APPENDIX C

Cost Effectiveness Analysis for Amendments to 

Rule 4308 (Boilers, Steam Generators, and Process Heaters - 

0.075 MMBtu/hr to less than 2.0 MMBtu/hr) 

December 17, 2009 
SAN JOAQUIN UNIFIED VALLEY AIR POLLUTION CONTROL DISTRICT 

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APPENDIX C 

Cost Effectiveness Analysis 

I. INTRODUCTION 

The California Health and Safety Code (CH&SC) 40920.6(a) requires the San Joaquin 

Valley Unified Air Pollution Control District to conduct both an "absolute" cost 

effectiveness analysis and an “incremental” cost effectiveness analysis of available 

emission control options prior to adopting each Best Available Retrofit Control 

Technology (BARCT) rule. The purpose of conducting a cost effectiveness analysis is to 

evaluate the economic reasonableness of the pollution control measure or rule as it 

applies to operators in the San Joaquin Valley Air Basin. The analysis also serves as a 

guideline in developing the control requirements of a rule. 

Incremental cost effectiveness is intended to measure the change in costs (in $/year) 

and emissions reductions (in tons reduced/year) between two progressively more 

effective control options or technologies. For this rule project, the limits are considered 

the lowest achieved in practice and a financially viable option, therefore, no incremental 

cost effectiveness analysis was conducted. 

Rule 4308 currently is a point of sale type rule and the source category affected would 

include water heater manufacturers, plumbing wholesalers, business and oil supply 

stores, plumbers and contractors, and oil businesses. The proposed changes would 

require those who sell or manufacture units to offer units that are certified at 20 ppmv 

NOx emissions limit or less. 

II. SUMMARY AND CONCLUSIONS 

A. Absolute Cost Effectiveness Analysis 

Absolute cost effectiveness of a control option is the added cost of a control technology 

or technique, divided by the emission reduction achieved (in tons reduced per year). 

The costs is based on the difference between a compliant unit and a non-compliant unit. 

Replacement costs and installation costs are not included because the attrition 

approach views that cost as one that the owner would incur on his/her own. The 

estimated absolute cost effectiveness for this analysis is between $1,500 - $2,000 per 

ton of NOx emissions reduced. The calculation is shown in Section IV D. 

B. Incremental Cost Effectiveness Analysis 

Incremental cost effectiveness (ICE) is intended to measure the change in costs (in 

$/year) and emissions reductions (in tons reduced/year) between two progressively 

more effective control options or technologies. ICE compares the differences in costs 

and the differences in emissions reductions of candidate control options. ICE does not 
SAN JOAQUIN UNIFIED VALLEY AIR POLLUTION CONTROL DISTRICT 

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reveal the emission reduction potential of the control options. Unlike the absolute cost 

effectiveness analysis that identifies the control option with the greatest emission 

reduction, ICE does not present any correlation between emission reductions and cost 

effectiveness. Therefore, the relative values produced in the ICE analysis and the 

absolute cost effectiveness values are not comparable and cannot be evaluated 

similarly. 

C. Assumptions Used in Calculating Cost Effectiveness 

Because of a lack of specific input and data from stakeholders, District staff has 

assumed certain specifications to perform the cost effectiveness analysis. More 

information from stakeholders and other organizations would help to improve the 

analysis in future draft staff reports. The following are some of the assumptions that 

were made: 

1. In order to account for highest possible emissions, District staff calculated 

emissions reductionsas if the units are operated 365 days a year, but at only a 

22% capacity. 

2. Operation and Maintenance (O&M) cost of a new Low NOx unit is assumed to be 

the same as the older unit. 

3. The assumptions made for the emissions reduction calculation in Appendix B 

apply to the emissions reductions portion in this Appendix. 

4. The total annualized compliance cost for all compliance scenarios include all the 

appropriate annualized capital costs as well as any additional annual operation 

and maintenance costs. 

5. All units are currently at an average 110 ppmv NOx emissions (0.136/lb/MMBtu). 

III. SOURCES OF COST DATA 

The cost estimate data is based on costs provided by stakeholders, retailers and also 

manufactures. Similar cost data from other air districts cost effectiveness analysis 

including SCAQMD, Ventura County APCD and Bay Area AQMD was compared to our 

data for consistency. The District encourages manufacturers, vendors and other 

stakeholders to continue to provide cost data pertinent to Rule 4308. 

IV. COST EFFECTIVENESS ANALYSIS 

A. Procedure Overview 

Following is the procedure used by District staff in conducting the cost effectiveness 

analysis of a rule: 

(1) Identify typical operating conditions for units affected by the rule; 
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(2) Identify the control technologies or control option that can achieve the 

proposed emission limits; 

(3) Estimate the average annualized cost of each control option; 

(4) Calculate the average emissions reduction of each control option and 

(5) Calculate the absolute cost effectiveness of a given control option of a given 

equipment setting. 

As previously mentioned, cost effectiveness of a control technology is calculated by 

dividing the annualized cost of a control technique with the annual emission reduction 

achieved by the control technique. The cost effectiveness is expressed in dollars per 

ton of pollutants reduced ($/ton). 

