2-i CHAPTER 2. ANALYTICAL FRAMEWORK

TABLE OF CONTENTS

2.1 INTRODUCTION ........................................................................................................... 2-1 2.2 BACKGROUND ............................................................................................................. 2-4 2.3 MARKET AND TECHNOLOG Y ASSESSMENT ........................................................ 2-4 2.3.1 Market Assessment .............................................................................................. 2-4 2.3.2 Techno logy Assessment

................................ ....................................................... 2-5 2.3.3 Product Classes .................................................................................................... 2-5 2.4 SCREENING ANALYSIS .............................................................................................. 2-5 2.5 ENGINEERING ANALYSIS .......................................................................................... 2-5 2.5.1 Representative Product Classes ........................................................................... 2-6 2.5.2 Baseline Ballasts .................................................................................................. 2-6 2.5.3 More Efficient Ballast Designs ............................................................................ 2-6 2.5.4 Efficiency Levels ................................................................................................. 2-7 2.6 ENERGY USE CHARACTERIZATION ....................................................................... 2-7 2.7 MARKUPS ANALYSIS ................................................................................................. 2-7 2.8 LIFE

- CYCLE COST AND PAYBACK PERIOD ANALYSIS ..................................... 2-7 2.9 SHIPMENTS ANALYSIS .............................................................................................. 2-8 2.9.1 Shipment Scenarios .............................................................................................. 2-8 2.10 NATIONAL IMPACT ANAL YSIS ................................................................................ 2-9 2.10.1 National Energy Savings Analysis

................................ ....................................... 2-9 2.10.2 Net Present Value Analysis ................................................................................. 2-9 2.11 LIFE

- CYCLE COST SUB

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

................................ .................................. 2-10 2.13 UTILITY IMPACT ANALY SIS ................................................................................... 2-11 2.14 EMPLOYMENT IMPACT AN ALYSIS ....................................................................... 2-11 2.15 ENVIRONMENTAL ASSESSMENT .......................................................................... 2-11 2.15.1 Carbon Dioxide .................................................................................................. 2-12 2.15.2 Sulfur Dioxide .................................................................................................... 2-12 2.15.3 Nitrogen Oxides ................................................................................................. 2-12 2.15.4 Mercury .............................................................................................................. 2-13 2.15.5 Particulate Matter ............................................................................................... 2-13 2.15.6 Monetization of Emissions Reduction Benef its ................................................. 2-14 2.16 REGULATORY IMPACT AN ALYSIS ....................................................................... 2-15 2.17 DEPARTMENT OF JUSTIC E REVIEW ..................................................................... 2-15

LIST OF FIG URES

Figure 2.1.1 Flow Diagram of Analyses for the Ballast Rulemaking Process ............... 2-22-1 CHAPTER 2. ANALYTICAL FRAMEWORK

2.1 INTRODUCTION

Section s 6295(o) (2)(A) and (3) of Title 42 United States Code (42 U.S.C. 6295(o)(2)(A) and (3) ) require that energy conservation standards set by the U.S. Department of Energy (DOE) be technologically feasible and economically justified , and achieve the maximum improvement in energy efficiency

. This ch apter provides a description of the general analytical framework that DOE uses in developing such standards, and in particular, standards for fluorescent lamp ballasts . T he analytical framework is a description of the methodology, the 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

. DOE will also solicit the views of the Department of Justice (DOJ) on any lessening of competition that is likely to resu lt from the imposition of a proposed standard.

Figure 2.1.1 summarizes the analytical components of the standards- setting process. The central parts of this figure are the analyses contained in the boxes. The key inputs to the left and k ey outputs to the right show how the analyses fit into the rulemaking process, and how the analyses relate to each other . Key inputs are the types of data and information that the analyses require . Some key inputs exist in public databases; DOE collects other inputs from stakeholders or persons with special knowledge. K ey outputs are analytical results that feed directly into the standards- setting process . Dotted lines connecting analyses show types of information that feed from one analysis to another. While Figure 2.1.1 summarizes the inputs, outputs and analyses of a typical standards rulemaking, individual inputs and outputs may vary by rulemaking. For example, as discussed in chapt er s 5, 6, and 7, this rulemaking combines the results of the engineering analysis, energy use characterization, and the markups analysis to derive typical inputs for the LCC and NIA.2-2 Figure 2.1.1 Flow D iagram of Analyses for the Ballast Rulemaking Process2-3 The analyses performed in the notice of proposed rulemaking (NOPR) stage and reported in this technical support document (TSD) include:

A market and technology assessment to characterize the fluorescen t ballast market; to identify technology options that improve effic ien cy; and to develop product classes.

