16-i CHAPTER 16. REGULATORY IMPACT ANALYSIS

TABLE OF CONTENTS

16.1 INTRODUCTION ......................................................................................................... 16-1
16.2 METHODOLOGY ........................................................................................................ 16-1
16.2.1 Policy Assumptions ....................................................................................................... 16-2
16.2.2 Policy Interactions ......................................................................................................... 16-4
16.3 NON-REGULATORY POLICY ASSUMPTIONS ...................................................... 16-5
16.3.1 No New Regulatory Action ........................................................................................... 16-5
16.3.2 Financial Incentives Policies .......................................................................................... 16-5
16.3.2.1 Consumer Rebates ....................................................................................... 16-7
16.3.2.2 Consumer Tax Credits ............................................................................... 16-15
16.3.2.3 Manufacturer Tax Credits .......................................................................... 16-16
16.3.3 Voluntary Energy Efficiency Targets .......................................................................... 16-16
16.3.4 Bulk Government Purchases ........................................................................................ 16-17
16.4 RESULTS SUMMARY FOR NON-REGULATORY ALTERNATIVES ................. 16-18

LIST OF TABLES

Table 16.1.1 Policy Alternatives to National Standards ......................................................... 16-1
Table 16.2.1 Proposed Standard Levels* for Polypha se Small Electric Motors (TSL 5) ....... 16-3
Table 16.2.2 Proposed Standard Levels for CSIR Small Electric Motors (TSL 7) ................ 16-4
Table 16.2.3 Proposed Standard Levels for CSCR Small Electric Motors (TSL 7) ............... 16-4
Table 16.3.1 Benefit/Cost Ratios for 4-pole 1 HP Polyphase Motor Rebate Policy Case ...... 16-8
Table 16.3.2 Polyphase Small Electric Motor Consumer Rebate Efficiency Market Share Impacts ..................................................................................................... 16-8
Table 16.3.3 Benefit/Cost Ratios for Capacitor-Start Small Electric Motor Rebate Policy Case ....................................................................................................... 16-10
Table 16.3.4 Capacitor-Start Small Electric Motor Target-Level Consumer Rebate Efficiency Market Share Impacts ..................................................................... 16-11
Table 16.3.5 Benefit/Cost Ratios for Capacitor-Start Small Electric Motors, CSIR Level 4 Rebate Policy Case ....................................................................................... 16-13
Table 16.3.6 Capacitor-Start Small Electric Motor TSL 5 Consumer Rebate Efficiency Market Share Impacts ...................................................................................... 16-13
Table 16.3.7 Benefit/Cost Ratios for Capacitor-Start Small Electric Motors, CSCR-only Rebate Policy Case .......................................................................................... 16-14
Table 16.3.8 Capacitor-Start Small Electric Motor CSCR-Only Consumer Rebate Efficiency Market Share Impacts ..................................................................... 16-14
Table 16.3.9 Small Electric Motor Consumer Tax Credit Efficiency Market Share Impacts ............................................................................................................. 16-1516-ii Table 16.3.10 Small Electric Motor Manufacturer Ta x Credit Efficiency Market Share Impacts ............................................................................................................. 16-16
Table 16.3.11 Small Electric Motor Voluntary Efficiency Target Market Share Impacts ..... 16-17
Table 16.3.12 Small Electric Motor Bulk Government Purchases Efficiency Market Share Impacts ................................................................................................... 16-18
Table 16.4.1 Non-Regulatory Alterative Market Share Summary ....................................... 16-19
Table 16.4.2 Non-Regulatory Alternatives for Polyphase Small Electric Motors ................ 16-19
Table 16.4.3 Non-Regulatory Alternatives for Ca pacitor-Start Small Electric Motors ........ 16-20

LIST OF FIGURES

Figure 16.3.1 Market Penetration Curve for Polyphase Small Electric Motors ....................... 16-9 Figure 16.3.2 Market Penetration Curve fo r CSIR Small Electric Motors ............................ 16-11 Figure 16.3.3 Market Penetration Curve for CSCR Small Electric Motors ........................... 16-1216-1 CHAPTER 16. REGULATORY IMPACT ANALYSIS

16.1 INTRODUCTION

The Department of Energy (DOE) has determin ed that energy conservation standards for
small electric motors constitute an “economical ly significant regulatory action” under Executive Order (E.O.) 12866 “Regulatory Planning a nd Review.” 58 FR 51735 (October 4, 1993). Therefore, DOE’s proposed energy conservation st andards require a regulat ory impact analysis (RIA), which involves an evaluation of non-re gulatory alternatives to the standards.

Under the Process Rule ( Procedures for Consideration of New or Revised Energy Conservation Standards for Consumer Products , 61 FR 36974 (July 15, 1996); 10 CFR Part 430, Subpart C, Appendix A), DOE is committed to con tinually explore non-regulatory alternatives to standards. This RIA, which DOE has prepared pu rsuant to E.O. 12866, is subject to review under the Executive Order by the Office of Manageme nt and Budget (OMB)’s Office of Information and Regulatory Affairs (OIRA). 58 FR 51735.

DOE identified five major non-regulatory a lternatives to standards as representing feasible policy options to achieve greater energy efficiency for the products that are the subject of this rulemaking. These are listed in Table 17.1. 1. DOE evaluated each a lternative in terms of its ability to achieve significant energy savi ngs at a reasonable cost, and compared the effectiveness of each one to the effectiveness of the proposed sta ndards. DOE did not analyze an “early replacement” scenario because it did not find any data supporting an underlying trend toward higher efficiency over time, which sugge sts that early replacem ent would not achieve significant energy savings.

