel energy, including transmission and distribution losses. The fossil fuel used to generate electricity on site is defined as 71% of the source energy (as generated at the power plant and including transmission and distribution losses). See the
rule itself for a detailed discussion of these definitions.

iiireduction of a typical building’s fossil fuel

- generated energy consumption, or zero fossil fuel usage. The outputs of these analyses are shown in Tables S

- 1 and S

- 2.
Table S

- 1

. Annua lized Benefits and Costs to Federal Government for New and Existing
Construction under the Fossil Fuel

- Reduction Rule (a)

Discount Rate Primary
Estimate (b) Low Estimate (b) High
Estimate (b)

Monetized (201 2 $million/year)

Benefits

Operating (Energy) Cost Savings 7% 349.2 336.1 468.9 3% 606.7 580.1 841.4
CO 2 Reduction at $12.9/t (c) 5% 46.0 46.0 46.0
CO 2 Reduction at $40.8/t (c) 3% 178.6 178.6 178.6
CO 2 Reduction at $62.2/t (c) 2.50% 270.6 270.6 270.6
CO 2 Reduction at $117.0/t (c) 3% 550.9 550.9 550.9

NO X Reduction at $2,639/t (c) 7% 2.9 2.9 2.9 3% 4.9 4.9 4.9

Total (Operating Cost Savings,
CO 2 Reduction and NO X Reduction) (d) 7% plus CO 2 range 398 to 903 385 to 890 518 to 1023
7% 530.7 517.6 650.4 3% 790.2 763.6 1024.9 3% plus CO 2 range 658 to 1163 631 to 1136 892 to 1397 Costs
Incremental Purchase Price
Increase 7% 479.4 572.6 386.3 3% 574.6 695.6 453.5 Net Benefits/Costs Total (Operating Cost Savings,
CO 2 Reduction and NO X Reduction, Minus Incremental Cost Increase to Buildings) 7% plus CO 2 range

- 28 to 477

- 188 to 317 132 to 636
7% 104.6

- 55.0 264.2 3% 215.7 68.0 571.4 3% plus CO 2 range 187 to 692

- 65 to 440 439 to 944

(a) Incremental costs are calculated for buildings constructed or renovated in 201 5

- 204 4 ; total benefits extend through 207 4

. (b) The primary, low, and high estimates utilize forecasts of energy prices from the Annual Energy Outlook 2013 reference

case (DOE 2012b) . The low and high cases were based upon the percentage price deviations from the Annua l Energy
Outlook 2013 reference case as provided in the Low Economic Growth case and High Economic Growth case, respectively.
(c) These values represent global values (in 201 2 $) of the social cost of CO 2 (SCC) emissions in 2013 under several
scenarios de veloped by the Interagency Working Group on Social Cost of Carbon (SCC) ( OMB 2013) . The values of $12.9, $40.8, and $62.2 per metric ton are the averages of SCC distributions calculated using 5%, 3%, and 2.5% discount rates, respectively. The value of $117 .0 per ton represents the 95th percentile of the SCC distribution calculated using a 3% discount rate. For NO
x , values were extracted from OMB guidance (OMB 2006) and updated to 2012$. An average value ($2,639) of the low ($468) and high ($4,809) values w as used. (d) Total monetary benefits for both the 3 % and 7 % cases utilize the central estimate of social cost of NO
x and CO 2 emissions calculated at a 3 % discount rate (averaged across three integrated assessment models (IAMs)), which is equal

to $40.8 / metric ton (in 2012$).

.

ivTable S

- 2 Annualized Benefits and Costs to the Federal Government for New and Existing Construction under the “Zero Fossil Fuel” Alternative (a)

Discount Rate Primary
Estimate (b) Low Estimate (b) High
Estimate (b)

Monetized (2012 $million/year)

Benefits

Operating (Energy) Cost Savings 7% 601.4 583.1 781.2 3% 1076.6 893.6 1259.6
CO 2 Reduction at $12.9/t(c) 5% 68.6 68.6 68.6
CO 2 Reduction at $40.8/t(c) 3% 257.9 257.9 257.9
CO 2 Reduction at $62.2/t(c) 2.50% 388.0 388.0 388.0
CO 2 Reduction at $117.0/t(c) 3% 793.2 793.2 793.2

NO X Reduction at $ 2,639 /t (c) 7% 4.8 4.8 4.8 3% 7.1 7.1 7.1

Total (Operating Cost Savings,
CO 2 Reduction and NO X Reduction) (d) 7% plus CO 2 range 675 to 1399 657 to 1381 855 to 1579
7% 864.1 845.8 1043.8 3% 1341.6 1158.6 1524.7 3% plus CO 2 range 1152 to 1877 969 to 1694 1335 to 2060 Costs
Incremental Purchase Price
Increase 7% 1043.8 1167.0 920.6 3% 1021.6 1161.1 882.2 Net Benefits/Costs Total (Operating Cost Savings,
CO 2 Reduction and NO X Reduction, Minus Incremental Cost Increase to Buildings) 7% plus CO 2 range

- 288 to 436

- 510 to 214

- 66 to 659
7%

- 99.0

- 321.2 123.2 3% 320.0

- 2.5 642.5 3% plus CO 2 range 131 to 855

- 192 to 533 453 to 1178

(a) Incremental costs are calculated for buildings constructed or renovated in 201 4

- 204 4 ; total benefits extend through 207 4

. (b) The primary, low, and high estimates utilize forecasts of energy prices from the Annual Energy Outlook 2013 reference

case (DOE 2012b) . The low and high cases were based upon the percentage price deviations from the Annual Energy
Outlook 2013 reference case as provided in the Low Economic Growth cas e and High Economic Growth case, respectively.
(c) These values represent global values (in 201 2 $) of the social cost of CO 2 (SCC) emissions in 2012 under several scenarios developed by the Interagency Working Group on Social Cost of Carbon (SCC) ( OMB 2013) . The values of $ 12.9 , $ 40.8 , and $ 62.2 per metric ton are the averages of SCC distributions calculated using 5%, 3%, and 2.5% discount rates, respectively. The value of $ 117.0 per ton represents the 95th percentile of the SCC distribution calculated using a 3% discount rate. For NO
x , values were extracted from OMB guidance (OMB 2006) and updated to 2012$. A n average value ($ 2,639 ) of the low ($ 468 ) and high ($ 4,809 ) values was used. (d) Total monetary benefits for both the 3 % and 7 % cases utilize the central estimate of social cost of NO
x and CO 2 emissions calculated at a 3 % discount rate (averaged across three integrated assessment models (IAMs)), which is equal to $ 40.8 / metric ton (in 2012$ ).

DOE also considered non

- regulatory policy alternatives (e.g., tax credits, rebates, labeling programs) to the rule, but was unable to identify any non

- regulatory policy alternatives that would be viable for Federal buildings.

