2

- i CHAPTER 2. ANALYTICAL FRAMEWORK

TABLE OF CONTENTS

2.1 INTRODUCTION

................................ ................................ ................................ ....... 2

- 1

2.2 MARKET AND TECHNOLOG Y ASSESSMENT

................................ ...................... 2

- 5

2.2.1 Market Assessment

................................ ................................ ................................ ...... 2

- 5

2.2.2 Technology Assessment

................................ ................................ .............................. 2

- 5

2.3 SCREENING ANALYSIS

................................ ................................ .......................... 2

- 5

2.4 ENGINEERING ANALYSIS

................................ ................................ ...................... 2

- 6

2.5 MA RKUPS ANALYSIS

................................ ................................ ............................. 2

- 7

2.6 ENERGY AND WATER USE CHARACTERIZATION

................................ ............ 2

- 7

2.7 LIFE

- CYCLE COST AND PAYBA CK PERIOD ANALSYIS

................................ .... 2

- 7

2.8 SHIPMENTS ANALYSIS

................................ ................................ ........................... 2

- 8

2.9 NATION AL IMPACT ANALYSIS

................................ ................................ ............. 2

- 8

2.9.1 National Energy and Water Savings

................................ ................................ ............. 2

- 9

2.9.2 Net Present Value of Consumer Benefit

................................ ................................ ....... 2

- 9

2.10 CONSUMER SUBGROUP AN ALYSIS

................................ ................................ .... 2

- 10

2.11 MANUFACTURER IMPACT ANALYSIS

................................ ................................ 2

- 10

2.12 UTILITY IMPACT ANALY SIS

................................ ................................ ................ 2

- 10

2. 13 EMPLOYMENT IMPACT AN ALYSIS

................................ ................................ ..... 2

- 11

2.14 ENVIRONMENTAL ASSESS MENT

................................ ................................ ........ 2

- 11

2.14.1 Carbon Dioxide

................................ ................................ ................................ .......... 2

- 12

2.14.2 Sulfur Dioxide

................................ ................................ ................................ ............ 2

- 12

2.14.3 N itrogen Oxides

................................ ................................ ................................ ......... 2

- 12

2.14.4 Mercury

................................ ................................ ................................ ...................... 2

- 13

2.14.5 Particulate Matter

................................ ................................ ................................ ....... 2

- 13

2.14.6 Monetization of Emissions Reduction Benefits

................................ ........................... 2

- 14

2.15 REGULATORY IMPACT AN ALYSIS

................................ ................................ ..... 2

- 15

LIST OF FIGURES

Figure 2.1.1 Flow Diagram of Analyses for the Rulemaking Process

................................ ... 2

- 22-1 CHAPTER 2. ANALYTICAL FRAMEWORK

2.1 INTRODUCTION

Section 6295(o)(2)(A) of the Energy Policy and Conservation Act (EPCA), Pub. L. 94

- 163, 42 U.S.C. 6291 et seq . requires the U.S. Department of Energy (DOE) to set forth energy conservation standards that achieve the maximum improvement in energy efficiency that is technologically feasible and economically justified. This chapter describes the general analytical framework that DOE uses in developing such standards, and in particular, amended energy conservation standards for residential clothes washers. The analytical framework is a description of the methodology, the analytical tools, and the relationships among the various analyses that

are part of this rulemaking.

Figure 2.1.1 summarizes the analytical components of the standards

- setting process. The focus of this figure is the center col umn, identified as “Analyses.” The columns labeled “Key Inputs” and “Key Outputs” show how the analyses fit into the rulemaking process, and how the analyses re late to each other. Key inputs are the types of data and informat ion that the analyse s require. Some key inputs exist in public databases; DOE collects other inputs from interested parties or other knowledgeable experts within the field

. Key outputs are analytical results that feed directly into the standards

- setting process. Dotted lines connecting analyses show types of information that feed from one analysis to another.2-2 Figure 2.1.1 Flow Diagram of Analyses for the Rulemaking Process Utility Impact

Analysis

Notice of Proposed Rulemaking (NOPR)

Final Rule Approaches Key Inputs Analyses Key Outputs

Market and Technology
Assessment

Screening Analysis

Engineering Analysis

Product Price
Determination Life

- Cycle Cost and Payback Period Analyses

National Impact Analysis Energy Use

Revise Preliminary Analyses

Life

- Cycle Cost
Sub

- Group Analysis

Manufacturer Impact Analysis Shipments Analysis

Employment Impact Analysis

Revise Analyses • Product Classes

• Technology Options

• Industry Cash Flow

• Sub

- Group Cash

- Flow

• Direct Employment Impacts

• Competitive Impacts

• Cumulative Regulatory Burden • Product Designs

• Life

- Cycle Costs

• Payback Periods

• National Energy Savings

• Net Present Values

• National Employment Impacts

• Revised Results • Characterize Industry

• Market Segmentation

• Non

- Regulatory Programs Framework Document

• Efficiency

- Level Approach

• Design Option Approach

• Energy Prices

• Installation Costs

• Maintenance & Repair Costs

• Accounting Approach

• Backcast and Forecast

• Market Saturation

• Stakeholder Comments

• Demographics

• Manufacturer Interviews

• GRIM Analysis

• Emission Rates

• National Energy Savings

• Stakeholder Comments • Identify Firms/Products

• Historical Shipments

• Retail Price Collection and Analysis

• Manufacturer Prices

• Average Costs

• Manufacturer Financial Data Design Options Product Classes

Retail

Prices Design Energy/ Use

Advance Notice of Proposed Rulemaking (ANO) • Efficiency/Performance • Commercial Products

