From: Sorrels, Larry To: Higgins, Cortney Cc: Weatherhead, Darryl ; Sasser, Erika ; Green, Gregory ; Wood, Gil ; Cole, David ; Edwards, Chebryll ; Koerber, Mike ; VanLare, Paula Subject: Redline/strikeout version of the proposed Residential Wood Heaters RIA Date: Thursday, December 12, 2013 4:23:16 PM Attachments: EO12866_NSPSResidentialWoodHeaters_2060- AP93_NPRM_RIA_InteragencyCommentsDec2013redlinestrikeoutfinal.docx



### Cortney:

Attached is the final redline/strikeout version of the proposed Residential Wood Heaters RIA.

I will send the final clean version of the RIA shortly in a separate email, and I will send it in Word format. Thanks.

Larry Sorrels US EPA/OAQPS/HEID/AEG Economist 919-541-5041 919-541-0839 (fax) C439-02 Room C445A* * * E.O. 12866 Review

- Draft

– Do Not Cite, Quote or Release During Review *** EO12866_NSPSResidentialWoodHeaters_2060

- AP93_NPRM_ RIA_20130613 .docx



# Regulatory Impact Analysis (RIA) for Proposed Residential Wood Heaters NSPS Revision

Final Draft Report to OMB* * * E.O. 12866 Review

- Draft

– Do Not Cite, Quote or Release During Review ***

_________________________________ RTI International is a trade name of Research Triangle Institute

. 

### Dec Nov ember June 201 3



# Regulatory Impact Analysis (RIA) for Proposed Residential Wood Heaters NSPS Revision

Final Draft Report for OMB

Prepared for

Larry Sorrels U.S. Environmental Protection Agency Office of Air Quality Planning and Standards (OAQPS) Air Economics Group (AEG) (MD

- C439

- 02) Research Triangle Park, NC 27711

Prepared by

Jeffrey Petrusa Stephanie Norris Brooks Depro RTI International 3040 Cornwallis Road Research Triangle Park, NC 27709

Contract No. EP

- D

- 06

- 003 Work Assignment No. 4

- 84 RTI Project Number 0212979.001.002* * * E.O. 12866 Review

- Draft

– Do Not Cite, Quote or Release During Review ***

_________________________________ RTI International is a trade name of Research Triangle Institute

. Contract No. EP

- D

- 06

- 003 Work Assignment No. 4

- 84 RTI Project Numb er

0212979.001.002


# Regulatory Impact Analysis (RIA) for Proposed Residential Wood Heaters NSPS Revision

Final Draft Report for OMB

Dec Nov ember June 2013

Prepared for

Larry Sorrels U.S. Environmental Protection Agency Office of Air Quality Planning and Standards (OAQPS) Air Economics Group (AEG) (MD

- C439

- 02) Research Triangle Park, NC 27711

Prepared by

Jeffrey Petrusa Stephanie Norris Brooks Depro RTI International 3040 Cornwallis Road Research Triangle Park, NC 27709* * * E.O. 12866 Review

- Draft

– Do Not Cite, Quote or Release During Review ***

iii CONTENTS

Section Page

Section 1 Executive Summary

................................ ................................ ............................... 1

- 1

1.1 Analysis Summary

................................ ................................ ............................... 1

- 3

1.2 Or ganization of this Report

................................ ................................ .................. 1

- 5

Section 2 Introduction

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

- 1

2.1 Background for Proposed Rule

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

- 1

2.2 Room Heaters

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

- 1

2.3 Central Heaters: Hydronic Heaters and Forced

- Air Furnaces

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

- 11

2.4 New Residential Masonry Heaters

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

- 18

Section 3 Industry Profile

................................ ................................ ................................ ...... 3

- 1

3.1 Supply Side

................................ ................................ ................................ .......... 3

- 1 3.1.1 Production Process

................................ ................................ ................... 3

- 2
3. 1.2 Product Types

................................ ................................ .......................... 3

- 2 3.1.3 Costs of Production

................................ ................................ .................. 3

- 5

3. 2 Demand Side

................................ ................................ ................................ ........ 3

- 8 3.2.1 End

- Use Consumer Segments

................................ ................................ 3

- 10
3.2.2 Regional Variation in Residential Demand

................................ ........... 3

- 11 3.2.3 National Home Heating Trends

................................ ............................. 3

- 14 3.2.4 Substitution Possibilities

................................ ................................ ........ 3

- 15 3.2.5 Price Elasticity of Demand

................................ ................................ .... 3

- 16

3.3 Industry Organization

................................ ................................ ........................ 3

- 17 3.3.1 Market Structure

................................ ................................ .................... 3

- 17 3.3.2 Manufacturing Plants

................................ ................................ ............. 3

- 19
3.3.3 Location

................................ ................................ ................................ . 3

- 21 3.3.4 Company Sales and Employment

................................ .......................... 3

- 21* * * E.O. 12866 Review

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iv 3.4 Residential Wood Heater Market

................................ ................................ ....... 3

- 23 3.4.1 Market Prices

................................ ................................ ......................... 3

- 24
3.4.2 International Competition

................................ ................................ ...... 3

- 25 3.4.3 Future Market Trends

................................ ................................ ............ 3

- 26

Section 4 Baseline Emissions and Emission Reductions

................................ ....................... 4

- 1

4.1 Introduction

................................ ................................ ................................ .......... 4

- 1

4.2 Background to Emissions Estimates

................................ ................................ .... 4

- 1
4.2.1 Emissions Factors

................................ ................................ .................... 4

- 3
4.2. 2 Voluntary Programs

................................ ................................ ............... 4

- 10 4.2.3 Shipment Data Used to Estimate Baseline Emissions

........................... 4

- 11

4.3 Estimated PM 2.5 Emissions from Shipments of New Appliances

..................... 4

- 13

4.4 Methodology for Estimating VOC Emissions from New Units

........................ 4

- 16

4.5 Methodology for Estimating CO Emissions from New Units

........................... 4

- 21

Section 5 Cost Analysis, Energy Impacts, and Executive Order Analyses

........................... 5

- 1

5.1 Background for Compliance Costs

................................ ................................ ...... 5

- 1 5.1.1 Estimated Research and Development (R&D) Costs

.............................. 5

- 1 5.1.2 Masonry Heaters

................................ ................................ ...................... 5

- 4 5.1.3 General Approach and Assumptions for Costs to Manufacturers

........... 5

- 5 5.1.4 General Approach and Assumptions for Costs to Masonry Heater Manufacturers

................................ ................................ .......................... 5

- 8 5.1.5 General Approach and Assumptions for All Appliances

......................... 5

- 9

5.2 Compliance Costs of the Proposed Rule

................................ ............................ 5

- 14

5.3 How Might People and Firms Respond? A Qualitative Partial Equilibrium Analysis

................................ ................................ ................................ .............. 5

- 18 5.3.1 Changes in Market Prices and Quantities

................................ .............. 5

- 18 5.3.2 Partial Equilibrium Measures of Social Cost: Changes in Consumer and Producer Surplus

................................ ............................ 5

- 20

5.4 Social Cost Estimate

................................ ................................ .......................... 5

- 21

5.5 Energy Impacts

................................ ................................ ................................ .. 5

- 21

5.6 Unfunded Mandates Reform Act (UMRA)

................................ ....................... 5

- 2 2* * * E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review ***

v 5.6.1 Future and Disproportionate Costs

................................ ........................ 5

- 22 5.6.2 Effects on the National Economy

................................ .......................... 5

- 22 5.6.3 Executive Order 13045: Protection of Children from Environmental Health Risks and Safety Risks

................................ ...... 5

- 23 5.6.4 Executive Order 12898: Federal Actions to Address Environmental Justice in Minority Populations and Low

- Income Populations

............. 5

- 24

5. 7 Employment Impacts

................................ ................................ ......................... 5

- 24 5.7.1 Employment Impacts within the Regulated Industry

............................. 5

- 28

Section 6 Small Entity Screening Analysis

................................ ................................ ........... 6

- 1

6.1 Small Entity Data Set

................................ ................................ ........................... 6

- 1

6.2 Small Entity Economic Impact Measures

................................ ............................ 6

- 2 6.2.1 Establishment Employment and Receipts

................................ ................ 6

- 2 6.2.2 Establishment Compliance Cost

................................ .............................. 6

- 3

6.3 Initial Regulatory Flexibility Analysis

................................ ............................... 6

- 14 6.3.1 Reasons Why Action Is Being Considered

................................ ............ 6

- 14
6.3.2 Statement of Objectives and Legal Basis of Proposed Rule

.................. 6

- 14 6.3.3 Description and Estimate of the Number of Small Entities

................... 6

- 15
6.3.4 Description and Compliance Costs

................................ ........................ 6

- 15 6.3.5 Panel Recommendations for Small Business Flexibilities

..................... 6

- 17

Section 7 Human Health Benefits of Emissions Red uctions

................................ ................. 7

- 1

7.1 Synopsis

................................ ................................ ................................ ............... 7

- 1

7.2 PM 2.5 - Related Human Health Benefits

................................ ................................ 7

- 1
7.2.1 Health Impact Assessment

................................ ................................ ....... 7

- 2
7.2.2 Economic Valuation

................................ ................................ ................. 7

- 5
7.2.3 Benefit

- per

- ton Estimates

................................ ................................ ........ 7

- 7 7.2.4 PM 2.5 Benefits Results

................................ ................................ .............. 7

- 8 7.2.5 Characterization of Uncertainty in the Monetized PM 2.5 Benefits

......... 7

- 10

7.3 Unquantified Benefits

................................ ................................ ........................ 7

- 15 7.3.1 HAP Benefits

................................ ................................ ......................... 7

- 16
7.3.2 Ca rbon Monoxide Co

- Benefits

................................ .............................. 7

- 26 7.3.3 Black Carbon (BC) Benefits

................................ ................................ .. 7

- 27* * * E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review ***

vi 7.3.4 VOCs as a PM 2.5 Precursor

................................ ................................ .... 7

- 30 7.3.5 VOCs as an Ozone Precursor

................................ ................................ . 7

- 30 7.3.6 Visibility Impairment Co

- Benefits

................................ ........................ 7

- 31

7.4 References

................................ ................................ ................................ .......... 7

- 31

Section 8 Co mparison of Monetized Benefits and Costs

................................ ....................... 8

- 1

8.1 Summary

................................ ................................ ................................ .............. 8

- 1

Total Annualized Costs ($ millions) a

................................ ................................ ..................... 8

- 7

Monetized Net Benefits ($millions) a

................................ ................................ ..................... 8

- 7

Section 9 References And Cost A ppendix PPENDIX

................................ ............................ 9

- 1

Section 1 Executive Summary

................................ ................................ ............................... 1

- 1

1.1 Analysis Summary

................................ ................................ ............................... 1

- 2

1.2 Organization of this Report

................................ ................................ .................. 1

- 4

Section 2 Introduction

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

- 1

2.1 Background for Proposed Rule

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

- 1

2.2 Room Heaters

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

- 1

2.3 Central Heaters: Hydronic Heaters and Forced

- Air Furnaces

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

- 10

2.4 New Residential Masonry Heaters

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

- 15

Section 3 Industry Profile

................................ ................................ ................................ ...... 3

- 1

3.1 Supply Side

................................ ................................ ................................ .......... 3

- 1 3.1.1 Produc tion Process

................................ ................................ ................... 3

- 1 3.1.2 Product Types

................................ ................................ .......................... 3

- 2
3.1.3 Costs of Production

................................ ................................ .................. 3

- 5

3.2 Demand Side

................................ ................................ ................................ ........ 3

- 7 3.2.1 End

- Use Consumer Segments

................................ ................................ .. 3

- 9 Formatted: Default Paragraph Font, Check spelling and grammar Formatted: Default Paragraph Font, Check spelling and grammar Formatted: Default Paragraph Font, Check spelling and grammar Formatted: Default Paragraph Font, Check spelling and grammar Formatted: Default Paragraph Font, Check spelling and grammar Formatted: Default Paragraph Font, Check spelling and grammar Formatted: Default Paragraph Font, Check spelling and grammar Formatted: Default Paragraph Font, Check spelling and grammar Formatted: Default Paragraph Font, Check spelling and grammar Formatted: Default Paragraph Font, Check spelling and grammar Formatted: Default Paragraph Font, Check spelling and grammar Formatted: Default Paragraph Font, Check spelling and grammar Formatted: Default Paragraph Font, Check spelling and grammar Formatted: Default Paragraph Font, Check spelling and grammar Formatted: Default Paragraph Font, Check spelling and grammar Formatted: Default Paragraph Font, Check spelling and grammar Formatted: Default Paragraph Font, Check spelling and grammar Formatted

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...* * * E.O. 12866 Review

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vii 3.2.2 Regional Variation in Residential Demand

................................ ............. 3

- 9 3.2.3 National Home Heating Trends

................................ ............................. 3

- 12 3.2.4 Substitution Possibilities

................................ ................................ ........ 3

- 14 3.2.5 Price Elasticity of Demand

................................ ................................ .... 3

- 14

3.3 Industry Organization

................................ ................................ ........................ 3

- 15 3.3.1 Market Structure

................................ ................................ .................... 3

- 16
3.3.2 Manufacturing Plants

................................ ................................ ............. 3

- 17 3.3.3 Location

................................ ................................ ................................ . 3

- 19
3.3.4 Company Sales and Employment

................................ .......................... 3

- 20

3.4 Residential Wood Heater Market

................................ ................................ ....... 3

- 22 3.4.1 Market Prices

................................ ................................ ......................... 3

- 23 3.4.2 International Competition

................................ ................................ ...... 3

- 24
3.4.3 Future Market Trends

................................ ................................ ............ 3

- 25

Section 4 Baseline Emissions and Emission Reductions

................................ ....................... 4

- 1

4.1 Introduction

................................ ................................ ................................ .......... 4

- 1

4.2 Background to Emissions Estimates

................................ ................................ .... 4

- 1
4.2.1 Emissions Factors

................................ ................................ .................... 4

- 3
4.2.2 Voluntary Programs

................................ ................................ ............... 4

- 10 4.2.3 Shipment Data Used to Estimate Baseline Emissions

........................... 4

- 11

4.3 Estimated PM2.5 Emissions from Shipments of New Appliances

.................... 4

- 12

4.4 Methodology for Estimating VOC Emissions from New Units

........................ 4

- 16

4.5 Methodology for Estimating CO Emissions from New Units

........................... 4

- 21

Sect ion 5 Cost Analysis, Energy Impacts, and Executive Order Analyses

........................... 5

- 1

5.1 Background for Compliance Costs

................................ ................................ ...... 5

- 1 5.1.1 Estimated Research and Development (R&D) Costs

.............................. 5

- 1 5.1.2 Masonry Heaters

................................ ................................ ...................... 5

- 4 5.1.3 General Approach and Assumptions for Costs to Manufacturers

........... 5

- 5 5.1.4 General Approach and Assumptions for Costs to Masonry Heater Manufacturers

................................ ................................ .......................... 5

- 8 5.1.5 General Approach and Assumptions for All Appliances

......................... 5

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...* * * E.O. 12866 Review

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viii 5.2 Compliance Costs of the Proposed Rule

................................ ............................ 5

- 14

5.3 How Might People and Firms Respond? A Qu alitative Partial Equilibrium Analysis

................................ ................................ ................................ .............. 5

- 18 5.3.1 Changes in Market Prices and Quantities

................................ .............. 5

- 18 5.3.2 Partial Equilibrium Measures of Social Cost: Changes in Consumer and Producer Surplus

................................ ............................ 5

- 20

5.4 Social Cost Estimate

................................ ................................ .......................... 5

- 21

5.5 Energy Impacts

................................ ................................ ................................ .. 5

- 21

5.6 Unfunded Mandates Reform Act (UMRA)

................................ ....................... 5

- 22 5.6.1 Future and Disproportionate Costs

................................ ........................ 5

- 22 5.6.2 Effects on the National Economy

................................ .......................... 5

- 22 5.6.3 Executive Order 13045: Protection of Children from Environmental Health Risks and Safety Risks

................................ ...... 5

- 23 5.6.4 Executive Order 12898: Federal Actions to Address Environmental Justice in Minority Populations and Low

- Income Populations

............. 5

- 24

5.7 Employment Impacts

................................ ................................ ........................ 5

- 24 5.7.1 Employment Impacts from Pollution Control Requirements

................ 5

- 26 5.7.2 Employment Impacts within the Regulated Industry

............................. 5

- 27

Section 6 Small Entity Screening Analysis

................................ ................................ ........... 6

- 1

6.1 Small Entity Data Set

................................ ................................ ........................... 6

- 1

6.2 Small Entity Economic Impact Measures

................................ ............................ 6

- 2 6.2.1 Establishment Employment and Receipts

................................ ................ 6

- 2 6.2.2 Establishment Compliance Cost

................................ .............................. 6

- 3

6.3 Initial Regulatory Flexibility Analysis

................................ ............................... 6

- 13 6.3.1 Reasons Why Action Is Being Considered

................................ ............ 6

- 13
6.3.2 Statement of Objectives and Legal Basis of Proposed Rule

.................. 6

- 13 6.3.3 Description and Estimate of the Number of Small Entities

................... 6

- 14
6.3.4 Description and Compliance Costs

................................ ........................ 6

- 14 6.3.5 Panel Recommendations for Small Business Flexibilities

..................... 6

- 15

Section 7 Human Health Benefits of Emissions Reductions

................................ ................. 7

- 1

7.1 Synopsis

................................ ................................ ................................ ............... 7

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ix 7.2 PM2.5

- Related Human Health Benefits

................................ .............................. 7

- 1
7.2.1 Health Impact Assessment

................................ ................................ ....... 7

- 2
7.2.2 Economic Valuation

................................ ................................ ................. 7

- 5 7.2.3 Benefit

- per

- ton Estimates

................................ ................................ ........ 7

- 7 7.2.4 PM2.5 Benefits Results

................................ ................................ ............ 7

- 8 7.2.5 Characterization of Uncertainty in the Monetized PM2.5 Benefits

....... 7

- 10

7.3 Unquantified Benefits

................................ ................................ ........................ 7

- 15 7.3.1 HAP Benefits

................................ ................................ ......................... 7

- 16
7.3.2 Carbon Monoxide Co

- Benefits

................................ .............................. 7

- 26 7.3.3 Black Carbon (BC) Benefits

................................ ................................ .. 7

- 27 7.3.4 VOCs as a PM2.5 Precursor

................................ ................................ .. 7

- 29 7.3.5 VOCs as an Ozone Precursor

................................ ................................ . 7

- 29 7.3.6 Visibility Impairment Co

- Benefits

................................ ........................ 7

- 30

7.4 References

................................ ................................ ................................ .......... 7

- 30

Section 8 Comparison of Monetized Benefits and Costs

................................ ....................... 8

- 1

8.1 Summary

................................ ................................ ................................ .............. 8

- 1

Section 9 References

................................ ................................ ................................ .............. 9

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x LIST OF FIGURES

Number Page

3

- 1. Census Regions and Divisions of the United States

................................ ................... 3

- 13 3

- 2. Declining Trend in U.S. Housing Units Using Wood Fuel: 1989

– 2005

.................... 3

- 14 3

- 3. Annual Plant Capacity U tilization for Heating Equipment Manufacturers (NAICS 333414): 2002

– 2006

................................ ................................ ..................... 3

- 19

5

- 1. Projected Annual Shipments by Product Type: 2012

– 2018

................................ ....... 5

- 16 5

- 1 2

. Market Demand and Supply Model: With and Without Regulation

.......................... 5

- 19

6

- 1. Population of Firebox Models and Average Models per Establishment by Product Type

................................ ................................ ................................ ................. 6

- 8 6

- 2. Distribution of National Compliance Costs by Product Type in 2014 to 2022

............ 6

- 9

7

- 1. Total Monetized PM 2.5 Benefits of the Proposed Residential Wood Heaters NSPS in the 2014

– 2022 Time Frame

................................ ................................ ......... 7

- 11 7

- 2. Breakdown of Total Monetized PM 2.5 Benefits of Proposed Residential Wood Heaters NSPS by Category

................................ ................................ ......................... 7

- 11 7

- 3. Percentage of Adult Population by Annual Mean PM 2.5 Exposure in the Baseline

................................ ................................ ................................ ....................... 7

- 16 7

- 4. Cumulative Distribution of Adul t Population by Annual Mean PM 2.5 Exposure in the Baseline

................................ ................................ ................................ ............. 7

- 17 7

- 5. Estimated Census Tract Carcinogenic Risk from HAP Exposure from Outdoor Sources (2005 NATA)

................................ ................................ ................................ 7

- 19 7

- 6. Estimated Chronic Census Tract Noncancer (Respiratory) Risk from HAP Exposure from Outdoor So urces (2005 NATA)

................................ ......................... 7

- 20

8

- 1. Net Annual Benefits Range in 2014

– 2022 Time F rame for PM 2.5 Reductions for the Proposed Option

................................ ................................ ................................ ...... 8

- 4 8

- 2. Net Annual Benefits Range in 2014

– 2022 Time F rame for PM 2.5 Reductions for the Alternative Option

................................ ................................ ................................ ... 8

- 5* * * E.O. 12866 Review

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xi LIST OF TABLES

Number Page

1

- 1. Summary of the Monetized Benefits, Social Costs, and Net Benefits for the Proposed Residential Wood Heaters NSPS in the 2014

– 2022 Time F rame ($2010 millions)

................................ ................................ ................................ ............ 1

- 6

2

- 1. Proposed Approach Subpart AAA Compliance Deadlines and PM Emissions Limits

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

- 5 2

- 2. Alternative Approach Subpart AAA Compliance Deadlines and PM Emissions Limits

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

- 5 2

- 3. Proposed Approach Subpart QQQQ Compliance Dates and PM Emissions Standards

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

- 13 2

- 4. Alternative Approach Subpart QQQQ Compliance Dates and PM Emissions Standards

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

- 13

3

- 1. Costs for Labor and Materials for U.S. Heating Equipment and Hardware Manufacturing: 2011

................................ ................................ ................................ ..... 3

- 7 3

- 2. Costs for U.S. Masonry Contractors and Single

- Family Home Contractors: 2007

...... 3

- 9 3

- 3. Costs for U.S. Plumbing and Heating Equipment Supplies Wholesalers: 2007

........... 3

- 9 3

- 4. Costs for U.S. Specialized Home Furnishing Stores: 2007

................................ .......... 3

- 9 3

- 5. Wood as Primary Fuel Source for Home Heating in the United States: 2006

– 2008

................................ ................................ ................................ ............................. 3

- 11 3

- 6. Wood as Secondary Heat Source by Census Division, 2009 (millions of households)

................................ ................................ ................................ ................. 3

- 12 3

- 7. Number of U.S. Companies by Business Type

................................ ........................... 3

- 20 3

- 8. U.S. Wood Heat Equipment Industry by Geographic Location

................................ . 3

- 21 3

- 9. U.S. Sales and Employment Statistics by Bus iness Type

................................ ........... 3

- 22 3

- 10. Profit Margins for NAICS 333414, 238140, and 423720: 2008

................................ . 3

- 23 3

- 11. Unit Shipments and Percentage of Total Units by Product Type: 2008

..................... 3

- 24 3

- 12. Installation Costs for Average System by Product Type (North America): 2008

...... 3

- 24 3

- 13. Manufacturers’ Price by Product Type (North America): 2008

................................ . 3

- 2 5

4

- 1. RWC Emission Inventory Categories Used

................................ ................................ .. 4

- 1 4

- 2. PM 2.5 Tons per Appliance Estimate (Baseline)

................................ ............................ 4

- 3 4

- 3. NSPS Adjusted Factors for PM 2.5 ................................ ................................ ................. 4

- 9 4

- 4 3

. Estimated Annual Shipped Units............................................................. 4

- 9 4

- 5 4

. Estimated PM 2.5 Emissions (Tons): Baseline

................................ ............................. 4

- 14 Formatted: Normal
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xii 4

- 6 5

. Estimated PM 2.5 Emissions (Tons): Proposed Option

................................ ................ 4

- 14 4

- 7 6

. Estimated PM 2.5 Emissions (Tons): Alternative Option

................................ ............. 4

- 15 4

- 8 7

. NSPS VOC Emission Factors

................................ ................................ ..................... 4

- 17 4

- 9 8

. Estimated VOC Emissions (Tons): Baseline

................................ .............................. 4

- 19 4

- 10 9

. ................................ ........................... Estimated VOC Emissions (Tons): Proposed Option

. 4

- 19 4

- 1 1 0

. ................................ ......................... Estimated VOC Emissions (Tons): Alternative Option 4

- 20 4

- 1 2 1

. ................................ ................................ ................................ ....... NSPS CO Emission Factors 4

- 22 4

- 1 3 2

. ................................ ................................ .............. Estimated CO Emissions (Tons): Baseline 4

- 24 4

- 1 4 3

. ................................ ............................... Estimated CO Emissions (Tons): Proposed Option 4

- 24 4

- 1 5 4

. ................................ ............................ Estimated CO Emissions (Tons): Alternative Option 4

- 25

5

- 1. Example of Manufacturers’ Estimates of Costs to Develop Model Line (4 Fireboxes)

................................ ................................ ................................ ..................... 5

- 2 5

- 2. Annual Cost Summary: Development of 4 Model Fireboxes

................................ ....... 5

- 3 5

- 3

. Labor

- based Employment Estimates for Certification, Quality Assurance, Reporting, Recordkeeping, and Accreditation Requirements for the Proposed NSPS Option

. 5

- 10 5

- 4

. Summary of Average Annualized Nationwide Costs for 2014

– 2022 Time F rame Under the Proposal and Alternative Options

................................ .............................. 5

- 15 5

- 5 a.Industry Level

- Annualized Compliance Costs (201 0 dollars) as a Fraction of Total Industry Revenue by Pro duct Type in the 2014

– 2022 Time F rame

— Proposal Option

................................ ................................ ................................ .......... 5

- 17 5

- 5 b. Industry Level

- Annualized Compliance Costs (2010 dollars) as a Fraction of Total Industry Revenue by Product Type in 2014

– 2022 Time F rame

— Alternative Option

................................ ................................ ................................ ...... 5

- 17 5

- 6

. Hypothetical Price Increases for a 1% Increase in Unit Costs

................................ .... 5

- 20 5

- 7

. Hypothetical Consumption De creases for a 1% Increase in Unit Costs

..................... 5

- 20

5

- 8. Percent of Abatement Expenditures on Changes in Production Processes

................. 5

- 33

6

- 1. Revised NSPS Proposal for Residential Wood Heating Devices: Affected Sectors and SBA Small Business Size Standards

................................ ......................... 6

- 3 6

- 2. Average Receipts for Affected Industry by Enterprise Employment Size: 2007 ($2010 million/establish ment)

................................ ................................ ...................... 6

- 5 6

- 3. Average Receipts for Affected Industry by Enterprise Receipt Range: 2007 ($2010 million/establishment)

................................ ................................ ...................... 6

- 5 6

- 4. Per

- Entity Annualized Compliance Costs by Product Type

— Proposed Option ($2010 millions)

................................ ................................ ................................ ............ 6

- 6 6

- 5. Per

- Entity Annualized Compliance Costs by Product Type

— Alternative Option ($2010 millions)

................................ ................................ ................................ ............ 6

- 7 6

- 6. Representative Establishment Costs Used for Small Entity Analysis ($2010)

............. 6

- 7 6

- 7. Cost

- to

- Receipt Ratio Results for the Proposal Option by NAICS Code

................... 6

- 10 6

- 8. Cost

- to

- Receipt Ratio Results for the Alternative Option by NAICS Code

............... 6

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- 9. Total Annual Cost (TAC) per Appliance Model

– for Varying Annualized R&D Cycle Lifespans ...........................................................6

- 12 6

- 10. Cost

- to

- Sales Ratio Sensitivity Analysis Results Reflecting Different R&D Cycle Lifespans for the Proposed Option by NAICS Code..............................6

- 13

7

- 1. Human Healt h Effects of Ambient PM 2.5 ................................ ................................ ..... 7

- 3 7

- 2. Summary of Monetized PM 2.5 - Related Health Benefits Estimates for the Proposed Residential Wood Heaters NSPS in the 2014

– 2022 Time F rame (2010$)

................................ ................................ ................................ .......................... 7

- 9 7

- 3. Summary of Reductions in Health Incidences from PM 2.5

- Related Benefits fo r the Proposed Residential Wood Heaters NSPS in the 2014

- 2022 Time F rame

......... 7

- 10 7

- 4. All PM 2.5 Benefits Estimates for the Proposed Residential Wood Heaters NSPS at Discount Rates of 3% and 7% for the 2014 to 2022 Time F rame ($2010 millions)

................................ ................................ ................................ ...................... 7

- 12 7

- 5. Population Exposure in the Baseline Above and Below Various Concentration Benchmarks in the Underlying Epidemiology Studies

................................ ............... 7

- 15

8

- 1. Summary of the Monetized Benefits, Social Costs, and Net Benefits for the Proposed Residential Wood Heater NSPS in the 2014

– 2022 Time F rame ($2010 millions)

................................ ................................ ................................ ........................ 8

- 3

8

- 2. Compliance Costs, Monetized Benefits, and Monetized Net Benefits (2010 dollars) by Source Category in the 2014

- 2022 Time Frame

- Proposal Option ......................8

- 6

8

- 3. Compliance Costs, Monetized Benefits, and Monetized Net Benefits (2010 d ollars) by Source Category in the 2014

- 2022 Time Frame

- Alternative Option...................8

- 7 Formatted: Normal

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- 1 SECTION 1 EXECUTIVE SUMMARY

The U.S. Environmental Protection Agency (EPA) is proposin g to revise new source performance standards (NS P S ) for residential wood stoves, and to issue NSPS for pellet stoves, furnaces, hydronic heaters, and masonry heaters. The EPA is proposing this revis ion under the authority of section 111 of the Clean Air Act ( CAA )
, “ Standards of Performance for New Stationary Sources, ” under which the EPA establish es federal standards of performance for new

sources within source categories which cause or contribute si gnificantly to air pollution, which may reasonably be anticipated to endanger public health or welfare

. W e are proposing to amend 40 CFR part 60, subpart AAA, Standards of Performance for New Residential Wood Heaters. The current regulation (subpart AAA) a pplies to affected facilities manufactured since 1988. Except as discussed in this propos al , the current requirements would remain in effect for the
heaters /stoves and model lines manufactured before this proposal. We also propose to broaden the applicabil ity of the wood heaters regulation beyond adjustable burn rate heaters ( stoves, the focus of the original regulation) to specifically include single burn rate heaters, hydronic heaters, and pellet stoves. Heaters/stoves and model lines manufactured after the compliance dates would be required to meet particulate matter (PM) standards . Compliance upon the effective date of the final rule is the intention in section 111 of the CAA.

We concur with n umerous stakeholders that the current body of evidence justifies r R evision of the current residential wood heaters NSPS is necessary to capture the improvements in performance of such units and to expand the applicability of this NSPS to include additional wood

- burning residential heating devices. The proposed changes are expected to achieve several objectives, including the application of updated emission limits reflecting the best industry emission reduction systems; eliminati on of exemptions over a broad suite of residential wood combustion devices; the stre ngthening of test methods as appropriate; and the streamlining of the certification process. Th is proposal do es not include any requirements for heaters solely fired by
gas , oil or coal. In addition, it does not include any requirements associated with wo od heaters or other wood

- burning appliances that are already in use. The EPA continues to encourage state, local, tribal, and consumer efforts to change out (replace) older heaters with newer, cleaner, more efficient heaters, but that is not part of this F ederal rulemaking.

T hese proposed revisions help address the health impacts of particle pollution, of which wood smoke is a contributing factor in many areas. Particulate pollution from wood heaters is a significant national air pollution problem and human health issue. H ealth benefits associated with these proposed regulations are valued to be much greater than the cost to manufacture Formatted: Line spacing: Multiple 1.15 li* * * E.O. 12866 Review

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- 2 cleaner, lower emitting appliances. The se proposed regulations would also significantly reduce emissions of many other pollutants from these appliances
, including carbon monoxide, volatile organic compounds, hazardous air pollutants and climate

- forcing emissions

. Emissions from wood stoves occur near ground level in residential communities across the country, and setting these new requirements for cleaner stoves into the future will result in substantial reductions in exposure and improved public health. Wood smoke contains a mixture of fine particles and toxic air pollutants ( e.g. , benzene and formaldehyde) that can cause burning eyes, runny nose, and bronchitis. Exposure to fine particles has been associated with a range of health effects, including aggravation of heart or respiratory problems, changes in lung function and increased respiratory symptoms, as well as premat ure death. Populations that are at greater risk for experiencing health effects related to fine particle exposures include older adults, children and individuals with pre

- existing heart or lung disease. Each year smoke from wood heaters and fireplaces cont ributes hundreds of thousands of tons of fine particles throughout the country

— mostly during the winter months. For more information on the health impacts from exposure to fine particles, please refer to Section 7 of this
RIA. Nationally, residential wood combustion accounts for 44 % of total stationary and mobile polycyclic organic matter (POM) emissions and 62 % of the 7

- polycyclic aromatic hydrocarbons (PAH)
, nearly 25 percent of all area source air toxics cancer risks and 15 percent of noncancer respiratory effects which are probable human carcinogens and are of great concern to the EPA

. Residential wood smoke causes many counties in the U.S. to either exceed the EPA’s health

based national ambient air quality standards ( NAAQS ) for fine particles o r places them on the cusp of exceeding those standards. For example, i n places such as Keene, New Hampshire; Sacramento, California ; Tacoma, Washington; and Fairbanks, Alaska; wood combustion can contribute over 50 percent of daily wintertime fine particle emissions. The concerns are heightened because wood stoves, hydronic heaters, and other heaters are often used around the clock in many residential areas. To the degree that older, dirtier, less efficient wood heaters are replaced by newer heaters that me et the requirements of this rule, or better, the emissions would be reduced, the efficiencies would be increased, and fewer health impacts should occur. Several areas with wood smoke problems either exceed the EPA ’ s annual or daily health

- based national
amb ient air quality standards (NAAQS) for fine particles or are close to exceeding those
standards.

This is an economically significant rule as defined by Executive Order 12866 and Executive Order 13563. Therefore , EPA is required to develop a regulatory imp act analysis (RIA) as part of the regulatory process . The RIA includes an eco nomic impact analysis (EIA), a small entity impacts analysis
, an engineering cost analysis, and a benefits analysis along with
documentation for the methods and results.* * * E.O. 12866 Review

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- 3 We provide annualized average results for the time frame from 2014 to 2022 inclusive for two options : the Proposed o ption and an Alternative o ption

. While the Proposed Option represents EPA’s preferred option, the Alternative Option is still under consider ation. These options are described in detail in the preamble for the proposal and in Section 2 of this RIA and summarized in Section 4. The options vary in part by their respective dates of implementation, all of which are captured by the range of dates i ncluded in the analyses. We estimate the impacts for the time frame from 2014 to 2022 in order to provide an average of annualized results for these options from the time of rule promulgation in 2014 to the time of full implemention implementation of both options, which occurs by 2022. Because the potential environmental impacts can occur for 40 years or more
, which is the typical useful life for wood heater appliances, the impacts for 40 years are also shown in Appendix A the appendix within Section 9 of this RIA

. The variability of annual impacts for each option provides an appropriate rationale for presenting impacts averaged over this time frame. All results in this RIA are presented in 2010 dollars. Estimates of benef its and costs are discounted to the analysis year using both a 7% and 3% discount rates following Circular A

- 4, “Regulatory Analysis,” which provides guidance to Federal agencies on the development of regulatory analyses required by Executive Order 12866. 1

In addition, this proposal cannot be certified as not having a significant economic impact on a substantial number of small entities (SISNOSE) according to the provisions of the Small Business Regulatory Enforcement Fairness Act (SBREFA). Therefore, sm all entity impacts analysis presented in Section 6 is an Initial Regulatory Flexibility Analysis (IRFA)

. Section 6 also contains a summary of the proceedings and conclusions of a panel called to find ways to mitigate small entity impacts associated with this rule under the authority of the SBREFA.

1.1 Analysis Summary
The key results of the RIA are as follows:

 Engineering Cost Analysis: EPA estimates the revised NSPS ’ s tot al annualized cost to affected manufacture r s on average in the 2014

– 2022 time frame will be $ 15.7

m illion ( $2010 ) for the P roposed option and $28.3 million (2010$) for the Alternative option, respectively, with the total annualized cost estimate at a 7% discount rate

. At a 3% discount rate, the total annualized cost will be $14.8 million for the Proposed option and $26.9 million for the Alternative option.

1 Circular A

- 4 is available at: http://www.whitehouse.gov/omb/circulars_a004_a

- 4 Comment [A1]: Is this useful life?* * * E.O. 12866 Review

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- 4  Economic Impact Analysis: The metric for economic impacts for industries affected by this Proposed option are industry

- level averag e annualized compliance costs to receipts (or sales) ratios. This metric is calculated as a n average in the 2014

– 2022 time fram e , and the estimates ranged from 4.3% for industries that produce wood stoves to as much as 6

. 4 % for single burn rate stoves . Fo r the Alternative option, the range is between 4.0% for forced air furnaces and 10

. 7 % for single burn rate stoves. These results approximate the maximum price increase needed for a producer to fully recover the annual compliance costs and, therefore, do no t presume any pass through of impacts to consumers. With pass through to consumers, these impact estimates will decline proportionate ly to the degree of pass through.

 Social Cost Analysis: For this RIA, t he Agency assumes that the social cost is equal to the annualized cost to m anufacturers. Therefore, the estimated average annual social cost of the P roposed and Alternative option s in the 2014

- 2022 timeframe are expected to be $ 15.7 million and $14.8 million respectively when disco unted at 7%
, and $ 28

. 3 million and $26.9 million when discounted at 3%. See Section 5 of this RIA for more detail on the estimated social cost

.

 Small Entity Analyses: EPA performed a scre ening analysis for impacts on small entities by comparing compliance costs to sales/revenues (e.g., sales and revenue tests). EPA ’ s analysis showed the tests were higher than 1% for small entities included in the screen ing analysis ; the 1% test estimate is often an indicator for significant impacts to small firms . For these industries, almost all (more than 90%) affected entities are small firms. We concluded that we could not certify that there would not be a significant economic impact on a substantial number of small entities (SISNOSE) for either option considered i n this RIA. Pursuant to section 603 of the RFA, EPA prepared an initial regulatory flexibility analysis (IRFA) for the proposed rule and convened a Small Business Advocacy Review Panel to obtain advice and recommendations of representatives of the regulate d small entities. A detailed discussion of the Panel ’ s advice and recommendations is found in the final Panel Report (Docket ID No. EPA

- HQ

- OAR

- 2009

- 0734 . A summary of the Panel ’ s recommendations is also presented in the preamble to the propos al . In the p r o pos al
, EPA included provisions consistent with several of the Panel ’ s recommendations.

 Benefits Analysis :

– M onetized benefits in this RIA include those from reducing particulate matter ( PM ). These benefits reflect reductions of nearly 4,800 tons annually of fine particulate matter (PM 2.5 ) on average during the 2014

– 2022 time frame under each of the two options. A ll monetized benefits reported reflect improvements in ambient PM 2.5 concentrations due to emission reductions of direct PM 2.5 . As a result, the m onetized benefits likely underestimate the total benefits, however, the extent of the underestimate is unclear. Monetized benefits reflect those associated with reductions in premature mortality due to lower ambient PM 2.5 concentrations resulting from impl ementation of the NSPS. Other benefits categories from PM 2.5 reductions, such as changes in visibility, are assessed qualitatively in this analysis.* * * E.O. 12866 Review

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- 5 – Using a 3% discount rate, we estimate d the total monetized benefits of the P roposed and Alternative options to be $ 1.8 billion to $ 4.2 billion and $1.9 billion to $4.2 billion, respectively based on estimates by Krewski and Lepeule, in the 2014

– 2022 time frame . Using a 7% discount rate, we estimate the total monetized benefits of the P roposed option to be $ 1.7 billion to $ 3.8 billion and $1.7 billion to $3.8 billion for the A lternative option in the 2014

– 20 22 time frame

. The benefits are almost identical for both options analyzed. Using alternat iv e relationships between PM 2.5 and p remature mortality supplied by experts, higher and lower benefits estimates are plausible, but most of the expert

- based estimates fall between these estimates.

– The benefits from reducing some air pollutants have not been monetized in this analysis due to data and resource constraints , including reducing 33,0 00 tons of carbon monoxide (CO)
, over 3,200 tons of volatile organic compounds (VOCs), and undetermined amounts of black carbon and HAP emissions under each option analyzed. Data, resource s , and methodological limitations prevented EPA from

mone tizing the benefits from these important benefit categories

. We assess ed the benefits of these emission reductions qualitatively in this RIA

.

 Net Benefits: For the residential wood heater NSPS, t he net be nefits (benefits minus the costs) are $1.8 billion to $4.1 billion ( $ 20 10 ) at a 3% discount rate and $1.7 billion to $3.7 billion ( $ 20 10 ) at a 7% discount rate for the P roposed option and $1.8 billion to $4.2 b illion ( $ 20 10 ) at a 3% discount rate and $1.7 billion to $3.8 billion ( $ 20 10 ) at a 7% discount rate for the Alternative option in the 2014

– 2022 time frame

. All net benefits are in 2010 dollars ($2010).

1.2 Organization of this Report
The remainder of this report supports an d details the meth odology and the results of the
R IA:

 Section 2 de scribes the proposed regulation.

 Section 3 presents the profile of the affected industries

.

 Section 4 describes the baseline emissions and emission reductions for the alternatives analyzed i n this propos al

.

 Section 5 describes the engineer ing costs, economic impacts, analyses to comply with Executive Orders , and employment impacts

.

 Section 6 describes the small entity impact analyses and the Initial Regulatory Flexibility Analysis ( IRFA ) prep ared by EPA.

 Section 7 presents the benefits estimates.* * * E.O. 12866 Review

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- 6  Section 8 presents the net benefits (benefits minus costs) for the alternatives analyzed in this proposal.
Section 9 presents references for the RIA and Appendix A presents documentation on the cost a nalysis and estimates of costs and emission reductions for the proposal under each option beyond 2022.



Table 1

- 1. Summary of the Monetized Benefits, Social Costs, and Net Benefits for the Proposed Residential Wood Heaters NSPS in the 2014

– 2022 Time F rame ($2010 millions ) a

3% Discount Rate 7% Discount Rate Proposed Option

Total Monetized Benefits b $ 1,800 To $4,200 $1,7 00 to $3,700
Total Social Costs c $1 5 $16
Net Benefits $1,8 00 To $4,1 00 $1,7 00 To $3,7 00
Nonmonetized Benefits 32, 6 7 00 tons of CO 3,200 tons of VOC Reduced exposure to HAPs, including formaldehyde, benzene, and polycyclic organic matter
Reduced Climate effects due to reduced black carbon emissions Ecosystem effects
Reduced v isibility impairment Alternative Option
Total Monetized Benefits b $ 1,900 To $ 4,200 $ 1,700 To $ 3,800
Total Social Costs c $ 2 7 $28
Net Benefits $1,800 To $4, 2 00 $1 ,7 00 to $ 3,8 00
Nonmonetized Benefits 3 2 3
, 9 0 00 tons of CO 3,200 tons of VOC Reduced exposure to HAPs, including formaldehyde, benzene, and polycyclic organic matter
Reduced Climate effects due to reduced black carbon emissions Ecosystem effects
Reduced v isibility impairment

a All estimates reflect average annual estimates for the time frame from 2014 to 2022 inclusive, and are rounded to

two significant figures. These results include appliance s anticipated to come online and the lowest cost disposal assumption . Total annualized costs are estimated at a 7% and at a 3% interest rate. Formatted: Indent: Left: 0.75", No bullets or numbering* * * E.O. 12866 Review

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- 7 b The total monetized benefits reflect the human health benefits associated with reducing exposure to PM 2.5 through

reductions of directly emitted PM 2.5 . It is important to note that the monetized benefits include many but not all health effects associated with PM 2.5 exposure. Benefits are shown as a range from Kreuski et al. (200 9 ) to La peule et al. (20 12 ) . These models assume that all fine particles, regardless of their chemical composition, are equally pot ent in causing premature mortality because the scientific evidence is not yet sufficient to allow differentiation of effect estimates by particle type. Because these estimates were generated using benefit

- per

- ton estimates, we do not break down the total m onetized benefits into specific components here. See Figure 7

- 1 for an illustration of the breakdown, or the RIA for the final Cross

- States Air Pollution Rule (EPA, 2011) for more information.

c The annualized social costs are $14.8 million for the Propos ed option at a 3% discount rate and $26.9 million for

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- 1 SECTION 2 INTRODUCTION

2.1 Background for Proposed Rule
EPA is considering amending the New Source Performance Standard (NSPS) for new residential wood heaters. EPA promulgated the original NSPS for new residential wood heaters including wood stoves in 1988. Based on a review of the NSPS in 2009, EPA noted significant technological improvements that allow emissions from these sources to be better controlled than
the current standard

. Residential Wood remains one of the five largest categories of PM emissions according to the 2008 National Emission s Inventory. 2 In light of the recent findings Thus , EPA is proposing to revise the current NSPS standards to improve regulation of wood heaters and broaden the new regulation to cover other residential heating devices. Specifically, EPA is proposing to amen d subpart AAA, Standards of Performance for New Residential Wood Heaters. We are also proposing two new subparts to address additional types of wood heating appliances

— subpart QQQQ, Standards of Performance for New Residential Hydronic Heaters and Forced

- A ir Furnaces
, and subpart RRRR, Standards of Performance for New Masonry Furnaces. The following sections describe the major proposed provisions of each subpart. Full details on the proposed provisions in each of these subparts can be found in the preamble for this proposal.

2.2 Room Heaters

The current wood heaters regulation ( s ubpart AAA) applies to adjustable burn rate wood
heaters / and stoves manufactured since 1988. We propose to broaden the applicability of the wood heaters regulation beyond adjustable burn rate wood heaters ( stoves being the focus of the original regulation) to also specifically include single burn rate wood heaters, and pellet heaters/ stoves . These and any other affected appliance would be covered in subpart AAA as a
“room heater.” We believe this “room heater” categorization better describes the appliances potentially affected under subpart AAA and included in this proposal. Note that this RIA and the proposal use the following terms interchangeably: heaters, stoves, and he aters/stoves. Except as discussed in this propos al t T he current emission limits requirements under subpart AAA would
remain in effect for the heaters /stoves and model lines manufactured before the effective date of
the final rule

. until their current EPA c ertification expires (maximum of 5 years) or is revoked

. After the certification expires or is revoked, these heaters and other new heaters would have to meet updated emission standards

. The proposed subpart AAA exempts new residential hydronic

2 U.S. EPA, 2008 National Emissions Inventory. Accessed on Sept. 11, 2012. Formatted: Space After: 12 pt, Line spacing: At least 18 pt* * * E.O. 12866 Review

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- 2 heaters, new residential forced

- air furnaces, and new residential masonry heaters because they would be subject to their own subparts. The proposed subpart AAA retains the exemption for fireplaces, strengthens the definition for “ cookstoves, ” and adds defi nitions for “ camp stoves ”
and “ traditional Native American bake ovens ” to clarify that they would not be subject to the
standard other than a requirement for appropriate labeling for cookstoves and camp stoves. Finally, the propos al clarifies that the emis sion limits would only apply to wood

- burning devices ( i.e.
, not to devices that sole ly burn fuels other than wood
, e.g. , gas or oil or coal or other
biomass ). . In addition, this proposal does not include any requirements associated with wood
heaters or ot her wood

- burning appliances that are already in use. The EPA continues to encourage state, local, tribal, and consumer efforts to change out (replace) older heaters with newer, cleaner, more efficient heaters, but that is not part of this Federal rulemakin g.

