17-i

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 ......................................................................................................... 17-3

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

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

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

17.3.2.1 Consumer Rebates ....................................................................................... 17-5

17.3.2.2 Consumer Tax Credits................................................................................. 17-8

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

17.3.3 Voluntary Energy Efficiency Targets.......................................................................... 17-12

17.3.4 Early Replacement....................................................................................................... 17-13

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

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

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

LIST OF TABLES

Table 17.1.1 Policy Alternatives to National Standards......................................................... 17-1

Table 17.2.1 Trial Standard Level 3 for Microwave Ovens ................................................... 17-3

Table 17.3.1 Benefit/Cost Ratios for Microwave Oven Proposed Standard and Rebate 

Policy Case......................................................................................................... 17-6

Table 17.3.2 Oregon Tax Credits Claimed for Residential Dishwashers from 1998 to 

2006 and their Attribution for 2006................................................................. 17-10

Table 17.3.3 Oregon Tax Annual Increased Market Shares of Microwave Ovens at 

Target Efficiency Levels from Consumer Tax Credits.................................... 17-11

Table 17.3.4 Annual Increased Market Shares of Microwave Ovens at Target 

Efficiency Level from Voluntary Efficiency Targets...................................... 17-13

Table 17.5.1 Non-Regulatory Alternatives for Microwave Ovens with Target Levels at 

TSL 3 ............................................................................................................... 17-18

LIST OF FIGURES

Figure 17.3.1 Market Penetration Curve for Microwave Ovens  PC1 ................................. 17-7

Figure 17.3.2 Market Penetration Curve for Microwave Ovens  PC2 ................................. 17-7

Figure 17.3.3 Early Replacement Shipments Projections for Microwave Ovens.................. 17-15

Figure 17.4.1 Penetration Rates of Units Meeting the Target Level for Microwave Ovens.. 17-17
17-1

CHAPTER 17. REGULATORY IMPACT ANALYSIS

17.1 INTRODUCTION 

The Department of Energy (DOE) has determined that energy conservation standards for 

microwave ovens 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 proposed energy conservation standards require a regulatory impact analysis 

(RIA), which involves an evaluation of non-regulatory alternatives to the standards. This 

document evaluates several possible alternatives to the proposed standards and compares the 

costs and benefits of each to the proposed standards. As described in section 17.2.2 of this report, 

the proposed standards for microwave ovens are those in TSL 3. 

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 continually 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 alternatives to standards as representing feasible 

policy options to achieve consumer product energy efficiency for the appliance products 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 energy savings at a reasonable cost and compared the 

effectiveness of each one to the effectiveness 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
17-2

17.2 NON-REGULATORY POLICIES 

17.2.1 Methodology 

This section describes the approach DOE used to analyze non-regulatory policies for 

microwave ovens.

To calculate the national energy savings and the net present value (NPV) corresponding 

to each policy alternative, DOE used its national impact analysis (NIA) spreadsheet models. (See 

Chapter 10 of the technical support document (TSD) for a description of the NIA spreadsheet 

models.) To compare each alternative to the proposed standards, DOE quantified the effect of 

each alternative on the purchase of microwave ovens meeting the target levels, which are defined 

as the efficiency levels in the proposed standards. Once it had made the quantitative assumptions 

for each alternative policy, 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 efficiencies, 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 nonregulatory policies would affect a smaller percentage of the shipments. In each policy case, DOE 

made particular assumptions about the percentage of shipments impacted by the policy under 

analysis. DOE then calculated the shipment-weighted average energy consumption and costs 

using these market shares. 

A shift in the market share of higher efficiency units may increase the average installed 

cost of energy-consuming equipment. Operating costs 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 proposed 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 benefit for the purposes of calculating the national 

NPV. DOE did not consider administrative costs for any of the non-regulatory policies in its 

analysis. Inclusion of such costs would 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 compliance date of the policy case 

(2014) to the year 2043. 

