# E**C** 

# / **R Incorporated**  **Providing Environmental Technical Support Since 1989**

501 Eastowne Dr., Suite 250  Chapel Hill, North Carolina 27514 Telephone: (919) 484
- 0222  Fax: (919) 484
- 0122 

# MEMORANDUM **DATE:** January

30 , 201 5 **SUBJECT:** Wood Stove 10
-year Amortization Period, Sensitivity Analys is of R&D Costs **FROM:** Jill Mozier, EC/R Inc. **TO:** Gil Wood, EPA/OAQPS

David Cole, EPA/OAQPS Amanda Aldridge, EPA/OAQPS The purpose of this memorandum is to document a sensitivity analys is based on varying the amortization period for wood stove R&D costs. For both proposal and for final rule support, we amortized R&D costs over a 6
- ye ar period in order to spread R&D costs over a 6
- ye ar model development timeframe . For the final rule this 6
- year period extends from the Step 1 compliance date (201 5 ) to the Step 2 compliance date (2020 , inclusive)
. Before proposal, t

# wo manufacturers noted that it will take from 5 to 6 years of intensive engineering and R&D efforts to have a model line consisting of 4 boxes ready
- for
-manufacture
. 1 

# However, the Hearth, Patio and Barbecue Association’s (HPBA’s) economic consultant, NERA, used a 10
-ye ar period for amortizing costs in their wood stove analys is (May 2014) submitted as Attachment 2 of HPBA’s comment on the proposed rule
. 2 

# We therefore amortized our estimated final rule costs for wood stove R&D over 10
- ye ars, as a sensitivity analysis. For comparison, the 6
- ye ar versus 10
- year annual amortized costs are shown in the final two rows of Table 1, both at a 7% interest rate. The components of the tabulated cost estimates are discussed in the Manufacturer Cost Impacts memo. 3 

# Tables 2a and 2b show the average annual cost per wood stove manufacturer and the nationwide annual costs using the 10
- ye ar amortization period. For comparison, Tables 3a and 3b show the same using the 6
- ye ar amortization period. Finally, Tables 4 and 5 show the cost effectiveness (CE) of reducing PM2.5 

# from wood stoves based on the 10
- year and 6
- ye ar amortization periods , respectively. Over the 20
- ye ar emitting lifespan, the estimated CE is $587 per ton based on the 10
- ye ar amortization period versus $519 per ton based on the 6
- year amortization period. The CE calculations based on using the 10
-ye ar amortization period, entitled Revised Final Wo od Heater NSPS PM25 CE 7% 1
-23
- 15 Wo odstove 10yr Amortization.xls , are provided with e
-mail transmittal of this memo.

1 

## NSPS Review/Revision, and Impact on Our Companies: A Manufacturer’s Position Statement. Prepared by Stove Builder International and United States Stove Company. June 2010. 2 

## Comment on the proposed rule to Docket EPA
-HQ
- OAR
-2009
- 0734 from the Hearth, Patio and Barbeque Association available at http://www.regulations.gov/#!documentDetail;D=EPA
-HQ
- OAR
-2009
- 0734
- 1643
. 3 

## Memorandum to USEPA from EC/R, Inc. Estimated Wood Heater Manufacturer Cost Impacts
. January 2015
.

# 2

**Table 1. Estimated Wood Stove Capital Costs**

**Capital Costs Appliance Costs**  **Notes High**  **Low Me**  **an** 2013 dollars ; All costs b ased on HPBA estimates under 7.5 to 4.5 g/hr scenario , with modifications **R&D /**  **Engineering Costs** Market research, aesthetic design, initial prototype design/construction/testing, formulate design changes, modify/test prototype $45,500 $19,000 $32,250 A djust design/test until emission target is met $47,500 $30,000 $38,750 C onstruct final prototypes, safety test check, eng. drawings/specs, patent application $27,000 $17,000 $22,000 C onfirm final prototype performance $0 $0 $0 **R&D/Engineering Total costs $120,000**  **$66,000 $93,000**  **Tooling** Steel Stove $31,200 $9,700 $20,450 Cast Iron Stove $62,000 $31,000 $46,500 **Average tooling cost $46,600**  **$20,350 $33,475**  HPBA costs for equipment and integration not included because these are considered duplicative of R&D costs, above **Other Capital Cost components $14,000**  **$6,000 $10,000** 