Candidate Standard

Levels • Analysis of Energy Use

Data

Environmental

Assessment

Regulatory Impact Analysis Technology Options

• Emission Estimates • Utility Load Factors

• National Energy Savings

• Non

- Regulatory
Alternatives • NEMS

- BT

• ImSET

• NEMS

- BT • Design Options

• Energy Price Forecasts

• Site

- to

- Source Factors • Energy

- Efficiency Levels

Direct Employment Impacts

• National Energy Savings

• National Product Costs

• National Operating Costs • Utility Impacts • Analysis of Market Data

• Analysis of Product Data

• Life

- Cycle Costs

• Payback Periods • Installation Costs

• Maint Costs

• Repair Costs • UEC

• Energy Prices Annual Energy Use (UEC)

Preliminary Manufacturer Impact Analysis • Manufacturer Prices

• Average Costs • Conversion Capital Expenditures

• Direct Employment Impacts

• National Energy Savings

• Net Present Values • Trial Standard Levels ( TSLs )

TSLs • Product Prototypes

Energy

- Efficiency

Levels

• Department of Justice Review Product Designs

Utility Impact

Analysis

Notice of Proposed Rulemaking (NOPR)

Final Rule Approaches Key Inputs Analyses Key Outputs

Market and Technology
Assessment

Screening Analysis

Engineering Analysis

Product Price
Determination Life

- Cycle Cost and Payback Period Analyses

National Impact Analysis Energy Use

Analyses

Life

- Cycle Cost
Sub

- Group Analysis

Manufacturer Impact Analysis Shipments Analysis

Employment Impact Analysis

Revise Analyses • Product Classes

• Technology Options

• Industry Cash Flow

• Sub

- Group Cash

- Flow

• Direct Employment Impacts

• Competitive Impacts

• Cumulative Regulatory Burden • Product Designs

• Life

- Cycle Costs

• Payback Periods

• National Energy Savings

• Net Present Values

• National Employment Impacts

• Revised Results • Characterize Industry

• Market Segmentation

• Non

- Regulatory Programs Framework Document

• Efficiency

- Level Approach

• Design Option Approach

• Energy Prices

• Installation Costs

• Maintenance & Repair Costs

• Accounting Approach

• Backcast and Forecast

• Market Saturation

• Stakeholder Comments

• Demographics

• Manufacturer Interviews

• GRIM Analysis

• Emission Rates

• National Energy Savings

• Stakeholder Comments • Identify Firms/Products

• Historical Shipments

• Retail Price Collection and Analysis

• Manufacturer Prices

• Average Costs

• Manufacturer Financial Data Design Options Product Classes

Retail

Prices Design Energy/ Use

Publication of Preliminary Analyses • Efficiency/Performance • Commercial Products

Candidate Standard

Levels • Analysis of Energy Use

Data

Environmental

Assessment

Regulatory Impact Analysis Technology Options

• Emission Estimates • Utility Load Factors

• National Energy Savings

• Non

- Regulatory
Alternatives • NEMS

- BT

• ImSET

• NEMS

- BT • Design Options

• Energy Price Forecasts

• Site

- to

- Source Factors • Energy

- Efficiency Levels

Direct Employment Impacts

• National Energy Savings

• National Product Costs

• National Operating Costs • Utility Impacts • Analysis of Market Data

• Analysis of Product Data

• Life

- Cycle Costs

• Payback Periods • Installation Costs

• Maint Costs

• Repair Costs • UEC

• Energy Prices Annual Energy Use (UEC)

Preliminary Manufacturer Impact Analysis • Manufacturer Prices

• Average Costs • Conversion Capital Expenditures

• Direct Employment Impacts

• National Energy Savings

• Net Present Values • Trial Standard Levels ( TSLs )

TSLs • Product Prototypes

Energy

- Efficiency

Levels

• Department of Justice Review Product Designs2-3 The analyses performed for this direct final rule and reported in this technical support document (TSD) are listed below.

**•** A market and technology assessment to characterize the relevant product markets and existing technology options, including prototype designs.

**•** A screening analysis to review each technology option to decide whether it is technologically feasible; is pract ical to manufacture, install, and service; would adversely affect product utility or product availability; or would have adverse effects on health and safety.