• Net present value: The value of net monetary savings from equipment bought in the 

period from the compliance date of the policy case (2014) to the year 2043. DOE 

calculated the NPV as the difference between the present value of equipment and 

operating expenditures (including energy) in the base case and the present value of 
17-3

expenditures in each 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, marketing efforts, and the subsequent consumer behavior response. 

The projected impacts depend on the assumptions regarding the consumer participation rate and 

therefore are 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-regulatory policy and consulted with key experts to gather 

information on similar incentive programs that have already been implemented in the 

UnitedStates. 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 proposed standards would 

improve the average efficiency of new microwave ovens relative to their base cases (no new 

regulatory action). The analysis considered that each alternative policy would induce residential 

or commercial consumers to purchase units at the same efficiency levels as required by the 

proposed standards, or the target levels. In contrast to the proposed standards, however, their 

market penetration rate in the alternative policy cases may not be 100 percent.

The proposed standards for microwave ovens are those in TSL 3, as shown in Table 

17.2.1. 

Table 17.2.1 Trial Standard Level 3 for Microwave Ovens 

No. Product Class (PC)

Proposed Energy Conservation 

Standards

1 Microwave oven with or without thermal elements Maximum standby power = 1.0 Watt

2 Over-the-range combination ovens Maximum standby power = 2.2 watts

DOE assumed that the non-regulatory policy impacts would last from the compliance 

date for proposed standards for microwave ovens—2014—through the end of the analysis 

period, 2043.

17.2.3 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, such as early replacement with consumer rebates or early replacement with bulk 

government purchases. DOE attempted to make conservative assumptions to avoid doublecounting policy impacts. Therefore, the policy impacts reported below are not additive; the 
17-4

combined impact of several 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 microwave ovens.

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 microwave oven 

efficiency constitutes the base case scenario described in chapter 10. This case defines the basis 

of comparison for all other scenarios. By definition, no new regulatory action yields zero energy 

savings and an NPV of zero dollars.

17.3.2 Financial Incentives Policies 

DOE considered scenarios in which the Federal 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 appliance meeting the target level for each product. Tax 

credits could be offered to consumers who purchased target-level microwave ovens. The 

government could also provide tax credits to manufacturers 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 Xenergy, 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 penetration of efficient 

technologies due to consumer rebate programs that were 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 surveys predicting penetration of a new technology 

over time. Therefore, DOE decided to use the penetration curve method based on B/C ratio, 

which incorporates lifetime operating cost savings and was calibrated with utility rebate program 

participation results.

Xenergy’s information diffusion model estimates market impacts induced by financial 

incentives for energy-efficient appliances. The basic 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 information on consumer behavior by superimposing two 

components in the equation, each capturing the effect of one of two different types of 

information source. The effects of these two types of information diffusion mechanisms are 

different. Internal sources of information influence consumers to purchase new products due 
17-5

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 information diffusion mechanisms and generated a 

set of measure “implementation curves” or penetration curves, which Xenergy calibrated using 

evaluation data from utility rebate programs. Consumer response to rebate incentives appears to 

be a combination of the two information source types. The penetration curves illustrate the 

increased penetration (i.e., increased market share) of efficient equipment as a result of consumer 

response to B/C ratio changes induced 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. There are penetration curves for varying levels of market barriers, 

from “no barriers” to “extremely high barriers.” 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 consumer participation due to the Federal appliance 

tax credits, which were mandated by the Energy Policy Act of 2005 (EPACT 2005). For the 

manufacturer tax credits policy, DOE attempted to investigate manufacturer participation due to 

the efficient equipment tax credits from EPACT 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 taxpayer 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 independent of the credit amount.6,7

17.3.2.1 Consumer Rebates 

 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 strategy, and the resulting 

modifications in markups and pricing. DOE assumed that the direct price effect and the 

announcement effect would apply to the consumer tax credit policy, as well as the consumer 

rebate policy. DOE also assumed that half of the increases in market penetration associated with

either policy would be due to the direct price effect and half to the announcement effect. 