A screening analysis to review each technology option and determine if it is technologically feasible; practical to manufacture, install, and service; would adversely affect lamp utility or lamp availability; or would have adverse impacts on health and safety.

An engineering analysis to determine manufacturer selling prices (MSPs) associated with more efficient fluorescent lamp ballasts by estimating th e manufacturing production cost (MPC) and applying a manufacturer markup;

An energy use analysis to determine the annual energy consumption of fluorescent lamp ballasts

. A markup analysis that converts average MSPs to consumer installed prices.

A life

- cycl e cost analysis that calculates, at the consumer level, the discounted savings in operating costs throughout the estimated average life of the ballast, compared to any increase in the installed costs likely to result directly from imposition of the standar d.

A payback period (PBP) analysis to estimate the amount of time it takes consumers to recover the higher purchase expense of more energy efficient ballasts through lower operating
costs.

A shipments analysis to estimate yearly shipments of covered fluor escent lamp ballasts over the analysis period.

A national impact analysis (NIA) that assesses the aggregate impacts at the national level of potential energy conservation standards as measured by the net present value (NPV) of total consumer economic impacts and national energy savings (NES).

An LCC subgroup analysis that evaluates the economic impacts on identifiable groups of customers of fluorescent lamp ballasts, including various categories of ballast purchasers or owners who may experience disproporti onate impacts from a national energy conservation standard

. A manufacturer impact analysis (MIA) to calculate the financial impacts of energy conservation standards on ballast manufacturers and to identify impacts on competition, employment at manufacturi ng plants, and manufacturing capacity.

A utility impact analysis that estimates the effects of proposed standards on the installed capacity and the generating base of electric utilities

.2-4 A n employment impact analysis that estimates the impacts of standard s on net jobs eliminated or created in the general economy as a consequence of increased spending on the installed price of ballasts and reduced customer spending on energy

An environmental assessment to provide estimates of the effects of amended energy conservation standards on emissions of carbon (CO 2 ), sulfur dioxide (SO 2 ), nitrogen oxides (NO X ), and mercury (Hg)

. A regulatory impact analysis (RIA) that presents major alternatives to proposed standards that may achieve comparable energy savings at a rea sonable cost

. In response to comments it receives on the NOPR, DOE may revise some of its analyses before publishing the final rule.

2.2 BACKGROUND

As described in chapter 1 of the TSD, in September 1995, the Department announced a formal effort to consider fu rther improvements to the process used to develop appliance efficiency standards. The Department called on energy

- efficiency groups, manufacturers, trade associations, s tate agencies, utilities, and other interested parties to provide input to this effort. As a result of this combined effort, the Department published Procedures, Interpretations and Policies for Consideration of New or Revised Energy Conservation Standards for Consumer Products (the “Process Rule”), 10 CFR 430, Subpart C, Appendix A. The Process Rule outlined the procedural improvements identified by the interested parties, and included a review of the: 1) economic models, 2) analytic tools, 3) methodologies, 4) non-regulatory approaches, and 5) prioritization of future rules. The Process Rul e recommended that the Department take into account uncertainty and variability by carrying out scenario or probability analysis.

DOE developed the analytical framework for the fluorescent lamp ballast rulemaking under the Process Rule. DOE documented th is analytical framework in the Energy Conservation Standards Rulemaking Framework for Fluorescent Lamp Ballasts (hereafter, “framework document”), and presented the analytical approach to stakeholders during a public meeting held

on February 6, 2008 (herea fter “ framework public meeting”). This document is available at http://www1.eere.energy.gov/buildings/appliance_standards/residential/pdfs/ballast_framework_ 011408.pdf . The following sections provide a general description of the different analytical components of the rulemaking framework.

2.3 MARKET AND TECHNOLOG Y ASSESSMENT

The market and technology assessment characterizes the relevant pr oduct markets and existing technology options, including prototype designs, and outlines product classes.

2.3.1 Market Assessment

When initiating a standards rulemaking, DOE develops information on the industry structure and market characteristics of the product (s) concerned . T his activity consists of both2-5 quantitative and qualitative efforts to assess the industry based on publicly available information. As such, DOE addresses: (1) industry structure and manufacturer market shares

, (2 ) existing regulatory and non- regulatory efficiency improvement initi atives, and (3) trends in product characteristics and retail markets . This information serves as resource material throughout the rulemaking.

DOE has used and will use the most reliable and accurate data availa ble at the time of each analysis in this rulemaking

. DOE welcomes and will consider any submissions of additional data.

