CHAPTER 17. REGULATORY IMPACT ANALYSIS

TABLE OF CONTENTS

17.1 INTRODUCTION

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

................................................................................ 17-1 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

.......................................................................................... 1 7-4 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

....................................................................................................... 17-14 17.3.5 Bulk Government Purchases

........................................................................................ 17-16 17.4 NON-REGULATORY POLICY IMPACTS

............................................................... 17-18 17.5 RESULTS SUMMARY FOR NON-REGULATORY ALTERNATIVES

................. 17-19

LIST OF TABLES

Table 17.1.1 Policy Alternatives to National Standards

......................................................... 17-1 Table 17.2.1 Trial Standard Levels fo r Commercial Clot hes Washers

.................................. 17-3 Table 17.3.1 Benefit/Cost Ratios for Commerci al Clothes Washer Proposed Standard and Rebate Policy Case

...................................................................................... 17-6 Table 17.3.2 Oregon Tax Credits Claimed fo r Residential Clothes Washers from 1998 to 2006 and their Attrib ution for 2006

............................................................. 17-11 Table 17.3.3 Annual Increased Market Shares of Commercial Cl othes Washers at Target Efficiency Level from Consumer Tax Credits

..................................... 17-11 Table 17.3.4 Annual Increased Market Shares of Top-Loading Co mmercial Clothes Washers at Target Efficiency Level fr om Voluntary Efficiency Targets

........ 17-13 Table 17.5.1 Non-Regulatory Alternatives for Commercial Clothes Washers with Target Levels at TSL 3

.................................................................................... 17-19

LIST OF FIGURES

Figure 17.3.1 Market Penetration Curve for Top- Loading Commercial Clothes Washers

..... 17-7

17-iFigure 17.3.2 Market Penetration Curve for Front-Loading Commercial Clothes Washers

.............................................................................................................. 17-8 Figure 17.3.3 Early Replacement Shipments Projections for Commercial Clothes

Figure 17.4.1 Penetration Rates of Units Meeting the Target Level for Commercial Washers

............................................................................................................ 17-16

Clothes Washers

............................................................................................... 17-18

17-iiCHAPTER 17. REGULATORY IMPACT ANALYSIS

17.1 INTRODUCTION
The Department of Energy (DOE) has determin ed that energy conservation standards for commercial clothes washers cons titute an “economically sign ificant regulatory action” under Executive Order (E.O.) 12866 “Regulatory Pla nning and Review.” 58 FR 51735 (October 4, 1993). Therefore, DOE’s proposed energy conserva tion standards require a regulatory impact analysis (RIA), which involves an evaluation of non-regulatory alte rnatives to the standards. This document evaluates several possible alternatives to the pr oposed standards, and compares the costs and benefits of each to the proposed standards. As de scribed in section 17.2.2 of this report, the proposed standards for commercial clot hes washers is trial standard level (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 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

This chapter presents information and result s pertaining solely to CCWs. As described in section 1.3 of chapter 1 of this technical s upport document (TSD), DOE is continuing the rulemaking for energy conservation standards fo r microwave oven standby power, and analyses related to these products will be published in a separate TSD. In addition, DOE issued a final rule 1 adopting energy conservation standard s for conventional cooking products ( i.e. , cooktops and ovens) and microwave oven energy factor (EF), and details of the analyses for these products are contained in the co rresponding final rule TSD. 2

17-117.2 NON-REGULATORY POLICIES

17.2.1 Methodology
This section describes the approach DOE used to analyze non-regulatory policies for commercial clothes washers.

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 alterna tive to the proposed standards, DOE quantified the effect of each alternative on the purchase of commercial clothes washers 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 appr opriate 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 annual water consumption, and equipment replacement rates. The shipments for any given year are comprised of a distribu tion of efficiency levels. DOE assumed that standards would affect 100 percent of the ship ments, while the non-regu latory policies would affect a smaller percentage of the shipments. In each policy case, DOE made particular assumptions about the percentage of shipment s 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 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 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 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 (2013) to the year 2043.