NSPS determinations of the best system of emission reductions ( BSER ), formerly referred to as best demonstrated technology (BDT), must consider costs (see section II of the preamble for more detail)

. The fact that this rule applies to consumer products manufactured for
sale results in cost considerations that are fundamentally different from most NSPS. Specifically,

t he cost of potential lost revenues if production and sales had to be suspended while designing and certifying cleaner models would be sign ificant and necessitates reasonable
, phased implementation of lead times for compliance with proposed emission limit ation s. This was true in 1988 and is still true today. Thus, we propose having a transition period so that stoves with currently effective EPA certification can continue to be manufactured until the current certification expires (5 years from date of certification) or is revoked by the Administrator, whichever date is earlier. R enewal of these certifications would not be permitted . That is, i n the

near term , we are proposing to retain the current 1990 PM emission limits for adjustable burn

rate wood heaters and pellet stoves with a current EPA certification issued prior to the effectiv e date of the final rule

. 3 While EPA ’ s top priorities are to ensur e that emission reductions occur in a timely manner and that there is no backsliding from the improvements that many manufacturers have already made, we have also sought to avoid unreasonabl e economic impacts on those manufacturers ( over 95% of which are mostly small businesses) who need additional time to develop , test, field evaluate, and certify a full range of cleaner models across their consumer product lines. In 1988, there were “logjam ” concerns about the capacity of accredited

3 For simplicity, we are using “ 2014 ” as shorthand for the expected actual date of the final rule . If the expected date of publication of the final rule changes from 2014 , we will adjust the compliance date accordingly. Formatted: Font color: Auto
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- 3 laboratories to conduct certifications tests and the time for the EPA to review the tests and adequately assure compliance if all the NSPS requirements were to be immediate. Those concerns have been expressed thi s time also. The proposed phased implementation appraoch would help reduce those concerns. and to avoid potential “ logjams ” at laboratories conducting certification testing. We ask for specific comments on the length of th is proposed transition and the degr ee to which there would be any critical economic impacts on manufacturers who have heaters with current certifications if we were to not allow less than up to the full 5

- year certification period for model lines certified prior to the effective date of this rule but the heaters

are units manufactured after the effective date publication of the final rule.

We are proposing a two

- step , phased implementation compliance approach (referred to
herein as th e “ Proposed Approach ” ) that would apply to all new adjustable burn rate wood heaters, single burn rate wood heaters and pellet heaters/ stoves required to comply with the Step
1 “ 2014 ” emission limits specified in the final rule. Under today ’ s Proposed Appro ach, the Proposed Step 1 emision limits compliance dates for these sources would apply to each
heater source (1) manufactured on or after the effective date of publication of the final rule in the Federal Register or (2) sold at retail on or after the date 6 months after the effective date from publication of the final rule in the Federal Register

. Proposed Step 2 emission limits compliance
dates for these sources would apply to each adjustable rate wood heater , single burn rate wood
heater and pellet heater/ stove manufactured or sold on or after the date 5 years after the effective
date publication of the final rule in the Federal Register

. We ask for specific comments on the Proposed Approach and the degree to which these dates could be sooner.

We are also asking for comments on an alternative three

- step compliance approach (referred to herein as the “ Alternative Approach ” ) for all adjustable rate wood heater s, single burn rate wood heaters and pellet heaters/ stove s

. required to comply with the “ 2014 ” emission limits as specified in the final rule

. Under this Alternative Approach, Alternative Step 1 emission
limits compliance dates for these sources would apply to each heater source (1) manufactured on
or after the effective date of publication of the f inal rule in the Federal Register or (2) sold at
retail on or after the date 6 months after the effective date from publication of the final rule in the Federal Register

. The emission levels for Step 1 and Alternative Step 1 are identical. Alternative Step 2 emission limits compliance dates for these sources would apply to each heater source manufactured or sold on or after the date 3 years after the effective date publication of the final
rule

. in the Federal Register

. Alternative Step 3 emission limits compliance dates for these

sources would apply to each heater source manufactured or sold on or after the date 8 years after the effective date of publication of the final rule in the Federal Register

. The Proposed Approach* * * E.O. 12866 Review

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- 4 Step 2 emission limits and the Al ternative Approach Step 3 emission limits are identical. We ask for specific comments on this Alternative Approach and the degree to which these dates could be

sooner.

W hile the 1988 promulgated subpart AAA (53 FR 5860, February 26, 1988) included an additional 1

- year compliance extension for low volume manufacturers
, i.e. , companies that manufacture (or export to the U.S.) fewer than 2,000 heaters per year
, this proposal does not include such a compliance extension. We are not proposing to extend this delay to adjustable
burn rate wood heaters or pellet heaters/ stoves, because most the majority of these appliances
should already meet comply with the proposed Step 1 emission levels standards . See section V.C.
of the preamble for more discussion of thi s topic. However, we are requesting comments on the possible need for such a compliance extension for single burn rate wood heaters, which are not subject to the current subpart AAA requirements.

Table 2

- 1 summarizes the compliance deadlines dates and PM em issions standards that would apply to each wood heater appliance under the Proposed Approach . Table 2

- 2 summarizes
the compliance d eadlines ates and PM emissions standards that would apply to each wood heater appliance under the Alternative Approach

.

We ar e proposing to have a single determination of BSER for both catalytic and noncatalytic heater systems

. The EPA again considered requiring catalyst replacement on a regular schedule but determined that enforcement of such a requirement would be difficult. As before, we are proposing to require manufacturers to provide 2

- year unconditional warranties on
the catalysts and prohibit the operation of catalytic stoves without a catalyst. In addition, we Formatted: Font color: Auto* * * E.O. 12866 Review

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- 5 Table 2

- 1. Proposed Approach Subpart AAA Compliance Deadlines and PM Emissions Limits

Appliance Compliance Deadlines a PM Emissions Limit Adjustable Rate Wood Heaters or Pellet Stoves with Current EPA Certification Issued Prior to Publication of Final Rule Transition period from 1988 rule through the later of publication of final revised rule or expiration of current certification (maximum of 5 years certificati on and no renewal) 4.1 g / hr for catalytic stoves and 7.5 g /

hr for noncatalytic stoves

All Other Adjustable Rate Wood Heaters , Single Burn Rate Wood Heaters or Pellet Stoves (includes currently certified heaters after the certification expires , catalytic and noncatalytic ) Step 1: 2014 ( upon effective date publication of final rule)

Step 2: 2019 ( 5 years after effective date publicatio n of final rule) 4 .5 g /hr

1.3 g/hr

a Compliance deadlines are based on estimated publication of final rule in 2014 . If the publications date changes,

the EPA will change the compliance dates based on the actual date of publication.

Table 2

- 2. Alternative Approach Subpart AAA Compliance Deadlines and PM Emissions Limits

Appliance Compliance Deadlines a PM Emissions Limit Adjustable Rate Wood Heaters or Pellet Stoves with Current EPA Certification Issued Prior to Publication of Final Rule Transition period from 1988 rule through the later of publication of final revised rule or expiration of current certification (maximum o f 5 years certification and no renewal) 4.1 g/hr for catalytic stoves and 7.5 g/hr for noncatalytic stoves

All Other Adjustable Rate Wood Heaters, Single Burn Rate Wood Heaters or Pellet Stoves (includes currently certified heaters after the certification expires, catalytic and noncatalytic) Step 1: 2014 ( upon effective date publication of final rule )

Step 2: 2017 ( 3 years after effective date publication of final rule)

Step 3: 2022 ( 8 years after effective date publication of final rule) 4.5 g/hr

2.5 g/hr

1.3 g/hr

a Compliance deadlines are based on estimated publication of final rule in 2014 . If the publications date changes,

the EPA will change the compliance dates based on the actual date of publication.

We are proposing to have a single determination of BSER for both catalytic and noncatalytic heater systems

. As in 1988, t he EPA again considered re quiring catalyst replacement on a regular schedule but determined that enforcement of such a requirement would be difficult. As before, we are proposing to require manufacturers to provide warranties on the catalysts and prohibit the operation of catalytic stoves without a catalyst. In addition, we are Formatted: Body Text1,bt,body tx,indent,flush,memo body text,body 4h,body 4equationh* * * E.O. 12866 Review

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- 6 proposing to require warranties for noncatalytic stoves. W e are not propos ing efficiency
standards at this time, however, we are proposing to require testing and reporting of these data.

We are also proposing to require emission testing and reporting based on both crib wood and cordwood for Step 1, while allowing manufacturers to choose whether to certify with crib wood or cordwood for Step 1. For Step 2, we are requiring certifying with cordwood only

. “Crib wood” is a specified configuration and quality of dimensional lumber and spacers that was intended to improve the repeatability of the test method required in the current Residential Wood Heaters NSPS promulgated in 1988. “Cord wood” is a different specified configuration and quality of wood that is intended today to more closely resemble what a typical homeowner would use.

O ur current data for CO emissions performance and methods of control are not sufficiently robust to support strong CO emission limits, and it would delay the NSPS if we were to seek additional data elsewhere at this time to support strong CO emission limits. Although we lack sufficient data to propose a separate CO emissions standard at this time, we propose to require that the ma nufacturer determine CO emissions during the compliance test and report those results to the EPA. We specifically request emission and cost data for systems that reduce CO emissions. If those systems warrant inclusion in the determination of BSER, we would consider doing so. Also, we ask for specific comments on whether we should require indoor CO monitors as a critical safety component for heaters installed in occupied buildings or other buildings or enclosures in which the operator would enter to add fuel to the heater or conduct other normal operation and maintenance of the heater

. Like the current subpart, the EPA is using its authority under Section 114 of the CAA to require each manufacturer to submit certifications of compliance with this rule for all models and all units. As in the 1988 rule, provided that the certifications are timely, complete, and accurate, the EPA will allow certification of compliance with the PM emissions standards to be determined based on testing of a representative unit within the model line rather than testing every unit . As in 1988, the cost of testing each unit would be an order of magnitude greater than the cost of a wood stove and would be economically prohibitive. Also, as in 1988, the testing of
each unit could cre ate a potential “ logjam ” that would stymie the certification of cleaner model
lines. W e recognize ther e is some concern that testing laboratories may not be able to meet the demand for certification tests in the first few years. However, we believe that th e availability of additional ISO

- accredited labs, the advance notice that industry has had concerning the NSPS prior to this proposal, and the time between t hi s proposal and the proposed implementation compliance deadlines date of the final rule, should ens ure that adequate* * * E.O. 12866 Review

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- 7 compliance certification resources are available. In addition, to further respon d se to the concern regarding availability of testing laboratories, the proposed subpart expands the definition of

“ Accredited Test Laboratory
, ” from just EPA

- accredited laboratories to allow laboratories accredited by a nationally recognized accrediting body to perform testing for each of the test methods specified in this NSPS under ISO

- IEC 4 Standard 17025
, to conduct the certification testing. The laboratories would have to register their credentials with the EPA and report any changes in their accreditation and any deficiencies found under ISO 17025

. The EPA would review that information to approve (or deny or revoke) the accreditation for the purpose of the determining compliance with the NSPS prior to the lab conducting any certification testing or related work used as a basis for compliance with this rule

.

To ensure a practical, orderly transition, the propos al retains the current “ Administra tor Approval Process ” to review the certification application, including test results, for the first year following publication of the final rule. At that point or earlier if chosen by manufacturers, the revised subpart would implement a “ Certifying

- Body

- B ased Certification Process. ” Under this process, after testing is complete, a certification of conformity with the PM emissions standards must be issued by a certifying body with whom the manufacturer has entered into contract for certification services. S imilar to the lab requirements , the certification body would have to be accredited under ISO

- IEC Standard 17065 and register their credentials with EPA and report any changes in their accreditation and any deficiencies found under ISO 17065

. The EPA would review that information to approve (or deny or revoke) the accreditation for the purpose of the determining compliance with the NSPS prior to the lab conducting any certification testing or related work used as a basis for compliance with this rule

. Upon r eview of the test report and quality control plan submitted by the manufacturer, the approved certifying body may certify compliance and submit the required documentation to the EPA ’ s Office of Enforcement and Compliance Assurance for review, approval and listing of the certified appliance.

As in the current 1988 NSPS, each affected unit would be required to have an applicable permanent label and have an owner ’ s manual that contains specified information. We are proposing that permanent labels be required for each affected unit effective on the date of publication of the final rule. We are proposing to no longer require that showroom temporary labels ( “ hangtags ” ) be required for each affected unit at Propo sed Step 2, that is, 5 years after the date of publication of the final rule . This is a change from the existing 1988 NSPS, which

4 ISO, the International Organization for Standardization, and IEC, the International Electrotechnical Commission, prepare and publish international standards.* * * E.O. 12866 Review

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- 8 requires that all certified models be equipped with temporary hangtags. The intent of th e 1988 temporary is hangtag requirement was is to highlight only models that me e t the strongest EPA standards. We believe adequate information on EPA certifications would be available on the EPA Burn Wise website, the permanent label and the owner’s manual. The proposal would clarify that the p ermanent label must be installed so that it is readily visible both prior to and
after once the unit is installed. This clarification is needed to document the use of complying heaters required by state and local rules and/or to determine the unit ’ s applic ability to any future changeout programs.

We also request specific comments on how to best assure that manufacturers and retailers and online marketers of wood heaters only use valid certification test data and that regulators and consumers have ready acc ess to certification information

. We also propose to revise the format of the hangtags to reflect the current state of computer graphics and to present the required information in a more consumer

- friendly format. We propose to add requirements that the ef ficiency of the device as measured during the compliance test must be included on the hangtag. We request specific comments on ways to improve the delivery of information on the hangtag and in the owner ’ s manual and on whether different information might be useful to the consumer and to the regulatory authorities. We also request specific comments on what information and format might be most useful for the EPA to include on the EPA Burn wise website , EPA’s web po rtal for information on residential wood smoke emissions and ways to reduce them, and wood burning appliances

.

In addition to the PM emissions standards , certification and labeling requirements , we are proposing to continue to require the proper burn pract ices that already currently apply to the owner or operator of a wood heating appliance. That is, the 1988 current standards already include the requirement that the owner or operator must operate the heater consistent with the

owner ’ s manual and not burn imp roper fuels. The proposed revision clarifies that the current requirement to operate according to the owner ’ s manual must continue to include a list of prohibited fuel types that create poor or even hazardous combustion conditions and must include
the dire ction that pellet fuel appliances can be safely and effectively operat ed only with pellet
fuels used in the certification tests . We propose that pellets for the certification tests be only
those that have been produced under a licensing agreement with the Pellet Fuels Institute (PFI)
, or equivalent ( after request and subsequent approval by the EPA), to meet certain minimum Formatted: Indent: First line: 0"* * * E.O. 12866 Review

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- 9 requirements and procedures for a quality assurance process. 5 (Currently, PFI is the only organization that has volunteered to conduct such a program.) We believe that these provisions are necessary to ensure that the appliances operate properly such that emissions are reduced as
intended. We ask for specific comments on whether we should include other requirements of best burn practices or adjustments to help ensure proper operation, e.g. , chimney height and draft specifications, moisture content of wood, and limits on visible emissions.

The proposed subpart still contains the crucial quality assurance provisions in the current 1988 NSPS

. The 1988 NSPS current requirements for manufacturer quality assurance program s would be maintained for 1 year following the effective date publication of the final rule. At that point, the manufacturer would be required to adopt a Certifying

- Body

- Based Qu ality Assurance program. The Certifying Body would conduct regular, unannounced audits to ensure that the
manufacturer ’ s Quality Control Plan is being implemented properly.

The concepts of the EPA selective enforcement and random audit testing programs of the
current 1988 NSPS will be re tained under the P roposed rule , although they will be streamlined and simplified to better en sure compliance and to clarify that selective enforcement audits can be
based on any information the EPA has available and do not h ave to be statistically random. Also, we clarify that the EPA and states are allowed to be present during the audits and that states may provide the EPA with information to help the EPA enforcement and compliance assurance
efforts

.

The EPA is proposing a number of revisions to certification testing for various appliances. The EPA is proposing that updated and tailored versions of Method 28, a sampling and analysis method to analyze wood stove emissions
, be used for all of the appliances in this rulemaking. T he EPA developed Method 28 in 1987 and 1988 as part of our efforts on the

current 1988 NSPS. The manufacturers, laboratories, states, and the EPA have now had over 2 5 years of experience with Method 28 and it has been very useful for certifying hundreds of model lines of wood stoves. We asked the manufacturers, EPA

- accredited laboratories, and states for their insights on Method 28. Many stakeholders agree that changes should be made to improve the repro ducibility and repeatability of the test procedures and to address concerns about how to best ensure protection across the entire U.S. when various operating scenarios are used and various wood species and densities are used. For example, to address some o f these concerns,
ASTM , formerly known as the American Society for Testing and Materials, has used a

5 Details of the PFI program are available at http://pelletheat.org/pfi

- standards/pfi

- standards

- program/

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- 10 “ consensus

- based ” process to develop E2515

- 10 “ Standard Method for Determination of
Particulate Matter Emissions in a Dilution Tunnel. ” As with all test me thods, there are opportunities for continual improvement
, and the EPA requests specific comments and supporting data for additional potential improvements to E2515

- 10.

A number of states have expressed concern about ASTM ’ s Intellectual Property Policy whi ch requires all participants to give their intellectual property rights to ASTM so that
, in turn
, ASTM can control distribution of the drafts and final test methods and sell the final test methods to potential users. Attorneys General for several states ha ve indicated that state employees in their states cannot give to ASTM the property rights for property that their states paid for via the employee salaries and other expenditures and thus cannot participate in ASTM ’ s “ consensus

based ” process. For this rul emaking, ASTM is allowing public review, for no charge, of the ASTM test methods and draft work products relevant to this proposed rule at www.astm.org/epa

.

. The EPA requests specific comments and supporting data on the substance of all of the test methods relevant to this rulemaking and specific comments on the ASTM process and ways to ameliorate the process concerns.

ASTM methods E2779

- 10 “ Standard Test Method for Determining Particulate Emissions
from Pellet Heater s ” and E2780

- 10 “ Standard Test Method for Determining Particulate
Emissions from Wood Heaters ” , which are test methods used to determine average emissions rates and average emissions factors for pellet heaters /stoves and wood heaters /stoves
, respectively, could potentially replace the wood heater fueling and operation requirements in Method 28 for each of these type of heaters . Note that ASTM intends to use the same E2515

- 10 for the sampling and analysis portion for all the appliances and then separate meth ods per appliance types for the fueling and operation portions of these methods. The EPA believes that
E2779

- 10 is a sound method for measuring emissions from pellet stoves and includes reasonable measures to reduce testing costs for continuously

- fed appli ances and today we are proposing its

use . However, because , as noted earlier, some states were not able to participate in the ASTM method development process, we specifically request comments and supporting data of all aspects of not only this test method but also all the proposed methods as part of the comments on today ’ s proposed rule.

Similarly, the EPA believes that ASTM Method E2780

- 10 includes improvements for testing adjustable and single burn rate wood heaters
, and we are proposing many of th ose im

provements em . For example, we are proposing the use of the E2780

- 10 appendix for testing single burn rate appliances. However, we, and some states, do not agree with all the changes that ASTM has made for adjustable burn rate wood heaters , and some provisi ons are not as protective* * * E.O. 12866 Review

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- 11 as we, and some states, now believe they need to be. As noted above, several states are concerned about how to best ensure that the methods are protective for the entire U.S., considering differences in wood species, density, and homeowner operation. The EPA and the states are particularly concerned about scenarios in which stoves will have higher emissions in homes than the emissions measured in the laboratories. For example, the states and the EPA are concerned about the ASTM cha nges on burn rate categories, i.e. , easing or eliminating the lowest
burn rates that often occur in home operations and are typically the dirtiest and least efficient. The EPA is asking for specific comments on these issues and recommendations and supporti ng data for other changes

. In addition, ASTM has developed a draft test method that uses cordwood rather than crib wood to better represent real world conditions. All stakeholders agree that a test method that better rep r es e nts real wo rl d conditio n s wou l d be a significant improvement and help ameliorate concerns that some heaters do not perform as well in the field as they do in laboratories. We are
also interested in real

- time emission test methods that measure cold or warm start

- up emissions
and emissio n peaks/durations. We are also interested in field test methods and less expensive test methods that regulators and neighbor can use to better quantify impacts in the real world. The EPA is asking for specific comments and data on all these potential metho ds, issues and
recommendations

.
2.3 Central Heaters: Hydronic Heaters and Forced

- Air Furnaces

Th e proposed subpart QQQQ would apply to new wood

- fired residential hydronic heaters
and forced

- air furnaces and any other affected appliance as defined in proposed subpart QQQQ

as a “ central heater .” These appliances are described in more detail in Section 3 of this RIA. We believe this “ central heater ” categorization will ensure that all appliances potentially affected under the proposed subpart QQQQ are properly i ncluded. The proposed provisions of subpart QQQQ would apply to each affected unit that is manufactured or sold on the effective date or after 60 days after publication of the final rule in the Federal Register

. Th is ese proposal s do es not include any requi rements for heaters that are fueled solely by gas or oil or coal or non

- wood
biomass

. In addition, this proposal does not include any requirements associated with wood heaters that are already in use. The EPA continues to encourage state, local, tribal, and consumer efforts to change out (replace) older heaters with newer, cleaner, more efficient heaters, but that is not part of this Federal rulemaking. Formatted: Space After: 12 pt, Line spacing: At least 18 pt* * * E.O. 12866 Review

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- 12 The Proposed Approach (or Option) would apply to new residential hydronic heaters and
forced

- air furna ces. Under the Proposed Approach, the Proposed Step 1 emission
limit compliance date for residential hydronic heaters and forced air heaters would be upon the effective date publication of the final rule in the Federal Register, expected to be in 2014 . The Proposed Step 2 emission limit compliance date for residential hydronic heaters and forced air
heaters would be 5 years after the effective date publication of the final rule in the Federal Register

. We ask for specific comments on the Proposed Approach an d the degree to which these
dates could be sooner.

We also considered an alternative three

- step approach (Alternative Approach or Option) for residential hydronic heaters and forced air heaters. As in the Proposed Approach, under this Alternative Approach, the Alternative Step 1 emission limit compliance date for residential hydronic heaters and forced air heaters would be upon the effective date publication of the final
rule in the Federal Register, expected to be in 2014

. The Proposed Step 1 emission limi t and the Alternative Approach Step 1 emission limit are identical. The Alternative Step 2 emission
limit compliance date for residential hydronic heaters and forced air heaters would be 3 years
after the effective date publication of the final rule in the F ederal Register

. This serves as an “interim” step on the way to the tighter emissions limits included in Alternative Step 3. The Alternative Step 3 emission limit compliance date for residential hydronic heaters and forced air
heaters would be 8 years afte r the effective date publication of the final rule in the Federal Register

. The Proposed Step 2 emission limit and the Alternative Approach Step 3 emission limit
are identical. We ask for specific comments on th is Alternative Approach and the degree to whi ch these dates could be sooner.

Table 2

- 3 summarizes the proposed BSER compliance dates and PM emissions standards that would apply under the Proposed Approach

. Table 2

- 4 summarizes the BSER compliance dates and PM emissions standards that would apply under the Alternative Approach. Similar to subpart AAA, we are not proposing a standard for CO or efficiency, but are proposing to require manufacturers to collect and report CO emissions and efficiency data during certification tests.* * * E.O. 12866 Review

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- 13 Table 2

- 3. Proposed Approach Subpart QQQQ Compliance Dates and PM Emissions Standards

Appliance Compliance Date a Particulate Matter Emissions Limits Residential Hydronic Heater Step 1: Upon 2014 (upon publication effective date of the final rule)

Step 2: 2019 ( 5 years after effective date publication of the final rule) 0.32 lb/MMBtu heat output and a cap of 7.5 g/hr for individual test runs

0.06 lb/MMBtu

Forced

- Air Furnace Step 1: U 2014 (u pon effective date publication of the final rule)

Step 2: 2019 ( 5 years after effective date publication of final rule) 0.93 lb/MMBtu

0.06 lb/MMBtu

a Based on estimated publication of final rule in 201 4 . If the publication date changes, the EPA will change the

compliance dates based on the actual date of publication.

Table 2

- 4. Alternative Approach Subpart QQQQ Compliance Dates and PM Emissions Standards

Appliance Compliance Date a Particulate Matter Emissions Limits
Residential Hydronic Heater Step 1: 2014 U (u pon effective date publication of the final rule)

Step 2: 2017 (3 years after effective date publication of final rule)

Step 3: 2022 ( 8 years after effective date publication of the final rule) 0.32 lb/MMBtu heat output and a cap of 7.5 g/hr for individual test runs

0.15 lb/MMBt

0.06 lb/MMBtu

Forced

- Air Furnace Step 1: 2014 (u U pon effective date publication of the final rule)

Step 2: 2017 ( 3 years after effective date publication of final rule)

Step 3: 2022 (8 years after publication of final rule) 0.93 lb/MMBtu

0.15 lb/ MMBtu

0.06 lb/MMBtu

a Based on estimated publication of final rule in 2014. If the publication date changes, the EPA will change the

compliance dates based on the actual date of publication. Unlike the subpart AAA requirements, the subpart QQQQ requirem ents would not provide an additional time period for the sale of unsold units manufactured before the* * * E.O. 12866 Review

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- 14 compliance date nor do they include a small volume manufacturer compliance extension. 6 We ask for comments on the timing for implementation.

As in the current subpart AAA for wood heaters/ stoves, we are proposing a list of prohibited fuels because their use would cause poor combustion or even hazardous conditions. We request comment on these requirements and data to support additional requirements, if

warra nted. Also, as in the current subpart AAA for wood heaters/ stoves, we are proposing that the owner or operator must not operate the hydronic heater or forced

- air furnace in a manner that is inconsistent with the owner ’ s manual. For pellet

- fueled appliances , th e proposal makes it clear that operation according to the owner ’ s manual includes operation only with pellet fuels that have been used in the certification test and have been graded and marked under a licensing agreement with the PFI, or equivalent (after request and subsequent approval by the EPA), to
meet certain min imum requirements and procedures for a quality assurance process. Details of the PFI program are available at http://pelletheat.org/pfi

- standards/pfi

- standards

- program/

. (Currently, P FI is the only organization that has volunteered to conduct such a program.) We believe that these provisions are necessary to ensure that the appliances operate properly such
that emissions are reduced as intended. We ask for specific comments on the use of the PFI program and the PFI specifications, especially the degree to which the PFI program will adequately ensure the absence of construction and demolition waste (and associated toxic contaminants) in pellets.

The proposed permanent labels and labelin g requirements and owner ’ s manual requirements are similar to the guidelines in the EPA ’ s current voluntary hydronic heater program with some improvements. We provide information on the number of m odels anufacturing that currently meet the limits in the vo luntary hydronic heater program in Section 4. We request specific comments on ways to improve the delivery of information on the permanent and temporary labels and in the owner ’ s manual and the Burn Wise website and whether
additional different informatio n might be useful to the consumer s and to the regulatory
authorities.

The structure of the rest of the proposed subpart QQQQ is similar to the proposed subpart AAA certification and quality assurance process. We request specific comments on changes or impr ovements to that process that might be needed to address any special concerns related to the certification of hydronic heaters and forced

- air furnaces.

6 See section V.C. of the preamble for more discussion of this topic.* * * E.O. 12866 Review

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- 15 T he EPA developed Method 28 OWHH (outdoor wood hydronic heaters)
, in 2006
, as part of our efforts for vo luntary qualification of cleaner hydronic heaters. We received input at that time from manufacturers, laboratories, and some states in order to quickly develop a mostly

consensus

- based method that we incorporated into the program partnership agreements. We used Method 28 for wood stoves as the foundation
, and thus
, Method 28 OWHH has many aspects similar to Method 28. Three significant differences are (1) Method 28 OWHH uses larger cribs because hydronic heater fireboxes are typically much larger than wood heater fireboxes, (2) Method 28 OWHH uses red oak instead of Douglas fir because red oak is the more common fuel in the U.S., and (3) Method 28 OWHH includes procedures for determining 8

- hour heat output and efficiency. The manufacturers, laboratories, sta tes, and the EPA have now had over 7 years of experience with Method 28 OWHH and its successor Method 28 WHH ( wood hydronic heaters, improved and expanded to include indoor heaters, not just outdoor heaters)

. All the stakeholders that have provided input o n the test methods agree that the methods should be thoroughly vetted and change d a s necessary to improve the method s ’ s accuracy and precision and to address concerns about how to best ensure real world protection across the entire U.S. when various operating scenarios and wood species and densities are used. ASTM has developed E2618

- 09 , a test method that applies to wood

- fired hydronic heaters, to address
some of these concerns
, and the EPA believes that E2618

- 09 does include some improvements

. Howev er, as with the wood stove methods, we and some states do not agree with all the changes that ASTM has made. For example, the states of Washington and Oregon are very concerned that Method 28 WHH and ASTM E2618

- 09 do not specify fueling with Douglas fir, w hich is used in EPA Method 28 for wood stoves and which the se states require in their regulations for residential wood heaters, including hydronic heaters , and is used frequently in their states for fuel in the real world . They are concerned that hydronic heaters tested with red oak will have higher emissions when fueled with Douglas fir and other less dense species typical in their states. Also, a number of states and the EPA are concerned about the ASTM changes to the burn rate categories, i.e. , easing or eliminating testing at the lowest burn rates which often occur in home operations and are typically the dirtiest and least efficient. For several year s , we have been communicating with European certification laboratories to learn how they conduct their te sts under EN 303

- 5
, a European Union test protocol for wood

- burning appliances, and to consider if incorporating some of their testing procedures might improve our test methods.

More recently, because of initial concerns about some surprisingly high labora tory test efficiencies for a couple of the EPA voluntary program Phase 2 qualified partial heat storage models, the EPA, the Northeast states that regulate hydronic heaters, laboratories (including* * * E.O. 12866 Review

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- 16 EPA

- accredited laboratories and Brookhaven National Labora tory), and manufacturers have conducted an exhaustive review of voluntary program qualifying test reports. All of the stakeholders that provided input on the test methods agree that we need a change in the test method for testing of non

- integral partial he at storage models ( i.e. , models that have separate heat storage but the storage does not have the capacity to safely handle all the heat generated by a full load of fuel)

. ASTM has been leading an effort to develop an Appendix X2 , which is additional guid ance as support, to the test method for such models but has not completed that effort as of today ’ s proposal. Brookhaven National Laboratory has recommended a method to the New York State Department of Environmental Conservation (NYSDEC) and NYSDEC is usin g has proposed that method be used for certification of such models in their state s

. EPA is proposing that method be used for certification of the NSPS for hydronic heaters equipped with a heat storage unit. 7

Further, we are proposing revisions to Method 28 WHH that would require that all
affected non

- pellet hydronic heaters, subject to new subpart QQQQ, conduct and report certification testing using both crib wood and cordwood for the Step 1 2014 emission limit s and then choose which they want to use for compliance. For other than pellet

- fueled heaters, the compliance tests would be solely cordwood for the Step 2 2019 emission limits.

W e are asking for specific comments on whether the EPA should use (1) one or m ore of the draft versions of Appendix X2 being considered as part of ASTM work product WK26581
, which is a revision to the existing E2618

- 09 test method for measuring emissions from outdoor hydronic heaters ; (2) the European Union test method EN 303

- 05 as the Maine Department of Environmental Protection has recently approved for certification of hydronic heaters in their state as equivalent to the EPA Method 28 WHH ; (3) the use of the NYSDEC proposed new partial thermal storage test method; and/or (4) some o ther test method . For use of any of the test
methods , the EPA would require that the amount of heat storage for the actual sale and
install ation of the hydronic heaters be no less than the amount used for the certification tests.
Because EN303

- 05 does not currently utilize heat storage during the certification test, if the EPA
were to use EN303

- 05 test results, the EPA would require the installed heater to have heat storage that can safely handle at least 60 % of the maximum heat output of the heater or a gr eater level if the manufacturer specifies a greater level . The EPA is asking for specific comments on the appropriateness of this heat storage level or other levels. The EPA will consider any or all of these options as the preferred reference test methods or as acceptable emission testing

7 See footnote 19.* * * E.O. 12866 Review

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- 17 alternatives. (ASTM previously developed an Appendix X1 , an additional part to the test protocol, for testing of models that have “ full ” heat storage that can safely accept the heat from the full load of fuel.) We request comments on all aspects of heater testing and are especially interested in emission test data that compare the results for testing by these different methods.

T he exhaustive review discussed above found a number of areas in the methods to improve the quality of the data and reduce anomalies. In June 2011, the voluntary program stakeholders agreed to a number of changes to Method 28 OWHH
, and we are proposing the revised method today as EPA Reference Method 28 WHH. The EPA is asking for specific

comment s on this method and recommendations and supporting data for other changes or acceptable alternatives. Additional information on the EPA methods is available at www.epa.gov/burnwise and the ASTM methods and draft work products are available at www.astm.org/epa

. As for wood heaters/stoves under Subpart AAA, ASTM is developing hydronic heater test methods that use cordwood instead of crib wood in order to better represent real world conditions. The proposed Step 2 of subpart QQQQ will require testing using cord wood. The EPA requests specific comments and data to support the ASTM cord wood methods and/or other cord wood test methods.

The EPA is proposing to rely on the test meth od B415.1

- 10 that has been developed by
the Canadian Standards Association ( CSA ) for forced

- air furnaces. All CSA standards are developed through a consensus development process approved by the Standards Council of Canada This process brings together volun teers representing varied viewpoints and interests to achieve consensus and develop a standard. CSA worked for years on development of this test method that has its roots in earlier U.S. efforts on wood stoves. The current version of CSA
B415.1

- 10 was publ ished in March 2010, and it includes not only the forced

- air furnace test method but also new Canadian emission performance specification s for indoor and outdoor central heating appliances.

Although the CSA B415.1

- 10 technical committee included 32 individ uals, including numerous U.S. manufacturers and laboratories, it did not include any states or environmental groups, and the EPA participation was minimal. Nevertheless, we are satisfied that this CSA method warrants proposal for this rulemaking and we req uest specific comments and supporting data. We ask for specific comments on the appropriateness of using the CSA test method in its entirety, including the use of cordwood instead of cribs that are used in current versions of Method 28 and Method 28 WHH. T o review the CSA test method, please go to www.csa.ca

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- 18 2.4 New Residential Masonry Heaters

Th e proposed subpart RRRR would apply to new residential masonry heaters. A masonry
heater is a site

- built or site

- assembled, solid

- fuel ed heating device constructed mainly of masonry materials in which the heat from intermittent fires burned rapidly in its firebox is stored in its massive structure for slow release to the building. It has an interior construction consisting
of a firebox a nd heat exchange channels built from refractory components.
The provisions apply to each affected unit that is manufactured on or after 60 days after publication of the final rule in the Federal Register

. We are proposing that, as of the effective date of publication of the final rule in the Federal Register , no person would manufacture , on or after the date of publication of the final rule in the Federal Register
, or sell a residential masonry heater that does not meet the proposed emission limit of 0.32 l b of PM per MMB tu heat output. We are also proposing a 5

- year small volume manufacturer compliance extension that would apply to companies that construct fewer than 15 masonry heaters per year. See section V.C. of the preamble for more discussion of compli ance date related issues. We request specific comments on the degree to which these dates can be sooner. As in the case of the other proposed standards, we are proposing requirements that would apply to the operator of the masonry heater, including a provi sion to operate the unit in compliance with the owner ’ s manual; a prohibition on use of certain fuels; and a requirement to use licensed wood pellets or equivalent, if applicable. We are not proposing efficiency standards for new residential masonry heater s at this time because data are not yet available to support the basis for such standards. As in the case of the other proposed standards, t h is masonry heaters proposal do es not include any requirements for heaters that are fueled solely by gas or oil or c oal or non

- wood biomass

. Also as in the case of the other proposed standards
, this masonry heaters proposal does not include any requirements associated with heaters already in use. The EPA is proposing to rely on ASTM test method E2817

- 11 , which is a standard
emissions test method for masonry heaters . The laboratories, some states, and many in the masonry heater industry worked for years on drafts of this method that has its roots in earlier regulatory efforts in Colorado. The EPA has participated in t he discussions from time to time over the years and has provided comments and suggestions. There have been a number of variations of similar methods over the years. The current ASTM drafts are ASTM E2817

- 11

“ Standard Test Method for Test Fueling Masonry He aters ” and ASTM WK26558 “ Specification for Calculation Method for Custom Designed, Site

- built Masonry Heaters. ” ( see http://www.astm.org/DATABASE.CART/WORKITEMS/WK26558.htm for method). We are encouraged by the progress shown by development of these current draft ASTM methods and propose that they be used for this rulemaking. We request specific comments on these draft methods and any changes that should be considered and supporting data for those changes. We Formatted: Normal, Indent: First line: 0.5", Line spacing: Multiple 1.15 li* * * E.O. 12866 Review

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- 19 request specific comments and supporting emission test data on the use of “ Annex A1. Cordwood Fuel ” and “ Annex A2. Cribwood Fueling. ” ASTM is allowing public review, for no charge, of the ASTM test methods and draft work products rel evant to this rule at www.astm.org/epa

. As an alternative to testing, we are proposing that manufacturers of masonry heaters submit a computer model simulation program, such as ASTM WK 26558 noted above for the
EPA ’ s r eview and approval.

The structure of the rest of the proposed subpart RRRR is similar to the proposed subpart AAA certification and quality assurance process and contains similar requirements for labels,

owner ’ s manual, etc

. One difference, however, is that, for small custom unit manufacturers, we are requiring less stringent QA procedures. Specifically, we are proposing that the initial certification for these custom units is sufficient and that no further QA regulatory requi rements

are is necessary because since each unit is a unique model and subject to certification. We request comment on changes or improvements that might be needed to address special concerns related to certification of masonry heaters. Formatted: Font color: Auto* * * E.O. 12866 Review

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- 1 SECTION 3
I NDUSTRY PROFILE

T he proposed revision s to the NSPS for residential wood heaters would cover a number
of devices that include wood stoves /heaters , pellet stoves /heaters
, other solid biomass stoves ; masonry heaters; indoor and outdoor hydronic heaters and fo rced

- air furnaces. (This RIA and the proposal use the terms stove, heater, and stove/heater interchangeably.) EPA has developed this industry profile to provide the reader with a general understanding of the technical and economic aspects of the industries that would be directly affected by potential revis ions to the NSPS regulation for new residential wood heaters and to offer information relevant to preparing an economic impact analysis (EIA) for this proposed revision to the NSPS. We begin by outlining

the supply side by discussing the production process for wood heater s and the associated costs and follow this with an overview of the demand side of the market for residential wood heaters as a primary or secondary home heating system. We then address the characteristics that define the residential wood heating market and profile the companies that produce wood heating systems. Although the wood heating equipment industry includes multiple product markets, there is little published information about the int ricacies of each individual market. For this profile, we analyzed the wood heat ing market primarily on an aggregated level and provide detailed information for specific product markets when such information is available.

3.1 Supply Side
Wood heating devices em body a variety of products that provide heat and/or aesthetic
ambiance for residential consumers both indoors and outdoors by burning wood or other solid biomass fuel. Indoor wood

- burning devices can provide space heating for a single room or can be central heaters for area of a residential home. Indoor heating devices include freestanding wood stoves, pellet stoves, masonry heaters, fireplace inserts, and forced

- air furnaces. Outdoor wood heating devices, also known as outdoor wood boilers, or water stoves, are typically located adjacent to the home they heat in small sheds with short smoke stacks. Other products considered
in the development of potential proposed revisions of this NSPS (but not proposed to be regulated in this rulemaking) incl ude low

- mass fireplaces, open masonry fireplaces, fireplaces, fire pits, chimineas, cook stoves, and pizza ovens.

This section provides a general description of the residential wood heater manufacturing processes. We then provide more detailed definitions of the indoor and outdoor wood heater products co nsidered and the wood fuels used in their operation.* * * E.O. 12866 Review

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- 2 3.1.1 Production Process
The manufacturing process for residential wood heaters varies depending on the product type being produced. Generally, the manufacturin g process entails the assembly of several prefabricated metal components. Major inputs include cast iron, metal products, heat

- proof glass, fireproof fabric insulation, refractory brick, and heat

- tolerant enamels or coatings.

Wood heating devices are typic ally categorized by emissions and efficiency ratings. The emissions ratings typically use EPA, ASTM, CSA, or EN (European Union) test methods. The efficiency ratings are based on tests that measure the amount of heating value transferred from a
full load o f wood or other biomass fuel (fuel type varies based on the product being tested) to the living space. Efficiency tests evaluate two performance metrics that include combustion and heat transfer efficiency. Combustion efficiency determines how effective th e fire box design is at burning the fuel and extracting its heating value. Heat transfer efficiency tests are potentially conducted in calorimeter rooms equipped with temperature sensors to measure the degree changes in the heated living space and the flue exhaust to determine how much heat from the fire is delivered to the living space compared with the heat lost up the flue (EPA, 2009 c ).

Thermal output, typically expressed in British thermal units per hour ( BTU /hr) in the
U nited S ta tes , is the heat output measure that tells the amount of heat produced each hour. A higher BTU /hr rate suggests that a stove will produce more heat per hour than a stove with a lower rating. Depending on design and size characteristics, a space heating dev ice heat output rating ranges between 8,000 and 90,000 BTU /hr. Larger heating systems designed to provide whole home heating have heat output ratings that range from 100,000 to greater than one million
BTU /hr.

3.1.2 Product Types

3.1.2.1 Wood and Coal Stoves

EPA

- certified wood stoves typically are enclosed combustion devices that provide direct space heating for a specific room or area of a home. 8 Catalytic and noncatalytic wood stoves are two general types of wood stoves available in the United States. (Some models are hybrids.) This designation refers to the design of the combustion system. Noncatalytic combustion systems rely on high temperatures ( > 1,000°F) within the fire box to fully combust the chemical compounds (combustible gases and particles) in the w ood smoke. In catalytic combustion systems, the

8 EPA

- certified wood stoves are thos e wood stoves that meet the requirements under the current residential wood heater NSPS.* * * E.O. 12866 Review

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- 3 presence of the catalytic element lowers the temperature at which wood smoke chemical compounds combust. Catalytic elements or combustion system designs in noncatalytic combustion systems are used in existing stoves to meet EPA emission standards.

Coal stoves are similar in structure and appearance to wood stoves. Most coal stoves are designed to burn hard anthracite coal instead of soft bituminous coal (Houck, 2009 ), but different varietie s of coal have been used in coal stoves over time . Stoves that solely burn coal are not affected by the proposed revisions to the NSPS.

3.1.2.2 Wood Pellet Stoves and Biomass Stoves
Wood pellet and other biomass stoves are similar in application to wood stoves but generate heat through pellet combustion. Wood pellet stoves use tightly compacted pellets of wood as fuel, whereas other biomass stoves can use a variety of pellet types, including corn, fruit pits, and cotton seed (EPA, 2009 c ). A l oad of pellets is poured into the stove ’ s hopper; then the user sets a thermostat that controls a feed device within the stove. The feed device regulates the amount of fuel that is released from the hopper into the heating chamber, which is where the
combu stion takes place (EPA, 2009 c ). Pellet stoves are typically more efficient in terms of combustion and heating than standard wood stoves but require electricity to operate the fans, controls, and pellet feeders (EPA, 2009 c ). Stoves that solely burn non

- wood biomass are not affected by the proposed revisions to the NSPS.

3.1.2.3 Masonry Heaters
A masonry heater is a solid

- fueled heating device that is pre

- manufactured or constructed on site using mainly masonr y or ceramic materials (Masonry Heater Association of North America, 1998 ). Though masonry heaters and traditional fireplaces are similar in appearance, masonry heaters are used primarily to generat e heat, whereas fireplaces typically serve a more aesthetic purpose. The heater itself is made up of an interior construction unit consisting of a firebox and a set of heat exchange channels (Chernov, 2008 ). The hot gas produced durin g rapid combustion of fuel within the firebox passes through the heat exchange channels, which run throughout the structure and saturate the masonry mass with heat (Chernov, 2008 ). Most masonry heaters weigh over 800 kg. After the mas onry walls are saturated, the masonry heater radiates the heat into the area for 12 to 15 hours (Chernov, 2008 ). Masonry heaters can heat a home all day without having to burn continuously and are often used in areas where other fuel sources are unavailable (Chernov, 2008 ). However, there is a significant lag time between the initial burn and the time that the masonry structure releases sufficient heat to warm a living space (U.S. Department of Energy [DOE], 2010 ).* * * E.O. 12866 Review

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- 4 3.1.2.4 Fireplace Inserts
A fireplace insert is a type of heater/ stove that is designed to fit inside the firebox of an existing wood

- burning fireplace (Wood Heat Organization, 2010 ). EPA

- certified fireplace inserts are essentially wood heaters/ stoves without legs or pedestals. An insert is made of steel or cast
iron and is typically installed in masonry fireplaces or traditional fireplaces in order to provide effective heating to e nhance a fireplace ’ s efficiency (Hearth, Patio, and Barbeque Association [HPBA], 2010b ). As an insulated closed

- door system, a fireplace insert improves enhances combustion by slowing down the fire , decreasing the excess air, and increas ing the fire ’ s temperature (HPBA, 2010b ). In addition to wood

- fueled fireplace inserts , other inserts can be fueled with natural gas, propane, pellet s , or coal (HPBA, 2010b ).

3.1.2.5 Forced Air Furnaces

A forced

- air furnace is a type of central heating system that typically burns cordwood or pellets. A forced

- air furnace is typically located inside a house and provide s controlled heat throughout a home using a network of air ducts (EPA, 2009 c ). This is a primary heating system that requires electricity to operate and is much more common currently in the U

. S

. compared to hydronic heaters.

3.1.2.6 Outdoor Wood Heaters
An outdoor wood heater, also often called a wood

- fired boiler, is a type of hydronic heater that is designed to be the home ’ s primary heating system. Wood boilers are typically located outdoors and have the appearance of a small shed with a smokestack (EPA, 2009 c ). Hydronic heaters burn wood to heat a worki ng liquid contained in a closed

- loop system. The heated liquid is then circulated to the house to provide heat and hot water (EPA, 2009 ). Hydronic heaters are typically sold in rural areas with cold climates where wood may be the mos t readily available fuel source (EPA, 2009 c ). In addition to outdoor hydronic heaters, there is an emerging market for indoor hydronic heaters. Currently, the indoor hydronic heater market is approximately 10% of the hydronic heater market.

