CHAPTER 2. ANALYTICAL FRAMEWORK

TABLE OF CONTENTS

2.1 INTRODUCTION

................................ ................................ ................................................. 2-1 2.2 MARKET AND TECHNOLOG Y ASSESSMENT

........................................................... 2-4 2.2.1 Market Assessment

................................ ................................ ............................................... 2-4 2.2.2 Technology Assessment

................................ ................................ ....................................... 2-4 2.3 SCREENING ANALYSIS

................................ ................................ ................................... 2-4 2.4 ENGINEERING ANALYSIS

................................ .............................................................. 2-5 2.5 MARKUPS ANALYSIS

................................ ................................ ...................................... 2-6 2.6 ENERGY USE ANALYSIS

................................ ................................ ................................ .2-6 2.7 LIFE

- CYCLE COST AND PAYBA CK PERIOD ANALYSIS

........................................ 2-7 2.8 SHIPMENTS ANALYSIS

................................ ................................ ................................... 2-8 2.9 NATIONAL IMPACT ANAL YSIS

................................ .................................................... 2-8 2.9.1 National Energy Savings

................................ ................................ ...................................... 2-8 2.9.2 Net Present Value

................................ ................................ .................................................. 2-9 2.9.3 Forecasted Efficiencies

................................ ................................ ......................................... 2-9 2.10 CUSTOMER SUB

- GROUP ANALYSIS

................................ ........................................ 2- 10 2.11 MANUFACTURER IMPACT ANALYSIS

................................ .................................... 2- 10 2.12 EMISSIONS ANALYSIS

................................ ................................ ................................ . 2- 11 2.13 MONETIZING CARBON DI OXIDE AND OTHER EMIS SIONS R EDUCTIONS

................................ ................................ .................................................. 2- 11 2.14 UTILITY IMPACT ANALY SIS

................................ ...................................................... 2- 13 2.15 EMPLOYMENT IMPACT AN ALYSIS

................................ .......................................... 2- 13 2.16 REGULATORY IMPACT AN ALYSIS

................................ .......................................... 2- 14

FIGURE

Figure 2.1.1 Flow Diagram of Analyses for the Rulemaking Process

....................................... 2-2

2-iCHAPTER 2. ANALYTICAL FRAMEWORK

2.1 INTRODUCTION

Section 6313(a)(6) (A) (ii) of 42 United Standards Code ( U.S.C. ), requires the U.S. Department of Energy (DOE) to establish energy conservation standards that are technologically feasible and economically justified and w ill result in significant energy conse rvation

. This chapter descri bes the general analytical framework that DOE uses in developing such standards, as well as aspects specific to the analysis of standards for packaged terminal air conditioner (PTAC) and packaged terminal heat pump (PTHP) equipm ent

. The analytical framework summarizes the methodologies, analytical tools, and relationships among the various analyses that are part of a standards rulemaking

.
Figure 2.1.1 summarizes the analytical components of the standards

- setting process

. The column labeled Approaches lists the methodologies DOE uses to perform the various steps and analyses in the process. The primary focus of the figure is the column labeled Analyse s

. The columns labeled Key I nputs and Key O utputs show how the analyses fit into the rulemaking process and how the y relate to each other

. Key inputs are the types of data and information that the analyses require

. Some key inputs can be found in public databases; other inputs DOE collects from interested parties or expert s having specialized knowledge

. Key outputs are the analytical results that feed directly into the standards

- setting process

. L ines with arrows
connect ing analyses show the types of information that feed from one analysis to another.

2-1Figure 2.1.1 Flow Diagram of Analyses for the Rulemaking Process

2-2The following analyses are performed for the notice of proposed rulemaking (NOPR).

• A market and technology assessment to characterize the relevant equipment markets and technology options, including prototype designs.

• A screening analysis to review each te chnology option and determine whether it is technologically feasible; is practical to manufacture, install, and service; would adversely affect equipment utility or availability; or would have adverse impacts on health and safety.

• An engineering analysis to develop cost

- efficiency relationships for equipment designs that passed the screening analysis ; the manuf acturer ’s production cost s (material, labor, and factory overhead) for achieving increased efficien cy are evaluated

.

• An energy use analysis to determine the annual energy use of the considered equipment at specific efficiency levels

.