• Net present value: The valu e of net monetary savings from equipment bought in the period from the effective date of the policy case (2013) to the year 2043. 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 pa rticipation 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 proposed standards would improve the average efficiency of new commerci al clothes washer equipment relative to their base cases (no new regulatory action). The anal ysis considered that each alternative policy would induce commercial consumers to purchase units at the same efficien cy levels as required by the proposed standards, or the target levels . In contrast to the pr oposed standards, however, their market penetration rate in the altern ative policy cases may not be 100 percent.

The proposed standards for commercial clothe s washers are those in TSL 3, as shown in Table 17.2.1.

Table 17.2.1 Trial Standard Levels for Commercial Clothes Washers Product Class Proposed Energy Conservation Standards Top-Loading Washers Minimum 1.60 Modified Energy Factor / Maximum 8.50 Water Factor Front-Loading Washers Minimum 2.00 Modified Energy Factor / Maximum 5.00 Water Factor

DOE assumed that the non-regulatory policy im pacts would last from the effective date for proposed standards for commercial clothe s washers—2013—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 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

17-3below 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 ma rket penetration or shipment-weighted efficiency parameters for each of the non-regulatory policy cases for commercial clothes washers.

17.3 NON-REGULATORY POLICY ASSUMPTIONS

17.3.1 No New Regulatory Action
The case in which no new regul atory action is taken with re gard to commercial clothes washer 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-level commercial clothes washers. 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 Xe nergy, Inc., which summarized experience with various utility rebate programs. 3 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 that were developed since the referenced Xenergy report was published. 4
, 5

, 6
, 7 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.

Xenergy’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

17-4different. Internal sources 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. Unfort unately, 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. 8
, 9 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.

17.3.2.1 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 commercial clothes washers, DOE assume d that the rebate would cover a portion of the incremental cost between a washer meeting th e baseline efficiency level and a unit meeting

17-5the target efficiency leve l. It based this amount on the simple average of the rebate levels for efficient commercial clothes washers o ffered by 24 agencies across the country. a (See Appendix 17A for a listing of these rebate programs.) The average of these rebate levels was $174, which was about 31 percent of the increm ental installed cost between effi cient and inefficient models of $551. 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 (2013–2043).

For each type of commercial clothes washer s (top-loading and front-loading), DOE first calculated the B/C ratio for the baseline unit with out a rebate. It then calculated another B/C ratio for the unit meeting the target level, with a rebate , relative to the base line unit. Because of the incremental cost reductions due to the rebates, the B/C ratios for the rebate policy unit were larger. Table 17.3.3 shows the bene fits as lifetime opera ting cost savings, incremental installed costs without rebates and with rebates, and B/C ra tios without rebates and with rebates. Note that in the case of front-loading washers, the rebate completely covers the price differential between the baseline and more-efficient unit. As a result, the B/C ratio is infinite.

Table 17.3.1 Benefit/Cost Ratios for Commercial Cl othes Washer Proposed Standard and Rebate Policy Case Top-Loading Front-Loading Benefit (Lifetime Operating Cost Savings) $455 $601 Incremental Installed Cost (Increased Installed Cost) $2315 $23 B/C Ratio with No Rebate 2.1 26.6
Rebate Amount $174 $23 Adjusted Incremental Installed Cost (Increased Installed Cost after Rebate) $41 $0
B/C Ratio for Rebate Policy Case 11.2 Infinite

DOE then used the B/C ratios with the penetration curves shown in Figures 17.3.1 and 17.3.2 to estimate the increased percentage of consumers who would purchase the units that meet the policy target levels if given a rebate incenti ve. For top-loading commercial clothes washers, DOE chose the “moderate barriers” curve. In th e case of top-loading washers, the incremental cost between the baseline and the TSL is substantia l, yet the savings are al so substantial and the target-level units have significant market share. Figure 17.3.1 shows the in crease in penetration rates of target-level top-loadi ng units as a function of their hi gher 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 45.6 pe rcent. For front-loading commercial clothes washers, DOE chose the “no barriers” curve, be cause the incremental cost between the baseline and the TSL is small and the savings are subs tantial. Figure 17.3.2 shows the increase in

a Some rebates for commercial clothes washers are offered by electric and/or gas utilities, some by water utilities, and in some service territories by bot h energy and water utilities. DOE calcul ated the average rebate amount from the total (combined) rebate amount available to the consumer.

