CHAPTER 17. REGULATORY IMPACT ANALYSIS

TABLE OF CONTENTS

17.1 INTRODUCTION

......................................................................................................... 17-1 17.2 NON-REGULATORY POLICIES

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

............................................................................................................. ..... 17-2 17.2.2 Policy Assumptions

...................................................................................................... . 17-3 17.2.3 Policy Interactions

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

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

........................................................................................... 17-4 17.3.2 Financial Incentives Policies

.......................................................................................... 1 7-4 17.3.2.1 Consumer Rebates

....................................................................................... 17-6 17.3.2.2 Consumer Tax Credits

............................................................................... 17-11 17.3.2.3 Manufacturer Tax Credits

.......................................................................... 17-14 17.3.3 Voluntary Energy Efficiency Targets

.......................................................................... 17-15 17.3.4 Early Replacement

....................................................................................................... 17-15 17.3.5 Bulk Government Purchases

........................................................................................ 17-18 17.4 NON-REGULATORY POLICY IMPACTS

............................................................... 17-19 17.5 RESULTS SUMMARY FOR NON-REGULATORY ALTERNATIVES

................. 17-20

LIST OF TABLES Table 17.1.1 Policy Alternatives to National Standards

......................................................... 17-1 Table 17.2.1 Trial Standard Levels for Conventional Cooking Products

............................... 17-3 Table 17.3.1 Benefit/Cost Ratios for Gas C ooktop and Gas Standard Oven Amended Standards and Rebate P olicy Cases

................................................................... 17-7 Table 17.3.2 Oregon Tax Credits Claimed for Residential Dishwashers from 1998 to2006 and their Attribution for 2006

.............................................................. 17-13 Table 17.3.3 Annual Increased Market Shar es of Conventional Cooking Products at Target Efficiency Levels from Consumer Tax Credits

.................................... 17-14 Table 17.5.1 Non-Regulatory Alternatives for Conventional Cooking Products with Target Levels at TSL 1

.................................................................................... 17-21

LIST OF FIGURES Figure 17.3.1 Market Penetration Curve for Gas Cooktops Not Needing Electric Outlets

..... 17-8 Figure 17.3.2 Market Penetration Curve for Ga s Cooktops Needing Electric Outlets

............ 17-9 Figure 17.3.3 Market Penetration Curve for Ga s Standard Ovens Not Needing Electric Outlets

.............................................................................................................. 17-10

17-iFigure 17.3.4 Market Penetration Curve fo r Gas Standard Ovens Needing Electric Outlets

.............................................................................................................. 17-11 Figure 17.3.5 Early Replacement Shipment s Projections for Conventional Cooking Figure 17.4.1 Penetration Rate of Units M eeting the Target Level for Conventional Products

............................................................................................................ 17-18 Cooking Products

............................................................................................. 17-20

17-iiCHAPTER 17. REGULATORY IMPACT ANALYSIS

17.1 INTRODUCTION The Department of Energy (DOE) has determin ed that energy conservation standards for conventional cooking products and microwave ove ns constitute an “economically significant regulatory action” under Executive Order (E.O.) 12866 “Regulatory Planning and Review.” 58 FR 51735 (October 4, 1993). Therefore, DOE’s am ended energy conservation standards require a regulatory impact analysis (RIA), which invol ves an evaluation of non -regulatory alternatives to the standards. This document evaluates several possible alternatives to the amended standards, and compares the costs and benefits of each to the amended standards. As described in section 17.2.2 of this report, the amended standards for conventiona l cooking products are those in trial standard level (TSL) 1. Since TSL 1 affects onl y gas cooktops and gas standard ovens, this regulatory impact anal ysis covers only these product classes. There are no amended standards for microwave ovens. Under the Process Rule ( Procedures for Consideration of New or Revised Energy Conservation Standards for Consumer Products , 61 FR 36974 (July 15, 1996); 10 CFR Part 430, Subpart C, Appendix A), DOE is committed to con tinually explore non-regulatory alternatives to standards. This RIA, which DOE has prepared pursuant to E.O. 12866, is subject to review under the Executive Order by the Office of Management and Budget (OMB)’s Office of Information and Regulatory Affairs (OIRA). 58 FR 51735. DOE identified six major non-regulatory alternat ives to standards as representing feasible policy options to achieve consumer product energy efficiency for the appliance pr oducts that are the subject of this rulemaking. These are listed in Table 17.1.1. DOE evaluated each alternative in terms of its ability to achieve significant en ergy savings at a reasonable cost, and compared the effectiveness of each one to the e ffectiveness of the proposed standards.