• A markups analysis to convert the manufacturer costs estimated from the engineering analysis to customer prices, which are then used in the life

- cycle cost (LCC) and payback period analysi s (PBP) and in the manufacturer impact analysis.

• A life

- cycle cost and payback period analysis to calculate, at the customer level, the discounted savings in operating costs ( minus maintenance and repair costs) throughout the estimated average life of the covered equipment , compared to any increase in the installed cost of the equipment li kely to result directly from the imposition of the standard.

• A shipments analysis to forecast equipment shipments, which then are used to calculate the national impacts of standards on energy consumption and costs, net present value (NPV), and future manuf acturer cash flows.

• A national impact analysis to assess the aggregate impacts nationwide of the NPV of total customer LCC and national energy savings (NES).

• A customer sub

- group analysis to evaluate variations in customer characteristics that might cause a standard to affe ct the LCC for particular customer sub

- populations differently than for the overall population.

• A manufacturer impact analysis to estimate the financial impact s of standards on manufacturers and to calculate effe cts on competition, employment, and manufacturing capacity.

• An employment impact analysis to assess the aggregate effe cts of standards on national employment.

• A utility impact analysis to estimate the eff ects of proposed standards on the generation capacity and electricity generation of electric utilities

.

• A n emissions analysis to estimate the effects of amended energy conservation standards on emissions of carbon dioxide (CO 2 ), sulfur dioxide (SO 2 ), nitro gen oxides (NO X ), and mercury (Hg ).

• A monetization of emission reduction benefits resulting from reduced emissions associated with potential amended standards

.

2-3• A regulatory impact analysis to evaluate alternatives to proposed amended energy conservation standards that could achieve substantially the same regulatory goal

.

2.2 MARKET AND TECHNOLOG Y ASSESSMENT

The market and technology assessment characterizes the relevant equipment markets and technology options, inclu ding prototype designs, for considered equipment

. Chapter 3 of this TSD describes in detail the market and technology assessment for PTAC and PTHP equipment

.

2.2.1 Market Assessment

When initiating a standards rulemaking, DOE develops information on the present and past industry structure and market characteristics for the equipment being studied

. This activity assesses the industry and equipment , both quantitatively and qualitatively, based on publicly available information

. As such, fo r the considered equipment, DOE addressed (1) manufacturer market share and characteristics; (2) current regulatory and non

- regulatory initiatives for improving equipment efficiency; and (3) trends in equipment characteristics and retail markets

. This information serves as resource material throughout the rulemaking.

DOE reviewed equipment literature and interviewed manufacturers to develop an overall picture of the market for PTAC and PTHP equipment in the United States

. Industry publications and tra de journals, government agencies, and trade organizations provided the bulk of th is information

. The appropriate sections of this TSD , particularly Chapter 3, describe the resulting information as DOE used it in the analysis.

2.2.2 Technology Assessment

DOE typicall y uses information relating to current and past technology options and prototype designs to determine what technologies manufacturers use to attain higher performance levels

. In consultation with interested parties , DOE develops a list of technolog ies for consideration

. Initially, the list encompass es all the technologies DOE believes are technologically feasible. DOE developed a list of technologically feasible design options through consultation with manufact urers of components and systems

, from t rade publications and technical papers . Since many options for improving equipment efficiency are available in existing units, equipment literature and direct examination of equipment provided additional information

.

2.3 SCREENING ANALYSIS

As described in se ction 2. 2 .2 , DOE develops an initial list of efficiency enhancement options from the technologies identified as technologically feasible

. Then DOE, in consultation with interested parties, reviews the list to determine whether th o se options (1) are technologically

2-4feasible; (2) are practicable to manufacture, install, and service; (3) have an adverse impact on equipment utility or availability; or (4) have adverse impacts on health and safety. In addition, DOE remove s from the list any techno logy options for which energy consumption data are lacking as well as any for which the energy consumption c an not be measured adequately by DOE test procedures

. Chapter 4 of this TSD describes the screening analysis. In the engineering analysis, DOE furthe r considers those efficiency enhancement options that were not eliminated in the screening analysis

.