3.1.2.7 Indoor and Outdoor Fireplaces
Fireplaces are typically not effective primary heating sources and are typically considered more of an aesthetic feature than a functional device. The common low

- mass fireplace is pre

fabricated of steel in a factory and shipped to the home builder. A low

- mass fireplace and it s a fireplace and attached chimney are light enough to be that can be weighed on a platform scale (EPA, 2009 c ). Although low

- mass fireplace installation s in hom e s often sur r ounded by natural or synthetic facades of masonry

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- 5 fireplaces or masonry heaters , masonry fireplaces that are primarily constructed if brick, stone, or other masonry materials. Masonry fireplaces are traditional , aesthetic fireplaces that constructed of brick, stone, or other masonry materials with a chimney like a traditional fireplace and do not have the extensi ve heat channels that define masonry heaters (Fireplaces & Woodstoves, 2010 ).

Fireplaces are also often used to enhance the outdoor area of a house. A portable grated cylinder style has a bottom basin surrounded by ope n grating for a fire, a cooking grate, and a lid (EPA, 2009 c ). A permanent outdoor fireplace is similar to one that would be found indoors. They can be freestanding or attached to the outside of the house (EPA, 2009 c ).

Indoor and outdoor fireplaces are not covered by or affected by the proposed revisions to the NSPS.

3.1.2.8 Fire Pits, Chimineas, Cook Stoves, and Pizza Ovens
Several outdoor appliances involve using wood fuel for cooking or heating. A fire pit is a

roun d outdoor hearth appliance that is designed to replicate the ambiance of a campfire by radiating heat in 360 degrees around the pit (HPBA, 2010c ). A chiminea is typically constructed out of cast iron, terra cotta, or clay and burns fire wood inside the internal oven. As the fire burns, the walls of the oven absorb heat. After the dome chamber reaches the desired temperature, the fire can be allowed to die down (EPA, 2009 c ). Wood cook stoves are made of cast iron to withstand the high temperatures produced by the fire (EPA, 2009 c ). They are similar in appearance to a conventional stove, complete with an oven and cooking ranges, but are larger in order to accommodate the wood fuel (EPA, 2009 c ). North American traditional cook stoves have defined dimensions and cooking performance characteristics. Native American bake ovens have defined cultural and cooking functions. Pizza ovens are made out of a masonry material, such as
cl ay adobe or refractory bricks, which can endure high temperatures for an extended period of time (EPA, 2009 c ).

These appliances are not covered or affected by the revisions to the NSPS.

3.1.3 Costs of Production
Because of the variety of products covered under the wood heat source category, different manufacturers use a wide range of materials and have varying labor requirements. Since there is significant diversity in output between the producers in this category , as well as the broader industries in which they may be classified for data purposes, this section highlights the production costs associated with several of the North American Industry Classification System* * * E.O. 12866 Review

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- 6 (NAICS) codes under which a significant number of the wood heating equipment manufacturing
facilities in our database are included.

Table 3

- 1 displays costs for the heating equipment and hardware manufacturing industries. The production of devices like wood stoves, hydronic heaters, and fireplace inser ts is included under the heating equipment category (NAICS 333414). In 20 11 , the total cost of materials used for production represented roughly 4 7 % of the industry ’ s total value of shipments,

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### Table 3

- 1. Costs for Labor and Materials for U.S. Heating Equipment and Hardware Manufacturing: 20 11

NAICS

Based Code Meaning of NAICS

- Based Code Year Number of Employees Annual Payroll ($1,000) Production Workers Average per Year Total Cost of Materials ($1,000) Materials, Parts, Containers, Packaging, etc. , Used ($1,000) Cost of Purchased

Fuels ($1,000) Cost of Purchased Electricity

($1,000) Total Value of Shipments

($1,000)

333414 Hea ting Equipment (except warm air furnace) 20 11 15,925 803 ,254 9,497 1,968,956 1,639,894 1 0
, 84 0 41,594 4,153,470

332510 Har dware Manufacturing 20 11 24,406 1, 175,743 16,956 3,362,268 2,731,577 21,592 52,530 6,256,338

Source: U.S. Census Bureau. 201 1 a

. American Fact Finder. Sector 31: Annual Survey of Manufactures: General Statistics: Statistics for Industry Groups and Industries: 20 11 and 20 10

. http://factfinder.census.gov

. Accessed on February 2 1 , 201 3

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- 8 while labor costs (represented as annual payroll estimates) only represented 1 9 %. The hardware manufacturing industry (NAICS 332510) had similar statistics: materi als used and annual payroll
accounted for 54 % and 1 9 % of the total value of shipments, respectively.

Masonry fireplace construction and other site

- assembled fireplace construction are covered under the two industries displayed in Table 3

- 2. The new single

- family construction general contractors industry (NAICS 236115) covers a broad spectrum of construction activities beyond masonry and fireplace construction. Like heating equipment and hardware manufacturing, this industry is highly capital intensive; 42% of the value of the construction work is attributed to the cost of materials. Labor accounts for only 12%. For the masonry contractor industry, however, payroll costs represent over 30% of the value of construction work suggesting that masonry contracting requires a special skill set and a specific degree of craftsmanship.

The 2007 production costs for plumbing and heating equipment wholesalers (NAICS 423720), which are the most recent available from the Census Bureau, are outlined in Table 3

- 3. This catego ry, which includes the merchant wholesale production of cooking and heating stoves and hydronic heaters, made over $50 billion in sales in 2007. Table 3

- 4 displays the costs for certain home furnishing stores, including those that sell wood stoves at retai l prices. The costs for these industries may be more indicative of the wholesale and retail exchanges of wood

heating equipment rather than the actual production process.

3.2 Demand Side
The subject w ood

- fired heaters are sold explicitly for residential use in residential homes

. These devices can be included in the original construction of a new home or installed later in the life of the home. Demand for residential wood heating devices is driven by several key factors that include size, price, efficiency, aest hetics, and fuel type (e.g., cord wood, pellet wood, or other biomass fuels). However
, consumer demand for any one product discussed in Section 3.1 is driven primarily by the intended end

- use heating application. This section defines the three major

consum er segments that drive demand based on the end

- use application. Following this discussion, we present some national statistics on the variation in residential wood heat consumers in the United States. We conclude our discussion of the demand side by
charac terizing some of the substitutes for residential wood

- burning devices.

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### Table 3

- 2. Costs for U.S. Masonry Contractors and Single

- Family Home Contractors: 2007

NAICS

- Based Code Meaning of NAICS

- Based Code Year Number of Employees Total Payroll ($1,000) Cost of Materials, Components, and Supplies ($1,000) Total Value of Construction Work ($1,000)

236115 New single

- family general contractors 2007 259,905 10,834,064 37,676,878 89,282,708

238140 Masonry contractors 2007 232,315 8,250,581 8,594,565 26,984,381

Source: U.S. Census Bureau. 2010b. American Fact Finder. Sector 23 : EC0723SG01: Construction: Summary Series: General Summary: Detailed Statistics for Establishments: 2007. Released May 18, 2010. http://factfinder.census.gov

.


### Table 3

- 3. Costs for U.S. Plumbing and Heating Equip ment Supplies Wholesalers: 2007

NAICS

- Based Code Meaning of NAICS

- Based Code Year Number of Employees Annual Payroll ($1,000) Operating Expenses ($1,000) Sales ($1,000)

423720 Plumbing and heating equipment supplies (hydronics) merchant wholesalers 2007 87,907 4,542,337 8,311,462 50,316,133

Source: U.S. Census Bureau, 2010c

. American Fact Finder. Sector 42 : EC0742A1: Wholesale Trade: Geographic Area Series: Summary Statistics for the Unit ed States, States, Metro Areas, Counties, and Places: 2007. Released July 23, 2010. http://factfinder.census.gov

.


### Table 3

- 4. Costs for U.S. Specialized Home Furnishing Stores: 2007

NAICS

- Based Code Meaning of NAICS

- Based Code Year Number of Employees Annual Payroll ($1,000) Sales ($1,000)

442299 All other home furnishing stores 2007 19,057 3,427,682 27,326,976

Source: U.S. Census Bureau, 2010d. American Fact Finder. Sector 44 : EC0744A1: Retail Trade: Geographic Area Series: Summary Statistics for the United States, States, Metro Areas, Counties, and Places: 2007. Released July 23, 2010. http://factfinder.census.gov

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- 10 3.2.1 End

- Use Consumer Segments

The intended end

- use heating application is a primary driver of demand for residential heating devices. The U.S. Annual Housing Survey (HUD, 2008 ) provides a starting point for classify ing the various types of residential consumer of heating equipment. For the purposes of this profile we grouped consumers into three major segments based on their desired heati ng needs : whole

- house heating, secondary or zone heating, and recreational outdoor heating applications.

The primary
, or whole

- house heating segment
, includes homes with no other central heating system that can provide heating service in or outside the hou se. In smaller homes, a large stove or masonry heater may be sufficient to provide heat to the entire house. However, larger homes typically require, either individually or in some combination thereof, an outdoor wood boiler, a hydronic heater, or a pellet

- burning forced

- air furnace, to meet the consumers ’ heating
needs.

The secondary
, or zone heating segment
, includes consumers that desire supplemental heat from a wood

- burning device in homes with an existing central heating system that serves as
the home ’ s primary heat source. Cordwood and wood pellet

- burning stoves are ideal for heating a single room or zone within a home. Smaller masonry heaters are also well suited for zone heating needs.

Finally, a third component of demand is represented by consumers who desire a wood

burning device for recreational aesthetic heating applications. Outdoor fireplaces, chimineas, outdoor ovens, and pizza stoves are some examples of the wood

- burning devices designed for
recreational heating applications. The products that address the needs of this consumer segment are primarily intended to enhance the aesthetics or landscape outside the home.

Indoor f F ireplaces are one type of heating equipment that stretches across multiple consumer demand segments. Although the primary functional purpose of an indoor fireplace typically serve aesthetic or recreational purpose s rather than providing effective is to provide room heat . O
,
o nly about 9% of wood fireplaces are used for heat generation . The remaining fireplaces serve an
aesthe tic or recreational purpose only (HPBA, 2010a ). Formatted: Indent: First line: 0"* * * E.O. 12866 Review

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- 11 3.2.2 Regional Variation in Residential Demand
In 2010, 2.1% of total occupied homes in the United States relied on wood heat as the primary fuel source for home heating. The demand for wood hea t is concentrated in the Northeast, the Northwest, and the northern Midwest regions of the United States. Table 3

- 5

Table 3

- 5. Wood as Primary Fuel Source for Home Heating in the United States: 2006

– 2008

State Percentage of State Owner

Occupied Houses Per centage of National Owner

- Occupied Houses Count

California 2% 9% 165,440
New York 3% 6% 103,740 Pennsylvania 3% 6% 100,355 Washington 6% 5% 92,664 Michigan 3% 5% 85,712
Wisconsin 5% 5% 83,040 Oregon 8% 4% 79,637
Ohio 2% 4% 67,665 Virginia 3% 3% 60,579
North Carolina 2% 3% 58,397
Minnesota 3% 2% 43,234
Maine 10% 2% 41,509
Indiana 2% 2% 38,550 West Virginia 7% 2% 38,142
Idaho 8% 2% 32,817
Colorado 2% 2% 28,668

Vermont 15% 1% 26,601
Massachusetts 2% 1% 25,870

Montana 9% 1% 24,355

New Hampshire 7% 1% 24,071 Top 20 total 68% 1,221,046
National total 100% 1,792,741

Source: U.S. Census Bureau. 2009. American Community Survey: 2006

– 2008

. Available at: http://factfinder.census.gov/servlet/DatasetMainPageServlet?_program=ACS&_submenuId=&_lang=en&_ ts=

. illustrates this regional concentration by li sting the 20 states that represent the highest percentage of households that use wood heat based on Census data from 2006

– 2008 . The second column shows the number of wood

- heat users as a percentage of the total homes in the state, while the* * * E.O. 12866 Review

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- 12 third column sh ows the number of wood

- heated homes as a percentage of the total users in the United States. These 20 states account for over two

- thirds of the total primary U.S. residential wood heat demand.

About 10

– 12% of American households use wood when secondary woo d heat demand is counted, according to the Census and the Energy Information Administration (EIA). Table 3

- 6 illustrates the regional breakdown of secondary wood heat demand by U.S. Census divisions in
200 9 , which is the most recent year for which these da ta are available . Roughly 8% of the American households use wood as a secondary heat source.

Table 3

- 6. Wood as Secondary Heat Source by Census Division, 200 9 (millions of households)

Census Division Number of Households Percentage of U.S. Households using Wood as Secondary Heat Source Percentage of Total U.S. Households

South Atlantic 1.6 18 % 1 %
Pacific 1.7 1 9 % 1 %
East North Central 1.2 1 4 % 1 %
West North Central 0.8 9 % 1 %
West South Central 0.7 8 % 1%
Mountain 0.8 9% 1%
Middle Atlantic 1.0 11 % 1%
East South Central 0.4 4 % 1 % New England 0.7 8 % 0%
Grand total 8.8 100% 8 %
Total U.S. households 11 3.6

Source: U.S. Energy Information Administration, 20 11

. Residential Energy Consumption Survey: 200 9

. Available at http://www.eia.gov/consumption/residential/data/2009/#undefined

. Figure 3

- 1 shows which states fall into which Census divisions. More households rely on wood fuel as a supplemental heat source rather than as a primary source. Roughly 1 2 % of
American house holds used wood fuel for a secondary heat source in 200 9 , whereas 3% of households relied on wood for their primary heat source in the same year. The proportion of the* * * E.O. 12866 Review

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- 13 population using primary wood heat was relatively consistent between 2005 data presented in Table 3

- 6 and the 2006 to 2008 period
, as shown in Table 3

- 5. 4 One interesting note about

Figure 3

- 1. Census Regions and Divisions of the United States

Source: U.S. Census Bureau, 2010e. Census Regions and Divisions of the United States. Available at http://www.census.gov/geo/www/us_regdiv.pdf

. secondary wood fuel use is that it does not appear prevalent in the Middle Atlantic or New England states, which account for only 1 9 % of the total secondary use. This fact is in contrast to the primary use data in Table 3

- 5, which shows households in Vermont, New Hampshire, Maine, Pennsylvania, Massachusetts, and New York accounting for 17% of the total national primary
demand.

Within the wood heat demand constituency, there is also regional demand variation for different wood

- fueled appliances. For ex ample, the demand for wood

- fired forced

- air furnaces is concentrated primarily in the Great Lakes region of the country and, to a lesser extent, the Midwest (HPBA, 2010a ). These two regions account for 82% of the 30,000 to 35,000 furnac es

4 Although the total occupied households between the Department of Energy’s Residential Energy Consumption Survey [RECS] and the Census Bureau’s American Community Sur vey [ACS] differ, the proportion of total occupied households using wood fuel as their primary home heating fuel is consistent. The survey data sources used in Table 3

- 6 assumes 111 million occupied homes in 2009 while Figure 2

- 2 assumes 109 million for th e same year.* * * E.O. 12866 Review

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- 14 sold annually in the United States (HPBA, 2010a ). Demand for wood

- fueled cook stoves is

c oncentrat ed i n the Amish and Mennonite communities in the Midwest (HPBA, 2010a ).

3.2.3 National Home Heating Trends

Residential de mand for wood fuel has been declining steadily throughout the United
States over a fairly long period of time

. Figure 3

- 2 illustrates the number of households from
1989 to 200 5 that reported using wood fuel for heating, cooking, or heating water. In 1989,

Figure 3

- 2. Declining Trend in U.S. Housing Units Using Wood Fuel: 1989

– 2005
Source: U.S. Housing and Urban Development [HUD]. 2008. American Housing Survey for the United States.

Multiple Years. Table 3

- 5. Available at http://www.census.gov/hhes/www/housing/ahs/nationaldata.html

. roughly 15% of all occupied housing units used wood fuel. The proportion of wood

- fuel users
has decl ined relatively stead il y throughout the past 20 years. By 2005, fewer than 9% of the total 109 million occupied households in the United States used wood fuel for heating, cooking, or heating water.

The indoor fireplace market illustrates the continuing decline in wood fuel use over the past decade (HPBA, 2010a ). As discussed in the next section, consumers are trending toward gas fireplaces instead of wood

- fueled fireplaces. Fireplace manufacturers report that shipments of wood

- fired f actory

- built fireplaces have been declining over the past decade as a result of the weakening new home construction market and the shift in consumer preferences toward gas fireplaces in the new homes that are being built (HPBA, 2010a ). Of new home fireplaces, only 35% burn wood, whereas 65% are fueled by gas (HPBA, 2010a ). It should be noted, however, that this trend has been arrested to some degree in recent times as the cost of wood fuel for 0% 2% 4% 6% 8% 10% 12% 14% 16%

1989 1991 1993 1995 1997 1999 2001 2003 2005% of Total Occupied Housing Units

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- 15 heater/stove/furn a ce hea ting has come in line with the cost of oil and gas stove/ heater/ furnace heating, and trends show an increase in wood heating in households as shown in the unit cost memo prepared for this proposed rule

. 9

3.2.4 Substitution Possibilities
The availability of clos e substitutes for wood heating equipment is largely contingent on two key factors: (1) the consumer ’ s heating needs and preferences and (2) the price and availability of an alternative heating source. As discussed in Section 3 .2.1, consumers tend to fall
i nto one of three demand segments depending on their desired end use for their heating device. Each consumer group display s varying degrees of substitutability. The relative price of alternatives is also an important aspect of product substitution, which in cludes the cost of the heating equipment itself and the price and availability of the fuel it requires.

For most consumers looking for whole

- house heat or single

- room heat, gas or electric heat provides a common substitute for wood fuel. Electricity can po wer central heating systems for whole

- house heat and smaller space heaters for single rooms. Since the majority of American households have easy access to electric power, these home heating options are often a convenient and low

- cost alternative to wood he at. Gas

- powered central furnaces and room heaters and oil

powered central heating systems are also on the market for residential use (DOE, 2009 ). Although most consumers have homes equipped for gas or electric power, more rural areas of the country have limited access to reliable utilities. In these regions, electric or gas heat may not be an available or cost

- efficient choice relative to wood heat.

Recreational or aesthetic wood

- fired appliances have fewer direct substitutes. Traditi onal indoor fireplaces and masonry fireplaces can be outfitted for burning natural gas rather than wood. Consumers may have a personal preference for one over the other. Wood fuel can be messy and somewhat difficult to store, whereas natural gas can be mor e convenient and easier to use, and gas furnaces can be much more efficient . Outdoor recreational appliances may be difficult to substitute directly because many consumers desire the aesthetic effect created by a wood

- burning fire pit or chiminea. Outdoor charcoal or gas grills provide an alternative for outdoor wood

- fired cooking appliances, but consumers may not consider these a direct
substitute. It should be noted that outdoor recreational wood

- burning appliances such as fire pits, chiminea, and grills are not covered in this proposal.

9 U.S. EPA. Memorandum. Unit Cost Estimates of Residential Wood Heating Appliances. February 21, 2013. Prepared by EC/R, Inc.* * * E.O. 12866 Review

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- 16 3.2.5 Price Elasticity of Demand
Price elasticity of demand is a concept in economic theory. It is a numeric measure of the sensitivity of demand following an increase or decrease in the product ’ s price. The level of sensitivit y is determined by a number of factors that include the availability and price of substitutes (e.g., other types of heating equipment, gas or electric space heaters and furnaces) and the price of complement s (wood fuels).

In preparing this profile, we searched for, but were unable to identify, any empirical estimates of the price elasticity of demand for residential wood heating equipment in recent
times. An estimate of

− 1.6 was derived for use in the RIA for the current Residential Wood Combustion NSPS (EPA, 1986). Although numerous articles estimat e the elasticity of demand for residential energy and heating fuels, these estimates focus almost exclusively on electricity, natural gas, and fuel oil. These estimates find that residential energy and heatin g fuel demand is relatively inelastic (i.e., there are only very small changes in demand in response to an increase in energy or fuel prices). A recent RAND report suggests that in the short term, demand for electricity and natural gas in residential marke ts is relatively inelastic (Bernstein and Griffin,
2005 ). However, the authors of the report also note that sustained higher energy prices in the long term may result in demand for energy becoming more elastic as consume rs have time to identify more energy

- efficient options.

In the absence of empirical estimates, we offer a qualitative discussion of the key
determina nt s of the price elasticity of demand to provide a general sense of whether consumer
demand is elastic or i nelastic. As mentioned earlier, the determinants of elasticity include the degree of substitutability, product necessity, and duration of the price increase.

There are a number of close substitutes for residential wood heating devices that include
electric and gas furnaces and space heaters. The extent to which consumers are able to substitute between these options is likely to vary depending on geographic location. Overall, the presence of good substitutes will increase the elasticity of demand for wood he ating equipment. In
contrast, if locally

- available alternative sustained higher prices for heating fuel s (i.e., electricity, natural gas, and fuel oil) are relatively higher priced, it may make switching away from wood heating equipment less likely and, ul timately, make demand for wood heating equipment more inelastic . Also, the elasticity may depend on whether the fuel in question is a secondary source of fuel instead of a primary fuel source.

Finally, the magnitude of the cost for residential wood heatin g equipment may also increase the elasticity of demand. Consumer demand tends to be more elastic when the price of* * * E.O. 12866 Review

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- 17 the good represents a large proportion of consumer income (Bernstein and Griffin, 2005 ). In other words, consumers become more sensitive to small price changes when considering the purchase of a large household appliance (e.g., refrigerator, oven range, or heating system).

3.3 Industry Organization
A review and description of market characteristics (i.e., geograp hy, product differentiation, product transportation, entry barriers, and degree of concentration) can enhance our understanding of the mechanisms underlying the wood heating equipment industry. These characteristics provide indicators of a firm ’ s ability t o influence market prices by varying the quantity of product it sells. For example, in markets with large numbers of sellers and identical products, firms are unlikely to be able to influence market prices via their production decisions (i.e., they are “ pr ice takers ” and operate in highly competitive markets). However, in markets with few firms, significant barriers to entry (e.g., licenses, legal restrictions, or high fixed costs), or products that are similar but can be differentiated, a firm may have som e degree of market power (i.e., to set or significantly influence market prices). In addition, if a product is difficult to transport over long distance (due to weight or hazardous nature), then the market size may be more restricted than one might expect, all other things being equal.

3.3.1 Market Structure
Market structure characterizes the level of competition and determines the extent to which producers and sellers can influence market prices. Economic market structure typically focuses on the number of produ cers and consumers, the barriers to market entry, and product substitutability.

The residential wood heater market contains a number of large producers selling a number of differentiated products along with a large number of small producers. These
characte ristics suggest a quasi

- monopolistic competitive market (i.e., somewhere between highly competitive and less competitive) for large producers who will have some influence over market prices. For small producers, the market will be highly competitive in nature. In addition, existing regulatory requirements for product testing and certifications represent a barrier to market entry for new producers of wood heating devices. Competition in this market may be further constrained by transportation costs due to th e weight of these products. A similar assessment was determined in the 1986 study by the American Enterprise Institute (AEI) and Brookings
Institution Joint Center for Regulatory Studies.

The AEI

- Brookings report also identified several key factors that influence
manufacturers ’ pricing decisions. These factors included production prices, prices of similar* * * E.O. 12866 Review

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- 18 products sold by competitors, transportation costs, combustion technology and efficiency, and

consumers ’ ability to differenti ate products based on brand name and efficiency.

Price elasticity of supply is a numeric measure of the industry ’ s response to a small percentage increase in the product price (Landsburg, 2005 ). The law of supply suggests producers supply greater quantities at higher prices as a result of increasing marginal returns for each additional unit produced as the average cost per unit of output declines. As a result, the elasticity of supply for most industries is positive. Determinants of supply elasticity are flexibility of sellers to adjust production and the time period being considered in estimating the elasticity. Most manufactured goods have an elastic supply, meaning that sellers can adjust production quickly in response to a change in prices (Mankiw, 1998 ). Industries with excess plant capacity are likely to have elastic supply as sellers can ramp up production in a relatively
short time frame.

Based on 2006 plant capacity utilization data as shown in Figure 3

- 3, the heating equipment manufacturing industry averaged 60% utilization, growing from 59% in 2002 to a maximum utilization of 65% in 2005 and then falling to 54% in 2006 (U.S. Census Bureau,
2007 ). Similar statistics are not available for more recent years because this survey was
discontinu ed after 2006. The available data suggest that there is ample existing capacity to increase production in the short and long term s , assuming an increase in price of residential wood

- burning heating equipment.* * * E.O. 12866 Review

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- 19 Figure 3

- 3. Annual Plant Capacity Utilization for Heating Equipment Manufacturers (NAICS 333414): 2002

– 2006

Source: U.S. Census Bureau. 2007. Survey of Plant Capacity: 2006. “ Table 1a. Full Capacity Utilization Rates by Industry Fourth Quarter 2002

– 2006. ” Census Bureau, Washington DC. Report No. MQ

- C1(06)

.
3.3.2 Manufacturing Plants
Since 1988, the change in the number of residential wood

- fired heater producers is unclear. The U.S. Economic Census reports that between 1992 and 2007 the number of establishments (places of business) in the industry has remained unchanged. Alternatively, the industry association (HPBA ) has suggested that the number of manufacturers of wood

- fired heaters fell by 80% following the 1988 NSPS, down from approximately 50 0 to roughly 120 manufacturers today (Houck and Tiegs, 2009 ). The difference between the 2 estimates is thought to be due to the large number of “ backyard welders ” in 1988 who built handmade stoves in their backyard as a sidel ine rather than their main source of income and chose not to attempt to develop competitive designs for the marketplace after the 1988 NSPS was promulgated.

For this analysis, we were able to identify 635 firms in the residential wood heating equipment in dustry in the United States. RTI developed this estimate leveraging a number of
different sources that included EPA ’ s official list of certified wood heater manufacturers, Dun &
Bradstreet ’ s online company database, and a number of industry association mem bership lists.
The estimate includes the manufacturers listed on EPA ’ s official certification lists (~120 manufacturers). We then expanded this list to include manufacturers of masonry heaters and 59% 59% 62% 65%

54%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

2002 2003 2004 2005 2006Plant Capacity Utilization

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- 20 outdoor wood boilers and manufacturers of non

- heating devic es, such as cook stoves, outdoor fireplaces, and bake ovens. Table 3

- 7 reports the count of U.S.

- based companies in the industry by major business type.

Table 3

- 7. Number of U.S. Companies by Business Type

Business Type Number of Companies Reported Sales 2 008 ($1,000s) U.S. Market Share (% of Net Sales)

Manufacturers 577 $1,285,800 96.60% Masonry contractors 24 $7,200 0.54% Wholesalers, distributors 19 $34,200 2.57%
Residential construction 10 $3,200 0.24%
Retailers 5 $600 0.05%
U.S. Totals 635 $1,331,000 100%

Source s : Dun & Bradstreet Marketplace , a company database

. RTI International calculations.

Residential wood heater m anufacturers account for over 90% of the firms in the industry and span 14 different NAICS codes, of which 560 are categorized as NAICS 333414, as establishments primarily engaged in manufacturing heating equipment (except electric and warm air furnaces), such as heating boilers, heating stoves, floor and wall furnaces, and wall and baseboard heating units (Census Bureau, 2010f )

. An average manufacturer may produce anywhere from one to five technically different products (H PBA, 2010a ). Manufacturers dominate the market, accounting for over 96% of sales for the industry in 2008.

Masonry contractors are the second largest group of businesses, accounting for 5% of the companies, and almost all masonry contra ctors are classified as NAICS 238140 establishments primarily engaged in masonry work, stone setting, brick laying, and other stone work for new construction, additions, alterations, maintenance, and repairs (U.S. Census Bureau, 2010f ). Masonry contractors account for less than 1% of the industry sales. The remaining 5% of businesses are classified as residential construction contractors, wholesalers, distributors, and retailers. Residential construction contractors are pri marily associated with design construction and installation of masonry heaters, outdoor fireplaces, and hydronic heaters. Companies classified as wholesalers, distributors, and retailers do not manufacture products but may be tied exclusively to a single b rand or manufacturer, while others distribute and sell multiple products
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- 21 3.3.3 Location
The industry is, for the most part, co

- located in areas of the country with the largest demand for winter heating. Over 50% of U.S.

- owned companies are located in 10 states in the northern half of the country. The largest number of companies is located in California, with additional concentrations in the Northwest, Northeast, the upper Midwest, and Central Plains.
Table 3

- 8 reports the number of U.S. companies for the top 10 states. Additionally, approximately 104 foreign

- based companies operate in the United States, two

- thirds of which are Canadian

- based companies.

Table 3

- 8. U.S. Wood Heat Equipment Industry by Geographic Location

Location Business Count % of Total U.S. Industry

California 63 10% Pennsylvania 36 6%
Minnesota 35 6%
New York 33 5% Washington 31 5%
Ohio 29 5%

Texas 29 5%
Wisconsin 26 4% Michigan 25 4%
Illinois 21 3%
U.S. Total 635 86%
Canada 67 9% Other foreign 37 5% Industry Total 739 100%

Source s : Dun & Bradstreet Marketplace , a company database. RTI International calculations.

3.3.4 Company Sales and Employment
Overall sales for the residential wood heating industry totaled more than $1.3 billion in 2008. Based on company data obtained for this profile, the industry employs approximately 17,000 workers annually. Previous analysis suggests that the industry relies on seasonal labor, ramping up production in months lea ding up to winter and reducing employment and production during the warmer parts of the year (AEI, 1986 ). Table 3

- 9 presents median sales and employment for the industry by business type.* * * E.O. 12866 Review

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- 22 Table 3

- 9. U.S. Sales and Employment Statistics by Business Type

Business Type Number of Companies Median Sales 20 10 ($1,000s) Median Employment per Company

Manufacturers 577 $204 4 Masonry contractors 24 $102 3 Wholesalers, distributors 19 $510 5
Residential construction 10 $102 2
Retailers 5 $102 2
U.S. Totals 635 $204 4

Source s : Dun & Bradstreet Marketplace , a company database. RTI International calculations. Median sales estimates are escalated to 2010 from 2008 using the GDP implicit price deflator. The resulting escalation ratio for these years is 1.022.

Firms manufacturing heating equipment (except electric and warm air furnaces), such as heating boilers, heating stoves, floor and wall furnaces, and wall and baseboard heating units (NAICS 333414), are classified as small by the Smal l Business Administration (SBA, 20 13 ) if they have fewer than 500 employees. Looking across the 14 manufacturing

- related NAICS codes in our analysis, we find that approximately 90% of manufacturers are considered small
businesses bas ed on their reported employment compared with the SBA threshold. SBA classifies wholesalers and distributors as small if their employment is fewer than 100 workers. Approximately 68% of the industry ’ s wholesalers and distributors are considered small based on the employment data obtained for this analysis.

SBA thresholds for masonry, construction, and retail firms are based on annual sales. SBA standards for NA IC S codes under these business types range between $ 14 and $33 million in annual revenue. As repor ted in Table 3

- 9, median sales in these business categories are far below the range of SBA standards. As one would expect, our analysis finds that all 39 firms are considered small based on their reported annual sales compared with the SBA standards for th eir respective NAICS code classifications.

3.3.4.1 Profits of Affected Entities

Table 3

- 10 reports profit margins for manufacturers, masonry contractors, and wholesalers and distributors. The profit margin represents an average of reported profit per unit
sales ac ross the industry classified by the 6

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- 23 Table 3

- 10. Profit Margins for NAICS 333414, 238140, and 423720: 2008

NAICS Code NAICS Description Profit Margin Industry Sales ($10 6 )

333414 Heating Equipment Manufacturers 4.3% $70,965

238140 Masonry Contractors 4.7% $9,676

423720 Plumbing and Heating Equipment Supplies (Hydronics) Merchant Wholesalers 3.4% $58,907

Source: The Risk Management Association. 2008. Annual Statement Studies, Financial Ratio Benchmarks 2008

– 2009. Risk Management Association, Philadelphia: 2008

.
3.4 Residential Wood Heater Market

Residential woo d heating device shipments in the United States were relatively consistent from year to year between 1998 and 2005, according to the HPBA ’ s reported hearth industry shipment data (2009). Since 2005, total industry shipments on average have declined annuall y by 24%. Industry experts attribute this decline in large part to the broader economic downturn and poor housing market. Renewable energy tax rebates offered in 2008 provided some relief for pellet

- fueled devices, resulting in a 1

- year increase in shipmen ts of 161%, only to steeply decline again in 2009. This reflects the impact that the renewable energy tax rebates can have on wood burning appliances depending on the size and duration of the rebates. Table 3

- 11 presents shipment volumes by product type in 2008.

Outdoor wood boilers (or hydronic heaters) are a relatively new product in the market since 1990. Previous studies have reported annual growth in sales of between 30 and 128%, with over 155,000 outdoor wood boilers in use in the United States in 200 6 (NESCAUM, 2006 ). Sales have been regionally focused in the Northeast (especially the Great Lakes region) and Midwestern states. The NESCAUM report predict ed that over 500,000 outdoor wood boilers will be in use before the end of 201 0 if trends in annual sales continue to follow growth rates observed between 1990 and 2006.

Market data for coal

- burning stoves are very limited. However, anecdotal evidence suggests that coal stove use is limited to major coal states, including Pennsylvan ia, West Virginia, and Indiana, where coal is abundant and cheap relative to other heating fuels (Dagan,* * * E.O. 12866 Review

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- 24 Table 3

- 11. Unit Shipments and Percentage of Total Units by Product Type: 2008

Product Type Units % of Total Units

Wood stove 166,527 33%
Pellet stove 130,381 26%
Biomass stove 6,819 1% Wood fireplaces a 180,966 36% Outdoor fireplaces 6,302 1% Masonry heaters 730 0% Hydronic central heating systems 13,385 3%

Total 505,110 100%

a Wood fireplaces in this table include both factory

- built and site

- built models.

Source: Frost & Sullivan. 2010. Market Research Report on North American Residential Wood Heaters, Fireplaces, and Hearth Heating Products Markets. Prepared for EC/R Inc

.

2005 ). Most of the major stove manufacturers feature at least one coal

- burning stove model. However, at the time of writing this pro file, we were unable to locate any reliable estimate of shipments in the United States for coal stoves.

3.4.1 Market Prices

Residential wood combustions device heater prices range from $200 to $50,000 depending on the product type and characteristics. Consumers who purchase these products must also consider the costs of installation, which range between $300 and $6,000 on average.
Tables 3

- 12 and 3

- 13 report the average cost of installation and purchase price for residential wood combustion heating devices applia nces

.
Table 3

- 12. Installation Costs for Average System by Product Type (North America): 2008

Product Type Installation Cost

Wood stove $500

Pellet stove $300

Biomass stove $300 Wood fireplaces $600 Outdoor fireplaces $350 Masonry heaters $6,000 Hydronic central heating systems $2,000

Source: Frost & Sullivan. 2010. Market Research Report on North American Residential Wood Heaters, Fireplaces, and Hearth Heating Products Markets. Prepared for EC/R Inc.* * * E.O. 12866 Review

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- 25 Table 3

- 13. Manufacturers ’ Price by Product Type (North America): 2008

Product Type Average Price Price Range

Wood stove $848 $200 to $2,800

Pellet stove $1,279 $300 to $3,500

Biomass stove $1,403 $350 to $4,000 Wood fireplaces $450 $150 to $5,000 Outdoor fireplaces $755 $250 to $6,000 Masonry heaters $9,041 $4,000 to $15,000 Hydronic central heating systems $7,433 $5,000 to $35,000

Source: Frost & Sullivan. 2010. Market Research Report on North American Residential Wood Heaters, Fireplaces, and Hearth Heating Products Markets, Figure 2.6. Prepared for E c /R Inc.

Given the specialized skills and materials required to construct a masonry heater, it is not surprising that this product has the highest average market price. Hydronic heaters are the second most expensive product partly because of the additional material requirements. The price of freestanding stoves and fireplace inserts varies depending on the fuel it burns. Biomass stoves are almost twice as ex pensive as cord wood

- burning stoves because biomass stoves are more similar in construction to pellet stoves. Although no price data exist on coal

- burning stoves, costs are comparable to traditional cord wood stoves. Coal stove prices for 2010 collected fo r this profile averaged $1,338 and ranged between $500 and $3,000 depending on the size and
manufacturer.

3.4.2 International Competition

The U.S. market for wood

- fueled heating products has been concentrated on the local scale in recent years. Manufacturers con centrate production where wood heat is in demand, which is in the Northeast and Northwest. Some regions of the country have specific emissions requirements on wood burning, so consumers may be restricted to buying stoves and heaters that
can cater to local regulations (Frost & Sullivan, 2010 ). Domestic producers have traditionally faced some competition from European manufacturers in certain wood heat markets, but Asian manufacturers have been gaining market share, especially in the EPA

- certified wood stove and currently exempt single

- burn

- rate stove market s (Frost & Sullivan, 2010 ).

Asian

- based companies, especially those in China, have the advantage of relatively low overhead and labor costs com pared with other companies worldwide (Frost & Sullivan, 2010 ). Although the products coming from these producers are lower in price, they are also lower in quality (Frost & Sullivan, 2010 ). Howe ver, money

- conscious consumers have been willing to* * * E.O. 12866 Review

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- 26 settle for lower quality stoves as the economy remains uncertain (Frost & Sullivan, 2010 ). Companies from all over the world have been moving some manufacturing operations t o China in an attempt to compete with Asian producers through low

- cost production (Frost & Sullivan,
2010 ). Still, U.S. manufacturers are likely to see increased competition from Asia in the future.

The masonry heater industr y is one in which foreign manufacturers play a substantial role. Over two

- thirds of masonry heaters installed in the United States are manufactured outside of the country , principally by one manufacturer (Seaton, 2010 ). Most United Sta tes companies
build around than 15 masonry heaters per year, typically constructed onsite by masons. Canadian and European producers sell masonry products through U.S. distributors, but most of these companies do not manufacture within the United States (S eaton, 2010 ). Some stove companies perform research and development, as well as assembly of wood stoves in the United States, but import cast parts and components from Europe and China (HPBA, 2010a ). The pellet stov e industry has seen increasing foreign competition in recent years. M any of the foreign
manufacturers have made the business decision to sell products through American

- owned
businesses and thus the costs of EPA certification are sometimes passed on to the American
seller /importer/licensee

.
3.4.3 Future Market Trends
While there has been a steady decline in the residential markets for wood heaters, fireplaces, and hearth products, increases in oil and gas prices have led to substitution back to wood as a source of heat in 2007, in which a growth rate of 16.4% between 2007 and 2008 took place in the se market s. However, demand for these products fell victim to the recession in 2009 (Frost & Sullivan, 2010 ). A weak residential construction market coupled with a tight credit market decreased overall demand in the market for wood heating products, leading analysts to project a 2009 growth rate of −36.1% (Frost & Sullivan, 2010 ). The growth forecast f or 2010 is expected to improve relative to 2009 to a rate of −4.1%, due in part to the residual effects of the severe 2009 winter temperatures and the financial incentive provided by the federal energy efficient tax credit (Frost & Sullivan, 2010 ).

As the economy continues to recover beyond 2010, demand should trend upward as consumers look to cut heating costs with wood and biomass (Frost & Sullivan, 2010 ). New home
construction and increased cr edit availability will further foster demand, which is expected to grow at a compound annual rate of 4.1% from 2009 to 2015 (Frost & Sullivan, 2010 ). The current regional demand patterns are expected to continue, with the Nor theast and Northwest regions of the country driving wood fuel combustion demand, but analysts anticipate that the* * * E.O. 12866 Review

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- 27 wood heat product market will be embraced in other areas of the country in which wood and biomass are viable and inexpensive fuel sources (Fro st & Sullivan, 2010 ).

Although the overall residential wood heat market is expected to grow, there may be variation in demand between individual product segments. Pellet and biomass stoves are expected to lead the way in dema nd as consumers look for options with sustainable fuel sources
and cleaner

- burning technologies (Frost & Sullivan, 2010 ). Outdoor wood boilers (hydronic heaters) saw a surge in demand throughout the 1990s and mid

- 2000s, a tre nd that is projected to continue (Northeast States for Coordinated Air Use Management, 2006 ). Future demand for primary and secondary wood

- burning heating devices will be somewhat dependent on the price of wood fuel relative to electric and gas heat
, as well as consumer preferences. Since fireplaces and masonry fireplaces typically are not effective heaters and purchases are based on the added aesthetic value rather than function, future dema nd will likely stay in line with consumer preferences.* * * E.O. 12866 Review

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- 1 SECTION 4 BASELINE EMISSIONS A ND EMISSION REDUCTIO NS

4.1 Introduction
This section presents the baseline emissions for the pollutants emitted by affected units and also the resulting emissions after imposition of the two options considered for the proposed NSPS. We present the baseline emissions and emission reductions for P M 2.5 and also for other pollutants from affected units such as volatile organic compounds (VOCs) and carbon monoxide (CO). Baseline emissions were calculated using a 2008 base inventory and were then projected to future years beyond the promulgation of the rul e in 2014 to 2022 and beyond, using emissions factors specific to the category of the affected unit (e.g., certified wood stove, pellet stove). These emissions factors are listed in the emissions memorandum for this proposed rule (Ec/R, 2013). Emission red uctions were calculated from the baseline emissions based on the considered emissions limits for each appliance type affected for each option analyzed, and the emission reductions were used as inputs to the benefits analysis presented in Section 7.

4.2 Backgro und to Emissions Estimates

We used the EPA Residential Wood Combustion (RWC) emission estimation tool
, 11
which is an Access TM database that compiles nationwide RWC emissions using county level, process specific data and calculations. We summed the nationwi de number of appliances and total tons of wood burned for each of the relevant product categories in the inventory.

Table 4

- 1. RWC Emission Inventory Categor ies Used

Woodstove: fireplace inserts; EPA certified; non

- catalytic Woodstove: fireplace inserts; EPA certified; catalytic Woodstove: freestanding, EPA certified, non

- catalytic Woodstove: freestanding, EPA certified, catalytic Woodstove: pellet

- fired, general Woodstove: freestanding, non

- EPA certified Hydronic heater: outdoor Furnaces: indoor, cordwood

11 rwc_2008_tToolv4.1_feb09_2010.zip.* * * E.O. 12866 Review

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- 2 We then made some adjustments/assumptions to the baseline RWC inventory. First, we deleted data in the RWC for non

- certified stoves and inserts, as these cannot be sold. With the exception of wood stoves, we applied the PM 2.5 emission factors fo r each class to the total tons of wood burned and calculated an average emission rate/appliance/category. In the case of wood stoves, the RWC used an average of all PM 10 AP

- 42 emission factors for wood stoves. 12 The RWC assumes that PM 10 and PM 2.5 factors a re identical. At a minimum, we believe that all new wood stoves meet the AP

- 42 PM 10 emission factors for “ Phase II ” stoves (the current NSPS). As described below, we went a step further and assumed that all new shipments will meet the current Washington State limits, which are approximately 40 % less than the current NSPS.

Second, we assumed that outdoor hydronic heater s and indoor hydronic heaters have the same emission profile.

Single burn rate stoves are not included in the RWC as separate identifiable units. We assumed that they would have the same baseline emission factor as freestanding non

- certified woodstoves, i. e., 30.6 lb/ton of wood burned. We used the average tons burned per appliance factor as representative of these stoves as well.

Masonry heaters are not included in the RWC database, and we were unable to identify a surrogate emission factor which could be used to estimate tons/appliance emissions. Therefore, we were not able to estimate emissions from these appliances for the purpose of this analysis.

We used this subset of the RWC database to calculate a baseline average emission rate/appliance/category, including an adjustment of the RWC emission factor to the current Washington State limits where warranted. We multiplied the total tons of wood burned for the appliance by the RWC emission factor (adjusted as appropriate) to calculate the total tons of
PM 2 .5 emissions. We divided this value by the number of appliances in the category to calculate the baseline average PM 2.5 emissions per individual appliance, and these results are shown in
Table 4

- 2.

