### ATTACHMENT G

SOUTH COAST AIR QUALIT Y MANAGEMENT DISTRICT

Staff Report Proposed Amended Rule 1111 – Reduction of NOx Emissions From NaturalGas-Fired, Fan-Type Central Furnaces

September 5, 2014

Deputy Executive Officer Planning, Rule Development, and Area Sources Elaine Chang, DrPH

Assistant Deputy Executive Officer Planning, Rule Development, and Area Sources Philip M. Fine, Ph. D.

Planning and Rules Manager Planning, Rule Development, and Area Sources

Joe Cassmassi

Author: Wayne Barcikowski – Air Quality Specialist

Reviewed by: Gary Quinn, P.E. – Program Supervisor Ruby Fernandez – Senior Deputy District CounselSOUTH COAST AIR QUALIT Y MANAGEMENT DISTRICT

GOVERNING BOARD

Chairman: WILLIAM A. BURKE, Ed.D. Speaker of the Assembly Appointee

Vice Chairman: DENNIS YATES Mayor, Chino Cities of San Bernardino County

MEMBERS:

MICHAEL D. ANTONOVICH Supervisor, Fifth District County of Los Angeles

BEN BENOIT Mayor Pro Tem, Wildomar Cities of Riverside County

JOHN J. BENOIT Supervisor, Fourth District County of Riverside

JOE BUSCAINO Councilmember, 15th District City of Los Angeles Representative

MICHAEL A. CACCIOTTI Councilmember, South Pasadena Cities of Los Angeles County/Eastern Region

JOSIE GONZALES Supervisor, Fifth District County of San Bernardino

JOSEPH K. LYOU, Ph.D. Governor’s Appointee

JUDITH MITCHELL Mayor, Rolling Hills Estates Cities of Los Angeles County/Western Region

SHAWN NELSON Supervisor, Fourth District County of Orange

DR. CLARK E. PARKER, SR. Senate Rules Appointee

MIGUEL A. PULIDO Mayor, Santa Ana Cities of Orange County

EXECUTIVE OFFICER:

BARRY R. WALLERSTEIN, D.Env.i 

### TABLE OF CONTENTS

TABLE OF CONTENTS i

CHAPTER 1: BACKGROUND

INTRODUCTION 1-1

REGULATORY HISTORY 1-1 EQUIPMENT AND PROCESS 1-2

TECHNOLOGY ASSESSMENT 1-3

AFFECTED INDUSTRIES 1-5

PUBLIC PROCESS 1-5

CHAPTER 2: SUMMARY OF PROPOSED AMENDED RULE 1111

PROPOSED AMENDMENTS TO RULE REQUIREMENTS 2-1

CHAPTER 3: IMPACT ASSESSMENT

IMPACT ANALYSIS 3-1

COST EFFECTIVENESS 3-1 CALIFORNIA ENVIRONMENTAL QUAL ITY ACT (CEQA) ANALYSIS 3-1

SOCIOECONOMIC ASSESSMENT 3-1

DRAFT FINDINGS UNDER CALIFORNIA HEALTH AN D SAFETY

CODE SECTION 40727 3

- 2

INCREMENTAL COST EFFECTIVENESS 3-2

COMPARATIVE ANALYSIS 3-3

REFERENCES R-1

RESPONSE TO COMMENTS i

### CHAPTER 1: BACKGROUND

INTRODUCTION

REGULATORY HISTORY

EQUIPMENT AND PROCESS

TECHNOLOGY ASSESSMENT

AFFECTED INDUSTRIES

PUBLIC PROCESSPAR 1111 Staff Report

1 - 1 September 2014 

### INTRODUCTION

The purpose of the current Rule 1111 – Reductions of NOx Emissions F f rom Natural-Gas-Fired, Fan-Type Central Furnaces is to reduce emission s of nitrogen oxides ( NOx) from gas-fired fantype residential space heatin g furnaces with heat inpu t ratings between 50,000 and 175,000 British thermal units per hour (Btu/hr). The rule applies to manufacturers, distributors, sales

outlets and installers of such furnaces. The rule also requires manufacturer s to certify that each furnace model offered for sale in the SCAQMD complies with the emission limit. The rule requires emissions testing using specific test methods approved by the SCAQMD and U.S. EPA. Most single family homes, many multi-unit reside nces and some small commercial buildings in the SCAQMD use this type of space heating equipment.



### REGULATORY HISTORY

Rule 1111 was adopted by the SCAQMD Governi ng Board in December 1978, addressing all sizes of space heating furnaces. The original ru le required all residential and commercial space heating furnaces to meet a NOx emission limit of 40 nanograms per Joule (ng/J) of heat output (equivalent to 55 ppm at a refe rence level of 3% oxygen) beginni ng January 1, 1984. At the December 1978 rule adoption Hearing, a rule requirem ent that all space heating furnaces meet a 12 ng/J NOx emission limit by 1995 was considered by the Governing Board but not adopted.