Table 16.1.1 Policy Alternatives to National Standards

No New Regulatory Action

Consumer Rebates

Consumer Tax Credits

Manufacturer Tax Credits Voluntary Energy Efficiency Targets

Bulk Government Purchases

16.2 METHODOLOGY

This section describes the approach DOE used to analyze non-regulatory policies for
small electric motors.16-2 To calculate the national energy savings a nd the net present valu e (NPV) corresponding to each policy alternative, DOE us ed its national impact analysis (NIA) spreadsheet models. (See Chapter 10 of the technical s upport document (TSD) for a descri ption of the NIA spreadsheet models.) To compare each alternative to the pr oposed standards, DOE quantified the effect of each alternative on the purchase of small electric motors meeting the target levels , which are defined as the efficiency levels in the proposed standards. On ce it had made the quantitative assumptions for each alternative policy, DOE made the appropriate revisions to the inputs in the NIA spreadsheet models. The main model inputs that DOE revised were market shares of equipment at target efficiencies and shipment -weighted average annual energy consumption. The shipments for any given year are comprised of a distribution of efficien cy levels. DOE assumed
that standards would affect 100 percent of the shipments, while the non-regulatory policies would affect a smaller percentage of the shipme nts. In each policy case, DOE made particular assumptions about the percentage of shipments impacted by the policy under analysis. DOE then calculated the shipment-weighted average energy consumption and costs using these market
shares.

A shift in the market share of higher effici ency units may increase the average installed cost of energy-consuming equipment. Operating co sts will generally decrease due to a decline in energy consumption. Therefore, DOE calculated an NPV for non-regulatory alternatives in the same way as it did for the proposed standards. In some scenarios, total installed cost increases are partially mitigated by government rebates or tax credits. However, DOE assumed that credits and rebates would be paid for in another form (such as additional taxes), and therefore did not
include them as a benefit for th e purposes of calculating the nati onal NPV. DOE did not consider administrative costs for any of the non-regulatory po licies in its analysis. Inclusion of such costs would decrease their NPVs by a small amount.

The key measures of the impact of each alternative are:

• National energy savings in quadrillion Btus ( quads): Cumulative national primary energy savings for equipment bought in the period from the effective date of the policy case (2015) to the year 2045.

• Net present value: The valu e of net monetary savings from equipment bought in the period from the effective date of the polic y case (2015) to the year 2045. DOE calculated the NPV as the difference between the pr esent value of equipment and operating expenditures (including energy) in the base case and the pres ent value of expenditures in each alternative policy case. DOE calculated operating expenses (including energy) for the life of the equipment.

16.2.1 Policy Assumptions

The impacts of non-regulatory policies are by nature uncertain, since they depend on program implementation and marketing efforts and the subsequent consumer behavior response. The projected impacts depend on the assumptions re garding the consumer pa rticipation rate, and are therefore subject to more uncertainty than the impacts of mandatory standards, which DOE16-3 assumes will have full compliance. To increase the robustness of the analysis, DOE conducted a literature review on each non-regul atory policy and consulted w ith key experts to gather information on similar incentive programs that ha ve already been implemented in the U.S. By studying field experience with sample programs of each type, DOE sought to make credible assumptions of their potential market impacts. Section 16.3 below reports the conclusions from this research as they apply to the policy modeling assumptions and includes the corresponding
literature citations.

Each of the policy alterna tives to the proposed standard s that DOE considered would improve the average efficiency of new small electric motors rela tive to the base case (no new regulatory action). The analysis considered that each alternat ive policy would induce consumers to purchase units at higher efficiency levels than they would otherwise purchase, reaching the efficiency levels corresponding to the proposed standards, or the target levels . In contrast to the proposed standards, however, their market penetr ation rate in the alte rnative policy cases may not be 100 percent.

The efficiency levels corresponding to the proposed standards for polyphase small electric motors are those in TSL 5, as s hown in Table 16.2.1. The proposed standards for capacitor-start induction-run (CSIR) and capac itor-start capacitor-run (CSCR) small electric motors are those in TSL 7, as shown in Tables 16.2.2 and 16.2.3.

Table 16.2.1 Proposed Standard Levels* for Polypha se Small Electric Motors (TSL 5)

Motor output

power 6 Poles 4 Poles 2 Poles

0.25 Hp / 0.18 kW 77.4 72.7 69.8 0.33 Hp / 0.25 kW 79.1 75.6 73.7 0.5 Hp / 0.37 kW 81.1 80.1 76.0 0.75 Hp / 0.55 kW 84.0 83.5 81.6

1 Hp / 0.75 kW 84.2 85.2 83.6 1.5 Hp / 1.1 kW 85.2 87.1 86.6 2 Hp / 1.5 kW 89.2 88.0 88.2

≥ 3 Hp / 2.2 kW 90.8 90.0 90.5 * Standard levels are expressed as efficiency (%).16-4 Table 16.2.2 Proposed Standard Levels for CSIR Small Electric Motors (TSL 7)

Motor output

power 6 Poles 4 Poles 2 Poles

0.25 Hp / 0.18 kW 65.4 69.8 71.4 0.33 Hp / 0.25 kW 70.7 72.8 74.2 0.5 Hp / 0.37 kW 77.0 77.0 76.3 0.75 Hp / 0.55 kW 81.0 80.9 78.1

1 Hp / 0.75 kW 84.1 82.8 80.0 1.5 Hp / 1.1 kW 87.7 85.5 82.2 2 Hp / 1.5 kW 89.8 86.5 85.0

≥ 3 Hp / 2.2 kW 92.2 88.9 85.6 * Standard levels are expressed as efficiency (%).

Table 16.2.3 Proposed Standard Levels for CSCR Small Electric Motors (TSL 7)

Motor output

power 6 Poles 4 Poles 2 Poles

0.25 Hp / 0.18 kW 63.9 68.3 70.0 0.33 Hp / 0.25 kW 69.2 71.6 72.9 0.5 Hp / 0.37 kW 75.8 76.0 75.1 0.75 Hp / 0.55 kW 79.9 80.3 77.0

1 Hp / 0.75 kW 83.2 82.0 79.0 1.5 Hp / 1.1 kW 87.0 84.9 81.4 2 Hp / 1.5 kW 89.1 86.1 84.2

≥ 3 Hp / 2.2 kW 91.7 88.5 84.9 * Standard levels are expressed as efficiency (%).