12 AP

- 42, Chapter 1.10, Residential Wood Stoves, Table 1.10

- 1 . See: http://www.epa.gov/ttnchie1/ap42/ch01/final/c01s10.pdf

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- 3 Table 4

- 2

. PM 2.5 Tons p er Appliance Estimate (Baseline)

E mission Inventory Category Pollutant Baseline Emission factor (lb/ton) Emissions (tons) Tons per appliance / yr Woodstove: fireplace inserts; EPA certified;

non

- catalytic Primary PM 2.5 8.76 5,371 0.0041 Woodstove: fireplace inserts; EPA certified; catalytic Primary PM 2.5 9.72 2,023 0.0047 Woodstove: freestanding, EPA certified,

non

- catalytic Primary PM 2.5 8.76 6,745 0.0077 Woodstove: freestanding, EPA certified, catalytic Primary PM 2.5 9.72 3,769 0.0101 Woodstove: pellet

- fired, general Primary PM 2.5 3.06 1,798 0.0021 Hydronic heater: outdoor/indoor Primary PM 2.5 27.6 50,427 0.1383 Woodstove: freestanding, non

- EPA certified a Primary PM 2.5 30.6 71,424 0.0324 Furnace: indoor, cordwood Primary PM 2.5 27.6 2,471 0.0582 Primary PM 2.5 30.6

a Non

- EPA certified wood stove emission factor and tons/appliance were used to represent single burn rate stoves

.
4.2.1 Emissions Factors
The next step in the analysis was to develop emission factors representing potential NSPS options to reduce emissions . The f ollowing is a summary of the NSPS options considered in the proposal for each appliance type and examined in detail in Section 2. The NSPS options examined in this analysis ( “ P roposal ” and “ A lternative ” ) are based on phased

- in compliance dates, or “ steps ,” for subcategories of appliances. Proposed Subpart AAA will regulate “ room heaters ” and includes adjustable burn rate stoves, single burn rate stoves, and pellet stoves. Proposed Subpart QQQQ will regulate “ central heaters ” and includes outdoor and indoor hydronic heaters and forced air furnaces. Proposed Subpart RRRR will regulate masonry heaters. Following is a summary of the current NSPS implementation assumptions for appliances within the subcategories under both the P roposed and the A lternative options . As mentioned in Section 2, the P roposed option is a 2

- step standard with compliance dates of effective date 2014 and 5 years after the effective date 2019 for different appliances. For the purposes of our Proposed option analyses, we used 2014 and 2019, respectively. The A lternative option is a 3

- step standard with compliance dates of effective date, 3 years after the effective date, and 8 years after the effective date. For the purposes of our Alternative option a nalyses, we used 2014, 2017, and 2022 , respectively for different appliances

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- 4 Subpart AAA ( “ room heaters ” ):

 These are a djustable burn rate , single burn rate, and pellet stoves : Proposal : Step 1 limit of 4.5 g/hr upon promulgation in 2014; and Step 2 limi t of 1.3 g/hr five years after promulgation in 2019. Alternative : Step 1 limit of 4.5 g/hr upon promulgation in 2014; Step 2 limit of 2.5 g/hr three years after promulgation in 2017; and Step 3 limit of 1.3 g/hr eight years after promulgation in 2022. Note : The Step 1 limit is the 1995 Washington State standard for non

- catalytic stoves; the Alternative Step 2 limit is the 1995 Washington State standard for catalytic stoves; and the proposed Step 2 (Alternative Step 3) limit is already met by the top perform ing catalytic, non

- catalytic and pellet stove models , according to industry data

. 13 Although previously unregulated and a less developed technology than adjustable burn rate stoves, single burn rate stove designs have been undergoing R&D in anticipation of the proposed NSPS and cleaner designs are nearly market

- ready. 14

Subpart QQQQ ( “ central heaters ” ):

 These are hydronic heaters (both outdoor and indoor) : Proposal : Step 1 limit of 0.32 lb/mm BTU heat output upon promulgation in 2014; and Step 2 limit of 0. 06 lb/mm BTU heat output five years after promulgation in 2019. Alternative : Step 1 limit of 0.32 lb/mm BTU heat output upon promulgation in 2014; Step 2 limit of 0. 15 lb/mm BTU heat output three years after promulgation in 2017; and Step 3 limit of 0.06 lb/ mm BTU heat output eight years after promulgation in 2022. Note : The Step 1 limit is the EPA “ Phase 2 “ voluntary program limit already met by 36 hydronic heater models (27 cord wood and 9 pellet models) built by 17 U.S. manufacturers ; the Alternative Step 2 limit is already met by 11 hydronic heater models (6 cord wood and 5 pellet models) built by 6 U.S. manufacturers ; and the proposed Step 2 (Alternative Step 3) limit is already met by 4 hydronic heater models (2 cord wood and 2 pellet models) built by 2 U.S. manufacturers 15 , as well as over 100 European manufacturers per test method EN 303

- 05

. 16

 Forced Air Furnaces : Proposal : Step 1 limit of 0. 93 lb/mm BTU heat output upon promulgation in 2014 ; and Step 2 limit of 0. 06 lb/mm BTU heat output five years after promulgation in 2019. Alternative : Step 1 limit of 0.93 lb/mm BTU heat output upon promulgation in 2014 ; Step 2 limit of 0. 15 lb/mm BTU heat output three years after promulgation in 2017; and Step 3 limit of 0.06 lb/mm BTU heat outp ut eight years after promulgation in 2022. Note : The Step 1 limit is based on test data from

13 Final HPBA Heater Database version 2/25/10, EC/R received from Bob Ferguson for HPBA on 4/26/10 14 2/ 8/13 telephone discussion between Gil Wood, USEPA, and a manufacturer of single burn rate stoves. 15 See list of cleaner hydronic heaters participating in EPA ’ s voluntary program at http://www.epa.gov/burnwise/owhhlist.html 16 E uropean Wood

- Heating Technology Survey: An Overview of Combustion Principles and the Energy and Emissions Performance Characteristics of Commercially Available Systems in Austria, Germany, Denmark, Norway, and Sweden; Final Report; Prepared for the New Yor k State Energy Research and Development Authority; NYSERDA Report 10

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- 5 development of Canadian standard B415.1

- 10 17 and conversation with industry regarding cleaner forced air furnace models currently being tested in R&D 18 . Forced air f urnace designs able to meet the Alternative Step 2 and proposed Step 2 (Alternative Step 3) limits may be based on technology transferred from hydronic heater designs.

Subpart RRRR including masonry heaters:

 Masonry Heaters: Proposal / Alternative (same): Step 1 limit of 0.32 lb/mm BTU heat output upon promulgation in 2014 for large manufacturers (defined as manufacturers constructing ≥ 15 masonry heaters per year), with a 5

- year (2019) small volume manufacturer compliance extension (for companies constructing < 15 units/year). No other phased

- in limits are being proposed. Note : Based on data submitted by the Masonry Heater Association 19 , over 10 models already meet this limit.

We developed adjusted emission factors to reflect the NSPS options discus sed above, which were then used to calculate new average tons of emissions per appliance for each RWC appliance type. Reasonable Conservative adjustments were assumed for NSPS emission factors (as noted below) in order to not overstate emission reductions under the NSPS options; actual emission reductions may be somewhat greater than reductions resulting from our emission factor adjustments for the purpose of this analysis. Following is a description of how the RWC factors were adjusted:

 Woodstove: all EPA certified . We determined the ratio of emissions between the existing NSPS limits compared to the Washington state standards , for they are tighter than the existing NSPS and have been in existence since 1995 . For both catalytic and

non

- catalytic devices, th e Washington standard is 60% of the NSPS. We assumed this same ratio would apply to the emissions factors and multiplied the RWC emission factor by 60%. We used these adjusted RWC emission factors (shown in Table 4

- 2) as both baseline and Step 1 emission f actors for catalytic and non

- catalytic stoves. We made the reasonable conservative assumption (in terms of estimating potential emission reductions) that the Step 1 emission factor was the same as the baseline emission factor, because nearly all current wood stove models already meet the Step 1 limit according to industry data. 20 We also conservatively reasonably assumed that the Alternative Step 2 emission factor for catalytic stoves was the same as the baseline and Step 1 emission factor because approxim ately 90% of the current catalytic models already meet the Alternative Step 2 limit, according to industry

17 CSA B415.1

- 10, Performance Testing of Solid

- Fuel

- Burning Heating Appliances. Appendix D. March 2010. 18 2/ 8/13 telephone discussion between Gil Wood, USEPA, and a manufac turer of forced air furnaces

. 19 Attachment to 3/25/2011 e

- mail from Timothy Seaton of Timely Construction to Gil Wood and Mike Toney of USEPA

. 20 Final HPBA Heater Database version 2/25/10, EC/R received from Bob Ferguson for HPBA on 4/26/10

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- 6 data. 10 For the Alternative Step 2 emission factor for non

- catalytic models, we scaled the Step 1 emission factor by the ratio of the Alternative Ste p 2 standard to the Step 1 standard (or 2.5/4.5 = 0.55). Likewise, for the proposed Step 2 (Alternative Step 3) emission factor for both catalytic and non

- catalytic models, we scaled the Alternative Step 2 emission factor by the ratio of the proposed Step 2 (Alternative Step 3) standard to the Alternative Step 2 standard (or 1.3/2.5 = 0.52). For consistency with our shipment data and because the RWC database provides four separate emission factors for catalytic and non

- catalytic, freestanding models and fir eplace inserts, we used the weighted average value for all four wood stove types to represent the total population of adjustable burn rate woodstoves. Finally, we multiplied the resulting emission factors by the total tons burned for the appliance type (pr ovided by the RWC database) and then divided that by the appliance population (also provided by the RWC database) to derive the tons/appliance of PM 2.5 emissions. The emission factors and tons/appliance are shown in the green rows in Table 4

- 3.

 Woodstove: pellet fired, general . We used the RWC emission factor shown in Table 4

- 2 as both the baseline and Step 1 emission factor for pellet stoves because nearly all current pellet stove models already meet the Step 1 standard according to industry data. 21 The RWC emission factor for pellet stoves is quite low compared to other appliances, which leaves little room to adjust the factor. For the Alternative Step 2 emission factor, we reduced the Baseline/Step 1 emission factor by only 10%, an adjustment based on indu stry data 11 that most pellet models (80%) already meet the Alternative Step 2 level. For the proposed Step 2 (Alternative Step 3) emission factor, we scaled the Alternative Step 2 emission factor by the ratio of the proposed Step 2 (Alternative Step 3) sta ndard to the Alternative Step 2 standard (or 1.3/2.5 = 0.52). We multiplied the resulting emission factors by the total tons burned for pellet stoves and then divided that by the pellet stove appliance population to derive the tons/appliance of PM 2.5 emiss ions. The emission factors and tons/appliance are shown in the orange row in Table 4

- 3.

 Woodstove: freestanding, non

- EPA certified (single burn rate stoves) . As described above, we assumed that the freestanding non

- EPA certified woodstove emission invento ry category include s the population of single burn rate stoves. We therefore used the RWC emission factor for freestanding non

- EPA certified woodstoves (30.6 lb/ton) as the baseline emission factor for single burn rate stoves. For the Step 1 emission facto r, we used the same emission factor as a certified non

- catalytic stove meeting the Washington state standards (i.e., 8.76 lb/ton) because the same standard is being proposed for single burn rate stoves as for adjustable burn rate stoves. Likewise, we used the same emission factors used for non

- catalytic stoves for the Alternative Step 2 and proposed Step 2 (Alternative Step 3) emission factors. We multiplied the resulting emission factors by the total tons burned for this appliance category and then divided that by the appliance population to derive the tons/appliance of PM 2.5 emissions. The emission factors and tons/appliance are shown in the grey row in Table 4

- 3.

21 Final HPBA Heater Database version 2/25/10, EC/R received from Bob Ferguson for HPBA on 4/26/10* * * E.O. 12866 Review

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- 7 4.2.1.1 Hydronic Heater: Outdoor/Indoor

. As noted above, we assumed that indoor hydronic heaters (a minority of the hydronic heater population) have the same emission profile as the outdoor hydronic heater appliance category provided in the RWC. According to the EPA voluntary hydronic heater prog ram, the

“ phase 2 ” heaters that are presumed to represent the Level I NSPS option are 90% cleaner than older unqualified units. 22 We assume as described in our emissions memorandum that the majority o f the existing inventory is represented by these unquali fied units, and applied a 90% reduction to the RWC baseline emission factor shown in Table 4

- 2 (27.6 lb/ton) to derive the Step 1 emission factor (2.76 lb/ton). For the Alternative Step 2 emission factor, w e assumed a
50 % reduction in the Step 1 emission f actor since the Alternative Step 2 limit is approximately 50% of the Step 1 limit. Likewise, for the proposed Step 2 (Alternative Step 3) emission factor, we scaled the Alternative Step 2 emission factor by the ratio of the proposed Step 2 (Alternative
Ste p 3) standard to the Alternative Step 2 standard (or 0.06/0.15 = 0.40). We multiplied the resulting emission factors by the total tons burned for the hydronic heater RWC appliance category and then divided that by the hydronic heater appliance population t o derive the tons/appliance of PM 2.5 emissions. The emission factors and tons/appliance are shown in the blue row in Table 4

- 3.

4.2.1.2 Furnace: Indoor, Cordwood

We used the RWC emission factor shown in Table 4

- 2 (27.6 lb/ton) as the baseline
emission factor. For Step 1, we scaled the baseline emission factor by 75% (to 6.9 lb/ton)
because b ackground material provided in the CSA standards review process stated that the
emission limit associated with this method would result in an approximately 75 % reduction in
emis sions compared to a non

- qualifying furnace. 23 The Alternative Step 2 and proposed Step 2 (Alternative Step 3) limits of 0.15 lb/mmBTU and 0.06 lb/mmBTU, respectively, are the same as the hydronic heater limits. The baseline emission factors for each appliance category are also the same. Therefore we used the same Alternative Step 2 and proposed Step 2 (Alternative Step 3) emission factors used for hydronic heaters (1.38 lb/ton and 0.55 lb/ton, respectively). We multiplied the emission factors by the t otal tons burned for the cordwood furnace RWC appliance category and then divided that by the furnace appliance population to derive the tons/appliance of PM 2.5 emissions. The emission factors and tons/appliance are shown in the lavender row in Table 4

- 3

. See Table 4

- 3 for a summary of the emission factors and resulting

22 See the EPA Burnwise Website: http://www.epa.gov/burnwise/participation.html

. 23 Review draft of CSA B415.1

- 10, Performance Testing of Solid

- Fuel

- Burning Heating Appliances

. Appendix C

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- 8 tons/appliance values for the baseline and NSPS options analyzed. Table 4

- 3 presents the baseline, Step 1, Alternative Step 2, and proposed Step 2 (Alternative Step 3) emission factors
for e ach appliance type resulting from our assumptions and adjustments described above. We used the appropriate tons/appliance with annual shipment data to estimate annual PM 2.5 emissions based on the P roposed and A lternative phased

- in implementation compliance dates.

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### Table 4

- 3

. NSPS Adjusted Factors for PM 2.5

Em ission Inventory Category Baseline Emiss ion

Factor (lb/ton) Baseline Emiss ions/ Appliance

(tons) Tons/ Appl/yr Step 1 Emiss ion

Factor Tons/ Appl/yr Alt. Step 2 Emission

Factor lb/ton Alt. Step 2 Tons/appl Step 2 (Alt. Step 3)

Emission

Factor lb/ton Step 2 (Alt. Step 3) Tons/appl Woodstove: fireplace inserts; EPA certified; non

- catalytic 8.76 5,371 0.0041 8.76 0.0041 4.82 0.0023 2.51 0.0012

Woodstove: fireplace inserts; EPA certified; catalytic 9.72 2,023 0.0047 9.72 0.0047 9.72 0.0047 5.05 0.0025

Woodstove: freestanding, EPA certified, noncatalytic 8.76 6,745 0.0077 8.76 0.0077 4.82 0.0042 2.51 0.0022

Woodstove: freestanding, EPA certified, catalytic 9.72 3,769 0.0101 9.72 0.0101 9.72 0.0101 5.05 0.0052

Woodstove: pellet

- fired, general 3.06 1,798 0.0021 3.06 0.0021 2.75 0.0019 1.43 0.0010 Hydronic heater: outdoor 27

. 6 5,043 0.138 3 2.76 0.0138 1

. 3 8 0.00 69 0 .5 5 0.00 2 8

Furnace: indoor, cordwood 27

. 6 9,053 0. 1032 6.9 0.0258 1.38 0.00 52 0.55 0.002 1 Single Burn Rate Stoves (freestanding, non

- EPA certified) 30 .6 20,447 0.0 324 8.76 0.0093 4 .8 2 0.005 1 2.51 0.002 7* * * E.O. 12866 Review

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- 10 4.2.2 Voluntary Programs
Within these emissions projections are the effects not only of rules but also of various voluntary programs managed by EPA and states. Studies have shown that fine particle (PM 2.5 ) concentrations in proximity to a typical outdoor wood boiler are likely to exceed the 24

- hour National Ambient Air Quality Standards (NAAQS)

. 18 Thus, the EPA developed a hydronic
heater voluntary program to encourage manufacturers to reduce impacts on air quality through developing and distributing cleaner, more efficient hydroni c heaters. We developed the voluntary program because it could bring cleaner models to market faster than the traditional federal regulatory process. Phase 1 19 emission level (0.60 pounds per million British Thermal Unit (lb/MMBTU) heat input) qualifying 20 units are approximately 70 % cleaner than typical unqualified units. After March 31, 2010, units that only meet the Phase 1 emission level are no longer considered “ qualified models ” under the voluntary program. Phase 2 emission level (0.32 lb/MMBTU heat o utput) qualifying units are approximately 90 % cleaner than typical unqualified units. Typically, qualified models have improved insulation, secondary combustion, separation of the firebox from the water jacket, and the addition of improved heat exchangers.

In addition to the voluntary program, the EPA provided technical and financial support for the Northeast States for Coordinated Air Use Management (NESCAUM) to develop a model rule which several states have adopted to regulate hydronic heaters. The model rule is a starting point for local regulatory authorities to consider, and they may need to also adopt additional
actions may be needed due to site

- specific concerns, e.g. , local terrain, meteorology, proximity of neighbors and other exposed individuals. Thus, some regulatory authorities have instituted additional requirements, including bans on hydronic heaters in some areas.

The EPA also developed a similar voluntary partnership program for low

- mass fireplaces (engineered, pre

- fabricated fireplaces) and site

- built masonry fireplaces. The original partnership agreements were dated February 19, 2009, and pertained to low

- mass fireplaces. On July 4, 2009, the program was expanded to other fireplaces, e.g. , masonry fireplaces. Under this

18 For more information on wood smoke health effects, See: “ Smoke Gets in Your Lungs: Outdoor Wood Boilers in New York State, ” prepared by Judith Schrieber, Ph .D., et al., for the Office of the Attorney General of New York. August 2005. See also: “ Assessment of Outdoor Wood

- fired Boilers, ” prepared by NESCAUM, March 2006 (revised June 2006). 19 Phase 1 ” and “ Phase 2 ” emission levels refer to levels established i n EPA voluntary programs. The earlier use of the term “ Phase II ” (with a Roman numeral) standard refers to standards established in the current subpart AAA for residential wood heaters. 20 The terms “ qualified ” and “ unqualified, ” or other similar terms, re fer to models that meet the voluntary program performance levels. Later use of the terms “ certified ” and “ uncertified, ” or other similar terms, refers to models that are deemed to be in compliance with the NSPS emission limits.* * * E.O. 12866 Review

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- 11 program, cleaner burning fireplaces are ones that qualify for the Phase 1 emissions level of 7.3 g of particles emitted per kg of fuel burned (approximately 57 % cleaner than unqualified models) or the Phase 2 emissions level of 5.1 g/kg (approximately 70 % cleaner than unqu alified models). So far, 11 models have qualified under this voluntary program at the Phase 2 level. Typically, qualified models have improved insulation and added secondary combustion and/or a catalyst to reduce emissions. Some manufacturers have added cl osed doors to reduce the excess air and thus improve combustion. Some After the EPA considers the comments on today ’ s proposal, the EPA will consider tighten ing the Phase 2 voluntary qualifying level as an additional tool for state and local agencies have that need ed to reduce emissions further and thus some have no

- burn days and some have adopted bans of new fireplaces in some areas in order to attain the PM 2.5 NAAQS.

4.2.3 Shipment Data Used to Estimate Baseline Emissions

We used data in the Frost & Sullivan Ma rket (F&S) report 21 on 2008 shipments by product category
, and F&S revenue forecasts which incorporated the weak economy in years 2009 and 2010, to c alculate the reduced number of shipments in years 2009 and 2010. Forced air furnaces were outside the scope of the F&S report

. Instead, we use d manufacturer estimates of total industry sales in 2008 22 and applied the F&S market factors to estimate shipments through
2010. The F&S wood stove numbers included both certified and non

- certified stoves, so we
estimate d numbers of non

- certified stove shipments out of the total reported wood stove category

. 23 These shipments were deleted from the total wood stove category shipments

. We expanded the 2008 single burn rate estimate using the F&S factors

. Our estimates of annual shipments, truncated to 2022, are shown in Table 4

- 4. The full set of annual shipments data can be found in the emissions memo for this proposal.

For years 2011 through 2038 (for the proposed NSPS) and 2011 through 2041 (for th e alternative approach) e stimated shipments are based on a forecasted revenue growth rate of 2.0%, in keeping with the average annual growth in real GDP predicted by the Conference
Board

. 24 There is not a perfect correlation between shipments and revenue ( for example, because of their higher unit cost, pellet stoves generate more absolute revenue than wood stoves), but as

21 Market Research and Repor t on North American Residential Wood Heaters, Fireplaces, and Hearth Heating Products Market

. Prepared by Frost & Sullivan

. April 26, 2010. pp . 31

- 32. 22 NSPS Review and Comments . Confidential Business Information submitted by manufacturer. September 2010. 23 Memo to Gil Wood, USEPA, from EC/R, Inc. Draft Estimated Emissions from Wood Heaters. February 15, 2013. 24 2013 Global Outlook projections prepared by the Conference Board in November 2012; http://www.conference

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- 12 stated in our emissions memorandum, we think the overall trend in the projection is reasonable in the absence of specific shipment projec tions.

Table 4

- 4. Estimated Annual Shipments by Category, 2008

- 2022

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Wood st oves 1 26,527 8 0,851 7 7,617 79,169 8 0,752 82,367 84,01 5 8 5 ,695 87,409 89,157 90,9 4 0 92,759 94,614 96,507 9 8,437 Single burn rate stoves 40,000 25,560 2 4 ,538 25,028 2 5,529 26,039 26,5 60 2 7 ,091 27.633 2 8,186 28,750 2 9 ,325 29.911 30,509 3 1
, 120

Pellet stoves 130,381 83,313 7 9,981 8 1 ,581 83,212 8 4,876 8 6,574 8 8,305 90,072 9 1,873 9 3,710 95,585 97,496 99,446 1 01,435 Furnace: indoor, cordwood 4 1,000 2 6,199 2 5,151 2 5 ,6 5 4 2 6,167 2 6,690 2 7
, 224 2 7
, 769 2 8,324 2 8 ,891 29
, 468 3 0,058 3 0,659 3 1
, 272 31,898

H ydronic heating systems 1 3,385 8 ,55 3 8
, 21 1 8
, 37 5 8 ,543 8
, 713 8
, 888 9
, 065 9
, 2 47 9
, 432 9,620 9
, 813 1 0
, 009 10, 2 09 10,413

Our cost effectiveness analysis (CE) 25 assumes a 20

- year model design lifespan as well
as a 20

- year use/emitting appliance lifespan. These assumptions were made to best conservatively characterize the actual model design and use lifespans given tha t many models developed for the 1988 NSPS are still being sold (after 25 years), many “ new ” models still have the same internal working parts with merely exterior cosmetic changes, and most stoves in consumer homes emit for at least 20 years and often much longer

. Therefore our CE analysis tracks shipments through year 2038 for the proposed NSPS and through year 2041 for the alternative approach (i.e., assuming a 20 year design life for a model meeting the Step 2 limit in year 2019 under the proposed NSPS, and for a model meeting the Alternative Step 3 limit in year 2022 under the alternative approach) . A truncated summary of our actual shipment data which extended through years 2038 for the proposed NSPS and 2041 for the alternative approach can be found in the emissions memo for this proposal

. S ee the CE analysis spreadsheets that are in the public docket for the complete shipment data.

25 See cost effective (CE) spreadsheets including for PM 2.5 the 2019 Step 2 Wood Heater NSPS PM25 CE 7% Feb14_2013.xls for the CE ana lysis supporting the proposed NSPS, and the 3 Step Wood Heater NSPS PM25 CE 7% Feb14_2013.xls for the alternative approach . All of these spreadsheets are found in the public docket for this rulemaking. Comment [A2]: EPA do 2022 shipments grow further at the same rates or stay same? This point should be clarified.* * * E.O. 12866 Review

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- 13 4.3 Estimated PM 2.5 Emissions from Shipments of New Appliances
As described above, w e calculated the average emissions per appliance type using the emission factor for each category multiplied by the inventory value of total tons of wood burned divided by the number of appliances in the inventory population. This value was then multiplied by the number of shipments to calculat e total emissions from each category per year under
baseline conditions ( i.e., in the absence of an NSPS )

. More information on these calculations is available in the emissions memorandum in the docket for this rulemaking. 26

Table 4

- 5 on the next page show s a truncated summary of the estimated PM 2.5 emissions (in tons) under baseline conditions through year 2022. We then estimated emissions under the proposed NSPS (Table 4

- 6) and under the alternative approach (Table 4

- 7) based on the respective assumptions and phase

- in timelines for each. Under the proposed NSPS, the Step 1 limit becomes effective in 2014 and the Step 2 limit in 2019; while under the alternative approach, the Step 1 limit becomes effective in 2014, the Step 2 limit in 2017, and the Step 3
l imit in 2022. (Note that the proposed Step 2 limit is the same as the alternative Step 3 limit, although the compliance dates differ.) The emission estimates assume that the total number of shipped units meet the standard in the year the standard is implem ented.

Tables 4

- 5 4
, 4

- 6 5 , and 4

- 7 6 show emission estimates out to year 202 2 for comparison

. T hese are truncated summaries . O ur CE analysis tracks emission reductions out through 2057 for the proposed NSPS and through 2060 for the alternative approach, ass uming a 20 year design life for a model meeting each phased

- in limit, and best assumption conservatively assuming that stoves shipped in the 20 th year of design life will be emitting in homes for another 20 years. See
the cost

- effectiveness analysis spreadsheets 27 for all years of emission data , both baseline and under each NSPS option considered

. These spreadsheets are available in the public docket for this rulemaking.

Note: No emission tables are provided for Subpart RRRR regulating maso nry heaters because emission estimates are not available for these appl iances as explained earlier in this RIA
section

.

26 Memo to Gil Wood, USEPA, from EC/R, Inc. Draft Esti mated Emissions from Wood Heaters. February 15, 2013. 27 See cost effective (CE) spreadsheets including for PM 2.5 the 2019 Step 2 Wood Heater NSPS PM25 CE 7% Feb14_2013.xls for the CE analysis supporting the proposed NSPS, and the 3 Step Wood Heater NSPS PM25 CE 7% Feb14_2013.xls for the A lternative approach.

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### Table 4

- 5 4

. Estimated PM 2.5 

### Emissions (Tons) : Baseline

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Wood stoves 761 486 467 4 76 486 495 5 05 5 1 5 5 2 6 53 6 547 558 5 69 580 592 Single burn rate stoves 1,295 827 794 8 1 0 82 6 843 860 877 8 9 5 912 931 949 968 988 1 ,007

Pellet stoves 277 177 170 17 3 1 77 180 1 8 4 187 191 195 199 2 03 2 07 2 11 2 15 Furnace: indoor, cordwood 4,230 2,703 2,595 2,6 47 2, 699 2,75 3 2,809
, 2,865 2,922 2,980 3, 040 3, 101 3, 163 3, 226 3,2 9 1

H ydronic heating systems 1, 851 1, 183 1, 136 1, 1 5 8 1,1 82 1,20 5 1,2 2 9 1, 2 5 4 1, 279 1, 305 1, 331 1,357 1,384 1,412 1,440

Total 8,414 5,376 5,161 5,26 5 5, 37 0 5 , 477 5 ,5 87 5 , 699 5 , 8 12 5,929 6,047 6 , 168 6,292 6,417 6,546



### Table 4

- 6 5

. Estimated PM 2.5 

### Emissions (Tons) : Proposed Option

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Wood stoves 761 486 467 4 76 486 495 5 05 5 1 5 5 2 6 53 6 547 202 20 6 210 214 Single burn rate stoves 1,295 827 794 8 1 0 82 6 843 246 251 256 261 266 78 79 81 82

Pellet stoves 277 177 170 17 3 1 77 180 1 8 4 187 191 195 199 95 97 99 101 Furnace: indoor, cordwood 4,230 2,703 2,595 2,6 47 2, 699 2,75 3 702 716 731 745 760 62 63 65 66

H ydronic heating systems 1, 851 1, 183 1, 136 1, 1 5 8 1,1 82 1,20 5 12 3 1 2 5 1 28 1 30 1 33 27 28 28 29

Total 8,414 5,376 5,161 5,26 5 5, 37 0 5 , 477 1,760 1 , 795 1 , 831 1,868 1,905 464 473 482 492 Comment [A3]: Did EPA correct the mis

- identification of tables between the proposal and the alternative?

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### Table 4

- 7 6

. Estimated PM 2.5 

### Emissions (Tons) : Alternative Option

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Wood stoves 761 486 467 4 76 486 495 5 05 5 1 5 5 2 6 373 380 388 39 6 404 214 Single burn rate stoves 1,295 827 794 8 1 0 82 6 843 246 251 256 144 147 149 152 155 8 2

Pellet stoves 277 177 170 17 3 1 77 180 1 8 4 187 191 176 179 183 186 190 101

Furnace: indoor, cordwood 4,230 2,703 2,595 2,6 47 2, 699 2,75 3 702 716 731 149 152 155 158 161 66

H ydronic heating systems 1, 851 1, 183 1, 136 1, 1 5 8 1,1 82 1,20 5 12 3 1 2 5 1 28 65 67 68 69 71 29

Total 8,414 5,376 5,161 5,26 5 5, 37 0 5 , 477 1,760 1 , 795 1 , 831 906 925 943 962 981 492* * * E.O. 12866 Review

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- 16 From the tables above, we see that the PM 2.5 emission reductions in 2022 are the same at 6,054 tons. The average of the annual emission reductions between the year of rule promulgation, 2014, and the year that both options are fully implemented (2022) is 4, 8 25 tons for the Proposed option and 4,8 7 8 tons for the Alternative option.

4.4 Methodology for Estimating VOC Emissions from New Units
We used the same methodology described in Se ction 4.3 to develop emission estimates for VOC emissions. Using the RWC database, we developed an estimate of VOC emissions per appliance using baseline emission factors. Then, using the same NSPS phase

- in assumptions and anticipated emission reductions (i.e., that VOC reductions are comparable to PM 2.5 reductions), we developed emission factors to be used in analyzin g the NSPS options. Table 4

- 8 7 provides the VOC emission factors

.

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### Table 4

- 8 7

. NSPS VOC Emission Factors

Emission Inventory Category Baseline Emission

Factor (lb/ton) Emissions (tons) Tons/ Appl/Yr Step 1 Emission

Factor (lb/ton) Step 1 Tons/ Appl/Yr Alt. Step 2 Emission

Factor (lb/ton) Alt. Step 2 Tons/ Appl/Yr Step 2 (Alt. Step 3)

Emission

Factor (lb/ton) Step 2 (Alt. Step 3) Tons/ Appl./Yr Woodstove: fireplace inserts; EPA certified; non

- catalytic 12 7,357 0.0056 12 0.0056 6.6 0.0031 3.432 0.0016

Woodstove: fireplace inserts; EPA certified; catalytic 15 3,121 0.0073 15 0.0073 15 0.0073 7.800 0.0038

Woodstove: freestanding, EPA certified, non

- catalytic 12 9,240 0.0106 12 0.0106 6.6 0.0058 3.432 0.0030

Woodstove: freestanding, EPA certified, catalytic 15 5,817 0.0155 15 0.0155 15 0.0155 7.800 0.0081

Woodstove: pellet

- fired, general 0.041 24 0.000 30 0.041 0.00003 0.037 0.00003 0.019 0.00001 Hydronic heater: outdoor 11

. 7 2,138 0.05 86 1

. 17 0.0059 0. 5 9 0.0028 0.234 0.0012 Furnace: indoor, cordwood 11

. 7 3,838 0.0 437 2.925 0.0109 0.59 0.0022 0.234 0.0009 Single burn rate stoves (freestanding, non

- EPA certified) 53 21,288 0.0 56 1 12 0.0127 6.6 0.0070 3.432 0.0036* * * E.O. 12866 Review

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- 18 Using the same assumptions as we used for PM 2.5 , we calculated VOC emissions at
baseline and under each NSPS option based on a 20

- year model design lifespan for appliance shipments as well as a 20

- year appliance life. Tables 4

- 9 8 through 4

- 1 1 0 provide the time series of VOC annual emissions estimates between 2008 and 2022 for the baseline, and the NSPS options considered under the proposed NSPS revision.

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### Table 4

- 9 8

. Estimated VOC Emissions (Tons) : Baseline

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Wood stoves 1 ,085 6 93 6 6 6 679 692 706 720 735 750 7 6 5 780 795 811 828 844 Single burn rate stoves 2 ,2 43 1,433 1,3 7 6 1,403 1,431 1,460 1,489 1,519 1,549 1,580 1,612 1,644 1,677 1,711 1 ,745

Pellet stoves 4 2 2 2 2 2 2 3 3 3 3 3 3 3 3 Furnace: indoor, cordwood 1
, 79 3 1
, 146 1
, 100 1
, 122 1
, 144 1,167 1,191 1,214 1,239 1,263 1
, 289 1
, 315 1,341 1
, 368 1,3 9 5

H ydronic heating systems 785 502 481 491 50 1 511 52 1 5 32 542 553 564 575 587 599 611

Total 5 , 909 3 , 7 7 6 3 ,6 25 3 ,6 97 3,771 3 , 847 3 , 924 4,002 4 , 08 2 4,164 4,247 4 , 332 4,419 4,507 4,597



### Table 4

- 10 9

. Estimated VOC Emissions (Tons) : Proposed Option

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Wood stoves 1,085 693 666 679 692 706 720 735 750 765 780 293 298 304 311 Single burn rate stoves 2,243 1,433 1,376 1,403 1,431 1,460 337 344 351 358 365 106 109 111 113

Pellet stoves 4 2 2 2 2 2 2 3 3 3 3 1 1 1 1 Furnace: indoor, cordwood 1,793 1,146 1,100 1,122 1,144 1,167 298 304 310 316 322 26 27 27 28

H ydronic heating systems 785 502 481 491 501 511 52 53 54 55 56 12 12 12 12

Total 5,909 3,776 3,625 3,697 3,771 3,847 1,410 1,438 1,467 1,496 1,526 438 447 456 465

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### Table 4

- 1 1 0

. Estimated VOC Emissions (Tons) : Alternative Option

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Wood stoves 1,085 693 666 679 692 706 720 735 750 541 552 563 574 586 311 Single burn rate stoves 2,243 1,433 1,376 1,403 1,431 1,460 337 344 351 197 201 205 209 213 113

Pellet stoves 4 2 2 2 2 2 2 3 3 2 2 2 2 3 1 Furnace: indoor, cordwood 1,793 1,146 1,100 1,122 1,144 1,167 298 304 310 63 64 66 67 68 28

H ydronic heating systems 785 502 481 491 501 511 52 53 54 28 28 29 29 30 12

Total 5,909 3,776 3,625 3,697 3,771 3,847 1,410 1,438 1,467 831 848 864 882 899 465* * * E.O. 12866 Review

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- 21 From the tables above, we can show that the VOC emission reductions in 2022 are the same for each option at 4,132 tons. The average of the annual emission reductions between the year of rule promulgation, 2014, and the year that both options are fully implemented (2022) is 3,237 tons for the Proposed option and 3,241 tons for the Alternative option.

4.5 Methodology for Estimating CO Emissions from New Units

We used the same me thodology described in Section 4.3 to develop estimates for CO
emissions. Using the RWC database, we developed an estimate of CO emissions per appliance using baseline emission factors. Then, using the same NS PS phase

- in assumptions and anticipated emission reductions (i.e., that CO reductions are comparable to PM 2.5 reductions), we developed emission factors to be used in analyzing the changes in emissions from applying the NSPS options. Table 4

- 1 2 1 presents the CO emission factors

.

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### Table 4

- 1 2 1

. NSPS CO Emission Factors

Emission Inventory Category Baseline Emission

Factor (lb/ton) Baseline Emissions

(tons) Tons/ Appl/Yr Step 1 Emission

Factor (lb/ton) Step 1 Tons/ Appl/Yr Alternative Step 2 Emission

Factor (lb/ton) Alternative Step 2 Tons/ Appl./Year Alternative Step 3 Emission

Factor (lb/ton) Alternative Step 3 Tons/Appl./ Year Woodstove: fireplace inserts; EPA certified; non

- catalytic 140.8 86,323 0.0662 140.8 0.0662 77.4 0.0364 40.269 0.0189

Woodstove: fireplace inserts; EPA certified; catalytic 104.4 21,725 0.0509 104.4 0.0509 104.4 0.0509 54.288 0.0264

Woodstove: freestanding, EPA certified, non

- catalytic 140.8 108,418 0.1241 140.8 0.1241 77.4 0.0683 40.269 0.0355

Woodstove: freestanding, EPA certified, catalytic 104.4 40,486 0.1082 104.4 0.1082 104.4 0.1082 54.288 0.0563

Woodstove: pellet

- fired, general 15.9 9,344 0.0110 15.9 0.0110 14.31 0.0099 7.441 0.0052 Single burn rate stoves (freestanding,

non

- EPA

- certified) 23 0.8 249,785 0. 2442 140.8 0.1489 77.4 0.0819 40.269 0.0426

Hydronic heater: outdoor 184 33,618 0.0922 18.4 0.0922 9.2 0.0461 3.680 0.0184 Furnace: indoor, cordwood 18 4 60,355 0. 6878 46 0.1719 9.2 0.0344 3.680 0.0138 Comment [A4]: If EPA is able to identify different emission factors for different heaters, why not carry through to results? Same comment on other tables as well.* * * E.O. 12866 Review

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- 23 Using the same assumptions as we used for PM 2.5 , we calculated CO emissions at
baseline and for the two NSPS options we are considering. Table 4

- 1 3 2 shows the annual baseline emissions for CO for 2008 to 2022, and Tables 4

- 1 4 3 and 4

- 1 5 4 show the CO emissions under the Proposed and Alternative options.

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### Table 4

- 1 3 2

. Estimated CO Emissions (Tons) : Baseline

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Wood stoves 1 0,918 6,97 6 6 ,69 7 6,831 6,968 7,107 7,249 7,394 7,54 2 7, 6 93 7,847 8,004 8.1 6 4 8,327 8,494 Single burn rate stoves 9,766 6,241 5,991 6,111 6 ,233 6,358 6,485 6,614 6,747 6,882 7.019 7,160 7,303 7,449 7,598

Pellet stoves 1,438 919 882 900 918 936 955 974 994 1,014 1,034 1,055 1,076 1,097 1,119 Furnace: indoor, cordwood 28,198 18
, 019 17
, 298 17 ,6 44 17
, 997 18,357 18,724 19,098 19,480 19,870 20,267
, 20
, 672 21
, 086 21,508 21, 9 38

H ydronic heating systems 1 2
, 343 7
, 887 7
, 572 7
, 723 7
, 878 8, 0 35 8
, 1 9 6 8
, 360 8
, 527 8,698 8,872 9,049 9,230 9,415 9,603

Total 62 , 663 40 , 042 38 , 440 39 ,2 09 39 , 993 40 , 793 41 , 609 42 , 441 43,290 44,156 45,039 45 , 940 46,858 47,796 4 8 ,7 51



### Table 4

- 1 4 3

. Estimated CO Emissions (Tons) : Proposed Option

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Wood stoves 1 0,918 6,97 6 6 ,69 7 6,831 6,968 7,107 7,249 7,394 7,54 2 7, 6 93 7,847 2,743 2,797 2,853 2,910 Single burn rate stoves 9,766 6,241 5,991 6,111 6 ,233 6,358 3,956 4,035 4,116 4,198 4,282 1,249 1,274 1,300 1,326

Pellet stoves 1,438 919 882 900 918 936 955 974 994 1,014 1,034 494 503 513 524 Furnace: indoor, cordwood 28,198 18
, 019 17
, 298 17 ,6 44 17
, 997 18,357 4,681 4,775 4,870 4,967 5,067 413 422 430 43 9

H ydronic heating systems 1 2
, 343 7
, 887 7
, 572 7
, 723 7
, 878 8, 0 35 820 836 853 870 887 181 185 188 192

Total 62,663 40,042 38,440 39,209 39,993 40,793 17,661 18,014 18,375 18,742 19,117 5,080 5,181 5,285 5,391

### * * * E.O. 12866 Review

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### Table 4

- 1 5 4

. Estimated CO Emissions (Tons) : Alternative Option

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Wood stoves 10,918 6,976 6,697 6,831 6,968 7,107 7,249 7,394 7,542 5,069 5,171 5,274 5,380 5,487 2,910 Single burn rate stoves 9,766 6,241 5,991 6,111 6,233 6,358 3,956 4,035 4,116 2,309 2,355 2,402 2,450 2,499 1,326

Pellet stoves 1,438 919 882 900 918 936 955 974 994 912 930 949 968 987 524 Furnace: indoor, cordwood 28,198 18,019 17,298 17,644 17,997 18,357 4,681 4,775 4,870 993 1,013 1,034 1,054 1,075 439

H ydronic heating systems 12,343 7,887 7,572 7,723 7,878 8,035 820 836 853 435 444 452 461 471 192

Total 62,663 40,042 38,440 39,209 39,993 40,793 17,661 18,014 18,375 9,719 9,913 10,112 10,314 10,520 5,391* * * E.O. 12866 Review

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- 26 From the tables above, we can show that the C O emission reductions in 2022 are the same for each option at 4 3 ,3 6 0 tons. The average of the annual CO emission reductions between the year of rule promulgation, 2014, and the year that both options are fully implemented (2022)
is 32, 559 tons for the P roposed o ption and 32, 8 7 3 tons for the Alternative o ption

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- 1 SECTION 5 COST ANALYSIS, ENERG Y IMPACTS, AND EXECU TIVE ORDE R ANALYSES

In this section, we provide the estimates of total compliance costs and background behind
their estimation. In addition, we provide a qualitative economic impact analysis of the proposed
rule ’ s impact on consumer and producer decisions, a qualit ative discussion on unfunded mandates that may occur as a result of this final rule, and a partial analysis of the impacts of this proposal on employment. W e used the direct annual compliance costs as an approximate
measure of total social costs.

Given the se constraints, s everal economic frameworks can be used to estimate the economic impacts and social costs of regulations ; however, OAQPS has traditionally relied on partial equilibrium market models. Previous NSPS economic impact analyses for the residential wood stove market were prepared reflecting such a model standpoint. However, the current data do not provide sufficient details to develop a market model; the data that are available have little or no sector/firm detail and are reported at the national level. In addition, some sectors have unique market characteristics that make developing partial equilibrium models difficult. Therefore, we have prepared the economic impact analysis using a qualitative partial equilibrium framework.

5.1 Background f or Compliance Costs

5.1.1 E stimated Research and Development (R&D) Costs

5.1.1.1 Residential Wood Heaters (except for masonry heaters)

EPA has received various estimates of the costs to bring a wood heater from concept to completion , from $300,000 for a single model to $1,360,000 for a 4

- firebox model line. A recent Hearth and Home article estimated the total cost to bring a model from conception to market as $645,000 to $750,000 for steel stoves and over $1 million for cast

- iron, enameled wood stoves

. The authors indic ated that c osts would decrease for separate models in the same line by up to 25% . Based on this information, we estimate that a 4

- model steel line would cost up to $328,125 per model to develop. These costs include marketing, design, developing first gener ation, second generation and prototype units; NSPS and safety testing, equipment tooling, etc. The manufacturer supplying these figures for the article estimate d that the NSPS and safety testing component of these costs would constitute $40,000 per model. This manufacturer said that* * * E.O. 12866 Review

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- 2 development time is 12 to 14 months for non

- catalytic heaters and 10 to 12 months for catalytic
heaters. 34

Anoth er manufacturer estimated costs of new product development, including design, prototype development, testing, toolin g equipment and other manufacturing changes, marketing support, materials, training, and education to be in excess of $300,000 over an 8

- to 12

- month schedule for a relatively uncomplicated product. Costs will increase for products that have more sophistic ated controls. 35 One other manufacturer estimated that their typical model development costs are around $200,000/model. 36

Two manufacturers suggested a 14

- to 18

- month time frame is required to develop a new firebox, but added that it will take from 5 to 6 years of intensive engineering and R&D efforts to have a model line consisting of 4 boxes ready for manufacture. They agreed that knowledge of the process obtained during each firebox development will shorten (somewhat) the time necessary, but not enough t o consider within a guiding framework. These manufacturers also provided estimated development costs for a 4

- box model line, presented in Table 5

- 1 below. 37

Table 5

- 1

. Example of Manufacturer s ’ Estimate s of Costs to Develop Model Line (4 Fireboxes)

Cost Component Estimated Costs Notes

Salaries $850,000 Using 2

- full time experimented employees to bring the products to market, salaries and benefits are estimated at $160,000 per year for at least 5.3 years. Tasks include design, prototyping, testing, produc tion

- line integration, and marketing. Laboratory Equipment $50,000 In order to accelerate R&D and avoid validating each result with independent testing labs (too costly for most manufacturers), new testing equipment will need to be purchased in order to sample flue gases, measure test load weight loss, record data automatically, and analyze flue gases composition. Prototypes $25,000 Numerous prototypes will be needed until the final product can be approved. For each firebox, estimate that 8 prototypes will be needed, at a cost of $700 each. Numerous samples of various components will also have to be purchased from vendors.
Test Fuel a $45,000 Each test costs at least $50 in fuel (assuming cribs are used), including waste. An estimated 150 tests will have to be conducted for each firebox, for a total of $7,500, or $30,000 for a 4

- firebox model line based on crib testing. (continued)

34 James E. Houck and Paul Tiegs

. There ’ s a Freight Train Comin ’

. Hearth and Home

. December 2009. 35 Comments from United States Stove Company, Small Entity Representative

. July 13, 2010. 36 Confidential Business Information. 37 NSPS Review/Revision, and Impact on Our Companies: A Manufacturer ’ s Position Statement

. Prepared by Stove Builder International and United States Stove Company

. June 2010.* * * E.O. 12866 Review

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- 3 Table 5

- 1

. Example of Manufacturer s ’ Estimate s of Costs to Develop Model Line (4 Fireboxes) (continued)

Cost Component Estimated Costs Notes Testing Services a $150,000 Testing services for emissions, efficiency, and safety are estimated to last approximately 3 weeks for each firebox. At an average of $1,500 per day plus travel expenses, this amounts to approximately $25,000 for each firebox, or $100,000 for a 4

- firebox model line based on crib testing.
Outside Consultants $160,000 The average manufacturer will need outside help for design and testing. Testing equipment, knowledge of the test standard, and general guidance is normally offered by outside consultants (not necessarily certified EPA test labs). The average manufacturer will need app roximately 300 hours of consulting services per year ($40,000) for 4 years.

Re

- tooling $120,000 For each firebox, new molds and jigs will need to be purchased or produced. Estimate that re

- tooling charges will reach at least $30,000 per firebox, or $120,000 for a 4

- firebox model line. Marketing $25,000 New pictures will need to be taken and all the current marketing material, including web sites and owner ’ s manuals, will have to be updated.
Total $1,360,000 Equal to $340,000/model

a Note: As described in our unit cost memo, t he costs originally provided by industry for this table were presumed

to be based on crib wood testing, not both crib wood and cord wood testing. Therefore we increased the industry

based “ Test Fuel ” cost by 50% (to the $4 5,000 shown above) as well as the industry

- based “ Testing Services ” cost by 50% (to the $150,000 shown above) in order to conservatively estimate the additional cost to test with both crib wood and cord wood.

For this analysis, we used the costs provided i n the Table 5

- 1 example, scaled to a single model and spread over a 6

- year model development time frame . We prepared an annualized R&D cost estimate by separating cost elements into direct annual costs (salaries) vs. indirect annual costs (laboratory equip ment, retooling and other capital costs). We conservatively estimated annual capital costs during the amortized R&D cost period as the fraction that the indirect costs (IAC) are of the Total Annual Cost, approximately 34% annually. Ongoing costs
such as taxes, overhead, and other routine expenses would be incurred regardless of the NSPS standard, and are not included in this analysis. Table 5

- 2 shows the estimated annualized cost of $63,850 per model, assuming an amortization period of 6 years and an inte rest rate of 7%.

Table 5

- 2. Annual Cost Summary : Development of 4 Model Fireboxes a,b

Direct Annual Costs (DAC)

Operator labor $141,667 Annual salary cost from Table 1 , spread over 6 years. ”
Outside Consultants $26,667 Annual outside consultant cost from Table 1 , spread over 6 years. ” Total Direct Costs (DC) $168,333 (continued)* * * E.O. 12866 Review

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- 4 Table 5

- 2. Annual Cost Summary : Development of 4 Model Fireboxes a,b (continued)

Indirect Annual Costs (IAC)

Laboratory Equipment a $ 10,490 The laboratory equipment cost of $50,000 was amortized over 6 years at an interest rate of 7%.