**•** An engineering analysis to develop cost

- efficiency relationships, which indicate the

manufacture r’s cost of achieving increased efficiency.

**•** A markups analysis to develop distribution channel markups that relate the manufacturer production cost (MPC) to the cost to the consumer.

**•** An analysis of the annual energy and water use of the considered products.

**•** Life

- cycle cost (LCC) and payback period (PBP) analyses to calculate, at the consumer level, the discounted savings in operating costs (minus maintenance and repair costs) throughout the estimated average lifetime of the covered products, compar ed to any increase in purchase and installation cost likely to result directly from imposition of a given standard.

**•** A shipments analysis to forecast shipments of residential clothes washers, which are then used to calculate the national impacts of standards on energy, net present value (NPV),

and future manufacturer cash flows.

**•** A national impact analysis (NIA) to assess aggregate impacts at the national level of potential energy conservation standards for the considered products, as measured by the NPV of total consumer economic impacts and the national energy savings (NES).

**•** A manufacturer impact analysis to assess the potential impacts of energy conservation standards on manufacturers’ capital conversion expenditures, marketing costs, shipments,

a nd research and development costs.

In this direct final rule , DOE present s the results of the above analyses, incorporating revisions to the analyses based on comments and new information received. DOE also present s results of the following additional a nalyses in the direct final rule :2-4 **•** An LCC subgroup analysis to evaluate variations in consumer characteristics that might cause a standard to affect particular consumer subpopulations, such as low

- income households, differently than the overall population.

**•** A manufacturer impact analysis to estimate the financial impact of standards on manufacturers and to calculate impacts on competition, employment, and manufacturing capacity.

**•** A utility impact analysis to estimate the effects of proposed standards on ele ctric, gas, or

oil utilities.

**•** An employment impact analysis to assess the aggregate impacts on national employment.

**•** An environmental impact analysis to estimate the effects of amended standards on emissions of carbon dioxide (CO 2 ), sulfur dioxide (SO 2 ), nitrogen oxides (NO X ), and mercury (Hg).

**•** A regulatory impact analysis to examine major alternatives to proposed amended energy conservation standards that potentially could achieve substantially the same regulatory goal at a lower cost.

DOE developed this analytical framework and documented its initial findings in the Energy Conservation Standards Rulemaking Framework Document for Residential Clothes

Washers (the framework document). DOE announced the availability of the framework

documen t in a Notice of Public Meeting and Availability of a Framework Document published in

the Federal Register on August 28, 2009. 74 FR 44306. DOE presented the analytical approach to interested parties during a public meeting on September 21, 2009. The frame work document is

available at www1.eere.energy.gov/buildings/appliance_standards/residential/pdfs/clothes_washers_framew ork.pdf

.

In response to the publication of the framework document and the associated public meeting, DOE received comments from interested parties regarding its analytical approach. In

the direct final rule notice , DOE: (1) summarizes the key comments received from interested parties and describes DOE’s responses to those comments; and (2) summarizes any significant changes in the analytical approach made since publishing the framework document

. This final rule TSD contains details of the final analyses conducted fo r residential clothes washers

.2-5 2.2 MARKET AND TECHNOLOGY ASSESSMENT

The market and technology assessment characterizes the relevant product markets and existing technology options, including prototype designs, for the considered products.

2.2.1 Market Assessment

When DOE begins an energy conservation standards rulemaking, it develops information that provides an overall picture of the market for the products considered, including the nature of the products, the industry structure, and market characteristics for t he products. This activity consists of both quantitative and qualitative efforts based primarily on publicly available information. The subjects addressed in the market assessment for residential clothes washers included manufacturers, trade associations, and the quantities and types of products sold and offered for sale. DOE examined both large and small and foreign and domestic residential clothes washer manufacturers. DOE also examined publicly available data from the key trade association for this produ ct category, the Association of Home Appliance Manufacturers (AHAM). DOE reviewed shipment data collected by AHAM and Appliance magazine to evaluate annual shipment trends. Finally, DOE reviewed other energy efficiency programs from utilities, individual S tates, and other organizations. Chapter 3 of the TSD provides additional details on the market and technology assessment.

2.2.2 Technology Assessment

DOE typically uses information relating to existing and past technology options and prototype designs as i nputs to determine what technologies manufacturers use to attain higher performance levels. In consultation with interested parties , DOE develops a list of technologies for consideration. Initially, these technologies encompass all those it believes are te chnologically

feasible.

DOE developed its list of technologically feasible design options for residential clothes

washers through consultation with manufacturers of components and systems, and from trade publ ications and technical papers. Since many opti ons for improving product efficiency are available in existing units, product literature and direct examination provided additional

information.

Chapter 3 of the TSD includes the detailed list of all technology options identified for

residential clothes w ashers.