2.4 ENGINEERING ANALYSIS

In the engineering analysis ( Chapter 5 of this TSD ) , DOE evaluates a range of equipment efficiency levels and their associated manufa cturing costs in order to establish the relationship between the cost and the efficiency of PTAC and PTHP equipment

. This relationship serves as the basis for cost/benefit calculations related to individual customers , manufacturers, and the nation

. Chapter 5 discusses the equipment classes DOE analyzed, the representative baseline units, the incremental efficiency levels, the methodology DOE used to develop manufacturing costs, the methodology it used to develop the energy consumption model, the cost

- effici ency curves, and the effect of efficiency improvements on the covered equipment

.
The purpose of the engineering analysis is to estimate the incremental manufacturing production costs associated with increasing equipment efficiency above the level of the baseline model in each equipment class. The engineering analysis generally considers technologies not eliminated in the screening analysis, although certain technologies were not analyzed because they offered negligible incremental improvements to efficie ncy. DOE considers the remain ing technologies, designated “ de sign options, ” in developing cost

- efficiency curves, which are used for the LCC and PBP analysi s. For each equipment class , DOE selected efficiency levels and obtained incremental cost data at ea ch level

.
DOE typically structures its engineering analysis around one of three methodologies: (1) the design

- option approach, which calculates the incremental costs of adding specific design options to a baseline model; (2) the efficiency

- level approach, which calculates the relative costs of achieving increases in energy efficiency levels without regard to the particular design options used to achieve such increases; and/or (3) the reverse

- engineering or cost

- assessment approach, which involves a “bottom

- up” manufacturing cost assessment based on a detailed bill of materials derived from teardowns of the equipment being analyzed. A supplementary method called a catalog teardown uses published manufacturer catalogs and supplementary component data to estimate the major physical differences between a piece of equipment that has been physically disassembled and another piece of similar equipment for which catalog data is available to determine the cost of the latter equipment.

DOE conducted the engineering analyses using the efficiency

- level approach and the

reverse

- engineering approach. DOE designated a baseline efficiency level equivalent to the minimum efficiency allowed by energy conservation standards. DOE set the baseline level equivalent to the ANSI/ASHRAE/IES Standard 90.1

- 2013 minimum for PTAC and PTHP

2-5equipment

, since DOE is required to, at a minimum, adopt the ASHRAE levels as the Federal standard. (42 U.S.C. (a)(6)(A)(ii)(I)). DOE set efficiency levels at incremental steps above the b aseline up to the maximum efficiency level that is technologically feasible using current technologies.

To estimate the manufacturing production costs for equipment at each efficiency level, DOE reverse engineered a set of PTAC and PTHP equipment that w as specifically selected to represent the range of efficiency levels. This reverse engineering involved the disassembly of units, analysis of the materials and manufacturing processes, and development of a spreadsheet cost model based on a clear and consis tent manufacturing cost assessment methodology

. DOE built a detailed cost assessment model that accurately estimates the manufacturing production
cost (MPC) associated with producing a specific piece of equipment . The cost model reports th os e costs in aggr egated form to maintain confidentiality of the data

.
The reverse engineering analysis provides an estimated MPC for each PTAC and PTHP unit considered in the analysis. DOE used the least squares method to develop cost

- efficiency equations for PTAC and P THP equipment at different capacity levels. These cost

- efficiency equations predict the MPC of a given unit based on its capacity and its rated efficiency. DOE used the cost

- efficiency equations to estimate the incremental cost increases associated with e ach efficiency level used in the analysis. This production cost information is an input to the markups analysis.

2.5 MARKUPS ANALYSIS

DOE uses manufacturer

- to

- customer markups to convert the manufacturer selling price (MSP) estimates from the engineering ana lysis to customer prices, which are then used in the LCC and PBP analysis and in the manufacturer impact analysis. Retail prices are necessary for the baseline efficiency level and all other efficiency levels under consideration (see Chapter 6 of this TSD )

. To develop markups

, DOE identified distribution channels ( i.e. , how the equipment is distributed from the manufacturer to the customer ). After identifying appropriate distribution channels, DOE utilized economic census data from the U.S. Census Bureau and input from the industry to define how equipment is marked up from the manufacturer to the customer

.