Rule 1111 was amended in July 1983 in order to lim it applicability to units sized for residences and exempted larger commercial space heaters. The rule amendment limited applicability to furnaces with a heat input of less than 175,000 Btu per hour, or for combination heating and cooling units, a cooli ng rate of less than 65,000 Btu per hour. The July 1983 amendment also exempted units manufactured fo r use in mobile homes (manuf actured housing), revised the definition of efficiency, and cl arified testing procedures.

In November 2009, Rule 1111 was amended to be consistent with the objectives of Control Measure CMB-03 of the 2007 Air Quality Manage ment Plan (AQMP). The 2009 amendment

established a new lower NOx emission limit of 14 ng/J (20 ppm at reference level of 3% oxygen) for residential furnaces, which reflects a 65% redu ction from the then current limit of 40 ng/J (55 ppm).

Implementation of lower NOx emission limits from the November 2009 rule amendment began in 2012. New mobile home heating units, which we re unregulated prior to the 2009 amendment, had to meet a NOx limit of 40 ng/J in 2012 with a future limit of 14 ng/J in 2018. The 40 ng/J

emission limit for mobile home furnaces was base d on burner and control technology used in existing residential furnaces.

All other new residential space heating furnaces were required to meet a 14 ng/J NOx limit by October 1, 2016. The 2009 amendment required the th ree major categories of residential furnace – condensing (high efficiency), non-condensing a nd weatherized – to meet the new 14 ng/J NOx limit by 2014, 2015 and 2016 respectively.PAR 1111 Staff Report

1 - 2 September 2014 The 2009 amendment to Rule 1111 also made a numb er of other changes to the rule including updating references to test methods for determin ing compliance with rule emission limits and providing more specificity in th e labeling requirements. To facilitate the depletion of existing

inventories and to ensure smooth transition to the new limits, Rule 1111 also provided a temporary 10-month exemption (a sell-through period) for units manufactured before the applicable future compliance date and delivered into the SCAQMD prior to the compliance date.

At the time Rule 1111 was amended in 2009, th ere were no commercially available units meeting the future effective limits. In or der to encourage and accelerate technology development, Rule 1111 provided an incentive for early compliance with the 14 ng/Joule NOx emission limit. Companies that deliver 14 ng/J furnaces into the SCAQMD prior to the applicable compliance date can el ect to receive a payment of $75 for each standard efficiency furnace and $90 for each high-efficiency unit sold and delivered into the SCAQMD 90 days prior to the applicable compliance date. These manufacturer rebates woul d result in savings of $150 to $350 to consumers because of cost markups in the supply chain. This early compliance program is funded by the SCAQMD Rule 1121 Mitigation Program and provides up to $3,000,000 for the residential furnace rebate program. As funds are limite d, payments for early compliance are on a first-come first-served basis. To promote and assist the development of compliant furnaces, the resolution for the 2009 rule amendment also committed SCAQMD funding for residential furnace techno logy demonstration projects.

The 2009 amendment of Rule 1111 also required a technology assessment and status report to the Governing Board. This technology assessment wa s to evaluate both the feasibility of the new lower NOx emission limit and the rule implem entation schedule. In addition, the amending resolution requires SCAQMD staff to include an an alysis of a mitigation fee option that would allow manufacturers to delay compliance with the new NOx limit.

Immediately after Rule 1111 was amende d in November 2009, the SCAQMD Technology Advancement Office (TAO) initiated a Request for Proposals (RFP) to develop prototype

residential furnaces that meet the new 14 ng/J NOx limit in Rule 1111. The technology development projects have been completed and the prototype furnaces developed through these four projects demonstrate that the new lower Rule 1111 NOx lim it is achievable in all of the types of forced air residentia l heating furnaces produced for the United States market.



### EQUIPMENT AND PROCESS

Fan-type gas-fired furnaces heat a building by ci rculating air from inside the building through the furnace. In a fan-type furnace, air is heated when it passes through a heat exchanger. Combustion gases heat up the insi de of the heat exchanger a nd building air moving past the outside of the heat exchanger removes heat from the outside surface. A blower (fan) pulls air through one or more intake ducts and pushes the air past the heat exch anger and through another

set of ducts which direct the heated air to di fferent parts of the bui lding. The heated air circulates through the building befo re it is again pulled into the intake ducts and heated. This process continues until a specific temperature is detected by a thermostat in the building whichPAR 1111 Staff Report

1 - 3 September 2014 then shuts off the furnace. When the temperatur e at the thermostat goe s below a set point, the thermostat sends a signal for the furnace to turn on.



