CHAPTER 2. ANALYTICAL FRAMEWORK 

TABLE OF CONTENTS

2.1 INTRODUCTION ............................................................................................... 2-1

2.2 BACKGROUND ................................................................................................. 2-3

2.3 MARKET AND TECHNOLOGY ASSESSMENT ............................................ 2-4

2.3.1 Market Assessment .................................................................................... 2-4

2.3.2 Technology Assessment ............................................................................. 2-4

2.4 SCREENING ANALYSIS .................................................................................. 2-4

2.5 ENGINEERING ANALYSIS .............................................................................. 2-5

2.6 MARKUPS ANALYSIS ..................................................................................... 2-5

2.7 ENERGY USE ANALYSIS ................................................................................ 2-6

2.8 LIFE-CYCLE COST AND PAYBACK PERIOD ANALYSIS ......................... 2-6

2.9 SHIPMENTS ANALYSIS .................................................................................. 2-8

2.10 NATIONAL IMPACT ANALYSIS .................................................................... 2-8

2.10.1 National Energy Savings Analysis ............................................................. 2-9

2.10.2 Net Present Value Analysis ........................................................................ 2-9

2.11 CONSUMER SUBGROUP ANALYSIS .......................................................... 2-10

2.12 MANUFACTURER IMPACT ANALYSIS...................................................... 2-10

2.13 EMISSIONS IMPACT ANALYSIS ................................................................. 2-10

2.14 MONETIZATION OF EMISSION REDUCTION BENEFITS ....................... 2-12

2.15 UTILITY IMPACT ANALYSIS ....................................................................... 2-13

2.16 EMPLOYMENT IMPACT ANALYSIS ........................................................... 2-14

2.17 REGULATORY IMPACT ANALYSIS ........................................................... 2-14

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CHAPTER 2. ANALYTICAL FRAMEWORK

2.1 INTRODUCTION

The Energy Policy and Conservation Act (EPCA), as amended (42 USC 6291 et. seq.), 

requires that when prescribing new or amended energy conservation standards for covered 

products, the U.S. Department of Energy (DOE) must promulgate standards that achieve the 

maximum improvements in energy efficiency that are technologically feasible and economically 

justified. (42 U.S.C. 6295(o)(2)(A)) This chapter provides a description of the analytical 

framework that DOE is using to evaluate new energy conservation standards for SPVUs. This

chapter sets forth the methodology, analytical tools, and relationships among the various 

analyses that are part of this rulemaking. For example, the methodology that addresses the 

statutory requirement for economic justification includes analyses of life-cycle cost (LCC); 

economic impact on manufacturers and users; national benefits; impacts, if any, on utility 

companies; and impacts, if any, from lessening competition among manufacturers. 

Prior to the notice of proposed rulemaking (NOPR) stage, DOE published the April 2014 

notice of data availability (NODA) technical support document (TSD), which included the 

following analyses:

• A market assessment which characterized the market for SPVACs and SPVHPs.

• An energy use characterization which discussed the process used for generating energy 

use estimates for SPVACs and SPVHPs at the current standard levels and at potential 

amended standard levels. 

• A national energy savings analysis which discussed the methodology and inputs for 

estimating the potential energy savings of various potential amended standard levels. 

79 FR 20114 (April 11, 2014). 

For the notice of proposed rulemaking (NOPR), DOE used the results of the above 

analyses as a starting point, incorporating revisions to the analyses based on comments and new 

information received in response to the April 2014 NODA. In this TSD, DOE presents results of 

the following analyses that were performed for this NOPR: 

• 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 and to determine if the options are practicable to manufacture, 

install, and service, would adversely affect equipment utility or availability, or would 

have adverse impacts on health and safety. 

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• An engineering analysis to develop cost-efficiency relationships, which indicate the 

manufacturer’s cost of achieving increased efficiency. 

• A markups analysis to develop distribution channel markups that relate the manufacturer 

production cost (MPC) to the final cost to the customer. 

• An analysis of the annual energy consumption of SPVU as a function of efficiency. 

• A Life-Cycle Cost and Payback Period (LCC&PBP) analysis to calculate, at the customer 

level, the discounted savings in operating costs (minus maintenance and repair costs) 

throughout the estimated average lifetime of the covered products, compared to any 

increase in purchase and installation cost likely to result directly from imposition of a 

given standard. 

• A shipments analysis to project shipments of SPVU, 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). 

• An LCC subgroup analysis to evaluate variations in customer characteristics that might 

cause a standard to disproportionately affect particular customer subpopulations. 

• A manufacturer impact analysis to assess the potential impacts of energy conservation 

standards on manufacturers’ capital conversion expenditures, marketing costs, shipments, 

and research and development costs. 