Based upon the primary estimates from Table S

- 1 and Table S

- 2 , a summary of the an nualized net benefits estimated for the regulatory policy options considered in this RIA are presented in Table S

- 3 . To reiterate, future incremental costs include both measures to improve the energy efficiency of Federal facilities as well as incorporating renewable energy [ solar photovoltaic ( PV) ] technologies when necessary. Future benefits incorporate both reductions in annual energy expenditures and monetized benefits of emissions reductions. The analysis shows that applying a 3% or 7% discount rate to future

iiicosts and benefits of the proposed rule yields a net economic savings to the nation. For the “Zero Fossil
Fuel” alternative , which would r equire installation of solar PV systems on many new Federal facilities in the near term, the net economic benefits are negative using the 7% discount rate, but positive using the
3% discount rate assumption.

Table S

- 3 . Annuali zed Net Benefits of Regulatory Policy Options (primary estimate)

7% Discount Rate (201 2 $millions/year) 3% Discount Rate (201 2 $millions/year) Proposed Rule 104.6 215.7
“Zero Fossil Fuel” Alternative

- 99.0 320.0

iv

## Contents

Summary

................................ ................................ ................................ ................................ ........... iii

1.0 Introduction

................................ ................................ ................................ ............................. 1.1

2.0 Regulatory Options

................................ ................................ ................................ .................. 2.1

3.0 Non

- Regulatory Options

................................ ................................ ................................ .......... 3.1

4.0 Analysis Methodology

................................ ................................ ................................ ............. 4.1

4.1 Key Assumptions in Analysis Methodology

................................ ................................ ... 4.1

4.1.1 New Federal Commercial Building Construction Volume per Year

................... 4.1

4.1.2 New Federal Commercial Construction Building Type Distribution

................... 4.2

4.1.3 New Federa l Commercial Fraction over $2.5 Million in Cost or For Which a Prospectus to Congress is Required

................................ ................................ ..... 4.2

4.1.4 New Federal Constructi on Building Energy Usage

................................ ............. 4.3

4.1.5 Federal Commercial Renovation Volume per Year

................................ ............. 4.3

4.1.6 Federal Commercial Renovation Fraction over $2.5 million in Cost or for which a Prospectus to Congress is Required

................................ ................................ ... 4.4

4.1.7 Federal Commercial Major Renovation Fraction

................................ ................. 4.5

4.1.8 Federal Commercial Major Renovation Savings Fraction

................................ ... 4.5

4.1.9 Typical Existing Federal Build ing Energy Usage

................................ ................ 4.5

4.1.10 Typical Existing Federal Building Electricity Fraction

................................ ........ 4.6

4.2 Cost Estimates

................................ ................................ ................................ ................. 4.6

4.2.1 Ne w Construction Baseline under 10 CFR Part 433 Energy Efficiency
Performance Standards

................................ ................................ ......................... 4.6

4.2.2 New Construction under Proposed Ru le

................................ .............................. 4.6

4.2.3 New Construction under Zero Fossil Fuel Alternative

................................ ......... 4.7

4.2.4 Existing Buildings Baseline under 10 CFR Part 433 Energy Efficiency
Performance Standards

................................ ................................ ......................... 4.8

4.2.5 Existing Buildings under Proposed Rule or Zero Fossil Fuel Alternative

........... 4.8

5.0 Conclusion

................................ ................................ ................................ ............................... 5.1

6.0 References

................................ ................................ ................................ ................................ .. 1

v

## Tables

S

- 1. Annualized Benefits and Costs to Federal Government for New and Existing Construction
under the Fossil Fuel

- Reduction Rule (a)

................................ ................................ ............................... iv

S

- 2 Annualized Benefits and Costs to the Federal Government for New and Existing
Construction under the “Zero Fossil Fuel” Al ternative (a)

................................ ................................ .... iii

S

- 3. Annualized Net Benefits of Regulatory Policy Options (primary estimate)

................................ ....... iv

1 Construction C ost Increases under the Fossil Fuel

- Reduction Rule and “Zero Fossil Fuel”
Alternative

................................ ................................ ................................ ................................ .... 2.1

2 Annualized Benefits and Costs to Federal Government for New and Existing Construction
under the Fossil Fuel

- Reduction Rule

................................ ................................ ................... 2.4

3 Annualized Benefits and Costs to the Federal Government for New and Existing
Construction under the “Zero Fossil Fuel” Alter native

................................ ................................ 2.5

4 Annualized Net Benefits of Regulatory Policy Options

................................ ............................... 5.1

vi

## 1.0 Introduction

Section 433 of t he Energy Independence and Security Act of 2007 (Pub. L. 110

- 140) ( EISA) directed the U.S. Department of Energy (DOE) to establish fossil fuel

- generated energy consumption limits for

new F ederal buildings and F ederal buildings undergoing major renovation (42 U.S.C. 6834(a)(3)(D)(i))

. 1
The statute requires fossil fuel

- generated energy 2 consumption reductions starting at 55% in f iscal y ear (FY) 2010 and increasing to 100% in FY 2030 and beyond. These reduction targets are measured relative to “typical” building energy use, as measured by DOE ’s Commercial Building E nergy Consumption Survey (CBECS) and Residential Energy Consumption Survey (RECS). These targets only apply to new construction or major renovations with a total cost of $2.5 million (in 2007 dollars) or more and “public buildings” (as defined at 40 U.S.C . 3301) for which a prospectus to Congress is required under 40 U.S.C.

3307

. T he proposed rule is estimated to save 1.9 million metric tons of carbon emissions in 2030.

DOE has determined that the standards for F ederal b uildings outlined i n the F ossil F uel

- R eduction

R ule constitute an “economically significant regulatory action” under Executive Order (E.O.) 12866, Regulatory Planning and Review . DOE has therefore committed to comparing regulatory alternatives to
the rule by performing a Regulatory Impact Analysis ( RIA ) . This RIA, which DOE has prepared pursuant to E.O. 12866, examines the economic impact of the fossil fuel

- reduction rule on the
construction cost and total life

- cycle construction and operating costs of F ederal construction. DOE notes that the $2.5 million construction cost threshold for this F ossil F uel

- R eduction R ule almost certainly rules out application of this rule to Federal low

- rise residential buildings as does the “public building” requiring

a pr ospectus threshold because the definition at 40 U.S.C. 3301 specifically excludes residential buildings. Thus, the remainder of this RIA will focus on Federal commercial and multifamily high

- rise residential buildings. DOE performed analyses for the impac ts on F ederal buildings for two alternatives
to the rule : (1) a “no

- action” alternative that assumes this rule is not published, but that existing energy efficiency requirements for new F ederal construction remain in effect; and , (2) a more stringent “zer o fossil fuel” alternative that requires F ederal buildings to go immediately to the level of perf ormance required in the rule as of FY 2030, i.e., a 100% reduction of a typical building’s fossil fuel

- generated energy consumption, or zero fossil fuel usage. C osts and benefits of each alternative to the rule are compared in this RIA. DOE also considered non

- regulatory policy alternatives (e.g., tax credits, rebates

, labeling programs ) to the rule

, but was unable to identify any non

- regulatory policy alterna tives that
would be viable for F ederal buildings.