DOE assumed that the non-regulatory policy im pacts would last from the effective date for proposed standards for small electric moto rs—2015—through the end of the analysis period,

2045.

16.2.2 Policy Interactions

DOE calculated the impacts of each regulatory policy separately from those of the other policies. In actual practice, certain policies are often most effective when implemented in combination to provide incentives, such as bulk government purchases with consumer rebates. DOE attempted to make conservative assumptions to avoid double-c ounting policy impacts. Therefore, the policy impacts reported below are not additive; the combined impact of several or all of the policies may not be inferr ed from adding the results together.16-5 16.3 NON-REGULATORY POLICY ASSUMPTIONS

16.3.1 No New Regulatory Action

The case in which no new regul atory action is taken with regard to small electric motor efficiency constitutes the base case scenario de scribed in Chapter 10. This case defines the basis of comparison for all other scenarios. By defi nition, no new regulatory ac tion yields zero energy savings and an NPV of zero dollars.

16.3.2 Financial Incentives Policies

DOE considered scenarios in which the Fe deral government would provide two types of
financial incentives: rebates and tax credits. The government could provide consumers with a rebate for purchasing energy efficient equipment meeting the target level for each product. Tax credits could be offered to consumers who purch ase target-level small electric motors. The government could also provide tax credits to ma nufacturers to offset costs associated with producing such equipment.

DOE’s evaluation of consumer rebates used a comprehensive study of the potential for energy efficiency in California performed by Xe nergy, Inc., which summarized experience with various utility rebate programs. 1 This analysis method is based on curves that estimate the market penetration of a technology based on its benefit/cost (B/C) ratio. DOE consulted with experts and reviewed several other methods of estimating market pene tration of efficient technologies due to consumer rebate programs that were developed since the referenced Xenergy
report was published. 2

, 3

, 4

, 5 However, these methods were based either on other economic parameters (payback period) or on expert surveys predicting penetra tion of a new technology over time. Therefore, DOE decided to use th e penetration curve method based on B/C ratio, which incorporates lifetime operating cost savi ngs, and was calibrated with utility rebate program participation results.

Xenergy’s information diffusion model estim ates market impacts induced by financial incentives for energy efficient appliances. The basi c premise of this model is that information diffusion drives technology adoption. The model is formulated to characterize the influences of
both internal and external sources of informa tion on consumer behavior by superimposing two components in the equation, each capturing the ef fect of one of two different types of
information source. The effects of these two t ypes of information diffusion mechanisms are
different. Internal sources of information influence c onsumers to purchase new products due mainly to word-of-mouth from early adopters, while external information sources influence consumers to change their adoption decisions as a result of marketing efforts and information coming from outside the consumer group. (Appendix 16A of the TSD contains further details on modeling these influences.)

Xenergy’s model combined these two inform ation diffusion mechanisms and generated a set of measure “implementation curves” or penetration curves , which Xenergy calibrated using16-6 evaluation data from utility rebate programs. Consumer response to rebate incentives appears to
be a combination of the two information source types. The penetration curves illustrate the increased penetration (i.e., increase d market share) of efficient equi pment as a result of consumer response to B/C ratio changes i nduced by a specific rebate progr am. The penetration curves are used to depict various diffusion patterns based on perceived barriers to consumer purchase of high-efficiency equipment. There are penetration curves for varying levels of market barriers, from “no barriers” to “extremely high barrier s.” These curves provide a means to study the impact of changing the B/C ratio, by reducing the initial equipment cost through financial incentives, on the consumer participation rate.

The penetration curves do not exactly m odel the dynamics of a particular equipment market. Therefore, DOE used them in the followi ng way to predict changes in equipment market
shares. If the current market sh are is 0.0%, DOE assumed that th e market share would increase to be equal to the difference be tween the penetration-curve mark et share at the no-rebate B/C ratio and the penetration-curve with-rebate B/C/ ra tio. If the current market share at the target level is greater than zero, DOE used the penetration curve to de termine that ratio between the with-rebate and no-rebate market shares, and applied this ratio to the motor market under
consideration. DOE limited the e ffect of the rebate by assuming that it could no increase the
market share above the maximum for the corres ponding penetration curve. For example, if the
current market share were 5% a nd the penetration curv e predicted a no-rebate market share of 3% and a with-rebate market share of 12%, DOE would assume that the rebate would increase the target-level market share by a factor of 4, to 20%.

DOE based its estimates of the impacts of consumer tax credits on actual program experience with State tax credit s in Oregon. DOE studied State ta x credits in Montana as well. DOE also attempted to determine residential cons umer participation due to the Federal appliance tax credits, which were mandated by the En ergy Policy Act of 2005 (EPACT 2005). For the manufacturer tax credits policy, DOE attempted to investigate ma nufacturer participation due to the efficient equipment tax credits from EPACT 2005. Both the Federal consumer and
manufacturer credits were in effect in 2006 and 2007. Unfortuna tely, the Internal Revenue Service (IRS) had not yet published data on taxpay er response to either of these tax credits.

DOE also incorporated previous research that had differentiated the impact of tax credits into the “direct price effect,” which arises from the incremental equipment cost savings, and the
“announcement effect,” which is in dependent of the credit amount. 6

, 7 The announcement effect derives from the credibility that a particular technology receives from its inclusion in an incentive program, as well as changes in product marketing strate gy, and the resulting modifications in markups and pricing. DOE a ssumed that the direct price effect and the announcement effect would apply to the consumer tax credit policy as well as the consumer rebate policy, and that half of the increases in market penetration associ ated with either policy would be due to the direct price effect and half to the announcement effect.16-7 16.3.2.1 Consumer Rebates

DOE modeled the impact of the consumer rebate policy by determ ining the increase in market penetration of target-level equipment relative to its market penetration in the base case.