• An emissions analysis to assess the impacts of amended energy conservation standards on 

the environment. 

• An emissions monetization to assess the benefits associated with emissions reductions. 

• A utility impact analysis to estimate the effects of potential standards on electric, gas, or 

oil utilities.

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

• A regulatory impact analysis (RIA) to examine major alternatives to amended energy 

conservation standards that potentially could achieve substantially the same regulatory 

goal at a lower cost.

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2.2 BACKGROUND

As Chapter 1 of this TSD describes, the Energy Independence and Security Act of 2007 

(EISA 2007) amended the Energy Policy and Conservation Act of 1975 (EPCA) to establish 

separate equipment classes and minimum standards for single package vertical air conditioners

(SPVACs) and single package vertical heat pumps (SPVHPs), and to establish a process by 

which DOE must review those standards. (42 U.S.C. 6313(a)(10)) 

In accordance with EPCA’s requirements, on May 5, 2011, DOE published a notice of 

data availability (May 2011 NODA) and request for public comment in the Federal Register as a 

preliminary step pursuant to EPCA’s requirements for DOE to consider amended energy 

conservation standards for certain types of commercial equipment covered by ASHRAE 

Standard 90.1, including single package vertical units (SPVU). 76 FR 25622. The May 2011 

NODA presented for public comment DOE’s analysis of the potential energy savings estimates 

for amended national energy conservation standards for types of commercial equipment based 

on: (1) the efficiency levels contained within ASHRAE Standard 90.1-2010; and (2) morestringent efficiency levels. DOE has described these analyses and preliminary conclusions and 

sought input from interested parties, including the submission of data and other relevant 

information. 

As part of the ASHRAE products rulemaking, on January 17, 2012, DOE published a 

Notice of Proposed Rulemaking (January 2012 NOPR) in which it stated that as a result of the 

potential for high energy savings at efficiency levels above the ASHRAE Standard 90.1 

efficiency levels for SPVU, DOE is conducting additional analysis for these products for morestringent standards, as allowed by EPCA. 77 FR 2356, 2371. 

However, during the course of the rulemaking, ASHRAE acted on October 9, 2013, to 

adopt ASHRAE Standard 90.1-2013, and this revision contained amended standard levels for 

SPVUs, thereby triggering DOE’s statutory obligation to promulgate an amended uniform 

national standard at those levels, unless DOE determines that there is clear and convincing 

evidence supporting the adoption of more-stringent energy conservation standards than the 

ASHRAE levels. Once triggered by ASHRAE action, DOE became subject to certain new 

statutory requirements and deadlines. For example, the statute required DOE to publish in the 

Federal Register for comment an analysis of the energy savings potential of amended energy 

conservation standards at the ASHRAE Standard 90.1-2013 levels, not later than 180 days after 

amendment of the ASHRAE standard. DOE published this energy savings analysis as a Notice 

of Data Availability (NODA) in the Federal Register on April 11, 2014. 79 FR 20114. 

This NOPR TSD contains these additional analyses of more-stringent standards. 

The following sections provide a general description of the different analytical components 

of the rulemaking analytical framework. DOE has used the most reliable and accurate data 

available at the time of each analysis in this rulemaking. All data will be available for public 

review. DOE welcomes and will consider any submissions of additional data during the 

rulemaking process.

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2.3 MARKET AND TECHNOLOGY ASSESSMENT

The market and technology assessment characterizes the relevant product markets and 

existing technology options, including prototype designs, for the SPVU under 

consideration.Market Assessment

When initiating a standards rulemaking, DOE gathers information on the present and past 

industry structure and market characteristics for the equipment concerned. This activity assesses 

the industry and equipment both quantitatively and qualitatively based on publicly available 

information and encompasses the following: (1) manufacturer market share and characteristics, 

(2) existing regulatory and non-regulatory equipment efficiency improvement initiatives, and (3) 

trends in equipment characteristics and retail markets. This information serves as resource 

material throughout the rulemaking. 

DOE reviewed existing literature and interviewed manufacturers to get an overall picture 

of the industry serving the United States SPVU market. Industry publications and trade journals, 

government agencies, trade organizations, manufacturers’ websites, and equipment literature 

provided the bulk of the information, including: (1) manufacturers and their approximate market 

shares, (2) equipment characteristics, and (3) industry trends. Supporting documentation on the 

market assessment is provided in chapter 3 of this TSD. 

2.3.2 Technology Assessment

DOE typically uses information relating to existing and past technology options and 

prototype designs as inputs to determine what technologies manufacturers use to attain higher 

performance levels. In consultation with stakeholders, DOE develops a list of technologies for 

consideration. Initially, these technologies encompass all those DOE believes are 

technologically feasible. 