2.3 SCREENING ANALYSIS

The screening analysis examines various technologies as to whether they: (1) are technologically feasible; (2) are practicable to manufacture, install, and service; (3) have an2-6 adverse impact on product utility or availability; and (4) have adverse impacts on health and safety. DOE develop ed an initial list of efficiency

- enhancement options from the technologies identified as technologically feasible in the technology assessment. Then DOE, in consultation with interested parties, review ed the list to determine if these options are practicable to manufacture, install, and service, would adversely affect product utility or availability, or would

have adverse impacts on health and safety. In addition, DOE remove d from the list techno logy options that lack energy consumption data as well as technology options whose energy consumption could not be adequately measured by existing DOE test procedur es. In the engineering analysis, DOE further consider ed efficiency enhancement options that it did not screen out in the screening analysis. Chapter 4 of the TSD contains details on the screening analysis for residential clothes washers.

2.4 ENGINEERING ANALYSIS

The engineering analysis (chapter 5 of the final rule TSD ) establishes the relationship between the manufacturing production cost (MPC) and the efficiency for each class of residential

clothes washers. T he purpose of the analysis is to estimate the incremental MPCs for a product that would result from increasing efficiency levels above the le vel of the baseline model in each product class. This relationship serves as the basis for cost/benefit calculations in terms of individual consumers, manufacturers, and the nation. Chapter 5 discusses the product classes DOE analyzed, the representative b aseline units, the incremental efficiency levels, the methodology DOE used to develop the manufacturing production costs, the cost

- efficiency curves, and the impact of efficiency improvements on the considered products.

The engineering analysis consider ed technologies not eliminated in the screening analysis, although certain technologies were not analyzed due to negligible incremental efficiency improvements or the inability of the existing DOE test procedures to measure any reduction in energy use. DOE consider ed the remaining technologies, designated as design options, in developing the cost

- efficiency curves

.

DOE typically structures its engineering analysis around one of three methodologies: (1) the design

- option approach, which calculates the incr emental costs of adding specific design options to a baseline model; (2) the efficiency

- level approach, which calculates the relative costs of achieving increases in energy efficiency levels without regard to the particular design options

used to achieve s uch increases; and/or (3) the reverse

- engineering or cost

- assessment approach,

which involves a “bottom

- up” manufacturing cost assessment based on a detailed bill of

materials derived from tear

- downs of the product being analyzed.

D OE proposed used the e fficiency

- level approach for residential clothes washers,

combined with the cost

- assessment approach to develop a cost for each efficiency level. This approach involved physically disassembling commercially available products, consulting with outside exper ts, reviewing publicly available cost and performance information, and modeling equipment cost. The efficiency levels that DOE considered in the engineering analysis are2-7 attainable using technologies currently available on the market in residential clothes washers. In addition, DOE associated each efficiency level with specific technologies that manufacturers might use to provide interested parties with additional transparency of assumptions and results and the ability to perform independent analyses for ve rification. Chapter 5 of this TSD describes the methodology and results of the efficiency level analysis used to derive the cost

- efficiency relationships.

2.5 MARKUPS ANALYSIS

DOE performed a markup analysis to convert the manufacturer costs estimated in the engineering analysis to consumer prices, which then were used in the LCC and PBP and manufacturer impact analyses. DOE calculate d markups for baseline products (baseline markups) and for more efficient products (incremental markups). The incremental marku p relates the change in the manufacturer sales price of higher efficiency models (the incremental cost increase) to the change in the retailer or distributor sales price.

To develop markups, DOE identifie d how the products are distributed from the manufacturer to the consumer. After establishing appropriate distribution channels, DOE relie d on economic data from the U.S. Census Bureau and other sources to determine how prices are marked up as the products p ass from the manufacturer to the consumer. Chapter 6 of this TSD provides details on DOE’s development of markups for residential clothes washer s

.

2.6 ENERGY A ND WATER USE ANALYSIS

DOE performed an energy and water use analysis to assess the energy and water savings potential from higher efficiency levels, providing the basis for the energy and water savings values used in the LCC and subsequent analyses. The goal of the energy and water use characterization is to generate a range of energy and water use value s that reflects actual product

use in American homes. Chapter 7 of this TSD provides more detail about DOE’s approach for characterizing energy and water use of residential clothes washers.

2.7 LIFE

- CYCLE COST AND PAYBACK PERIOD ANALSYIS

New energy con servati on standards usually decrease a product’s operating expenses, and usually increase its price. DOE analyzes the net effect of amended standards on consumers by evaluating the net life cycle cost ( LCC ) . To evaluate the net LCC, DOE uses the cost

- efficiency

r elationship derived in the engineering analysis and the energy and water costs derived from the energy and water use analysis . Inputs to the LCC calculation include the installed cost of a product to the consumer (consumer purchase price plus installation cost), operating expenses (energy expenses and maintenance costs), the lifetime of the unit, and a discount rate.2-8 Because the installed cost of a product typically increases while operating costs typically decrease under new standards, there is a time in the life of products having higher

- than

- baseline efficiency when the net operating

- cost benefit (in dollars) since the time of purchase is equal to the incremental first cost of purchasing the product. The time required for products to reach this

cost

- equ ivalence point is known as the payback period (PBP).