2.3.2 Technology Assessment

DOE typically uses information relating to existing technology options to develop more efficient fluorescent lamp ballast designs. DOE prepared a l ist of technologies for consideration which could improve the efficiency of these products . To develop this list, DO E reviewed manufacturer catalog s, recent trade publications and technical journals, and consulted with
t echnical experts.

2.3.3 Product Classes

DOE divides covered products into classes by: (a) the type of energy used; and (b) capacity of the product or any other performance

- related feature that justifies different standard levels, such as features affecting cons umer utility. (42 U.S.C. 6295(q)) In general, DOE defined product classes using information obtained from manufacturers, trade association, and other interested parties.

2.4 SCREENING ANALYSIS

The screening analysis examines the technology options from the t echnology assessment
as to whether they: (1) are technologically feasible; (2) are practical to manufacture, install, and service; (3 ) do not have an adverse impact on product utility or availability; and (4 ) do not have adverse impacts on health and safe ty . A s described above , DOE develops an initial list of technology options from the technologies identified in the technology assessment. Then, in consultation with interested parties, DOE reviews the list to determine if these technologies meet the scre ening criteria . I n the engineering analysis, DOE only considers design options that meet all four of the screening criteria

.

2.5 ENGINEERING ANALYSIS

DOE performed an engineering analysis to establish the relationship between the manufacturer production cost (MPC) and the energy efficiency of ballasts. The relationship between the MPC and energy efficiency serves as the basis of the cost

- benefit calculations for individual consumers, manufacturers, and the Nation.

In the engineering analysis, DOE selects representative product classes to analyze. It then selects representative ballast types within tho se representative product classes , and develops2-6 ballast designs that represent more efficient versions of the baseline ballasts . DOE then uses these ballast designs to develop efficiency levels (ELs) and calculates price for each of these levels. The primary output of the engineering analysis is a set of cost- efficiency curves. In a subsequent life-cycle cost analysis (chapter 8 of the NOPR TSD), DOE used the co st

- efficiency curves to determine customer prices for each product by applying the appropriate distribution channel markups. The engineering analysis also develops system power ratings in which DOE uses to develop energy consumption in chapter 6 of the NOP R TSD.

2.5.1 Representative Product Classes

DOE review ed covered ballasts and the associated product classes. DOE identified and selected certain product classes as “representative” product classes and concentrate d its analytical effort on these classes . DOE chose these representative product classes primarily because of their high market volumes.

2.5.2 Baseline Ballasts

DOE selected representative ballast types within each representative product class. For each representative ballast type, DOE selected a baseline model as a reference point against which to measure changes resulting from energy conservation standards. Typically, a baseline ballast is a unit that just meets current Federal energy conservation standards and provides basic consumer utility. To determin e energy savings and changes in price, DOE compared each higher energy efficiency level with the baseline unit. DOE considered the ballast’s characteristics in choosing the most appropriate baseline ballast for each ballast type. These characteristics incl ude the ballast’s starting method ( e.g. , rapid start (RS), instant start (IS), or programmed start (PS)), input voltage (277V vs. 120V), type (electronic vs. magnetic), power factor (PF), total harmonic distortion, ballast factor (BF), input power, ballast efficiency, and whether the ballast can operate at multiple voltages 1 (universal voltage) or only one (single voltage). For some of the representative ballast types , DOE selected multiple baseline ballasts , to ensure consideration of different high -volume ballasts and their associated consumer economics.

2.5.3 More Efficient Ballast Design s

DOE selected more -e fficient ballasts for each of the baseline models considered for each representative ballast type . DOE only considered technologies that met all four criteria in the screening analysis. DOE considered these technologies either explicitly as design options or implicitly as design options incorporated into commercially available ballasts at the efficiency levels evaluated. These selections were made such that potential substitutions maintained light output within 10- percent of the baseline lamp’s light output when possible. In identifying the

more

- efficient substitutes, DOE surveyed and tested many of the manufacturers’ product offerings for ballast effici ency to identify the efficiency levels corresponding to the highest number of models.

1 Universal voltage ballasts can operate at 120V or 277V.2-7 2.5.4 Efficiency Level s
Having identified the more

- efficient substitutes for each of the baseline ballasts , DOE developed efficiency level s based on the consideration of severa l factors including: (1) the design options associated with the specific ballasts being studied; (2) the ability of ballasts across wattages to comply with the standard level of a given product class; 2 and (3) the maximum technologically feasible level.