### TECHNOLOGY ASSESSMENT

Immediately after Rule 1111 was amende d in November 2009, the SCAQMD Technology Advancement Office (TAO) initiated a Request for Proposals (RFP) to develop prototype residential furnaces that meet the new 14 ng/J NOx limit in Rule 1111. A request for proposals was issued in February 2010 and TAO staff select ed four bids for funding, including two furnace manufacturers, one burner manufacturer and a re search institute familiar with residential

furnaces. The total cost of the four projects was $1,447,737 with $447,737 provided by The Gas Company and $50,000 provided by the San Joaqui n Valley Unified Air Pollution Control

District.

The four proposals were approved by the SCAQM D Governing Board at the June 2010 meeting. The four projects demonstrate multiple furnace types (i.e., standard efficiency, high efficiency, a range of heat outputs and variable firing rates versus on-off operati on). The selected projects are summarized in the following list.



### Figure 1

– Summary of Rule 1111 Technology Demonstration Projects

Project Award Amount Scope

Beckett Gas $379,386 Two furnaces: one condensing and one non-condensing

GTI $450,000 One furnace each for five manufacturers: Carrier, Johnson Controls, Lennox, Rheem and Thermo

Products

Ingersoll Rand $368,261 Two furnaces: each two-stage condensing furnaces with one average and one higher heat output

Nordyne $250,090 Three furnaces with different firing rates: one single-stage (on/off), one two-stage (high/low/off), and one modulating (low to high and off)

Because of the confidential and pr oprietary nature of much of the information in the project reports, staff is not able to provide informati on that includes furnace and manufacturer specific details about the projects in this assessment. However, the results of the four technology demonstration projects indicate th at the 14 ng/J emission limit in Rule 1111 is achievable in both standard and high efficiency furnaces (condensing 

### furnaces) with single or variable firingPAR 1111 Staff Report

1 - 4 September 2014 rates. With the exception of one furnace that did not pass safety te sting by the end of the project, the contractors and their prototype furnaces achie ved the project objectives of meeting the NOx emissions limit and passing initial safety tests.



### Figure 2

– Prototype Furnace NOx Emissions (ng/J) *

* Standard and high efficiency units are identified by squares and diamonds respectively.

The prototype furnaces developed through these f our projects demonstrate that the new lower

Rule 1111 NOx limit is achievable in all of the t ypes of forced air resi dential heating furnaces produced for the United States market. In additi on, testing indicates that furnaces with the new burners developed for the projects can also meet industry safety requirem ents. However, there remain issues relating to pr oduct design, materials of constr uction, combustion control, and manufacturing that each company must resolve. Now that prototype furnaces have been developed, the next steps for each manufacturer would be to complete the product design and

select materials of constructi on, combustion controls and manufa cture of the ne w units. Staff also expects that the technology developed for these residential furnaces will be applicable to

commercial sized furnaces that will be regulated by Proposed Rule 1111.1. Smaller commercial forced air furnaces use the same basic design as residential furnaces. ← Rule LimitPAR 1111 Staff Report

1 - 5 September 2014 

### AFFECTED INDUSTRIES

Proposed Amended Rule 1111 a ffects manufacturers (NAICS 333) and distributors and wholesalers (NAICS 423) of residential furnaces. Because heating units re gulated by the rule are used in most residential and many commercial se ttings for heating small buildings, construction and building contractors are also affected by PAR 1111. The Air C onditioning Heating and Refrigeration Institute (AHRI), the major manufactur er’s trade organization, indicates that there are no manufacturers of fan-type gas-fired residential furnaces in the SCAQMD. However, these companies do maintain regional sales offices an d distribution centers in the SCAQMD and there are manufacturers of other types of heating furnaces in the SCAQMD.



### PUBLIC PROCESS

The rule development effort for PAR 1111 is part of an ongoing effort to evaluate low NOx technologies for combustion equipment. To da te, SCAQMD staff has held three Rule 1111 Task Force meetings to discuss SCAQMD funde d technology demonstration projects, rule implementation, feasibility of compliance dates, and mitigation fee options with representatives from affected manufacturers, trade organizations and other stakeholders . SCAQMD staff has also held numerous separate discussions w ith furnace and component manufacturers. In addition, a Public Workshop a nd CEQA Scoping meeting for PA R 1111 were held on May 22, 2014. PAR 1111 was discussed at the Stationary Source Committee on March 21, 2014 and June 20, 2014.