Polyphase Small Electric Motors
For conventional cooking products, DOE es timated the impact of increasing the benefit/cost (B/C) ratio via a rebate that paid a po rtion of the incremental installed cost between a unit meeting the baseline efficiency level and a unit meeting the target efficiency level. DOE based the rebate amount on a large sample of utility rebate programs for NEMA Premium-rated polyphase electric motors (three-digit frame seri es). Since DOE found no rebate programs for small electric motors, DOE chose these larger moto rs as similar equipment, with similar market dynamics. DOE gathered data on rebate prog rams for 1 horsepower motors offered by 48 agencies or utilities throughout the country. (See Appendix 16A for a listing of these rebate programs.) The simple average of the rebate am ounts in these programs, $26, is roughly 25% of
the incremental cost between a 1 HP three-di git frame series motor which meets current efficiency standards for medium motors and a motor which meets NEMA Premium efficiency. NEMA Premium efficiency for medium motors corresponds most closely with TSL 5, the Department’s proposed standard level for sma ll polyphase motors. DOE assumed that a rebate program for small polyphase electric motors would offer a similar rebate of $25 for a 4 pole, 1 HP motor, with rebate amounts fo r other motor speeds and powers scaling in the same fashion as motor cost (see chapter 8 for a discussion of price scaling). DOE assumed the rebates would remain in effect until they had transformed the markets so that the shift in market share of
efficient units seen in the firs t year of the programs would be maintained throughout the forecast period (2015–2045).

DOE first calculated the B/C ratio for the targ et 4-pole 1 HP unit wit hout a rebate. It then calculated another B/C ratio for the unit meeting the target level, with a re bate, relative to the baseline unit. Because of the incremental cost reductions due to the rebates, the B/C ratios for the rebate policy unit were larger. Table 17.3.1 shows the benefits as lifetime operating cost savings,
incremental installed costs without rebates and with rebates, a nd B/C ratios without rebates and
with rebates.16-8 Table 16.3.1 Benefit/Cost Ratios for 4-pole 1 HP Polyphase Motor Rebate Policy Case
4 pole 1 HP Polyphase

Benefit (Lifetime Operating Cost Savings) $ 57.90

Incremental Installed Cost (Increased Installed Cost) $131.23

B/C Ratio with No Rebate 0.44

Current Market Share 0.0%

Rebate Amount $25.00 Adjusted Incremental Installed Cost (Increased Installed Cost after Rebate) $106.23

B/C Ratio for Rebate Policy Case 0.55 Penetration Curve Projected
Increase in Market Share 0.4%

DOE then used the B/C ratios with th e penetration curve shown in Figure 17.3.1 to estimate the increased percentage of consumer s who would purchase the units that meet the policy target levels if given a rebate incen tive. For polyphase sma ll electric motors, DOE selected the “moderate barriers” curve, which has the greatest degree of correspondence (among the curves prepared by Xenergy) between the mark et share calculated from the B/C ratio of each efficiency level and the current market share for each efficiency level. Figure 17.3.1 shows the increase in penetration rates of target-level units as a function of their higher B/C ratios. Using the method discussed above, DOE estimated that the market share of equipment meeting the policy target due to a rebate policy would incr ease by 0.4 percent above th e base case market share for polyphase small electric motors.

To calculate the impacts of this policy, DOE adjusted the market shares of polyphase small electric motors at the target efficiencies in its NIA model to represent the policy case
scenario. Table 16.3.2 shows the efficiency distribution used.

Table 16.3.2 Polyphase Small Electric Motor Consumer Rebate Efficiency Market Share Impacts

Baseline CSL 1 CSL 2 CSL 3 CSL 4 CSL 5 CSL 6 CSL 7

Base case 82.0% 4.0% 4.0% 4.0% 6.0% 0.0% 0.0% 0.0%

Rebate case 81.6% 4.0% 4.0% 4.0% 6.0% 0.4% 0.0% 0.0%0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0% 20.0%

0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8 2.0 2.2 2.4 2.6 2.8 3.0 3.2 3.4 3.6 3.8 4.0

Participant Benefit-Cost RatioPenetration Rate

Figure 16.3.1 Market Penetration Curve for Polyphase Small Electric Motors

Capacitor-Start Small Electric Motors
For capacitor-start small electric motors, DOE assumed that the rebate would cover a portion of the incremental cost between a motor m eeting the baseline efficiency level and a unit meeting the target efficiency level. DOE assume d that the rebate amount for a 1 HP motor would be equal to the $25 rebate offered for 1 HP pol yphase small electric motors (based, in turn, on current rebate programs for three-digit frame series polyphase motors). Similar to polyphase motors, DOE assumed that the rebate amount woul d scale with the number of poles and power of the motor in the same fashion as motor prices scale. DOE assumed the rebates would remain in effect until they had transformed the markets so th at the shift in market share of efficient units seen in the first year of the programs would be maintained throughout the forecast period (2015– 2045).

DOE first analyzed the impact of rebates at the efficiency levels prescribed by TSL 7. However, for CSIR motors at th is efficiency level, a $25 rebate (scaled from a 1 HP motor) had no effect on the efficiency distribution of CSIR motor shipments. Therefore, DOE chose to
undertake the remainder of its an alysis of policy alternatives with the efficiency levels corresponding to TSL 5.

16-916-10 For each type of capacitor-start motor (induction-run and capacitor-run), DOE first calculated the B/C ratio for the target unit withou t a rebate. It then calcu lated another B/C ratio for the unit meeting the target level, with a reba te, relative to the baseline unit. Because of the incremental cost reductions due to the rebates, the B/C ratios for the rebate policy unit were larger. Table 17.3.3 shows the benefits as lifetime operating cost savings, incremental installed costs without rebates and with rebates, and B/ C ratios without rebate s and with rebates.