DOE modeled the impact of the consumer rebate policy by determining the increase in 

market penetration of target-level equipment relative to its market penetration in the base case. 

DOE assumed that the rebate would cover 100 percent of the incremental installed cost between 

a microwave meeting the baseline efficiency level and a unit meeting the target efficiency for 

PC1. It chose this amount because the microwave oven incremental cost was very low ($2). For 

PC2, the $2 amount covers 14.4 percent of increment cost. DOE assumed the rebates would 
17-6

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 (2014–2043). 

DOE first calculated the B/C ratio for the baseline unit without a rebate. It then calculated 

another B/C ratio for the unit meeting the target level, with a rebate, relative to the baseline unit. 

Because 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, defined as lifetime operating cost savings, 

incremental installed costs without rebates and with rebates, and B/C ratios without rebates and 

with rebates.

Table 17.3.1 Benefit/Cost Ratios for Microwave Oven Proposed Standard and Rebate 

Policy Case

PC1 PC2

Benefit (Lifetime Operating Cost Savings) $28.40 $21.77

Incremental Installed Cost (Increased Installed Cost) $1.93 $13.88

B/C Ratio with No Rebate 14.7 1.6

Rebate Amount $2.00 $2.00

Adjusted Incremental Installed Cost (Increased Installed Cost after Rebate) $0 $11.88

B/C Ratio for Rebate Policy Case Inf. 1.8

DOE then used the B/C ratios with the penetration curves shown in Figure 17.3.1 to 

estimate the increased percentage of consumers who would purchase the units that meet the 

policy target levels if given a rebate incentive. For microwave ovens, DOE chose the “no 

barriers” curve. The incremental cost between the baseline and the TSL is minimal, and there are 

no product utility issues that would cause barriers to consumer acceptance. Figures 17.3.1 and 

17.3.2 show the increase in penetration rates of target-level units as a function of their higher 

B/C ratios. Using the method discussed above, DOE estimated that the market share of 

equipment meeting the policy target due to a rebate policy would increase by 7.0 percent for PC1 

and 3.9 percent for PC2. 

To calculate the impacts of this policy, DOE adjusted the market shares of microwave

ovens at the target efficiencies in its NIA model to represent the policy case scenarios.
17-7

Figure 17.3.1 Market Penetration Curve for Microwave Ovens  PC1

Figure 17.3.2 Market Penetration Curve for Microwave Ovens  PC2

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0 10 20 30 40 50 60 70 80 90 100

Penetration Rate

Benefit/Cost Ratio

No Barriers No Rebate With Rebate

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0 10 20 30 40 50 60 70 80 90 100

Penetration Rate

Benefit/Cost Ratio

No Barriers No Rebate With Rebate
17-8

Note that the portion of the penetration curve displayed in Figure 17.3.1 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.

17.3.2.2 Consumer Tax Credits 

To analyze this policy, DOE studied taxpayer participation in tax credit programs for 

energy-efficient appliances that were available at both the Federal and the State levels. DOE

analyzed a consumer tax credit program whose credit amounts would be similar to the 

percentage of equipment costs covered by existing State tax credits. Because tax credits have not 

been available for microwave ovens, DOE analyzed Oregon's residential tax credit data for an 

analogous product—dishwashers. 

EPACT 2005 included Federal tax credits for consumers who installed efficient air 

conditioners or heat pumps, gas or oil furnaces, furnace fans, and gas, oil, or electric heat pump 

water heaters in new or existing homes.8

 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 equipment covered and the Federal tax 

credit amounts for residential appliances.

The States of Oregon and Montana have had consumer tax credits for efficient appliances 

for several years.a DOE based most of its estimates on Oregon's experience with this policy. 