 DOE developed its list of technologically feasible design options for the considered 

products through consultation with manufacturers of components and systems and from trade 

publications and technical papers. Since many options for improving product efficiency are 

available in existing units, product literature and direct examination of equipment provided 

additional information. The technologies examined in the technology assessment are described in 

detail in chapter 3 of this TSD.

2.4 SCREENING ANALYSIS

The screening analysis (chapter 4 of the TSD) examines various technologies as to 

whether they: (1) are technologically feasible; (2) are practicable to manufacture, install, and 

service; (3) have an adverse impact on equipment utility or availability; and (4) have adverse 

impacts on health and safety. As described in section 2.3.2 above, DOE develops an initial list of 

efficiency-enhancement options from the technologies identified as technologically feasible. 

Then DOE, in consultation with interested parties, reviews 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 removed 

from the list any technology options that lack energy consumption data as well as any technology 

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options whose energy consumption could not be adequately measured by existing DOE test 

procedures. DOE passes on any technology options that were not eliminated at this step to the

engineering analysis.

2.5 ENGINEERING ANALYSIS

The engineering analysis (chapter 5 of the TSD) establishes the relationship between the 

manufacturing production cost (MPC) and the efficiency for SPVU. This relationship serves as 

the basis for cost/benefit calculations in terms of individual customers, manufacturers, and the 

nation. Chapter 5 of this TSD discusses the equipment classes DOE analyzed, the representative 

baseline units, the incremental efficiency levels, the methodology DOE used to develop the 

MPCs, manufacturer markups, and cost-efficiency curves, and the methodology DOE used to 

extend the analysis to equipment classes with few or no models on the market. 

In the engineering analysis, DOE evaluates a range of equipment efficiency levels and 

their associated MPCs. The purpose of the analysis is to estimate the incremental MPCs for 

equipment that would result from increasing efficiency levels above the level of the baseline 

model in each equipment class. The engineering analysis considers technologies that were not 

eliminated in the screening analysis. DOE considers these technologies in developing the costefficiency curves, which are subsequently used for the LCC&PBP analysis. 

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

the design-option approach, which calculates the incremental 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 such 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 equipment being analyzed.

DOE conducted the engineering analysis for SPVU using a combination of the 

efficiency-level and cost-assessment approaches for analysis of various energy efficiency ratio 

(EER) efficiency levels. More specifically, DOE identified the efficiency levels for analysis and 

then used the cost-assessment approach to determine the MPCs at those levels. This approach 

involved physically disassembling commercially available equipment, reviewing publicly 

available cost and performance information, and modeling equipment cost. The efficiency levels 

that DOE considered in the engineering analysis are attainable using technologies currently 

available on the market, or have been demonstrated in working prototypes. Chapter 5 of this 

TSD describes the methodology and results of the engineering analysis used to derive the costefficiency relationships.

2.6 MARKUPS ANALYSIS

DOE used manufacturer-to-customer markups to convert the manufacturer selling price 

(MSP) estimates from the engineering analysis to customer prices, which are then used in the 

LCC&PBP and manufacturer impact analyses. Because retail prices are required for the baseline 

performance level and all other performance levels under consideration, DOE obtained these 

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retail prices by applying manufacturer-to-customer markups to the manufacturer selling price 

estimates. 

Before it can develop markups, DOE must identify distribution channels (i.e., how the 

equipment is distributed from the manufacturer to the customer). Once it established proper 

distribution channels for each of the product classes, DOE relied on economic data from the U.S. 

Census Bureau and input from the industry to determine how much product prices are increased 

as they pass from the manufacturer to the customer (see chapter 6 of the TSD). 

2.7 ENERGY USE ANALYSIS

The energy use analysis assesses the energy savings potential from adopting higher 

efficiency standards for SPVU equipment. The analysis provides the basis for the energy savings 

values DOE uses in the LCC&PBP and subsequent analyses. DOE estimated the annual energy 

consumption of single package vertical air conditioners and single package vertical heat pumps 

at specified energy efficiency levels for a representative set of commercial users of these 

products as defined by building type and location. The energy consumption estimates for 

SPVHP equipment includes the cooling, blower, and heating energy use by the equipment. The 

energy consumption for SPVAC equipment includes the cooling and fan energy use. DOE also 

estimated and included the impact that higher efficiency SPVAC equipment using more efficient 

supply blowers has on the heating energy consumed by the same equipment during the year. 