Table 17.1.1 Policy Alternatives to National Standards

No New Regulatory Action Consumer Rebates Consumer Tax Credits Manufacturer Tax Credits Voluntary Energy Efficiency Targets Early Replacement Bulk Government Purchases

17-117.2 NON-REGULATORY POLICIES

17.2.1 Methodology This section describes the approach DOE used to analyze non-regulatory policies for conventional cooking products. To calculate the national energy savings a nd the net present valu e (NPV) corresponding to each policy alternative, DOE used its national impact analysis (NIA) spreadsheet models. (See Chapter 11 of the technical support document (TSD) fo r a description of the NIA spreadsheet models.) To compare each alternativ e to the amended standards, DOE quantified the effect of each alternative on the purchase of conventional cooking products meeting the target levels , which are defined as the efficiency levels in the amended standards. Once it had made the quantitative assumptions for each alternative polic y, DOE made the appropriate revisions to the inputs in the NIA spreadsheet models. The main model inputs that DOE revised were market shares of equipment at target efficienci es, shipment-weighted average annual energy consumption, and equipment replacement rates. The shipments for any given year are comprised of a distribution of efficiency levels. DOE assumed that standards would affect 100 percent of the shipments, while the non-regulatory policies would affect a smaller percentage of the shipments. In each policy case, DOE made pa rticular assumptions about the percentage of shipments impacted by the policy under analysis . DOE then calculated the shipment-weighted average energy consumption and cost s using these market shares. A shift in the market share of higher effici ency units may increase the average installed cost of energy-consuming equipment. Operating co sts will generally decrease due to a decline in energy consumption. Therefore, DOE calculated an NPV for non-regulatory alternatives in the same way as it did for the amended standards. In some scenarios, total installed cost increases are partially mitigated by government rebates or tax credits. However, DOE assumed that credits and rebates would be paid for by consumers in another form (such as additional taxes), and therefore did not include them as a consumer be nefit for the purposes of calculating the national NPV. DOE did not consider ad ministrative costs for any of th e non-regulatory policies in its analysis. Inclusion of such costs wo uld decrease their NPVs by a small amount. The key measures of the impact of each alternative are:

• National energy savings in quadrillion Btus ( quads): Cumulative national primary energy savings for equipment bought in the period from the effective date of the policy case (2012) to the year 2042.

• Net present value: The valu e of net monetary savings from equipment bought in the period from the effective date of the policy case (2012) to the year 2042. DOE calculated the NPV as the difference between the pr esent value of equipment and operating expenditures (including energy) in the base case and the pres ent value of expenditures in

17-2each alternative policy case. DOE calculated operating expenses (including energy) for the life of the equipment.

17.2.2 Policy Assumptions The impacts of non-regulatory policies are by nature uncertain, since they depend on program implementation and marketing efforts and the subsequent consumer behavior response. The projected impacts depend on the assumptions re garding the consumer participation rate, and are therefore subject to more uncertainty than the impacts of mandatory standards, which DOE assumes will have full compliance. To increase the robustness of the analysis, DOE conducted a literature review on each non-regul atory policy and consulted w ith key experts to gather information on similar incentive prog rams that have already been implemented in the U.S. By studying field experience with sample programs of each type, DOE sought to make credible assumptions of their potential market impacts. Section 17.3 below reports the conclusions from this research as they apply to the policy modeling assumptions and includes the corresponding literature citations. Each of the policy alternatives that DOE considered to the amended standards would improve the average efficiency of new conventio nal cooking products relativ e to their base cases (no new regulatory action). The analysis cons idered that each alternative policy would induce residential or commercial consumers to purchase un its at the same efficiency levels as required by the amended standards, or the target levels . In contrast to the am ended standards, however, their market penetration rate in the altern ative policy cases may not be 100 percent.

The amended standards for conventional c ooking products are those in TSL 1, as shown in Table 17.2.1.

Table 17.2.1 Trial Standard Level 1 for Conventional Cooking Products

Product Class Amended Energy Conservation Standards Gas cooktop/conventional burners No constant burning pilot lights Electric cooktop/low or high wattage open (coil) elements No standard Electric cooktop/smooth elements No standard Gas oven/standard oven with or without a catal ytic line No constant burning pilot lights Gas oven/self-clean oven No change to existing standard Electric oven/standard oven with or without a catalytic line No standard Electric oven/self-clean oven No standard

DOE assumed that the non-regulatory policy im pacts would last from the effective date for amended standards for conventional cooki ng—2012—through the end of the analysis period, 2042.

17-317.2.3 Policy Interactions DOE calculated the impacts of each regulatory policy separately from those of the other policies. In actual practice, certain policies are often most effective when implemented in combination to provide incentives, such as early replacement with consumer rebates, or early replacement with bulk government purchases. DOE attempted to make conservative assumptions to avoid double-coun ting policy impacts. Therefore, the policy impacts reported below are not additive; the combined impact of se veral or all of the policies may not be inferred from adding the results together. Section 17.3 presents graphs showing market penetration or shipment-weighted efficiency parameters for each of the non-regulatory policy cases for conventional cooking products.

17.3 NON-REGULATORY POLICY ASSUMPTIONS

17.3.1 No New Regulatory Action The case in which no new regulatory action is taken with regard to conventional cooking product efficiency constitutes the base case scenario described in Chapter 11 on the national impact analysis. This case defines the basis of comparison for all other scen arios. By definition, no new regulatory action yiel ds zero energy savings and an NPV of zero dollars.

17.3.2 Financial Incentives Policies
DOE considered scenarios in which the Fe deral government would provide two types of financial incentives: rebates and tax credits. The government could provide consumers with a rebate for purchasing an energy efficient applia nce meeting the target level for each product. Tax credits could be offered to consumers w ho purchased target-lev el conventional cooking products. The government could al so provide tax credits to ma nufacturers to offset costs associated with producing such equipment.