Oregon’s Residential Energy Tax 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.b 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 refrigerators, clothes washers, and dishwashers.9 The tax 

credit is either an amount noted on the list of qualifying appliancesc or 25 percent of the purchase 

price of the appliance, whichever is less. 

Montana has had an Energy Conservation Installation Credit for residential energy 

conservation measures since 1998.10 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 fixtures and controls. The amount of the 

credit increased in 2002 from 5 percent of equipment costs (up to $150) to 25 percent (up to 

$500). DOE obtained data from the Montana Department of Revenue (DER) on the numbers of 

tax credits claimed from 1998 through 2006.11

 a The District of Columbia (Washington D.C.) passed legislation entitled the “Residential Energy Conservation Tax 

Credit Act Of 2005” for consumer tax credits, but did not appropriate the necessary funding and so the credits did 

not go into effect.

 However the DER did not have data 

b The program added fuel cells in 1999 and high-efficiency heat pump systems, furnaces, and boilers in 2002. c These lists change frequently, and generally require units that exceed ENERGY STAR specifications -- for 

example units that meet Consortium for Energy Efficiency (CEE) specifications.
17-9

disaggregated by appliance, so the number of tax credits claimed 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 steadily from 1998 through 2006, 

which contributed to its assumptions for this policy scenario. 

DOE obtained data from the Oregon Department of Energy (ODOE) on the number of 

efficient appliance tax credits claimed by Oregon residential taxpayers for the years 1998 

through 2006, as well as the credits claimed by appliance type for the years 2000 to 2006.12 

DOE also obtained Oregon appliance shipments data for clothes washers and dishwashers for 

2006.13,14 The number of credits claimed generally increased each year, although there were 

some fluctuations that ODOE attributed to changes in qualifying models. DOE assumed that a 

tax credit program would be designed to provide consistent consumer information and slightly 

adjusted the ODOE data for the years 2003 and 2004 to provide a steady trend line. DOE 

calculated that the number of clothes washer tax credits claimed comprised 24 percent of the 

total number of Oregon clothes washer shipments in 2006. However, not all of these highefficiency clothes washers were likely purchased due to the tax credit program alone. Some 

taxpayers would have been motivated by utility rebate incentives, and others would be "free 

riders" who would have purchased efficient appliances without a tax credit or rebate incentive 

but still claimed the tax credit. To better understand this interaction between tax credits, rebates, 

and free riders/market impacts, DOE reviewed a report prepared by KEMA on efficient clothes 

washers in the Northwest. KEMA compared the penetration of “ultra high efficiency” (UHE)d

clothes washers in Oregon and Washington, two neighboring States that have similar utility 

rebate programs for residential clothes washers. 15

Dishwashers

 The study attributed the difference in market 

share of these UHE units (50 percent for Oregon versus 15 percent for Washington) to the 

Oregon tax credits. DOE estimated that 38 percent of the tax credits claimed (9 percent of total 

shipments) were actually due to rebates. To estimate the free riders, DOE used the market 

penetration of the baseline commercial clothes washer units, which was 9.2 percent of total 

shipments (38 percent of the number of tax credit claims). DOE then estimated that the 

remaining 24 percent of the Oregon clothes washer tax credits claimed for the years 1998–2005 

(or 5.8 percent of total shipments) were attributable to tax credits alone. 

The percentage of total annual dishwasher shipments associated with 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 rose each year between 1998 and 

2006, and also that Montana's tax credit claims increased annually 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 percentages for the years 2004 

through 2006 to provide a steady trend line. For 2006, the estimated percentage of total 

shipments associated with tax credit claims was 14 percent. DOE did not find data comparing 