2.6 ENERGY USE CHARACTER IZATION

The energy use characterization provides estimates of annual energy use for representative lamp

- and

- ballast systems that DOE evaluates in the LCC and PBP analyses and the NIA. To develop annual energy use estimates, DOE multiplied annual usage (in hours per year) by the system input power (in watts). To derive annual energy usage, DOE used data published in the U.S. Lighting Market Characterization: Volume I (LMC), the Residential Energy Consumption Survey (RECS), the Commercial Building Energy Survey (CBECS) and the Manufacturer Energy Consumption Survey (MECS).

2.7 MARKUPS ANALYSIS

In this rulemaking, DOE performed teardown analyses and a manufacturer markup analysis to develop MSPs for representative ballast types (chapter 5 of the NOPR TSD). DOE then applied distribution channel markups and sales tax to derive end- user prices (chapter 7 of the NOPR TSD). By combining the engineering analysis results and the distribution channel markups analysis, DOE derived typical inputs for u se in the LCC analysis and the NIA.

2.8 LIFE

- CYCLE COST AND PAYBACK PERIOD ANALYSIS

Energy conservation standards on equipment usually reduce operating expenses and increase end -user prices. DOE analyzed the net effect of amended standards on end- users by

eva luating the net LCC using the cost- efficiency relationship derived in the engineering analysis, as well as the energy usage and costs derived from the energy use characterization. Inputs to the LCC calculation include the installed cost to the end- user (pu rchase price plus installation cost), disposal costs (ballast and lamp recycling), operating expenses (energy expenses and maintenance costs), the lifetime of the ballast, and a discount rate. Chapter 8 of the NOPR TSD describes these inputs.

DOE estimated electricity prices for commercial, industrial, and residential consumers by using Energy Information Administration (EIA) data. EIA’s Annual Energy Outlook (

AEO2010 ) was the default source of projections for future electricity prices.

2 Efficacy levels span multiple ballasts of different wattages. In selec ting ELs, DOE considered whether these multiple ballasts can meet the efficiency levels.2-8 DOE developed discou nt rates by estimating the cost of capital to end users that purchase the ballasts covered under this rulemaking. For commercial and industrial end users, DOE used 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 weighted- average cost of capital. DOE used currently available economic data in developing discount rates.

For residential end users, DOE derived the discount rates from estimates of the interest or “finance cost” to purchase residential products. The finance co st of raising funds to purchase residential products can be interpreted as (1) the financial cost of any debt incurred to purchase residential products, principally interest charges on debt; or (2) the opportunity cost of any equity used to purchase residential products, principally interest earnings on household equity. Household equity is represented by holdings in assets such as stocks and bonds, as well as the return on homeowner equity. DOE obtained data required to determine the cost of debt and equit y from the Federal Reserve Board’s triennial Survey of Consumer Finances

.
For more detail on the LCC and PBP analyses, see chapter 8 of the NOPR TSD.

2.9 SHIPMENTS ANALYSIS

Shipments of ballasts are key inputs to the national energy savi ngs and net present value calculations in the NIA model. Shipments are also a necessary input to the MIA. DOE followed a three

- step process to forecast ballast shipments. First, DOE used historical shipment data from the U.S. Census Bureau to estimate the total historical shipments of each ballast type analyzed. Second, DOE calculated an installed stock for each ballast type based on the average service lifetime of each ballast type. Third, by modeling ballast purchasing events, such as replacement and new construction, and applying growth rate, replacement rate, and emerging technologies penetration rate assumptions, DOE developed annual shipment projections.

2.9.1 Shipment Scenarios

To calculate shipments

, DOE created several base

- case and standards

- case shipmen t scenarios. As r apidly emerging new lighting technologies ( such as light -emitting diodes) could penetrate the fluorescent lamp ballast market and significantly affect shipment forecasts, DOE creates two base

- case shipment scenarios: e xisting technologies and e merging technologies. The

e xisting technologies scenario, considering only technologies that have already achieved technological and market maturation, assumes more limited penetration of other higher effi cien cy products than the e merging technologi es scenario.

To characterize consu mer behavior in the standards-case, DOE develops two shipment scenarios, “ roll-up” and “s hift .” T he roll-up scenario represents a standards- case in which all products in the base case that do not meet the standard would roll up to meet the new standard level. Consumers who in the base case purchase ballasts above the standard level are not affected as they are assumed to continue to purchase the same base case ballast in the roll-up scenario. The roll-up scenario charact erizes consumers primarily driven by the fir st -cost of the2-9 ballast . In contrast, the s hift scenario models a standards

- case in which all base case consumer purchases are affected by the standard (whether or not their base case effic ien cy is below the standard)

.