Recognizing that several inputs to determining consumer LCC and PBP are either variable or uncertain, DOE uses Monte Carlo simulation and probability distributions to model both the uncertainty and var iability in inputs. DOE uses Microsoft Excel combined with Crystal Ball (a commercially available add

- in program) to develop LCC and PBP spreadsheet models that incorporate both Monte Carlo simulation and probability distributions.

Chapter 8 of this TSD describes the results from the LCC and PBP analyses.

2.8 SHIPMENTS ANALYSIS

Forecasts of product shipments are needed to calculate the national impacts of standards on energy use, NPV, and future manufacturer cash flows. DOE developed shipment forecasts

based on an analysis of key market drivers for residential clothes washers . In DOE’s shipments model, shipments of products are driven by new construction, stock replacements, and other types of purchases.

The shipments models take an accounting approach, trac king market shares of each product class and the vintage of units in the existing stock. Stock accounting uses product shipments as inputs to estimate the age distribution of in

- service product stocks for all years. The age distribution of in

- service produ ct stocks is a key input to calculations of both the NES and NPV, because operating costs for any year depend on the age distribution of the stock.

DOE also considers the impacts on shipments from changes in product purchase price and operating cost associated with higher energy efficiency levels. Chapter 9 of this TSD provides additional details on the shipments analysis.

2.9 NA TION AL IMPACT ANALYSIS

The national impact analysis (NIA) assesses the net present value (NPV), to the nation, of

total consumer life

- cycle cost (LCC) and net energy savings (NES). DOE determined both the NPV and NES for the efficiency levels considered for the product classes a nalyzed. To make the analysis more accessible and transparent to all interested parties, DOE prepared a Microsoft Excel spreadsheet model to forecast NES and the national consumer economic costs and savings resulting from new standards. The spreadsheet mod el uses as inputs typical values (as opposed to probability distributions). To assess the effect of input uncertainty on NES and NPV results,2-9 DOE may conduct sensitivity analyses by running scenarios on specific input variables. Chapter 10 of this TSD prov ides additional details regarding the national impact analysis.

Several of the inputs for determining NES and NPV depend on the forecast trends in product energy efficiency. For the base case, DOE uses the efficiency distributions developed for

the LCC a nalysis, and assumes some rate of change over the forecast period. In this analysis,

DOE has used a roll

- up scenario in developing its forecasts of efficiency trends after standards

take effect. Under a roll

- up scenario, all products that perform at levels below a prospective standard are moved, or rolled

- up, to the minimum performance level allowed under the standard.

Product efficiencies above the standard level under consideration would remain the same as

before the revised standard takes effect.

2.9.1 Nation al Energy and Water Savings

The inputs for determining the national energy and water savings (NES) for each product class are: (1) annual energy and water consumption per unit, (2) shipments, (3) product stock, (4) national energy and water consumption, and (5) site

- to

- source conversion factors for energy. DOE calculated national energy and water consumption by multiplying the number of units, or stock, of each product class (by vintage, or age) by the unit energy and water consumption (also by vintage). DOE calculated annual NES based on the difference in national energy and water consumption for the base case (without new efficiency standards) and for each efficiency standard being considered. DOE estimated energy consumption and savings based on site en ergy consumption, which it then converted to source energy. DOE estimated water consumption and savings based on site water use. DOE did not use a conversion factor for water because no such factor has been developed. Cumulative energy and water savings ar e the sum of the NES for each yea r.

2.9.2 Net Present Value of Consumer Benefit

The inputs for determining NPV of the total costs and benefits experienced by consumers are: (1) total annual installed cost, (2) total annual savings in operating costs, (3) a dis count factor, (4) present value of costs, and (5) present value of savings. DOE calculated net savings each year as the difference in total savings in operating costs and total increases in installed costs

between the base case and each standards case. DOE calculated savings over the life of each product class, accounting for differences in yearly energy rates. DOE calculated NPV as the difference between the present value of operating cost savings and the present value of total

installed costs. DOE used a discount factor based on real discount rates of 3 percent and 7 percent to discount future costs and savings to present values.

DOE calculated the difference in total installed cost between the base case and each standards case ( i.e ., after standards tak e effect). Because the more efficient products bought in the standards case usually cost more than products bought in the base case, cost increases appear as negative values in the NPV.2-10 DOE expressed savings in operating costs as decreases associated wit h the lower energy consumption of products bought in the standards case compared to the base efficiency case. Total savings in operating costs are the product of savings per unit and the number of units of each vintage that survive in a given year.