Re

- tooling b $25,175 The re

- tooling cost of $120,000 was amortized over 6 years at an interest rate of 7%. Other Capital Costs b $ 51
, 400 Other capital costs include costs for prototypes ($25,000), test fuel ($ 45 ,000), testing services ($1 5 0,000), and marketing ($25,000) and w ere amortized over 6 years at an interest rate of 7%. Total Indirect Costs (IAC) $ 8 7, 065
Total Annual Cost $2 55 ,39 9 Annual cost for development of 4 model fireboxes.
Total Annual Cost $ 63
, 850 Average annual cost per firebox model.

a An amortization period of 6 years for laboratory equipment, retooling and other capital costs was chosen based on

industry ’ s estimate that approximately 5 to 6 years of R&D are required to bring a product to market.

b As described in the unit cost memo, t o conservatively estimate the additional cost to test with both cord wood and

crib wood, the test fuel industry estimate of $30,000 based on crib only was increased by $15,000 and the testing services industry estimate of $100,000 based on crib only (which covered not only emissions testing but also efficiency and safety testing) was increased by $50,000.

5.1.2 Masonry Heaters
Masonry heaters manufacturing cost i mpacts vary by the type of producer and the type of
certification method. According to one manufacturer
, 38 the masonry heater industry in the U.S. is dominated by the Finnish firm Tulikivi, which manufactures and imports about half of the U.S. masonry heate r units installed yearly through its network of installing distributors

. The same manufacturer said that the second largest producer is a Canadian firm, Temp

- Cast

. The remainder of the industry is made up of “ dozens ” of small producers, with probably fewer than 100 (or at least fewer than 200) generating any masonry revenue at all

. Some commercial operations sell core units and/or design kits based on their own design, and other sell units they license from other U.S. or foreign companies

. Finally, some units are custom built

. Based on this information, we assumed that 50 % of masonry heat ers sold per year in the U.S. are Tulikivi models and 35 % are sold by other manufacturers

. The remaining 15 % of units are sold by
ind ependent contractors

. There are three major cost components to consider in evaluating the potential cost impacts of the proposed NSPS: research and development (R&D), certification testing, and licensing fees for use of a computer software package approve d for use in certifying a model

38 Comments: Residential Solid Fuel Burning Appliance SBREFA Process

. Product Category: Masonry Heaters

. July 13, 2010

. Timothy Seaton, Timely Construction, Inc

. p. 5.* * * E.O. 12866 Review

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- 5 design. According to information provided by one manufacturer, capital R&D costs for a masonry heater may be estimated at $250,000

. 39 In order to be conservative in our analysis and
in the absence of more specific data regard ing R&D costs for masonry heaters , we assumed R&D costs were the same as for other wood heater appliances

— that is, $63,850 annually for a 6

- year R&D amortization period. For facilities conducting R&D, these costs include the costs for certification testing

. We estimate that the cost of testing a heater design in an EPA accredited lab to be approximately $10,000. 40

This cost analysis also makes use of a unique software package based on a European masonry heater design standard

. This standard has been verifie d in the laboratory and under field conditions to produce masonry heaters that would meet the proposed NSPS emission limits

. The software produces for printout a certification for a given design application and the design definition documents as well as op erating instructions customized to the given design, so that the software verification and certification record is created for and attached to the design

. The resulting documents can be submitted as part of the certification application

. The cost of this

s oftware to the user is approximately 1,000 Euros (approximately $1,500) for the package with a 300 Euro (approximately $450) annual fee that commences in the second year following purchase. 41

5.1.3 General Approach and Assumptions for Costs to Manufacturers

Manu facturers have told us that it takes several years to develop new models , and this is
documented in the manufacturer’s cost memo

. 42 We have spread the annualized R&D costs (shown in Table 5

- 2) over 6 years to best conservatively represent the time and funds needed to develop the complying models . For the purposes of our cost estimate, we have assumed that when the NSPS revisions are proposed, all manufacturers will begin serious efforts to develop complying models, although for some many manufac turers we also know that they have been involved in intensive R&D efforts in anticipation of the proposed rule.

39 Comments: Residential Solid Fuel Burning Appliance SBREFA Process

. Product Category: Masonry Heaters

. July 13, 2010

. Timothy Seaton, Timely Constr uction, Inc

. p. 14. 40 Letter to Lucinda Power, EPA, from Brian Klipfel, Fire Works Masonry

. September 10, 2010. 41 E

- mail from Timothy Seaton, Timely Construction Company, to Gil Wood, USEPA

. April 21, 2011. 42 42 Memo to Gil Wood, USEPA, from Jill Mozier, EC /R, Inc . Estimated Wood Heater Manufacturer Cost Impacts. February 22 , 2013.* * * E.O. 12866 Review

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- 6 We estimated both the average annual cost to manufacturers of each appliance type and then extended those costs to nationwide total annual cost s. The basic components to each
manufacturer ’ s estimated annual cost are:

 Annualized R&D cost;

 Ongoing annual Certification cost; and

 Ongoing annual Reporting and Record Keeping cost.

The Annualized R&D costs (shown in Table 5

- 2, and based on the Table 5

- 1 costs ) are by far the largest cost component and we have applied these costs to most models in our cost analysis

— especially to models in previously unregulated appliance categories

— in order to present a reasonable estimate of the conservative ove r

- stated cost s estimate given uncertainty over the precision of available estimate of the R&D cycle lifespan . For example, as noted above, instead of estimating the number of hydronic heater models that already meet a specific limit and will therefore mere ly need to certify their emissions rather than undergo R&D, we instead assumed that 100% of hydronic heater models will undergo R&D beginning in 2013. We made
similar conservative reasonable assumptions for single burn rate stoves and forced air furnaces.

Under the Proposal scenario, one round of R&D is assumed

— beginning in 2013 and ending in 2018

— in order to meet the proposed Step 2 limit. Under the Alternative option, two rounds of R&D are assumed for all appliances except masonry heaters (for which there is only one standard with no additional phased

- in standards to meet). Under the Alternative option, the first R&D round begins in 2013 and the second round begins in 2017 (which causes overlapping R&D costs in years 2017 and 2018 in this analysis)

— in orde r to meet the interim Alternative Step 2 limit in 2017 and the Alternative Step 3 limit in 2022. We also reasonably conservatively assumed that of the models undergoing the first round of R&D costs, 80% of these models undergo and assume the second round o f R&D costs in the Alternative scenario (i.e., we reasonably conservatively assumed that only 20% of models achieve the strictest limit in the first round of R&D).

Furthermore, for appliances like single burn rate stoves and forced air furnaces, which

were previously unregulated (and also were not pushed technologically by a voluntary program, as hydronic heaters were), we have reasonably conservatively doubled R&D costs during years 2013 and 2014. This doubling of R&D cost estimates is to represent an inte nsification of the* * * E.O. 12866 Review

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- 7 R&D efforts to meet the Step 1 limit and begin development of models to meet the stricter stepped limits

— R&D efforts which industry has indicated are already ongoing. 43

Note that all manufacturers, except for wood stoves that are subject to the current 1988 NSPS, will face ongoing certification costs above baseline conditions

. However, in the 2013 to
2018 time frame under the Proposal option and in the 2013 to 2022 time frame under the Alternative option , we have incorporated these costs as part of the overall R&D expenditures

. After 2018 under the Proposal option and after 2022 under the Alternative option , the ongoing certification costs will be the only NSPS related costs faced by manufacturers besides ongoing reporting and recordkeepin g costs.
Regarding certification costs, we have assumed a cost of $10,000 per model for pellet stoves, single burn rate stoves and masonry heaters; and we have assumed a cost of $20,000 per
model for h ydronic heaters and forced air furnaces. 44 We have spre ad these costs out over the 5 year certification life, assuming annual certification costs for one

- fifth of the models.

For example, p ellet stoves will incur certification costs in advance of complying with more stringent limits

. As explained in the manufa cturer ’ s cost memo , 45 approximately 30 % of existing pellet stove models are expected to comply with the proposed Step 2 and Alternative Step 3 standard

. However, in order to be sold, these stove models would now be required to demonstrate compliance with an emissions limit, incurring an upfront cost of $10,000 per model
to become certified. The same cost memo also discusses our assumption that one fifth of the pellet stove models will certify in any given year.

We based reporting and recordkeeping (R&R) cos ts on the annual average costs derived from development of the Information Collection Request (ICR) supporting statements

. 46 These

are reasonable conservative annual estimates of the ongoing R&R burden to manufacturers associated with the Proposal and Altern ative scenarios. (We do not expect the R&R burden to differ substantially between the two scenarios.)

43 2/8/13 telephone discussion between Gil Wood, USEPA, and a manufacturer of forced air furnaces and single burn rate stoves. 44 Conversation with Dennis Brazier, Central Boiler

. August 9, 2010. 45 Memo to Gil Wood, USEPA, from Jill Mozier, EC/R, Inc . Estimated Wood Heater Manufacturer Cost Impacts. February 22 , 2013. 46 ICR Supporting Statements for the Proposed NSPS Subparts have not been finalized as of the date of this memo.* * * E.O. 12866 Review

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- 8 The certification and reporting and recordkeeping costs were estimated to be incurred by manufacturers for the full 20

- year model design lifespan. 47 Under the Proposal, we estimated costs from 2013 through 2038

— that is, 20 years after the 2019 compliance year marking the beginning of the model lifespan designed to meet the Proposal Step 2 limit. Under the Alternative, we estimated costs from 2013 through 20 41

— that is, 20 years after the 2022 compliance year marking the beginning of the model lifespan designed to meet the Alternative Step 3 limit. We provide these costs in the manufacturer ’ s cost memo.

5.1.4 General Approach and Assumptions for Costs to Masonry Hea ter Manufacturers

As noted above, we addressed masonry heaters in a way which segmented the costs in keeping with the masonry heater market. There are three scenarios for potential cost impacts for large masonry heater manufacturers

. In the case of Tulikivi and some U.S. firms, e.g., Timely Construction, these companies have already invested in R&D in order to gain access to U.S. markets which restrict sales (e.g., Colorado) of uncertified units

. These companies will face testing costs only, with an assumed total of nine tests conducted prior to the proposed compliance date (i.e., to certify a total of nine model lines)

. For purposes of our cost analysis, we
assumed as shown in the unit cost memo that two additional companies will conduct R&D to devel op two new models each to meet the proposed NSPS

. 48 Finally, we have been told that Tulikivi will use the software certification approach to certify up to eight additional models

. We also project as presented in the unit cost memo that the remaining 15 % of custom built units will use the software certification approach to certify compliance with the proposed NSPS starting in
201 3 (estimated date of the proposed standards) and that they will continue to renew their license in the following years.

As explaine d in the unit cost memo
, w e used data in the Frost & Sullivan Market (F&S) report 49 on 2008 masonry heater shipments by product category and F&S revenue forecasts which incorporated the weak economy in years 2009 and 2010, to calculate the reduced number
of shipments in years 2009 and 2010. For years 2011 through 2038 (for the Proposal option ) and 2011 through 2041 (for the Alternative option ) estimated shipments are based on a forecasted revenue growth rate of 2.0%, in keeping with the average annual growth in real GDP predicted

47 Me mo to Gil Wood, USEPA, from Jill Mozier, EC/R, Inc

. Unit Cost Estimates of Residential Wood Heating Appliances

. February 21, 2013. 48 U.S. EPA. Memorandum. Unit Cost Estimates of Wood Heating Appliances. February 21, 2013. Prepared by EC/R, Inc. 49 Mark et Research and Report on North American Residential Wood Heaters, Fireplaces, and Hearth Heating Products Market

. Prepared by Frost & Sullivan

. April 26, 2010. P. 31

- 32.* * * E.O. 12866 Review

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- 9 by th e Conference Board

. 50 For masonry heaters, o ur estimate of the number of custom built models is based on the average number of models sold per year in the 15 % model category (i.e., 85 per year)

. We assumed each custom manufacture r would sell 2 models per year, for a total of 42 manufacturers participating in the software certification option.

Under both the Proposal and Alternative options, most sales

- weighted masonry heater
units face a 2014 Step 1 compliance date with no other p hased

- in limits. However, under both the Proposal and Alternative options, companies that sell fewer than 15 units per year have until
201 9 to come into compliance

. We have assumed that the large manufacturers will comply by
201 4 for the units that only re quire testing and/or software certification, with those expenditures incurred annually starting in 2013. We also assumed that the 15 % of custom built units will comply by 201 9 , but will begin certifying their units using the software certification approach as early as 2013, as noted above, as a selling point for their services

. For those companies that start
R&D when the NSPS is proposed in 2013 , we have assumed that they will spread these costs

over the 6

- year period from 2013 through 2018 for the four mod els affected, under both the Proposal and Alternative options.

5.1.5 General Approach and Assump tions for All Appliances
Below is a list of approach and assumptions for estimating costs for each category of appliances affected by this proposal , as taken from the manufacturer cost memo : 51

1. Nationwide Annual Cost assumes R&D investment is amortized over 6 years (2013 through 2018). Ongoing certification costs are incurred through 2038 (based on a model brought to market in 2019 with a lifespan of 20 years), except for woodstoves which already incur certification costs under the existing NSPS.

2. Since certification is required every 5 years (except for the software certification option for masonry heaters), it is assumed that certification costs will be spread out so that 1/5 of the models certify each year.

3. This analysis considers additional costs resulting from the proposed NSPS. For wood stoves, the analysis conservatively assumes that 5% meet Step 2 already so that 95% of the models will undergo re

- design to meet the Step 2 level. The costs modeled for years 2020 through 2038 exclude the ongoing certification costs and ongoing reporting and recordkeeping costs incurred by wood stove manufacturers who already had to certify and report under the existing NSPS.

50 2013 Global Outlook projections prepared by the Conference Board in November 2012; http://www.conference

board.org/data/globaloutlook.cfm

. 51 U.S. EPA. Memorandum. Estimated Residential Wood Heater Manufacturer Cost Impacts . February 22, 2013. Prepared by EC/R, Inc.* * * E.O. 12866 Review

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- 10 4

. For pellet stoves, the analysis assumes that 30% meet Step 2 already so that 70% of models undergo R&D re

- design to meet Step 2. The R&D budget includes certification costs. The analysis also assumes that the 30% of the pellet stove models which already meet Step 2 will certify in an ongoing basis starting in 2013

. The analysis reflects the certification costs beginning in 2013 for the 30% of models meeting Step 2, and beginning in 2019 for the remaining 70% of models which underwent R&D re

- design.

5. Bas ed o n conversations with industry in February 2013 , single burn rate stoves and forced air furnaces have been undergoing R&D prior to 2013 to develop cleaner models. Because these devices were previously unregulated and may need to transfer technology from adjustable burn rate stoves and hydronic heaters respectively, this analysis conservatively assumes that these efforts will intensify in 2013 and 2014. Therefore estimated R&D costs are doubled in 2013 and 2014 in order to meet the 2014 Step 1 standard wh ile also beginning R&D to develop models to meet the more stringent 2019 Step 2 standard.

6. For single burn rate stoves, forced air furnaces, and hydronic heating systems, the analysis conservatively assumes that only a small percentage meet Step 2 so tha t approximately 100% of the models undergo R&D re

- design to meet Step 2. The R&D budget includes certification costs. Ongoing certification costs for the re

- designed models are reflected in this analysis beginning in 2019.

7. For masonry heaters, the cost analysis assumes one round of R&D to meet 0.32 lb/mmBTU standard (no additional stepped standards, although large manufacturers will be required to meet the limit in 2014, while small volume manufacturers will be given a 5 year extension until 2019 to meet the limit). For masonry heater manufacturers using software certification, the analysis assumes the purchased software will be used for certifying all models developed by that manufacturer.

8. Reporting and recordkeeping costs (R&R) [for all appliances bu t masonry heaters] are based on the annual average costs derived from the ICR and are conservative estimates of the ongoing R&R burden to manufacturers associated with the proposed NSPS. The annual average nationwide R&R burden estimated to manufacturers f or Subpart AAA is $440,443, and for Subpart QQQQ is $119,249. These R&R costs do not include the R&R burden to laboratories; the annual average nationwide R&R burden incurred by laboratories subject to requirements under Subpart AAA is estimated to be $75, 745, and incurred by laboratories subject to requirements under Subpart QQQQ is estimated to be $50,496.

9. For Masonry Heaters, Reporting and recordkeeping costs (R&R) are based on the annual average costs derived from the ICR and are conservative estimat es of the ongoing R&R burden to manufacturers associated with the proposed NSPS. The annual average nationwide R&R burden estimated to manufacturers for Subpart RRRR is $98,788 for small/custom masonry heater manufacturers and $25,929 for large masonry hea ter manufacturers. These R&R costs do not include the R&R* * * E.O. 12866 Review

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- 11 burden to laboratories; the annual average nationwide R&R burden incurred by laboratories subject to requirements under Subpart RRRR is estimated to be $37,872.

For the Alternative option for all ap pliances , here are the assumptions for cost estimations where they differ from those in the Proposed option :

1. Nationwide Annual Cost assumes R&D investment is amortized over 6 years (round one from 2013 through 2018 and round two from 2017 through 2022). Ongoing certification costs are incurred through 2041 (based on a model brought to market in 2022 with a lifespan of 20 years), except for woodstoves which already incur certification costs under the existing NSPS.

2. (Same as above)

3. This analysis considers additional costs resulting from the proposed NSPS. For wood stoves, the analysis conservatively assumes that 5% meet Step 3 already so that 95% of the models will undergo re

- design in round one, and 80% of those 95% will require

ano ther round of R&D to meet the Step 3 level. The costs exclude the ongoing certification costs and ongoing reporting and recordkeeping costs incurred by wood stove manufacturers who already had to certify and report under the existing NSPS.

4. For pellet st oves, the analysis conservatively assumes that 30% meet Step 3 already so that 70% of models undergo re

- design in round one, and 80% of those 70% require another round of R&D to meet Step 3. The R&D budget includes certification costs. The analysis also as sumes that the 30% of the pellet stove models which already meet Step 3 will certify in an ongoing basis starting in 2013.

5. Based o n conversations with industry in February 2013 , single burn rate stoves and forced air furnaces have been undergoing R& D prior to 2013 to develop cleaner models. Because these devices were previously unregulated and may need to transfer technology from adjustable burn rate stoves and hydronic heaters respectively, this analysis conservatively assumes that these efforts wil l intensify in 2013 and 2014. Therefore estimated R&D costs are doubled in 2013 and 2014 in order to meet the 2014 Step 1 standard while also beginning R&D to develop models to meet the more stringent 2017 Step 2 and 2022 Step 3 standards.

6. For single bu rn rate stoves, forced air furnaces, and hydronic heating systems, the analysis conservatively assumes that only a small percentage meet Step 3 so that approximately 100% of the models undergo re

- design in round one, and 80% require another round of R&D to meet Step 3. The R&D budget includes certification costs.

5.1.6 Labor Requirements for Monitoring, Recordkeeping and Reporting

The focus of this part of the analysis is on labor requirements related to the compliance actions of the affected entities withi n the affected sector. This an alysis estimates the labor requirements associated with new reporting and recordkeeping requirements.* * * E.O. 12866 Review

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- 12 The labor changes may either be required as part of an initial effort to comply with the new regulation or required as a co ntinuous or annual effort to maintain compliance. We estimate

up

- front and continual, annual labor requirements by estimating hours of labor required for the monitoring, recordkeeping, and reporting efforts to maintain compliance

. The results of this analy sis are presented in Table 5

- 3 for the P roposed NSPS option. The table breaks down the certification, quality assurance, reporting and recordkeeping burden and labor estimates by appliance type for each of the proposed subparts and for the test labs to obt ain and maintain testing accreditation. These estimates are presented in terms of the estimated hours required. These estimates are consistent with estimates EPA submitted as part of the Information Collection Requests (ICRs) that are in the Supporting Sta tements for the proposed rules.

We note that certification testing (once every 5 years unless a waiver is granted) costs of approximately $10,000 ($20,000 for hydronic heaters and forced air furnaces) per model line in 2022 result in labor hours spent at t he test lab, which are not included in this labor rate analysis. In addition, each model that is developed (i.e., number of affected units) will face an annual estimated cost of $160,000 for the salaries of two full

- time experimental employees for 5 years. This estimate should be regarded as a partial labor estimate, with other possible labor associated with new model development (such as re

- tooling) left as unquantified and described qualitatively in the manufacturer cost and unit cost impact memos.

Ongoin g labor requirements are estimated at about 9,900 hours for the P roposed option. The labor estimate for the Alternative option will not be substantially different to that for the proposed option since there are no additional labor requirements for administ rative matters under the Alternative option compared to the P roposed option. 52 These ongoing labor requirements can be viewed as average sustained labor requirements required for affected entities to continuously comply with the new regulations from 2019 an d beyond.

52 Memo to Gil Wood, USEPA, from EC/R, Inc. Residential Wood Heating Cost Effectiveness Analysis. February 26, 2013.* * * E.O. 12866 Review

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- 13 Table 5

- 3. Estimates of Labor Requirements for C ertification, Quality Assurance, Reporting, Recordkeeping, and Accreditation Requirements for the Proposed NSPS Option a

Source/Emissions Point Projected No. of Affected

Units Per

- Unit One

- Time

Labor Estimate (Hours) Total One

- Time

Labor Estimate (Hours) Total Annual Labor Estimate (Hours) Adjustable burn rate stoves not needing certification testing 125 0 0 1 ,7 8 4

Single burn rate stoves 20 0 0 283

Pellet stoves 125 0 0 1,779
Test Labs 6 0 0 597
Removable Label 1,017 Hydronic heaters

— model development 9 0 0 0 1,29 0

Forced air furnaces

— model development 38 0 0 5 3 9

Test Labs 4 0 0 398
Removable Label 332 Existing models at large manufacturers certified via testing 13 0 0 1 87

Existing models at large manufacturers certified via computer simulation 8 0 0 1 13

Existing models at small manufacturers certified via computer simulation 85 0 0 1,27 5

Test Labs 3 0 0 298.5
Removable Label 4.46 Total for Industry 517 0 0 9,893

a T he labor requirements for the Alternative option are not substantially different than those for the Proposed

option. Note: Totals may not sum due to independent rounding . The Agency assumes in its cost analysis of monitoring,

recordkeeping, reporting, an d testing requirements in the Information Collection Request (ICR) that only half of the currently available models for all appliance types would be certified and sold.* * * E.O. 12866 Review

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- 14 5.2 Compliance Costs of the Proposed Rule

EPA ’ s engineering cost analysis estimates that the total annualized cost of the proposed
rule option to manufacturers for the P roposed option is $15.7 million, calculated as an average of the annualized costs incurred from 2014 to 2022. For the alternative option, the total annualized cost is $28. 3 million (all costs are reported in 2010 dollars) ( EC/R, December 2011 ) Annualized costs are estimated at a 7% interest rate. 53 We calculate the costs in this way in order to provide an average of annualized costs for these options from the time of rule promulgation in 2014 to the time of full implementation of both options, which occurs in 2022. Having an average annualized calculation for the costs allows for a reasonable measure of the costs to be incurred by manufacturers given the changes in costs ye ar by year between 2014 and 2022 as shown in
the manufacturer ’ s cost memo for this proposal. The total annualized cost s for each year and for each option are in Table 5

- 4

.
With total annualized costs estimated at a 3% interest rate, the total annualized c ost of the proposal option is $ 14.8 million , and $ 26.9 million for the alternative option (in 2010 dollars). More detailed information on the costs at a 3% interest rate can be found in the cost memorandum for this proposal.

Under the proposed NSPS option , the costs in the 2014

- 2022 time frame fall most heavily
on manufacture r s of hydronic heating systems ( 29 %), followed by wood stoves (27%), then by pellet stoves (22%). The remaining 22 % of the costs are distributed to forced

- air furnace manufacturers ( 14 %)
, manufacturers of single burn rate stoves ( 6 %), and masonry heaters ( 2 %)

.

53 EC/R, Inc. to U.S. EPA, Draft Memorandum. Estimated Residential Wood Heater Manufacturer Cost Impacts. February 22, 2013.* * * E.O. 12866 Review

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- 15 Table 5

- 4

. Summary of Average Annualized Nationwide Costs for 2014

– 2022 Time F rame Under the Proposal and Alternative Options

Appliance Type Proposed Option Alternative Option

W ood Heaters $4,212,303 $ 8,090,026 Single Burn Rate Heaters $901,732 $ 1,540,600

Pellet Stoves $3,460,489 $ 6,2 55
, 536
Forced

- Air Furnaces $2,252,284 $ 3,81 3 ,898 Hydronic Heating Systems $4,554,152 $ 8,302,026 Masonry Heaters $ 307,511 $ 307,511 Total Average Annual Cost for 2014

– 2022 Time F rame $15,6 88
, 471 $ 28,30 9
, 597

For the alternative option, the annualized costs fall most heavily of manufacturers of hydronic heaters (29%) and wood stoves (29%), followed by pellet stoves ( 22 %). The remaining
20 % of the costs are distributed to manufacturers of forced air heaters (13%), single burn rate stoves ( 5 %), and masonry heaters ( 2 %)

.

The revised rule , as proposed would affect an estimated 2 .7 million new residential wood heating devices b etween 201 4 and 20 22 assuming an average of ~ 296 ,000 new shipments annually as presented in the emissions memo for the proposal

. 54 As shown previously in Table 4

- 4 in Section 4 in Figure 5

- 1 and using information from the emissions memo for the proposal
, annual shipments are forecasted to increase for all product types over the same time period.

To assess the size of the compliance costs relative to the value of shipments to end

- use

consumers , we compare d industry

- level compliance costs relative to project ed sales for 2018 since this is year between 2014 and 2022 and is a representative year suitable for this analysis . In this case, cost

- to

- receipts ratios approximate the maximum price increase needed for a producer to fully recover the annual compliance co sts associated with a regulation. These industry

- level

cost

- to

- receipts ratios can be interpreted as an average impact on potentially affected firms in
these industries all other things equal, and where ratios less than 1% suggest the rule will not have a significant impact using EPA’s SBREFA guidance as a basis . Results for affected
industries for the 2014

– 2022 time frame can be found in Table s 5

- 4a and 5

- 4b

.

54 U.S. EPA. M emorandum. Estimated Emissions from Wood Heaters. February 15, 2013. Prepared by EC/R, Inc.* * * E.O. 12866 Review

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- 16 Figure 5

- 1

. Projected Annual Shipments by Product Type: 2012

– 20 18

Under the NSPS proposal opti on , none of the six affected product types would have an
annualized cost

- to

- receipts ratio of less than 1%. In the 2014

- 2022 time frame for this option,

c ost

- to

- receipts ratios range from 2.3 % for pellet stoves to 6.4 % for single burn rate stoves as shown in Table 5

- 5 a

. For the alternative option, c ost

- to

- receipts ratios range from 4.0% for forced air furnaces to 10.7% for single burn rate stoves as shown in Table 5

- 5 b. Masonry Heaters

Indoor Hydronic Heating...

Outdoor Hydronic Heating...

Single Burn Rate Stoves

Forced Air Furnaces

Certified Wood Stoves

Pellet Stoves

0 20,000 40,000 60,000 80,000 100,000 120,000

2012 2013 2014 2015 2016 2017 2018Annual Unit Shipments Formatted: No underline, Font color: Auto* * * E.O. 12866 Review

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- 17 Table 5

- 5 a. Industry Level

- Annualized Compliance Costs (2010 dollars) as a Fraction of Total Industry Revenue by Product Type in the 2014

– 20 22 Time F rame

— Proposal Option

Product Type Total Annualized Costs ($ millions) Product Sales in 201 8 ($ millions) a Cost

- to

- Receipts Ratio

Wood stoves $4.2 $98.1 4.3% Single burn rate stoves $0.9 $14.0 6.4%
Pellet stoves $3.5 $152.8 2.3%
Forced

- air furnaces $2.3 $96.6 2.4% Masonry heaters $0.3 $6.3 4.8% Hydronic heating systems $4.5 $134.4 3.3%

a Sales based on projected product shipments and average unit costs estimates. We use annual sales in 2018 to

approximate annual sales for years from 2014 to 2022. Total annualized costs in this table are estimated at a 7% interest rate.

Sources: Masonry Heater Compliance Costs from Masonry Heater NSPS Annual Cost 12 8 11.xls . Recei ved from EPA on December 16, 201 1. Unit Costs and Shipment Projections from Unit Cost Memo. Received by EPA in February, 2013. Industry Compliance Costs from Wood Stove NSPS Annual Costs

. R eceived by EPA February, 201 3

.
Table 5

- 5 b

. Industry Level

- Annualized Compliance Costs (2010 dollars) as a Fraction of Total Industry Revenue by Product Type in 201 4

– 2022 Time F rame

— Alternative Option

Product Type Total Annualized Costs ($ millions) Product Sales in 201 8 ($ millions) a Cost

- to

- Receip ts Ratio

Wood stoves $8.1 $98.1 8.3% Single burn rate stoves $1.5 $14.0 10.7%
Pellet stoves $6.2 $152.8 4.1%
Forced

- air furnaces $3.8 $96.6 4.0% Masonry heaters $0.3 $6.3 4.8% Hydronic heating systems $8.3 $134.4 6.1%

a Sales based on projected product shipments and average unit costs estimates. We use annual sales in 2018 to

approximate annual sales for years from 2014 to 2022. Total annualized costs are estimated at a 7% interest rate.

Sources: Masonry Heater Compliance Costs from Mas onry Heater NSPS Annual Cost 12 8 11.xls . Received from EPA on December 16, 201 1. Unit Costs and Shipment Projections from Unit Cost Memo. Received by EPA in February , 2013. Industry Compliance Costs from Wood Stove NSPS Annual Costs

. R eceived by EPA February, 201 3

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- 18 5.3 How Might People and Firms Respond? A Qualitative Partial Equilibrium Analysis
Markets are composed of people as consumers and producers acting as economic agents to maximize utility or profits, respectively. One way economists illustrate b ehavioral responses to pollution control costs is by using market supply and demand diagrams. The market supply curve describes how much of a good or service firms are willing and able to sell to people at a particular price; we often draw this curve as up ward sloping because some production resources are fixed. As a result, the cost of producing an additional unit typically rises as more units are made. The market demand curve describes how much of a good or service consumers are willing and able to buy at some price. Holding other factors constant, the quantity demand ed is assumed to fall when prices rise. In a perfectly competitive market, equilibrium price (P 0 ) and quantity (Q 0 ) are determined by the intersection of the supply and demand curves (see Figu re 5

- 2 ).

5.3.1 Changes in Market Prices and Quantities
To qualitatively assess how the regulation may influence the equilibrium price and quantity in the affected markets, we assumed the market supply function shifts up by the additional cost of producing the go od or service; the unit cost increase is typically calculated by dividing the annual compliance cost estimate by the baseline quantity (Q 0 ) (see Figure 5

- 2 ). As shown, this model makes two predictions: the price of the affected goods and services are likel y to rise and the consumption/production levels are likely to fall.

The size of these changes depends on two factors: the size of the unit cost increase (supply shift) and differences in how each side of the market (supply and demand) responds to changes i n price. Economists measure responses using the concept of price elasticity, which represents the percentage change in quantity divided by the percentage change in price. This dependence has been expressed in the following formula: 55



## ( ) Demand) of Elasticity Price

- Supply of Elasticity Price Supply of Elasticity Price unit er- Share of p = cost

As a general rule, a higher share of the per

- unit cost increases will be passed on to consumers in markets where

 goods and services are necessities and people do not have good substitutes that they can switch to easily (demand is inelastic) and

55 For examples of similar mathematical models in the public finance literature, see Nicholson (1998 ), pages 444

– 447, or Fullerton and Metcalf (2002 ).* * * E.O. 12866 Review

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- 19  suppliers have excess capacity and can easily adjust production levels at minimal costs, or the time period of analysis is long enough that suppliers can change their fixed resources; supply is more elastic over longer periods.

consumer surplus =

– [fghd + dhc]

pro ducer surplus = [fghd − aehb] − bdc total surplus = consumer surplus + producer surplus = −[aehb + dhc + bdc]
Figure 5

- 2

. Market Demand and Supply Model: With and Without Regulation

Short

- run demand elasticities for energy goods (electricity and natural g as), agricultural products, and construction are often inelastic. Specific estimates of short

- run demand elasticities for these products can be obtained from existing literature. For the short

- run demand of energy products, the National Energy Modeling Sys tem (NEMS) buildings module uses values between 0.1 and 0.3; a 1% increase in price leads to a 0.1 to 0.3% decrease in energy demand (Wade,
2003 ). For the short

- run demand of agriculture and construction, EPA has estimated elasticities

t o be 0.2 for agriculture and approximately 1 for construction (EPA , 2004 ). As a result, a 1% increase in the prices of agriculture products would lead to a 0.2% decrease in demand for those products, while a 1% increase in constructi on prices would lead to approximately a 1% decrease in demand for construction. Given these demand elasticity scenarios (shaded in gray), approximately a 1% increase in unit costs would result in a price increase of 0.1 to 1% (Table 5

- 6 ). As a result, 10 t o 100% of the unit cost increase could be passed on to consumers in the form of higher goods/services prices. This price increase would correspond to a 0.1 to 0.8% decline in consumption in these markets (Table 5

- 7 ). Q 1 Q 0 P 1

P 0 h

c

a $

Output e d S 1 : With Regulation

S 0 : Without Regulation Price Increase } Unit Cost Increase 

# } g

f

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- 20 Table 5

- 6

. Hypothetical Price Increases for a 1% Increase in Unit Costs

Market Demand Elasticity Market Supply Elasticity

0.1 0.3 0.5 0.7 1 1.5 3

−0.1 0.5% 0.8% 0.8% 0.9% 0.9% 0.9% 1.0%
−0.3 0.3% 0.5% 0.6% 0.7% 0.8% 0.8% 0.9%
−0.5 0.2% 0.4% 0.5% 0.6% 0.7% 0.8% 0.9%
−0.7 0.1% 0.3% 0.4% 0.5% 0.6% 0.7% 0.8%
−1.0 0.1% 0.2% 0.3% 0.4% 0.5% 0.6% 0.8%

− 1.5 0.1% 0.2% 0.3% 0.3% 0.4% 0.5% 0.7%

− 3.0 0.0% 0.1% 0.1% 0.2% 0.3% 0.3% 0.5%

Table 5

- 7

. Hypothetical Consumption Decreases for a 1% Increase in Unit Costs

Market Demand Elasticity Market Supply Elasticity

0.1 0.3 0.5 0.7 1 1.5 3

−0.1 −0.1% −0.1% −0.1% −0.1% −0.1% −0.1% −0.1%
−0.3 −0.1% −0.2% −0.2% −0.2% −0.2% −0.3% −0.3%
−0.5 −0.1% −0.2% −0.3% −0.3% −0.3% −0.4% −0.4%
−0.7 −0.1% −0.2% −0.3% −0.4% −0.4% −0.5% −0.6%
−1.0 −0.1% −0.2% −0.3% −0.4% −0.5% −0.6% −0.8%
−1.5 −0.1% −0.3% −0.4% −0.5% −0.6% −0.8% −1.0%
−3.0 −0.1% −0.3% −0.4% −0.6% −0.8% −1.0% −1.5%

5.3.2 Partial Equilibrium Measures of Social Cost: Changes in Consumer and Producer Surplus
In partial equilibrium analysis, the social costs are estimated by measuring the changes in consumer and producer surplus, and these values can be determined using the market supply and demand model ( as shown in Figure 5

- 2 ). Assuming linear market supply and demand curves as shown in Figure 5

- 2, the change in consumer surplus (CS) is measured as follows:

∆

CS = − [ ∆ Q 1 × ∆ p ] + [0.5 × ∆ Q × ∆ p ]. (5.1)

where a coefficient of 0.5 is multiplied to the change in Q and P resulting from the shock
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- 21 above and applying principles of basic geometry. Higher market prices and lower quantities lead to consumer welfare losses. Similarly, the change in producer surplus (PS) is measured as follows:

∆ PS = [ ∆ Q 1 × ∆ p ] − [ ∆ Q 1 × t] − [0.5 × ∆ Q × ( ∆ p − t )]. (5.2)

Higher unit costs and lower production level s reduce producer surplus because the net price change ( ∆ p − t) is negative. However, these losses are mitigated because market prices tend
to rise.

5.4 Social Cost Estimate

As shown in Table s 5

- 5a and 5

- 5 b
, the social cost as approximated by the annual compliance costs as a percent of sales represent a fraction of the affected product value that is greater than 1% for each of the product categories; this suggests that the shift of the supply curve may be relatively large for some product types and result in larger changes in market prices and consumption. EPA believes the national annualized compliance cost estimates provide a reasonable approximation of the social cost of this p roposed rule

. EPA believes this approximation is better for industries whose markets are well characterized as perfectly competitive. However, given the data limitation s noted earlier, EPA believes the accounting for
annual compliance cost s is a reasonable approximation to inform policy discussion in this rulemaking. We were not able to prepare a full economic analysis of the impacts of this proposal on supply and demand, or the effects of such impacts on emissions (e.g. feedback effect on emissions). Most of the affected industries can be characterized as having a high degree of competitive market behavior. To shed more light on th e level of market behavior , EPA ran hypothetical economic impact analyses and the results are in Tables 5

- 6 and 5

- 7

.
5.5 Energy Impacts
Executive Order 13211 (66 FR 28355, May 22, 2001) provides that agencies will prepare and submit to the Administrator of the Office of Information and Regulatory Affairs, Office of Management and Budget, a Statement of Energy Effects for certain ac tions identified as

“ significant energy actions. ” Section 4(b) of Executive Order 13211 defines “ significant energy
actions ” as any action by an agency (normally published in the Federal Register ) that promulgates or is expected to lead to the promulgation of a final rule or regulation, including notices of inquiry, advance notices of proposed rulemaking, and notices of proposed rulemaking: (1) (i) that is a significant regulatory action under Executive Order 12866 or any successor order, and (ii) is likely to have a significant adverse effect on the supply, distribution, or use of energy;* * * E.O. 12866 Review

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- 22 or (2) that is designated by the Administrator of the Office of Information and Regulatory Affairs as a significant energy action.

This rule is not a significant energy ac tion as designated by the Administrator of the Office of Information and Regulatory Affairs because it is not likely to have a significant adverse impact on the supply, distribution, or use of energy. In general, we expect the NSPS to improve technology,. By making the use of wood fuel less polluting and more efficient, we might see an increase in the use of wood fuel, which would relieve pressure on traditional coal

- or petroleum

based energy sources. However, it is difficult to determine the precise energ y impacts that might result from this rule because wood

- fueled appliances compete with other biomass forms as well as more traditional oil, electricity, and natural gas. We have not determined the potential conversion to other types of fuels and their asso ciated appliances if the consumer costs of wood

fueled appliances increase and at what level that increase would drive consumer choice.

5.6 Unfunded Mandates Reform Act (UMRA)

5.6.1 Future and Disproportionate Costs
The UMRA requires that we estimate, where accurate estimation is reasonably feasible, future compliance costs imposed by the rule and any disproportionate budgetary effects. Our estimates of the future compliance costs of the proposed rule are discussed previously in this
RIA. The nationwide annualized av erage compliance cost of this proposed rule for directly
affected appliances is $ 15.7 million in the 2014

- 2022 time frame (2010 dollars). Therefore, this proposed rule would not be subject to the requirements of Sections 202 or 205 of the UMRA.

This propos ed rule would also not be subject to the requirements of Section 203 of UMRA because it contains no regulatory requirements that might significantly or uniquely affect small governments. The proposed rule would not apply to such governments and would impos e no obligations upon them

. We do not believe that there will be any disproportionate budgetary effects of the proposed rule on any particular areas of the country, s tate or local governments, types of communities (e.g., urban, rural), or particular industry segments.

5.6.2 Effects on the National Economy
The UMRA requires that we estimate the effect of the proposed rule on the national economy. To the extent feasible, we must estimate the effect on productivity, economic growth, full employment, creation o f productive jobs, and international competitiveness of U.S. goods and services if we determine that accurate estimates are reasonably feasible and that such effect is relevant and material. The nationwide economic impact of the proposed rule is presented* * * E.O. 12866 Review

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- 23 earlier in this RIA chapter. This analysis provides estimates of the effect of the proposed rule on most of the categories mentioned above, and these estimates are presented earlier in this RIA chapter. The nature of this rule is such that it is not practi cal for us to use existing approaches, such as the Morgenstern et al. approach
, 56 to estimate the impact on employment to the regulated entities and others from this proposed rule . We explain why this is true, and provide impacts associated with the monitor ing, recordkeeping, and reporting requirements to provide some understanding of what impacts this proposal will have on employment for affected firms in section 5. 7 below.

5.6.3 Executive Order 13045: Protection of Children from Environmental Health Risks and Sa

fety Risks

Executive Order 13045, “ Protection of Children from Environmental Health Risks and Safety Risks ” (62 FR 19885, April 23, 1997), applies to any rule that (1) is determined to be

“ economically significant, ” as defined under Executive Order 12866, and (2) concerns an environmental health or safety risk that EPA has reason to believe may have a disproportionate effect on children. If the regulatory action meets both criteria, EPA must evaluate the environmental health or safety effects of the planned rule on children and explain why the planned regulation is preferable to other potentially effective and reasonably feasible alternatives considered by the Agency.

This proposed rule is not subject to Executive Order 13045 (62 FR 19885, April 23, 1997) be cause the Agency does not believe the environmental health risks or safety risks addressed by this action present a disproportionate risk to children. The report, Analysis of Exposure to Residential Wood Combustion Emissions for Different Socio

- Economic Gr oups, shows that on a nationwide basis, cancer risks due to residential wood smoke emissions among disadvantaged population groups generally are lower than the risks for the general population due to residential wood smoke emissions

. One of the demographic variables examined for this report was that of children 18 years and younger.

This proposed rule is expected to reduce environmental impacts for everyone, including children. This action proposes emissions limits at the levels based on the best system of emissions reduction ( B SER) , as required by the Clean Air Act. Based on our analysis, we believe
that this proposed rule would not have a disproportionate impact on children.

56 Morgenstern, R. D., W. A. Pizer, and J. S. Shih. 2002. “ Jobs versus the Environment: An Industry

- Level Perspective. ” Journal of Environmental Economics and Management 43(3):412

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- 24 The public is invited to submit comments or identify peer

- reviewed studies and dat a that assess effects of early

- life exposure to smoke from residential wood heaters.

5.6.4 Executive Order 12898: Federal Actions to Address Environmental Justice in Minority Populations and Low

- Income Populations

Executive Order 12898 (59 FR 7629 (Feb. 16, 1994 ) ) e stablishes federal executive policy on environmental justice. Its main provision directs federal agencies, to the greatest extent practicable and permitted by law, to make environmental justice part of their mission by identifying and addressing, as ap propriate, disproportionately high and adverse human health or environmental effects of their programs, policies, and activities on minority populations and low

income populations in the United States.

EPA has determined that this proposed rule would not h ave disproportionately high and adverse human health or environmental effects on minority
, low

- income or indigenous populations because it increases the level of environmental protection for all affected populations without having any disproportionately hi gh and adverse human health or environmental effects on any population, including any minority
, low

- income or indigenous populatio n. Th is proposed
rule would establish national standards that would reduce primarily PM emissions from new residential wood he aters and, thus, would decrease the level of emissions to which all affected populations are exposed. The EPA defines “ Environmental Justice ” to include meaning involvement of all people regardless of race, color, national origin, or income with respect to the development, implementation, and enforcement of environmental laws, regulations, and polices. The EPA maintains an ongoing commitment to ensure environmen tal justice for all people, regardless of race, color, national origin, or income. Ensuring environmental justice means not only protecting human health and the environment for everyone, but also ensuring that all people are treated fairly and are given th e opportunity to participate meaningfully in the development, implementation, and enforcement of environmental laws, regulations, and policies.

5.7 Employment Impacts
[Note: The language in Section 5.7 will be replaced by new language supplied by EPA in

a matter of a few days.] In addition to addressing the cos ts and benefits of the proposed rule
, EPA has analyzed the impacts of this rulemaking on employment , which are presented in this
section . While a standalone analysis of employment impacts is not incl uded in a standard cost

benefit analysis, such an analysis is of particular concern in the current economic climate of sustained high unemployment. Executive Order 13563, states, “ Our regulatory system must* * * E.O. 12866 Review

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- 25 protect public health, welfare, safety, and our e nvironment while promoting economic growth, innovation, competitiveness, and job creation ” (emphasis added). Therefore, we seek to inform the discussion of labor demand and job impacts by providing an estimate of the employment impacts of the proposed regu lation using labor requirements for the installation, operation, and maintenance of control requirements, as well as reporting and recordkeeping requirements. Unlike several recent RIAs, however, we do not provide employment impacts estimates based on
the study by Morgenstern et al. (2002); we discuss this decision after presenting estimates of the labor requirements associated with reporting and recordkeeping and the installation, operation, and maintenance of control requirements

. A discussion of labor requirements associated with the installation, operation, and maintenance of control requirements, as well as reporting and recordkeeping requirements is included in Section 5.1.6, on compliance costs, of this RIA

. However, due to data and methodolog y limitations, W w e have not quantified the rule ’ s effects on labor , or the effects induced by changes in workers ’ incomes. What follows is an overview of the various ways that environmental regulation can affect employment. EPA continues to explore the rel evant theoretical and empirical literature and to seek public comments
in order to ensure that the way EPA characterizes the employment effects of its regulations such
estimates is are as accurate , useful valid and informative as possible

. This propos ed regulation al is expected to affect employment in the United States through the regulated sector

– residential wood heater manufacturers

– and related sectors, specifically, masonry contractors and residential construction (e.g. performing masonry and othe r on

- site fireplace construction), wholesalers and distributors, and retailers (e.g. home furnishing stores that sell wood heaters), and suppliers of substitutes for residential wood

- burning heaters (e.g. electric or natural gas heaters). The production o f devices like wood stoves, hydronic heaters, and fireplace inserts is included under the heating equipment category (NAICS 333414). The U.S. Census Bureau reports that, in 2011, the industry employed 15,925 workers (see Table 3

- 1 in Section 3.1.3 of this RIA). Based on company data obtained for this profile, the residential wood heaters industry has a large number of producers, and we were able to identify 635 firms, employing approximately 17,000 workers annually. Previous analysis suggests that the industry relies on seasonal labor, ramping up production in months leading up to winter and reducing employment and production during the warmer parts of the year (AEI, 1986 ).

As described in Section 3.2.3 of this RIA, demand for residential wood heaters has been declining steadily, as shown from 1989 to 2005, but has stabilized more recently. More households rely on wood fuel as a supplemental heat source r ather than as a primary source. In 2010, 2.1% of total occupied homes in the United States relied on wood heat as the primary fuel* * * E.O. 12866 Review

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- 26 source for home heating . About 10

– 12% of American households rely on use wood when
second ary wood heat demand is counted, according to the U.S. Census Bureau and the Energy Information Administration (EIA). Demand varies regionally, in part, due to availability of energy sources. C urrent regional demand patterns are expected to continue, with the Northeast and Northwest regions of the country driving wood fuel combustion demand, but analysts anticipate that the wood heat product market will be embraced in other areas of the country in which wood and biomass are viable and inexpensive fuel sourc es (Frost & Sullivan, 2010 ).