2.6 ENERGY USE ANALYSIS

The energy us e analysis ( Chapter 7 of this TSD ) provides estimates of the annual unit energy consumption (UEC) of PTAC and PTHP equipment at the considered equipment classes and efficiency levels. The annual UECs are used in subsequent analyses including the LCC, PBP, and National Energy Savings (NES). In the 2008 rulemaking for PTAC and PTHP equipment

, DOE used whole

- building simulations to determine annual UEC data by cooling capacity and efficiency rating

. 1 In the current rulemaking, DOE used the data for those equi pment classes and effi ciency levels that are the same as the 2008 rulemaking, and adjusted the data for those equipment classes and effi ciency levels that are different from the 2008 rulemaking

. Chapter 7 describes the methodology used to adjust the unit e nergy consumption of

2-6PTAC and PTHP equipment for the current rulemaking. As part of the energy use characterization, DOE made certain engineering assumptions regarding equipment application, including how the equipment is operated and under what conditions, and documented these assumptions in Chapter 7 of the TSD.

2.7 LIFE

- CYCLE COST AND PAYBACK PERIOD ANALYSIS

New or amended energy conservation standards for equipment result in a change in operating cost s— usually a decrease

— and a c hange in customer price

— usually an increase. DOE analyzed the net effect of new standards on customers ( Chapter 8 of this TSD ) by evaluating the net LCC using the cost

- efficiency relationship derived in the engineering analysis, as well as the energy costs derived from the energy use analysis . Inputs to the LCC calculation include the installed cost to the customer ( customer price plus installation cost); operating expenses (energy expenses and maintenance costs); the lifetime of the equipment ; and a discou nt rate.

Equipment with efficiency higher than baseline typically has a higher installed cost and lower operating cost relative to baseline equipment

. The payback period is the estimated amount of time (in years) it takes customers to recover the increa sed total installed cost (including equipment and installation costs) of a more efficient type of equipment through lower operating
costs. DOE calculates the PBP by dividing the change in total installed cost (normally higher) due to a standard by the chan ge in annual operating cost (normally lower) that results from the standard.

DOE conducted the LCC and PBP analyses for the PTAC and PTHP equipment classes using a spreadsheet model developed in Microsoft Excel. When combined with Crystal Ball (a

commer cially available software program), the LCC and PBP model generates a Monte Carlo simulation to perform the analyses by incorporating uncertainty and variability considerations in certain of the key parameters as discussed below. Inputs to the LCC and PBP analysis are categorized as: (1) inputs for establishing the total installed cost and (2) inputs for calculating the operating expense. Results of the LCC and PBP analyses were applied to other equipment classes through linear scaling of the results by the cooling capacity of the equipment class.

The equipment costs faced by purchasers of PTAC and PTHP equipment are derived from the MSPs estimated in the markups analysis. To forecast equipment costs into the future, DOE chose to apply a constant price tr end (2013 levels) for each efficiency level in each equipment class for the NOPR

. DOE reviewed the Energy Information Administration (EIA)’s energy price data to establish electricity prices for commercial consumers. DOE used EIA’s Annual Energy Outlook 201 3 ( AEO 201 3 ) as the default source of projections of future energy prices for its LCC and PBP analysis. 2

DOE developed discount rates for customers based on the cost of capital, which is commonly used to estimate the present value of cash flows to be derived from a typical company project or investment. DOE estimated the cost of capital of companies that purchase PTAC and

2-7PTHP equipment. The types of companies that DOE used are large hotel/motel chains, independent hotel/motel, assisted living/health c are, and small office. More details regarding DOE’s estimates of customer discount rates are provided in C hapter 8 of the TSD.

DOE considered maintenance, repair, and installation costs for the equipment covered in this rulemaking. For PTACs, DOE utilize d estimates of annual maintenance cost from the 2008 rulemaking for PTAC and PTHP equipment ; the values were adjusted to current material and labor rates. For PTHPs, DOE scaled the adjusted estimate of PTAC maintenance costs with the ratio of PTHP to PTAC annualized maintenance costs

. Repair costs are associated with repairing or replacing components that have failed. DOE utilized manufacturer - and vendor

- provider extended warranty price data to estimate annual repair costs. DOE assumed that any routine or minor repairs are included in the annualized maintenance costs. Repair costs were linearly scaled by cooling capacity to apply to all equipment classes.

