CHAPTER 2. ANALYTICAL FRAMEWORK

TABLE OF CONTENTS

2.1 INTRODUCTION.................................................................................................................2-1

2.2 MARKET AND TECHNOLOGY 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 PAYBACK PERIOD ANALYSIS........................................2-7

2.8 SHIPMENTS ANALYSIS ...................................................................................................2-8

2.9 NATIONAL IMPACT ANALYSIS ....................................................................................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 DIOXIDE AND OTHER EMISSIONS

REDUCTIONS .................................................................................................................. 2-11

2.14 UTILITY IMPACT ANALYSIS ...................................................................................... 2-13

2.15 EMPLOYMENT IMPACT ANALYSIS.......................................................................... 2-13

2.16 REGULATORY IMPACT ANALYSIS .......................................................................... 2-14

FIGURE

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

2-i 
CHAPTER 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 will result in significant energy conservation. This 

chapter describes 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) equipment. 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 Analyses. The 

columns labeled Key Inputs and Key Outputs show how the analyses fit into the rulemaking 

process and how they 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 experts having specialized knowledge. Key outputs are the 

analytical results that feed directly into the standards-setting process. Lines with arrows 

connecting analyses show the types of information that feed from one analysis to another.

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

2-2
The 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 technology 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 manufacturer’s production costs 

(material, labor, and factory overhead) for achieving increased efficiency 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 analysis (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 likely 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 manufacturer 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 affect the LCC for particular customer sub-populations 

differently than for the overall population.

• A manufacturer impact analysis to estimate the financial impacts of standards on 

manufacturers and to calculate effects on competition, employment, and 

manufacturing capacity.

• An employment impact analysis to assess the aggregate effects of standards on 

national employment.

• A utility impact analysis to estimate the effects of proposed standards on the 

generation capacity and electricity generation of electric utilities. 

• An emissions analysis to estimate the effects of amended energy conservation 

standards on emissions of carbon dioxide (CO2), sulfur dioxide (SO2), nitrogen oxides 

(NOX), 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 TECHNOLOGY ASSESSMENT

The market and technology assessment characterizes the relevant equipment markets and 

technology options, including 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, for 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 trade journals, government agencies, and trade organizations provided the bulk of this

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 typically 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 technologies 

for consideration. Initially, the list encompasses all the technologies DOE believes are 

technologically feasible. DOE developed a list of technologically feasible design options through 

consultation with manufacturers of components and systems, from trade 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 section 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 those options (1) are technologically 

2-4
feasible; (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 removes from the list any technology options for which energy consumption data are 

lacking as well as any for which the energy consumption cannot be measured adequately by 

DOE test procedures. Chapter 4 of this TSD describes the screening analysis. In the engineering 

analysis, DOE further 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 manufacturing 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-efficiency 

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 efficiency. DOE considers the remaining 

technologies, designated “design options,” in developing cost-efficiency curves, which are used 

for the LCC and PBP analysis. For each equipment class, DOE selected efficiency levels and 

obtained incremental cost data at each 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 

2-5
equipment, 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 

baseline 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 was 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 consistent 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 

those costs in aggregated 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 PTHP 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 each 

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 analysis 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 use 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 

equipment classes and efficiency levels that are the same as the 2008 rulemaking, and adjusted 

the data for those equipment classes and efficiency levels that are different from the 2008 

rulemaking. Chapter 7 describes the methodology used to adjust the unit energy consumption of

2-6
PTAC 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 costs—usually a decrease—and a change 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 discount 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 increased 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 change 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 

commercially 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 trend (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 2013 (AEO 2013) 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 

2-7
PTHP equipment. The types of companies that DOE used are large hotel/motel chains, 

independent hotel/motel, assisted living/health care, and small office. More details regarding 

DOE’s estimates of customer discount rates are provided in Chapter 8 of the TSD.