DOE used energy use and equipment sizing data developed from building energy use 

simulations of modular office, education, and telecommunication buildings in 237 different U.S. 

climates. Simulation energy use results were normalized to the representative equipment capacity 

selections developed in the engineering analysis, and these normalized energy use estimates in 

turn were weighted using population data to provide State-by-State energy use estimates by 

building type for four classes of SPVU equipment. 

 

As part of the energy use analysis, DOE made certain assessments about building design 

and building operation including building operating hours, ventilation, internal gains and 

schedules, and the use of air side economizers, which impact the energy use results for each 

equipment class. These assessments, along with the methods used in the energy use analysis, are 

documented in chapter 7 of the TSD.

2.8 LIFE-CYCLE COST AND PAYBACK PERIOD ANALYSIS

New energy conservation standards on equipment usually reduce operating expenses and 

increase customer prices. DOE analyzed the net effect of new standards on customers by 

evaluating the net LCC using the cost-efficiency relationship derived in the engineering analysis, 

as well as the energy costs derived from the energy use characterization analysis. Inputs to the 

LCC calculation include the installed cost to the customer (customer price plus installation cost), 

operating expenses (energy expenses and repair and maintenance costs), the lifetime of the 

equipment, and a discount rate. These inputs are described in detail in chapter 8 of the TSD. 

The installed cost typically increases and operating cost typically decreases in response to 

new standards. Thus, there is a specific time in the life of higher-than-baseline efficiency 

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equipment when the net operating-cost benefit (in dollars) from the time of purchase is equal to 

the incremental first cost of purchasing the more efficient equipment. The length of time required 

for equipment to reach this cost-equivalence point is known as the payback period. 

DOE conducted the LCC&PBP analysis using distributions of values to reflect the 

conditions in the field for SPVU equipment life, SPVU equipment retail price, national or 

regional energy costs, energy consumption, and discount rates. The life-cycle cost (LCC) 

subgroup analysis includes an assessment of impacts on customer subgroups. 

For SPVU equipment, it was necessary to determine several of the input values for the 

LCC estimation, including retail prices; electricity prices; discount rate; maintenance, service, 

and installation costs; and equipment lifetimes.

DOE developed discount rates by estimating the cost of capital to companies that 

manufacture single package vertical air conditioners and heat pumps covered under this 

rulemaking. DOE commonly uses the cost of capital to estimate the present value of cash flows 

to be derived from a typical company project or investment. Most companies use both debt and 

equity capital to fund investments, so the cost of capital is the weighted-average cost to the firm 

of equity and debt financing. This corporate finance approach is referred to as the weightedaverage cost of capital. 

DOE considered expected changes to maintenance, repair, and installation costs for the 

equipment covered in this rulemaking. Typically, small incremental changes in air conditioner or 

heat pump efficiency incur no, or only very small, changes in repair and maintenance costs over 

baseline efficiency products. There is a greater probability that single package air conditioners 

and heat pumps with efficiencies that are significantly greater than the baseline will incur 

increased repair and maintenance costs since such units are more likely to be larger and require 

more material or to incorporate technologies that are new to the industry and not widely 

available. These factors would tend to increase both the initial cost of the unit and the cost of 

repair parts, and possibly the cost of repair labor. On the other hand, most maintenance activities 

are preventative in nature and do not require replacement of expensive parts or significant special 

effort. Therefore, they are not likely to increase with the efficiency of the equipment. DOE relied 

on input from manufacturers and other interested parties, past experience with air conditioning 

and heat pump equipment in previous rulemakings, and industry literature to develop appropriate 

repair and maintenance costs for baseline units. DOE concluded that while repair costs are likely 

to increase in proportion to the initial size and cost of SPVU equipment, maintenance costs for 

more efficient equipment were not likely to be significantly higher than those for baseline units. 

Installation costs for air conditioning and heat pump units mainly vary with the overall size of 

the equipment rather than their efficiency, so DOE estimated different baseline installation costs 

for small and large equipment classes, but did not vary the installation costs for units with higher 

efficiency within an equipment class.

Based on a wide search of industry studies and literature, DOE concluded that SPVU 

equipment typically has a lifetime ranging from 10 to 25 years, with 15 years being the 

approximate average lifetime.

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2.9 SHIPMENTS ANALYSIS 

DOE uses projections of equipment shipments to calculate the national impacts of 

standards on energy use, customer NPV, and future manufacturer cash flows. The shipments 

analysis projects the total number of SPVU shipped each year over a 30 year period, beginning 

in 2019 and ending in 2048. 