**Total Capital Cost per model $180,600**  **$92,350 $136,475**  **Fixed Costs per model** HBPA costs for person ne l at lab and travel expenses not accepted as independent third party testing costs **Certification** EPA testing, Confirmation safety testing or full safety testing, shipping of prototype $19,000 $14,500 $16,750 Owner's manual, labeling $3,500 $1,800 $2,650

**Roll -** **out $0**  **$0 $0**  R oll
- out considered normal business operation and not due to NSPS **Total Fixed Capital Cost per model $22,500**  **$16,300 $19,400**  **Total Costs per Model $203,100**  **$108,650 $155,875**  **Annualized capital cost per model (6** **- year)**  $42,610 $22,794 **$32,702 Annualized over 6**  **years at 7% Annual**  **ized capital cost per model (10** **- year)**  $ 28,917 $ 15,469 **$ 22,193**  **Annualized over 10 years at 7%** 

## 3



# Table **2a . Average Annual Cost per Manufacturer under the**  **Final NSPS using a**  **10 -** **year Amortization Period (201 5**  **- 202**  **4 )** 

**Table 2b**  **. Nationwide Annual Costs**  **under the Final NSPS using a**  **10 -** **year Amortization Period (201**  **5 -** **202 4** **)**

**Footnotes:** 1 

# Nationwide Annual Cost assumes R&D investment is amortized over 10 years (2015 through 2024). The analysis extends to year 2029 (based on a model brought to market in 2020 with a lifespan of 10 ye ars), but because woodstoves already incur certification and reporting & recordkeeping costs under the existing 1988 NSPS, no additional costs are modeled after the 10
-ye ar amortization period.

2 

# For wood stoves, the analysis assumes that 26% meet Step 2 already so that 74% of the models will undergo re
- design to meet the Step 2 level. (Step 1 co mpl ian ce) 2015 2016 2017 2018 2019 (Ste p 2 co mp lian ce ) 2020 2021 2022 2023 2024 2025 thr ough 2029 Wood Stoves (R&D) 3 

### 34 125 $60, 378 $60, 378 $60, 378 $60, 378 $60, 378 $60, 378 $60, 378 $60, 378 $60, 378 $60, 378 $0 Av er ag e An nua l Cos t pe r Ma nufa ct ure r ba se d on 1 0-ye ar am ort iz at io n pe ri od of R&D c os ts (2015-2024) to m eet Step 2 l im ita nd 1 0-ye ar m ode l life for s toves sh ip pe d i n 2020 (t hrough 2029) 1, 2 

### # Ma nufa ctur er s # Model s AAA: Room Hea ter s (W ood Stove s onl y Se ns itiv ity Ana ly sis) NSPS Subpa rt Ap pl ian ceType

(Step 1 com pl ian ce ) 2015 2016 2017 2018 2019 (Ste p 2 com pl ian ce ) 2020 2021 2022 2023 2024 2025 t hroug h 2029 Wood Stoves (R&D) 3 34 125 $2, 052, 861 $2, 052, 861 $2, 052, 861 $2, 052, 861 $2, 052, 861 $2, 052, 861 $2, 052, 861 $2, 052, 861 $2, 052, 861 $2, 052, 861 $0 $2, 052, 861 $2, 052, 861 $2, 052, 861 $2, 052, 861 $2, 052, 861 $2, 052, 861 $2, 052, 861 $2, 052, 861 $2, 052, 861 $2, 052, 861 $0 # Ma nufa ctu re rs # Mode ls Na ti onwid e Annua l Cos ts 1, 2

AAA: RoomHea ter s (W ood Stoves onl y Se ns it iv ity Ana ly sis) NS PS Subpa rt Ap pl ian ceType

# 4

**Table 3a. Average Annual Cost per Manufacturer under the Final NSPS using a 6** **- year Amortization Period (201**  **5 -** **20 20** **)**