Table 16.3.3 Benefit/Cost Ratios for Capacitor-St art Small Electric Motor Rebate Policy
Case
4-pole 1/2 HP CSIR 4-pole 3⁄4 HP CSCR Benefit (Lifetime Operating Cost Savings) $109.81 $71.34
Incremental Installed Cost (Increased Installed Cost) $97.50 $48.90

B/C Ratio with No Rebate 1.13 1.57

Penetration Curve Market Share without Rebate 0.4% 32.6% Current Market Share at Target Level 0.0% 21.0%

Rebate Amount $17.67 $21.65 Adjusted Incremental Installed Cost (Increased Installed Cost after Rebate) $79.83 $27.25

B/C Ratio for Rebate Policy Case 1.38 2.82

Penetration Curve Market Share with Rebate 0.7% 45.8%

DOE Estimated Market Share with Rebate 0.3% 29.5%

DOE then used the B/C ratios with the penetration curves shown in Figures 17.3.2 and 17.3.3 to estimate the increased percentage of co nsumers who would purchase the units that meet the policy target levels if give n a rebate incentive. For CSIR motors, DOE chose the “moderate
barriers” curve. In the case of CSIR motors, the incremental co st between the baseline and the TSL is substantial, and the benefit-cost ratios of less energy-efficient levels, compared with their market shares, indicate that the “moderate barriers” curve is th e best fit. Figure 17.3.6 shows the increase in penetration rates of target-level CSIR units as a function of their higher B/C ratios. Using the method discussed above, DOE estimated that the market share of equipment meeting the policy target due to a rebate policy woul d increase by 0.3 percent. For CSCR motors, DOE chose the “low barriers” curve, because the increm ental cost between the baseline and the TSL is small and there is currently substantial market share at or above the target level. Figure 17.3.7 shows the increase in pene tration rates of target-level CSCR un its as a function of their higher B/C ratios. Using the method disc ussed above, DOE estimated that the market share of CSCR equipment meeting the policy target due to a rebate policy would increase by 8.5 percent.

To calculate the impacts of this policy, DOE adjusted the market shares of capacitor-start motors at the target efficiencies in its NIA m odel to represent the polic y case scenarios. Table 17.3.4 shows the efficiency distributions used. DOE also adjusted the rela tive shipment-weighted average prices of CSIR and CSCR motors to incorporate the rebate amounts and used its modified logistic market share model to incorporate rebates into its model of the relative market
share of CSIR and CSCR motors within each combination of power and number of poles.Table 16.3.4 Capacitor-Start Small Electric Moto r Target-Level Consumer Rebate Efficiency Market Share Impacts

Baseline Eff. 1 Eff. 2 Eff. 3 Eff. 4 Eff. 5 Eff. 6 Eff. 7 Eff. 8

CSIR

Base case 40.0% 7.0% 20.0% 30.0% 2.0% 1.0% 0.0% 0.0%
- Rebate case 39.7% 7.0% 20.0% 30. 0% 2.0% 1.0% 0.3% 0.0%
- CSCR

Base case 67.0% 10.0% 2.0% 2.0% 11.0% 3.0% 5.0% 0.0% 0.0%
Rebate case 58.5% 10.0% 2.0% 10.5% 11.0% 3.0% 5.0% 0.0% 0.0%

0% 5% 10% 15% 20% 25%

012345678

Participant Benefit-Cost RatioPenetration Rate

Figure 16.3.2 Market Penetration Curve for CSIR Small Electric Motors

16-110% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14

Participant Benefit-Cost RatioPenetration Rate

Figure 16.3.3 Market Penetration Curve for CSCR Small Electric Motors

Other Capacitor-Start Rebate Scenarios
DOE analyzed two additional consumer reba te scenarios for capacitor-start motors. The first scenario models the impact of a $25 rebate for 1 HP CSIR motors (a s well as scaled rebates for other classes) which meet the efficiency of efficiency level 4, rather than level 6. CSCR
rebates in this scenario continue to promote the target efficiency level (level 3). This corresponds to a rebate program targeting capacitor-start TS L 2. This rebate reimburses the consumer for a significantly larger fraction of the incremental co st, resulting in significan tly greater utilization of the rebate program. Table 17.3.5 show s the B/C ratios for this scenario.

16-1216-13 Table 16.3.5 Benefit/Cost Ratios for Capacitor-Star t Small Electric Motors, CSIR Level 4 (TSL 2) Rebate Policy Case
4-pole 1/2 HP CSIR 4-pole 3⁄4 HP CSCR Benefit (Lifetime Operating Cost Savings) $90.15 $71.34
Incremental Installed Cost (Increased Installed Cost) $35.15 $48.90

B/C Ratio with No Rebate 2.56 1.46

Penetration Curve Market Share without Rebate 2.7% 32.6% Current Market Share at Target Level 3.0% 21.0%

Rebate Amount $17.67 $21.65 Adjusted Incremental Installed Cost (Increased Installed Cost after Rebate) $17.48 $27.25

B/C Ratio for Rebate Policy Case 5.16 2.62

Penetration Curve Market Share with Rebate 12.0% 45.8%

DOE Estimated Market Share with Rebate 13.2% 29.5%

DOE then used the B/C ratios with the penetration curves shown in Figures 17.3.2 and 17.3.3 to estimate the increased percentage of co nsumers who would purchase the units that meet efficiency level 4 if given a rebate incentive. DOE again chose the “high barriers” curve for
CSIR motors and the “low barriers” curve fo r CSCR motors. Using the method discussed above,
DOE estimated that the market sh are of CSIR equipment at effici ency level 4 would increase by 11.2 percent.