DOE’s evaluation of consumer rebates used a comprehensive study of the potential for energy efficiency in California performed by Xe nergy, Inc., which summarized experience with various utility rebate programs. 1 This analysis method is based on curves that estimate the market penetration of a technology based on its benefit/cost (B/C) ratio. DOE consulted with experts and reviewed several other methods of estimating market pene tration of efficient technologies due to consumer rebate programs thatwere developed since the referenced Xenergy report was published. 2 , 3 , 4 , 5 However, these methods were based either on other economic parameters (payback period) or on expert su rveys predicting penetra tion of a new technology over time. Therefore, DOE decided to use th e penetration curve method based on B/C ratio, which incorporates lifetime operating cost savi ngs, and was calibrated with utility rebate program participation results.

17-4Xenergy’s information diffusion model estim ates market impacts induced by financial incentives for energy efficient appliances. The ba sic premise of this model is that information diffusion drives technology adoption. The model is formulated to characterize the influences of both internal and external sources of informa tion on consumer behavior by superimposing two components in the equation, each capturing the ef fect of one of two different types of information source. The effects of these two types of information diffusion mechanisms are different. Internalsources of information influence c onsumers to purchase new products due mainly to word-of-mouth from early adopters, while external information sources influence consumers to change their adoption decisions as a result of marketing efforts and information coming from outside the consumer group. (Appendix 17A of the TSD contains further details on modeling these influences.) Xenergy’s model combined these two inform ation diffusion mechanisms and generated a set of measure “implementation curves” or penetration curves , which Xenergy calibrated using evaluation data from utility rebate programs. Co nsumer response to rebate incentives appears to be a combination of the two information source t ypes. The penetration curves illustrate the increased penetration (i.e., increase d market share) of efficient equi pment as a result of consumer response to B/C ratio changes induc ed by a specific rebate program . The penetration curves are used to depict various diffusion patterns based on perceived barriers to consumer purchase of high-efficiency equipment. Ther e are penetration curves for varying levels of market barriers, from “no barriers” to “extremely high barrier s.” These curves provide a means to study the impact of changing the B/C ratio, by reducing the initial equipment cost through financial incentives, on the consumer participation rate. DOE based its estimates of the impacts of consumer tax credits on actual program experience with State tax credits in Oregon. DOE studied State tax credits in Montana as well. DOE also attempted to determine residential cons umer participation due to the Federal appliance tax credits, which were mandated by the Ener gy Policy Act of 2005 (EPACT 2005). For the manufacturer tax credits policy, DOE attempted to investigate ma nufacturer participation due to the efficient equipment tax credits from EP ACT 2005. Both the Federal consumer and manufacturer credits were in effect in 2006 and 2007. Unfortunately, the Internal Revenue Service (IRS) had not yet published data on taxpay er response to either of these tax credits. DOE also incorporated previous research that had differentiated the impact of tax credits into the “direct price effect,” which arises from the incremental equipment cost savings, and the “announcement effect,” which is in dependent of the credit amount. 6 , 7 The announcement effect derives from the credibility that a particular technology receives from its inclusion in an incentive program, as well as changes in product marketing strate gy, and the resulting modifications in markups and pricing. DOE a ssumed that the direct price effect and the announcement effect would apply to the consumer tax credit policy as well as the consumer rebate policy, and that half of the increases in market penetration associ ated with either policy would be due to the direct price effect and half to the announcement effect.

17-517.3.2.1 Consumer Rebates DOE modeled the impact of the consumer rebate policy by determ ining the increase in market penetration of target-level equipment relative to its market penetration in the base case. For conventional cooking products, DOE estimat ed the impact of increasing the B/C ratio via a rebate that paid a portion of the increm ental installed cost between a unit meeting the baseline efficiency level a and a unit meeting the target efficiency level. DOE based the rebate amount on a large sample of utility rebate program s for another residential product, dishwashers, throughout the nation. Since there have been no rebate programs for conventional cooking products, DOE chose dishwashers as an analogous product whose market has some similarities to the cooking product market. Both are ki tchen appliances, and for both products the incremental costs from a baseline efficiency unit to a unit meeting a higher efficiency level are small. DOE gathered data on rebate programs fo r residential dishwashers offered by 88 agencies throughout the country. (See Appendix 17A for a lis ting of these rebate programs.) The simple average of the rebate amounts in these programs, $37, was higher than the incremental installed cost between dishwashers that just met current energy efficiency standards and dishwashers that met the efficiency criteriab for the rebate levels. (DOE estimated the dishwasher incremental cost as $22. 8 ) Therefore, DOE assumed that a rebate program for conventional cooking products would provide a rebate amounting to 100 percent of the incrementa l equipment cost between the baseline unit and the target level unit for new gas cooktops and gas standard ovens not needing an electric outlet installed to use electronic ignition. For units used in a household where an electric outlet would need to be installed, DOE assumed that the rebate amount would be 50 percent of the total incremental cost, includi ng equipment and outlet installation costs. DOE assumed the rebates would remain in effect until they had transformed the markets so that the shift in market share of efficient units seen in the first year of the programs would be maintained throughout the forecast period (2012–2042). For conventional cooking products, DOE first calculated the B/C ratio for the baseline unit without a rebate. It then calculated another B/C ratio for th e unit meeting the target level, with a rebate, relative to the baseline unit. Becau se of the incremental cost reductions due to the rebates, the B/C ratios for the rebate policy unit were larger. Table 17.3.1 shows the benefits as lifetime operating cost savings, incremental installe d costs without rebates and with rebates, and B/C ratios without rebate s and with rebates.