**Table 3b. Nationwide Annual Costs under the Final NSPS using a**  **6 -** **year Amortization Period (201 5**  **- 20**  **20 )** 

**Footnotes:** 1 

# Nationwide Annual Cost assumes R&D investment is amortized over 6 years (201 5 through 2020 ). 2 

# Since certification is required every 5 years, it is assumed that certification costs will be spread out so that 1/5 of the models certify each ye ar. 3 

# This analysis considers additional costs resulting from the NSPS. For wood stoves, the analys is assumes that 26% meet Step 2 already so that 74% of the models will undergo re
- design to meet the Step 2 level. The costs modeled for years 2021 through 2029 exclude the ongoing certification and reporting & recordkeeping costs incurred by wood stove manufacturers who already had to certify and report under the existing 1988 NSPS. (Step 1 co mp lia nce ) 2015 2016 2017 2018 2019 (Step 2 com pl ian ce ) 2020 2021

th rough 2029 2 

## Wood Stoves (R&D) 3 

## 34 125 $88, 968 $88, 968 $88, 968 $88, 968 $88, 968 $88, 968 $0 Av er ag e An nua l Cos t pe r Ma nufa ct ure r ba sed on 6 -ye arR&D r ound (2 015- 2020) to m eet Step 1 a nd

Step 2 l im its wi th ongoi ng c er ti fi ca ti on c os ts (t hroug h 2029) # Ma nufa ctu re rs # Mode ls Ap pl ian ceType

(Step 1 co mp lian ce ) 2015 2016 2017 2018 2019 (Step 2 co mp lian ce ) 2020 2021 t hr ough

2029 2 

## Wood Stoves (R&D) 3 

## 34 125 $3, 024, 928 $3, 024, 928 $3, 024, 928 $3, 024, 928 $3, 024, 928 $3, 024, 928 $0 # Ma nufa ctu re rs # Mo de ls Na ti onw id e An nua l Cos ts 1


## Ap pl ian ceT

ype

## 5



# Table 4. Cost Effectiveness of Wood Stoves Based on 10 **- year Amortization Period** 

Base line PM 2.5 Emi ssions 2 (t ons) NSPS PM 2. 5

Emi ssions 2 (tons) Emission

Reducti on (tons) CE base d on

nati onwide ave rage annual cost (per ton) Base line PM 2. 5

Emi ssions (tons) NSPS PM 2. 5

Emi ssions (t ons) Emi ssion

Re duction (tons) 6 2015 4 $2, 052, 861 $1, 368, 574 381 381 0 N/A 381 381 0 2016 $2, 052, 861 $1, 368, 574 389 389 0 N/A 770 770 0 2017 $2, 052, 861 $1, 368, 574 397 397 0 N/A 1, 167 1, 167 0 2018 $2, 052, 861 $1, 368, 574 445 445 0 N/A 1, 612 1, 612 0 2019 $2, 052, 861 $1, 368, 574 454 454 0 N/A 2, 066 2, 066 0 2020 4 $2, 052, 861 $1, 368, 574 463 259 204 $6, 710 2, 529 2, 325 204 2021 $2, 052, 861 $1, 368, 574 472 264 208 $6, 578 3, 001 2, 589 412 2022 $2, 052, 861 $1, 368, 574 482 269 212 $6, 449 3, 483 2, 859 624 2023 $2, 052, 861 $1, 368, 574 491 275 216 $6, 323 3, 974 3, 134 841 2024 $2, 052, 861 $1, 368, 574 501 280 221 $6, 199 4, 475 3, 414 1, 061 2025 $0 $1, 368, 574 511 286 225 $6, 077 4, 987 3, 700 1, 287 2026 $0 $1, 368, 574 521 292 230 $5, 958 5, 508 3, 992 1, 516 2027 $0 $1, 368, 574 532 298 234 $5, 841 6, 040 4, 289 1, 751 2028 $0 $1, 368, 574 542 303 239 $5, 727 6, 582 4, 593 1, 990 2029 $0 $1, 368, 574 553 310 244 $5, 614 7, 136 4, 902 2, 233 2030 7, 136 4, 902 2, 233 2031 7, 136 4, 902 2, 233 2032 7, 136 4, 902 2, 233 2033 7, 136 4, 902 2, 233 2034 7, 136 4, 902 2, 233 2035 6, 754 4, 521 2, 233 2036 6, 365 4, 132 2, 233 2037 5, 969 3, 735 2, 233 2038 5, 524 3, 290 2, 233 2039 5, 070 2, 836 2, 233 2040 4, 607 2, 577 2, 029 2041 4, 134 2, 313 1, 821 2042 3, 653 2, 043 1, 609 2043 3, 161 1, 769 1, 393 2044 2, 660 1, 488 1, 172 2045 2, 149 1, 202 947 2046 1, 628 911 717 2047 1, 096 613 483 2048 553 310 244 $20, 528, 611 34, 983 $587