Oregon and Washington’s efficient dishwasher sales. To estimate the portions of these tax credit 

claims that were likely due to utility rebates and to market impacts, DOE reviewed a report by 

 d Units meeting specifications of minimum modified energy factor (MEF) of 2.20 and maximum water factor (WF) 

of 6.5.
17-10

Itron on utility rebate programs in California, which compared the percentage of free riders in 

residential clothes washer and dishwasher rebate programs in 2005.16 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 greater for dishwasher programs 

than for clothes washer programs. Also, DOE estimated that the incremental cost from the 

baseline was much smaller for dishwashers than for clothes washers. Thus, DOE estimated that 

market impacts (part of which is due to free riders) were responsible for a higher percentage of 

dishwasher tax credit claims than for residential clothes washer credit claims. DOE estimated 

that 49 percent of Oregon's dishwasher tax credits claimed, or 6.9 percent of total dishwasher 

shipments, were due to market impacts. It estimated that utility rebates were responsible for 32 

percent of tax credits claimed, or 4.5 percent of total shipments. DOE attributed the remaining 20 

percent of tax credits claimed, or 2.8 percent of total shipments, 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 residential tax credits claimed for dishwashers 

as percentages of total annual shipments that these claims represent for the years 1998–2006. It 

also shows the percentages of total shipments attributed to the tax credits themselves, to utility 

rebates, and to other market influences/free riders for 2006, as well as the percentage attributed 

to tax credits for 1998–2005. 

Table 17.3.2 Oregon Tax Credits Claimed for Residential Dishwashers from 1998 to 2006 

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%

Microwave Ovens

DOE estimated that, due to consumer tax credits, the market share of target-efficiency

microwave ovens would increase by the same percentages shown for dishwashers for the first 

nine years and remain constant at 2.8 percent thereafter. Table 17.3.3 shows the resulting market 

share increases.
17-11

Table 17.3.3 Oregon Tax Annual Increased Market Shares of Microwave Ovens at Target 

Efficiency Levels from Consumer Tax Credits 

Year of Program Annual Market Share Increase

2014 0.7%

2015 1.4%

2016 1.8%

2017 2.0%

2018 2.4%

2019 2.8%

2020 2.8%

2021 2.8%

2022 2.8%

2023–2043 2.8%

17.3.2.3 Manufacturer Tax Credits 

EPACT 2005 provides Energy Efficient Appliance Credits to manufacturers for 

production of high-efficiency refrigerators, clothes washers, and dishwashers at the Federal level 

through the IRS.17 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 provision. 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 2010.18 Appendix 17A gives details of the equipment covered and the 

Federal tax credit amounts for appliance manufacturers.

DOE assumed that a manufacturer tax credit program would effectively result in a lower 

price to the consumer by an amount equivalent to that provided by consumer tax credits as 

described above. Because these tax credits would go directly to manufacturers, DOE assumed 

that manufacturers would pass on the reduced costs to consumers, causing the direct price effect. 

However, DOE assumed that the announcement effect would not occur because the program 

would not be visible to consumers. Because 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 purchase more efficient products due to a manufacturer tax credit 

program. Therefore, DOE reducedthe market penetrations attributed to Oregon’s consumer tax 

credits in the year 2006 for dishwashers by 50 percent and used the resulting market penetrations 

to represent the impact of manufacturer tax credits 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. 

DOE estimated that this policy could increase the market share of efficient microwave 

ovens by 1.4 percent annually over the base case at the TSL. Because of the small incremental 

cost between the baseline and TSL for this product, a manufacturer tax credit might be easier to 

implement than a consumer tax credit for microwave ovens. 
17-12

17.3.3 Voluntary Energy Efficiency Targets 

For microwave ovens DOE assumed that voluntary targets would be achieved through 

manufacturer participation in a gradual phase-out of production of units below their respective 

TSLs. DOE assumed that this would be achieved by a program similar to the ENERGY STAR

endorsement labeling program conducted by the Environmental Protection Agency (EPA) and 

DOE. The ENERGY STAR program sets minimum energy efficiency specifications for various 

products. ENERGY STAR encourages consumer adoption of these products through marketing 

to promote consumer label recognition, adoption of the specifications by various efficiency 

incentive programs, and manufacturer production and promotion of ENERGY STAR-compliant 

appliances. ENERGY STAR prepares projections of market penetration of compliant appliances 

and estimates the percentage of the sales of those compliant appliances that are attributed to the 

ENERGY STAR program. 