### CHAPTER 2: SUMMARY OF PROPOSED AMENDED RULE 1111

PROPOSED AMENDMENTS TO RULE REQUIREMENTSPAR 1111 Staff Report

2 - 1 September 2014 

### PROPOSED AMENDMENTS TO RULE REQUIREMENTS

SCAQMD staff has proposed to amend Rule 1111 in order to provide ma nufacturers additional time to produce residential furnaces that meet the NOx emission limit of 14 ng/J. Not all manufacturers will be able to produce compliant furnaces by the compliance dates. Proposed Amended Rule 1111 will add an alternate compliance option to the rule. In lieu of meeting the new lower NOx emission limit, PAR 1111 will provid e manufacturers of re sidential furnaces subject to Rule 1111 an option to pay a per unit mitigation fee of $200 for each condensing furnace and $150 for each non-condensing, weatherize d and mobile home furnace distributed or sold into the SCAQMD.

In addition, the proposed rule will delay the co mpliance date for condensing (high efficiency) units from October 1, 2014 until April 1, 2015. This delay will provide manufacturers additional time for testing new furnace designs and submitting and receiving approval of alternate compliance plans for non-compliant condensing furnaces.



### Table 1

– Furnace NOx Limits and Compliance Schedule

The mitigation fee alternate compliance option can be used for up to 36 months past the applicable compliance date in Table 1 of section (c ) of the rule. However, the manufacturer must submit, 60 days prior to the applicable comp liance date, a separate alternate compliance application for each 12 month alternate comp liance period after the compliance date.

A manufacturer must submit with each alternate compliance appl ication a compliance plan fee and total mitigation fees based on the the number of units that were distributed or sold into the SCAQMD during the 12 month time period (July 1 to June 30) prior to the applicable compliance date. At the end of each 12 month alternate compliance peri od the number of units distributed or sold into the SCAQMD is reconcil ed and the manufacturer pays fees for additional

the number of units distributed or sold into the SCAQMD in excess of the quantity estimated in

the alternate compliance plan for the alternate compliance peri od. The manufacturer may also request a refund of mitigation fees paid if the number of units distributed and sold into the SCAQMD is less than the quantity of uni ts estimated for the alternate compliance period

. Compliance Date Equipment Category NOx Emission Limit (nanograms/Joule)

October 1, 2012 Mobile Home Furnace 40

April 1, 2015 October 1, 2014 Condensing Furnace 14

October 1, 2015 Non-condensing Furnace 14

October 1, 2016 Weatherized Furnace 14

October 1, 2018 Mobile Home Furnace 14PAR 1111 Staff Report

2 - 2 October 28, 2009 Emission reductions funded through the mitigation fee alternative compliance option can be achieved through a variety of proj ects including but not limited to replacement of commercial

leaf blowers with low emission or electric units, replacement of gas powered lawnmowers with electric mowers, automobile scrapping, co-funding with Carl Moyer or similar programs or purchasing of emission reduction credits or mobile source emission reduction credits for the relevant time period.

Of the potential projects for achieving emissi on reductions, SCAQMD sta ff is proposing to use Rule 1111 alternate compliance mitigation fees to fund replacement of gasoline-powered

commercial leaf blowers and lawn mowers with low emission or electric units or any other projects with equivalent or bett er emission reduction potential. The leaf blower and lawn mower exchange programs in the SCAQMD has been very successful and can achieve the necessary emission reductions. In previous years, SCAQM D has exchanged 1,500 leaf blowers per year

and the demand for low emission leaf blowers is much greater. Staff estimates that the maximum number of non-compliant furnaces that w ould be sold pursuant to the mitigation fee compliance option is 45,000 units in 2016. For illustration purposes, in order to mitigate the sale of this number of non-compliant furnaces, th e SCAQMD would have to exchange about 8,000 low emission leaf blowers every 5 years for 20 y ears. Staff has calculated that the expected mitigation fees received will be sufficient to fund the exchange of this number of leaf blowers

and that there is sufficient demand to support the exchange.

### CHAPTER 3: IMPACT ASSESSMENT

IMPACT ANALYSIS

COST EFFECTIVENESS

CALIFORNIA ENVIRONMENTAL Q UALITY ACT (CEQA) ANALYSIS

SOCIOECONOMIC ASSESSMENT

DRAFT FINDINGS UNDER CALIFORNIA HEALTH AN D SAFETY

CODE SECTION 40727

INCREMENTAL COST-EFFECTIVENESS

COMPARATIVE ANALYSISPAR 1111 Staff Report

3 - 1 September 2014 

### IMPACT ANALYSIS

According to the Air Conditioning Heating and Refrigeration Institute (AHRI), the manufacturer’s trade organizati on, there are currently no facilitie s manufacturing fan-type gasfired residential furnaces in the SCAQMD. However, affected companies do maintain regional sales offices and distribution centers in the SCAQ MD and these offices and centers will have to assure that only compliant or mitigation plan un its are sold for installation in the SCAQMD.

Annual average NOx emissions from residential h eating using natural gas were estimated in the 2007 Air Quality Management Plan at 9.7 tons per day in 2002 and 11.1 tons/days in 2023. As

most NOx emissions occur between October a nd May, daily emissions in these months are significantly higher.