aThe base case is a market-weighted averag e of units at several efficiency levels.

b ENERGY STAR/ Consortium for Energy Efficiency (CEE) specifications

17-6Table 17.3.1 Benefit/Cost Ratios for Gas Cookto p and Gas Standard Oven Amended Standards and Rebate Policy Cases Gas Cooktops, No Outlet Gas Cooktops, With Outlet Gas Standard Ovens, No Outlet Gas Standard Ovens, With Outlet Benefit (Lifetime Operating Cost Savings) $ 261 $261 $101 $101 Incremental Installed Cost (Increased Installed Cost) $18 $135 $22 $139
B/C Ratio with No Rebate 14.8 1.9 4.6 0.7 Rebate Amount $18 $68 $22 $70 Adjusted Incremental Installed Cost (Increased Installed Cost after Rebate) $0 $68 $0 $70 B/C Ratio for Rebate Policy Case Inf. 3.9 Inf. 1.5 Inf. means that B/C ratio is infinite because the incremental cost is zero.
DOE then used the B/C ratios with th e penetration curves shown in Figures 17.3.1, 17.3.2, 17.3.3, and 17.3.4 to estimate the increased percentage of consumers who would purchase the units that meet the policy target leve ls if given a rebate in centive. For conventional cooking products, DOE chose different curves de pending on whether the appliance would need an electric outlet installed. For gas cooktops or gas standardovens purchased for households where an electric outlet would be needed to use a unit meeting the target level, DOE selected the “high barriers” curve due to the high cost of the outlet insta llation. For these households DOE assumed that the electric utility would rebate half of the incremen tal cost, including the appliance incremental purchase price and the electric outlet installation. For gas cooktops or gas standard ovens in households where an electric outlet woul d already be available, DOE selected the "no barriers" curve, since the incremental cost betw een the baseline and the TSL is small, and there are few product utility issues for consumers. For these households DOE assumed that the electric utility would rebate the entire incremental installed equipment cost. Figures 17.3.1, 17.3.2, 17.3.3, and 17.3.4 show the incr ease in penetration rates of targetlevel units as a function of th eir higher B/C ratios. Using the method discussed above, DOE estimated that, for conventional cooking products, the market sh are of equipment meeting the policy target due to a rebate policy would incr ease by 6.4 percent above th e base case market share for gas cooktops not needing outlets, by 8.9 percent for gas cooktops needing outlets, by 18.1 percent for gas standard ovens not needing outlets, and by 0.9 percent for gas standard ovens needing outlets. The weighted-average ma rket share increase for all gas cooktops and ovens would be 7.8 percent. To calculate the impacts of this policy, DOE adjusted the market shares of conventional cooking products at the target efficiencies in its NIA model to represent the policy case scenarios.

17-70% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

0 2 4 6 8 1 0 1 2 1 4 Participant Benefit-Cost RatioMaximum Penetration Rate No Barriers Curve Penetration Rate = 93.6% at B/C ratio of 14.8 Penetration Rate = 100% at infinite B/C ratio Change o f Penetration Rate = 6.4%

Figure 17.3.1 Market Penetration Curve for Gas C ooktops Not Needing Electric Outlets Note that the portion of the penetration curve displayed on the graph does not display the 100 percent penetration that would result from an “infinite” B/C ratio where the rebate covers the entire incremental measure cost.

17-80% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

0 2 4 6 8 1 0 1 2 1 4 Participant Benefit-Cost RatioMaximum Penetration Rate

Hi g h Barriers Curve

Penetration Rate = 2.2% at B/C ratio of 1.9 Penetration Rate = 11% at B/C ratio of 3.9 Change of Penetration Rate = 8.9%

Figure 17.3.2 Market Penetration Curve for Gas C ooktops Needing Electric Outlets

17-90% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

0 2 4 6 8 1 0 1 2 1 4 Participant Benefit-Cost RatioMaximum Penetration Rate

No Barriers Curve Penetration Rate = 81.9% at B/C ratio of 4.6 Penetration Rate = 100% at infinite B/C ratio Change o f Penetration Rate =18.1%

Figure 17.3.3 Market Penetration Curve for Gas St andard Ovens Not Needing Electric Outlets

Note that the portion of the penetration curve displayed on the graph does not display the 100 percent penetration that would result from an “infinite” B/C ratio where the rebate covers the entire incremental measure cost.