6 In order to not ove rs tate e mission reductions cause d by the NSPS, emissions are re duced to discount wood stoves alrea dy me eting the S te p 2 l imit (i.e., 26%o f wood stoves al re ady me et the Ste p 2 l im it). **Cost Effe cti**  **ve ness (CE) based on annual and cumulative** **PM 2.**  **5 e**  **missions fr om W**  **ood Stove s** 

Ye ar 3 Nati onwide

Annual Cost 1 Na tionwide

Average Annual Cost Annual Snapshots Emi ssion Re duction, cumul ati ve per yea r CE base d on total co st & cumul ative emission re duction ov er 20- yea r emitting lifespa n (per ton)

1Es ti mate d nati onwide annual co sts are i n 2013 $ an d are b ase d on a 10- yea r amorti zati on pe ri od of R&D costs at a 7% i nterest rate ( during 2015- 2020 )
. Ye ars 2030 t hrough 2048 are p ast the 10- yea r mode l design lifespa n used in this analysis. 2Ex ce pt f or an adj ustment in yea r 2018 b ase d on an i ndustry projection (NERA), estimated annual e missions are based on a f ore caste d re venue growth rate ( as a surrogate for shi pme nts) of 2. 0%f rom 2015 t hrough 2029, i n keeping with the av erage annual g rowth i n real G DP pre dicte d by the USBure au ofEconomi c Anal ysis (M ay 2014 Up date of Gl obal O utl ook projections; se e http://www.conferenc e-board.org/data/globaloutlook.cfm). 3Th es e hea ters have in-home emitting lifespa ns of at l ea st 20 y ea rs; thus wood stove s shipped in 2029 w ill be emitting through 2048. 4Es ti mate d em issions assume Step 1 s tandard be co mes effecti ve in 2015 an d Step 2 s tandard i n 2020. For woodstove s, estimates assume that most mode ls al ready meet the Step 1l imit and that manufacture rs wi ll certi fy and se ll existing models meet ing Step 1 standard duri ng 2015 through 2019. The re fo re n o emission re ductions are estimated until Step 2 i n 2020. 5Th e nati onwide cumul ati ve cost re pre se nts the cost to manufacture rs re sulting from the R&D re -design to me et the NSPS assuming a 10- yea r mode l life. Cumul ati ve Emi ssion Re ducti on over 20- yea r em itting lifespa n Na ti onwide cu mulative co st 5