17-6penetration rates of target-level front-loading units as a functi on 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 3.6 percent.

To calculate the impacts of this policy, DOE adjusted the market shares of commercial clothes washers at the target effi ciencies in its NIA model to repr esent the policy case scenarios.

0% 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

Moderate Barriers Curve

Penetration Rate = 11.5% at B/C ratio of 2.1 Penetration Rate = 57.1% a t B/C ratio of 11.2

Change of Penetration Rate = 45.6%

Figure 17.3.1 Market Penetration Curve for Top-Loading Commercial Clothes Washers

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

0 2 4 6 8 10 12 14 Participant Bene fit Cost RatioMaximum Participation Rate No Barriers Curve Penetration Rate = 96.4% at B/C ratio of 26.6 Penetration Rate = 100% at infinite B/C ratio Change of Penetration Rate = 3.6%

Figure 17.3.2 Market Penetration Curve for Front-Loading Commercial Clothes Washers

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 covere d by existing State tax credits.

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. 10 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.

17-8The States of Oregon and Montana have had co nsumer tax credits for efficient appliances for several years. b 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. c 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. 11 The tax credit is either an amount noted on the list of qualifying appliances d 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. 12 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. 13 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 availa ble for commercial clothes washers, DOE analyzed the Oregon residential tax credit data for residential clothes washers to inform the analysis of the tax credit policy for commercial clothes washers.

DOE obtained data from the Oregon Depart ment of Energy (ODOE) on the number of efficient appliance tax credits claimed by Or egon residential taxpayers for the years 1998 through 2006, as well as the credits claimed by appliance type for the years 2000 to 2006. 14 DOE also obtained Oregon appliance shipments da ta for clothes washers and dishwashers for
2006. 15

, 16 The number of credits claimed generally increased each year, although there were some fluctuations that ODOE attributed to ch anges 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 a nd 2004 to provide a steady trend line. DOE calculated that the number of cl othes washer tax credits claime d comprised 24 percent of the total number of Oregon clothes washer shipme nts in 2006. However, not all of these highefficiency clothes washers were likely purchased due to the tax credit program alone. Some

b 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. The program added fuel cells in 1999 and high-effic iency heat pump systems, furnaces, and boilers in 2002.
d These lists change frequently, and generally requir e units that exceed ENERGY STAR specifications -- for

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

17-9 ctaxpayers 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 understa nd 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 th e penetration of “ultra high efficiency” (UHE) e clothes washers in Oregon and Washington, two ne ighboring States that have similar utility rebate programs for residential clothes washers. 17 The study attributed th e difference in market share of these UHE units (50 percent for Ore gon versus 15 percent for Washington) to the Oregon tax credits. DOE estimated that 38 percent of the tax credits claime d (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 wa sher units on the pene tration curve presented above (Figure 17.3.6), 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 th e Oregon clothes washer tax credits claimed for the year s 1998–2005 (or 5.8 percent of total shipments) were attributable to tax credits alone.

DOE also reviewed Oregon’s business energy tax credit (BETC) for commercial clothes washers. Oregon’s BETC is 35–50 percent of the incremental cost of the efficient equipment. f
The majority of these credits were claimed fo r laundries and rental dwellings, and included commercial clothes washers as well as other appliances. However, ODOE did not track the types of appliances involved nor the number of machines per pr oject; the annual counts are the total number of projects, with each proj ect involving one or more appliances. DOE was therefore unable to use the data to estimate ma rket percentages for specific appliances, i.e. commercial clothes washers. However, DOE did note the trend of increasing numbers of credits claimed from 1998 through 2006, which contributed to its assumptions regarding the trend line for this policy scenario.

Table 17.3.2 shows the number of Oregon re sidential tax credits claimed for clothes washers as percentages of total annual shipment s these claims represent for the years 1998–2006. It also shows the percentages of total shipments a ttributed to the tax credits themselves, to utility rebates, and to other market in fluences/free riders for 2006. The table also shows the percentage attributed to tax credits for the prior years of 1998–2005.