17-100% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

0 2 4 6 8 1 0 1 2 1 4 Participant Benefit-Cost RatioMaximum Penetration Rate

High Barriers Curve

Penetration Rate = 0.2% at B/C ratio of 0.7 Penetration Rate = 1% at B/C ratio of 1.4

Change of Penetration Rate = 0.9%

Figure 17.3.4 Market Penetration Curve for Gas Standard Ovens Needing Electric Outlets

17.3.2.2 Consumer Tax Credits To analyze this policy, DOE studied taxpaye r participation in tax credit programs for energy efficient appliances, which were available at both the Federal and th e State levels. DOE analyzed a consumer tax credit program w hose credit amounts would be similar to the percentage of equipment costs covered by existing State tax cr edits. For conventional cooking products, DOE assumed that, for customers needing an electric outlet insta lled to use the targetlevel unit, the tax credit would also c over a portion of the installation costs.

EPACT 2005 included Federal tax credits fo r consumers who installed efficient air conditioners or heat pumps, gas or oil furnaces, fu rnace fans, and gas, oil, or electric heat pump water heaters in new or existing homes. 9 While these credits were available during tax years 2006 and 2007, as mentioned above, the IRS had not published data on the numbers of taxpayers taking these credits. Appendix 17A gives details of the equipm ent covered and the Federal tax credit amounts for residential appliances.

17-11The States of Oregon and Montana have had co nsumer tax credits for efficient appliances for several years. c DOE based most of its estimates on Oregon's experience with this policy. Oregon’s Residential Energy Ta x Credit (RETC) was created in 1977. The Oregon legislature expanded the RETC program in 1997 to include home appliances and participation in the program increased significantly after they became eligible. d In response to changes in the appliance market, the RETC program updates its lists of eligible model numbers monthly, and makes occasional adjustments to the maximum tax credit dollar amount for each appliance. Oregon offers tax credits on residential refri gerators, clothes washers, and dishwashers. 10 The tax credit is either an amount noted on the list of qualifying appliances e or 25 percent of the purchase price of the applianc e, whichever is less. Montana has had an Energy Conservation Installation Credit for residential energy conservation measures since 1998. 11 The tax credit covers a variety of residential energy and water efficiency installations, including Energy Star heating/cooling equipment, water heaters, low-flow showerheads and faucets, and light fixt ures and controls. The amount of the credit increased in 2002 from 5 percent of equipment co sts (up to $150) to 25 percent (up to $500). DOE obtained data from the Montana Departme nt of Revenue (DER) on the numbers of tax credits claimed from 1998 through 2006. 12 However the DER did not have data disaggregated by appliance, so the number of tax credits claime d for large household appliances could not be distinguished from those for plumbing products. DOE analyzed the available data and noted that the number of tax credits claimed increased st eadily from 1998 through 2006, which contributed to its assumptions for this policy scenario.

Because tax credits have not been available for conventional cooking products, DOE analyzed Oregon residential tax credit data for an analogous product—dishwashers—to inform the tax credit analysis for cooking products. DOE analyzed the Oregon reside ntial tax credit data for residential clothes washers to inform the an alysis of the tax credit policy for commercial clothes washers.

Because tax credits have not been available for conventional cooking products, DOE analyzed Oregon's residential tax credit data for an analogou s product—dishwashers. The percentage of total annual dishwasher shipments comprised by tax credit claims declined in 2005 and 2006, which ODOE attributed to changes in the listings of eligible models. Observing that clothes washer tax credits claimed generally ro se each year between 1998 and 2006, and also that Montana's tax credit claims increased annua lly during the same period (see below), DOE assumed that the tax credit program for this policy would be designed for increasing annual participation and adjusted the dishwasher pe rcentages for the years 2004 through 2006 to provide a steady trend line. For 2006, the estimated perc entage of total shipments comprised by tax

The District of Columbia (Washington D.C.) passed le gislation entitled the “Residential Energy Conservation Tax Credit Act Of 2005” for consumer tax credits, but did not appropriat e the necessary funding and so the credits did not go into effect. d The program added fuel cells in 1999 and high-effic iency heat pump systems, furnaces, and boilers in 2002.

e These lists change frequently, and generally requir e units that exceed ENERGY STAR specifications -- for

exam ple units that meet Consortium for Energy Efficiency (CEE) specifications.

17-12 ccredit claims was 14 percent. DOE did not find data comparing Oregon and Washington’s efficient dishwasher sales. To estimate the porti ons of these tax credit cl aims that were likely due to utility rebates and to market impacts, DOE reviewed a report by Itron on utility rebate programs in California, which compared the per centage of free riders in residential clothes washer and dishwasher rebate programs in 2005. 13 Itron found that the market penetration rate of Energy Star dishwashers was much higher than that of Energy Star clothes washers and the percentage of free riders was gr eater for dishwasher programs than for clothes washer programs. Also, DOE estimated that the incremental co st from the baseline was much smaller for dishwashers than for clothes washers. f Thus DOE estimated that ma rket impacts (part of which are due to free riders) were responsible for a high er percentage of dishwa sher tax credit claims than for residential clothes washer credit clai ms. DOE estimated that 49 percent of Oregon's dishwasher tax credits claimed, or6.9 percent of total dishwasher shipments, were due to market impacts. It estimated that utility rebates were responsible for 32 percen t of tax credits claimed, or 4.5 percent of total shipments. DOE attrib uted the remaining 20 percent of tax credits claimed, or 2.8 percent of total sh ipments, to tax credits. DOE then took 20 percent of the number of Oregon dishwasher tax credits claimed for the years 1998–2005 to estimate the impact attributable to tax credits for those years. Table 17.3.2 shows the number of Oregon resi dential tax credits cl aimed for dishwashers as percentages of total annual shipments these claims represent for the years 1998–2006. It also shows the percentages of total shipments attribut ed to the tax credits themselves, to utility rebates, and to other market in fluences/free riders for 2006, and th e percentage attributed to tax credits for 1998–2005.