2.10 NATIONAL IMPACT ANALYSIS

The national impact analysis assesses the net present value of total end -user LCC and NES. DOE determined both the NPV and NES for the performance levels considered for the ballast product classes analyzed. To make the analy sis more transparent to all interested parties, DOE prepared an NES spreadsheet model to forecast energy savings and the national economic costs and savings resulting from amended standards. The NES model does not use probability distributions for inputs or outputs. To assess the impact of input uncertainty on the NES and NPV results, DOE can conduct sensitivity analyses by running scenarios on input variables relevant to interested parties. DOE assessed the aggregate economic impacts at the national level for this NOPR analysis. Chapter 1 1 of the TSD describes DOE ’s assessment of the aggregate economic impacts at the national level.

2.10.1 National Energy Savings Analysis

The inputs for determining NES are (1) annual energy consumption per unit; (2) shipments; (3) stock; (4) national energy consumption (calculated from consumption per unit and equipment stock); (5) site- to -source conversion factors; (6) a heating, ventilation, air conditioning (HVAC) factor; and (7) rebound rates. DOE calculated the national energy consumption by multiplying the number of units, or stock, of lamp- and

- ballast systems (by vintage, which represents the age of the ballasts) by the unit energy consumption (also by vintage). Then, DOE calculated national annual energy savings from the dif ference between national energy consumption in the base case (without amended efficiency standards) and in each higher -efficiency standards case. DOE estimated energy consumption and savings based on site energy, and converted the electricity consumption and savings to source energy. DOE also examined potential energy savings due to HVAC interactions, as well as rebound effects (an energy savings “take

- back”) based on consumer usage patterns. Cumulative energy savings are the sum of the annual NES, which DO E determined over specific time periods.

2.10.2 Net Present Value Analysis

The inputs DOE used to determine the NPV were (1) total annual installed cost, (2) total annual operating cost savings, (3) discount factor, (4) present value of costs, and (5) present

va lue of savings. DOE calculates net savings each year as the difference between total operating cost savings and increases in total installed costs (including price and installation cost). DOE calculates savings over the life of the equipment, accounting for differences in yearly energy rates. DOE calculates NPV as the difference between the present value of operating cost savings and the present value of increased total installed costs. DOE discounts future costs and savings to the present with a discount f actor.2- 10 DOE calculated increases in total installed costs as the product of the difference in the total installed cost between the base case and standards case and the annual shipments in the standards case. Because purchase costs of the higher

- efficiency equipment in the standards case are generally greater than the purchase costs of equipment in the base case, price increases appear as negative values in the NPV. DOE expressed operating cost savings as decreases in operating costs associated with the lower energy consumption of equipment in the standards case compared to the base efficiency case. Total operating cost savings are the product of savings per unit and the number of units of each vintage surviving in a particular year.

2.11 LIFE

- CYCLE COST SUB

- GROUP ANALYSIS

A consumer subgroup comprises a subset of the population that is likely, for one reason or another, to be impacted disproportionately by new or revised energy conservation standards. In this NOPR, DOE identified low-income consumers, houses of w orship, historical facilities, and institutions that serve low-income populations as consumers that would be disproportionately impacted by the proposed standards. The LCC sub- group analysis evaluate s impacts on these consumer sub-groups by accounting for variations in key inputs to the LCC analysis.

2.12 MANUFACTURER IMPACT ANALYSIS

DOE performed a MIA to estimate the financial impact of higher energy conservation standards on fluorescent lamp ballast manufacturers, and to calculate the impact of such standards on domestic manufacturing employment and capacity. The MIA has both quantitative and qualitative aspects. The quantitative part of the MIA primarily relies on two separate Government Regulatory Impact Models (GRIMs)

 industry- cash

- flow models customiz ed for this rulemaking. The GRIM inputs are data characterizing the industry cost structure, shipments, and revenues. The key output is the industry net present value. Different sets of assumptions (scenarios) produce different results. The qualitative part of the MIA addresses factors such as product characteristics, characteristics of particular firms, and market and product trends, and includes an assessment of the impacts of standards on subgroups of manufacturers. The comple te MIA is outlined in chapter 13 of the TSD.