DOE establish ed average equipment lifetimes for use in the LCC and subsequent analyses by using data from the previous rulemaking and stakeholder comment s from the ASHRAE Standard 90.1

- 2013 Notice of Data Availability. 3

2.8 SHIPMENTS ANALYSIS

Forecasts of s hipment s are required to calculate the national impacts of standards on energy consumption, NPV, and future manufacturer cash flows. DOE used historical data as the basis for projecting future shipments of PTAC and PTHP equipment (Chapter 9 of this TSD)

. Historic al shipments data are used to build up an equipment stock and also to calibrate the shipments model. Based off the equipment stock and calibrated model, DOE calculated shipments intended for new construction and replacement applications. The sum of new

con struction and replacement shipments is the total shipments.

2.9 NATIONAL IMPACT ANAL YSIS

The national impact analysis, described in Chapter 10 of this TSD

, assesses the NPV of total customer costs and benefits . DOE determined both the NPV and the national energy savings ( NES ) for the efficiency levels established for PTAC and PTHP equipment

. To make the analysis more accessible and transparent to all interested parties, DOE used a spreadsheet model to calculate the energy savings and the national commercial cu stomer cos ts and savings from each TSL. The NIA calculations are based on the annual energy consumption and total installed cost data from the energy use analysis and the LCC analysis. In the NIA, DOE forecasted the lifetime energy savings, energy cost savings, equipment costs, and NPV of commercial customer benefits for each equipment class over the lifetime of equipment sold from 2019 through 2048.

2.9.1 National Energy Savings

The inputs for determining NES are (1) annual energy consumption per unit , (2) sh ipments , (3) equipment stock

, (4) national energy consumption

, and (5) site

- to

- source

2-8conversion factors. DOE calculated the national energy consumption by multiplying the number of units, or stock, of equipment (by vintage) by the unit energy consumption (also by vintage). a DOE calculated national annual energy savings as the difference between national energy consumption in the base case (without new efficiency standards) and in each higher

- efficiency standards case. The analysis included estimated energy savings by fuel type used for generating electricity. DOE estimate s energy consumption an d savings based on site energy, then convert s the electricity consumption and savings in to source energy. Cumulative energy saving s are the sum of the annual NES throughout the forecast period

.
The stock of PTAC and PTHP equipment is dependent on annual shipments and the lifetime of the equipment. DOE conducted shipments projections under the baseline efficiency levels and new standard levels and equipment efficiency trends. DOE’s shipments model presumed that shipments of new PTACs and PTHPs were driven by growth in commercial floor space for building types using equipment as well as necessary stock replacements.

2.9.2 Net Present Value

The inputs for determining N PV are (1) total annual installed cost

, (2) total annual operating cost savings

, (3) discount factor

, (4) present value of costs

, and (5) present value of savings. DOE calculated NPV as the difference between total operating

- cost savings (including electri city, repair, and maintenance cost savings) and increases in total installed costs (including equipment price and installation cost). DOE calculated savings over the life of the equipment

, accounting for differences in yearly energy rates, and used a disc ount factor to discount future costs and savings to the present.

DOE calculated increases in total installed costs as the product of the difference in the total installed cost between the baseline efficiency level and new standard levels (i.e., once the amended energy conservation standard takes effect) and the annual shipments in the standards case. Because costs of the more

- efficient equipment bought in the standard cases are higher than those of equipment bought in the base case, price increases appea r as negative values in the NPV.

DOE expressed operating cost savings as decreases in operating costs associated with the lower energy consumption of equipment bought in the new standards compared to the baseline efficiency level. Total operating

- cost s avings are the product of savings per unit and the number of units of each vintage surviving in a particular year.

2.9.3 Forecasted Efficiencies

Several of the inputs for determining NES ( e.g. , annual energy consumption per unit) and NPV ( e.g. , total annual ins talled cost and total annual operating cost savings) depend on the efficiency of the equipment . Thus, DOE forecasted efficiencies for the base case and standards

a Vintage represents the age of the equipment.

2-9cases. The forecasted efficiencies specify the annual average shipment

- weighted equipment effi ciencies for future years.

DOE based historical shipment

- weighted average efficiency trends for PTAC and PTHP equipment on limited PTAC and PTHP efficiency data. Once DOE established historical efficiency trends, it ascertained future trends of equipment efficiency, and in turn, annual energy consumption by extrapolating from the historical trend.