DOE considered maintenance, repair, and installation costs for the equipment covered in 

this rulemaking. For PTACs, DOE utilized 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 established average equipment lifetimes for use in the LCC and subsequent 

analyses by using data from the previous rulemaking and stakeholder comments from the 

ASHRAE Standard 90.1-2013 Notice of Data Availability.3

 

2.8 SHIPMENTS ANALYSIS

Forecasts of shipments 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). 

Historical 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 

construction and replacement shipments is the total shipments.

2.9 NATIONAL IMPACT ANALYSIS

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 customer costs 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) 

shipments, (3) equipment stock, (4) national energy consumption, and (5) site-to-source 

2-8
conversion 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 estimates energy consumption and savings based on site energy, then converts 

the electricity consumption and savings into source energy. Cumulative energy savings 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 NPV 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 

electricity, 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 discount 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 appear 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 savings 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 installed 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. 

2-9

 
cases. The forecasted efficiencies specify the annual average shipment-weighted equipment

efficiencies 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 parallel 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 levels 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 

efficiency 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 affected 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 financial 

effects, both quantitative and qualitative, that might lead to changes in the manufacturing 

practices for the equipment. DOE identifies those potential impacts through interviews with 

manufacturers and other interested parties. 

As described in Chapter 12 of this TSD, DOE conducted the MIA for the covered 

equipment in three phases, and further tailored 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

2-10 
evaluated 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 ANALYSIS

In the emissions analysis, DOE estimated the reduction in power sector emissions of 

carbon dioxide (CO2), nitrogen oxides (NOx), sulfur dioxide (SO2), and mercury (Hg) from 

potential energy conservation standards for PTAC and PTHP equipment. In addition, 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-fuel-cycle (FFC). 

As described in Chapter 13 of this TSD, the primary environmental effects of the

standards will be reduced power plant emissions resulting from reduced consumption of 

electricity. Emissions reductions associated with new standards for PTAC and PTHP equipment

pertain primarily to CO2, NOX, and Hg. After estimating emissions reductions, DOE monetized 

the benefits associated with those reductions, as summarized below. 

2.13 MONETIZING CARBON DIOXIDE AND OTHER EMISSIONS

REDUCTIONS

DOE estimated the monetary benefits likely to result from the reduced emissions of CO2 

and NOX 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 SO2 and Hg emissions in energy conservation standards rulemakings. For this 

rulemaking, DOE did not monetize estimated SO2 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/EIA0581(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.

2-11 

 
Carbon Dioxide

 In order to estimate the monetary value of benefits resulting from reduced CO2

emissions, DOE used 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 the 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. With 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 resulting from reduced CO2 emissions in 2015, expressed in 2013$, were $12.0, $40.5, 

$62.4, and $119 per metric ton avoided.

c

 Those 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 

gives preference to consideration of the global benefits of reduced CO2 emissions. To calculate a 

present value of the range of monetary values, DOE discounted 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 CO2 and other GHGs to changes in the future global climate and 

the potential resulting damages to the world economy. 

In the absence of any Federal regulation of power plant emissions of CO2, a DOE 

standard is likely to result in reductions of these emissions. The CO2 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 CO2 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 monetary value of the economic 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 group 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. 

2-12 

 
to $4,889 per ton in 2013$.d

 DOE calculated monetary benefits 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 emissions 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 efficiency levels

considered based on estimates found in the relevant scientific literature. 

2.14 UTILITY IMPACT ANALYSIS

The utility impact analysis (Chapter 15 of this TSD) assesses the effects of higher 

efficiency standards on electric utility industries. DOE uses 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 ANALYSIS

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 affiliated 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 income 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 developed 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 permit 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.

2-13 

 
industry, and transportation. 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 ANALYSIS

Pursuant to Executive Order 12866 (“Regulatory 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-regulatory 

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. 

2-14 
1. 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/FR2014-04-11/html/2014-08214.htm> 

2-15 

REFERENCES