Several reports have analyzed the impacts of ENERGY STAR programs for specific 

products, which are generally based on a combination of information dissemination and utility or 

agency rebates. These studies base their analysis on the ENERGY STAR statewide data on 

percentages of each appliance’s shipments that meet the ENERGY STAR specifications. These 

analyses have generally concluded that the market penetration of ENERGY STAR-qualifying 

appliances is higher in regions or States where such promotional programs have been 

active.15,16,19,20,21

There has been no ENERGY STAR program for microwave ovens. Because of the low 

incremental costs and the small overall operating cost savings opportunity at the TSL, DOE 

assumed that an ENERGY STAR effort for this product would focus on an information program. 

DOE assumed that such a voluntary program would induce similar market penetration behavior 

as that of televisions with cathode ray tube (CRT) screens, for which there was an ENERGY 

STAR specification, as energy savings for both products are achieved by reducing standby 

power. DOE used estimates of the increased market penetration due to the ENERGY STAR

program for CRT televisions during its first six years (1998–2003), applying those percentage 

increases to microwaves for the first six years of the analysis period, from 2014 through 2019. 

Beginning in 2004, televisions with liquid crystal display (LCD) screens dominated the market, 

so DOE did not use the ENERGY STAR forecast for televisions from 2004 on. Instead, it 

calculated the average market penetration of all consumer electronics products in 2003—58 

percent—and assumed this level could eventually be achieved by a voluntary program for 

microwave ovens.22 Thus DOE estimated that, from 2019 through 2023, the market penetration 

of microwave ovens meeting the TSL would increase an additional 1.7 percentage points per 

year, reaching 58 percent by 2023. After 2023 DOE assumed that market penetration would 

remain at that level through the remainder of the forecast. Table 17.3.4 shows the annual 

projected market share increases of the targeted units due to the programs resulting from this 

voluntary efficiency targets policy. 
17-13

Table 17.3.4 Annual Increased Market Shares of Microwave Ovens at Target Efficiency 

Level from Voluntary Efficiency Targets

Year of Program Microwave Ovens*

2014 15%

2015 37%

2016 44%

2017 43%

2018 42%

2019 47%

2020 49%

2021 52%

2022 55%

2023–2043 58%

* Percentages in each column refer to shares of the eligible market.

17.3.4 Early Replacement 

Early replacement refers to the replacement of microwave ovens before the end of their 

useful lives. The purpose of this policy is to replace old, inefficient equipment with higherefficiency units. The economic 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 early replacement programs for appliances in the 

United States. However, DOE studied several reports to inform its analysis of this policy. One 

report detailed the Connecticut Appliance Retirement Program (ARP) conducted in 2004.23 

Another was an electric energy efficiency potentials study performed for the State of Vermont in 

2006.24 DOE had also performed an earlier study on Federal potential for early retirement 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 State programs. The ARP was intended to assist 

utility customers in Connecticut to overcome barriers to recycling room air conditioners (RACs), 

secondary refrigerators, and freezers. The program 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 STAR-qualified units. DOE considered the RAC program to 

most closely resemble the early replacement policy scenario, as these consumers were replacing 

primary units rather than retiring second units. Nexus’ report on ARP results estimated the 

number of RACs retired by program 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. According to their analysis, about seven 

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 meant that the program directly 
17-14

resulted in early replacement with a more efficient unit of about four 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 demand potentials study 

for energy efficiency and fuel conversion measures for the State of Vermont. GDS developed a 

special “early retirement” scenario with all residential appliances replaced during the four-year 

period from 2006 to 2009, and analyzed similar early replacements in the commercial sector.