DOE conducted the MIA in three phases. Phase 1, “Industry Profile,” consisted of the preparation of an industry characterization. Phase 2, “Industry Cash Flow,” focused on the industry as a whole. DOE used publicly available information developed in Phase 1 to adapt the GRIM structure to facilitate the analysis of amended ballast standards. In Phase 3, “Subgroup Impact Analysis,” DOE conducted interviews with manufacturers representing the majority of domestic ballast sales. Duri ng these interviews, DOE discussed engineering, manufacturing, procurement, and financial topics specific to each company, and also obtained each manufacturer ’s view of the industry as a whole. The interviews provided valuable information DOE used to evaluate the impacts of an amended energy conservation standard on manufacturer cash flows, manufacturing capacities, and employment levels.2- 11 2.13 UTILITY IMPACT ANALY SIS

The utility impact analysis include s an analysis of the impact of higher energy conservation st andards on the electric utility industries. DOE adapted the National Energy Modeling System (NEMS) produced by the EIA for this analysis. NEMS (EIA 2005) is a large multi

- sector general -equilibrium model of the U.S. energy sector that has been developed over the past decade by the EIA, primarily for the purpose of preparing DOE ’s AEO . In prior rulemakings, a variant of NEMS (currently termed NEMS- BT, BT referring to the DOE’s Building Technolog ies Program) was developed to better address the specific impacts of an equipment efficiency standard.

The NEMS produces a widely recognized baseline energy forecast for the United States through the year 2030, and is available in the public domain. The typical NEMS outputs include forecasts of electricity sales, pr ice, and avoided electric generating capacity. DOE conducted the utility impact analysis as a scenario departing from the latest AEO reference case. In other words, the energy savings impacts from amended energy conservation standards were modeled using NEMS

- BT to generate forecasts that deviate from the AEO reference case.

2.14 EMPLOYMENT IMPACT ANALYSIS

The imposition of standards can impact employment both directly and indirectly. Direct employment impacts are changes in the number of employees at the fact ories that produce the covered ballast types, along with the affiliated distribution and service companies, resulting from the imposition of new standards. DOE evaluates direct employment impacts in the MIA

. Indirect employment impacts may result from ex penditures shifting between goods (the substitution effect) and changes in income and overall expenditure levels (the income effect) that occur due to the imposition of standards. The combined direct and indirect employment impacts

are investigated in the employment impact analysis using the Pacific Northwest National Laboratory’s “Impact of Sector Energy Technologies” (ImSET) model. The ImSET model was developed for DOE’s Office of Planning, Budget, and Analysis, and estimates the employment and income e ffects of energy -saving technologies in buildings, industry, and transportation. In comparison with simple economic multiplier approaches, ImSET allows for more complete and automated analysis of the economic impacts of energy conservation investments.

2.15 EN VIRONMENTAL ASSESSMENT

The intent of the environmental assessment is to quantify and consider the environmental effects of amended energy conservation standards for fluorescent lamp ballasts. The primary environmental effects of these standards would be reduced power plant emissions resulting from reduced consumption of electricity. DOE assess es these environmental effects by using NEMS

BT to provide key inputs to its analysis. The portion of the environmental assessment that is produced by NEMS- BT consider s carbon dioxide (CO 2 ), nitrogen oxides (NO X ), and mercury (Hg). The environmental assessment also considers impacts on SO 2 emissions.2- 12 2.15.1 Carbon Dioxide

In the absence of any Federal emissions control regulation of power plant emissions of CO 2 , a DOE standard is likely to result in reductions of these emissions. The CO 2 emission reductions likely to result from a standard are estimated using NEMS -BT and national energy savings estimates drawn from the NIA spreadsheet model. The net benefit of the standard is t he difference between emissions estimated by NEMS

- BT at each standard level considered and the AEO Reference Case. NEMS

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

2.15.2 Sulfur Dioxide

DOE has preliminarily determined that SO 2 emissions from affected Electric Generating Units (EGUs) are subject to nationwide and regional emissions cap and trading programs that are likely to eliminate the standards’ impact on SO 2 emi ssions. The costs of meeting such emission cap requirements are reflected in the electricity prices and forecasts used in DO E’s analysis of the standards. Title IV of the Clean Air Act sets an annual emissions cap on SO 2 for all affected EGUs. SO 2 emissions from 28 eastern States and the District of Columbia (DC) are also limited under the Clean Air Interstate Rule (CAIR, published in the Federal Register on May 12, 2005. 70 FR 25162 (May 12, 2005)), which creates an allowance- based trading program that will gradually replace the Title IV program in those States and DC. (The recent legal history surrounding CAIR is discussed below.) The attainment of the emissions caps is flexible among EGUs and is enforced through the use of emissions a llowances and tradabl e permits. Under existing EPA regulations, any excess SO 2 emission allowances resulting from the lower electricity demand caused by the imposition of an efficiency standard could be used to permit offsetting increases in SO 2 e missions by any regulated EGU. However, if the standard resulted in a permanent increase in the quantity of unused emission allowances, there would be an overall reduction in SO 2 emissions from the standards. While there remains some uncertainty about the ultimate effects of efficiency standards on SO 2 emissions covered by the existing cap and trade system, the NEMS