1 The proposed Fo ssil Fuel

- Reduction Rule includes the following definition of a New Federal Building: “ New Federal building means any new building (including a complete replacement of an existing building from the foundation up) to be constructed by, or for the use of, an y Federal agency. Such term shall include buildings built for the purpose of being leased by a Federal agency, and privatized military housing. ” The same document also includes the definition of Major Renovation: “ Major renovation means changes to a buildi ng that provide significant opportunities for substantial improvement in energy efficiency. This may include, but is not limited to, replacement of the HVAC system, the lighting system, the building envelope, and other components of the building that have a major impact on energy usage. Major renovation also includes a renovation of any kind that provides significant opportunities for compliance with other applicable requirements in this part. ”

2 Fossil fuel

- generated energy consumption is the sum of fos sil fuel used directly on site and the fossil fuel used to generate electricity that is used on site. For this rule, the fossil fuel used on site is the source fossil fuel energy, including transmission and distribution losses. The fossil fuel used to ge nerate electricity on site is defined as 71% of the source energy (as generated at the power plant and including transmission and distribution losses). See the
rule itself for a detailed discussion of these definitions.

1.1

## 2.0 Regulatory Options

DOE considered several alterna tive s in developing the fossil fuel

- reduction rule consistent with its statutory mandate to base the fossil fuel

- generated energy consumption limits on the FY 2003 version of
CBECS and RECS. Specifically, as the baseline for this analysis DOE considered a “no

- action” alternative of not issuing the rule, i.e., leaving new F ederal construction subject to energy efficiency performance requirements found in 10 CFR Part 433 , “Energy Efficiency Standards for New Federal
Commercial and Multi

- Family High

- Rise Residential Buildings ” , which requires that new F ederal buildings be built with energy consumption of at least 30% below the levels established in

ANSI/ASHRAE/ IES Standard 90.1

- 2010, Energy Standard for Buildings Except Low

- Rise Residential Buildings , if life

- cycle cost

- effective. 1

DOE also considered a “ zero fossil fuel ” alternative of immediately requiring the lowest fossil fuel

generated energy consumption limits s pecified in the rule of zero fossil fuel usage . The impact on
construction cost s over a 30

- year period from 201 5

- 204 4 of adopting the rule, and going immediately to
“zero fossil fuel usage ” alternative, compared to the baseline “ no

- action ” alterna tive is presented in Table

1

. The f irst costs of construction are greatly dependent on the assumed cost of solar photovoltaic (PV) power in the future 2 . Columns labeled “ High PV

- Cost Scenario ” (second and fourth columns in the table ) assume only a modest decline in the cost of PV

- gene rated electricity in the future in contrast to more significant cost reductions in the “ Low PV

- Cost S cenario ” columns (third and fifth columns in the table).
The s pecific key assumptions in the analysis are described in Section 4.1 , while the origins of the co st
estimates are described in Section 4.2

.

Table 1

. Construction Co st Increases under the F ossil F uel

- Reduction Rule and “ Zero Fossil Fuel” Alternative ( r elative to baseline “no

- action ” alternative)

Calendar

Year F ossil F uel

Reduction Rule

-

High PV Cost Scenario (201 2 $million) F ossil F uel

Reduction Rule

-

Low PV Cost

Scenario (201 2 $million) “ Zero Fossil Fuel ” Alternative

- High PV Cost Scenario (201 2 $million) “ Zero Fossil Fuel ” Alternative

- Low PV Cost Scenario (201 2 $million)

2015 $30 $30 $1,194 $1,136
2016 $30 $30 $1,189 $1,103
2017 $30 $30 $1,183 $1,071
2018 $30 $30 $1,178 $1,040
2019 $30 $30 $1,173 $1,010
2020 $536 $447 $1,191 $1,005
2021 $534 $435 $1,186 $976
2022 $532 $424 $1,181 $949
2023 $530 $413 $1,175 $922
2024 $528 $402 $1,170 $896

1 10 CFR 433 currently requires t hat new Federal buildings be built with energy consumption at least 30% below the
levels established in Standard 90.1

- 2007, if life

- cycle cost

- effective.

2 Solar PV systems are assumed to be used to meet the targets of the Fossil Fuel

- Reduction Rule once conservation measures alone can no longer meet the targets. Solar PV systems were chosen as commonly used on

- site renewable energy systems. On

- site renewable energy systems were chosen over use of renewable energy certificates (RECs) or power purchase a greements (PPAs) because REC and PPA usage is limited in the Fossil Fuel

- Reduction Rule.

2.1Table 1 . (continued)

Calendar

Year Fossil Fuel

Reduction Rule

-

High PV Cost Scenario (201 2 $million) Fossil Fuel

Reduction Rule

-

Low PV Cost

Scenario (201 2 $million) “Zero Fossil Fuel”
Alternative

- High PV Cost Scenario (201 2 $million) “Zero Fossil Fuel”
Alternative

- Low PV Cost Scenario (20 12 $million)

2025 $841 $618 $1,165 $871
2026 $837 $601 $1,160 $847
2027 $834 $585 $1,155 $824
2028 $830 $569 $1,150 $801
2029 $827 $554 $1,145 $778
2030 $1,135 $736 $1,140 $757
2031 $1,130 $716 $1,140 $757
2032 $1,125 $696 $1,140 $757
2033 $1,120 $677 $1,140 $757
2034 $1,115 $658 $1,140 $757
2035 $1,110 $640 $1,140 $757
2036 $1,110 $640 $1,140 $757
2037 $1,110 $640 $1,140 $757
2038 $1,110 $640 $1,140 $757
2039 $1,110 $640 $1,140 $757
2040 $1,110 $640 $1,140 $757
2041 $1,110 $640 $1,140 $757
2042 $1,110 $640 $1,140 $757
2043 $1,110 $640 $1,140 $757
2044 $1,110 $640 $1,140 $757

PV = photovoltaic

As shown in Table 1

, both the F ossil F uel

- R eduction R ule and the “ zero fossil fuel ” alternative would increase the cost of new construction and renovations to existing buildings relative to the “no

- action”
alternative. One item to note in Table 1 is the relatively low cost associated with the first 2 years of the

ana lysis period under the F os sil F uel

- R eduction R ule. The estimated cost increase for these 2 years is associated entirely with existing buildings because the cost to desig n new buildings to the “no

- action” alternative is higher than the cost estimated under the rule. This increase in cost is balanced by reducing the environmental impact of e nergy generation

- related emissions. Therefore, the net present value of the
estima ted future stream of yearly benefits and costs to the F ederal government (calculated using two different discount rates of 3% and 7%) is the difference between the increased purchase price and the decreased costs associated with annual energy use and emiss ions.