DOE based its standards case forecasts (i.e., forecasts of efficiency trends after standards take effect) on the use of a roll

- up efficiency scenario and par allel growth trend. Under a roll

- up scenario, all equipment at energy efficiency levels below a prospective standard are moved or rolled

- up to the minimum efficiency level allowed under the new standard. The distribution of equipment at new standard leve ls is unaffected (i.e., this equipment remains at its pre

- standard efficiency levels). The roll

- up efficiency scenario dictates how DOE determined efficiency distributions in the first year a new standard takes effect, but does not define how equipment ef

ficiency will be distributed in the future. Under the parallel growth trend, DOE assumes that the standards case efficiency trend parallels the base case efficiency trend. In other words, the initial jump in shipment

- weighted efficiency that occurs when the standard first becomes effective is maintained throughout the forecast.

2.10 CUSTOMER SUB

- GROUP ANALYSIS

The customer sub

- group analysis evaluates the potential impacts of new or amended standards on commercial customers, DOE evaluates impacts on identifiable groups (i.e., subgroups) of customers that may be disproportionately affecte d by a national standard. DOE evaluated impacts on a subgroup consisting of independently

- operating lodging businesses using the LCC and PBP spreadsheet model. To the extent possible, it utilized inputs appropriate for this subgroup. Chapter 11 of this TSD describes the sub

- group analysis for customers of PTAC and PTHP equipment

.

2.11 MANUFACTURER IMPACT ANALYSIS

The manufacturer impact analysis (MIA) assesses the impacts of new energy efficiency standards on manufacturers of PTAC and PTHP equipment

. Potential impacts include financia l effects, both quantitative and qualitative, that might l ead to changes in the manufacturing practices for the equipment

. DOE identif ies th o se potential impacts through interviews with manufacturers and other interested parties

.

As described in Chapter 12 of this TSD

, DOE conduct ed the MIA for the covered equipment in three phases, and further tailor ed the analytical framework based on stakeholder
comments

. In Phase I, DOE conducted structured, detailed interviews with a representative

cross

- section of manufacturers and prepared a profile of the PTAC and PTHP industry

. In Phase II, DOE prepared an industry cash

- flow analysis to quantify the potential impacts of an amended energy conservation standard on manufacturers of PTACs and PTHPs. In Phase III, DOE

2-10evaluated subgroups of manufacturers that may be disproportionately impacted by amended energy conservation standards or that may not be represented accurately by the average cost assumptions used to develop the industry cash

- flow analysis.

2.12 EMISSIONS ANA LYSIS

In the emissions analysis, DOE estimated the reduction in power sector emissions of carbon dioxide (CO 2 ), nitrogen oxides (NOx), sulfur dioxide (SO 2 ), and mercury (Hg) from potential energy conservation standards for PTAC and PTHP equipment. In addi tion, DOE estimates emissions impacts in production activities (extracting, processing, and transporting fuels) that provide the energy inputs to power plants. These are referred to as “upstream” emissions. Together, these emissions account for the full

- fu el

- cycle (FFC).

As described in Chapter 13 of this TSD , the primar y environmental effects of the standards w ill be reduced power plant emissions resulting from reduced consumption of electricity. Emissions reductions associated with new standards for PTA C and PTHP equipment pertain primarily to CO 2 , NO X , and Hg. After estimating emissions reductions, DOE monetize d the benefits associated with those reductions , as summariz ed below

.

2.13 MONETIZING CARBON DIOXIDE AND O THER E MISSIONS R EDUCTIONS

DOE estimated the monet ary benefits likely to result from the reduced emissions of CO 2 and NO X that are expected to result from each potential standard level. The monetization of the benefits of emissions reductions is described in Chapter 14 of this TSD

. DOE is aware of multiple agency efforts to determine the range of values appropriate to evaluating the potential economic benefits of reduced Hg emissions , and DOE is evaluating how to appropriately monetize avoided SO 2 and Hg emissions in energy cons erva tion standards rulemakings. For this rulemaking, DOE did not monetize estimated SO 2 and Hg reductions.