Based on sales estimates for conde nsing (high efficiency) furnaces in southern California, PAR

1111 will result in emission reduc tions forgone of up to 46 pounds per day during the period from October 1, 2014 until April 1, 2015. These fo regone emission reductions, from the sale and installation of non-compliant conde nsing furnaces during those six months cannot be completely mitigated because the mitigation program will not be in effect until sometime between January 1 and April 1, 2015. However, the mitigation program will be able to offset emission reductions forgone for the remainder of the lifetime of th ese furnaces once mitigati on fees are received during the last calendar quarter of 2014 and the fi rst quarter of 2015. The six month delay of the compliance date will also provi de additional time for manufact urers to receive incentive funds for early introduction of compliant furnaces.

The PR 1111 mitigation fee will be used to fund existing SCAQMD programs including the clean leaf-blower and lawn mower exchange pr ograms and Carl Moyer and similar programs. These programs can fully mitigate the potential emission reductions forgone. For example, the

cost of a low emission leaf blow er is about $180. Each leaf blower purchased and exchanged for an old leaf blower by the SCAQMD will reduce mo re than six times the annual NOx emission reductions forgone due to the purchase of one non-compliant furnace. Five low emission leaf blowers replaced every five years over 25 year s will mitigate the emissi ons reductions foregone by the sale of at least 6 non-compliant furnaces.



### COST EFFECTIVENESS

The proposed amendment does not impose addi tional requirements on manufacturers of residential furnaces. The proposed amendment provides an alternate compliance option and delays a compliance date, which is expected to provide regulatory relief for the affected

manufacturers and allows additional tim e to qualify for incentive funds.



### CALIFORNIA ENVIRONM ENTAL QUALITY ACT (CEQA) ANALYSIS

Pursuant to the California Environmental Quality Act (CEQA) and SCAQMD Rule 110, the appropriate CEQA documentation has been pr epared to analyze a ny potential adverse environmental impacts associated with PAR 111 1. The Draft Environmental Assessment (EA)PAR 1111 Staff Report

3 - 2 September 2014 was released for a 30-day public review and comment period from July 29 through August 27,

2014. No comment letters were received from the public regarding the Draft EA. The environmental analysis in the Draft EA conclu ded that proposed amended Rule 1111 would not generate any significant advers e environmental impacts. The Fi nal EA is available at SCAQMD Headquarters, by calling the SCAQMD Public In formation Center at (909) 396-3600, or by accessing SCAQMD’s CEQA website at: http ://www.aqmd.gov/home/library/documentssupport-material/lead-agency-scaqmd-p rojects/aqmd-projects---year-2014. T he CEQA document

has been released for public re view and comment, and is available at SCAQMD Headquarters, by calling the SCAQMD Pu blic Information Center at (909) 396

- 3600, or by accessing SCAQMD’s CEQA website at: www.aqmd.gov/ceqa

.



### SOCIOECONOMIC ASSESSMENT

Proposed Amended Rule 1111 will allow affected manufacturers to pay a mitigation fee of $150 to $200 per unit in lieu of complying with th e new NOx emission limit. The option to pay a mitigation fee was requested by manufacturers and participation is strictly voluntary. This mitigation fee is equivalent to the additional co st of a new compliant furnace and will provide manufacturers an alternative to producing furnaces that comply with the new emission limit. As such, PAR 1111 does not impose additional costs on the affected manu facturers beyond what was analyzed for the previous Rule 1111 ame ndment in 2009 and does not have additional adverse socioeconomic impacts.



### DRAFT FINDINGS UNDER CALIFORNIA HEALTH AN D SAFETY

CODE SECTION 40727

California Health and Safety Code Section 40727 requires that prior to adopting, amending or repeali ng a rule or regulation, the SCAQMD Governi ng Board shall make findings of necessity, authority, clarity, consistency, non

- duplication, and reference ba sed on relevant information presented at the public hearing and in the staff report. In order to determ ine compliance with Sections 40727, 40727.2 require a written analysis comparing th e proposed amended rule with existing regulations.

The following provides the draft findings.

Necessity : A need exists to amend Rule 1111 to provide residential furnace m anufacturers additional time to develop the techno logy to meet the NOx emission limit.

Authority : The SCAQMD obtains its authority to adopt , amend, or repeal rules and regulations

from California Health and Safe ty Code Sections 39002, 40000, 40001, 404 40, 40702, 40725 through 40728, and 41508

.

Clarity : PAR 1111 has been written or displayed so that its meaning can be easily understood by the persons affected by the rule.

