# APPENDIX C

Cost Effectiveness Analysis for Amendments to Rule 4308 (Boilers, Steam Generators, and Process H eaters -

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

December 17, 2009SAN JOAQUIN UNIFIED VALLEY AIR POLLUTION CONTROL DI STRICT

Appendix C: Cost Effectiveness Analysis for Rule 4 308 December 17, 2009

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Final Staff Report with Appendices

For Amendments to Rule 4308 (This page is intentionally blank)SAN JOAQUIN UNIFIED VALLEY AIR POLLUTION CONTROL DI STRICT

Appendix C: Cost Effectiveness Analysis for Rule 4 308 December 17, 2009

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Final Staff Report with Appendices

For Amendments to Rule 4308 

### 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 co nduct both an "absolute" cost effectiveness analysis and an “incremental” cost ef fectiveness analysis of available emission control options prior to adopting each Bes t Available Retrofit Control Technology (BARCT) rule. The purpose of conducting a cost effectiveness analysis is to evaluate the economic reasonableness of the polluti on 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 measu re the change in costs (in $/year) and emissions reductions (in tons reduced/year) bet ween two progressively more effective control options or technologies. For this rule project, the limits are considered the lowest achieved in practice and a financially v iable option, therefore, no incremental cost effectiveness analysis was conducted.

Rule 4308 currently is a point of sale type rule an d the source category affected would include water heater manufacturers, plumbing wholes alers, business and oil supply stores, plumbers and contractors, and oil businesse s. The proposed changes would require those who sell or manufacture units to offe r 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 ach ieved (in tons reduced per year). The costs is based on the difference between a comp liant unit and a non-compliant unit. Replacement costs and installation costs are not in cluded because the attrition approach views that cost as one that the owner woul d incur on his/her own. The

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

ton of NOx emissions reduced. The calculation is sh own 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/y ear) between two progressively more effective control options or technologies. ICE compares the differences in costs

and the differences in emissions reductions of cand idate control options. ICE does notSAN JOAQUIN UNIFIED VALLEY AIR POLLUTION CONTROL DI STRICT

Appendix C: Cost Effectiveness Analysis for Rule 4 308 December 17, 2009

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Final Staff Report with Appendices

For Amendments to Rule 4308 reveal the emission reduction potential of the cont rol options. Unlike the absolute cost effectiveness analysis that identifies the control option with the greatest emission reduction, ICE does not present any correlation bet ween emission reductions and cost effectiveness. Therefore, the relative values produ ced in the ICE analysis and the absolute cost effectiveness values are not comparab le and cannot be evaluated similarly.

C. Assumptions Used in Calculating Cost Effectivene ss

Because of a lack of specific input and data from s takeholders, District staff has assumed certain specifications to perform the cost effectiveness analysis. More information from stakeholders and other organizatio ns would help to improve the analysis in future draft staff reports. The follow ing are some of the assumptions that

were made:

1. In order to account for highest possible emissio ns, District staff calculated emissions reductionsas if the units are operated 36 5 days a year, but at only a 22% capacity. 2. Operation and Maintenance (O&M) cost of a new Lo w 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 A ppendix. 4. The total annualized compliance cost for all com pliance 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 N Ox emissions (0.136/lb/MMBtu).

III. SOURCES OF COST DATA

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

manufactures. Similar cost data from other air dist ricts cost effectiveness analysis including SCAQMD, Ventura County APCD and Bay Area AQMD was compared to our data for consistency. The District encourages manu facturers, vendors and other stakeholders to continue to provide cost data perti nent to Rule 4308.

IV. COST EFFECTIVENESS ANALYSIS

A. Procedure Overview

Following is the procedure used by District staff i n conducting the cost effectiveness analysis of a rule: (1) Identify typical operating conditions for units affected by the rule;SAN JOAQUIN UNIFIED VALLEY AIR POLLUTION CONTROL DI STRICT

Appendix C: Cost Effectiveness Analysis for Rule 4 308 December 17, 2009

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Final Staff Report with Appendices

For Amendments to Rule 4308 (2) Identify the control technologies or control op tion that can achieve the proposed emission limits; (3) Estimate the average annualized cost of each co ntrol option; (4) Calculate the average emissions reduction of ea ch 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 co ntrol technology is calculated by dividing the annualized cost of a control technique with the annual emission reduction achieved by the control technique. The cost effect iveness 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 uni t 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 c apital 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, Dist rict staff used the differential capital cost to calculate the annualized equipment cost. The ann ualized 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( )1.0 1(1.0

− + +

n n = 0.117

Where:

A = Annualized cost P = Differential capital cost i = Interest rate (10%) n = Equipment life (20 years)SAN JOAQUIN UNIFIED VALLEY AIR POLLUTION CONTROL DI STRICT

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For Amendments to Rule 4308 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 formul a, 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 rate s x capacity factor x hr/day x days/year x ton/lbs

District staff calculated the estimated emissions r eductions 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 2 4 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 0.218SAN JOAQUIN UNIFIED VALLEY AIR POLLUTION CONTROL DI STRICT

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For Amendments to Rule 4308 D. Cost Effectiveness

The cost effectiveness of a control option is calcu lated as the added annual cost (in $/year) of the control technology or technique, div ided by the emission reduction achieved (in tons/year). The cost can include capi tal equipment costs, engineering design costs, additional labor and maintenance cost s. The cost effectiveness also accounts for any monetary savings realized by the i mplementation of the pollution control techniques.

For calculating the dollars per ton, we take the av erage 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 staf f 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 p er 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 estima tes 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 $1,600SAN JOAQUIN UNIFIED VALLEY AIR POLLUTION CONTROL DI STRICT

Appendix C: Cost Effectiveness Analysis for Rule 4 308 December 17, 2009

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Final Staff Report with Appendices

For Amendments to Rule 4308 V. REFERENCES

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

2. SCAQMD Staff Report for Rule 1146.2, dated Decem ber 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