Table 16.3.6 Capacitor-Start Small Electric Motor TSL 5 Consumer Rebate Efficiency Market Share Impacts

Baseline Eff. 1 Eff. 2 Eff. 3 Eff. 4 Eff. 5 Eff. 6 Eff. 7 Eff. 8

CSIR

Base case 40.0% 7.0% 20.0% 30.0% 2.0% 1.0% 0.0% 0.0%
- Rebate case 29.8% 7.0% 20.0% 30. 0% 12.2% 1.0% 0.0% 0.0%
- CSCR

Base case 67.0% 10.0% 2.0% 2.0% 11.0% 3.0% 5.0% 0.0% 0.0%
Rebate case 58.5% 10.0% 2.0% 10.5% 11.0% 3.0% 5.0% 0.0% 0.0%

DOE’s CSIR/CSCR market share model, detail ed in section 9.4, indi cates that there are significant market barriers to the purchase of CSCR motors, even when it would be cost effective for consumers to do so. DOE therefore analyzed a rebate scenario which targets only CSCR
motors. This scenario models th e effects of relatively large re bates ($50 for 1 HP motors) for CSCR motors which meet the polic y-target efficiency level (effi ciency level 3, corresponding to TSL 7), where there is no rebate for CSIR motors. Table 17.3.7 shows the B/C ratios and resulting market share impacts for this scenario.16-14 Table 16.3.7 Benefit/Cost Ratios for Capacitor-St art Small Electric Motors, CSCR-only Rebate Policy Case
4-pole 1/2 HP CSIR 4-pole 3⁄4 HP CSCR Benefit (Lifetime Operating Cost Savings) $109.81 $71.34
Incremental Installed Cost (Increased Installed Cost) $97.50 $48.90

B/C Ratio with No Rebate 1.13 1.57

Penetration Curve Market Share without Rebate 0.4% 32.6% Current Market Share at Target Level 0.0% 21.0%

Rebate Amount $0.00 $21.65 Adjusted Incremental Installed Cost (Increased Installed Cost after Rebate) $97.50 $27.25

B/C Ratio for Rebate Policy Case 1.13 13.71

Penetration Curve Market Share with Rebate 0.4% 69.8%

DOE Estimated Market Share with Rebate 0.0% 44.9%

DOE then used the CSCR B/C ratios with th e penetration curve s hown in Figure 17.3.3 to estimate the increased percentage of consumer s who would purchase CSCR motors which meet the target efficiency level. DOE again chose the “low barriers” penetration curve. Using the method discussed above, DOE estimated that the ma rket share of CSCR equipment at efficiency level 3 (the CSCR level of TSL 6) would increase by 23.9 percent. DOE again used its CSIR/CSCR market share model to model the imp act of this differential rebate program on CSCR market share within each equipment class. DOE found that this program would increase total shipments of CSCR motors in the analysis period (2015-2045) from 6.9 million in the base
case to 11.1 million.

To calculate the impacts of these policies, DOE adjusted the market shares of capacitorstart small electric motors at the relevant efficiencies in its NIA model to represent the policy
case scenarios. Table 16.3.8 shows the efficiency distributions used to analyze these rebate policies.

Table 16.3.8 Capacitor-Start Small Electric Mo tor CSCR-Only Consumer Rebate Efficiency Market Share Impacts

Baseline Eff. 1 Eff. 2 Eff. 3 Eff. 4 Eff. 5 Eff. 6 Eff. 7 Eff. 8

CSIR

Base case 40.0% 7.0% 20.0% 30.0% 2.0% 1.0% 0.0% 0.0%
- Rebate case 40.0% 7.0% 20.0% 30. 0% 2.0% 1.0% 0.0% 0.0%
- CSCR

Base case 67.0% 10.0% 2.0% 2.0% 11.0% 3.0% 5.0% 0.0% 0.0%
Rebate case 43.1% 10.0% 2.0% 25.9% 11.0% 3.0% 5.0% 0.0% 0.0%16-15 16.3.2.2 Consumer Tax Credits

Consumer tax credits cover a percentage of the difference in incremental product price between equipment meeting baseline efficiency levels and that with higher efficiencies.
Consumer tax credits are considered a viable non-regulatory market transformation program, as shown by the inclusion of Federal consumer ta x credits in EPACT 2005 for various residential appliances.

DOE estimated that for both polyphase and capacitor-start small electric motors, the consumer participation rate would be lower than the rate of participation in consumer rebates.
Research on tax credits has shown that the time delay to the consumer in receiving a reimbursement through a tax credit , plus the added transaction co sts in tax return preparation,
make the tax credit incentive less effective than a rebate received at the time of purchase. Based on previous analysis 8 , DOE assumed that only 60 per cent as many consumers would take advantage of the tax credit as would take advantage of a rebate.

Using a similar approach as for the rebate policy, DOE estimated that the market share of target efficiency level motors would increase due to consumer tax credits over the base case. For all covered motors, these changes in percentage ma rket penetrations are 60 percent of the market penetration changes estimated fo r the consumer rebate policy.

DOE assumed that the impact of this polic y would be to permanently transform the
market so that the increased mark et penetration seen in the firs t year of the program would be maintained throughout the forecast period. Table 17.3.9 shows the efficiency distributions used in analyzing the impact of this policy.