# 6

**Table 5. Cost Effectiveness of Wood Stoves Based on**  **6 -** **year Amortization Period**

Base line PM 2. 5 Emi ssions 2 (tons) NSPS PM 2. 5

Emi ssions 2 (tons) Emi ssion

Re ducti on (tons) 6 CE base d on

nati onwide ave rage annual cost (per ton) Base line PM 2. 5

Emi ssions (t ons) NSPS PM 2. 5

Emi ssions (tons) Emi ssion

Re duction (tons) 6 2015 4 $3, 024, 928 $1, 209, 971 381 381 0 N/A 381 381 0 2016 $3, 024, 928 $1, 209, 971 389 389 0 N/A 770 770 0 2017 $3, 024, 928 $1, 209, 971 397 397 0 N/A 1,167 1, 167 0 2018 $3, 024, 928 $1, 209, 971 445 445 0 N/A 1,612 1, 612 0 2019 $3, 024, 928 $1, 209, 971 454 454 0 N/A 2,066 2, 066 0 2020 4 $3, 024, 928 $1, 209, 971 463 259 204 $5, 932 2,529 2, 325 204 2021 $0 $1, 209, 971 472 264 208 $5, 816 3,001 2, 589 412 2022 $0 $1, 209, 971 482 269 212 $5, 702 3,483 2, 859 624 2023 $0 $1, 209, 971 491 275 216 $5, 590 3,974 3, 134 841 2024 $0 $1, 209, 971 501 280 221 $5, 480 4,475 3, 414 1, 061 2025 $0 $1, 209, 971 511 286 225 $5, 373 4,987 3, 700 1, 287 2026 $0 $1, 209, 971 521 292 230 $5, 267 5,508 3, 992 1, 516 2027 $0 $1, 209, 971 532 298 234 $5, 164 6,040 4, 289 1, 751 2028 $0 $1, 209, 971 542 303 239 $5, 063 6,582 4, 593 1, 990 2029 $0 $1, 209, 971 553 310 244 $4, 964 7,136 4, 902 2, 233 2030 7,136 4, 902 2, 233 2031 7,136 4, 902 2, 233 2032 7,136 4, 902 2, 233 2033 7,136 4, 902 2, 233 2034 7,136 4, 902 2, 233 2035 6,754 4, 521 2, 233 2036 6,365 4, 132 2, 233 2037 5,969 3, 735 2, 233 2038 5,524 3, 290 2, 233 2039 5,070 2, 836 2, 233 2040 4,607 2, 577 2, 029 2041 4,134 2, 313 1, 821 2042 3,653 2, 043 1, 609 2043 3,161 1, 769 1, 393 2044 2,660 1, 488 1, 172 2045 2,149 1, 202 947 2046 1,628 911 717 2047 1,096 613 483 2048 553 310 244 $18, 149, 566 34, 983 $519

3Th ese hea ters have in-home emitting lifespa ns ofat le ast 20 y ea rs; thus wood stove s shi pped in 2029 w ill be emitting through 2048. 4Es timated emissions assume St ep 1standard be come s e ffective in 2015 an d Step 2 standard i n 2020. F or woodstoves, estimates assume that most mode lsal re ady meet the Step 1 l imitand that manuf acture rsw ill ce rti fy and se ll existing models meeting Step 1 standard duri ng 2015 through 2019. The re fore no e mission reductions are est imated until St ep 2 i n 2020. 5Th e nationwide cu mulative cost re pre se nts the cost to manuf acture rs re sult ing from the R&D re -design to me etthe NSPS assuming a 10- yea r mode l life. Cumulative Emi ssion Re duction over 20- yea r emitting lifespa n Na tionwide cumul ati ve co st 5

6 In orde r to not ove rstate e mission re ductions caused by the NSPS, emissions are re duced to di scount wood stoves al re ady meet ing the Step 2 l imit (i.e., 26% o f wood stoves al re ady meetthe Ste p 2 l imit). **Cost Effe cti**  **ven ess (CE) based on annual and cumulative** **PM 2.5** **e missions from Wood Stoves** 

Ye ar 3 Na tionwide

Annual Cost 1 Nati onwide

Average Annual Cost Annual Snapshots Emi ssion Re duction, cu mulative per ye ar CE base d on total cost & cumul ati ve emission reduction over 20- yea r emitting lifespan (perton)

1Es timated nationwide annual costs are i n 2013 $ an d are b ased on a 6- yea r amortizati on period of R&D costs at a 7% i nte re st rate ( during 2015- 2020 )
. Ye ars2030 t hrough 2048 a re past the 10- year mode l design lifespa n used in thi s anal ysis. 2Ex ce pt for

an adj ustment in yea r 2018 b ased on an i ndustry projection (NERA), estimated annual e missions are b ased on a f ore cas ted re venue growth rate (as a surrogate for shipments) of 2.0% f rom 2015 t hrough 2029, i n keeping wit h the ave rage annual growth i n re al GDP pre dicted by the USBure au ofEconomi c A nal ysis (M ay 2014 Up date of Gl obal O utl ook projections; see http://www.conference-board.org/data/globaloutlook.cfm).