Table 17.3.2 Oregon Tax Credits Claimed for Resi dential Dishwashers from 1998 to2006 and their Attribution for 2006 1998 1999 2000 2001 2002 2003 2004 2005 2006 Tax Credits Claimed 4% 7% 9% 10% 12% 14% 12% 7.5% 7.6% Tax Credits Claimed, Adjusted 4% 7% 9% 10% 12% 14% 14% 14% 14% Due to Tax Credits 0.7% 1.4% 1.8% 2.0% 2.4% 2.8% 2.8% 2.8% 2.8% Due to Rebates NA NA NA NA NA NA NA NA 4.5% Due to Market NA NA NA NA NA NA NA NA 6.9% DOE estimated that, due to consumer tax credits, the market share of target-efficiency conventional cooking products would increase ov er the base case level by the percentages experienced by dishwashers for the first nine years of the tax credit program. As shown in Table 17.3.3, their market share would increase from 2012 to 2017 g and would remain at the 2017 level, 2.8 percent, for the remainder of the forecast period.

f Similarly, conventional cooking product models meeting the target level have a high market share and a small

incremental cost for those units not needing electric outlets.

g The market share attributable to tax credits from the Ore gon dishwasher data analysis was constant from the sixth through the ninth year of the tax credit program.

17-13Table 17.3.3 Annual Increased Market Shares of Co nventional Cooking Products at Target Efficiency Levels from Consumer Tax Credits

Year of Program Conventional Cooking Products 2012 0.7% 2013 1.4% 2014 1.8% 2015 2.0% 2016 2.4% 2017 2.8% 2018 2.8% 2019 2.8% 2020 2.8% 2021–2042 2.8%

17.3.2.3 Manufacturer Tax Credits EPACT 2005 provides Energy Efficient A ppliance Credits to manufacturers for production of high-efficiency refrig erators, clothes washers, and di shwashers at the Federal level through the IRS. 14 Manufacturers receive these credits only for the increase in production of qualifying appliances over a three-year rolling baseline. Each manufacturer is limited to a certain amount for all credits under this provisi on. The credits were available for models produced in 2006 and 2007. Legislation pending in Congress would extend the manufacturer tax credits in modified form through 2010. 15 Appendix 17A gives details of the equipment covered and the Federal tax credit amount s for appliance manufacturers.

DOE assumed that a manufactur er tax credit program would effectively result in a lower price to the consumer by an amount equivalentto that provided by consumer tax credits as described above. Because these tax credits w ould go directly to manufacturers, DOE assumed that manufacturers would pass on th e reduced costs to consumers, cau sing the direct price effect. However, DOE assumed that the announcement effect would not occur because the program would not be visible to consumers. Since the direct price effect is approximately equivalent to the announcement effect, 6 DOE estimated that half of the consumers assumed to take advantage of consumer tax credits would pur chase more-efficient products due to a manufacturer tax credit program. DOE thus applied 50 percent to the market penetrations at tributed to Oregon’s consumer tax credits in the year 2006 for dishwa shers and clothes washers and used the resulting market penetrations to represent the impact of manufacturer tax credit s for all years of the analysis period. DOE assumed the impact of this policy would be to permanently transform the market so that the market share increase seen in the first year of the program would be maintained throughout the forecast period. Fo r conventional cooking products, DOE assumed that the manufacturer tax credit would only aff ect the equipment price and therefore would not provide enough of an incentive to consumers needing an electric outle t, due to the high price of its installation. Thus, DOE applied the market sh are percentage increase to only the 44.5 percent of conventional cooking product ship ments going to households that would not need to install an electric outlet.

17-14DOE estimated that the market share of efficient conventional cooking products would annually increase due to manufactur er tax credits by 0.6 percent over th e base case at the TSL.