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

.
Even if there is no significant reduction in the overall emissions of SO 2 that results from the standard, there may still be some economic benefit from reduced demand for SO 2 emission allowances that is not fully reflected in the cost savings experienced by individual consumers. Electricity savings that decrease the overall demand for SO 2 emissions allowances could lower allowance prices and thereby result in some economic benefits for all electricity consumers, not just those that reduced their electricity use as a result of an efficiency standard. DOE did not to monetize this particular benefit because the effect on the SO 2 allowance price from any single energy conservation standard is likely to be small and highly uncertain.

2.15.3 Nitrogen Oxides

NEMS

- BT also has an a lgorithm for estimating NO x emissions from power generation. The impact of these emissions, however, will be affected by the CAIR, which the Environmental2- 13 Protection Agency (EPA) issued on May 12, 2005. CAIR will permanently cap emissions of NO X in 28 eastern states and the District of Columbia. 70 FR 25162 (May 12, 2005).

Much like SO 2 emissions, a cap on NO X emissions means that the amended fluorescent lamp ballast standards may have little or no physical effect on these emissions in the 28 eastern Stat es and the DC covered by CAIR. Although CAIR has been remanded to the EPA by the DC Circuit, it will remain in effect until it is replaced by a rule consistent with the Court’s July 11, 2008, opinion in North Carolina v. EPA. 531 F.3d 896 (DC Cir. 2008); see also North Carolina v. EPA, 550 F.3d 1176 (DC Cir. 2008). Because all States covered by CAIR opted to reduce NO X emissions through participation in cap- and

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

Standards may produce an environmental- related economic benefit in the form of lower prices for emissions allowance credits

. As with SO 2 allowance prices, DOE did not to monetize this particular benefit because the effect on the NO X allowance price from any single energy conservation standard is likely small and highly uncertain. DOE plans to use NEMS- BT to estimate the emissions reductions from possible standards in the 22 States where emissions are not capped.

2.15.4 Mercury

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

- fired po wer plants in all States by 2010. However, on February 8, 2008, the DC Circuit issued its decision in New Jersey v. Environmental Protection Agency, in which the DC Circuit, among other actions, vacated the CAMR. 517 F.3d 574 (DC Cir. 2008). EPA has decide d to develop emissions standards for power plants under the Clean Air Act (Section 112), consistent with the DC Circuit’s opinion on the CAMR. See http://www.epa.gov/air/merc uryrule/pdfs/certpetition_withdrawal.pdf

. Pending EPA's forthcoming revisions to the rule, DOE is excluding the CAMR fr om its Environmental Analysis. In the absence of CAMR, a DOE standard would likely reduce Hg emissions and DOE used NEMS

- BT to estimate these emission reductions.

2.15.5 Particulate Matter

DOE acknowledges that particulate matter (PM) impacts are of concern due to human exposures that can impact health. But impacts of PM emissions reduction are much more difficult to estimate than other emission s reductions due to the complex interactions between PM, other power plant emissions, meteorology, and atmospheric chemistry that impact human exposure to particulates. Human exposure to PM usually occurs at a significant distance from the power plants that are emitting particulates and particulate precursors. When power plant emissions travel this distance, they undergo highly complex atmospheric chemical reactions. Although the EPA does keep inventories of direct PM emissions of power plants, in its sourc e attribution reviews, the EPA does not separate direct PM emissions from power plants from the sulfate particulates indirectly produced through complex atmospheric chemical reactions. The great majority of PM emissions from power plants are of these secondary particles (secondary2- 14 sulfates). Thus, it is not useful to examine how the amended standard impacts direct PM emissions independent of indirect PM production and atmospheric dynamics. Therefore, DOE did not assess the impact of these standards on particulate emissions. Further, even the cumulative impact of PM emissions from power plants and in direct emissions of pollutants from other sources is unlikely to be significant.

2.15.6 Monetization of Emissions Reduction Benefits

For those emissions for which real national emission reductions are anticipated ( CO 2 , Hg, and NO X for 22 states), only ranges of estimated economic values based on environmental damage studies of varying quality and applicability are available. Therefore, DOE reported estimates of monetary benefits derived using these values and consider ed these benefits in weighing the costs and benefits of each of the standard levels considered.