This projection is driven by the two market segments of new construction and 

replacements. DOE started with manufacturer-provided shipments from 2005, the most recent 

year available. DOE estimated historical shipments, from which to develop a stock model and 

determine replacement shipments, using historical modular building floor space production 

values. DOE tied projections for new construction shipments to new construction trends for the 

office and education sectors and economic trends for the telecom industry. DOE disaggregated 

total shipments into equipment classes using the market share distribution from the 2005 

shipment data. 

Chapter 9 of the TSD provides additional details on the shipments analysis. 

2.10 NATIONAL IMPACT ANALYSIS

The NIA assesses the NES and the NPV from a national perspective of total customer

costs and savings expected to result from new or amended energy conservation standards at 

specific efficiency levels. To make the analysis more accessible and transparent to all interested 

parties, DOE prepared a Microsoft Excel spreadsheet that uses typical values (as opposed to 

probability distributions) as inputs. To assess the effect of input uncertainty on NES and NPV 

results, DOE has developed its spreadsheet model to conduct sensitivity analyses by running 

scenarios on specific input variables. 

Analyzing impacts of potential energy conservation standards requires comparing 

projections of energy consumption with new or amended energy conservation standards against 

projections of energy consumption without the standards (the base case). The analysis includes 

projections of annual shipments, the annual energy consumption of new equipment, and the 

purchase price of new equipment. 

A key component of DOE’s NIA analysis is the energy efficiencies forecasted over time 

for the base case and each of the standards cases. The forecasted efficiencies represent the annual 

shipment-weighted energy efficiency of the products under consideration during the forecast 

period (i.e., from the assumed compliance date of a new standard to 30 years after compliance is 

required). To develop its efficiency forecast for SPVU, DOE first assessed current (2012) 

efficiency and then considered how the efficiency of new units might change by the first year of 

the analysis period (2019) and throughout the analysis period in the absence of new or amended 

standards. 

To estimate the impact that standards may have in the year compliance is required, DOE 

used a “roll-up” scenario. Under the “roll-up” scenario, DOE assumes: (1) equipment 

efficiencies in the base case that do not meet the standard level under consideration would “rollup” to meet the new standard level; and (2) equipment efficiencies above the standard level 

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under consideration would not be affected. DOE assumed that the shipment-weighted energy 

efficiency will grow in each standards case at the same rate as in the base case.

2.10.1 National Energy Savings Analysis 

The inputs for determining the national energy savings for each equipment class analyzed 

are: (1) annual energy consumption per unit; (2) shipments; (3) equipment stock; (4) national 

annual energy savings; and (5) site-to-power plant conversion factors. DOE calculated the 

national annual site energy savings (AES) by multiplying the number or stock of each equipment 

class (by vintage) by the delta unit energy consumption between a base case and a standards case 

(UEC; also by vintage). DOE estimated energy consumption and savings based on site energy 

and converted the electricity consumption and savings to source (primary) energy using annual 

conversion factors derived from the most recent version of the National Energy Modeling 

System (NEMS). Cumulative energy savings are the sum of the NES for each year over the 

timeframe of the analysis. 

 DOE has historically presented NES in terms of primary energy savings. Per DOE’s 2011 

Statement of Policy for Adopting Full Fuel Cycle (FFC) Analyses, DOE now uses FFC measures 

of energy use and emissions in its energy conservation standards analyses. DOE calculated FFC 

energy and emission impacts by applying conversion factors generated by DOE’s developed

model to the NEMS-based results used by DOE. For this final rule analysis, DOE calculated FFC 

energy savings using a NEMS-based methodology described in Appendix 10B. Chapter 10 of 

this TSD presents both the primary NES and the FFC energy savings for the considered standard 

levels.

2.10.2 Net Present Value Analysis 

The inputs for determining NPV are: (1) total annual installed cost; (2) total annual 

savings in operating costs; (3) a discount factor to calculate the present value of costs and 

savings; (4) present value of costs; and (5) present value of savings. DOE calculated net savings 

each year as the difference between the base case and each standards case in terms of total 

savings in operating costs versus total increases in installed costs. DOE calculated savings over 

the lifetime of products shipped in the forecast period. 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 and 7 percent to discount future 

costs and savings to present values, in accordance with guidance provided by the Office of 

Management and Budget (OMB) to Federal agencies on the development of regulatory analysis. 

 For the NPV analysis, DOE calculates increases in total installed costs as the difference 

in total installed cost between the base case and standards case (i.e., once the standards take 

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.

DOE calculated the total annual consumer savings in operating cost as a sum of: (1) the 

annual site electric savings multiplied by an electric price (for the given year); (2) the annual 

additional gas use multiplied by a gas price (for the given year); and (3) the sum over all vintages 

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of the product of the number or stock of a given equipment class (by vintage) and its per-unit 

repair and maintenance cost savings (also by vintage). 