The results of expressing the net present value as annualized benefits (over the period 201 5

- 204 4 ) for
the F ossil F uel

- R eduction R ule and the “zero fossil fuel” alternative are presented in Table 2 and Table 3

, respectively, for both new construction and existing buildings. The pre sent value of incremental costs is computed over the 30

- year period extending from 201 5 through 204 4 . The present value of operating cost savings and environmental benefits is computed over a longer period, 201 5

- 207 4

, to capture all of the
benefits accrui ng to buildings built through the year 204 4

. Thus, for analytical purposes, the b enefits

2.2were assumed to extend for a period of 30 years beyond the year of construction. However, the actual figures shown in Table 2 and Table 3 are expressed as annualized values over the 30

- year period. 3

P rimary, l ow , and h igh estimates of the benefits and costs were developed to indicate the possible range of these metrics. T he future energy prices used to compute operating cost savings for the primary
estimate were taken from the Annual Energy Outlook 201 3 reference case . The l ow e stimate combines slightly lower energy prices as compared to the high economic growth scenario reference case in the AEO

2013 case , along with the construction cost developed as part of the high

- cost PV case (used for incremental construction cost). Alternatively, the h igh e stimate combines higher energy prices relative to
the low economic growth scenario reference case in the AEO 2013 case , along with the construction cost developed as part of the low

- cost PV case

. The average incremental construction cost based upon the high

- cost PV case and the low

- cost PV case was used as the p rimary e stimate of incremental construction

cost.

The net benefit in 201 2 dollars to the F ederal g overnment using the primary estimate for PV system

costs is $ 104.6 million/year using the 7% discount rate, while it is $ 215.7 million/year using the 3%
discount rate for the F ossil F uel

- R eduction R ule (Table 2), while the corresponding values are

- $99.0

m illion/year using the 7% discount rate and $320.0 million per year using the 3% discount rate for the “zero fossil fuel” alternative to the rule (Table 3).

3 The purpose of extending the period out 60 years is to capture the life

- cycle economic benefits of the buildings built in the last year of the analysis period (204 4). This is the standard methodology used by DOE in its analysis of equipment energy

- efficiency standards.

2.3Table 2

. Annualized Benefits and Costs to Federal Government for New and Exi sting Construction
under the Fossil Fuel

- Reduction Rule (a)

Discount Rate Primary
Estimate (b) Low Estimate (b) High
Estimate (b)

Monetized ( 201 2 $ m illion/year )
Benefits

Operating (Energy) Cost Savings 7% 349.2 336.1 468.9 3% 606.7 580.1 841.4
CO 2 Reduction at $12.9/t (c) 5% 46.0 46.0 46.0
CO 2 Reduction at $40.8/t (c) 3% 178.6 178.6 178.6
CO 2 Reduction at $62.2/t (c) 2.50% 270.6 270.6 270.6
CO 2 Reduction at $117.0/t (c) 3% 550.9 550.9 550.9

NO X Reduction at $2,639/t (c) 7% 2.9 2.9 2.9 3% 4.9 4.9 4.9

Total (Operating Cost Savings,
CO 2 Reduction and NO X Reduction) (d) 7% plus CO 2 range 398 to 903 385 to 890 518 to 1023
7% 530.7 517.6 650.4 3% 790.2 763.6 1024.9 3% plus CO 2 range 658 to 1163 631 to 1136 892 to 1397 Costs
Incremental Purchase Price
Increase 7% 479.4 572.6 386.3 3% 574.6 695.6 453.5 Net Benefits/Costs Total (Operating Cost Savings,
CO 2 Reduction and NO X Reduction, Minus Incremental Cost Increase to Buildings) 7% plus CO 2 range

- 28 to 477

- 188 to 317 132 to 636
7% 104.6

- 55.0 264.2 3% 215.7 68.0 571.4 3% plus CO 2 range 187 to 692

- 65 to 440 439 to 944

(a) Incremental costs are calculated for buildings constructed or renovated in 201 5

- 204 4 ; total benefits extend through 207 4

. (b) The p rimary, l ow, and h igh e stimates utilize forecasts of energy prices from the Annual Energy Outlook 201 3 r eference
case. The l ow and h igh cases were based upon the percentage price deviations from the Annual Energy Outlook 201 3 (DOE 2012b) reference case as provided in the Low Economic Gr owth case and High Economic Growth case, respectively.
(c) These values represent global values (in 201 2 $) of the social cost of CO 2 (SCC) emissions in 201 3 under several scenarios developed by the Interagency Working Group on Social Cost of Carbon (SCC) ( OMB 2013) . The values of $ 12.9 , $ 40.8 , and $ 62.2 per metric ton are the averages of SCC distributions calculated using 5 % , 3 % , and 2.5 % discount rates, respectively. The value of $ 117.0 per ton represents the 95th percentil e of the SCC distribution calculated using a
3 % discount rate. For NO
x , values were extracted from OMB guidance (OMB 2006) and updated to 2012$. A n average value ($2, 639 ) of the low ($ 468 ) and high ($ 4,809 ) values was used. (d) Total monetary benefits for both the 3 % and 7 % cases utilize the central estimate of social cost of NO
x and CO 2 emissions calculated at a 3 % discount rate (averaged across three integrated assessment models (IAMs)), which is equal

to $ 40.8 / metric ton (in 201 2 $).

2.4Table 3

. Annualized Benefits and Costs to the Federal Government for New and Existing Construction
under the “ Zero Fossil Fuel” Alternative (a)

Discount Rate Primary
Estimate (b) Low Estimate (b) High
Estimate (b)

Monetized ( 201 2 $ m illion/year )
Benefits

Operating (Energy) Cost Savings 7% 601.4 583.1 781.2 3% 1076.6 893.6 1259.6
CO 2 Reduction at $12.9/t(c) 5% 68.6 68.6 68.6
CO 2 Reduction at $40.8/t(c) 3% 257.9 257.9 257.9
CO 2 Reduction at $62.2/t(c) 2.50% 388.0 388.0 388.0
CO 2 Reduction at $117.0/t(c) 3% 793.2 793.2 793.2

NO X Reduction at $ 2,639 /t (c) 7% 4.8 4.8 4.8 3% 7.1 7.1 7.1

Total (Operating Cost Savings,
CO 2 Reduction and NO X Reduction) (d) 7% plus CO 2 range 675 to 1399 657 to 1381 855 to 1579
7% 864.1 845.8 1043.8 3% 1341.6 1158.6 1524.7 3% plus CO 2 range 1152 to 1877 969 to 1694 1335 to 2060 Costs
Incremental Purchase Price
Increase 7% 1043.8 1167.0 920.6 3% 1021.6 1161.1 882.2 Net Benefits/Costs Total (Operating Cost Savings,
CO 2 Reduction and NO X Reduction, Minus Incremental Cost Increase to Buildings) 7% plus CO 2 range