Consistency : PAR 1111 is in harmony with, and not in conflict with or contradic tory to, existing federal or state statutes, co urt decisions or fe deral regulations.PAR 1111 Staff Report

3 - 3 September 2014 Non

- Duplication : PAR 1111 does not impose the same re quirement as any existing state or federal regulation, and is necessary and proper to execute the powers and duties granted to, and imposed upon the SCAQMD.

Reference : In amending this rule, the followi ng statues which the SCAQMD hereby implements, interprets or makes specific are re ferenced: Health and Safety Code sections 40440(a)

.



### INCREMENTAL COST-EFFECTIVENESS

Health and Safety Code Section 40920.6 requires an incremental cost-effectiveness analysis for Best Available Retrofit Control Technology (B ARCT) rules or emission reduction strategies when there is more than one control option th at would achieve differe nt levels of emission reductions, relative to ozone, CO, SOx, NOx, and their precursors.

Because this rule amendment provides furnace manufacturers with an alternate compliance option to provide regulatory relief and does not impose a new BARCT limit, a typical

incremental cost-effectiveness analysis is not applicable for this proposed amendment.



### COMPARATIVE ANALYSIS

Under Health and Safety Code Section 40727.2, the SCAQMD is required to perform a comparative written analysis wh en adopting, amending, or repea ling a rule or regulation. The comparative analysis is relative to existing federal or state re quirements, existing or proposed SCAQMD rules and air pollution control requireme nts and guidelines that are applicable to industrial, institutional, and commercial combustion equipment.

The SCAQMD is not aware of any state or federa l requirements regulating air pollution that are applicable to new or in-use PAR 1111 units. Rule 1111 is also the only SCAQMD rule regulating this type of equipmen t. Because there are no state or federal requirements for PAR 1111 units, the proposed amendments are not in conflict with and do not duplicate any SCAQMD, state or federal requirement.

### REFERENCESPAR 1111 Staff Report

R - 1 September 2014 

### REFERENCES

CEC, 2004. California Statewide Residential Appliance Saturation Study ( 400-04-009)

. California Energy Commission, June 2004.

DOE. 2007. Technical Support Document: Energy Ef ficiency Program for Consumer Products: Energy Conservation Standards for Residential Fur naces and Boilers. U.S. Department of Energy, September 2007.

SCAQMD, 2009. Staff Report: Proposed Amende d Rule 1111 – Reduction of NOx Emissions

F

f

rom Natural-Gas-Fired, Fan-Type Central Furnaces . South Coast Air Quality Management District, November 2009.

SCAQMD, 2013. Status of Rule 1111 Technology Asse ssment and Demonstration Projects for

Residential Furnaces . South Coast Air Quality Ma nagement District, March 2013.

SCAQMD, 2014. Rule 1111 Technology Assessment for Residential Furnaces . South Coast Air Quality Management District, January 2014.

### RESPONSE TO COMMENTSi September 2014 

### RESPONSE TO COMMENTS

Comment: Because Rule 1111 is an approved rule in the state implementation plan (SIP), the proposed amendment could interfer e with demonstration of attain ment or reasonable further progress under section 110(l) of the federal Clean Air Act (CAA) or other provisions of the CAA. In addition, PAR 1111 may undermine the rules enforceability and preclude reliance on it for SIP emission reduction credit in accordance with USEPA policy on economic incentive programs (EIPs) and other nontraditional emi ssion reduction measures. USEPA approval of PAR 1111 depends upon demonstrati on that its provisions, includi ng fee provisions , result in emission reductions that are surplus, quantifiable, enforceable, permanent and consistent with all applicable CAA requirements.

Response: The SCAQMD 2007 and 2012 Air Quality Ma nagement Plan SIPs set aside sufficient NOx emissions reductions to offset pot ential emission reduction shortfalls resulting from delays in implementing technology forcing ru les. Therefore, the potential SIP reductions foregone/delayed are addressed- via the SIP set aside, not incentive programs.

Comment: Why is the mitigation option for three years?

Response: The mitigation option is for one to three y ears. The three year mitigation option was requested by stakeholders.

Comment: Why is the compliance date for condensi ng (high efficiency) furnaces delayed three months from October 1, 2014 to January 1, 2015?

Response: In the preliminary draft rule presented at the Public Workshop, the compliance date was delayed in order to provide manufactur ers time to prepare and submit mitigation fee compliance plans. The current proposal delays the compliance date until April 1, 2015 because of comments received at the Public Workshop.

Comment: All compliance dates should be delayed at least one year. Manufacturers need additional time for material selection, product design, preparing new ma nufacturing lines and furnace durability and safety testing.

Response: Proposed Amended Rule (PAR) 1111 will provi de all manufactur ers at least six months of delay to provide additional time for condensing furnace product development and testing, as well as for training of distributors and installers. Moreove r, PAR 1111 will allow up to three additional years of delay for any cat egory of furnace for all manufacturers through a mitigation fee alternate compliance plan which was requested by industry. This proposed alternative compliance option is expected to achieve equivalent NOx emission reductions to current rule requirements due to implementation of emission reduction proj ects to be funded by mitigation fee alternate compliance plans.