To carry out this analysis, DOE used a variant of the EIA’s National Energy Modeling System (NEMS). NEMS is a large, multisectoral, partial

- equilibrium model of the U.S. energy sector that EIA has developed throughout the past decade, primarily to help in preparing the AEO . NEMS, which is available in the public domain, produces a widely recognized baseline energy forecast for the United States, currently through 2040. Typical NEMS outputs include forecasts of electricity sales, electricity price, and avoided electric generating capacity. DOE uses a variant of NEMS known as NEMS

- BT to provide key inputs to its analysis. b

a For more information on NEMS, refer to the U.S. Department of Energy, Energy Information Administration

documentation. A useful summary is National Energy Modeling System: An Overview 2000 , DOE/EIA

0581(2000), March 2000. EIA approves use of the name NEMS to describe only an official version of the model without any modification to code or data. Because DOE's analysis entails minor code modifications, and the model is run under various policy scenarios that are variations on EIA assumptions, DOE refers to the model as NEMS -BT (BT stands for DOE’s Building Technologies Program, under whose aegis this work is performed). NEMS

- BT previously was called NEMS

- BRS.

2-11Carbon Dioxide

In order to esti mate the monetary value of benefits resulting from reduced CO 2 emissions, DOE use d the most current values for the social cost of carbon (SCC) developed and/or agreed to by an interagency work group . The SCC is intended to serve as a monetary measure of th e incremental damage resulting from greenhouse gas (GHG) emissions, including, but not limited to, net loss of agricultural productivity, human health effects, property damage from sea level rise, and changes in ecosystem services . W ith full regard for the limits of both quantification and monetization, the SCC can be used to provide estimates of the social benefits of reductions in GHG emissions.

At the time of this analysis, the most recent interagency estimates of the potential global benefits resultin g from reduced CO 2 emissions in 201 5 , expressed in 2013$, were $12.0, $40.5, $62.4, and $119 per metric ton avoided

. c T ho se values increase in real terms over time. Additionally, the interagency group determined that a range of values from 7 percent to 23 percent should be used to adjust the global SCC to calculate domestic effects, although DOE give s preference to consideration of the global benefits of reduced CO 2 emissions. To calculate a present value of the range of monetary values, DOE discount ed each of the four SCC values using the discount rate that was used to obtain the SCC value in that case. Those values are subject to change as the scientific and economic knowledge continues to evolve rapidly regarding the contribution of CO 2 and other GHG s to changes in the future global climate and the potential resulting damages t o the world economy

.
In the absence of any Federal regulation of power plant emissions of CO 2 , a DOE standard is likely to result in reductions of these emissions. The CO 2 emission reductions likely to result from a standard were estimated using NEMS

- BT and national energy savings estimates drawn from the NIA spreadsheet model. The net benefit of the standard is the difference between emissions estimated by NEMS

- BT at each standard level considered and the AEO reference case. NEMS

- BT tracks CO 2 emissions using a detailed module that provides results that include broad coverage of all sectors and interactive effects.

Nitrogen Oxides

DOE also estimated the cumulative moneta ry value of the econo mic benefits associated with NOx emissions reductions anticipated to result from amended standards for PTACs and PTHPs. Estimates of monetary value for reducing NOx from stationary sources range from $476

c The interagency g roup selected four sets of SCC values for use in regulatory analyses. Three sets of values are

based on the average SCC from the three IAMs, at discount rates of 2.5, 3, and 5 percent. The fourth set, which represents the 95th percentile SCC estimate across all three models at a 3 -percent discount rate, was included to represent higher than expected impacts from temperature change further out in the tails of the SCC distribution.

2-12to $4,889 per ton in 2013$. d DOE calculated monetary benef its using a medium value for NOx emissions of $2,683 per short ton (in 2013$), and real discount rates of 3 percent and 7 percent.

DOE has taken into account how amended energy conservation standards would reduce site NOx emi ssions nationwide and increase power sector NOx emissions in those 22 States not affected by the Clean Air Interstate Rule (CAIR; 70 FR 25162 (May 12, 2005))

. e DOE estimated the monetized value of net NOx emissions reductions resulting from each of the eff iciency levels considered based on estimates found in the relevant scientific literature

.