2.11 CONSUMER SUBGROUP ANALYSIS

In the LCC subgroup analysis, DOE evaluates the potential impact of new or amended 

standards on identifiable groups of consumers (i.e., subgroups), such as small businesses, that 

may not be equally affected by a national standard level. In this rulemaking, this analysis 

examined the economic impacts on different groups of consumers by estimating the average 

change in LCC and the payback period and the proportion of consumers who benefit from the 

efficiency standard. DOE analyzed the potential effect of standards for education consumers, 

who as public entities experience both relatively low electricity prices and low discount rates; 

businesses in the construction and mining industries, who experience relatively high prices for 

electricity and higher than average costs of capital; and small businesses and others who do not 

have the same access to capital as larger or less risky businesses. For small businesses and high 

risk businesses, DOE analyzed the potential impacts of standards by conducting the analysis with 

different discount rates. 

2.12 MANUFACTURER IMPACT ANALYSIS

The manufacturer impact analysis (MIA) assesses the impacts of new or amended energy 

conservation standards on manufacturers of the considered equipment. Potential impacts include 

financial effects, both quantitative and qualitative, that might lead 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. 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 qualitatively. Industry and 

subgroup cash flow and NPV were assessed through use of the Government Regulatory 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 12 of this TSD. 

2.13 EMISSIONS IMPACT ANALYSIS

In the emissions analysis, DOE estimates the reduction in power sector emissions of 

carbon dioxide (CO2), nitrogen oxides (NOX), sulfur dioxide (SO2) and mercury (Hg) from 

potential energy conservation standards for the considered products. In addition, DOE will 

estimate emissions impacts in production activities (extracting, processing, and transporting 

fuels) that provide the energy inputs to power plants. These are referred to as “upstream” 

emissions. Together, these emissions account for the full-fuel-cycle (FFC). In accordance with 

DOE’s FFC Statement of Policy (76 FR 51282 (Aug. 18, 2011)), the FFC analysis includes 

impacts on emissions of methane and nitrous oxide, both of which are recognized as greenhouse 

gases. 

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DOE conducted the emissions analysis using emissions factors derived from data in 

EIA’s Annual Energy Outlook 2013, supplemented by data from other sources.a EIA prepares the 

Annual Energy Outlook using NEMS. Each annual version of NEMS incorporates the projected 

impacts of existing air quality regulations on emissions.

SO2 emissions from affected electric generating units (EGUs) are subject to nationwide 

and regional emissions cap and trading programs. Title IV of the Clean Air Act sets an annual 

emissions cap on SO2 for affected EGUs in the 48 contiguous states and the District of Columbia 

(D.C.). SO2 emissions from 28 eastern states and D.C. were also limited under the Clean Air 

Interstate Rule (CAIR), which created an allowance-based trading program that operates along 

with the Title IV program in those States and D.C. 70 FR 25162 (May 12, 2005). CAIR was 

remanded to EPA by the U.S. Court of Appeals for the District of Columbia Circuit (D.C. 

Circuit), but it remains in effect. See North Carolina v. EPA, 550 F.3d 1176 (D.C. Cir. 2008); 

North Carolina v. EPA, 531 F.3d 896 (D.C. Cir. 2008). On July 6, 2011 EPA issued a 

replacement for CAIR, the Cross-State Air Pollution Rule (CSAPR; also known as the Transport 

Rule). 76 FR 48208 (August 8, 2011). The AEO 2013 NEMS assumes the implementation of 

the CSAPR.b

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 SO2 emissions allowances resulting from the lower electricity demand caused by the 

adoption of an efficiency standard could be used to permit offsetting increases in SO2 emissions 

by any regulated EGU. In past rulemakings, DOE recognized that there was uncertainty about 

the effects of efficiency standards on SO2 emissions covered by the existing cap-and-trade 

system, but it concluded that no reductions in power sector emissions would occur for SO2 as a 

result of standards. 

Beginning in 2015, however, SO2 emissions will fall as a result of the Mercury and Air 

Toxics Standards (MATS) for power plants, which were announced by EPA on December 21, 

2011. 77 FR 9304 (Feb. 16, 2012). In the final MATS rule, EPA established a standard for HCl 

as a surrogate for acid gas hazardous air pollutants (HAP), and also established a standard for 

SO2 (a non-HAP acid gas) as an alternative equivalent surrogate standard for acid gas HAP. The 

a Use of emissions factors in AEO 2014, which was not available at the time of this analysis, would result in a 

significant change in cumulative emissions reductions for CO2 and most other pollutants. For example, the 

estimated change for CO2 emissions reductions is a decrease of 33%, while the estimated change for NOx emissions 

reductions is an increase of 13%. In the next phase of this rulemaking, DOE plans to use emissions factors based on 

the most recent AEO available, which may or may not be AEO 2014, depending on the timing of the issuance of the

next rulemaking document.

b

 On December 30, 2011, the D.C. Circuit stayed the new rules while a panel of judges reviews them, and told EPA 

to continue administering CAIR (see EME Homer City Generation v. EPA, No. 11-1302, Slip Op. at *2 (D.C. Cir. 