- 288 to 436

- 510 to 214

- 66 to 659
7%

- 99.0

- 321.2 123.2 3% 320.0

- 2.5 642.5 3% plus CO 2 range 131 to 855

- 192 to 533 453 to 1178

(a) Incremental costs are calculated for buildings constructed or renovated in 201 4

- 204 4 ; total benefits extend through 207 4

. (b) The primary, low, and high estimates utilize forecasts of energy prices from the Annual Energy Outlook 201 3 reference case. The low and high cases were based upon the percentage price deviations from the Annual Energy Outlook 201 3 reference case as provided in the Low Economic Growth case and High Economic Growth case, respectively.
(c) These values represent global values (in 201 2 $) of the social cost of CO 2 (SCC) emissions in 201 2 under several scenarios developed by the Interagency Working Group on Social Cost of Carbon (SCC) ( OMB 2013) . The values of $ 12.9 , $ 40.8 , and $ 62.2 per metric ton are the averages of SCC distributions calculated u sing 5%, 3%, and 2.5% discount rates, respectively. The value of $ 117.0 per ton represents the 95th percentile of the SCC distribution calculated using a 3% discount rate. For NOx, values were extracted from OMB guidance (OMB 2006) and updated to 2012$. A n average value ($ 2,639 ) of the low ($ 468 ) and high ($ 4,809 ) values was used. (d) Total monetary benefits for both the 3 % and 7 % cases utilize the central estimate of social cost of NO
x and CO 2 emissions calculated at a 3 % discount rate (averaged acros s three integrated assessment models (IAMs)), which is equal to $ 40.8 / metric ton (in 201 2 $ ).

2.5

## 3.0 Non

- Regulatory Options

DOE also considered certain non

- regulatory policy alternatives such as tax credits, rebates

, and labeling programs

, and was unable to identify any non

- regulatory policy alternatives that would be viable
for F ederal buildings

.

Fed er al agencies constructing new F ederal buildings are not subject to Federal or state taxes and thus a tax credit program is not expected to be a viable option. DOE acknowledges that the current Federal tax incentive program 8 can be utilized by Federal agencies, but only to the extent that agencies can assign the tax incentives to private s ector design firms who work on F ederal buildings. The F ossil F uel

- R eduction

R ule imposes much more efficient req uirements on the design of new F ederal buildings than are called for in the current Federal tax incentives and the issue is not that designers cannot envision buildings that meet those requirements , but simply that constructing a building that meet s those requirements is costly. Without a way of directly subsidizing agencies for the added cost, no non

- regulatory option is likely to be useful. Additionally, using a tax credit or incentive for Feder al construction would simply be transferring money from one Federal source of funding to another, with no net benefit to the Federal government.

DOE also considered rebates and decided that any Federal rebate alternative suffers from the same problem as tax incentives

– a rebate merely transfers money from one Federal source of funding to another, with no net benefit to the Federal government.

DOE also consider labeling pro grams as an alternative to the F ossil F uel

- R eduction R ule. However, Federal agen cies are already encouraged to voluntarily participate in green building rating programs 9 and are required to use the Energy Star Portfolio Manager software by other legislation a nd rules. In that sense, many F ederal buildings are already part of a labeling program so adding another label for fossil fuel usage was not judged a viable alternative.

8 See http://www1.eere.energy.gov/buildings/tax_commercial.html for de tailed description of Federal tax incentives for commercial buildings.

9 Such as the US Green Building Council (USGBC) Leadership in Energy and Environmental Design (LEED) program ( www.usgbc.org/LEED ) and the Green Building Initiative (GBI) Green Globes program ( www.thegbi.org ).

3.1

## 4.0 Analysis Methodology

In DOE’s previous rulemaking activities associated with efficiency standard s for a ppliances and manufactured housing

, the Energy Information Administration’s ( EIA ) National Energy Modeling System ( NEMS ) 10 model has been used to generate estimates of the change in environmental emissions that, in turn, drive the monetary benefits s hown in Tables 2 and 3 above. In these analyses, the use of NEMS is necessary because both appliance efficiency sta ndards and the manufactured housing rule have dealt with only single (or at most several) end uses

. Because different end use energy reduct ions have different implications for environmental emission reductions (primarily because of their differential impact on various types of electricity generation), NEMS has been judged the best available tool for evaluating these impacts. The F ossil F uel

- R eduction R ule differs from these previous rules in that it

covers all end uses in future F ederal building construction

, including major renovations. Accordingly, a more straightforward approach that is deemed to provide a comparable degree of accuracy is to assume that percentage reductions in overall commercial building energy use can be translated into comparable reductions in environmental emissions associated with the entire commercial building sector. 11

This approach, which may be termed a proportional impacts approach, assumes that because the

F ossil F uel

- R eduction R ule applies to all end uses, the overall impacts of the rule applied to F ederal buildings is approximately proportional to an overall reduct ion in all commercial building energy consumption. The proportional reduction in energy use is applied to the carbon emissions shown in the Annual Energy Outlook (NEMS) t able entitled, “ Table 18. Carbon Dioxide Emissions by Sector and

Source

. ” A comparable methodology is applied for NO

x emissions.

The actual calculations undertaken in this analysis are found in two linked spreadsheet workbook s available from Pacific Northwest National Laboratory: (1) “FF RIA Input_0 4 30 v3 .xlsx ; ” and (2)
“N ational Benefits_FF_Rule_0 4 30 v 7 .xlsx

. ” Each spreadsheet includes brief how

- to instructions in
worksheet s titled “Background

. ” 12



## 4.1 Key Assumptions in Analysis Methodology

The following assumptions were made in the F ossil F uel

- R eduction R ule RIA.



### 4.1.1 New Fede ral Commercial Building Construction Volume per Year

Assumption: 42 million square feet per year of new commercial and high

- rise multifamily residential building construction.

Basis: This assumption is based on the analysis of 3 years of Federal construction data purchased by PNNL as part of a commercial building construction dataset. The data is

10 See http://www.eia.gov/oiaf/aeo/overview/ for more information on NEMS.

11 The decision to use an alternative approach to NEMS should not be taken as a criticism of NEMS. While NEMs is no longer used to analyze individual rules by DOE, it is used to evaluate generic cases and the results of those analyses are collapsed into “rules of thumb” results.

12 For copies of these spreadsheets, contact Mark Halverson at mark.halverson@pnnl.gov

.