2.14 UTILITY IMPACT ANALY SIS

The utility impact analysis ( Chapter 15 of this TSD) assesses the effects of higher efficiency standards on electric utility industries. DOE u ses NEMS

- BT to provide key inputs to its analysis. DOE conducted the utility impact analysis as a scenario departing from the latest AEO reference case. In other words, DOE modeled the energy savings from amended energy conservation standards using NEMS -BT to generate forecasts that deviate from the AEO reference case. Chapter 15 of the NOPR TSD describes the utility impact analysis in further detail.

2.15 EMPLOYMENT IMPACT AN ALYSIS

Energy conservation standards can affect employment both directly and indirectly. Direct employment effects are changes, resulting from the imposition of new standards, in the number of employees at the plants that produce covered equipment and at affiliat ed distribution and service companies. DOE evaluates direct employment impacts in the MIA. Indirect employment impacts may result if the imposition of standards causes expenditures to shift between goods (the substitution effect) and/or create changes in i ncome and overall expenditure levels (the income effect).

As discussed in Chapter 16 of this TSD, DOE investigated indirect employment impacts for PTAC and PTHP energy conservation standards using the Impact of Sector Energy Technologies (ImSET) model d eveloped by Pacific Northwest National Laboratory (PNNL). PNNL developed the ImSET model for DOE’s Office of Planning, Budget, and Analysis. The model estimates the employment and income effects of energy

- saving technologies in buildings,

d For additional information , refer to U.S. Office of Management and Budget (OMB) –Office of Information and

Regulatory Affairs . 2006 Report to Congress on the Costs and Benefits of Federal Regulations and Unfunded Mandates on State, Local, and Tribal Entities . Washington, D.C.

e CAIR established a cap on NOx emissions in 28 eastern States and the District of Columbia. Energy conservation

standards are expected to have little effect on NOx emissions in those States covered by CAIR because excess NOx emissions allowances resulting from the lower electricity demand could be used to p ermit offsetting increases in NOx emissions. However, standards would be expected to reduce NOx emissions in the States not affected by the caps, so DOE estimated NOx emissions reductions from the standards considered in this NOPR for these States.

2-13industry, and tra nsportation. In comparison with simple economic multiplier approaches, ImSET allows for more complete and automated analysis of the economic effects of energy conservation investments.

2.16 REGULATORY IMPACT AN ALYSIS

Pursuant to Executive Order 12866 (“Regulat ory Planning and Review,” October 4, 1993. 58 FR 51735), DOE prepared a regulatory impact analysis (RIA), which was subject to review under the Executive Order by the Office of Information and Regulatory Affairs at the Office of Management and Budget. The RIA, described in Chapter 17 of this TSD, evaluated the ability of non

- regulatory alternatives to standards to achieve significant energy savings at a reasonable cost, and compared the effectiveness of each to the effectiveness of the new standards.

DOE recognizes that voluntary or other non

- regulatory efforts by manufacturers, utilities, and other interested parties can result in substantial improvements to energy efficiency or reductions in energy consumption. DOE considered the likely effects of non -r egulatory initiatives on equipment energy use, customer utility, and LCC. Although DOE based its assessment on the documented effects of similar initiatives to date, it also considered information regarding the effects current initiatives might have in the future.

2-141. U.S. Department of Energy – Office of Energy Efficiency and Renewable Energy, Energy Conservation Program for Commercial and Industrial Equipment: Packaged Terminal Air Conditioner and Packaged Terminal Heat Pump Energy Conservation Standards., 2007. (Last accessed June, 2014.)

< http://www.regulations.gov/#!docketDetail;D=EERE

- 2007 -BT- STD

- 0012 >

2. U.S. Department of Energy

- Energy Information Administration, Annual Energy Outlook 2013 with Projections to 2040 , 2013. Washington, DC.

< http://www.eia.gov/forecasts/aeo/ >

3. U.S. Department of Energy – Office of Energy Efficiency and Renewable Energy, Energy Conservation Program for Certain Industrial Equipment: Energy Conservation Standards for Commercial Heating, Air

- Conditioning, and Water

- Heating Equipment: Notice of Data Availability , 2014. Washington, DC. < http://www.gpo.gov/fdsys/pkg/FR

2014

- 04

- 11/html/2014

- 08214.htm >

2-15 REFERENCES