Comment: The proposed compliance date for conde nsing furnaces, January 1, 2015, is in the middle of the heating season. That is not a good da te to transition from existing to new models

of furnaces. Our distributors and installers must be educated about the new furnaces and this will require training and establishment of tracking systems by distributors.ii September 2014 Response: In response to manufacturers’ request, SCAQMD staff has fu rther delayed the compliance date for condensing furnaces until April 1, 2015.

Comment: What is the basis of the mitigation fee?

Response: The mitigation fee is based both on the cost of purchasing emission reductions to mitigate the sale of non

- compliant furnaces and on the expected cost of producing compliant furnaces. Assuming the mitigation fees are used in the SCAQMD low emiss ion leaf blower program, the cost of one leaf

- blower is about $180 and will offset the emissions of about 5 furnaces for at least 5 years. Four to five low emission leaf

- blowers will have to be purchased

over the lifetime of a fu rnace to fully mitigate em issions of a furnace with emissions at 40 ng/J.

Comment: The mitigation fee should be paid after non-compliant units are sold and not before.

Response: The proposed rule has been changed so that mitigation fees are paid at the end of an alternate compliance period. The mitigation fee compliance option is designed to fund emission

reduction project s to offset the sale of non

- compliant furnaces. If the mitigation fees are paid at the end of a quarter or year, then ther e is a significant delay in funding pro jects with emission reductions. When fees are paid in advance, si gnificant air quality impacts can be mitigated.

Comment: The mitigation fee is too high. The fee is higher than the cost difference between compliant and non-compliant units.

Response: The mitigation fee is based both on the cost of purchasing emission reductions to mitigate the sale of non

- compliant furnaces and on the high end of the range of expected cost to producing compliant furnaces. T he main reason for the proposed fee levels i s that these amounts are necessary in order to fund enough emission reductions to mitigate the sale of non

- compliant

furnaces.

Comment: Condensing (high efficiency) units pollute less because they use less natural gas and should not have a higher fee.

Response: The mitigation fee for condensing and sta ndard efficiency furnaces are both approximately the same cost as one low emission leaf blower (~ $180) and more than four leaf blowers must be purchased to mitigate the emissions of one furnace over its lifetime. Each leaf blower can mitigate the emissions of fi ve furnaces for at least five years.

While condensing furnaces emit less green

- house gases than standard units, condensi ng units do

not emit less NOx than standard units. Note that the emission limit for both condensing and standard units is in ng/J of heat to the heated spa ce (net useful heat). It is not based on the gross amount of heat generated (amount of gas used). The average of emission test results for current condensing and standard units are the same. In addition, condensing units do not emit less NOx than standard units on a mass basis. In fact, the form of the rule emission limit allows condensing units to emit NOx at higher concen trations (PPM) than standard units.

Comment: Manufacturers should have the option to appl y for less than one full year of sales.

Manufacturers should also be able to reconcile th eir sales at the end of the mitigation fee period and pay additional fees if needed and receive a refund if they have paid for more units than they

have sold.

Response: In lieu of a yearlong mitigation plan in the first year the new emi ssion standard is in effect for any type of furnace, a manufactur er may use the sell through period for up to 10iii September 2014 months. In addition, the mitigation program a llows manufacturers to apply for a one year alternate compliance plan for up to 3 successive years regardless of the timing of the compliance date (April or October). A compliance plan fo r less than one year will also be difficult to enforce. A one year mitigation plan coupled with the 10 month sell through provision provides companies manufacturers with flexibility. Th e proposed PAR 1111 mitigation alternative and fee payment system was revised by staff to allow manufacturers to pay mitigation fees at the end of each alternate compliance period reconcile their sales at the end of the mitigation fee period and pay additional fees or receive a refund of excess fees paid . The mitigation fee program is designed so that all manufacturers are subject to the same requirements if they choose that option.

Comment: The cost of a new furnaces or an exis ting furnace with a mitigation fee may cause homeowners to delay the purchase of a new furna ce when an old furnace needs repair. This will

result in fewer NOx emission reductions th an projected for the current rule.

Response: This proposed amendment will not change the cost of ne w compliant units because there are no additional costs added to new furnaces. Thus, PAR 1111 will not result in significant emission reductions foregone relative to the cu rrent rule.