4.1described in “Weighting Factors for the Commercial Building Prototypes Used in the Development of ANSI/ASHRAE/IESNA Standard 90.1

- 201 0”, (Jarnagin and Bandyopadhyay, 2010)

. Data from the years 2007, 2008, and 2009 were used. The total Federal construction volume plus the construction volume associated with projects greater than $2 million based on the assumption that 20% of the constr uction cost would be related to design of the building and not the actual cost of the building materials and components. T he results of this evaluation a re as follows:

Year Federal Construction Volume (million ft 2 ) Federal Construction Volume for Projects Costing More than $2 million (million ft 2 )

2007 30.64 29.38
2008 43.71 42.29
2009 51.72 50.45 Average 42.02 40.71



### 4.1.2 New Federal Commercial Construction Building Type Distribution

Assumption: 63% office building, 15% warehouse, 4% hospital, 8% education and training, 9% barracks and dormitory.

Basis: This assumption was originally derived from the Federal Real Property Council’s
FY2008 and FY 2009 Federal Real Property Reports (GSA 2008, GSA 2009)

. Subsequent analysis of the FY2010, FY2011, and FY2012 Federal Real Property Council’s reports (GSA 2010, GSA 2011, and GSA 2012) confirmed this distribution.
The values assumed above were also used in the Environmental Assessment for Final Rule, 10 CFR 433, “Energy Efficiency Standards for New Federal Commercial and
Multi

- Family High

- Rise Residential Buildings” (DOE 2011)

.



### 4.1.3 New Federal Commercial Fraction over $2.5 M illion in Cost or F or W hich a Prospectus to Congress is Required

The $2.5 million threshold is a key parameter in deciding if a building falls under EISA Section 433

r equirements. The threshold is more formally stated in the F ossil F uel

- R eduction R ule as follows:

Those Federal buildings covered by EISA 2007 include new Federal buildings, or major
renovations to Federal buildin gs, that are also: (1) public buildings, as defined in 40 U.S.C. 3301 for which a transmittal of a prospectus to Congress is required under 40 U.S.C. 3307; or (2) Federal buildings for which the construction cost or major renovation cost is at least $2,50 0,000 (2007 dollars, adjusted for inflation).

The assumed fraction (of total new floor space) includes both buildings that exceed this $2.5 million

cost threshold as well as “public buildings ” that meet the requirement for a prospectus to Congress. The

U.S. General Services Administration ( GSA ) maintains an annual cost threshold for their buildings that was approximately $2.5 million in 2007 when EISA was signed. 13 The analysis in Section 4.1.1 uses a

13 See http://www.gsa.gov/portal/content/101522 for current GSA cost thresholds.

4.2threshold of $2 million dollars for projects under th e assumption that 20% of the project cost would be in design costs and other costs that are not included in the database of Federal project costs 14

.

Assumption: 9 7 % of the F ederal building stock falls under this requirement.

Basis: This value was c hosen based on the analysis conducted for Section 4.1.1. The database shows that for the years 2007, 2008, and 2009, the fraction of Federal commercial construction projects greate r than $2 million averages 0.97

.



### 4.1.4 New Federal Construction Building Energy Usage

Assumption: New F ederal c onstruction b uilding e nergy u sage is assumed to meet the energy

efficiency performance standards currently found in 10 CFR Part 433. These standards
call for the energy consumption by new F ederal buildings to be at least 3 0% below the levels established by Standard 90.1

- 2010, if life

- cycle cost

- effective. 15

Basis: Data taken from DOE’s determination of energy savings for Standard 90.1

- 2010 16 w ere used for the typical value of energy use intensity for buildings that meet this requirement.
This data was also used in DOE’s Environmental Assessment for Final Rule, 10 CFR 433, “Energy Efficiency Standards for New Federal Commercial and Multi

- Family Hi gh

Rise Residential Buildings” (DOE 2011)

.



### 4.1.5 Federal Commercial Renovation Volume p er Year

Assumption: 1 4.6 million square feet per year of commercial and multifamily high

- rise residential building construction.

Basis: This assumption is based on the a nalysis of 3 years of Federal construction data purchased by PNNL as part of a commercial building construction dataset. The data is described in “Weighting Factors for the Commercial Building Prototypes Used in the Development of ANSI/ASHRAE/IESNA Stand ard 90.1

- 2010”, (Jarnagin and Bandyopadhyay, 2010). Data from the years 2007, 2008, and 2009 were used. The total Federal renovation cost plus the renovation cost associated with projects greater than $2.25 million based on the assumption that 10% of the construction cost would be related

14 The 20% design cost estimate was derived from an analysis of “value put in place” (VPIP) data from the Census Bureau ( http://www.census.gov/constr uction/c30/methodology.html ), data from the F.W. Dodge group o f McGraw

Hill Construction ( http://construction.com/dodge/ ), and data from R.S. Means ( www.rsmeans.reedconstructiondata.com ). There is a wide range of design cost estimates for new construction and 20% was chosen as a value in the middle of the range of estimates.

15 The current 10 CFR Part 433 requires the use of ASHRAE Standard 90.1

- 2007 as a baseline for covered buildings for which design for construction began on or after August 10, 2012, but before July 9, 2014. ( 10 CFR
433.5 )However, on July 9, 2013, DOE published a final rule updating the baseline standard for 10 CFR Part 433 to
Sta ndard 90.1

- 2010 for covered buildings for which design for construction began on or after July 9, 2014. Because the analysis period for this RIA starts in 2015, the baseline will be Standard 90.1

- 2010.

16 See http://www.energycodes.gov/status/determinations_com.stm for all material on DOE’s determination on
Standard 90.1

- 2010.

4.3to design of the building and not the actual cost of the building materials and components
was used . Construction costs for renovations were converted to square footage by calculating the total cost of new Federal const ruction for the years 2007 to 2009, dividing that number by the total new construction square footage for the same years, and calculating a new Federal construction cost per square foot. This new Federal construction cost was then multiplied by 75% to gen erate a Federal renovation square
foot cost 17 . The total cost of Federal renovations in each year was then divided by the Federal renovation square foot cost to give a Federal renovation square footage.

One important note on this data source is that it only considers major renovations in the sense that multiple systems of a building are changed. A less extensive renovation (such as an equipment replacement or system upgrade) is not included in this data source even though the cost of the equipment or system may exceed the $2.5 million threshold for the

p roposed r ule. DOE has no good source of information on the frequency or magnitude of
less extensive renovations that may also be considered “major” renovations.