Table 16.3.9 Small Electric Motor Consumer Tax Credit Efficiency Market Share Impacts

Baseline Eff. 1 Eff. 2 Eff. 3 Eff. 4 Eff. 5 Eff. 6 Eff. 7 Eff. 8 Polyphase

Base case 82.0% 4.0% 4.0% 4.0% 6.0% 0.0% 0.0% 0.0%
- Consumer
Tax Credit 81.8% 4.0% 4.0% 4.0% 6.0% 0.2% 0.0% 0.0% -

CSIR

Base case 40.0% 7.0% 20.0% 30.0% 2.0% 1.0% 0.0% 0.0%
- Consumer
Tax Credit 39.8% 7.0% 20.0% 30.0% 2.0% 1.0% 0.2% 0.0% -

CSCR

Base case 67.0% 10.0% 2.0% 2.0% 11.0% 3.0% 5.0% 0.0% 0.0%

Consumer
Tax Credit 61.9% 10.0% 2.0% 7.1% 11.0% 3.0% 5.0% 0.0% 0.0%16-16 16.3.2.3 Manufacturer Tax Credits

Manufacturer tax credits are considered a viable non-regulatory market transformation program, as shown by the inclusion of Federal tax credits in EPACT 2005 for manufacturers of residential appliances. Similar to consumer tax credits, manufacturer tax credits would effectively result in lower product prices for c onsumers by an amount that covered part of the incremental price difference between products m eeting baseline efficien cy levels and those meeting targeted efficiency levels.

DOE assumed that this incentive policy would help reimburse manufacturers for retooling costs. Because these tax credits would go to manufactur ers instead of consumers, DOE assumed that manufacturers would pass on the reduced costs. Since the direct price effect is approximately equivalent to the announcement effect, 6 DOE estimated that half of the consumers assumed to take advantage of consumer tax credits would purchase more-efficient products due to a manufacturer tax credit program. Using this information, DOE calculated the percentage by which market penetration of targ et efficient level motors would increase due to manufacturer tax
credits over the base case.

DOE assumed that the impact of this polic y would be to permanently transform the
market so that the increased mark et penetration seen in the firs t year of the program would be maintained throughout the forecast period. Table 17.3.10 shows the efficiency distributions used in analyzing the impact of this policy.

Table 16.3.10 Small Electric Motor Manufacturer Tax Credit Efficiency Market Share Impacts

Baseline Eff. 1 Eff. 2 Eff. 3 Eff. 4 Eff. 5 Eff. 6 Eff. 7 Eff. 8 Polyphase

Base case 82.0% 4.0% 4.0% 4.0% 6.0% 0.0% 0.0% 0.0%
- Manufacturer
Tax Credit 81.9% 4.0% 4.0% 4.0% 6.0% 0.1% 0.0% 0.0% -

CSIR

Base case 40.0% 7.0% 20.0% 30.0% 2.0% 1.0% 0.0% 0.0%
- Manufacturer
Tax Credit 39.9% 7.0% 20.0% 30.0% 2.0% 1.0% 0.1% 0.0% -

CSCR

Base case 67.0% 10.0% 2.0% 2.0% 11.0% 3.0% 5.0% 0.0% 0.0%

Manufacturer
Tax Credit 64.5% 10.0% 2.0% 4.6% 11.0% 3.0% 5.0% 0.0% 0.0%

16.3.3 Voluntary Energy Efficiency Targets

For all categories of small electric motors, DOE assumed that the market behavior in the context of voluntary targets would be similar to market behavior related to the voluntary NEMA Premium program for three-digit frame series polyphase motors. Current market share for16-17 NEMA Premium motors is roughly 25%. However, DOE assumed that 20% of this market share can be attributed to promotion, labeling, and other non-financial incentives, and 5% may be attributed to current rebate programs for such motors. DOE assumed that a voluntary program
for small electric motors would achieve a 20% mark et share in the target efficiency levels for polyphase and CSIR motors. Current CSCR market share in the target level and above is 21%. DOE assumed that a voluntary prog ram similar to NEMA Premium would increase this share by 10%, to 31%. Table 17.3.11 shows the efficiency distributions DOE assumed would result from a voluntary efficiency program. DOE assumed that these levels would be achieved in 2015 and remain constant throughout the analysis period.

Table 16.3.11 Small Electric Motor Voluntary Effi ciency Target Market Share Impacts

Baseline Eff. 1 Eff. 2 Eff. 3 Eff. 4 Eff. 5 Eff. 6 Eff. 7 Eff. 8 Polyphase

Base case 82.0% 4.0% 4.0% 4.0% 6.0% 0.0% 0.0% 0.0%
- Voluntary Effic. Targets 62.0% 4.0% 4.0% 4.0% 6.0% 20.0% 0.0% 0.0%
- CSIR

Base case 40.0% 7.0% 20.0% 30.0% 2.0% 1.0% 0.0% 0.0%
- Voluntary Effic. Targets 20.0% 7.0% 20.0% 30.0% 2.0% 1.0% 0.0% 20.0%
- CSCR

Base case 67.0% 10.0% 2.0% 2.0% 11.0% 3.0% 5.0% 0.0% 0.0% Voluntary Effic. Targets 57.0% 10.0% 2.0% 12.0% 11.0% 3.0% 5.0% 0.0% 0.0%

16.3.4 Bulk Government Purchases

DOE assumed that a bulk government purchas e policy would encourage Federal, State, and local governments to purchas e equipment meeting the target efficiency levels. Aggregating public sector demand could provide a market signal to manufactu rers and vendors that some of their largest customers sought supplie rs with products that met an efficiency target at favorable prices. This program also could induce “m arket pull” impacts through manufacturers and vendors achieving economies of scale for high-efficiency products.