The extent to which an increase in the price of residential wood heaters due to this rule would reduce the sales depends on the elasticity of demand for residential wood heaters. However, There there are no recent empirical estimates of the price elasticity of demand for residential wood heaters. An estimate of −1.6 was derived for use in the RIA for the current Residential Wood Combustion NSPS (EPA, 1986). Available estimates for residential en ergy and heating fuel demand generally are relatively inelastic (i.e., there are only very small changes in demand in response to an increase in energy or fuel prices). A recent RAND report suggests that in the short term, demand for electricity and natura l gas in residential markets is relatively inelastic (Bernstein and Griffin, 2005 ). There are a number of close substitutes for residential wood heating devices that include electric and gas furnaces and space heaters. T he extent to which consumers are able to substitute between these options is likely to vary depending on geographic location. Overall, the presence of good substitutes will increase the elasticity of demand for wood heating equipment. In contrast, if local ly

- available alternative heating fuels (e.g. electricity, fuel oil) are relatively higher

- priced, it may make switching away from wood heating equipment less likely and, ultimately, make demand for wood heating equipment inelastic. Also, the elasticity may depend on whether the fuel in question is a secondary source of fuel instead of a primary fuel source. Based on the available information, including the RAND report, we do not expect sales of residential wood to fall substantially due to this rule, partic ularly in the near

- term.

From an economic perspective labor is an input into producing goods and services; if a regulation requires that more labor be used to produce a given amount of output, that additional
labor is reflected in an increase in the cost o f production. Moreover, when the economy is at full employment, we would not expect an environmental regulation to have an impact on overall employment because labor is being shifted from one sector to another. On the other hand, in periods of high unempl oyment, employment effects (both positive and negative) are possible. For example, an increase in labor demand due to regulation may result in a short

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- 27 are hired by the regulated sector to help meet new requirements (e.g., to install new equipment) or by the environmental protection sector to pr oduce new abatement capital resulting in hiring previously unemployed workers either directly by these two secto rs or indirectly as other sectors replace workers lured away by these two sectors . W h en significant numbers of workers are unemployed, the opportunity costs associated with displacing jobs in oth er sectors are likely to
be smaller . And, in general, if a re gulation imposes high costs and does not increase the demand for labor, it may lead to a decrease in employment. The responsiveness of industry labor demand depends on how these forces all interact. Economic theory indicates that the responsiveness of
indu stry labor demand depends on a number of factors: price elasticity of demand for the product, substitutability of other factors of production, elasticity of supply of other factors of production, and labor’s share of total production costs. Berman and Bui (2001) put this theory in the context of environmental regulation, and suggest that, for example, if all firms in the industry are faced with the same compliance costs of regulation and product demand is inelastic, then industry output may not change much at all.

To provide a partial picture of the employment consequences of this rule, EPA considers
the methodology of Morgenstern, Pizer, and Shih (2002) in describ ing the effects of the regulation on the regulated industry. This approach has been used by EPA previously in Regulatory Impact Analyses prepared recently.

Regulations set in motion new orders for pollution control equipment and services. New categories of employment have been created in the process of implementing environmental regulations. When a regulation is promulgated, one typical response of industry is to order pollution control equipment and services in order to comply with the regulation when it becomes effective
, . On the other hand, the while closure of or plants or facilities that choose not to comply

– and any changes in production levels at plants choosing to comply and remain in operation

- occur s after the compliance date , or earlier in anticipation of the compliance obligation

. Environmental regulation may increase revenue and employment in the environmental technology industry. While these increases represent gains for that industry, they

are translate into costs to the regulated industries required to install the equipment. As with any pool of labor, the gross size of the lab or pool does not reflect the net impact on overall employment after adjusting for shifts in other sectors.

Environmental regulations support employment in many basic industries. Regulated firms
either hire workers to design and build pollution controls directly or purchase pollution control devices from a third party for installation

. Once the equipment is installed, regulated firms hire workers to operate and maintain the pollution control equipment

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- 28 to produce more output

. I n some recent RIAs, EPA has relied on Morgenstern et al. (2002 ) to assess potential employment effects. Morgenstern et al. estimated the effects of pollution abatement expenditures on net employment in four highly polluting/regulated sectors (pulp and paper, plastics, steel, and petroleum refining)

. They conclude that increased abatement expenditures generally have not caused a significant change in net employment in those sectors. In this RIA, we do n ot provide quantified employment effects based on Morgenstern et al due to

on

- going agency research and ass essment of this issue. In addition to the increase in employment in the environmental protection industry (via increased orders for pollution control equipment), environmental regulations also support employment in industries that provide intermediate goods to the environmental protection industry. The equipment manufacturers, in turn, order steel, tanks, vessels, blowers, pumps, and chemicals to manuf acture and install the equipment. Currently in most cases there is no sufficiently reliable estimate s of the employment impacts in these intermediate goods sectors.

E nvironmental regulations support employment in many basic industries

. In addition to

t he increase in employment in the environmental protection industry (via increased orders for pollution control equipment), environmental regulations also support employment in industries that provide intermediate goods to the environmental protection indus try. The equipment manufacturers, in turn, order steel, tanks, vessels, blowers, pumps, and chemicals to manufacture and install the equipment. Currently in most cases there is no scientifically defensible sufficiently reliable way to estimate s of the employment impacts in these intermediate goods

sectors.

5.7.1 5.7.1 Employment Impacts within the Regulated Industry

In recent RIAs we have applied estimates from a study by Morgenstern , Pizer and Shih (2002) 57 to derive the employment effects of new regu lations within the regulated industry. (See, for example, the Regulatory Impact Analyses for the recently released final MATS and CSAPR regulations). Determining the direction of employment effects in the regulated industry is also challenging due to compe ting effects. Complying with the new or more stringent regulation requires additional inputs, including labor, and may alter the relative proportions of labor and

57 Morgenstern, R. D., W. A. Pizer, and J. S. Shih. 2002. Jobs versus the Environment: An Industry

- Level Perspective. ‖ Journal of Environmental Economics and Management 43 (3):412

- 436. Formatted: Body Text1,bt,body tx,indent,flush,memo body text,body 4h,body 4equationh Comment [A5]: Flag for future discussion, depen ding on the status of the revised language.* * * E.O. 12866 Review

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- 29 capital used by regulated firms in their production processes . Morgenstern et al. (2002)
demo nstrate that environmental regulations can be understood as requiring regulated firms to add a new output (environmental quality) to their product mixes

. Although legally compelled to satisfy this new demand, regulated firms have to finance this additional production with the proceeds of sales of their other (market) products. Satisfying this new demand requires additional inputs, including labor, and may alter the relative proportions of labor and capital used by regulated firms in their production process es.

It is sometimes claimed that new or more stringent environmental regulations raise production costs thereby reducing production which in turn must lead to lower employment. However, the peer

- reviewed literature indicates that d etermining the direction of net employment
effects in a regulated industry is challenging due to competing effects. Environmental regulations are assumed to raise production costs and thereby the cost of output, so we expect the “output” effect of environm ental regulation to be negative (higher prices lead to lower sales). On the other hand, c omplying with the new or more stringent regulation requires additional inputs, including labor, and may alter the relative proportions of labor and capital used by reg ulated firms in their production processes

. Two sets of researchers discussed here, Berman and Bui (2001) and Morgenstern, Pizer, and Shih (2002)
, 58 59 demonstrate using standard neoclassical microeconomics that environmental regulations have an ambiguous effect on employment in the regulated sector. 59 60 These theoretical results imply that the effect of environmental regulation on employment in the regulated sector is an empirical question and both sets of authors tested their models empirically using diffe rent methodologies. Both Berman and Bui and Morgenstern et al. examine the effect of environmental regulations on employment and both find that overall they had no significant net impact on employment in the sectors they examined.

58 Berman, E. and L. T. M. Bui (2001). “Environmental Regulation and Labor Demand: Evidence from the South Coast Air Basin.” Journal of Public Economics 79(2): 265

- 295. Morgenstern, R. D., W. A. Pizer, and J. S. Shih. 2002. Jobs versus the Environment: An Industry

- Level Perspective. ‖ Journal of Environmental Economics and Management 43(3):412

- 436.

59 A total of five studies are discussed in this RIA section. EPA plans to offer a rigorous discussion on employment effects in future agency analysis.

60 A total of five studies are discussed in this RIA section. EPA plans to offer a rigorous discussion on employment effects in future agency analysis. Berman, E. and L. T. M. Bui (2001). “Environmental Regulation and Labor Demand: Evidence from the South C oast Air Basin.” Journal of Public Economics 79(2): 265

- 295. Morgenstern, R. D., W. A. Pizer, and J. S. Shih. 2002. Jobs versus the Environment: An Industry

- Level Perspective. ‖ Journal of Environmental Economics and Manage

- 436. Comment [A6]: The footnote needs to be fixed.

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- 30 More specifically, Morgenstern, Pizer, and Shih (2002) decompose the effect of regulation on net employment in the regulated sector into the following three subcomponents:

 The Demand Effect : higher production costs from complying with the regulation will raise market prices , reducing consumption (and production), thereby reducing demand for labor within the regulated industry. The “ extent of this effect depends on the cost increase passed on to consumers as well as the demand elasticity of industry output. ” (p. 416)

 The Cost Effect : Assuming that the capital/labor ratio in the production process is held fixed, a s “ production costs rise, more inputs, including labor, are used to pr oduce the same amount of output, ” (p. 416). For example, to reduce pollutant emissions while hold ing output levels constant, regulated firms may require additional labor.

 The Factor

- Shift Effect : Regulated firms ’ production technologies may be more or less labor intensive after complying with the regulation (i.e., more/less labor is required relative to capital per dollar of output). “ E nvironmental activities may be more labor intensive than conventional production, ” meaning that “ the amount of labor per dollar of output will rise. ” However, activities may, instead, be less labor intensive because “ cl eaner operations could involve automation and less employment, for example. ” (p. 416)

The demand effect is expected to have a n unambiguously negative effect on employment,
the cost effect to have a n unambiguously positive effect on employment, and the factor

- shift
effect to have an ambiguous effect on employment

. Without more information with respect to the magnitudes of these competing effects, it is not possible to predict the total effect environmental regulati on will have on overall employment levels in the regulated sector

. Berman and Bui (2001) examine how an increase in local air quality regulation that reduces NOx emissions affects manufacturing employment in the South Coast Air Quality Management District (SCAQMD), which incorporates Los Angeles and its suburbs. During the time frame of their study, 1979 to 1992, the SCAQMD enacted some of the country’s most stringent air quality regulations, which were more stringent than federal and state regulations.
Us ing SCAQMD’s local air quality regulations, Berman and Bui identify the effect of environmental regulations on net employment in the regulated industries. 61
, 62 The authors find that “while regulations do impose large costs, they have a limited effect on empl oyment” (Berman and Bui, 2001, p. 269). Their conclusion is that local air quality regulation “probably

61 Note, like Morgenstern, Pizer, and Shih (2002), this study does not estimate the number of jobs created in the environmental protection sector. 62 Berman and Bui include over 40 4

- digit SIC industries in their sample. Formatted: Default, Indent: First line: 0.5", Space After: 12 pt, Line spacing: At least 18 pt* * * E.O. 12866 Review

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- 31 increased labor demand slightly” but that “the employment effects of both compliance and increased stringency are fairly precisely estimated zeros [emph asis added], even when exit and dissuaded entry effects are included” (Berman and Bui, 2001, p. 269). 63

Morgenstern et al. (2002) estimated the effects of pollution abatement expenditures on net employment in four highly polluting/ regulated sectors (pulp and paper, plastics, steel, and petroleum refining)

. They conclude that increased abatement expenditures generally have not caused a significant change in net employment in those sectors. While the specific sectors Morgenstern et al. examined are different than the sectors considered here, the methodology that Morgenstern et al. developed is still an informative way to qualitatively assess the effects of this rulemaking on employment in the regulated sector.

While there is an extensive empirical , peer

- revie wed literature analyzing the effect of environmental regulations on various economic outcomes including productivity, investment, competitiveness as well as environmental performance, there are only a few papers that examine the impact of environmental reg ulation on employment, but this area of the literature has been growing. As stated previously in this RIA section, empirical results from Berman and Bui (2001) and Morgenstern et al (2002) suggest that new or more stringent environmental regulations do

not have a substantial impact on net employment (either negative or positive) in the regulated

sector. Nevertheless, o ther empirical research suggests that more highly regulated counties may generate fewer jobs than less regulated ones (Greenstone 20 02, Walk er 20 11). However, the methodology used in these two studies cannot estimate whether aggregate employment is lower or higher due to more stringent environmental regulation, it can only imply that relative employment growth in some sectors differs between m ore and less regulated areas. List et al

. (2003) find some evidence that this type of geographic relocation , from more regulated areas to less regulated areas may be occurring. Overall , the peer

- reviewed literature does not contain evidence that environmental regulation has a large impact on net employment (either negative or positive) in the long run across the whole economy

.

While the theoretical framework laid out by Berman and Bui (2001) and Morgenstern et al. (2002) still holds for the industries affected under this proposed NSPS, important differences in the markets and regulatory settings analyzed in their study and the setting presented here lead

63 Including the employment effect of exiting plants and plants dissuaded from opening will increase the estimated impact of regulation on employment.* * * E.O. 12866 Review

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- 32 us to conclude that it is inappr opriate to utilize their quantitative estimates to estimate the employment impacts from this propos ed regulation al

. In particular, the industries used in these two studies as well as the timeframe (late 1970’s to early 1990’s) are quite different than thos e in this proposed rule. The differences between the underlying regulations motivating the abatement expenditures studied in Morgenstern et al. are potentially too many to allow for the direct transfer of their quantitative estimates to the proposed NSPS amendments. There are important differences between the affected industries and the four manufacturing industries studied by Morgenstern et al. In addition to important differences between the regulated sectors, the pollution control strategies that form the basis of the cost inputs in the Morgenstern et al. analysis are primarily add

- on or end

- of

- line pollution controls, in general covering more than 70% of the abatement expenditures in most years and industries analyzed, as may be seen in Table 5

- 8. Furthermore However , the control strategies analyzed for this RIA mostly include process and design changes to reduce emissions during the production of affected heaters, and not after these heaters are in operation. 64 For instance, use of a catalyst combustor i s common in wood stoves in order to reduce emissions and also improve heat efficiency. Retrofits are uncommon because replacing the wood stove is often a more economical alternative. On the other hand, the pollution control strategies examined by Berman an d Bui and Morgenstern et al. are primar i ly add

- on or end

- of

- line pollution controls. For these reasons we conclude there are too many uncertainties as to the transfera compara bility of the quantitative estimates in these two
studies Morgenstern et al. stud y to apply their estimates to quantify the employment impacts within the regulated sectors for this proposed regulation.

Greenstone, M. (2002). “The Impacts of Environmental Regulations on Industrial Activity: Evidence from the 1970 and 1977 Clean Air Act Amendments and the Census of Manufactures.” Journal of Political Economy 110(6): 1175

- 1219.

List, J. A., D. L. Millimet, P. G. Fredriksson, a nd W. W. McHone (2003). “Effects of Environmental Regulations on Manufacturing Plant Births: Evidence from a Propensity Score Matching Estimator.” The Review of Economics and Statistics 85 (4): 944

- 952.
Walker, Reed. (2011).“Environmental Regulation and L abor Reallocation." American Economic Review: Papers and Proceedings, 101(2).

64 More detail on how emission reductions expected from compliance with this rule can be obtained can be found in Section 4 of this RIA.* * * E.O. 12866 Review

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- 33 Table 5

- 8. Percent of Abatement Expenditures on Changes in Production Processes 65

Industry 1979 1983 1988 1991
Pulp and Paper 16% 20% 39% 53%

Plastics 15% 12% 25% 33% Petroleum Refining 28% 43% 37% 39%

Iron and Steel 4% 7% 6% 8%

65 U.S. Bureau of the Census. Pollution Abatement Costs and Expenditures . Washington, DC: U.S. Government Printing Office, various years . The pulp and paper industry is defined by SIC 2611 & 2621, plastics by SICE 282, petroleum refining by SIC 2911, and iron and steel by SIC 332. For pulp and paper and iron and steel industries in 1983 the data is partially estimated based on non reported data due to disclosure reasons. The 1984 (1989) data for plastics (pulp and paper) is used instead of 1983 (1988) due to a lac k of reported data in the original year.* * * E.O. 12866 Review

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- 1 SECTION 6 SMALL ENTITY SCREENI NG ANALYSIS

The Regulatory Flexibility Act as amended by the Small Business Regulatory Enforcement Fairness Act (SBREFA) generally requires an agency to prepare a regulatory flexibility analysis of any rule subject to notice and comment rulemaking requirements under the Administrative Procedur e Act or any other statute, unless the agency certifies that the rule will not have a significant economic impact on a substantial number of small entities. Small entities include small businesses, small governmental jurisdictions, and small not

- for

- profit enterprises.

After considering the economic impact of the proposed rule on small entities, the screening analysis indicates that we can not conclude that this proposed rule may not have a significant economic impact on a substantial number of small entiti es (or “ SISNOSE ” ) for certain residential wood heating products covered under the revised NSPS proposal . For this analysis EPA considered sales and revenue tests for establishments owned by representative
small entities that manufacture or construct reside ntial wood heating devices.

6.1 Small Entity Data Set
The industry sectors covered by the proposed rule were identified during the development of the cost analysis (see Sections 3 and 5). The Statistics of U.S. Businesses ( SUSB ) provides
national information o n the distribution of economic variables by industry and enterprise size (U.S. Census, 2008a, 2008b ). The Census Bureau and the Office of Advocacy of the Small Business Administration ( SBA ) supported and developed these fi les for use in a broad range of economic analyses. 66 Statistics include the total number of establishments and receipts for all entities in an industry; however, many of these entities may not necessarily be covered by the final rule. SUSB also provides sta tistics by enterprise employment and receipt size.

The Census Bureau ’ s definitions used in the SUSB are as follows:

 Establishment : An establishment is a single physical location where business is conducted or where services or industrial operations are performed.

 Receipts : Receipts (net of taxes) are defined as the revenue for goods produced, distributed, or services provided, including revenue earned from premiums, commissions and fees, rents, interest, dividends, and royalties. Receipts exclude all

rev enue collected for local, state, and federal taxes.

66 Se e http://www.census.gov/csd/susb/ and http://www.sba.gov/advo/research/data.html for ad ditional details.* * * E.O. 12866 Review

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- 2  Enterprise : An enterprise is a business organization consisting of one or more domestic establishments that were specified under common ownership or control. The enterprise and the establishment are the s ame for single

- establishment firms. Each multi

- establishment company forms one enterprise

— the enterprise employment and annual payroll are summed from the associated establishments. Enterprise size designations are determined by the summed employment of al l associated establishments.

Because the SBA ’ s business size definitions (SBA, 201 3 ) apply to an establishment ’ s

“ ultimate parent company, ” we assumed in this analysis that the “ enterprise ” definition above is consistent with the concept of ultimate parent company that is typically used for SBREFA screening analyses and the terms are used interchangeably.

6.2 Small Entity Economic Impact Measures
The analysis generated a set of establishment sal es tests (represented as cost

- to

- receipt ratios) for NAICS codes associated with sectors listed in Table 6

- 1. Although the appropriate SBA size definition should be applied at the parent company (enterprise) level, we can only compute and compare ratios fo r a model establishment owned by an enterprise within an SUSB size range (employment or receipts). Using the SUSB size range helps us account for receipt differences between establishments owned by large and small enterprises and also allows us to
consider the variation in small business definitions across affected industries. Using establishment receipts is also a somewhat conservative approach, because an establishment ’ s parent company (the “ enterprise ” ) may have other economic resources that could be use d to cover the costs of the final rule. It should be noted that these impacts are for the 2014

– 2022 time
frame ; as mentioned earlier in this RIA, the annualized costs considered in this analysis reflect an average of the proposal ’ s compliance costs incurre d by affected sources each year from promulgation through 2022.

6.2.1 Establishment Employment and Receipts
The sales test compares a representative establishment ’ s total annual compliance costs to the average establishment receipts for enterprises in several s ize categories. 67 For industries with SBA employment size standards, we calculated average establishment receipts for each enterprise employment range (Table 6

- 2). For industries with SBA receipt size standards, we calculated average establishment receipts for each enterprise receipt range (Table 6

- 3). The analysis assumes that the majority of affe cted entities are covered under hardware manufacturing

67 For the 1 to 20 employee category, we excluded SUSB data for enterprises with zero employees. These enterprises did not operate the entire year.* * * E.O. 12866 Review

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- 3 (NAICS 332510) and heating equipment manufacturing (NAICS 333414). We use establishment data from the 2007 E conomic Census because that data is the most recent release of public
establishment

- level information for the industries impacted by this proposal.

Table 6

- 1. Revised NSPS Proposal for Residential Wood Heating Devices: Affected Sectors and SBA Small Busin ess Size Standards

Industry Description Corresponding NAICS SBA Size Standard for Businesses (J ul anuar y 22 7 , 2013) Type of Small Entity New single

- family general contractors 236115 $33.5 million in annual receipts Masonry

Masonry contractors 238140 $14.0 million in annual receipts Masonry

Hardware manufacturing 332510 500 employees All product types Heating equipment (except warm air) manufacturing 333414 500 employees All product types Plumbing and heating equipment and supplies (hydronics) merchant wholesalers 423720 100 employees All product types

All other home furnishing stores 442299 $ 19 .0 million in annual receipts Business

However, the revised NSPS proposal has the potential to affect small entities classified as new home construction and masonry contractors. In addition, wholesalers of imported residential heating devices may also be affected if these establishments are required to certify imported products

.
6.2.2 Establishment Compliance Cost
Annual entity compliance costs vary depending on the product type manufactured and the number of product model s they would need to redesign under the revised NSPS proposal as mentioned in Section 5 of this RIA . For this anal ysis compliance costs were estimated based on the average development costs defined in the engineering cost analysis, presented in Section 5

- 1. The analysis assumes that manufacturers h ave between two and seven model fireboxes that would be subject to the new NSPS. There is limited information on the actual number of model fireboxes associated with small businesses. Hence
, for purposes of the small entity screening analysis, we assume d that smaller companies maintain fewer than three firebox models that

wou ld be subject to the revised NSPS. In the absence of better data, EPA believes that between* * * E.O. 12866 Review

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- 4 one and three firebox models is a reasonable assumption for our analysis of impacts to potentially affected small businesses.

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### Table 6

- 2. Average Receipts for Affected Industry by Enterprise Employment Size: 2007 ($20 10 million/establishment)

SBA Size Standard for Businesses

(effective J uly anuar y 22 7 , 201 3 ) Owned by Enterprises with Employment Ranges:

NAICS NAICS Description All Enterprises Fewer than 20 Employees 22 to 99 Employees 100 to 499 Employees 500 to 749 Employees 750 to 999 Employees 1,000 to 1,500 Employees 1,500+ Employees
332510 Hardware manufacturing 500 employees $1 3

. 27 $1.3 3 $7. 71 $2 6

. 2 6 $7 2

. 83 $6 2

. 1 8 $37. 90 $6 2

. 27

333414 Heating equipment manufacturing 500 employees $13. 7 8 $1.2 7 $1 1

. 17 $3 9

. 81 NA NA NA $ 8

. 0 9

423720 Plumbing and heating equipment wholesalers 100 employees $7. 49 $2.5 8 $9. 68 $10. 79 $9. 82 NA NA $0.14

NA = Not available. SUSB did not report this data due to concern with disclosure of confidential information or other reasons . Escalation of average receipts

from 2007 to 2010 is accomplished by use of the annual GDP implicit price deflator (available at http://research.stlouisfed.org/fred2/seri es/GDPDEF/downloaddata?cid=21 ). The escalation ratio between 2007 and 2010 is 1.045.



### Table 6

- 3. Average Receipts for Affected Industry by Enterprise Receipt Range: 2007 ($20 10 million/establishment)

SBA Size Standard for Businesses

(effective J ul anuar y 22 7 , 201 3 ) Owned By Enterprises with Receipt Range:

NAICS NAICS Description All Enterprises Less than 100K Receipts 100 to 499K Receipts 500 to 999K Receipts 1,000 to 4,999K Receipts 5,000 to 9,999K Receipts 10,000 to 49,999K Receipts 50,000 to 99,999K Receipts 100,000K + Receipts
236115 New single

- family general contractors $33.5 million in annual receipts $1.7 7 $0.05 $0.2 9 $0.7 7 $2. 24 $ 7 .9 07 $1 9

. 34 $5 9

. 14 $26 9

. 93

238140 Masonry Contractors $14.0 million in annual receipts $1.0 8 $0.05 $0.2 7 $0.7 7 $2.2 32 $7. 37 $18. 6 4 $4 8 .0 3 $5 9

. 26

442299 All other home furnishing stores $ 19 .0 million in annual receipts $2.6 8 $0.05 $0.2 8 $0.7 8 $1.9 9 $6.1 4 NA NA $ 401

. 23

NA = Not available. SUSB did not report this data due to concern with disclosure of confidential information or other reasons . Escalation of average receipts

from 2007 to 2010 is accomplished by use of the annual GDP implicit price deflator (available at http://research.stlouisfed.org/fred2/series/GDPDEF/downloaddata?cid=21 )

. The escalation ratio between 2007 and 2010 is 1.045

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- 6 Then, we computed per

- entity compliance costs for representative establishments and for manufacturing each product type (see Table 6

- 4). For this analysis, the annualized costs as presented in Table 6

- 4 assumed the total model development costs for four model fireboxes spread over a 6

- year model development time frame and scaled to a single model. Table 6

- 4 shows the estimated average a nnualized cost of $60,000 per model and its use in deriving the national total compliance costs for the proposed option

. Table 6

- 5 presents the same costs for the alternative option. This cost was assumed to be constant for most product types. Lower compli ance cost for pellet stoves due to the fact that most existing models already comply with the regulation. Lower bound on compliance cost for masonry heaters consists of a nominal licensing fee ($200) for the use of computer simulation model software to cer tify the site built
units.

Table 6

- 4. Per

- Entity Annualized Compliance Costs by Product Type

— Proposed Option ($20 10 m illions)

Product Type No. Establishments Assumed Affected Models p er Establishment a Annual Compliance Cost per Model Firebox ($ millions) Total Industry Costs

— Proposed Option ($ millions)

Wood stoves 34 3 $0.0 4 $4.21 Single burn rate stoves 3 7 $0.0 4 $0.90

Pellet stoves 29 4 $0.03 $3.46

Forced

- air furnaces 7 7 $0.0 5 $2.25 Masonry heaters b 48 2

– 8 < $0.001 to $0. 003 $0.31 Hydronic heating systems 30 4 $0.0 4 $4.55 National Compliance Cost $ 15.7

a Table totals may differ because of rounding.

b Masonry heater establishments include 2 large and 4 medium manufacturers, and 42 small custom builders.

For each case in this analysis, the number of models each representative establishment must redesign to comply with the NSPS emission limits in the options analyzed in this RIA varies by product type. The total annualized compliance cost per establishment is calculated by multiplying the number of firebox models requiring redesign by the annualized cost per model ($6 3
, 85 0). Table 6

- 6 presents the assumed number of models per establishment by product type. Figures 6

- 1 and 6

- 2 illustrate the distribution of compliances costs by product type

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- 7 Table 6

- 5

. Per

- Entity Annualized Compliance Costs by Product Type

— Alternative Option ($20 10 m illions)

Product Type No. Establishments Assumed Affected Models p er Establishment a Annual Compliance Cost per Model Firebox ($ millions) Total Industry Costs

— Proposed Option ($ millions)

Wood stoves 34 3 $0.0 8 $8.09 Single burn rate stoves 3 7 $0.0 7 $1.54

Pellet stoves 29 4 $0.0 5 $6.25

Forced

- air furnaces 7 7 $0.0 8 $3.81 Masonry heaters b 48 2

– 8 < $0.001 to $0. 003 $0.31 Hydronic heating systems 30 4 $0.0 8 $8.30 National Compliance Cost $ 28.3

a T able totals may differ because of rounding.

b Masonry heater establishments include 2 large and 4 medium manufacturers, and 42 small custom builders.

Table 6

- 6

. Representative Establishment Costs Used for Small Entity Analysis ($20 10 )

Best Estimate Number of models requiring redesign 2 Annual cost per model $ 63
, 850 Average annual cost per establishment $ 127,700

For the sales test, we divided the representative establishment compliance costs reported
in Table 6

- 6 by the representative establishment receipts reported in Tables 6

- 2 and 6

- 3. This is known as the cost

- to

- receipt (i.e., sales) ratio, or the “ sales test. ” The “ sales test ” is the impact methodology EPA employs in analyzing small entity impacts a s opposed to a “ profits test, ” in which annualized compliance costs are calculated as a share of profits.

Information on annual revenues or sales is more commonly available data for entities normally affe cted by EPA regulations, and profits data normally made available are often not the true profit earned by firms because of accounting and tax considerations. Revenues as typically published are usually correct figures and are more reliably reported when co mpared with profit
data. The use of a “ sales test ” for estimating small business impacts for a rulemaking such as this* * * E.O. 12866 Review

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- 8 Figure 6

- 1. Population of Firebox Models and Average Models per Establishment by Product Type

one is consistent with guidance offered by EPA on compliance with SBREFA 68 and is consistent with guidance published by the SBA ’ s Office of Advocacy that suggests that cost as a percentage of total revenues is a metric for evaluating cost increases on small entities in relation to increases
on l arge entities (SBA, 2003 ). 69 The annualized cost per sales for a company represents the maximum price increase in affected product needed for the company to completely recover the annualized costs imposed by the regulation

.

68 The SBREFA compliance guidance to EPA rule writers (EPA, 2006a) regarding the types of small business analys is that should be considered can be found at http://www.epa.gov/sbrefa/documents/rfaguidance11

- 00

- 06.pdf
, pp. 24

- 25. 69 This compliance guide p roduced by SBA can be found at http://www.sba.gov/sites/default/files/rfaguide_0512_0.pdf

. 3 7

4 7

4 4

0 1 2 3 4 5 6 7 8

0 20 40 60 80 100 120 140

Wood Stoves Single Burn Rate Stoves Pellet Stoves Forced Air Furnaces Masonry Heaters Hydronic Heating SystemsAverage No. of Firebox Models Per EstablishmentModel Firebox Population

Total Model Population Average Models per Establishment* * * E.O. 12866 Review

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- 9 Figure 6

- 2. Distribution of National Compliance Costs by Product Type in 2014 to 2022

For purposes of this analysis, EPA assumes most small entities in the residential wood heating industry are likely to manufacture fewer than three distinctive firebox models an d in

m any cases they would support only one model . We assume for this analysis that most small entities in this industry will manufacture an average of two distinctive firebox models. Hence
, EPA believes that the estimate in Table 6

- 6 above is the most rep resentative establishment costs to assess impacts on small businesses. If the cost

- to

- receipt ratio is less than 1%, then we consider the rule to not have a significant impact on the establishment (and, company ) in question. Table 6

- 7 present s the cost

- to

- receipt ratios for each category of establishments (establishments with ratios that exceed 1% under each case are highlighted) for the proposal option. Table 6

- 8 present these ratios for the alternative option. Wood Stoves 0%

Single Burn Rate Stoves 15% Pellet Stoves 2%

Forced Air Furnaces 37%

Masonry Heaters 2% Hydronic Heating Systems 44%

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### Table 6

- 7

. Cost

- to

- Receipt Ratio Results for the Proposal Option by NAICS Code a

NAICS Description All Establishments Fewer than 20 Employees 22 to 99 Employees 100 to 499 Employees

332510 Hardware manufacturing 3.12 % 1 9. 74 % 3

. 40 % 0. 99 %
333414 Heating equipment manufacturing 1 .8 9 % 20

. 73 % 2.34 % 0. 67 %
423720 Plumbing and heating equipment wholesalers 3.50 % 10

. 15 % 2

. 71 % 2.43 %

NAICS Description Total Less than 100K Receipts 100 to 499K Receipts 500 to 999K Receipts 1,000 to 4,999K Receipts 5,000 to 9,999K Receipts 10,000 to 49,999K Receipts

236115 New single

- family general contractors 7.18% 231.81% 43.78% 16.39% 5.62% 1.78% 0.69%
238140 Masonry contractors 11.59% 232.50% 47.70% 16.54% 5.43% 1.72% 0.74%
442299 All other home furnishing stores 7.86% 224.82% 46.00% 17.02% 7.47% 3.84%

a All the cost to receipts results incorporate costs that are primarily R&D activities that firms will engage in to build appli ance models that comply with the

options analyzed in this RIA. The R& D cycle is estimated at 6 years, while the appliance life for all affected categories is 20 years.

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### Table 6

- 8

. Cost

- to

- Receipt Ratio Results for the Alternative Option by NAICS Code a

NAICS Description All Establishments Fewer than 20 Employees 22 to 99 Employees 100 to 499 Employees

332510 Hardware manufacturing 5.22 % 33.05 % 5

. 69 % 1.66 %
333414 Heating equipment manufacturing 3.17 % 34.70 % 3.92 % 1.12 %
423720 Plumbing and heating equipment wholesalers 5.87 % 17.00 % 4.54 % 4.07 %

NAICS Description Total Less than 100K Receipts 100 to 499K Receipts 500 to 999K Receipts 1,000 to 4,999K Receipts 5,000 to 9,999K Receipts 10,000 to 49,999K Receipts

236115 New single

- family general contractors 12

. 03 % 389

. 44 % 73.55 % 27.54 % 9.44 % 2.99 % 1.16 %
238140 Masonry contractors 1 9.47 % 390.60 % 80.14 % 27.79 % 9.12 % 2.89 % 1.24 %
442299 All other home furnishing stores 13. 20 % 377.70 % 77.28 % 27.23 % 13.00 % 6.45 %

a All the cost to receipts results incorporate costs that are primarily R& D activities that firms will engage in to build appliance models that comply with the

options analyzed in this RIA. The R&D cycle is estimated at 6 years, while the appliance life for all affected categories is 20 years.* * * E.O. 12866 Review

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- 12 6.2.2.1 Analysis Results

In our small entity analysis for the proposed option
, using an annual compliance cost of $127,000 as the estimated cost borne by affected small en tities, establishments in NAICS 332510, 333414, and 423720 with fewer than 500 employees have cost

- to

- receipt ratios higher than 1%. E stablishments in NAICS 236115, 238140, and 442299 with receipts less than $10
million have cost

- to

- receipt ratios higher t han 1% . For the alternative option, the impacts are higher than 1% for all establishments in any size class.

After considering the economic impacts of this proposed rule on small entities, we cannot certify that this action will not have a significant eco nomic impact on a substantial number of small entities. This certification is based on the economic impact of this action to all affected small entities across all industries affected. Using the estimate of impacts presented earlier in this chapter, we est imate that all small entities will have annualized costs of greater than 1% of their
sales in all industries with fewer than 20 employees and NAICS 236115, 238140, and 442299 with receipts less than $10 million . Those establishments in NAICS 332510, 333414, and 423720 with cost

- to

- receipt ratios higher than 1% account for more than 80 % of small entities. Establishments in NAICS 236115, 238140, and 442299 with cost

- to

- receipt ratios higher than 1% account for more than 9 9 % of small entities. Sm all entity impacts are higher than this for the alternative option. We thus conclude that we cannot certify that there is not a significant economic impact on a substantial number of small entities (SISNOSE) for this rule.

It should be noted that the cost to receipts analysis included in this RIA reflect the large majority of annualized costs that are composed of research and development (R&D) activities (nearly 90%, based on the manufacturers ’ cost memorandum) that have a shorter life than the
total life o f affected appliances

— six years for an R&D cycle as mentioned in section 5 of this RIA compared to 20 years for the life of affected appliances. The impacts on small entities should be understood in the context that a large share of the estimated annualize d costs reflect expenses in the early years of the appliance life, and only a small share recurs each year over the entire appliance life of 20 years. In addition, the application of these costs for the options analyzed in this RIA will lead to a somewhat conservative (or, over

- stated) cost estimate as stated previously in section 5.1.3. One example of this is that all hydronic heaters will undergo R&D beginning in 2013 to comply with either option analyzed; there is a small percentage of hydronic heaters t hat already meet the emission limits under each option considered in the RIA. Similar assumptions are also made in the cost estimates for single burn rate stoves and forced air furnaces. Given these two considerations, the costs that are included in the co st to sales analyses* * * E.O. 12866 Review

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- 13 presented in this RIA are somewhat conservative in nature, and the cost to receipts impacts shown above should be understood in that context.

A sensitivity analysis showing the effect of the R&D cycle lifespan on the cost to sales

est imates for each option is below. Table 6

- 9 shows how the model firebox costs that are input to the cost to sales (and small business) analyses will change with changes to the R&D cycle lifespan.

Table 6

- 9. Total Annual Cost (TAC) per Appliance Mod el

– for Varying Annualized R&D Cycle Lifespans

Annualized R&D Cycle Lifespan (Years) TAC/Appliance Model (2010$) TAC per Establishment

6* $63,850 $127,700 10 40,022 80,044 20 22,418 44,836

* As mentioned in Section 5 of this RIA, six years represents the annualized R&D cycle lifespan incorporated in the cost estimates for the Proposed RWH NSPS rule options.

The total annual cost per appliance model is the value of costs included in the cost to sales estimates to calculate these values. Ea ch small entity is expected to modify 2 appliance models on average in order to comply with the proposal , an assumption we estimated earlier in
this section of the R I A . We assume each small entity owns only one establishment (or place of business). Hence , the total annual cost to each small entity is twice the cost per appliance model. The annual cost to sales in the RIA will change proportionately to a change in the TAC since the sales estimates in the analysis will remain constant.

As shown in Table 6

- 9 , with an increase in the R&D cycle lifespan from 6 to 10 years, the TAC/appliance model estimate falls to $40,022 from $63,850. The new TAC/appliance model estimate is 37% less than before. Thus, the cost to sales estimates will fall by 37% from
the previous values. Finally, if the R&D cycle lifespan is reduced to 4 years, the TAC/appliance model estimate increases to $93,755 from $63,850. The new TAC/appliance model estimate is

now 65 % low er than before. Thus, the cost to sales estimates will de cr ease by 65 % from the values that use an R&D cycle lifespan of 6 years.

T able 6

- 10 contains estimates of the changes in the cost to sales estimates for the Proposed option with an increase in the R&D cycle lifespan to 10 and 20 years from 6 years. The* * * E.O. 12866 Review

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- 14 est imates with the change in R&D cycle lifespan to 10 and 20 years are in parentheses; the other values are those for the P roposed option

.

Table 6

- 10. Cost

- to

- Sales Ratio Sensitivity Analysis Results Reflecting Different R&D Cycle Lifespans for the Propos ed Option by NAICS Code *

NAICS Industry Description All Establishments Establishments with Fewer than 20 Employees (%) Establishments with Between 20 and 99 Employees (%) Establishments with Between 100 and 499 Employees (%) 332510 Hardware manufacturing 3.12 (1.97 , 1.09 ) 19.74 (12.44 , 6.91 ) 3.40 (2.14 , 1.19 ) 0.99 (0.62 , 0.35 )

333414 Heating equipment manufacturing 1.89 (1.19 , 0.66 ) 20.73 (12.83 , 7.26 ) 2.34(1.47 , 0.82 ) 0.67 (0.42 , 0.23 )

423720 Plumbing and heating equipment wholesalers 3.50 (2.21 , 1.23 ) 10.15 (6.39 , 3.55 ) 2.71(1.71 , 0.95 ) 2.43 (1.53 , 0.85 )

* The first value in parentheses is the cost to sales estimate for a 10 year R&D cycle lifespan; the second value is the cost to sales estimates for a 20 year R&D cycle lifespan.

6.3 Initia l Regulatory Flexibility Analysis
An IRFA illustrates how EPA considers the proposed rule ’ s small entity effects before a rule is finalized and provides information about how the objectives of the rule were achieved while minimizing significant economic i mpacts on small entities. We provide a summary of IRFA elements; the preamble for this rule provides additional details.

6.3.1 Reasons Why Action Is Being Considered
These proposals were developed following a Clean Air Act (CAA) section 111(b)(1)(B) periodic rev iew of the existing residential wood heater new source performance standards (NSPS).

6.3.2 Statement of Objectives and Legal Basis of Proposed Rule
The EPA is proposing to amend Standards of Performance for New Residential Wood Heaters, and to add two new subparts: Standards of Performance for New Residential Hydronic
Heaters and Forced

- Air Furnaces and Standards of Performance for New Residential Masonry Heaters. These proposals are aimed at achieving several objectives, including applying tighter
emission limits that reflect today ’ s best systems of emission reduction (BSER) ; eliminating Formatted: Normal, Space After: 12 pt, Line spacing: At least 18 pt* * * E.O. 12866 Review

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- 15 exemptions over a broad suite of residential wood combustion devices; revising test methods as appropriate; and streamlining the certification process. These proposals do n ot include any requirements on heaters that are solely fired by gas or oil. In addition, theses proposals do not include any requirements associated with wood heaters or other wood

- burning appliances that are already in use. The EPA continues to encourage state, local, tribal, and consumer efforts to change out (replace) older heaters with newer, cleaner, more efficient heaters, but that is not part of this Federal rulemaking.

These proposals were developed following a Clean Air Act (CAA) section 111(b)( 1)(B) periodic review of the existing residential wood heater new source performance standards (NSPS). T We concur with n umerous stakeholders that t he current body of evidence justifies that the periodic review and revision of the current residential wood h eaters NSPS is are needed to capture the improvements in performance of such units and to expand the applicability of this NSPS to include additional wood

- burning residential heating devices. The changes being proposed with this action are aimed at achievin g several objectives, including applying tighter emission limits that reflect today ’ s best systems of emission reduction; eliminating exemptions over a broad suite of residential wood combustion devices; revising test methods as appropriate;
and streamlini ng the certification process.

6.3.3 Description and Estimate of the Number of Small Entities
Small entities that EPA anticipates being affected by the standards would include almost all manufacturers of wood heaters listed in Section 2.2 of this document. EPA estimates that roughly 250

– 300 U.S. companies manufacture residential wood heaters. EPA believes that approximately 90 % of these manufacturers meet the SBA small

- entity definition of having fewer than 500 employees.

6.3.4 Description and Compliance Costs

A disc ussion of the methodology used to estimate cost impacts is presented in Section 5
of this RIA.

As required by section 609(b) of the RFA, as amended by SBREFA, EPA has conducted outreach to small entities and convened a SBAR Panel to obtain advice and reco mmendation of representatives of the small entities potentially subject to the requirements of this rule. On August 4, 2010, EPA ’ s Small Business Advocacy Chairperson convened a Panel under section 609(b) of the RFA. In addition to the Chair, the Panel con sisted of representatives of the Director of the Outreach and Information Division within EPA ’ s Office of Air and Radiation, the Chief* * * E.O. 12866 Review

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- 16 Counsel for Advocacy of the SBA, and the Administrator of the Office of Information and Regulatory Affairs within the Off ice of Management and Budget.

Based on consultations with the S BA , and resulting from solicited self

- nominations, we prepared a list of 30 potential small entity representatives ( SERs ) , from residential wood heating appliance manufacturers (wood stoves, pellet stoves, hydronic heaters, forced

- air furnaces, and masonry heaters), other wood burning appliance manufacturers (fireplaces, cook stoves), equipment suppliers, chimney sweeps, tes t laboratories, masons, and trade associations. Once the

pre

- Panel process began and potential SERs were identified, EPA held an outreach meeting with the potential SERs and invited representatives from SBA ’ s Office of Advocacy and the Office of
Informatio n and Regulatory Affairs within the Office of Management and Budget on June 29, 2010, to solicit their feedback on the upcoming proposed rulemaking. Representatives from 26 of the 30 companies and organizations that we selected as potential SERs for this S BREFA process participated in the meeting (in person and by phone). At that meeting EPA solicited written comments from the potential SERs, which were later summarized and shared with the Panel as part of the Panel convening document.

After the SBAR Panel was convened, the Panel distributed additional information to the
SERs on August 11 and August 19, 2010 , for their review and comment and in preparation for another outreach meeting. On August 25 , 20 10 , the Panel met with the SERs to hear their

comments on the information distributed via email . The Panel received written comments from the SERs in response to the discussions at this meeting and the outreach materials. The Panel
asked the SERs to evaluate how they would be affected and to provide advice and

r ecommendations regarding early ideas to provide flexibility.

Many of the SER s and the Panel ha d concerns about the breadth of th e potential options
discussed for this rulemaking and the challenges EPA would face in potentially conducting rulemaking for all of these source categories at one time and the challenges that the small businesses w ould face in having to potentially comply with standards for all of these source categories at one time

. The Panel recommend ed that EPA should consider focusing efforts f irst on emissions sources that have the greatest potential to impact public health through the magnitude of emissions and population exposure. The EPA has narrowed the scope of this proposal to focus on the sources with the greatest potential impacts on pu blic health. The Panel was sensitive to the need to carefully develop a rule that will minimize business closures, while still achieving significant emission reductions.* * * E.O. 12866 Review

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- 17 6.3.5 Panel Recommendations for Small Business Flexibilities

The Panel recommended that EPA consider and seek comment on an extensive range of regulatory alternatives to mitigate the impacts of the rulemaking on small businesses, including the options listed below. The following section summarizes the SBAR Panel recommendations.

Consistent with the RFA/SBREFA requirements, the Panel evaluated the assembled materials and comments related to elements of the IRFA. A copy of the Final Panel Report (including all comments received from SERs in response to the Panel ’ s outreach meetings), as well as su mmaries of both outreach meetings that were held with the SERs, is included in the docket for the proposed rules. The following paragraphs are a subset of the full report.

The P anel encourage d EPA to consider flexibilities that will most directly minimize the
small business burdens: Exemptions from the standards based on very low volume production, and delayed compliance dates for low volume production

. The delayed compliance approach is predicated on the concept that it will take a number of years for manu facturers to recover the costs of the R&D investment in order to achieve compliance.

The Panel recommend ed that the EPA Administrator should consider the availability and feasibility of certification, testing labs, testing standards, and other requirements

.

The Panel recommend ed that the EPA Administrator should consider emphasizing that the NSPS will address only new units, and the EPA Administrator should consider clarifying whether exemptions will be considered for historic replica equipment and historic property renovations.

EPA is look ing at opportunities for reducing the burden on small entities of potential reporting, record keeping, and compliance requirements. For reporting and record keeping requirements in the revised NSPS, EPA is considering pro viding flexibilities similar to those in the 1988 NSPS . For example, the Panel recommended that EPA continue allowing manufacturers to keep records and report test results for a representative model appliance rather than testing and reporting results for e ach individual unit.