2.10 CONSUME R SUBGROUP ANALYSIS

The consumer subgroup analysis evaluates economic impacts on selected groups of consumers who might be adversely affected by a change in the national energy conservation standards for the considered products. DOE evaluates impacts on p articular subgroups of consumers primarily by analyzing the LCC impacts and PBP for those particular consumers using the LCC spreadsheet model.

For this rulemaking, DOE analyzed as subgroups: (1) low

- income households; (2) households solely occupied by senior citizens. Chapter 11 of this TSD describes the consumer subgroup analysis.

2.11 MANUFACTURER IMPACT ANALYSIS

The MIA assesses the impacts of new energy conservation standards on manufacturers of the considered products

. Potential impacts include financ ial effects, both quantitative and qualitative, that might l ead to changes in the manufacturing practices for these products. DOE identified these potential impacts through interviews with manufacturers and other interested parties.

DOE conducted the MIA in three phases, and further tailored the analytical framework based on interested parties’ comments. In Phase I, an industry profile was created to characterize the industry, and a preliminary MIA was conducted to identify important issues that required

consideration

. In Phase II, an industry cash flow model and an interview questionnaire were prepared to guide subsequent discussions. In Phase III, manufacturers were interviewed, and the impacts of standards were assessed both quantitatively and qualitati vely. Industry and subgroup cash flow and NPV were assessed through use of the Government R egulatory Impact Model (GRIM). Then impacts on competition, manufacturing capacity, employment, and cumulative regulatory burden were assessed based on manufacturer interview feedback and discussions. DOE discusses its findings from the MIA in chapter 1 2 of the final rule TSD.

2.12 UTILITY IMPACT ANALYSIS

The utility impact analysis estimate s the effects of amended energy conservation

standards on installed electricity g eneration capacity and electricity generation

. For this analysis, DOE adapted NEMS, which is a large multi

- sectoral, partial

- equilibrium model of the U.S.2-11 energy sector that the EIA has developed throughout the past decade, primarily for preparing

EIA’s AEO . In previous rulemakings, a variant of NEMS (currently termed NEMS

- BT, BT referring to DOE’s Building Technologies Program), was developed to better address the specific impacts of an energy conservation standard. NEMS, which is available in the public domain, produces a widely recognized baseline energy forecast for the United States. The typical NEMS outputs include forecasts of electricity and natural gas sales, prices, and electric generating capacity.

DOE conducts the utility impact analysis as a scenario that departs from the latest Annual Energy Outlook reference case. In other words, the energy savings impacts from amended energy conservation standards are modeled using NEMS

- BT to generate forecasts that deviate from the

AEO reference case

. Chapter 13 describes the results of the utility impact analysis.

2.13 EMPLOYMENT IMPACT ANALYSIS

New or amended energy conservation standards can impact employment both directly and indirectly. Direct employment impact s are changes in the number of employees at the plants that produce the covered products

, and at the affiliated distribution and service companies, resulting from the adoption of new standards. DOE evaluate d direct employment impacts in the

MIA. Indirect e mployment impacts may result from expenditures shifting between goods (the substitution effect) and changes in income and overall expenditure levels (the income effect) that

occur due to the adoption of standards. Chapter 14 describes the results of the em ployment impact analysis.

DOE investigate d the combined direct and indirect employment impacts of standards using the Pacific Northwest National Laboratory (PNNL)’s “Impact of Sector Energy Technologies” (ImSET) model. The ImSET model, which was develop ed for DOE’s Office of Planning, Budget, and Analysis, estimates the employment and income effects energy

- saving technologies produced in buildings, industry, and transportation. In comparison with simple economic multiplier approaches, ImSET allows for mo re complete and automated analysis of the economic impacts of energy conservation investments.

2.14 ENVIRONMENTAL ASSESSMENT

To comply with the National Environmental Policy Act and the requirements of 42 U.S.C. 6295(o)(2)(B)(i)(VI) and 6316(a), DOE prepared an environmental assessment of the impacts of amended energy conservation standards for residential clothes washers on the human environment. The primary environmental effects of these standards would be reduced power plant emissions resulting from reduced c onsumption of electricity. DOE assess ed these environmental effects by using NEMS

- BT to provide key inputs to its analysis. The portion of the environmental assessment that will be produced by NEMS

- BT considers carbon dioxide (CO 2 ), nitrogen oxides ( NO

x ), and mercury (Hg). The environmental assessment also considers2-12 impacts on SO 2 emissions and discusses particulate matter (P M) emissions. Chapter 15 describes

the re sults of the environmental assessment.

2.14.1 Carbon Dioxide

In the absence of any Federal emissi ons control regulation of power plant emissions of

CO 2 , a DOE standard is likely to result in reductions of these emissions. The CO 2 emissions reductions likely to result from a standard will be estimated using NEMS

- BT and national energy savings estimates drawn from the NIA spreadsheet model. The net benefit of the standard is the difference between emissions estimated by NEMS

- BT at each standard level considered and the

AEO Reference Case. NEMS

- BT tracks CO 2 emissions using a detailed module that provides results with broad coverage of all sectors and inclusion of interactive effects.