While there have been severa l bulk government purchasing initiatives at the Federal, State, and municipal levels, most of these pr ograms have not tracked data on number of purchases or degree of compliance with procurem ent specifications. In many cases, procurement programs are decentralized, being part of larger Stat e or regional initiatives. At the Federal level, the Federal Energy Management Program (FEMP) ha s performed studies of savings potential for its procurement specifications for appliances and other equipment on which DOE based its assumptions for this policy. Yet FEMP does not tr ack purchasing data, due to the complexity of the purchasing systems, number of vendors, etc. There is evidence of increasing interest and activity in “green purchasing" on the State, co unty, and municipal levels. While many of these programs target office equipment, the existen ce of a growing infrastructure for efficient16-18 purchasing specifications indicate s that such impacts that DOE attributed to bulk government
purchasing programs are feasible. 9

, 10

DOE analyzed only commercial-sector motor applications for government purchases. Direct government involvement in the industrial s ector is very small. While direct government administration of housing is significant, residentia l applications of covere d small electric motors are very small, and government purchases in this s ector are unlikely to ha ve a significant impact. DOE used the 2003 Commercial Building Energy Cons umption Survey to determine the fraction of commercial floor space owned by government agencies, 23.7%, and assumed that government purchases an equivalent fraction of small electri c motors in commercial applications. DOE then assumed that 80% of government purchases of sma ll electric motors in commercial applications would meet the target efficien cy level. For polyphase motors, such a program could increase market share for target-level equipment by 7.7% , while for capacitor-s tart motors it could increase the market share by 7.4%. Table 17.3.12 shows the resul ting efficiency distributions,
which DOE assumed would remain cons tant throughout the analysis period.

Table 16.3.12 Small Electric Motor Bulk Government Purchases Efficiency Market Share Impacts

Baseline Eff. 1 Eff. 2 Eff. 3 Eff. 4 Eff. 5 Eff. 6 Eff. 7 Eff. 8 Polyphase

Base Case 82.0% 4.0% 4.0% 4.0% 6.0% 0.0% 0.0% 0.0% - Bulk Gov’t
Purchases 74.3% 4.0% 4.0% 4.0% 6.0% 7.7% 0.0% 0.0% -

CSIR

Base Case 40.0% 7.0% 20.0% 30.0% 2.0% 1.0% 0.0% 0.0% - Bulk Gov’t
Purchases 32.6% 7.0% 20.0% 30.0% 2.0% 1.0% 0.0% 7.4% -

CSCR

Base Case 67.0% 10.0% 2.0% 2.0% 11.0% 3.0% 5.0% 0.0% 0.0%
Bulk Gov’t
Purchases 59.6% 10.0% 2.0% 9.4% 11.0% 3.0% 5.0% 0.0% 0.0%

16.4 RESULTS SUMMARY FOR NON- REGULATORY ALTERNATIVES

Table 17.4.1 summarizes the impact of non-regulatory alternatives on the market share of target-level motors. (The capacitor-start TSL 2 consumer rebate does not change the market share of CSIR motors which meet the requireme nts of TSL 5 or TSL 7, but does save energy due
to the increased market share of efficiency-level-4 CSIR motors.)16-19 Table 16.4.1 Non-Regulatory Alterative Market Share Summary Market Share at or above Target Level ( % ) Policy Alternatives Polyphase CSIR CSCR No New Regulatory Action 0.0 0.0 21.0

Target-Level Consumer Rebates 0.4 0.3 29.5

TSL 2 Consumer Rebates N/A 13.2* 29.5

CSCR-Only Consumer Rebates N/A 0.0 44.9

Consumer Tax Credits 0.2 0.2 26.1

Manufacturer Tax Credits 0.1 0.1 23.6

Voluntary Efficiency Targets 20.0 20.0 31.0

Bulk Government Purchases 7.7 7.4 28.4
* Market share at CSIR efficiency le vel 4 or above (3.0% in the base case)

Tables 16.4.2 and 16.4.3 show the national energy savings and NPV resulting from the various non-regulatory alternative po licy cases, when the efficiency target levels are equal to the proposed standard levels for each product (except where noted). The cases in which no regulatory action is taken with regard to small el ectric motors constitute the base case (or "No Action") scenarios, in which energy savings a nd NPV are zero by definition. For comparison, the tables also include the impacts of the proposed energy conservation standa rds. The NPV amounts
shown in Tables 16.4.2 and 16.4.3 are based on two discount rates (seven percent and three percent real). The non-regulatory alternatives ach ieve lower energy savings than the proposed standards and have lower NPV. Table 16.4.3 shows the energy savings and NPV corresponding
to a market scenario in which the market sh are shift between CSIR and CSCR driven by each policy alternative is complete by 2015.

Table 16.4.2 Non-Regulatory Alternatives for Polyphase Small Electric Motors

Net Present Value* (billion 2008$)

Policy Alternatives Primary Energy Savings (quads) 7% discount rate 3% discount rate
No New Regulatory Action 0.0000 0.0000 0.0000

Consumer Rebates 0.0015 0.0005 0.0030

Consumer Tax Credits 0.0009 0.0003 0.0018

Manufacturer Tax Credits 0.0004 0.0001 0.0009
Voluntary Efficiency Targets 0.0716 0.0231 0.1426

Bulk Government Purchases 0.0276 0.0089 0.0549
Proposed Standards at TSL 5 0.3298 0.0598 0.5635

* Net present value (NPV) is the value of a time series of costs and savings. DOE determined the NPV from 2015

to 2065 in billions of 2008$.16-20 Table 16.4.3 Non-Regulatory Alternatives for Ca pacitor-Start Small Electric Motors

Net Present Value* (billion 2008$)

Policy Alternatives Primary Energy Savings (quads) 7% discount rate 3% discount rate

No New Regulatory Action 0.000 0.000 0.000

Consumer Rebates 0.071 0.245 0.566

TSL 2 Consumer Rebates 0.187 0.517 1.237

CSCR-Only Consumer Rebates 0.130 0.428 0.993

Consumer Tax Credits 0.057 0.206 0.473

Manufacturer Tax Credits 0.047 0.178 0.405

Voluntary Energy Efficiency Targets 0.749 0.331 1.469

Bulk Government Purchases 0.311 -0.016 0.304
Proposed Standards at TSL 7 2.128 5.674 13.586

* Net present value (NPV) is the value of a time series of costs and savings. DOE determined the NPV from 2015 to 2065 in billions of 2008$.16-21 REFERENCES

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