This proposed amendment will not affect homeowner’s decisions re garding furnace repair versus replacement and will not affect the amount of emission reductions achieved by Rule 1111. Homeowners make decisions regarding repair or replacement of a furnace based on many factors including: the type and cost of the repair, the cost of a new unit and other components such as ducts, and the cost of air conditioning components a nd labor cost for a new furnace. The cost of replacing a new circuit boa rd, exhaust motor or fan, air circul ation fan and motor, or gas supply components is significantly less than replacing an entire furnace, modifying the air conditioning system, replacing some ducting and a new thermostat. Most homeowners replace furnace components when they fail. It is the least cost option. They replace whole furnaces when they

remodel their house and want a new furnace or have a failure of the air conditioning system and decide to replace both the cooling a nd heating system at the same time.

Comment: What constitutes a sale or delivery into the District?

Response: The first sale or delivery to any party in the SCAQMD whether it is a distributor, developer, contract or or homeowner.

Comment: Can non-compliant units be stored in the SCAQMD when the manufacturer provides compliant units for sale for use in the SCAQMD?

Response: The current rule and proposed amendmen t allows manufacturers to store noncompliant units in the SCAQMD. The manufacture r and distributor must have in place a system to identify and track non-compliant units that are intended to be sold outside th e boundaries of the SCAQMD. For SCAQMD Rule 1121, this is ac complished using an additional label on the product and the shipping carton to identify non-compliant units that cannot be sold or installed for use in the SCAQMD.

Comment: Can non-compliant units, intended for sale outside the SCAQMD, be stored in the SCAQMD without paying the mitigati on fee if a manufacturer is pa rticipating in the mitigation fee program?iv September 2014 Response: The proposed rule would allow units intended for sale outside the SCAQMD to be exempt from the mitigation fee. However, to avoid paying a mitigation fee for all units shipped to the SCAQMD, the manufacturer and distributor must have in place and implement a plan to clearly identify all units. The ma nufacturer and distributor must pl ace labels on each unit and the outside of each unit’s shipping container identif ying those units that may be sold into the SCAQMD pursuant to the 10 month sell through period in the rule , those units stored for sale outside the SCAQMD, and those units sold purs uant to a mitigation fee alternate compliance plan. In addition, the manufactur er and distributor must have in place a system to identify the date each unit was shipped to the distribution cent er in the SCAQMD, the date each unit arrived at the distribution center, the dates each unit was sold and shipped out of the distribution center,

the address where each unit was shi pped to (for units sold into and out of the SCAQMD) and the person or business who purchased each unit.

Comment: Is the mitigation fee for the first co mpliance date based on all sales into the SCAQMD or only the sale of condens ing (high efficiency units)?

Response: A mitigation plan application is only for the sale of the type of units and year for which the manufacturer is applyi ng. For example, a mitigation f ee plan for condensing furnaces is based only on the prior sales of condensing fu rnaces into the SCAQMD. In order to sell noncompliant units in the SCAQMD, each year of each type of furnace will require a separate mitigation plan submittal with a separate check for the mitigation plan application and for the actual mitigation fees.

Comment: How does a company apply for the reba te incentives for early compliance?

Response: The application process is similar to the process for the mitigation fee compliance plan.

The manufacturer will send a letter to SCAQMD Permit Services with the name of the manufacturer submitting the Rule 1111 rebate incentive early compliance plan signed by a responsible official identifying th e type of compliance plan and the time period that the early compliance plan covers. All applications must be for time periods early than 90 days prior to the applicable compliance date.

The submittal will include a completed SCAQMD Form 400A with company name, identification that application is for an a lternate compliance plan (section 7 of form), identification that the request is for the Rule 1111 rebate incentive early compliance application (section 9 of form), and signature of the responsible official.

The application must include documentation for all rule compliant units distributed or sold into the SCAQMD for the time period covered by th e application includi ng the number of each specific model sold or distributed by the ma nufacturer to each company or person in the SCAQMD, a copy of each company or person’s invoice purchasing the compliance furnaces and a copy of the certification letter from the SC AQMD for each specific model included in the manufacturer’s application that identifies the model as compliant with the 14 ng/J NOx emission limit. A copy of the letter and the complete a pplication will also be sent to the SCAQMD Manager for Area Source Compliance.

Comment: Does a company need to test furnaces th at are designed to run on natural gas but are sold with a propane conversion kit?v September 2014 Response: Units that are designed to run on natural gas must be tested, comply with the emission limit and receive SCAQMD certificati on. Units that are designed to run only on propane are exempt from the rule. Units that ca n be converted from natural gas to propane must receive SCAQMD certification on na tural gas in order to be sold for use in the SCAQMD. All furnaces are tested based on how they are ma nufactured, the SCAQMD does not test units

installed in residences.

Comment: Who can do certification testing of furnaces?

Response: All testing must be performed by third pa rties using a SCAQMD approved protocol. Questions regarding testing s hould be directed the SCAQMD S ource Testing division (909-396- 3536 or 909-396-2162).