T he results of this evaluation a re as follows:

Year Federal Construction
Renovation Volume (million ft 2 ) Federal Construction Renovation Volume for Projects Costing More than $2 .25 million (million ft 2 )

2007 9.5 8.3
2008 11.1 9.6
2009 23.2 20.4 Average 14.6 12.8



### 4.1.6 Federal Commercial Renovation Fraction over $2.5 million in Cost or for which a Prospectus to Congress is Required

This is a key parameter in deciding if a building falls under EISA Section 433 r equirements. The threshold is more formally stated in the F ossil F uel

- R eduction R ule as follows:

Those Federal buildings covered by EISA 2007 include new Federal buildings, or major
renovations to Fed eral buildings, that are also: (1) public buildings, as defined in 40 U.S.C. 3301 for which a transmittal of a prospectus to Congress is required under 40 U.S.C. 3307; or (2) Federal buildings for which the construction cost or major renovation cost is at least $2,500,000 (2007 dollars, adjusted for inflation).

The assumed fraction (of total new floor space) includes both buildings that exceed this $2.5 million

cost threshold as well as “public buildings ” that meet the requirement for a prospectus to Congress. GSA maintains an annual cost threshold of their own for their buildings that cost approximately $2.5 million in

2007 when EISA wa s signed. 18 The analysis for Section 4.1.5 used a threshold of $2.25 million under the

17 The 75% estimate was based on analysis data from F.W. Dodge Division of McGraw

- Hill Construction (( http://construction.com/dodge/ ) . The data relate only to the total cost of “major alterations.

18 See http://www.gsa.gov/portal/content/101522?utm_source=PBS&utm_medium=print

radio&utm_term=annualprospectusthreshold&utm_campaign=shortcuts for the GSA prospectus threshold.

4.4assumption that 10% of renovation project cost s were design or other costs not included in the Federal
construction cost data base.

Assumption: 8 7 % of F ederal building stock falls under this requirement.

Basis: This value was chosen based on the analysis conducted for Section 4.1.5. The database shows that for the years 2007, 2008, and 2009, the fraction of Federal commercial renovation projects greater than $2.25 million averages 0.8 7

.



### 4.1.7 Federal Commercial Major Renovation Fraction

Just because a renovation costs over $2.5 million does not mean it is a “major renovation” for the

p urpose of the F ossil F uel

- R eduction R ule. A renovation must also be a significant op portunity to meet the requirements of the r ule. Replacing the carpeting, painting the walls, and moving some interior walls in a large F ederal building may cost over $2.5 million

, but that renovation would not be an opportunity to
meet the F ossil F uel

- R ed uction R ule.

Assumption: 88 % of F ederal building stock falls under this requirement

.

Basis: This value was chosen based on the analysis conducted for Section 4.1.5. There is a large amount of uncertainty associated with this assumption.



### 4.1.8 Federal Commercial Major Renovation Savings Fraction

The approximate savings for a “typical” renovation must be estimated to determine the total energy saved by major renovations.

Assumption: 38% and 50% (depending on year).

Basis: The most detailed stu dies DOE has on renovations are the Advanced Energy Retrofit
Guide (AERG) for Office Buildings

. 19 Of these, only the large office is really applicable
to the F ederal commercial building sector. The Advanced Energy Retrofit Guide large
office result shows that savings of about 23% can be achieved by simply doing commissioning, 38% in a “standard” retrofit

, and 5 0 % in a “deep” retrofit. These values are used in the analysis, with all buildings being assumed to be able to achieve “standard”
retrofits for the years 201 5 to 2019 and “deep” retrofits thereafter. 20



### 4.1.9 Typical Existing Federal Building Energy Usage

This assumption is used for estimating the current total energy use by existing buildings.

19 See http://apps1.eere.energy.gov/buildings/commercial_initiative/resource_database/detail.cfm?p=537 for documentation and links to the AERG for office buildings.

20 Work supported by DOE’s Federal Energy Management Program (FEMP) indicates that “deep” retrofits are possible now, but it is not believed that they are particularly common at this time. See for example, the General Services Administration’s (GSA) deep retrofit challenge at http://www.gsa.gov/portal/content/129983 . An arbitrary decision was made to assume that deep retrofits are common in 2020.

4.5Assumption: 113.9 kBtu/ft 2 to 89.5 kBtu/ft 2 depending on the year , with the estimated value held
constant from 2015 on at the 2015 value 21

.

Basis: Table 4.1.3 of DOE’s Building Energy Databook, available at http://buildingsdata book.eere.energy.gov/TableView.aspx?table=4.1.3

.



### 4.1.10 Typical Existing Federal Building Electricity Fraction

Th e typical existing F ederal building electricity fraction value is needed to convert a site to source

energy , and to convert source energy to fossil fuel energy

.

Assumption: 0.4 94

Basis: Table 4.1.2 of DOE’s Building Energy Databook (DOE 2012a) , available at http://buildingsdatabook.eere.energy.gov/TableView.aspx?table=4.1.2

.



## 4.2 Cost Estimates

Cost estimates were developed for the following five cases

.



### 4.2.1 New C onstruction B aseline under 10 CFR Part 433 Energy Efficiency Performance Standards

New construction is as sumed to be built to an energy consumption level of at least 30% below that established by Standard 90.1

- 2010 in accordance with the baseline standards update to 10 CFR 433 that is currently undergoing OMB review. Costs for this level of performance were taken from PNNL

- 19004 (Thornton et al. 2009)

, Technical Support Document: 50% Energy Saving Design Technology Packages for Medium Office Buildings

. 22



### 4.2.2 New C onstruction under Proposed Rule

New construction u nder the proposed rule was assumed to be built to the performance requirements
of the F ossil F uel

- R eduction R ule. For the 55% and 65% fossil fuel

- reduction targets, energy conservation was assumed to meet the requirements and the data from PNNL

- 19004 was extrapolated to the appropriate levels of savings to provide costs. Beyond 65% fossil fuel

- reduction, on

- site solar PV system use was assumed to provide the additional fossil fuel

- reduction necessary 23 . PV system costs
were estimated as follows

.

21 This assumption is valid if one assumes that buildings that will un dergo major renovations in the years 2015 to 2030 will be buildings that have energy usage of typical Federal buildings in 2015.

22 See http://www.pnl.gov/main/ publications/external/technical_reports/PNNL

- 19004.pdf for this report.

23 Solar PV systems are assumed to be used to meet the targets of the Fossil Fuel

- Reduction Rule once conservation measures alone can no longer meet the targets. Solar PV systems wer e chosen as commonly used on

- site renewable energy systems. On

- site renewable energy systems were chosen over use of renewable energy certificates (RECs) or power purchase agreements (PPAs) because REC and PPA usage is limited in the Fossil Fuel

- Reduction Rule.

4.6Assumptio n: Installed cost of $5,600 per kW (DC) in 2012. Low benefits case: c ost decline of 10% by 2035 . H igh benefits case: c ost decline by 5 0% by 2035.