B. Estimated Compliance Costs 

Because the rule is not forcing additional or early replacement of units, District staff is 

using the costs differences between a compliant unit and a non-compliant unit for the 

compliance costs for this rule. District staff did an analysis based on what other 

stakeholder input and other district’s assumed for price difference between compliant 

and non-compliant units to come up with estimated capital costs for this rule. These 

differential capital costs are shown in Table C-1. 

Table C-1: Differential Capital Cost 

Unit Size Bay Area 

(avg cost difference) 

South Coast 

(avg cost difference) San Joaquin Valley 

0.075 $100 $200 $100 

0.4 $250 $630 $750 

2.0 $500 $2,800 $3,000 

Annualized Installed Capital Equipment Cost 

In order to figure out the cost effectiveness, District staff used the differential capital cost 

to calculate the annualized equipment cost. The annualized capital equipment cost is 

calculated using the following formula: 

A = P x Capital Recovery Factor (CRF) 

CRF = 

1( ) 1

1( )

+ −

+

n

n

i

i i

 = 

1( )1.0 1

1(1.0 )1.0

+ −

+

n

n

 = 0.117 

Where: 

 A = Annualized cost 

 P = Differential capital cost 

 i = Interest rate (10%) 

n = Equipment life (20 years) 
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For example, a unit size 0.75 MMBtu/hr 

A = $100 x 0.117 = $12 per year

Table C-2 contains the estimated annualized capital cost for each of the size categories. 

Table C-2 Estimated Annualized Costs per Unit 

Unit Size 

(MMBtu/hr) 

Differential Capital 

Cost

Annualized Cost 

($/yr)

0.75 $100 $12 

0.4 $750 $88 

2.0 $3,000 $350 

C. Estimated Emissions Reductions 

The total estimated emission reductions calculated in Appendix B for all of the units in 

the size category was 2.77tpd. The following formula, based off of the formula from 

Appendix B was used to produce the tons per day on the individual size unit. 

tpy = average rating x difference in emissions rates x capacity factor x hr/day x 

days/year x ton/lbs 

District staff calculated the estimated emissions reductions in tons per year per unit for 

the three size categories. 

0.075 unit tpy = 0.075 x (0.136-0.0247) x 0.22 x 24 x 365 x 1/2000 

tpy = 0.00804 

0.4 MMBtu/hr unit tpy = 0.4 x (0.136-0.0247) x 0.22 x 24 x 365 x 1/2000 = 

tpy = 0.0436 

2.0 MMBtu/hr unit tpy = 2.0 x (0.136-0.0247) x 0.22 x 24 x 365 x 1/2000 

tpy = 0.218 

Table C-2 Estimated Annualized Costs per Unit 

Unit Size 

(MMBtu/hr) 

Estimated Emissions Reductions 

(tpy)

0.75 0.00804 

0.4 0.0436 

2.0 0.218 
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D. Cost Effectiveness 

The cost effectiveness of a control option is calculated as the added annual cost (in 

$/year) of the control technology or technique, divided by the emission reduction 

achieved (in tons/year). The cost can include capital equipment costs, engineering 

design costs, additional labor and maintenance costs. The cost effectiveness also 

accounts for any monetary savings realized by the implementation of the pollution 

control techniques. 

For calculating the dollars per ton, we take the average annual cost of a unit and divide 

it by the estimated tons per year for an individual unit. After estimating the emissions 

reductions in tons per year per unit, District staff used the following formula to estimate 

the cost effectiveness for an individual unit: 

Cost Effectiveness (C.E.) = annual total cost per unit 

 Annual tons of NOx reductions per unit 

C.E. for a 0.075 unit = $12/ yr = $1,500 per ton of NOx reduced per unit 

 0.00804 tpy 

C.E. for a 0.4 unit = $88/yr = $2,000 per ton of NOx reduced per unit 

 0.0436 tpy 

C.E. for a 2.0 unit = $350/yr = $1,600 per ton of NOx reduced per unit 

 0.218 tpy 

See Table C-3 for all the cost effectiveness estimates for Rule 4308. 

These numbers reflect the cost effectiveness based on the assumption made in Section 

II C. 

Table C-3 Cost Effectiveness per Unit 

Unit size 

in MMBtu/hr 

Annual Costs 

( per yr) 

NOx Reductions 

(tpy) 

Cost Effectiveness 

($/ton) 

0.075 $12 0.00804 $1,500 

0.4 $88 0.0436 $2,000 

2.0 $350 0.218 $1,600 
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V. REFERENCES

1. Santa Barbara County APCD Staff Report for Rule 360, dated October 2002. 

2. SCAQMD Staff Report for Rule 1146.2, dated December 1997. 

3. Ventura County APCD Staff Report for Rule 74.11.1, dated August 1999 

4. Commercial Water Heaters at http://www.lowes.com/lowes 

5. Lochinvar List Costs 

6. Parker Industrial Boiler Co. 

7. Alpine Home Air Products website 

8. Schwank Hot Water Units 

9. Sears Kenmore Units website www.sears.com