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

of 6.5.
f The business tax credit is taken over five years: 10 perc ent in the first and second y ears and 5 percent each year

thereafter; the taxpayer may carry the unu sed credit forward up to eight years. Those with eligible project costs of $20,000 or less may take the tax credit in one year.

17-10Table 17.3.2 Oregon Tax Credits Claimed for Resi dential Clothes Washers from 1998 to 2006 and their Attribution for 2006
1998 1999 2000 2001 2002 2003 2004 2005 2006 Tax Credits Claimed 5.5% 11% 13% 15% 19% 21% 18% 22% 24% Tax Credits Claimed, Adjusted 5.5% 11% 13% 15% 19% 20% 21% 22% 24% Due to Tax Credits 1.3% 2.7% 3.1% 3.6% 4.6% 4.8% 5.1% 5.3% 5.8% Due to Rebates NA NA NA NA NA NA NA NA 9.0% Due to Market NA NA NA NA NA NA NA NA 9.2%

DOE estimated that the market share of both top-loading and front-loading commercial clothes washers at the target e fficiency level would increase by the percentages experienced by residential clothes washers in th e first nine years of the tax credit program. As shown in Table 17.3.3, their market share would increase from 2 013 to 2020 and would remain constant at the 2021 level of 5.8 percent for the remainder of the forecast period.

Table 17.3.3 Annual Increased Market Shares of Comme rcial Clothes Washers at Target Efficiency Level from Consumer Tax Credits

Year of Program Commercial Clothes Washers 2013 1.3% 2014 2.7% 2015 3.1% 2016 3.6% 2017 4.6% 2018 4.8% 2019 5.1% 2020 5.3% 2021–2043 5.8%

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. 18 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. 19 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 equivalent to 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

17-11would not be visible to consumers. Since the direct price effect is approximately equivalent to the announcement effect, 9 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.

DOE estimated that, due to this policy, the market share of efficient commercial clothes washers for both top-loading a nd front-loading units would annua lly increase by 2.9 percent over the 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, including commercial clothes washers. Energy Star encourages consumer adoption of these products through marketing to promote cons umer label recognition, adoption of the specifications by various efficiency incentiv e programs, and manuf acturer production and promotion of Energy Star-compliant appliances. Energy Star prepares projections of market penetration of compliant applian ces, 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 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. 17 , 20
, 21
, 22
, 23

For top-loading commercial clothes washer s, DOE modeled the voluntary efficiency targets policy assuming an expansion of existing En ergy Star program efforts for this product. In the absence of Energy Star forecast data on commercial clothes washer shipments, DOE based its assumptions for increased market penetra tion on EPA experience with residential clothes washers. While there are more incentive pr ograms using the Energy Star specification for residential clothes washers than there are for commercial clothes washers, the savings from commercial clothes washers are higher related to the costs, so DOE assumed that the market impacts for the two programs would be similar. The most recent specification change for which Energy Star had available projections was 2007. (It s next scheduled specification change occurs

17-12in 2009.) Hence, DOE based its estimates fo r commercial clothes washers on the Energy Star program’s projections for increas ed residential clothes washer market penetration due to the Energy Star program from 2007 through 2025. 24 DOE estimated that an enhanced Energy Star program would provide an additional 50 percent market share increase beyond that caused by the existing Energy Star program, whose impacts are im plicit in the base case. It assumed that the same pattern of annual market penetration in creases would apply to top-loading commercial clothes washer markets beginni ng in 2013. DOE assumed the programs resulting from this expanded voluntary efficiency ta rgets policy would increase projected market share of the targeted units by the percentages shown in Ta ble 17.3.4. The Energy Star projections run for 19 years, through 2025; DOE assumed that the incr eased market penetration achieved after 19 years, by 2030, would remain constant through 2043.