17.3.3 Voluntary Energy Efficiency Targets
DOE assumed that volunt ary targets would be achi eved through manufacturer participation in a gradual phaseout of producti on of units below their respective TSLs. DOE assumed that this would be achieved by a progr am similar to the Energy Star endorsement labeling program conducted by th e Environmental Protection Ag ency (EPA) and DOE. The Energy Star program sets minimum energy effici ency specifications for various products. Energy Star encourages consum er adoption of these products through marketing to promote consumer label recognition, adoption of the sp ecifications by various efficiency incentive programs, and manufacturer produ ction and promotion of Energy Star-compliant appliances. Energy Star prepares projections of market penetration of comp liant appliances, and estimates the percentage of the sales of those compliant ap pliances that are attributed to the Energy Star program. Several reports have analyzed the impacts of Energy Star pr ograms for specific products, which are generally based on a combination of in formation dissemination and utility or agency rebates. These studies base their analysis on the Energy Star statewide data on percentages of shipments by appliance that meet the Energy Star specifications. These analyses have generally concluded that the market penetr ation of Energy Star-qualifying appliances is higher in regions or States where such promotional programs have been active. 13 , 16 , 17 , 18
But DOE did not analyze the potential impact s of voluntary energy efficiency targets for conventional cooking products because over 85 percent of the gas range market in the base case already meets TSL 1. The Energy Star program typically targets products where a maximum of approximately 25 percent of the existing market meets the target efficiency level. 19 Since the market for gas ranges is well above the 25 percen t threshold, DOE did not consider this policy for conventional cooking products.

17.3.4 Early Replacement Early replacement refers to the replacemen t of conventional cooking products before the ends of their useful lives. The purpose of this po licy is to replace old, inefficient equipment with higher-efficiency units. The ec onomic feasibility of early replacement depends on the vintage of the unit being replaced, the cost for the new equipment, and the energy cost savings. There has been limited experience with earl y replacement programs for appliances in the U.S. However, DOE studied several reports to inform its analysis of this policy. One report detailed the Connecticut Appliance Re tirement Program (ARP) conducted in 2004. 20 Another was an electric energy efficiency potentials st udy performed for the St ate of Vermont in 2006. 21

17-15DOE had also performed an earlier study on Federal potential for early retir ement of appliances under EPACT 1992.

The Connecticut ARP was conducted from June through December 2004 by Nexus Market Research, Inc. and RLW Analytics, Inc. for Northeast Utilities–Connecticut Light and Power and the United Illuminating Company’s St ate programs. The ARP intended to assist utility customers in Connecticut to overcome ba rriers to recycling room air conditioners (RACs), secondary refrigerators, and freezers. The progr am picked up used appliances at customers’ homes or at turn-in events, paid participants to retire their units, and educated customers about the costs of running older appliances. In addition, the program paid incentives to consumers to replace their RACs with Energy St ar-qualified units. DOE consid ered the RAC program to most closely resemble the early replacement policy scenario, since these consumers were replacing primary units rather than retiring second units . Nexus’ report on ARP results estimated the number of RACs retired by progr am participants, the percentage of those replaced with an Energy Star model, and the number of RACs replaced by non-participants during the program duration, using program data and surveys. Accordi ng to their analysis, aboutseven percent of all RACs retired during the program were retired through the ARP, and 63 percent of those were replaced with an Energy Star model. This mean t that the program directly resulted in early replacement with a more efficient unit of about f our percent of the total eligible RAC population. DOE assumed that this type of program most likely eliminates second ownership of the RAC, thus shortening its useful service life. In 2006, GDS Associates, Inc. conducted an electricity and peak de mand potentials study for energy efficiency and fuel conversion measur es for the State of Vermont. GDS developed a special “early retirement” scenario with all resi dential appliances replac ed during the four-year period from 2006 to 2009, and analyzed similar early replacements in the commercial sector. They estimated achievable market penetrati ons assuming that consumers would receive a financial incentive equal to 50 percent of the incr emental cost of the measure in most programs. GDS assumed an 80 percent penetration limit for the program. It estimated a maximum achievable annual program particip ant level of two pe rcent of applicable single-family or multifamily homes in 2005. DOE also reviewed a study it conducte d in the 1990s, under EPACT 1992, which analyzed the feasibility of a Federal program to promote early repla cement of appliances. 22 This study identified policy options for early replac ement that included a direct national early replacement program, replacement of Federally owned appliances, promotion through equipment manufacturers, consumer incentives, incentiv es to utilities, and building regulations. h

h The analysis concluded that, while cost-effective opportu nities for early replacement exist, a widespread Federal early replacement program was not economically justified. Because prematur e retirement means that a unit may be replaced by an appliance less efficient than the eventual replacement would probably have been, energy savings would be smaller than anticipated. Early replacement prog rams could increase sales volatility in the long run by encouraging a temporary increase in production followed by a lull in demand. Early replacement could be economical in localities with hi gh energy cost conditions or environmenta l constraints, when replacement appliances are much more efficient than existin g stock, or when a major technology breakthrough has recently occurred, creating the need for a ready market.

17-16For this analysis, DOE considered a program th at targets the units in the stock that have efficiency levels lower than the policy target efficiency level and encourages their early replacement with products at the ta rget level. The program affect s a portion of units in the stock in 2012 that would be replaced at the end of th eir useful or service life (at the “natural” replacement rate) without the eff ects of this policy, under which they would be replaced sooner. Shipments in 2012 and beyond are not affected by this program and remain at base case efficiency levels. Based on their average serv ice lives, 5 percen t of conventional cooking products are replaced annually; thes e are their natural replacement rate s. For this policy study, DOE assumed that an additional percentage of conventional cooking products in the existing stock in 2012, the first year of the analysis period, would be replaced by models meeting the target levels. For each product, DOE modeled this policy by replac ing four percent per year of the units in the stock in addition to those being replaced at the end of their se rvice lives (using the estimated percentage from the Connecticut study since it was based on actual program experience). DOE assumed that these early replacement programs w ould last as long as it took to completely replace all of the eligible conve ntional cooking products that were in the stock in the year that the program began (2012). After the 2012 stock ha d been completely replaced, there would be no additional impacts from this policy. The policy would create a jump in shipment s of equipment meeting target efficiency levels relative to the base case in the early year s of the program as shown in Figures 17.3.5. As a result, more high efficiency units meeting the policy targets would be quickly brought into the equipment stock, leading to an immediate gain in the market share of efficient units compared to the base case. However, unlike the other policy cases discussed, the efficient unit market share would drop back down to the levels in the base case as the eligible market is depleted.