Dec. 30, 2011)). On August 21, 2012, the D.C. Circuit issued a decision to vacate CSAPR. See EME Homer City 

Generation, LP v. EPA, No. 11-1302, 2012 WL 3570721 at *24 (D.C. Cir. Aug. 21, 2012). The court again ordered 

EPA to continue administering CAIR. AEO 2012 had been finalized prior to this decision, however. DOE 

understands that CAIR and CSAPR are similar with respect to their effect on emissions impacts of energy efficiency 

standards.

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same controls are used to reduce HAP and non-HAP acid gas; thus, SO2 emissions will be 

reduced as a result of the control technologies installed on coal-fired power plants to comply 

with the MATS requirements for acid gas. AEO 2013 assumes that, in order to continue 

operating, coal plants must have either flue gas desulfurization or dry sorbent injection systems 

installed by 2015. Both technologies, which are used to reduce acid gas emissions, also reduce 

SO2 emissions. Under the MATS, NEMS shows a reduction in SO2 emissions when electricity 

demand decreases (e.g., as a result of energy efficiency standards). Emissions will be far below 

the cap that would be established by CSAPR, so it is unlikely that excess SO2 emissions 

allowances resulting from the lower electricity demand would be needed or used to permit 

offsetting increases in SO2 emissions by any regulated EGU. Therefore, DOE believes that 

efficiency standards will reduce SO2 emissions in 2015 and beyond. 

CSAPR established a cap on NOX emissions in eastern States and the District of 

Columbia. Energy conservation standards are expected to have little or no physical effect on 

these emissions in those States covered by CSAPR because excess NOX emissions allowances 

resulting from the lower electricity demand could be used to permit offsetting increases in NOX

emissions. However, standards would be expected to reduce NOX emissions in the States not 

affected by CSAPR. Therefore, DOE estimates NOX emissions reductions from potential 

standards in the States where emissions are not capped. 

 The MATS limit mercury emissions from power plants, but they do not include emissions 

caps and, as such, DOE’s energy conservation standards would likely reduce Hg emissions. For 

this rulemaking, DOE estimated mercury emissions reductions using emissions factors based on 

AEO 2013, which incorporates the MATS. 

With regard to the impact of standards on particulate matter (PM), the great majority of 

ambient PM associated with power plants is 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 emissions of power plants, mainly SO2 and NOX. The monetary 

benefits that DOE estimates for reductions in SO2 and NOX emissions resulting from standards 

are in fact primarily related to the health benefits of reduced indirect PM. Power plants may also 

emit particulates from the smoke stack. These direct, or primary, PM emissions can be difficult 

to quantify, and DOE is not able to quantify them at this time.

2.14 MONETIZATION OF EMISSION REDUCTION BENEFITS 

DOE estimates the monetary benefits likely to result from the reduced emissions of CO2

and NOX that are expected to result from each of the standard levels considered. 

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

CO2 emissions, DOE uses the most current Social Cost of Carbon (SCC) values developed by an

interagency process. 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 effects, 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 

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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 analysis, the most recent interagency estimates of the potential global 

benefits resulting from reduced CO2 emissions in 2015, expressed in 2013$, were $12.0, $40.5, 

$62.4, and $119 per metric ton avoided.c The first three estimates use the averages of social 

carbon cost distributions calculated using 5%, 3%, and 2.5% discount rates, respectively. The 

fourth estimate corresponds the 95th percentile of the social carbon cost distribution calculated 

using a 3% discount rate. For emission reductions that occur in later years, these values grow 

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 

DOE gives preference to consideration of the global benefits of reducing CO2 emissions. To 

calculate a present value of the stream of monetary values, DOE discounts the values in each of 

the 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 CO2 and other GHG to changes in the future global climate and the potential 

resulting damages to the world economy. Thus, these values are subject to change. 