2.14.2 Sulfur Dioxide

SO 2 emissions from affected Electric Generating Units (EGUs) are subject to nationwide and regional emissions cap and trading programs , and DOE has preliminari ly determined that these programs create uncertainty about the standards’ impact on SO 2 emissions. Title IV of the Clean Air Act sets an annual emissions cap on SO 2 for affected EGUs in all 50 states and the District of Columbia (D.C.). SO 2 emissions from 28 eastern states and D.C. are also limited under the Clean Air Interstate Rule (CAIR, 70 Fed. Reg. 25162 (May 12, 2005)), which created

an allowance

- based trading program that would have gradually replaced the Title IV program in

those states and D.C. Alt hough CAIR has been remanded to EPA by the U.S. Court of Appeals for the District of Columbia Circuit (D.C. Circuit), see North Carolina v. EPA , 550 F.3d 1176 (D.C. Cir. 2008), it will remain in effect until it is replaced by a rule consistent with the D.C

. Circuit’s earlier opinion in North Carolina v. EPA , 531 F.3d 896 (D.C. Cir. 2008). On July 6, 2010, EPA proposed the Transport Rule, a replacement for CAIR, which would limit emissions from EGUs in 32 states, potentially through the interstate trading of allowances, among other options. 75 FR 45210 (Aug. 2, 2010).

The attainment of emissions caps is typically flexible among EGUs and is enforced through the use of emissions allowances and tradable permits. Under existing EPA regulations, any excess SO 2 em issions allowances resulting from the lower electricity demand caused by the imposition of an efficiency standard could be used to permit offsetting increases in SO 2 emissions by any regulated EGU. However, if the standard resulted in a permanent increase in the quantity of unused emissions allowances, there would be an overall reduction in SO 2 emissions from the standards. While there remains some uncertainty about the ultimate effects of efficiency standards on SO 2 emissions covered by the existing cap an d trade system, the NEMS

BT modeling system that DOE uses to forecast emissions reductions currently indicates that no physical reductions in power sector emissions would occur for SO 2

.

2.14.3 Nitrogen Oxides

NEMS

- BT also has an algorithm for estimating NO

x emis sions from power generation.

As with SO 2 emissions, these emissions will be affected by CAIR and its replacement. The recent legal history surrounding CAIR, including its proposed replacement by the Transport Rule, is discussed above.2-13 Much like SO 2 emissi ons, a cap on NO

x emissions would mean that energy conservation standards may have little or no physical effect on these emissions in the 28 eastern states and the D.C. covered by CAIR or any states covered by the proposed Transport Rule. Because all state s covered by CAIR opted to reduce NO

x emissions through participation in cap

- and

- trade programs for electric generating units, emissions from these sources are currently capped across the CAIR region.

DOE used NEMS

- BT to estimate the emissions reductions from possible standards in the states where emissions are not capped.

2.14.4 Mercury

Similar to emissions of SO 2 and NO X , future emissions of Hg would have been subject to emissions caps. In May 2005, EPA issued the Clean Air Mercury Rule (CAMR). 70 FR 28606 (May 18, 2005). CAMR would have permanently capped emissions of mercury for new and existing coal

- fired power plants in all States by 2010. However, on February 8, 2008, the DC

Circuit issued its decision in New Jersey v. Environmental Protection Agency

, in which it

vacated CAMR. 517 F.3d 574 (D.C. Cir. 2008) EPA has decided to develop emissions standards for power plant s under the Clean Air Act (Section 112), consistent with the DC Circuit’s opinion

on the CAMR. See http://www.epa.gov/air/mercuryrule/pdfs/certpetition_withdrawal.pdf

. Pendin g EPA's forthcoming revisions to the rule, DOE is excluding CAMR from its Environmental Analysis. In the absence of CAMR, a DOE standard would likely reduce Hg emissions and DOE plans to use NEMS

- BT to estimate these emission reductions. However,

DOE conti nues to review the impact of rules that reduce energy consumption on Hg emissions, and may revise its assessment of Hg emission reductions in future rulemakings.

2.14.5 Particulate Matter

DOE acknowledges that particulate matter (PM) exposure can impact human hea lth. Power plant emissions can have either direct or indirect impacts on PM. A portion of the pollutants emitted by a power plant are in the form of particulates as they leave the smoke stack. These are direct, or primary, PM emissions. However, the great majority of PM emissions associated with power plants are in the form of secondary sulfates, which are produced at a significant distance from power plants by complex atmospheric chemical reactions that often involve the gaseous (non

- particulate) emissions of power plants, mainly SO 2 and NO

x . The quantity of the secondary sulfates produced is determined by a very complex set of factors including the atmospheric quantities of SO 2 and NO

x , and other atmospheric constituents and conditions. Because these highl y complex chemical reactions produce PM comprised of different constituents from different sources, EPA does not distinguish direct PM emissions from power plants from the secondary sulfate particulates in its ambient air quality requirements, PM

monitorin g of ambient air quality, or PM emissions inventories. For these reasons, it is not currently possible to determine how the amended standard impacts either direct or indirect PM emissions. Therefore, DOE is not planning to assess the impact of these standa rds on PM emissions. Further, as described previously, it is uncertain whether efficiency standards will2-14 result in a net decrease in power plant emissions of SO 2 and NO

x , since those pollutants are now largely regulated by cap and trade systems.