Basis: The modeling and reports produced by the EIA with regard to the commercial building
module in NEMS form the basis of these assumptions. NEMS is used to generate the Annual Energy Outlook , published in the beginning of each calendar year. The PV costs in NEMS are based upon a report prepared by ICF International for EIA in August 2010,
Photovolta ic (PV) Cost and Performance Characteristics for Residential and Commercial Applications . Using the estimates provided in this report together with the “learning” algorithm in the NEMS commercial module, the Annual Energy Outlook 2012 Early Release Overvi ew 24 r eference case indicated an installed cost in 2009 dollars of $5,558/kW (kW expressed as DC) for commercial PV electricity generation 25 ( p ersonal communication with Erin Boedecker of EIA, March 20, 2012). Converting to 201 2 dollars, the 2012 cost is approximately $5, 779 /kW. This is a composite of costs for both crystalline and thin

- film PV modules; the EIA cost estimates imply that a majority of
installations in the commercial building sector employ the thin

- film technology

.

The ICF International report projected future costs and performance for PV systems. By 2035

, costs were assumed to decline by roughly 40% (42% for thin

- film and 35% for crystalline). System efficiencies (DC to AC power) were assumed to increase in the range of 10%. For the analysis here related to a “high

- benefits” case, these two projections were combined to yield an effective cost decline of 50% by 2035. A conservative (“low

- benefits”) assumption is that there will be only a modest cost
reduction fr om this point forward. In this case, a 10% improvement was assumed to occur over this period. In both cases, the cost reductions were assumed to occur along a declining exponential growth path, thus yielding absolute annual reductions that are higher in the early years of the projection period compared to years approaching 2035. Costs beyond 2035 were fixed at their 2035 projected values.



### 4.2.3 New C onstruction u nder Zero Fossil Fuel A lternative

For new construction under the “zero f ossil f uel ” alternative, en ergy conservation was assumed to immediately bring the design of buildings to 65% fossil fuel reduction and the remaini ng 35% fossil fuel
reduction were to be provided by PV systems 26 . Costs for the energy conservation and PV systems were
calculated in the same way as for the proposed rule.

24 See 2012 AEO Early Release at http://www.eia.gov/forecasts/aeo/er/

. 25 Email from Erin Boedecker (DOE Energy Information Administration) to David Belzer (Pacific Northwest National Laboratory ) regarding solar PV costs for commercial buildings. March 20, 2012.

26 Solar PV systems are assumed to be used to meet the targets of the Fossil Fuel

- Reduction Rule once conservation measures alone can no longer meet the targets. Solar PV systems were ch osen as commonly used on

- site renewable energy systems. On

- site renewable energy systems were chosen over use of renewable energy certificates (RECs) or power purchase agreements (PPAs) because REC and PPA usage is limited in the Fossil Fuel

- Reduction Rul e.

4.7

### 4.2.4 Existing Buildings B aseline under 10 CFR Part 433 Energy Efficiency Performance Standards

The current 10 CFR Part 433 e nergy p erformance s tandards are applicable only to new construction.
Therefore

, the baseline cost fo r existing buildings is $0 in all years.



### 4.2.5 Existing Buildings under Proposed Rule or Zero Fossil Fuel Alternative

Existing building renovations under the proposed rule or the “zero fossil fuel” alternative are assumed to achieve levels of performance found in the Advanced Energy Retrofit Guide for Office Buildings

. 27
The costs to achieve these levels of performance are taken from the Advanced Energy Retrofit Guide for Office Buildings (PNNL and PECI 2011)

.

27 See http://apps1.eere.energy.gov/buildings/commercial_initiative/resource_database/detail.cfm?p=537 for
documentation and links to the Adva nced Energy Retrofit Guide for Office Buildings.

4.8

## 5.0 Conclusion

Based upon the primary estimates from Table 2 and Table 3 , a summary of the annualize d net benefits estimated for the regulatory policy options considered in this RIA are presented in Table 4

. T o reiterate, future incremental costs include both measures to im prove the energy efficiency of F ederal facilities as well as incorporating renewable energy (solar PV) technologies when necessary. Future benefits incorporate both reductions in annual ener gy expenditures and monetized benefits of emissions reductions. The analysis shows that applying a 3% or 7% discount rate to future costs and benefits of the proposed rule yields a net economic savings to the nation. For the “ z ero f ossil f uel” alternativ e , which would require installation of solar PV systems on many new F ederal facilities in the near term, the net economic benefits are negative using the 7% discount rate, but positive using the 3% discount rate assumption.

Table 4

. Annualized Net Benefits of Regulat ory Policy Options ( p rimary and alternative e stimate s )

7% D iscount R ate (201 2 $ m illions/ y ear) 3% D iscount R ate (201 2 $ m illions/ y ear) Proposed Rule (primary estimate) 104.6 215.7

“ Zero Fossil Fuel ” Alternative

- 99.0 320.0

5.1

## 6.0 References

10 CFR 433. 2011. “Energy Efficiency Standards for New Federal Commercial and Multi

- Family High

Rise Residential Buildings.” Title 10, Code of Federal Regulations , Part 433 . U.S. Department of Energy

, Washington, D.C.

. Available at http://www.gpo.gov/fdsys/granule/CFR

- 2013

- title10

- vol3/CFR

2013

- title10

- vol3

- part433/content

- detail.htm l

.

40 U.S.C. 3301

. Definitions and Nonapplication. Title 40, United States Code, Section 3301. Available

at htt p://www.gpo.gov/fdsys/granule/USCODE

- 2011

- title40/USCODE

- 2011

- title40

- subtitleII

- partA

chap33

- sec3301/content

- detail.html

.

40 U.S.C. 3307

. Congressional Approval of Proposed Projects. Title 40, United States Code, Section

3307. Available at http://www.gpo.gov/fdsys/granule/USCODE

- 2011

- title40/USCODE

- 2011

- title40

- subtitleII

- partA

- chap33

- sec3307/content

- deta il.html

.

42 U.S.C. 6834. Federal Building Energy Efficiency Standards. Title 42, United States Code, Section

6834. Available at http://www.gpo.gov/fdsys/granule/USCODE

- 2008

- title42/USCODE

- 2008

- title42

- chap81

- subchapII

- sec6834/content

- detail.html

.

ANSI/ASHRAE/IES Standard 90.1

- 2010. 2010. Energy Standard for Buildings Except Low

- Rise Residential Buildings . American S ociety of Heating, Refrigerating and Air

- Conditioning Engineers, Atlanta, Georgia.

DOE. 2011. Environmental Assessment for Final Rule, 10 CFR 433, “Energy Efficiency Standards for
New Federal Commercial and Multi

- Family High

- Rise Residential Buildings”. Available at http://www.regulations.gov/#!docketDetail;D=EERE

- 2011

- BT

- STD

- 0055

.

DOE. 2012 a . 2 012 Buildings Energy Databook . Accessed March 2012 at http://buildingsdatabook.eren.doe.gov/ (last updated March 2012).

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