Table 17.3.4 Annual Increased Market Shares of Top-Loading Commercial Clothes Washers at Target Efficiency Level from Voluntary Efficiency Targets Year of Program Top-Loading Commercial Clothes Washers* 2013 0% 2014 5% 2015 8% 2016 10% 2017 10% 2018 11% 2019 11% 2020 11% 2021 12% 2022 12% 2023 12% 2024 12% 2025 13% 2026 13% 2027 13% 2028 14% 2029 14% 2030 14% 2031-2043 14%
* Percentages in each column refer to shares of the eligible market.

DOE did not analyze the potential impacts of voluntary energy efficiency targets for front-loading commercial clothes washers because over 88 percent of the front-loading washer market in the base case already meets TSL 3. The Energy Star program typically targets products where a maximum of approximately 25 per cent of the existing mark et meets the target efficiency level. 22 Since the market for front-loading washers is well above the 25 percent threshold, DOE did not consider this policy for front-loading commerc ial clothes washers

17-1317.3.4 Early Replacement
Early replacement refers to the replacemen t of commercial clothe s washers before the ends of their useful lives. The purpose of this policy 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. 25 Another was an electric energy efficiency potentials st udy performed for the St ate of Vermont in 2006. 26 DOE 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, 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 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 ea rly 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. 27 This

17-14study 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. g

For 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 2013 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 2013 and beyond are not affected by this program and remain at base case efficiency levels.

Based on their average service lives, 9 pe rcent of commercial clothes washers in multifamily buildings, and 14 percent of comme rcial clothes washers in laundromats are replaced annually; thes e are their natural replacement rate s. For this policy study, DOE assumed that an additional percentage of commer cial clothes washers in the existing stock in 2013, 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 commercial clothes washers that were in the stock in the year that the program began (2013). After the 2013 stock had 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 17.3.3. 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 17.3.10 indicates the incr ease in shipments for the entire clothes washer market including both top-loading and front-loading uni ts. As described in Chapter 8, section 8.2.6, DOE estimated that 70 percent of the market is comprised of top-loadi ng washers and 30 percent is comprised of front-loading washers. DOE estim ated that the market share of top-loading and front-loading washers would remain fixed at 70 percent and 30 percent, respectively, through the

g The analysis concluded that, while cost-effective opportu nities for early replacement exist, a widespread Federal early replacement program was not econom ically 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.

17-15forecast period. Therefore, the increase in shipments due to the early replacement program is distributed based on the existing market shares of top-loading and front-loading washers.

0.00 0.05 0.10 0.15 0.20 0.25 0.30

2005 2010 2015 2020 2025 2030 2035 2040 2045

YearShipments (million) Early Replacement Scenario Base Case Shipments

Figure 17.3.3 Early Replacement Shipments Projections for Commercial Clothes Washers

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 manufactur ers 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 tracked data 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

17-16programs target office equipment, the existen ce of a growing infrastructure for efficient purchasing specifications indicate s that such impacts that DOE attributed to bulk government purchasing programs are feasible. 28
, 29

For top-loading commercial clothes washers, DOE assume d that government agencies, such as the U.S. General Services Administratio n (GSA), would administer such a program. At the Federal level, this program could modify the current FEMP procurement guidelines for “family-sized” commercial clothes washers. At FEMP’s required level, the current specifications (which are identical to those for residential clothes washers) are minimum MEF of 1.42 and maximum water factor of 10.5.

To estimate the impact of a bulk governme nt purchase program for this product, DOE first determined the shipment s of commercial clothes washer s that go to government-owned housing. A technology review prepared for FE MP by Pacific Northwest National Laboratory (PNNL) in 2000 estimated that 6000–7000 commercial clothes washers were purchased annually for Federal buildings. 30 DOE assumed that, by 2013, this poli cy would apply to the upper end of this shipments range, or about 3.3 percent of th e market. Although a portion (15 percent) of the commercial clothes washer market consists of laundromats, since it is not likely that the government owns laundromats, DOE assumed that this policy would affect only commercial clothes washers in multifamily buildings. Henc e the eligible population of commercial clothes washers to which this policy would appl y is 3.3 percent of total shipments.