Many SERs expressed concern about potential compliance requirements associated with the planned proposed standards. Specifically, SERs anticipated potential logjams at third

- party testing facilities as a result of EPA ’ s regulating a b roader range of product categories, which the SERs believe will slow down the certification process. In addition, many SERs are concerned about the costs associated with compliance requirements, including research and development,* * * E.O. 12866 Review

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- 18 preliminary testing and c ertification of new products and recertification of products approved under the 1988 NSPS. The Panel recommended that EPA consider ways to streamline compliance certification, in particular, identifying flexible approaches and procedures that will
reduce t he burden and time for manufacturers to complete the application, testing and approval process for new model lines. For example, the Panel recommended that EPA consider allowing the use of International Standards Organization (ISO)

- accredited laboratories and certifying bodies to expand the number of facilities that would be required for testing and certification of the new residential solid biomass combustion appliances. Additionally, the Panel recommended that EPA consider different compliance time frames for different product categories to reduce the potential for logjams at test labs and the overall impact on companies that manufacture multiple categories. Flexible compliance schedules would also help manufacturers of additional new appliances, such as h ydronic heaters and forced

- air furnaces, which were not subject to the 1988
standards.

Consistent with the RFA/SBREFA requirements, the Panel evaluated the assembled
materials and small

- entity comments on issues related to elements of the IRFA. A copy of t he Panel report is included in the docket for this proposed rule. We invite comments on all aspects of the proposal and its impacts on small entities.* * * E.O. 12866 Review

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- 1 SECTION 7 HUMAN HEALTH BENEFIT S OF EMISSIONS REDUC TIONS

7.1 Synopsis
Implementation of emissions limit s required by the proposed residential wood heaters
NSPS is expected to reduce direct emissions of PM 2.5

. These reductions result from the imposition of tightened and new PM emissions limits for a number of emissions categories as described in Section 2 of this RIA

. In this section, we quantify the monetized benefits for this rule associated with reduced exposure to ambient fine particulate m atter (PM 2.5 ) resulting from
the reduction of direct emissions of PM 2.5 . The total PM 2.5 reductions are the consequence of the expected design changes to the affected appliances needed in order to meet the limits in the options analyzed in this RIA. We est imate the total monetized benefits for the proposed option to be $1.8 billion to $4.2 billion at a 3% discount rate and $1.7 billion to $3. 8 billion at a 7% discount rate on a yearly average between 2014 and 2022. For the alternative option and same
time f rame , we estimate that the total monetized benefits are $1.9 billion to $4.2 billion at a 3% discount rate and $1.7 billion to $3.8 billion at a 7% discount rate. All estimates are in 2010$.
These estimates reflect the monetized human health benefits of re ducing cases of morbidity and

prem ature mortality among populations exposed to PM 2.5 reduced by this rule.

Data, resource s , and methodological limitations prevented EPA from monetizing the benefits from several important benefit categories . I nclud ed amon g the nonmonetized benefits are those associated with reduc ed exposure to about 3,200 tons of VOCs. VOCs are also precursors to ozone formation and therefore reducing health impact due to ozone exposure. Further, this rule would reduce each year 33,000 tons of CO
, black carbon emissions, several
HAP emissions such as benzene, formaldehyde, and dioxin. This rule will also reduce ecosystem effects , and visibility impairment due to PM emissions.

7.2 PM 2.5 - Related Human Health Benefits
This rule is expected to r educe direct emissions of PM and emissions of VOCs , which are precursors to formation of ambient PM 2.5 . Therefore

, reducing these emissions would also reduce human exposure to ambient PM 2.5 and the incidence of PM 2.5 - related health effects. In this
section , we provide an overview of the PM 2.5 - related benefits. A full description of the underlying data, studies, and assumptions is provided in the PM NAAQS RIA (U.S. EPA, 2012a).

In implementing this rule, emission controls may lead to reductions in ambient PM 2.5 concentrations below the National Ambient Air Quality Standards (NAAQS) for PM in some* * * E.O. 12866 Review

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- 2 areas and assist other areas with attaining the PM NAAQS. Because the PM NAAQS RIA (U.S. EPA, 2012a) also calculated PM benefits, t here are important differences wor th noting in the design and analytical objectives of each RIA. The NAAQS RIAs illustrate the potential costs and benefits of attaining a revised air quality standard nationwide based on an array of emission reduction strategies for different sources includ ing known and unknown controls, incremental to implementation of existing regulations and controls need ed to attain the current standards. In short, NAAQS RIAs hypothesize, but do not predict, the reduction strategies that States may choose to enact when i mplementing a revised NAAQS. The setting of a NAAQS does not directly result in costs or benefits, and as such, the NAAQS RIAs are merely illustrative and the
estimated costs and benefits are not intended to be added to the costs and benefits of other

regu lations that result in specific costs of control and emission reductions. However, it is possible that some costs and benefits associated with the required emission controls estimated in this RIA may account for the same air quality improvements as estimat ed in the illustrative PM NAAQS RIA.

By contrast, the emission reductions for implementation rules such as this rulemaking are generally for specific, well

- characterized sources. In general, EPA is more confident in the magnitude and location of the emiss ion reductions for implementation rules. As such, emission reductions achieved under these and other promulgated implementation rules will ultimately be reflected in the baseline of future NAAQS analyses, which would reduce the incremental costs
and benefi ts associated with attaining revised future NAAQS. EPA remains forward looking towards the next iteration of the 5

- year review cycle for the NAAQS. As a result, EPA does not

re

- issue NAAQS RIAs that retroactively update the baseline to account for implemen tation rules promulgated after a NAAQS RIA outside of the NAAQS review process. For more information on the relationship between the NAAQS and rules that are not ambient standards, such as analyzed here, please see Section 1.3 of the PM NAAQS RIA (U.S. EPA , 2012a ).

7.2.1 Health Impact Assessment

The Integrated Science Assessment for Particulate Matter (PM ISA) (U.S. EPA, 2009) identified the human health effects associated with ambient PM 2.5, which include premature mortality and a variety of morbidity effects associated with acute and chronic exposures. Table
7

- 1 provides the quantified and unquantified benefits captured in EPA ’ s benefits estimates for reduced exposure to ambient PM 2.5 . Although the table below does not include entries for the unquantified health effects such as exposure to ozone and NO 2 nor welfare effects such as ecosystem effects and visibility impairment, these effects are itemized in Chapters 5 and 6 of the* * * E.O. 12866 Review

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- 3 Table 7

- 1

. Human Health Effects of Ambient PM 2.5

Category Spe cific Effect Effect Has Been Quantified Effect Has Been Monetized More Information

in PM NAAQS RIA Improved Human Health
Reduced incidence of premature mortality from exposure to PM 2.5 Adult premature mortality based on cohort study estimates and expert elicitation estimates (age >25 or age >30)   Section 5.6

Infant mortality (age <1)   Section 5.6
Reduced incidence of morbidity from exposure to PM 2.5 Non

- fatal heart attacks (age > 18)   Section 5.6 Hospital admissions

— respiratory (all ages)   Section 5.6 Hospital admissions

— cardiovascular (age >20)   Section 5.6

Emergency room visits for asthma (all ages)   Section 5.6

Acute bronchitis (age 8

– 12)   Section 5.6 Lower respiratory symptoms (age 7

– 14)   Section 5.6 Upper respiratory symptoms (asthmatics age 9

– 11)   Section 5.6

Asthma exacerbation (asthmatics age 6

– 18)   Section 5.6 Lost work days (age 18

– 65)   Section 5.6
Minor restricted

- activity days (age 18

– 65)   Section 5.6 Chronic Bronchitis (age >26)

— a

— a Section 5.6 Emergency room visits for cardiovascular effects (all ages) — a

— a Section 5.6

Strokes and cerebrovascular disease (age 50

– 79) — a

— a Section 5.6

Other cardiovascular effects (e.g., other ages) — — PM ISA b

Other respiratory effects (e.g., pulmonary function, non

- asthma ER visits, non

bronchitis chronic diseases, other ages and populations) — — PM ISA b

Reproductive and developmental effects (e.g., low birth weight, pre

- term births, etc

. ) — — PM ISA b
, c

Cancer, mutagenicity, and genotoxicity effects — — PM ISA b
, c

a We assess these benefits qualitatively due to time and resource limitations for this analysis. In the PM NAAQS

RIA, these benefits were quantified in a sensitivity analysis, but not in the core analysis.

b We assess these benefits qualitatively because we do not have sufficient confidence in available data or methods.

c We assess these benefits qualitatively because current evidence is only suggestive of causality or there are other

significant concerns over the strength of the association.* * * E.O. 12866 Review

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- 4 PM NAAQS RIA (U.S. EPA, 2012a). It is important to emphasize that the list of unquantified benefit categories is not exhaustive, nor is quantification of each effect complete.

We follow a “ damage

- function ” approach in calculati ng benefits, which estimates changes in individual health endpoints (specific effects that can be associated with changes in air quality) and assigns values to those changes assuming independence of the values for those individual endpoints. Because EPA ra rely has the time or resources to perform new rese arch to measure directly either the health outcomes or their values for regulatory analyses, our estimates are based on the best available methods of benefits transfer, which is the science and art of adapt ing primary research from similar contexts to estimate benefits for the environmental quality change under analysis.

The health impact assessment (HIA) quantifies the changes in the incidence of adverse health impacts resulting from changes in human expos ure to PM 2.5 or other air pollutants. We use the environmental Ben efits M apping and A nalysis P rogram (BenMAP) to systematize health impact analyses by applying a database of key input parameters, including population projections, health impact functions, v aluation functions (Abt Associates, 2012). For this assessment, the HIA is limited to those health effects that are directly linked to ambient PM 2.5 concentrations. There may be other indirect health impacts associated with implementing emissions controls, such as occupational health exposures. Epidemiological studies generally provide estimates of the relative risks of a particular health effect for a given increment of air pollution (often per 10 μg/m 3 for PM 2.5 ). These relative risks can be used to devel op risk
coefficients that relate a unit reduction in PM 2.5 to changes in the incidence of a health effect. We refer the reader to section 5.6 of the PM NAAQS RIA for more information regarding the epidemiology studies and risk coefficients applied in this analysis (U.S. EPA, 2012a), and we briefly elaborate on adult premature mortality below. The size of the mortality effect estimates from epidemiological studies, the serious nature of the effect itself, and the high monetary value ascribed to prolonging li fe make mortality risk reduction the most significant health endpoint quantified in this analysis.

Considering a substantial body of published scientific literature, reflecting thousands of epidemiology, toxicology, and clinical studies, the PM ISA documen ts the association between elevated PM 2.5 concentrations and adverse health effects, including increased premature mortality (U.S. EPA, 2009). The PM ISA, which was twice reviewed by the Clean Air Scientific Advisory Committee of EPA ’ s Science Advisory Boa rd (SAB

- CASAC) (U.S. EPA

- SAB, 2009b, 2009c), concluded that there is a causal relationship between mortality and both long

- term and
short

- term exposure to PM 2.5 based on the entire body of scientific evidence. The PM ISA also Formatted: No underline, Font color: Auto, Portuguese (Brazil)* * * E.O. 12866 Review

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- 5 concluded that the scientific literature consistently finds that a no

- threshold log

- linear model most adequately portrays the PM

- mortality concentration

- response relationship while recognizing potential uncertainty about the exact shape of the concentration

- response function.

For mort ality, we use the effect coefficients from the most recent epidemiology studies examining two large population cohorts: the American Cancer Society (ACS) cohort (Krewski et al., 2009 ) and the Harvard Six Cities cohort (Lepeule et al ., 2012 ). The PM ISA (U.S. EPA, 2009) concluded that the ACS and Six Cities cohorts provide the strongest evidence of the association between long

- term PM 2.5 exposure and premature mortality with support from a
number of additional cohort studies. The SAB ’ s Health Effects Subcommittee (SAB

- HES) also supported using these two cohorts for analyses of the benefits of PM reductions (U.S. EPA

- SAB, 2010a). As both the ACS and Six Cities cohort studies have inherent strengths and weaknesse s, we present benefits estimates using relative risk estimates from both these cohorts (Krewski et al., 2009; Lepeule et al., 2012).

As a characterization of uncertainty regarding the PM 2.5 - mortality relationship, EPA graphically presents benefits derived from EPA ’ s expert elicitation study (Roman et al., 2008; IEc, 2006). The primary goal of the 2006 study was to elicit from a sample of health experts probabilistic distributions describing uncertainty in estimates of the reduction in mortality among
the a dult U.S. population resulting from reductions in ambient annual average PM 2.5 levels. In that study, twelve experts provided independent opinions of the PM 2.5 - mortality concentration

response function. Because the experts relied upon the ACS and Six Citi es cohort studies to
inform their concentration

- response functions, the benefits estimates derived from the expert responses generally fall between results derived from the these studies (see Figure 7

- 1). We do not combine the expert results in order to pr eserve the breadth and diversity of opinion on the expert panel. This presentation of the expert

- derived results is generally consistent with SAB advice (U.S. EPA

- SAB, 2008), which recommended that the EPA emphasize that “ scientific
differences existed only with respect to the magnitude of the effect of PM 2.5 on mortality, not whether such an effect existed ” and that the expert elicitation “ supports the conclusion that the
benefits of PM 2.5 control are very likely to be substantial

. ” Although it is possi ble that newer scientific literature could revise the experts ’ quantitative responses if elicited again, we believe that these general conclusions are unlikely to change.

7.2.2 Economic Valuation
After quantifying the change in adverse health impacts, we estimat e the economic value of these avoided impacts. Reductions in ambient concentrations of air pollution generally lower* * * E.O. 12866 Review

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- 6 the risk of future adverse health effects by a small amount for a large population. Therefore, the appropriate economic measure is willingn ess to pay (WTP) for changes in risk of a health effect. For some health effects, such as hospital admissions, WTP estimates are generally not available, so we use the cost of treating or mitigating the effect. These cost

- of

- illness (COI) estimates general ly (although not necessarily in every case) understate the true value of reductions in risk of a health effect. They tend to reflect the direct expenditures related to treatment but not the value of avoided pain and suffering from the health effect. The un it values applied in this analysis are provided in Table 5

- 9 of the PM NAAQS RIA for each health endpoint (U.S. EPA, 2012a).

Avoided premature deaths account for 98% of monetized PM

- related benefits. The economics literature concerning the appropriate meth od for valuing reductions in premature mortality risk is still developing. The adoption of a value for the projected reduction in the risk of premature mortality is the subject of continuing discussion within the economics and public policy analysis commun ity. Following the advice of the SAB ’ s Environmental Economics Advisory Committee (SAB

- EEAC), the EPA currently uses the value of statistical life (VSL) approach in calculating estimates of mortality benefits, because we believe this calculation provides t he most reasonable single estimate of an individual ’ s willingness to trade off money for reductions in mortality risk (U.S. EPA

- SAB, 2000). The VSL approach is a summary measure for the value of small changes in mortality risk experienced by a large number of people.

EPA continues work to update its guidance on valuing mortality risk reductions, and the Agency consulted several times with the SAB

- EEAC on the issue. Until updated guidance is available, the Agency determined that a single, peer

- reviewed estim ate applied consistently best reflects the SAB

- EEAC advice it has received. Therefore, EPA has decided to apply the VSL that was vetted and endorsed by the SAB in the Guidelines for Preparing Economic Analyses (U.S. EPA, 2000) 70 while the Agency continues i ts efforts to update its guidance on this issue. This approach calculates a mean value across VSL estimates derived from 26 labor market and contingent valuation studies published between 1974 and 1991. The mean VSL across these studies is $6.3 million (20 00$). 71

70 In the updated Guidelines for Preparing Economic Analyses (U.S. EPA, 2010e), EPA retained the VSL endorsed by the SAB with the understanding that further updates to the mortality risk valuation guidance would be forthcoming in the near future.
71 In 1990$, this VSL is $4.8 million.* * * E.O. 12866 Review

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- 7 We then adjust this VSL to account for the currency year used in this RIA and to account for income growth from 1990 to the analysis year. The adjusted value for VSL is $ 8.0 million ($2010).

The Agency is committed to using scientifically sound, ap propriately reviewed evidence in valuing mortality risk reductions and has made significant progress in responding to the SAB

EEAC ’ s specific recommendations. In the process, the Agency has identified a number of important issues to be considered in updati ng its mortality risk valuation estimates. These are detailed in a white paper on “ Valuing Mortality Risk Reductions in Environmental Policy, ” (U.S. EPA, 2010c) which recently underwent review by the SAB

- EEAC. A meeting with the SAB on this paper was held on March 14, 2011 and formal recommend ations were transmitted on July 29, 2011 (U.S. EPA

- SAB, 2011). Draft guidance responding to SAB recommendations will be developed shortly.

In valuing premature mortality, we discount the value of premature mortality oc curring in future years using rates of 3% and 7% (OMB, 2003). We assume that there is a “ cessation ” lag between changes in PM exposures and the total realization of changes in health effects. Although the structure of the lag is uncertain, the EPA follows the advice of the SAB

- HES to assume a segmented lag structure characterized by 30% of mortality reductions in the first year, 50% over years 2 to 5, and 20% over the years 6 to 20 after the reduction in PM 2.5 (U.S. EPA

- SAB, 2004c). Changes in the cessation lag assumptions do not change the total number of estimated deaths but rather the timing of those deaths.

7.2.3 Benefit

- per - ton Estimates
Due to analytical limitations, it was not possible to conduct air quality modeling for this rule. Instead, we used a “ benefit

- per

- ton ” approach to estimate the benefits of this rulemaking. EPA has applied this approach in several previous RIAs (e.g., U.S. EPA, 2011b, 2011d, 2012b ).
These benefit

- per

- ton estimates provide the total monetized human h ealth benefits (the sum of premature mortality and premature morbidity) of reducing one ton of PM 2.5 (or PM 2.5 precursor such as NO x or SO 2 ) from a specified source. Specifically, in this analysis, we multiplied the
estimates from the “ Residential W ood Hea ters ” sector 72
, 73 by the corresponding emission reductions. The method used to derive these estimates is described in the Technical Support

72 As explained in the TSD (U.S. EPA, 2013), we only have bene fit

- per

- ton estimates for certain analysis years (i.e., 2005, 2016, 2020, 2025, and 2030). For this RIA, we selected the benefit

- per

- ton estimate closest to the analysis year for this RIA. 73 Data from year 2020 was used as the year closest to the full implementation year for both options analyzed in this RIA

— 2019 for the Proposal option, 2022 for the Alternative option.* * * E.O. 12866 Review

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- 8 Document (TSD) on estimating the benefits

- per

- ton of reducing PM 2.5 and its precursors (U.S. EPA, 2013). One limitatio n of using the benefit

- per

- ton approach is an inability to provide estimates of the health benefits associated with exposure to HAP, CO, NO 2 or ozone.

The benefit

- per

- ton estimates described in the TSD (U.S. EPA, 2013) were derived using the approach publi shed in Fann et al. (2012), but they have since been updated to reflect the studies and population data in the final PM NAAQS RIA (U.S. EPA, 2012a). The approach in Fann et al. (2012) is similar to the work previously published by Fann et al. (2009), but t he newer study includes improvements that EPA believes would provide more reliable estimates of
PM 2.5 - related health benefits for emissions reductions in specific sectors. Specifically, the air quality modeling data reflect sectors that are more narrowly d efined. In addition, the updated air quality modeling data reflect more recent emissions data (2005 rather than 2001) and has higher spatial resolution (12km rather than 36 km grid cells).

As noted below in the characterization of uncertainty, all benefit

- per

- ton estimates have inherent limitations. Specifically, all national

- average benefit

- per

- ton estimates reflect the geographic distribution of the modeled emissions, which may not exactly match the emission reductions in this rulemaking, and they may no t reflect local variability in population density, meteorology, exposure, baseline health incidence rates, or other local factors for any specific
location.

Even though we assume that all fine particles have equivalent health effects, the benefit

per

- ton estimates vary between precursors depending on the location and magnitude of their impact on PM 2.5 levels, which drive population exposure. The sector

- specific modeling does not provide estimates of the PM 2.5 - related benefits associated with reducing VOC e missions, but these unquantified benefits are generally small compared to other PM 2.5 precursors (U.S. EPA, 2012a).

7.2.4 PM 2.5 Benefits Results

Table 7

- 2 summarizes the monetized PM

- related health benefits by precursor pollutant, including the emission reductions and benefit

- per

- ton estimates using discount rates of 3% and
7%. Benefits estimates are based on the average of annual emission reductio ns from proposed rule implementation between 2014 and 2022 (inclusive). Table 7

- 3 provides a summary of the reductions in health incidences associated with these pollution reductions. Figure 7

- 1 provides a visual representation of the range of PM 2.5 - relate d benefits estimates using concentration

response functions from Krewski et al. (2009) and Lepeule et al. (2012) as well as

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### Table 7

- 2

. Summary of Monetized PM 2.5 

### - Related Health Benefits Estimates for the Proposed Residential Wood Heaters NSPS in the 2014

– 2022 Time F rame (2010$) a

Pollutant Emissions Reduction

s (tons) Benefit per ton (Krewski,

3%) Benefit per ton (Lepeule,

3%) Benefit per ton (Krewski,

7%) Benefit per ton (Lepeule,

7%) Total Monetized Benefits (millions 2010$ at 3%) Total Monetized Benefits (millions 2010$ at 7%)
Proposed

Direct PM 2.5 4,825 $ 380,000 $ 860,000 $ 350,000 $ 780,000 $1,800 to $4,200 $1,700 to $3, 700 8 0 0

PM 2.5 Precursors
VOC b 3,250

— — — — — to

— — to

— Total $1,800 to $4,200 $1,700 to $3, 8 00

Alternative

Direct PM 2.5 4,878 $ 380000 $ 860,000 $ 350,000 $ 780,000 $1,900 to $4,200 $1,700 to $3,800

PM 2.5 Precursors
VOC b 3,250

— — — — — to

— — to

— Total $1,900 to $4,200 $1,700 to $ 3,800

a All estimates reflect the average of annual emission reductions expected to occur between 2014 and 2022 (inclusive) resulting from proposed rule

implementation. All estimates are rounded to two significant figures so numbers may not sum across columns. It is important to note that the monetized benefits do not include reduced health effects from direct exposure to NO 2 , ozone exposure, ecosystem ef fects, or visibility impairment. All fine particles are assumed to have equivalent health effects, but the benefit per ton estimates vary depending on the location and magnitude of their impact on PM 2.5 levels, which drive population exposure. The monetize d benefits incorporate the conversion from precursor emissions to ambient fine particles. Confidence intervals are unavailable for this analysis because of the benefit

- per

- ton methodology.

b Estimates of VOCs health benefits are currently not monetized and will be addressed only qualitatively

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- 10 Table 7

- 3

. Summary of Reductions in Health Incidences from PM 2.5

- Related Benefits for the Proposed Residential Wood Heaters NSPS in the 2014

- 20 22 Time F rame a

Avoided Premature Mortality Proposal Alternative

Krewski et al. (2009) (adult) 209 210 211 210 Lepeule et al. (2012) (adult) 472 470 477 480 Avoided Morbidity

Emergency department visits for asthma (all ages) 106 110 102 100 Acute bronchitis (age 8

– 12) 321 320 325 320 Lower respiratory symptoms (age 7

– 14) 4
, 108 100 4
, 200 153 Upper respiratory symptoms (asthmatics age 9

– 11) 5
, 930 900 5 6
, 995 000
Minor restricted

- activity days (age 18

– 65) 165 170
, 238 000 167 170
, 047 000 Lost work days (age 18

– 65) 27 28
, 941 000 28
, 247 0007 Asthma exacerbation (age 6

– 18) 14 15
, 533 000 14 15
, 692 000 Hospital admissions

— respiratory (all ages) 54 54 Hospital admissions

— cardiovascular (age > 18) 66 66

Non

- Fatal Heart Attacks (age >18) Peters et al. (2001) 226 230 228 230
Pooled estimate of 4 studies 25 25

a All estimates are rounded to whole numbers with two significant figures. Confidence intervals are unavailable for

this analysis because of the benefit

- per

- ton methodology.

the 12 functions supplied by experts. Figure 7

- 2 provides a breakdown of monetized benefits by
Pollutant

. In Table 7

- 4 , we provide the benefits using our anchor points of Krewski et al.
, and Lepeule et al.
, as well as the results from the 12 expert s’ elicitation on P M mortality.

7.2.5 Characterization of Uncertainty in the Monetized PM 2.5 Benefits
In any complex analysis using estimated parameters and inputs from numerous models, there are likely to be many sources of uncertainty. This analysis is no exception. This analysis includes many data sources as inputs, including emission inventories, air q uality data from models (with their associated parameters and inputs), population data, population estimates, health effect estimates from epidemiology studies, economic data for monetizing benefits, and assumptions regarding the future state of the world (i.e., regulations, technology, and human behavior). Each of these inputs may be uncertain and would affect the benefits estimate. When the uncertainties from each stage of the analysis are compounded, even small uncertainties can have large effects on the total quantified benefits. Therefore, the estimates of annual benefits* * * E.O. 12866 Review

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- 11 Figure 7

- 1

. Total Monetized PM 2.5 Benefits of the Proposed Residential Wood Heaters NSPS in the 2014

– 202 2 Time F rame a

a This graph shows the estimated benefits at discount rates of 3% and 7% using effect coefficients derived from the

Krewski et al. study and the Lepeule et al

. study, as well as 12 effect coefficients derived from EPA ’ s expert elicitation on PM mortality. The results shown are not the direct results from the studies o r expert elicitation; rather, the estimates are based in part on the concentration

- response function s provided in those studies.

Figure 7

- 2

. Breakdown of Total Monetized PM 2.5 Benefits of Proposed Residential Wood Heaters NSPS by Category $0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $7,000Millions ($2010) Benefits Estimates from 2 epidemiology functions and 12 Expert functions Proposed Option

3% DR

7% DR

3%

16% 1%

54% 26% 

# Monetized Benefits by Category for the Proposed Option

- Krewski at 3%

Wood Stoves Single Burn Rate Stoves

Pellet Stoves
Furnace: indoor, cordwood Hydronic Heating Systems* * * E.O. 12866 Review

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- 12 Table 7

- 4. All PM 2.5 Benefits Estimates for the Proposed Residential Wood Heaters NSPS at Discount Rates of 3% and 7% for the 2014 to 2022 Time F rame ($2010 millions) a

Proposal Alternative

3% 7% 3% 7%

Benefit

- per - ton Coefficients Derived from Epidemiology Literature

Krewski et al. $1,800 $1,700 $1,900 $1,700 Lepeule et al. $4,200 $3,700 $4,200 $3,800

Benefit

- per - ton Coefficients Derived from Expert Elicitation

Expert A $4,800 $4,300 $4,800 $4,300 Expert B $3,800 $3,400 $3,900 $3,500 Expert C $3,800 $3,400 $3,800 $3,400 Expert D $2,700 $2,400 $2,700 $2,500 Expert E $6,100 $5,500 $6,200 $5,600 Expert F $3,500 $3,200 $3,600 $3,200 Expert G $2,200 $2,000 $2,200 $2,000 Expert H $2,800 $2,500 $2,800 $2,500 Expert I $3,700 $3,400 $2,800 $3,400 Expert J $3,000 $2,700 $3,000 $2,800 Expert K $440 $400 $450 $400 Expert L $2,500 $2,300 $2,500 $2,300

a All estimates are rounded to two significant figures. Estimates do not include confidence intervals because they

were derived through the benefit

- per

- ton technique described above. The benefits estimates from the expert elicitation are provided as a reason able characterization of the uncertainty in the mortality estimates associated with the concentration

- response function. Confidence intervals are unavailable for this analysis because of the benefit

- per

- ton methodology.

should be viewed as representative of the magnitude of benefits expected, rather than the actual benefits that would occur every year.

This RIA does not include the type of detailed uncertainty assessment found in the PM NAAQS RIA (U.S. EPA, 2012a) because we lack the necessary air quality input and monitoring data to run the benefits model. However, the results of the uncertainty analyses presented in the PM NAAQS RIA can provide some information regarding the uncertainty inherent in the benefits results presented in this analysis. Sensitiv ity analyses conducted for the PM NAAQS RIA indicate that alternate cessation lag assumptions could change the PM 2.5 - related mortality* * * E.O. 12866 Review

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- 13 benefits discounted at 3% by between 10% and

– 27% and that alternate income growth adjustments could change the PM 2.5 - rel ated mortality benefits by between 33% and −14%. 74

Unlike the PM NAAQS RIA, we do not have data on the specific location of the air quality changes associated with this rulemaking. As such, it is not feasible to estimate the proportion of benefits occurring in different locations, such as designated nonattainment areas. Instead, we applied benefit

- per

- ton estimates, which reflect specific geographic patterns of emissions reductions and specific air quality and benefits modeling assumptions. For example,
thes e estimates do not reflect local variability in population density, meteorology, exposure, baseline health incidence rates, or other local factors that might lead to an over

- estimate or
under

- estimate of the actual benefits of controlling PM precursors. Us e of these $/ton values to estimate benefits may lead to higher or lower benefit estimates than if benefits were calculated based on direct air quality modeling. Great care should be taken in applying these estimates to emission reductions occurring in any specific location, as these are all based on national or broad regional emission reduction programs and therefore represent average benefits

- per

- ton over the entire United States. The benefits

- per

- ton for emission reductions in specific locations may be

v ery different than the estimates presented here. To the extent that the geographic distributions of the emissions reductions for this rule are different than the modeled emissions, the benefits may be underestimated or overestimated. In general, there is i nherently more uncertainty for new sources, which may not be included in the emissions inventory, than existing sources. For more information, see the TSD describing the calculation of these benefit

- per

- ton estimates (U.S. EPA, 2013).

Our estimate of the t otal benefits is based on EPA ’ s interpretation of the best available scientific literature and methods and supported by the SAB

- HES and the NAS (NRC, 2002 ). Below are key assumptions underlying the estimates for premature mortality, which a ccounts for 98% of the total monetized PM 2.5 benefits:

1. We assume that all fine particles, regardless of their chemical composition, are equally potent in causing premature mortality. This is an important assumption, because PM 2.5 varies considerably in composition across sources, but the scientific evidence is not yet sufficient to allow differentiation of effect estimate s by particle type. The PM ISA concluded that “ many constituents of PM 2.5 can be linked with multiple health effects, and the evidence is not yet sufficient to allow differentiation of those constituents or sources that are more closely related to specific outcomes ” (U.S. EPA, 2009).

74 http://www.epa.gov/ttn/ecas/regdata/RIAs/finalria.pdf (pp 6

- 16).* * * E.O. 12866 Review

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- 14 2. We assume that the health impact function for fine particles is log

- linear without a threshold in this analysis. Thus, the estimates include health benefits from reducing fine particles in areas with varied concentrations of PM 2.5 , including both areas that do not meet the fine particle standard and those areas that are in attainment, down to the lowest mo deled concentrations.

3. We assume that there is a “ cessation ” lag between the change in PM exposures and the total realization of changes in mortality effects. Specifically, we assume that some of the incidences of premature mortality related to PM 2.5 exposures occur in a distributed fashion over the 20 years following exposure based on the advice of the SAB

- HES (U.S. EPA

- SAB, 2004c), which affects the valuation of mortality benefits at different discount rates.

In general, we are more confident in the magnitude of the risks we estimate from
simulated PM 2.5 concentrations that coincide with the bulk of the observed PM concentrations in the epidemiological studies that are used to estimate the benefits. Likewise, we are less confident in the risk we estimate from simulated PM 2.5 concentrations that fall below the bulk of the observed data in these studies. Concentration benchmark analyses (e.g., lowest measured level [LML] or one standard deviation below the mean of the air quality data in the study ) a llow readers to determine the portion of population exposed to annual mean PM 2.5 levels at or above different concentrations, which provides some insight into the level of uncertainty in the
estimated PM 2.5 mortality benefits. There are uncertainties inhe rent in identifying any particular point at which our confidence in reported associations becomes appreciably less, and the scientific evidence provides no clear dividing line. However, the EPA does not view these
concentration benchmarks as a concentratio n threshold below which we would not quantify health benefits of air quality improvements. 75 Rather, the benefits estimates reported in this RIA are the best estimates because they reflect the full range of air quality concentrations associated with the emi ssion reduction strategies and because the current body of scientific literature
indicates that a no

- threshold model provides the best estimate of PM

- related long

- term mortality. In other words, although we may have less confidence in the magnitude of the risk at concentrations below these benchmarks, we still have high confidence that PM 2.5 is causally associated with risk at those lower air quality concentrations.

For this analysis, policy

- specific air quality data is not available due to time or resource limitations. For these rules, we are unable to estimate the percentage of premature mortality associated with this specific rule ’ s emission reductions at each PM 2.5 level. However, we believe

75 F or a summary of the scientific review statements regarding the lack of a threshold in the PM 2.5 - mortality relationship, see the Technical Support Document (TSD) entitled Summary of Expert Opinions on the Existence of a Threshold in the Concentrati on

- Response Function for PM 2.5 - related Mortality (U.S. EPA, 2010b).* * * E.O. 12866 Review

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- 15 that it is still important to characterize the distribution of exposure to baseline air quality levels. As a surrogate measure of mortality impacts, we provide the percentage of the population exposed at each PM 2.5 level in the baseline of the source apportionment modeling used to
calculate the benefit

- per

- ton estimat es for this sector. It is important to note that baseline exposure is only one parameter in the health impact function, along with baseline incidence rates population, and change in air quality. In other words, the percentage of the population exposed to

a ir pollution below the LML is not the same as the percentage of the population experiencing health impacts as a result of a specific emission reduction policy. The most important aspect, which we are unable to quantify for rules without rule

- specific air q uality modeling, is the shift in exposure associated with this specific rule. Therefore, caution is warranted when interpreting the LML assessment for this rule because these results are not consistent with results from rules that had air quality modeling.

Table 7

- 5 provides the percentage of the population exposed above and below two concentration benchmarks (i.e., LML and 1 standard deviation below the mean) in the modeled baseline. Figure 7

- 3 shows a bar chart of the percentage of the population exposed to various air quality levels in the baseline, and Figure 7

- 4 shows a cumulative distribution function of the same data. Both figures identify the LML for each of the major cohort studies.

7.3 Unquantified Benefits

The monetized benefits estimated in this RI A only reflect a subset of benefits attributable to the health effect reductions associated with ambient fine particles. Data, time, and resource limitations prevented EPA from quantifying the impacts to, or monetizing the benefits from several important b enefit categories, including benefits associated with the potential exposure to ozone formation due to VOC emissions as a precursor, VOC emissions as a PM 2.5 precursor,

Table 7

- 5

. Population Exposure in the Baseline Above and Below Various Concentration B enchmarks in the Underlying Epidemiology Studies a

Epidemiology Study Below 1 Std. Dev. Below AQ Mean At or Above 1 Std. Dev. Below AQ Mean Below LML At or Above LML
Krewski et al. (2009) 89 % 11 % 7 % 93 % Lepeule et al. (2012) N/A N/A 23 % 67 %

a One standard deviation below the mean is equivalent to the middle of the range between the 10 th and 25 th

percentile. For Krewski, the LML is 5.8 μg/m 3 and one standard deviation below the mean is 11.0 μg/m 3 . For Lepeule et al., the LML is 8 μg/m 3 and we do not have the data for one standard deviation below the mean. It is important to emphasize that although we have lower levels of confidence in levels below the LML for each study, the scientific evidence does not support the existence of a level below which he alth effects from exposure to PM 2.5 do not occur.* * * E.O. 12866 Review

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- 16 Among the populations exposed to PM 2.5 in the baseline: 93% are exposed to PM 2.5 levels at or above the LML of the Krewski et al. (2009) study 67% are exposed to PM 2.5 levels at or above the LML of the Le peule et al. (2012) study
Figure 7

- 3

. Percentage of Adult Population by Annual Mean PM 2.5 Exposure in the Baseline

HAP, CO exposure, as well as ecosystem effects, and visibility impairment due to the absence of air quality modeling data for these pollutan ts in this analysis. This does not imply that there are no benefits associated with these emission reductions. In this section, we provide a qualitative description of these benefits.

7.3.1 HAP Benefits
Even though emissions of air toxics from all sources in the U.S. declined by approximately 42% since 1990, the 2005 National

- Scale Air Toxics Assessment (NATA) predicts that most Americans are exposed to ambient concentrations of air toxics at levels that have the pot ential to cause adverse health effects (U.S. EPA, 2011c). 76 The levels of air toxics to

76 The 2005 NATA is available on the Internet at http://www.epa.gov/ttn/atw/nata2005/

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

<1 1

- 2 2

- 3 3

- 4 4

- 5 5

- 6 6

- 7 7

- 8 8

- 9 9

- 10 10

- 11 11

- 12 12

- 13 13

- 14 14

- 15 15

- 16 16

- 17 17

- 18 18

- 19 19

- 20Percentage of Population Exposed

Baseline Annual Mean PM 2.5 Level (μg/m 3 ) LML of Lepeule et al. (2012) study LML of Krewski et al. (2009) study* * * E.O. 12866 Review

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- 17 Among the populations exposed to PM 2.5 in the baseline: 93% are exposed to PM 2.5 levels at or above the LML of the Krewski et al. (2009) study 67% are exposed to PM 2 .5 levels at or above the LML of the Lepeule et al. (2012) study
Figure 7

- 4

. Cumulative Distribution of Adult Population by Annual Mean PM 2.5 Exposure in the Baseline

which people are exposed vary depending on where people live and work and the kinds of

a ctivities in which they engage. In order to identify and prioritize air toxics, emission source types and locations that are of greatest potential concern, U.S. EPA conducts the NATA. 77 The most recent NATA was conducted for calendar year 2005 and was relea sed in March 2011. NATA includes four steps:

1

. Compiling a national emissions inventory of air toxics emissions from outdoor

sources

77 The NATA modeling framework has a number of limit ations that prevent its use as the sole basis for setting regulatory standards. These limitations and uncertainties are discussed on the 2005 NATA website. Even so, this modeling framework is very useful in identifying air toxic pollutants and sources of g reatest concern, setting regulatory priorities, and informing the decision making process. U.S. EPA.(2011)

. 2005 National

- Scale Air Toxics Assessment. http://www.epa.gov/ttn/atw/nata2005/

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20Cumulative percentage of population exposed

Baseline Annual Mean PM 2.5 Level (μg/m 3 ) LML of Krewski et al. (2009) study LML of Lepeule et al. (2012) study* * * E.O. 12866 Review

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- 18 2

. Estimating ambient and exposure concentrations of air toxics across the United States

3

. Estimating population exposures across the United States

4

. Characterizing potential public health risk due to inhalation of air toxics including both cancer and noncancer effects

Based on the 2005 NATA, EPA estimates that about 5% of census tracts nationwide have
increased can cer risks greater than 100 in a million. The average national cancer risk is about 50 in a million. Nationwide, the key pollutants that contribute most to the overall cancer risks are formaldehyde and benzene. 78 Secondary formation (e.g., formaldehyde formi ng from other emitted pollutants) was the largest contributor to cancer risks, while stationary, mobile and background sources contribute almost equal portions of the remaining cancer risk.

Noncancer health effects can result from chronic, 79 subchronic, 80 or acute 81 inhalation exposures to air toxics, and include neurological, cardiovascular, liver, kidney, and respiratory effects as well as effects on the immune and reproductive systems. According to the 2005 NATA, about three

- fourths of the U.S. population w as exposed to an average chronic concentration of air toxics that has the potential for adverse noncancer respiratory health effects. Results from the 2005 NATA indicate that acrolein is the primary driver for noncancer respiratory risk.

Figures 7

- 5 and 7

- 6 depict the estimated census tract

- level carcinogenic risk and noncancer respiratory hazard from the assessment. It is important to note that l arge reductions in HAP emissions may not necessarily translate into significant reductions in health risk becau se toxicity varies by pollutant, and exposures may or may not exceed levels of concern. For example, acetaldehyde mass emissions are more than double acrolein emissions on a national basis, according to EPA ’ s 2005 National Emissions Inventory (NEI). Howeve r, the Integrated Risk Information System (IRIS) reference concentration (RfC) for acrolein is considerably lower

78 Details about the overall confidence of certainty ranking of the individual pieces of NATA assessments including both quantitative (e.g., model

- to

- monitor ratios) and qualitative (e.g., quality of data, review of emission inventories) judgments can be foun d at http://www.epa.gov/ttn/atw/nata/roy/page16.html

. 79 Chronic exposure is defined in the glossary of the Integrated Risk Information (IRIS) database ( http ://www.epa.gov/iris ) as repeated exposure by the oral, dermal, or inhalation route for more than approximately 10% of the life span in humans (more than approximately 90 days to 2 years in typically used laboratory animal species). 80 Defined in the IRIS d atabase as repeated exposure by the oral, dermal, or inhalation route for more than 30 days, up to approximately 10% of the life span in humans (more than 30 days up to approximately 90 days in typically used laboratory animal species). 81 Defined in the IR IS database as exposure by the oral, dermal, or inhalation route for 24 hours or less.* * * E.O. 12866 Review

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- 19 Figure 7

- 5

. Estimated Census Tract Carcinogenic Risk from HAP Exposure from Outdoor Sources (2005 NATA)

than that for acetaldehyde, suggesting that acrolein could be potentially more toxic than acetaldehyde. Thus, it is important to account for the toxicity and exposure, as well as the mass of the targeted emissions.

Due to methodology limitations, we were unable to estimate the benefits associated with the hazardous air pollutants that would be reduced as a result of these rules. In a few previous analyses of the benefits of reductions in HAP, EPA has quantified the benefits of potential
reductions in the i ncidences of cancer and non

- cancer risk (e.g., U.S. EPA, 1995 ). In those analyses, EPA relied on unit risk factors (URF) developed through risk assessment procedures. 82 These URFs are designed to be conservative, and as such, are more likely to

82 The unit risk factor is a quantitative estimate of the carcinogenic potency of a pollutant, often expressed as the probability of contracting cancer from a 70

- year lif etime continuous exposure to a concentration of one μg/m 3 of a pollutant.* * * E.O. 12866 Review

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- 20 Figure 7

- 6

. Estimated Chronic Census Tract Noncancer (Respiratory) Risk from HAP Exposure from Outdoor Sources (2005 NATA)

represent the high end of the distribution of risk rather than a best or most likely estim ate of risk. As the purpose of a benefit analysis is to describe the benefits most likely to occur from a reduction in pollution, use of high

- end, conservative risk estimates would overestimate the benefits of the regulation. While we used high

- end risk estimates in past analyses, ad vice from
the EPA ’ s Science Advisory Board (SAB) recommended that we avoid using high

- end estimates in benefit analyses (U.S. EPA

- SAB, 2002 ). Since this time, EPA has continued to develop better methods for analyzing the benefits of reductions in HAP.

As part of the second prospective analysis of the benefits and costs of the Clean Air Act (U.S. EPA, 2011a), EPA conducted a case study analysis of the health effects associated with reducing exposure to benzene in Houston from implement ation of the Clean Air Act (IEc, 2009 ). While reviewing the draft report, EPA ’ s Advisory Council on Clean Air Compliance Analysis
concluded that “ the challenges for assessing progress in health improvement as a result of
reductions in emi ssions of hazardous air pollutants (HAPs) are daunting

... due to a lack of* * * E.O. 12866 Review

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- 21 exposure

- response functions, uncertainties in emissions inventories and background levels, the difficulty of extrapolating risk estimates to low doses and the challenges of tracking he alth progress for diseases, such as cancer, that have long latency periods ” (U.S. EPA

- SAB, 2008 ).

In 2009, EPA convened a workshop to address the inherent complexities, limitations, and uncertainties in current methods to quantif y the benefits of reducing HAP. Recommendations from this workshop included identifying research priorities, focusing on susceptible and vulnerable populations, and improving dose

- response relationships (Gwinn et al., 2011 ).

In summary, monetization of the benefits of reductions in cancer incidences requires several important inputs, including central estimates of cancer risks, estimates of exposure to carcinogenic HAP, and estimates of the value of an avoided case of cancer (fat al and non

- fatal). Due to methodology limitations, we did not attempt to monetize the health benefits of reductions in HAP in this analysis. Instead, we provide a qualitative analysis of the health effects associated with the HAP anticipated to be reduced by these rules. EPA remains committed to improving methods for estimating HAP benefits by continuing to explore additional concepts of benefits, including changes in the distribution of risk.

Below we describe the health effects associated with the HAP s that would be reduced by this rulemaking.

7.3.1.1 Benzene

The EPA ’ s IRIS database lists benzene as a known human carcinogen (causing leukemia) by all routes of exposure, and concludes that exposure is associated with additional health effects, including genetic changes in both humans and animals and increased proliferation of bone marrow
cells in mice. 83
, 84
, 85 EPA states in its IRIS database that data indicate a causal relationship between benzene exposure and acute lymphocytic leukemia and suggest a relationship be tween benzene exposure and chronic non

- lymphocytic leukemia and chronic lymphocytic leukemia

. The IARC

83 U.S. Environmental Protection Agency (U.S. EPA). 2000. Integrated Risk Information System File for Benzene. Research and Development, National Center for Environmental Assessment, Washington, DC. This material is available electronically at: http://www.epa.gov/iris/subst/0276.htm

. 84 International Agency for Research on Cancer, IARC monographs on the evaluation of carcinogenic risk of chemicals to humans, Volume 29, Some industrial chemicals and dyestuffs, International Agency for Research on Cancer, World Health Organization, Lyon, France, p. 345

- 389, 1982. 85 Irons, R.D.; Stillman, W.S.; Colagiovanni, D.B.; Henry, V.A. (1992) Syne rgistic action of the benzene metabolite hydroquinone on myelopoietic stimulating activity of granulocyte/macrophage colony

- stimulating factor in vitro, Proc. Natl. Acad. Sci. 89:3691

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- 22 has determined that benzene is a human carcinogen and the DHHS has characterized benzene as a known human carcinogen. 86
, 87

A number of adverse noncancer he alth effects including blood disorders, such as preleukemia and aplastic anemia, have also been associated with long

- term exposure to benzene. 88
, 89

7.3.1.2 Dioxins (C hlorinated dibenzodioxins (CDDs ) 90
A number of effects have been observed in people exposed to 2,3,7, 8

- TCDD levels that are at least 10 times higher than background levels. The most obvious health effect in people exposure to relatively large amounts of 2,3,7,8

- TCDD is Chloracne. Chloracne is a severe skin disease with acne

- like lesions that occur mainly on the face and upper body. Other skin effects noted in people exposed to high doses of 2,3,7,8

- TCDD include skin rashes, discoloration, and excessive body hair. Changes in blood and urine that may indicate liver damage also are seen in people. Alterations in the ability of the liver to metabolize (or breakdown) hemoglobin, lipids, sugar, and protein have been reported in people exposed to relatively high concentrations of 2,3,7,8

- TCDD. Most of the effects are considered mild and were reversible. However, i n some people these effects may last for many years. Slight increases in the risk of diabetes and abnormal glucose tolerance have been observed in some studies of people exposed to 2,3,7,8

- TCDD. We do not have enough information to know if exposure to 2,3, 7,8

- TCDD would result in reproductive or developmental effects in people, but animal studies suggest that this is a potential health concern.