In order to estimate the monetary value of benefits resulting from reduced emissions of CO 2 emissions, DOE use d in its analysis the most current Social Cost of Carbon (SCC) values developed and/or agreed to by interagency reviews. The SCC is intended to be a monetary measure of the incremental damage resulting from greenhouse gas (GHG) emissions, including, but not limited to, net agricultural productivity loss, human health 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 limits of both quantification and monetization, the SCC can be used to provide estimates of the social benefits of reductions in GHG emissions.

At the time of this notice, the most recent interagency estimates of the potential global benefits resulting from reduced CO 2 emissions in 2010 were $4.7, $21.4, $35.1, and $64.9 per metric ton in 2007 dollars. These values are then adjusted to 2009$ using the standard GDP deflator value for 2008 and 2009. For emissions (or emission reductions) that occur in later years, these values grow in real terms over time. Additionally, the interagency group determined that a range of values from 7 percent to 23 percent should be used to adjust the global SCC to calculate domestic effects, although preference will be given to consideration of the global benefits of reducing CO2 emissions. See appendix 16A for the full range of annual SCC estimates from 2010 to 2050. To calculate a present value of the stream of m onetary values, DOE discount ed 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 CO 2 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 estimate d the potential monetary benefit of reduced NO X , and Hg emissions resulting from the standard levels it co nsiders . For NO X emissions, available estimates suggest a very wide range of monetary values for NO X emissions, ranging from $370 per ton to $3,800 per ton of NO X from stationary sources, measured in 2001$ (equivalent to a ra nge of $442 to $4,540 per ton in 2008$). Refer to the OMB, 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,” for additional i nformation.2- 15 For Hg emissions reductions, DOE has previously determined that the impact of mercury emissions from power plants on humans is considered highly uncertain. However, DOE identified two estimates of the environmental damage of mercury based on two estimates of the adverse impact of childhood exposure to methyl mercury on intelligence quotient (IQ) for American children, and subsequent loss of lifetime economic productivity resulting from these IQ losses. The high- end estimate is based on an esti mate of the current aggregate cost of the loss of IQ in American children that results from exposure to mercury of U.S. power plant origin ($1.3 billion per year in year 2000$), which works out to $33.3 million per ton emitted per year (2008$). Refer to L. Trasande et al ., “Applying Cost Analyses to Drive Policy that Protects Children,” 1076 Ann. N.Y. Acad. Sci. 911 (2006) for additional information. The low-end estimate is $0.66 million per ton emitted (in 2004$) or $0.745 million per ton in 2008$. DOE der ived this estimate from a published evaluation of mercury control using different methods and assumptions from the first study but also based on the present value of the lifetime earnings of children exposed to mercury. See Ted Gayer and Robert Hahn, “Designing Environmental Policy: Lessons from the Regulation of Mercury Emissions,” Regulatory Analysis 05–01, American Enterprise Institute -Brookings Joint Center for Regulatory Studies, Washington, DC (2004). A version of this paper was published in the Journal of Regulatory Economics in 2006. The estimate was derived by back -calculating the annual benefits per ton from the net present value of benefits reported in the study.

In accordance with U.S. Office of Management and Budget (OMB) guidance, DOE conducted two calculations of the monetary benefits derived using each of the economic values used for NO X and Hg, one using a real discount rate of 3 percent and another using a real discount rate of 7 percent. 3

2.16 REGULATORY IMPACT ANALYSIS

DOE prepared a regulator y impact analysis (RIA) pursuant to Executive Order 12866, “Regulatory Planning and Review,” 58 FR 51735, October 4, 1993, which is subject to review under the Executive Order by the Office of Information and Regulatory Affairs at the Office of Management and Budget. The RIA addressed the potential for non-regulatory approaches to supplant or augment energy conservation standards to improve the energy efficiency of fluorescent lamp ballasts on the market.

2.17 DEPARTMENT OF JUSTIC E REVIEW

Section 325(o)(2)(B)(i)(V) of the Energy Policy and Conservation Act (EPCA) states that, before the Secretary of Energy may prescribe a new or amended energy conservation standard, the Secretary shall ask the U.S. Attorney General to make a determination of “the impact of any l essening of competition...that is likely to result from the imposition of the standard.” (42 U.S.C. 6295) Pursuant to this requirement, DOE will solicit the views of DOJ on

3 OMB, Circular A

- 4: Regulatory Analysis ( Sept. 17, 2003).2- 16 any lessening of competition that is likely to result from the imposition of a propo sed standard and will give the views provided full consideration in assessing economic justification of a proposed standard.