DOE also estimates the potential monetary benefit of reduced NOX emissions resulting 

from the standard levels it considers. For NOX emissions, available estimates suggest a very wide 

range of monetary values, ranging from $476 to $4,893 per ton in 2013$).d

 In accordance with 

U.S. Office of Management and Budget (OMB) guidance, DOE conducts two calculations of the 

monetary benefits derived using each of the economic values used for NOX, one using a real 

discount rate of 3 percent and another using a real discount rate of 7 percent.e

DOE did not monetize estimates of SO2 and Hg reduction in this rulemaking. 

2.15 UTILITY IMPACT ANALYSIS

To estimate the impacts of potential energy conservation standards for SPVUs on the 

electric utility industry, DOE uses a variant of the EIA’s National Energy Modeling System 

c Social Cost of Carbon for Regulatory Impact Analysis Under Executive Order 12866, Technical Model Update for 

the Social Cost of Carbon (SCC). Interagency Working Group on Social Cost of Carbon, United States Government, 

Internal EPA Draft, February 13, 2013.

d

 For additional information, refer to U.S. Office of Management and Budget, Office of Information and Regulatory 

Affairs, 2006 Report to Congress on the Costs and Benefits of Federal Regulations and Unfunded Mandates on 

State, Local, and Tribal Entities, Washington, DC. e OMB, Circular A-4: Regulatory Analysis (Sept. 17, 2003).

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called NEMS-BT.f

 NEMS is a large, multi-sectoral, partial-equilibrium model of the U.S. 

energy sector that EIA has developed over several years, primarily for the purpose of preparing 

the AEO. NEMS produces a widely recognized forecast for the United States through 2035 and is 

available to the public. 

The utility impact analysis is a comparison between the NEMS-BT model results for the 

base case and standard cases. The utility impact analysis reports the changes in installed capacity 

and generation that result from each standard level by plant type. DOE models the anticipated 

energy savings impacts from potential amended energy conservation standards using NEMS-BT 

to generate forecasts that deviate from the AEO Reference Case.

2.16 EMPLOYMENT IMPACT ANALYSIS 

The adoption of energy conservation standards can affect employment both directly and 

indirectly. Direct employment impacts are changes in the number of employees at the plants that 

produce the covered products. DOE evaluates direct employment impacts in the MIA.

Indirect employment 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 standards. DOE defines indirect employment impacts from standards as net jobs 

eliminated or created in the general economy as a result of increased spending driven by 

increased product prices and reduced spending on energy. 

Indirect employment impacts are investigated in the employment impact analysis using 

the Pacific Northwest National Laboratory’s “Impact of Sector Energy Technologies” (ImSET) 

model.g

 The ImSET model was developed for DOE’s Office of Planning, Budget, and Analysis 

to estimate the employment and income effects of energy-saving technologies in buildings, 

industry, and transportation. Compared with simple economic multiplier approaches, ImSET 

allows for more complete and automated analysis of the economic impacts of energy 

conservation investments. Further detail is provided in chapter 16 of the TSD.

2.17 REGULATORY IMPACT ANALYSIS

In the NOPR stage, DOE prepared a regulatory impact analysis (RIA) pursuant to 

Executive Order 12866, Regulatory Planning and Review, 58 FR 51735, October 4, 1993, which 

f For more information on NEMS, please refer to the U.S. Department of Energy, Energy Information 

Administration documentation. A useful summary is National Energy Modeling System: An Overview 2009, 

DOE/EIA-0581 (October 2009), available at: http://www.eia.gov/oiaf/aeo/overview/index.html. EIA approves use 

of the name NEMS to describe only an official version of the model without any modification to code or data. 

Because this analysis entails some minor code modifications and the model is run under various policy scenarios 

that are variations on EIA assumptions, DOE refers to the model by the name NEMS-BT. (“BT” refers to DOE’s 

Building Technologies Program, under whose aegis this work is performed.) g M.J. Scott, O.V. Livingston, P.J. Balducci, J.M. Roop, and R.W. Schultz, ImSET 3.1: Impact of Sector Energy 

Technologies, PNNL-18412, Pacific Northwest National Laboratory (2009) (Available at: 

www.pnl.gov/main/publications/external/technical_reports/PNNL-18412.pdf). 

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is subject to review by the Office of Information and Regulatory Affairs at the Office of 

Management and Budget. The RIA addresses the potential for non-regulatory approaches to 

supplant or augment energy conservation standards in order to improve the energy efficiency or 

reduce the energy consumption of the equipment covered under this rulemaking. 

DOE recognizes that voluntary or other non-regulatory efforts by manufacturers, utilities, 

and other interested parties can substantially affect energy efficiency or reduce energy 

consumption. DOE bases its assessment on the actual impacts of any such initiatives to date, but 

also considers information presented by interested parties regarding the impacts existing 

initiatives might have in the future. Further detail is provided in chapter 17 of the TSD.

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