They estimated achievable market penetrations assuming that consumers would receive a 

financial incentive equal to 50 percent of the incremental cost of the measure in most programs. 

GDS assumed an 80 percent penetration limit for the program. It estimated a maximum 

achievable annual program participant level of two percent of applicable single-family or 

multifamily homes in 2005.

DOE also reviewed a study it conducted in the 1990s, under EPACT 1992, which 

analyzed the feasibility of a Federal program to promote early replacement of appliances.25 This 

study identified policy options for early replacement that included a direct national early 

replacement program, replacement of appliances owned by the Federal government, promotion 

through equipment manufacturers, consumer incentives, incentives to utilities, and building 

regulations.e

For this analysis, DOE considered a program that 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 target level. The program affects a portion of units in the stock 

in 2014 that would be replaced at the end of their useful or service life (at the “natural” 

replacement rate) without the effects of this policy, but are replaced sooner as a result of the 

policy. Shipments in 2014 and beyond are not affected by this program and remain at base case 

efficiency levels. 

Based on their average service lives, 11 percent of microwaves are replaced annually; 

these are their natural replacement rates. For this policy study, DOE assumed that an additional 

percentage of microwave ovens in the existing stock in 2014, the first year of the analysis period, 

would be replaced by models meeting the target levels. For each product, DOE modeled this 

policy by replacing four percent per year of the units in the stock in addition to those being 

replaced at the end of their service lives (using the estimated percentage from the Connecticut 

study, because it was based on actual program experience). DOE assumed that these early 

replacement programs would last as long as it took to completely replace all of the eligible 

 e The analysis concluded that, while cost-effective opportunities for early replacement exist, a widespread Federal 

early replacement program was not economically justified. Because premature 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 programs 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 high energy cost conditions or environmental constraints, when replacement appliances 

are much more efficient than existing stock, or when a major technology breakthrough has recently occurred, 

creating the need for a ready market.
17-15

microwave ovens that were in the stock in the year that the program began (2014). After the 

2014 stock had been completely replaced, there would be no additional impacts from this policy. 

The policy would create a jump in shipments of equipment meeting target efficiency 

levels relative to the base case in the early years of the program as shown in Figure 17.3.3. 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. 

Figure 17.3.3 Early Replacement Shipments Projections for Microwave Ovens

17.3.5 Bulk Government Purchases 

DOE assumed that a bulk government purchase policy would encourage Federal, State, 

and local governments to purchase equipment meeting the target efficiency levels. Aggregating 

public sector demand could provide a market signal to manufacturers and vendors that some of 

their largest customers sought suppliers with products that met an efficiency target at favorable 

prices. This program also could induce “market pull” impacts through manufacturers and 

vendors achieving economies of scale for high-efficiency products.

While there have been several bulk government purchasing initiatives at the Federal, 

State, and municipal levels, most of these programs have not tracked data on number of 

purchases or degree of compliance with procurement specifications. In many cases, procurement 

0

5

10

15

20

25

2005 2010 2015 2020 2025 2030 2035 2040 2045

Year

Shipments (million)

Early Replacement Scenario

Base Case Shipments
17-16

programs are decentralized, being part of larger State or regional initiatives. At the Federal level, 

the Federal Energy Management Program (FEMP) has 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 track 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, county, and municipal levels. While many of these 

programs target office equipment, the existence of a growing infrastructure for efficient 

purchasing specifications indicates that such impacts that DOE attributed to bulk 

governmentpurchasing programs are feasible.26,27

For microwave ovens, DOE assumed that government agencies, such as the Department 

of Housing and Urban Development (HUD), would administer such a program. At the Federal 

level, this program could be incorporated into the existing FEMP program. FEMP has 

procurement guidelines for Federal government equipment purchasing, and Federal construction 

requirements include these guidelines for installing or replacing equipment.Error! Bookmark 

not defined. There are currently no FEMP procurement guidelines for microwave ovens. 