17-172.0Shipments (millions) 1.6

1.2

0.8

Early Replacement Scenario 0.4 Base Case Shipments

0.0 2005 2010 2015 2020 2025 2030 2035 2040 2045 Year Figure 17.3.5 Early Replacement Shipments Projections for Conventional Cooking Products

17.3.5 Bulk Government Purchases DOE assumed that a bulk government purchas e policy would encourage Federal, State, and local governments to purchase equipment meeting the target e fficiency levels. Aggregating public sector demand could provide a market signal to manufactu rers and vendors that some of their largest customers sought supplie rs with products that met an efficiency target at favorable prices. This program also could induce “m arket pull” impacts through manufacturers and vendors achieving economies of scale for high-efficiency products.

While there have been severa l bulk government purchasing initiatives at the Federal, State, and municipal levels, most of these pr ograms have not trackeddata on number of purchases or degree of compliance with procurem ent specifications. In many cases, procurement programs are decentralized, being part of larger State or regional initiatives. At the Federal level, the Federal Energy Management Program (FEMP) ha s performed studies of savings potential for its procurement specifications for appliances and other equipment on which DOE based its assumptions for this policy. Yet FEMP does not tr ack purchasing data, due to the complexity of the purchasing systems, number of vendors, etc. There is evidence of increasing interest and activity in “green purchasing" on the State, coun ty, and municipal levels. While many of these programs target office equipment, the existen ce of a growing infrastructure for efficient

17-18purchasing specifications indicate s that such impacts that DOE attributed to bulk government purchasing programs are feasible. 23 , 24
But DOE did not analyze the potential im pacts of bulk government purchases for conventional cooking products because over 85 per cent of the gas range market already meets TSL 1. FEMP procurement specifications typically promote products in th e top 25 percent of the existing market in terms of efficiency. Since most of the gas ranges sold in the base case would already comply with such specifications, DOE di d not consider this pr ogram for conventional cooking products. 25

17.4 NON-REGULATORY POLICY IMPACTS Figure 17.4.1 shows the market share (penetration rate) impacts for each of the nonregulatory policy cases for c onventional cooking products. Figure 17.4.1 shows the market share impact s for each of the non-regulatory policy cases for conventional cooking products. Note that in Figure 17.4.1, the market share of products meeting the target level is forecasted to increase ov er time in the base case (i.e., the case without standards or non-regulatory programs). Relative to the base case, each of the policy cases increases the market share of products meeting the target level. Consumer rebates is the most effective policy case to increase th e market share of products meeti ng the target level while early replacements are the least effective. As a reminder, the amended standards (not shown in Figure 17.4.1) would result in a 100 percent penetrati on of products meeting the target level.

17-19100%

98%

96%

94%

92%

90%

84% 86% 88%Percent Units Meeting Target Level

Rebate Consumer Tax Credit Manfr Tax Credit Early Replace Base Case

82% 2005 2010 2015 2020 2025 Year 2030 2035 2040 2045

Figure 17.4.1 Penetration Rate of Units Me eting the Target Level for Conventional Cooking Products

17.5 RESULTS SUMMARY FOR NON- REGULATORY ALTERNATIVESTable 17.5.1 shows the national energy savings and NPV resulting from the various nonregulatory alternative policy cases, when the effi ciency target levels are equal to the amended standard levels for each product. The cases in wh ich no regulatory action is taken with regard to conventional cooking products constitute the base case (or "No Action") scenarios, in which energy savings and NPV are zero by definition. For comparison, the tables include the impacts of the amended energy conservation standard s. The NPV amounts shown in Table 17.5.1 are based on two discount rates (seven percent and three percent real).

17-20Table 17.5.1 Non-Regulatory Alternatives for Co nventional Cooking Products with Target Levels at TSL 1

Policy Alternatives Primary Energy Savings (quads) Net Present Value* (billion 2006$)

7% discount rate 3% discount rate No New Regulatory Action 0.0 0.0 0.0 Consumer Rebates 0.12 0.21 0.60 Consumer Tax Credits 0.05 0.08 0.27 Manufacturer Tax Credits 0.01 0.02 0.06 Early Replacement 0.01 0.07 0.12 Amended Standards At TSL 1 0.14 0.25 0.71 * Net present value (NPV) is the value of a time series of costs and savings. DOE determined the NPV from 2012

to 2042 in billions of 2006$.

17-21REFERENCES

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