DOE also reviewed its own research on th e potential for market transformation through bulk government purchasing. 31 This study analyzed several sc enarios that started from the assumption that 20 percent of Federal equi pment purchasing in the year 2000 already incorporated energy efficiency, following the FEMP guidelines. One scenario in the DOE report showed energy efficient Federa l purchasing ramping up from 20 percent to 80 percent of all Federal purchases over 10 years. Of government-owned residential buildings, DOE’s life-cycle cost and payback period analysis estimated that , by the start year of 2013, none had top-loading commercial clothes washers at efficiency le vels meeting the amended energy conservation standards. DOE estimated that a bulk government purchasing program instituted over a 10-year time period would eventually result in an 80-pe rcentage-point increase (from 0 percent to 80 percent) in the number of government-purchased commercial clothes washer s meeting the target efficiency levels.

Based on the above percentages, DOE estimated that, by the end of th e first year of the policy case (2013), eight percent of shipments of government-pur chased top-loading commercial clothes washers would be equipment meeting the ta rget levels for these products due to existing bulk government purchase programs. By 2022, 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 2013. Section 17.4 below presents the resulting efficiency trends for the bulk government pur chase policy case for top-loading commercial clothes washers.

17-17DOE did not analyze the potential impact s of bulk government purchases for frontloading commercial clothes washers because over 88 percent of the front-loading washer market already meets TSL 3. FEMP procurement specifi cations typically promote products in the top 25 percent of the existing market in terms of e fficiency. Since most of the front-loading washers sold in the base case would already comply with such specifications, DOE did not consider this program for front-loading commercial clothes washers. 32

17.4 NON-REGULATORY POLICY IMPACTS
Figure 17.4.1 shows the market share (penet ration rate) impacts for each of the nonregulatory policy cases for commercial clothes wa shers. All policy cases increase the market share of products meeting the ta rget level, with voluntary ener gy efficiency targets being the most effective over the entire fo recast period. As a reminder, the proposed standards (not shown in Figure 17.4.1) would result in a 100 percent pe netration of products meeting the target level.

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%

2010 2015 2020 2025 2030 2035 2040 2045

YearPercent Units Meeting Target Level Rebate (Top-Loading) Voluntary Effic'y Target (Top-Loading only) Rebate (Front-Loading) Consumer Tax Credit Manufacturer Tax Credit Bulk Gov't Purchase (Top-Loading only) Early Replacement

Figure 17.4.1 Penetration Rates of Units Meeting the Target Level for Commercial Clothes Washers

17-1817.5 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 effi ciency target levels ar e equal to the proposed standard levels for each product. The cases in wh ich no regulatory action is taken with regard to commercial clothes washers constitute the base ca se (or "No Action") scenarios, in which energy savings and NPV are zero by definition. For comp arison, the tables includ e the impacts of the proposed energy conservation standards. Th e NPV amounts shown in Table 17.5.1are based on two discount rates (seven per cent and three percent real).

Table 17.5.1 Non-Regulatory Alternatives for Comme rcial Clothes Washers with Target Levels at TSL 3

Policy Alternatives Primary Energy Savings (quads) Water savings (trillion gallons) Net Present Value* (billion 2008$)

7% discount rate 3% discount rate
No New Regulatory Action 0.0 0.0 0.0 0.0
Consumer Rebates 0.06 0.07 0.18 0.47
Consumer Tax Credits 0.01 0.01 0.03 0.08
Manufacturer Tax Credits 0.005 0.01 0.02 0.06 Voluntary Energy Efficiency Targets** 0.02 0.02 0.06 0.15 Early Replacement 0.01 0.01 0.11 0.17
Bulk Government Purchases** 0.003 0.01 0.02 0.04 Proposed Standards at TSL 3 0.10 0.14 0.36 0.89

* Net present value (NPV) is the value of a time series of costs and savings. DOE determined the NPV from 2013 to 2043 in billions of 2008$. ** Voluntary energy efficiency target and bulk governme nt purchase alternatives are not considered for frontloading washers because the percentage of the market at TSL 3 is well over the market adoption target level that each alternative strives to attain.

17-19REFERENCES

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