DOE assumed that this policy would impact a subset of housing units for which 

government agencies purchase or influence the purchase of microwave ovens. This subset would 

consist mainly of public housing and housing on military bases. To represent this subset, DOE 

considered publicly owned housing identified in the American Housing Survey (AHS) for 2005, 

which was 2.0 million households, or about 1.6 percent of all U.S. households.

28 (Based on the 

AHS, there are 124.4 million U.S. households.

29) According to the 2001 Residential Energy

Consumption Survey (RECS 2001), 76 percent of publicly owned households used microwave 

ovens.30 DOE assumed that the same percentage of publicly owned housing units would operate 

microwave ovens. Hence, DOE estimated that 1.2 percent of US households are publicly owned 

households using microwave ovens, and thus constitute the eligible population to which this 

policy would apply. Of government-owned residential buildings, DOE’s life-cycle cost and 

payback period analyses estimated that, by the start year of 2014, none had microwave ovens at 

efficiency levels meeting the amended energy conservation standards.

Based on the above percentages, at the end of the first year of the policy case (2014), 

DOE estimated that eight percent of shipments of government-purchased microwave ovens 

would be equipment meeting the target levels due to existing bulk government purchase 

programs. By 2024, DOE estimated that bulk government purchase programs would increase 

their market share to 80 percent. Thus, DOE modeled the enhanced bulk government purchase 

program assuming that an annual eight-percent market share increase would be maintained over 

10 years starting in 2014. Section 17.4 below presents the resulting efficiency trends for the bulk 

government purchase policy case for microwave ovens.
17-17

17.4 NON-REGULATORY POLICY IMPACTS 

Figure 17.4.1 shows the market share impacts (increased penetration rates) for 

microwave ovens for each policy case. In the base case (i.e., the case without standards or nonregulatory programs), no products are forecasted to meet the target level. All policy cases 

increase the market share of products meeting the target level, with voluntary energy efficiency 

targets being the most effective. As a reminder, the proposed standards (not shown in Figure 

17.4.2) would result in a 100 percent penetration of products meeting the target level.

Figure 17.4.1 Penetration Rates of Units Meeting the Target Level for Microwave 

Ovens

17.5 RESULTS SUMMARY FOR NON-REGULATORY ALTERNATIVES 

Table 17.5.1 shows the national energy savings and NPV resulting from the various nonregulatory alternative policy cases, when the efficiency target levels are equal to the proposed 

standard levels. The case in which no regulatory action is taken with regard to microwave ovens

constitutes 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 proposed energy 

0%

10%

20%

30%

40%

50%

60%

2010 2015 2020 2025 2030 2035 2040 2045

Percent Units Meeting Target Level

Rebate

Consumer Tax Credit

Manufacturer Tax Credit

Voluntary Efficiency Target

Early Replacement

Bulk Govt Purchase
17-18

conservation standards. The NPV amounts shown in Table 17.5.1 are based on two discount 

rates (seven percent and three percent real).

Table 17.5.1 Non-Regulatory Alternatives for Microwave Ovens with Target Levels at 

TSL 3

Policy Alternatives

Primary 

Energy 

Savings

(quads)

Net Present Value*

(billion 2010$)

7% discount rate 3% discount rate

No New Regulatory Action 0.0 0.0 0.0

Consumer Rebates 0.03 0.13 0.25

Consumer Tax Credits 0.02 0.08 0.15

Manufacturer Tax Credits 0.01 0.04 0.09

Voluntary Energy Efficiency Targets 0.31 1.38 2.80

Early Replacement 0.02 0.11 0.16

Bulk Government Purchases 0.01 0.02 0.05

Proposed Standards At TSL 3 0.41 1.82 3.59

* Net present value (NPV) is the value of a time series of costs and savings. DOE determined the NPV from 2014

to 2043 in billions of 2010$.
17-19

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