2.14.6 Monetizati on of Emissions Reduction Benefits

In this section, DOE explains how it plans to monetize the benefits associated with

emissions reductions. For those emissions for which real national emission reductions are anticipated (CO 2 , Hg, and NO

x for 22 states), o nly ranges of estimated economic values based on environmental damage studies of varying quality and applicability are available. Therefore, DOE reports estimates of monetary benefits derived using these values and consider these benefits in weighing the c osts and benefits of each of the standard levels considered.

In order to estimate the monetary value of benefits resulting from reduced emissions of

CO 2 emissions, it is DOE’s intent to use in its analysis the most current Social Cost of Carbon (SCC) valu es developed and/or agreed to by interagency reviews. The SCC is intended to be a monetary measure of the incremental damage resulting from greenhouse gas (GHG) emissions, including, but not limited to, net agricultural productivity loss, human health effe cts, property damage from sea level rise, and changes in ecosystem services. Any effort to quantify and to monetize the harms associated with climate change will raise serious questions of science, economics, and ethics. But with full regard for the limits of both quantification and monetization, the SCC can be used to provide estimates of the social benefits of reductions in GHG emissions.

At the time of this notice, the most recent interagency estimates of the potential global benefits resulting from r educed CO 2 emissions in 2010 were $4.7, $21.4, $35.1, and $64.9 per metric ton in 2007 dollars. These values are then adjusted to 2009$ using the standard GDP deflator value for 2008 and 2009. For emissions (or emissions reductions) that occur in later

yea rs, these values grow in real terms over time. Additionally, the interagency group determined that a range of values from 7 percent to 23 percent should be used to adjust the global SCC to calculate domestic effects, although preference will be given to co nsideration of the global benefits of reducing CO 2 emissions. See appendix 15

- A of this TSD for the full range of annual SCC estimates from 2010 to 2050. To calculate a present value of the stream of monetary values,

DOE discount ed the values in each of th e four cases using the discount rates that had been used

to obtain the SCC values in each case.

DOE recognizes that scientific and economic knowledge continues to evolve rapidly as to

the contribution of CO 2 and other GHG to changes in the future global c limate and the potential resulting damages to the world economy. Thus, these values are subject to change.

DOE also intends to estimate the potential monetary benefit of reduced NO X emissions resulting from the standard levels it considers. For NO

x emiss ions, available estimates suggest a very wide range of monetary values for NO X emissions, ranging from $370 per ton to $3,800 per

ton of NO X from stationary sources, measured in 2001$ (equivalent to a range of $447 to $4,591 per ton in 2009$). Refer to the OMB, Office of Information and Regulatory Affairs, “2006 Report to Congress on the Costs and Benefits of Federal Regulations and Unfunded M andates on State, Local, and Tribal Entities,” for additional information. In accordance with U.S. Office of2-15 Management and Budget (OMB) guidance, DOE will conduct two calculations of the monetary benefits derived using each of the economic values used for NO

x , one using a real discount rate of 3 percent and another using a real discount rate of 7 percent.

DOE does not plan to monetize estimates of Hg in this rulemaking. DOE is aware of multiple agency efforts to determine the appropriate range of values u sed in evaluating the potential economic benefits of reduced Hg emissions. DOE has decided to await further guidance regarding consistent valuation and reporting of Hg emissions before it once again monetizes Hg in its rulemakings.

2.15 REGULATORY IMPACT ANALYS IS

DOE prepared a regulatory impact analysis (RIA) under Executive Order 12866, “Regulatory Planning and Review,” 58 FR 51735, October 4, 1993, which was subject to review under the Executive Order by the Office of Information and Regulatory Affairs (OIRA ) at the

Of fice of Management and Budget. The RIA evaluated non

- regulatory alternatives to standards, in terms of their ability to achieve significant energy savings in the considered products at a reasonable cost, and compared the effectiveness of each on e to the effectiveness of the adopted

standards

. Chapter 16 of this TSD describes the results of the regulatory impact analysis.

DOE recognizes that voluntary or other non

- regulatory efforts by manufacturers, utilities, and other interested parties can result in substantial improvements to energy efficiency or reductions in energy consumption. DOE considered the likely effects of non

- regulatory initiatives on product energy use, consumer utility, and LCC. DOE based its assessment on the actual impacts of any such initiatives to date, but also considered information presented regarding the impacts that any existing initiative might have in the future

.