In certain animal species, 2,3,7,8

- TCDD is especially harmful and can cause death after a single exposure. Exposu re to lower levels can cause a variety of effects in animals, such as weight loss, liver damage, and disruption of the endocrine system. In many species of animals, 2,3,7,8

- TCDD weakens the immune system and causes a decrease in the system ’ s ability to fig ht bacteria and viruses at relatively low levels (approximately 10 times higher than human

86 International Agency for Research on Cancer (IARC). 1987. Monographs on the evaluation of carcinogenic risk of chemicals to humans, Volume 29, Supplement 7, Some industrial chemicals and dyestuffs, World Health Organization, Lyon, France. 87 U.S. Department of Health and Human Services National Toxicology P rogram 11th Report on Carcinogens available at: http://ntp.niehs.nih.gov/go/16183

. 88 Aksoy, M. (1989). Hematotoxicity and carcinogenicity of benzene. Environ. Health Perspect. 82: 193

- 197. 89 Goldstein, B.D. (1988). Benzene toxicity. Occupational medicine. State of the Art Reviews. 3: 541

- 554. 90 All health effects language for this section came from: Agency for Toxic Substances and Disease Registry (ATSDR). 1999. ToxFAQs for Chlorinated Dibenzo

- p

- dioxins (CDDs ) (CAS# : 2,3,7,8

- TCDD 1746

- 01

- 6 ). Atlanta, GA: U.S. Department of Health and Human Services, Public Health Service. Available on the Internet at http://www.atsdr.cdc.gov/tfacts104.html

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- 2 3 background body burdens). In other animal studies, exposure to 2,3,7,8

- TCDD has caused reproductive damage and birth defects. Some animal species exposed to CDDs dur ing pregnancy had miscarriages and the offspring of animals exposed to 2,3,7,8

- TCDD during pregnancy often had severe birth defects including skeletal deformities, kidney defects, and weakened immune responses. In some studies, effects were observed at bod y burdens 10 times higher than human background levels.

7.3.1.3 Formaldehyde
Since 1987, EPA has classified formaldehyde as a probable human carcinogen based on evidence in humans and in rats, mice, hamsters, and monkeys. 91 Substantial additional research
since tha t time informs current scientific understanding of the health effects associated with exposure to formaldehyde. These include recently published research conducted by the National Cancer Institute (NCI) which found an increased risk of nasopharyngeal cance r and lymphohematopoietic malignancies such as leukemia among workers exposed to formaldehyde. 92
, 93 In an analysis of the lymphohematopoietic cancer mortality from an extended follow

- up of these workers, NCI confirmed an association between lymphohematopoietic cancer risk and peak formaldehyde exposure s. 94 A recent NIOSH study of garment workers also found increased risk of death due to leukemia among workers exposed to formaldehyde. 95 Extended follow

- up of a cohort of British chemical workers did not find evidence of an increase in nasopharyngeal or lymphohematopoietic cancers, but a continuing statistically significant excess in lung cancers was reported. 96

In the past 15 years there has been substantial research on the inhalation dosimetry for formaldehyde in rodents and primates by the Chemical Industry Institute of Toxicology (CIIT, now renamed the Hamner Institutes for Health Sciences), with a focus on use of rodent data for

91 U.S. EPA. 1987

. Assessment of Health Risks to Garment Workers and Certain Home Residents from Exposure to Formaldehyde, Office of Pesticides and Toxic Substances, April 1987. Docket EPA

- HQ

- OAR

- 2010

- 0162

. 92 Hauptmann, M.; Lubin, J. H.; Stewart, P. A.; Hayes, R. B.; Blair, A

. 2003

. Mortality from lymphohematopoetic malignancies among workers in formaldehyde industries

. Journal of the National Cancer Institute 95: 1615

- 1623. Docket EPA

- HQ

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. 93 Hauptmann, M

. ; Lubin, J. H.; Stewart, P. A.; Hayes, R. B.; Blair , A

. 2004

. Mortality from solid cancers among workers in formaldehyde industries

. American Journal of Epidemiology 159: 1117

- 1130. Docket EPA

- HQ

OAR

- 2010

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. 94 Beane Freeman, L. E.; Blair, A.; Lubin, J. H.; Stewart, P. A.; Hayes, R. B.; Hoover, R. N.; Ha uptmann, M. 2009. Mortality from lymphohematopoietic malignancies among workers in formaldehyde industries: The National Cancer Institute cohort. J. National Cancer Inst. 101: 751

- 761. Docket EPA

- HQ

- OAR

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. 95 Pinkerton, L. E

. 2004

. Mortality among a cohort of garment workers exposed to formaldehyde: an update

. Occup. Environ. Med. 61: 193

- 200. Docket EPA

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- OAR

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. 96 Coggon, D, EC Harris, J Poole, KT Palmer. 2003. Extended follow

- up of a cohort of British chemical workers exposed to formaldehy de. J National Cancer Inst. 95:1608

- 1615. Docket EPA

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- 24 refinement of the quantitative cancer dose

- response assessment. 97
, 98
, 99 CIIT ’ s risk assessment of formaldehyde incorporated mechanistic and dosimetric information on formaldehyde. These data were modeled using a biologically

- motivated two

- stage clonal growth model for cancer and also a point of departure based on a Benchmark Dose approach. However, it should be noted that recent research published by EPA indicates that when two

- stage modeling assumptions are varied, resulting dose

- response estimates can vary by several orders of magnitude. 100
, 101
, 102
, 103 These findings are not suppor tive of interpreting the CIIT model results as providing a conservative (health protective) estimate o f human risk. 104 EPA research also examined the contribution of the two

- stage modeling for formaldehyde towards characterizing the relative weights of key e vents in the mode

- of

- action of a carcinogen

. For example, the model

- based inference in the published CIIT study that formaldehyde ’ s direct mutagenic action is not relevant to the compound ’ s tumorigenicity was found not to hold under variations of modeling assumptions. 105

Based on the developments of the last decade, i n 2004, the working group of the IARC concluded that formaldehyde is carcinogenic to humans (Group 1), on the basis of sufficient evidence in humans and sufficient evidence in experimental animal s

— a higher classification than previous IARC evaluations. After reviewing the currently available epidemiological

97 Conolly, RB, JS Kimbell, D Janszen, PM Schlosser, D Kalisak, J Preston, and FJ Miller. 2003

. Biologically motivated computational modeling of formaldehyde carcinogenicity in the F344 rat

. Tox Sci 75: 432

- 447. Docket EPA

- HQ

- OAR

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. 98 Conolly, RB, JS Kimbell, D Janszen, PM Schlosser, D Kalisak, J Preston, and FJ Miller. 2004. Human respiratory tract cancer risks of inhaled formaldehyde: Dose

- response predictions derived from biologically

- motivated computational modeling of a combined rodent and human dataset

. Tox Sci 82: 279

- 296. Docket EPA

- HQ

- OAR

2010

- 0162

. 99 Chemical I ndustry Institute of Toxicology (CIIT).1999. Formaldehyde: Hazard characterization and dose

- response assessment for carcinogenicity by the route of inhalation

. CIIT, September 28, 1999. Research Triangle Park, NC. Docket EPA

- HQ

- OAR

- 2010

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. 100 U.S. EPA. A nalysis of the Sensitivity and Uncertainty in 2

- Stage Clonal Growth Models for Formaldehyde with Relevance to Other Biologically

- Based Dose Response (BBDR) Models. U.S. Environmental Protection Agency, Washington, D.C., EPA/600/R

- 08/103, 2008. Docket EPA

- H Q

- OAR

- 2010

- 0162

. 101 Subr amaniam, R; Chen, C; Crump, K; et al. (2008) Uncertainties in biologically

- based modeling of formaldehyde

- induced cancer risk: identification of key issues. Risk Anal 28(4):907

- 923. Docket EPA

- HQ

OAR

- 2010

- 0162

. 102 Subramaniam RP; Crump KS; Van Landingham C; et al. (2007) Uncertainties in the CIIT model for formaldehyde

- induced carcinogenicity in the rat: A limited sensitivity analysis

– I. Risk Anal, 27: 1237

– 1254. Docket EPA

- HQ

- OAR

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. 103 Crump, K; Chen, C; Fox, J; et al. (20 08) Sensitivity analysis of biologically motivated model for formaldehyde

induced respiratory cancer in humans. Ann Occup Hyg 52:481

- 495. Docket EPA

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. 104 Crump, K; Chen, C; Fox, J; et al. (2008) Sensitivity analysis of biologically motivated model for formaldehyde

induced respiratory cancer in humans. Ann Occup Hyg 52:481

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. 105 S ubramaniam RP; Crump KS; Van Landingham C; et al. (2007) Uncertainties in the CIIT model for formaldehyde

- induced carcinogenicity in the rat: A limited sensitivity analysis

– I. Risk Anal, 27: 1237

– 1254

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- 25 evidence, the IARC (2006) characterized the human evidence for formaldehyde carcinogenicity

as “ sufficient, ” based upon the data on nasopharyn geal cancers; the epidemiologic evidence on leukemia was characterized as “ strong. ” 106

Formaldehyde exposure also causes a range of noncancer health effects, including irritation of the eyes (burning and watering of the eyes), nose and throat. Effects from repeated exposure in humans include respiratory tract irritation, chronic bronchitis a nd nasal epithelial lesions such as metaplasia and loss of cilia. Animal studies suggest that formaldehyde may also cause airway inflammation

— including eosinophils infiltration into the airways. There are several studies that suggest that formaldehyde may increase the risk of asthma

— particularly in the

young. 107
, 108

The above

- mentioned rodent and human studies, as well as mechanistic information and their analyses, were evaluated in EPA ’ s recent Draft Toxicological Review of Formaldehyde

— Inhalation Assessment through the Integrated Risk Information System (IRIS) program. This draft IRIS assessment was released in June 2010 for public review and comment and external peer review by the National Research Council (NRC)

. The NRC released their review report in April 2011 ( http://www.nap.edu/catalog.php?record_id=13142 )

. The EPA is currently revising the draft assessment in response to this review.

7.3.1.4 Polycyclic Organic Matter (POM)
The term polycyclic organic matter (POM) defines a broad class of compounds that includes the polycyclic aromatic hydrocarbon compounds (PAHs)

. One of these compounds, naphthalene, is discussed separately below

. POM compounds are formed primarily from combustion and are present in th e atmosphere in gas and particulate form

. Cancer is the major concern from exposure to POM

. Epidemiologic studies have reported an increase in lung cancer in humans exposed to diesel exhaust, coke oven emissions, roofing tar emissions, and cigarette

106 International Agency for Research on Cancer (2006) Formaldehyde, 2

- Butoxyethanol and 1

- tert

- Butoxypropan

- 2

- ol

. Monographs Volume 88. World Health Organization, Lyon, France. Docket EPA

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. 107 Agency for Toxic Substances and Disease Registry (ATSDR). 1999. Toxicological profile for Formaldehyde. Atlanta, GA: U.S. Department of Health and Human Services, Public Health Service. http://www.atsdr.cdc.gov/toxprofiles/tp111.html . D ocket EPA

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. 108 WHO (2002) Concise International Chemical Assessment Document 40: Formaldehyde

. Published under the

joint sponsorshi p of the United Nations Environment Programme, the International Labour Organization, and the World Health Organization, and produced within the framework of the Inter

- Organization Programme for the Sound Management of Chemicals

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- 26 smoke; all of these mixtures contain POM compounds 109
, 110

. Animal studies have reported respiratory tract tumors from inhalation exposure to benzo[a]pyrene and alimentary tract and
l iver tumors from oral exposure to benzo[a]pyrene

. EPA has classified seven PAHs (ben zo[a]pyrene, benz[a]anthracene, chrysene, benzo[b]fluoranthene, benzo[k]fluoranthene, dibenz[a,h]anthracene, and indeno[1,2,3

- cd]pyrene) as Group B2, probable human carcinogens. 111 Recent studies have found that maternal exposures to PAHs in a population of pregnant women were associated with several adverse birth outcomes, including low birth weight and reduced length at birth, as well as impaired cognitive development in preschool children (3 years of age). 112
, 113 EPA has not yet evaluated these recent studies.

7.3.1.5 Other Air Toxics
In addition to the compounds described above, other compounds would be affected by this rule. Information regarding the health effects of these compounds can be found in EPA ’ s IRIS database. 114

7.3.2 Carbon Monoxide Co

- Benefits

Carbon monoxide in ambient air is formed primarily by the incomplete combustion of
carbon

- containing fuels and photochemical reactions in the atmosphere. The amount of CO emitted from these reactions, relative to carbon dioxide (CO 2 ), is sensitive to conditions in the
combu stion zone, such as fuel oxygen content, burn temperature, or mixing time. Upon inhalation, CO diffuses through the respiratory system to the blood, which can cause hypoxia (reduced oxygen availability). Carbon monoxide can elicit a broad range of effects in multiple tissues and organ systems that are dependent upon concentration and duration of exposure. The Integrated Science Assessment for Carbon Monoxide (U.S. EPA, 2010a) concluded that short

term exposure to CO is “ likely to have a causal relationship ” with cardiovascular morbidity,

109 Agency for Toxic Substances and Disease Registry (ATSDR). 199 5 . Toxicological profile for Polycyclic Aromatic Hydrocarbons (PAHs) . Atlanta, GA: U.S. Department of Health and Human Services, Public Health Service

. Available electronically at http://www.atsdr.cdc.gov/ToxProfiles/TP.asp?id=122&tid=25

. 110 U.S. EPA (2002). Health Assessment Document for Diesel Engine Exhaust. EPA/600/8

- 90/057F Office of Research and Development, Washington DC. Retrieved on March 17, 2009 from http://cfpub.epa.gov/ncea/cfm/recordisplay.cfm?deid=29060

. Docket EPA

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. 111 U.S. EPA (1997). Integrated Risk Information System File of indeno(1,2,3

- cd)pyrene. Research and Development, N ational Center for Environmental Assessment, Washington, DC. This material is available electronically at http://www.epa.gov/ncea/iris/subst/0457.htm

. 112 Perera, F.P.; Rauh, V.; Tsai, W

- Y.; et al. (2002) Effect of transplacental exposure to environmental pollutants on

birth outcomes in a multiethnic population. Environ Health Perspect. 111: 201

- 205. 113 Perera, F .P.; Rauh, V.; Whyatt, R.M.; Tsai, W.Y.; Tang, D.; Diaz, D.; Hoepner, L.; Barr, D.; Tu, Y.H.; Camann, D.; Kinney, P. (2006) Effect of prenatal exposure to airborne polycyclic aromatic hydrocarbons on neurodevelopment in the first 3 years of life among inne r

- city children. Environ Health Perspect 114: 1287

- 1292. 114 U.S. EPA Integrated Risk Information System (IRIS) database is available at: www.epa.gov/iris

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- 27 particularly in individuals with coronary heart disease. Epidemiologic studies associate short

term CO exposure with increased risk of emergency department visits and hospital admissions. Coronary heart disease includes thos e who have angina pectoris (cardiac chest pain), as well as those who have experienced a heart attack. Other subpopulations potentially at risk include individuals with diseases such as chronic obstructive pulmonary disease (COPD), anemia, or diabetes, and individuals in very early or late life stages, such as older adults or the developing young. The evidence is suggestive of a causal relationship between short

- term exposure to CO and respiratory morbidity and mortality. The evidence is also suggestive of a causal relationship for birth outcomes and developmental effects following long

- term exposure to CO, and for central nervous system effects linked to short

- and long

- term exposure to CO.

7.3.3 Black Carbon (BC) Benefits
Incomplete combustion of wood results in emissions of fine and ultrafine particles, including black carbon (BC), brown carbon (BrC), and other nonlight, absorbing organic carbon (OC) particles. BC and BrC are collectively considered light, absorbing carbon (LAC) with BC referring to the most str ongly light

- absorbing form of carbon per unit mass. BC impacts the
earth ’ s climate because of its high capacity for light absorption. The role of BC in key atmospheric processes links it to a range of climate impacts, including increased temperatures,

acce lerated ice and snow melt, and disruptions in precipitation patterns. A recent study by the UN Environment Programme (UNEP) concluded that reductions in BC and ozone will slow the rate of climate change within the first half of this century with a small nu mber of targeted BC and ozone precursor emissions mitigation measures providing immediate protection for climate, public health, water and food security, and ecosystems (UNEP, 2011 ). 115

While less effective in absorbing solar radiation tha n BC, BrC may contribute significantly to positive radiative forcing. At present the ability to quantify the climate impacts of BrC is limited. OC from incomplete combustion of wood (exclusive of BrC) is generally considered nonlight

‐ absorbing carbon. Nonl ight absorbing compounds scatter rather than absorb solar radiation and, therefore, provide a net direct cooling effect on climate. Thus, particles generated by residential wood combustion consist of components that are warming to the atmosphere (BC and Br C) and particles that are cooling (OC exclusive of BrC).

115 UN Environment Programme, World Meteorological Organization. 2 011, February. Integrated Assessment of

Black Carbon and Tropospheric Ozone: Summary for Decision Makers

. Available at http://www.unep.org/gc/gc26/download.asp?ID=2197

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- 28 Residential wood combustion contributed about 380,000 tons of PM 2.5 emissions across the United States in 2005. Of these PM 2.5 emissions, approximately 21,000 tons are estimated to* * * E.O. 12866 Review

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- 29 be elemental carbon (EC ) 116 (EPA NEI, 2005 ). 117

The EC/OC ratio is a metric sometimes used to crudely compare the warming potential of emissions from various BC sources with a ratio of less than 1 indicating that cooling potential

exce eds warming. Based on the speciated 2005 NEI, the EC/OC for residential wood combustion is estimated to be less than one (~ 0.11), indicating a predominance of OC or light

- scattering particles relative to light absorbing ones. Exactly how much of the OC fr om RWC sources is light absorbing (BrC) is not known currently, and the LAC may vary by fuel type, combustion conditions, and operating environment.

While OC emissions are generally considered to have a cooling effect, OC emissions over areas with snow an d ice may be less reflective than OC over dark surfaces and may even have a slight warming effect (Flanner et al., 2007 ). 118 Significantly, the vast majority of residential wood smoke emissions occur during the winter months; the highest percentage of wood stove use is in the upper Midwest (e.g., Michigan), the Northeast (e.g., Maine), and the mountainous areas of the Pacific Northwest (e.g., Washington), where snow is present a good portion of the winter months. A recent study of the effect of soot

- induced snow albedo on snowpack and hydrological cycles in the western United States concludes that radiative forcing induced by soot deposition on snow is an important anthropogenic source affecting the global climate. The study conclu des that soot

- induced snow albedo perturbations increase the surface net solar radiation flux during late winter to early spring, increase the surface air temperature, reduce the snow accumulation and spring snowmelt, and may alter stream flows with implic ations for water resources in the western United States (Qian, et al., 2009 ). 119 Further study is needed to better understand and quantify the impact of PM 2.5 emissions and deposition from the RWC sector on climate.

116 BC is roughly equivalent to ‘ soot ca rbon ’ or the portion of soot that is closest to elemental carbon. The most commonly used measurement technique, the ‘ thermal optical method ’ quantifies the portion of PM that is EC. EC is frequently used for emissions characterization and ambient measureme nts. The terms EC and BC are used interchangeably in this discussion. 117 U

. S

. EPA

. 2005

. National Emissions Inventory. 2005 Modeling Inventory . Available at. http://www.epa.gov/ttn/chief/emch/index.html

. 118 Flanner, M. G., Zender, C. S., Randerson, J. T.
, and Rasch, P. J. 2007. Present

- day climate forcing and response from BC in snow. Journal of Geophysical Research

- Atmospheres, 1 2(D11). doi:10.1029/2006JD0080 03 119 Qian, Y., W. I. Gustafson , L. R. Leung, and S. J. Ghan. 2009

. Effects of soot

- induced snow albedo change on snowpack and hydrological cycle in western United States based on Weather Research and Forecasting chemistry and regional climate simulations, J. Geophys. Res. 114, D03108

. doi:10.1029/2008JD011039* * * E.O. 12866 Review

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- 30 7.3.4 VOCs as a PM 2.5 Precursor
This rulemaking is expected to reduce emissions of VOCs, which are a precursor to
PM 2.5 . Most VOCs emitted are oxidized to carbon dioxide (CO 2 ) rather than to PM, but a portion of VOC emission contributes to ambient PM 2.5 levels as organic carbo n aerosols (U.S. EPA,
2009 c )

. Therefore, reducing these emissions would reduce PM 2.5 formation, human exposure to
PM 2.5 , and the incidence of PM 2.5 - related health effects

. However, we have not quantified the
PM 2.5 - related benefits associated with VOC reduc tions in this analysis

. Analysis of organic carbon measurements suggest only a fraction of secondarily formed organic carbon aerosols are of anthropogenic origin

. The current state of the science of secondary organic carbon aerosol
formation indicates that anthropogenic VOC contribution to secondary organic carbon aerosol is often lower than the biogenic (natural) contribution

. Given that a fraction of secondarily formed organic carbon aerosols is from anthropogenic VOC emissions and the extremely small amo unt of VOC emissions from this sector relative to the entire VOC inventory it is unlikely this sector has a large contribution to ambient secondary organic carbon aerosols

. Photochemical models typically estimate secondary organic carbon from anthropogenic VOC emissions to be less than 0.1 μg/m 3

. Due to limited resources, we were unable to perform air quality modeling for this rule

. Therefore, given the high degree of variab ility in the responsiveness of PM 2.5 formation to VOC emission reductions, we are unable to estimate the effect that reducing VOCs will have on
ambient PM 2.5 levels without air quality modeling.

7.3.5 VOCs as a n Ozone Precursor
In the presence of sunlight, VOCs can undergo a chemical reaction in the atmosphere to
form ozone

. Reducing ambient ozone concentrations is associated with significant human health benefits, including mortality and respiratory morbidity (U.S. EPA, 2008a)

. Epidemiological researchers have a ssociated ozone exposure with adverse health effects in numerous toxicological, clinical and epidemio logical studies (U.S. EPA, 2006 )

. These health effects include respiratory morbidity such as fewer asthma attacks, hospital and ER visits, school loss days , as well as premature mortality.

In addition to health impacts reduction, there are ecological benefits from reducing the formation of ozone and related exposure that leads to reduced net primary productivity and visible foliar injury which are associate d with a range of ecosystems services

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- 31 7.3.6 Visibility Impairment Co

- Benefits
Reducing secondary formation of PM 2.5 would improve visibility l evels in the U.S. because suspended particles and gases degrade visibility by scattering and absorbing light (U.S. EPA, 2009). Fine particles with significant light

- extinction efficiencies include sulfates, nitrates, organic carbon, elemental carbon, and soil (Sisler, 1996). Visibility has direct significance to people ’ s enjoyment of daily activities and their overall sens e of wellbeing. Good visibility increases the quality of life where individuals live and work, and where they engage in recreational activities. Particulate sulfate is the dominant source of regional haze in the eastern U.S. and particulate nitrate is an i mportant contributor to light extinction in California and the upper Midwestern U.S., particularly during winter (U.S. EPA, 2009). Previous analyses ( U.S. EPA, 2011a) show that visibility benefits can be a significant welfare benefit category. Without
air quality modeling, we are not unable to estimate visibility related benefits, nor are we able to determine whether the emission reductions associated with this rule would be likely to have a significant impact on visibility in urban areas or Class I areas.

7.4 References Abt Associates, Inc. 2012. BenMAP User ’ s Manual Appendices . Prepared for U.S. Environmental Protection Agency Office of Air Quality Planning and Standards. Research Triangle Park, NC. September. Available on the Internet at http://www.epa.gov/air/benmap/models/BenMAPAppendicesOct2012.pdf

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Fann, N., K.R. Baker, and C.M. Fulcher. 2012. “ Characterizing the PM 2.5 - related health benefits of emission reductions for 17 industrial, area and mobile emiss ion sectors across the U.S. ” Environment International 49 41

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Gwinn, M.R
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— Health Benefits of Benzene Reductions in Houston, 1990

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- 32 Industrial Economics, Incorporated ( IEc). 2006. Expanded Expert Judgment Assessment of the Concentration

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. Krewski D, Jerrett M, Bu rnett RT, Ma R, Hughes E, Shi, Y, et al. 2009. Extended follow

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U.S. Census Bureau. 2008a. Firm Size Data from the Statistics of U.S. Businesses: U.S. Detail Employment Sizes: 2002 . < http://www2.census.gov/csd/susb/2002/ 02us_detailed%20sizes_6digitnaics.txt >
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. U.S. Environmental Protection Agency (U.S. EPA). 1995. Regulator y Impact Analysis for the Petroleum Refinery NESHAP. Revised Draft for Promulgation . Office of Air Quality Planning and Standards, Research Triangle Park, N.C. Available on the Internet at http://www.reg

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- 33 U.S. Environmental Protection Agency (U.S. EPA). 2006. Air Quality Criteria for Ozone and Related Photochemical Oxidants (Final) . EPA/600/R

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. Integrated Science Assessment for Sul fur Oxides

— Health Criteria (Final Report)

. National Center for Environmental Assessment, Research Triangle Park, NC. September. Available on the Internet at http://cfpub.epa.gov/ncea/cfm/recordisplay.cfm?deid=198843

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— Health Criteria (Final Report). National Center for Environmental Assessment, Research Triangle Park, NC. July. Available at at http://cfpub.epa.gov/ncea/cfm/recordisplay.cfm?deid=194645

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- 09/019F. January. Available at http://cfpub.epa.gov/nc ea/cfm/recordisplay.cfm?deid=218686

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Response Function for PM 2.5 - related Mortality. Research Triangle Park, NC. June. Available on the Internet at www.epa.gov/ttn/ecas/regdata/Benefits/ thresholds tsd.pdf

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. U.S. Environmental Protection Agency (U.S. EPA). 2010e. Guidelines for Preparing Economic Analyses . EPA 240

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. Accessed March 30, 2011.* * * E.O. 12866 Review

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- 34 U.S. Environmental Protection Agency (U.S. EPA). 2011b. Regulatory Impact Analysis for the Final Mercury and Air T oxics Standards. EPA

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- Scale Air Toxics Assessment

. Office of Air Quality Planning and Standards, Research Triangle Park, NC. March. Available on the Internet at http://www.epa.gov/ttn/atw/nata2005/

.
U.S. Env ironmental Protection Agency (U.S. EPA). 2011d. Regulatory Impact Analysis: National Emission Standards for Hazardous Air Pollutants for Industrial, Commercial, and Institutional Boilers and Process Heaters

. February. Available on the Internet at http://www.epa.gov/ttnecas1/regdata/RIAs/boilersriafinal110221_psg.pdf

. U.S. Environmental Protection Agency (U.S. EPA). 2012a. Regulatory Impact Analysis for the Final Revisions t o the National Ambient Air Quality Standards for Particulate Matter

. EPA

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p://www.epa.gov/pm/2012/finalria.pdf

. U.S. Environmental Protection Agency (U.S. EPA). 2012b. Regulatory Impact Analysis: Petroleum Refineries New Source Performance Standards Ja. Office of Air Quality Planning and Standards, Health and Environmental Impa cts Division. June. Available at http://www.epa.gov/ttnecas1/regdata/RIAs/refineries_nsps_ja_final_ria.pdf

. U.S. Environmental Protection Agency (U.S. EPA). 2013. Technical Support Document: Estimating the Benefit per ton of Reducing PM 2.5 Precursors from 17 sectors . Office of Air Quality Planning and Standards, Research Triangle Park, NC. February.
U.S. Environmental Protection Agency

— Science Advisory Board (U.S. E PA

- SAB). 2008. Characterizing Uncertainty in Particulate Matter Benefits Using Expert Elicitation. EPA

- COUNCIL

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- 002. July. Available on the Internet at http://yosemite.epa.gov/sab/sabproduct.nsf/0/43B91173651AED9E85257487004EA6CB/ $File/EPA

- COUNCIL

- 08

- 002

- unsigned.pdf

. U.S. Environmental Protection Agency

— Science Advisory Board (U.S. EPA

- SAB). 200 0. An SAB Report on EPA ’ s White Paper Valuing the Benefits of Fatal Cancer Risk Reduction. EPA

- SAB

- EEAC

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- 013. July. Available on the Internet at http://yosemite.epa.gov/sab%5C SABPRODUCT.NSF/41334524148BCCD6852571A700 516498/$File/eeacf013.pdf

. U.S. Environmental Protection Agency

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- SAB). 20 04 c

. Advisory Council on Clean Air Compliance Analysis Response to Agency Request on Cessation Lag. EPA

- COUNCIL

- LTR

- 05

- 001. December. Available on the Internet at <. http://yosemite.epa.gov/sab/sabproduct.nsf/0/39F44B098DB49F3C85257170 005293E0/$ File/council_ltr_05_001.pdf* * * E.O. 12866 Review

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- 35 U.S. Environmental Protection Agency

— Science Advisory Board (U.S. EPA

- SAB). 2008. Benefits of Reducing Benzene Emissions in Houston, 1990

– 2020 . EPA

- COUNCIL

- 08

- 001. July. Available at http://yosemite.epa.gov/sab/sabproduct.nsf/D4D7EC9DAEDA8A548525748600728A83/ $File/EPA

- COUNCIL

- 08

- 001

- unsigned.pdf

. U.S. Environmental Protection Agency

— Science Advisory Board (U.S. EPA

- SAB). 2009b. Review of EPA ’ s Integrated Science Assessment for Particulate Matter (First External Review Draft, December 2008) . EPA

- COUNCIL

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- 008. May. Available on the Internet at http://yosemite.epa.gov/sab/SABPRODUCT.NSF/81e39f4c09954fcb85256ead006be86e/ 73ACCA834AB44A10852575BD0064346B/$File/EPA

- CASAC

- 09

- 008

- unsigned.pdf

. U.S. Environmental Protection Agency

— Science Advisory Board (U.S. EPA

- SAB). 2009c. Review of Integrated Science Assessment for Particulate Matter (Second External Review Draft, July 2009) . EPA

- CASAC

- 10

- 001. November. Available on the Internet at http://yosemite.epa.gov/sab/SABPRODUCT.NSF/81e39f4c09954fcb85256ead006be86e/ 151B1F83B023145585257678006836B 9/$File/EPA

- CASAC

- 10

- 001

- unsigned.pdf

. U.S. Environmental Protection Agency

— Science Advisory Board (U.S. EPA

- SAB). 20 10a. Review of EPA ’ s DRAFT Health Benefits of the Second Section 812 Prospective Study of the Clean Air Act . EPA

- COUNCIL

- 10

- 001. June. Avai lable on the Internet at http://yosemite.epa.gov/sab/sabproduct.nsf/9288428b8eeea4c885257242006935a 3/59e06 b6c5ca66597852575e7006c5d09!OpenDocument&TableRow=2.3#2.
U.S. Environmental Protection Agency

— Science Advisory Board (U.S. EPA

- SAB). 2011. Review of Valuing Mortality Risk Reductions for Environmental Policy: A White Paper (December 10, 2010). EPA

- SAB

- 11

- 011 July

. Available on the Internet at http://yosemite.epa.gov/sab/sabproduct.nsf/298E1F50F844BC23852578DC0059A616/$F i le/EPA

- SAB

- 11

- 011

- unsigned.pdf

.* * * E.O. 12866 Review

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8

- 1 SECTION 8 COMPARISON OF MONETI ZED BENEFITS AND COS TS

8.1 Summary

Because we ar e unable to monetize the co

- benefits associated with reducing other pollutants such as VOCs and CO , all monetized benefits r eflect improvements in ambient PM 2.5 concentrations. This results in an underestimate of the monetized benefits. Using a 3% discount rate, we estimate the total monetized benefits of this proposed rule to be $1.8 billion to $ 4 .2
billion in the 2014

– 2022 time frame (Table 8

- 1). We estimate the impacts for the time frame from 2014 to 2022 in order to provide an average of annualized results for these options from the time of rule promulgation in 2014 to the time of full impleme nta n tion of both options, whic h occurs by 2022. The variability of annual impacts for each option provides an appropriate rationale for presenting impacts averaged over this time frame. Using a 7% discount rate, we
estimate the to tal monetized benefits to be $1.7 billion to $3.8 bill ion in the 2014

– 2022 time
frame . For the Alternative option, u sing a 3% discount rate, we estimate the total monetized
benefits of this proposed rule to be $1.9 billion to $ 4 .2 billion in the 2014

– 2022 time frame (Table 8

- 1) . Using a 7% discount rate, we e stimate the total monetized benefits under the Alternative option to be $1.7 billion to $3.8 billion in the 2014

– 2022 time frame

. The annualized social costs are $15.7 mil lion for the P roposed rule and $28.3 million for the Alternative option in the 2014

– 2022 time frame (2010 dollars), and are $14.8 million for the proposed rule and $26.9 million for the Alternative option, respectively, in the same time frame using a 3% interest rate . The net benefits (benefits

– costs) are therefore $1.8 billion to $4.1
billion at a 3% discount rate for the benefits and $1.7 billion to $3.7 billion at a 7% discount rate for the Proposed option and $1.8 billion to $4.2 Billion at a 3% discount rate and $1.7 billion to $3.8 billion at a 7% discount rate for the Alternative option in the 2014

– 2022 time frame

. The net benefits with annualized social costs at a 3% interest rate are essentially identical to those shown above with costs at a 7% interest rate. Annual benefits were equal through all options
thereafter. All estimate s are in 20 10 $. The benefits from reducing other air pollutants have not
been monetized in this analysis, including reducing nearly 3
, 2 00 tons of VOC, nearly 33,000 tons of CO
, black carbon and several HAPs emissions such as formaldehyde and benzene among
others e ach year.

Figure 8

- 1 shows the full range of net benefits estimates (i.e., annual benefits minus annualized costs) quantified in terms of PM 2.5 benefits reflecting the average annual impact for
the 2014

– 2022 time frame of the analys is under the P roposed option, and Figure 8

- 2 shows the* * * E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review ***

8

- 2 full range of net benefits estimates for the Alternative option. The net benefits reflect a 3%
discount rate for the benefits.* * * E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review ***

8

- 3 Table 8

- 1. Summary of the Monetized Benefits, Social Costs, and Net Bene fits for the Proposed Residential Wood Heater NSPS in the 2014

– 2022 Time F rame ($2010 millions ) a

Proposed Option 3% Discount Rate 7% Discount Rate

Total Monetized Benefits b $ 1,800 to $4,200 $1,7 00 to $3,800

Total Social Costs c $1 5 $16

Net Benefits $1,8 00 to $4,1 00 $1,7 00 To $3,7 00
Nonmonetized Benefits 32, 6 7 00 tons of CO
3,200 tons of VOC Reduced exposure to HAPs, including formaldehyde, benzene, and polycyclic organic matter

Reduced Climate effects due to reductions in black carbon emissions

Reduced e cosystem effects

Reduced v isibility impairment Alternative Option

Total Monetized Benefits b $ 1,900 to $ 4,200 $ 1,700 To $ 3,800
Total Social Costs c $ 2 7 $28

Net Benefits $ 1,8 00 to $4,2 00 $1,7 00 to $3,8 00
Nonmonetized Benefits 3 2 3
, 9 0 00 tons of CO 3,200 tons of VOC Reduced exposure to HAPs, including formaldehyde, benzene, and polycyclic organic matter
Reduced Climate effects due to reductions in black carbon emissions
Reduced e cosystem effects Reduced visibility impairment

a All estimates are f or the time frame from 2014 to 2022 inclusive and are rounded to two significant figures. These results include units anticipated to come online and the lowest cost disposal assumption . Total annualized social costs are estimated at a 7% interest rate.

b The total monetized benefits reflect the human health benefits associated with reducing exposure to PM 2.5 through

reductions of directly emitted PM 2.5 . It is important to note that the monetized benefits include many but not all health effects associated with PM 2.5 exposure. Benefits are shown as a range from Krewski et al. (200 9 ) to L epeule et al. (20 12 ) . These models assume that a ll fine particles, regardless of their chemical composition, are equally potent in causing premature mortality because the scientific evidence is not yet sufficient to allow differentiation of effect estimates by particle type. Because these estimates were generated using benefit

- per

- ton estimates, we do not break down the total monetized benefits into specific components here. See Figure 7

- 1 in this RIA for an illustration of the breakdown, or the RIA for the final Cross

- States Air Pollution Rule (EPA, 201 1) for more information.

c The annualized social costs are $14.8 million for the Proposed Option and $26.9 million for the Alternative

Option at a 3% interest rate. We assume that annual compliance costs serve as an approximation of the social costs of the proposal.* * * E.O. 12866 Review

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8

- 4 F igure 8

- 1. Net Annual Benefits Range in 201 4

– 2022 Time F rame for PM 2.5 Reductions for the Proposed Option $0 $1,000,000,000 $2,000,000,000 $3,000,000,000 $4,000,000,000 $5,000,000,000 $6,000,000,000 $7,000,000,000

Krewski et al. Lepeule et al.Dollars (2010$)

Cost estimate (at 7% interest rate) combined with total monetized benefits estimates derived from 2 epidemiology functions and 12 expert functions* * * E.O. 12866 Review

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8

- 5 Figure 8

- 2

. Net Annual Benefits Range in 201 4

– 2022 Time F rame for PM 2.5 Reductions for the Alternative Option

Table 8

- 2 provide s es timates of annualized costs and benefits for each affected source category for the Proposed option, and Table 8

- 3 provides es timates of annualized costs and
benefits for each affected category for the Alternative option. $0 $1,000,000,000 $2,000,000,000 $3,000,000,000 $4,000,000,000 $5,000,000,000 $6,000,000,000 $7,000,000,000

Krewski et al. Lepeule et al.Dollars (2010$)

Cost estimate (at 7% interest rate) combined with total monetized benefits estimates derived from 2 epidemiology functions and 12 expert functions

Formatted: Space After: 12 pt, Line spacing: At least 18 pt* * * E.O. 12866 Review

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8

- 6 Table 8

- 2. Compliance Costs, Monetized Benefits , and Monetized Net Benefits (2010 dollars) by Source Category in the 2014

– 20 22 Time Frame

— Proposal Option

Source Category Total Annualized Costs ($ millions) Monetized Benefits ($ millions) a Monetized Net Benefits ($ m illions)

Wood stoves $4.2 $62 to $140 $62 to $140

Single burn rate stoves $0.9 $290 to $650 $290 to $650

Pellet stoves $3.5 $19 to $43 $19 to $43

Forced

- air furnaces $2.3 $1,000 to $2,200 $1,000 to $2,200 Masonry heaters $0.3 N/A N/A Hydronic heating systems $4.5 $480 to $1,100 $480 to $1,100

a All estimates are f or the time frame from 2014 to 2022 inclusive . These results include units anticipated to come online and the lowest cost disposal assumption . Total annualized costs are estimated at a 7% interest rate.

b Total monetized benefits are estimated at a 3% and 7% discount rate s . T he total monetized benefits reflect the

human health benefits associated with reducing exposure to PM 2.5 through reductions of directly emitted PM 2.5 . It is important to note that the monetized benefits include many but not all health effects associated with PM 2.5 exposure. Benefits are shown as a range from Krewski et al. (200 9 ) to L epeule et al. (20 12 ) . These models assume that all fine particles, regardless of their chemical composition, are equally potent in causing premature mortality because the scientific evidence is not yet sufficient to allow differentiation of effect estimates by particle type. Because these estimates were generated using benefit

- per

- ton estimates, we do not break down the total monetized benefits into speci fic components here. See Figure 7

- 1 in this RIA for an illustration of the breakdown, or the RIA for the final Cross

- States A ir Pollution Rule (EPA, 2011) for more information. Formatted: Font: Times New Roman, No underline
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- 7 Table 8

- 3. Compliance Costs , and Monetized Benefits , and Monetized Net Benefits (2010 dollars) by Source Category in the 2014

– 20 22 Time Frame

— Alternative Option

Source Category Total Annualized

Costs ($ millions) a Monetized Benefits ($ millions) a Monetized Net

Benefits ($millions) a

Wood stoves $8.1 $ $52 to $120 $ $40 to $110

Single burn rate stoves $1.5 $ $290 to $650 $ $290 to $650

Pellet stoves $6.2 $ $3 to $15 $ $3 to $15

Forced

- air furnaces $3.8 $ $1,000 to $2,300 $ $1,000 to $2,300 Masonry heaters $0.3 N/A N/A Hydronic heating systems $8.3 $ $470 to $1,100 $ $470 to $1,100

a All estimates are f or the time frame from 2014 to 2022 inclusive . These results include units anticipated to come online and the lowest cost disposal assumption . Total annualized costs are estimated at a 7% interest rate.

b Total monetized benefits are estimated at a 3% and 7% discount rate s . T he total monetized benefits reflect the

human health benefits associated with reducing exposure to PM 2.5 through reductions of directly emitted PM 2.5 . It is important to note that the monetized benefits include many but not all health effects associated with PM 2.5 exposure. Benefits are shown as a range from Krewski et al. (200 9 ) to L epeule et al. (20 12 ) . These models assume that all fine particles, regardless of their chemical composition, are equally potent in causing premature mortality because the scientific e vidence is not yet sufficient to allow differentiation of effect estimates by particle type. Because these estimates were generated using benefit

- per

- ton estimates, we do not break down the total monetized benefits into speci fic components here. See Figure 7

- 1 in this RIA for an illustration of the breakdown, or the RIA for the final Cross

- States Air Pollution Rule (EPA, 2011) for more information. Formatted: Font: Times New Roman, No underline
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11

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11

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.9

- 11 APPENDIX

Documentation of Cos ts for Residential Wood Heaters NSPS Proposal

This appendix of the RIA document s the estimated nationwide cost impacts on manufacturers of emission reduction options being considered for residential wood heaters as part of the New Source Performance Standards (NSPS) review of residential wood heaters. The underlying cost assumptions f or two options are summarized herein

– the proposed NSPS (“Proposal”) and an alternative approach (“Alternative”) which differ in the number of stepped emission limits and in the phased

- in compliance dates.

I. Estimated Research and Development (R&D) Costs

A. Residential Wood Heaters

– Room Heaters & Central Heaters

We have heard various estimates of the costs to bring a wood heater from conception to completion, from $300,000 for a single model to $1,360,000 for a 4

- firebox model line. A recent Hearth and Home article estimated the total cost to bring a model from conception to market as $645,000 to $750,000 for steel stoves and over $1 million for cast

- iron, enameled wood stoves. The authors indicated that costs would decrease for separate models in the s ame line by up to 25%. Based on this information, we estimate that a 4

- model steel line would cost up to $328,125 per model to develop. These costs include marketing, design, developing first generation, second generation and prototype units; NSPS and sa fety testing, equipment tooling, etc. The manufacturer supplying these figures for the article estimated that the NSPS and safety testing component of these costs would constitute $40,000 per model. This manufacturer said that development time is 12 to 1 4
months for non

- catalytic heaters and 10 to 12 months for catalytic heaters. 109

Another manufacturer estimated costs of new product development, including design, prototype development, testing, tooling equipment and other manufacturing changes, marketin g support, materials, training, and education to be in excess of $300,000 over an 8

- to 12

- month schedule for a relatively uncomplicated product. Costs will increase for products that have more sophisticated controls. 110 One other
manufacturer estimated t hat their typical model development costs are around $200,000/model. 111

Two manufacturers suggested a 14

- to 18

- month timeframe is required to develop a new firebox, but added that it will take from 5 to 6 years of intensive engineering and R&D efforts to h ave a model line consisting of 4 boxes ready

- for

- manufacture. They agreed that knowledge of the process obtained during each

109 James E. Houck and Paul Tiegs. There’s a Freight Train Comin’ . Hearth and Home. December 2009. 110 Comments from United States Stove Company, Small Entity Representative. July 13, 2010. 111 Confidential Business Information. Formatted: Font: Bold

Formatted: Font: Bold, No underline, Font color: Auto
Formatted: Font: Bold
Formatted: Line spacing: At least 18 pt
Formatted: Space After: 12 pt, Line spacing: At least 18 pt

Formatted: Space After: 12 pt, Line spacing: At least 18 pt, Don't adjust space between Latin and Asian text9

- 12 firebox development will shorten (somewhat) the time necessary, but not enough to consider within a guiding framework. These manu facturers also provided estimated development costs for a 4

- box model line, presented
in Table A

- 1. 112

Table A

- 1. Example of Manufacturers’ Estimates of Costs to Develop Model Line (4 Fireboxes)

Cost Component Estimated Costs Notes
Salaries $850,000 Using 2

- full time experienced employees to bring the products to market, salaries and benefits are estimated at $160,000 per year for at least 5.3 years. Tasks include design, prototyping, testing, production

- line integration, and marketing. Laboratory Eq uipment $50,000 In order to accelerate R&D and avoid validating each result with independent testing labs (too costly for most manufacturers), new testing equipment will need to be purchased in order to sample flue gases, measure test load weight loss, rec ord data automatically, and analyze flue gas composition. Prototypes $25,000 Numerous prototypes will be needed until the final product can be approved. For each firebox, an estimated 8 prototypes will be needed, at a cost of $700 each. Numerous samples o f various components will also have to be purchased from vendors. Test Fuel* $45,000* Each test costs at least $50 in fuel (assuming cribs are used), including waste. And estimated 150 tests will have to be conducted for each firebox for a total of $7,5 00, or $30,000 for a 4

- firebox model line based on crib testing.* Testing Services* $150,000* Testing services for emissions, efficiency, and safety are estimated to last approximately 3 weeks for each firebox. At an average of $1,500 per day plus travel expenses, this amounts to approximately $25,000 for each firebox, or $100,000 for a 4

- firebox model line based on crib testing.* Outside Consultants $160,000 The average manufacturer will need outside help for design and testing. Testing equipment, knowledge of the test standard, and general guidance is normally offered by outside consultants (not necessarily certified EPA test labs). The average manufacturer will need approximately 300 hours of consulting services per year ($40,000) for 4 years. Re

- tooling $120,000 For each firebox, new molds and jigs will need to be purchased or produced. Re

tooling charges will reach an estimated $30,000 per firebox, or $120,000 for a 4

- firebox model line. Marketing $25,000 New pictures will need to be taken and all the current marketing material, including web sites and owner’s manuals, will have to be updated. Total $1,425,000 Equal to $356,250/model *Note: The costs originally provided by industry for this table were pr esumed to be based on crib wood testing, not both crib wood and cord wood testing. Therefore we increased the industry

- based “Test Fuel” cost by 50% (to the $45,000 shown above) as well as the industry

- based “Testing Services” cost by 50% (to the $150,000 shown above) in order to conservatively estimate the additional cost to test with both crib wood and cord wood.

For this analysis, we used the costs provided in the Table A

- 1 example, scaled to a single model and spread over a 6

- year model development timeframe. We prepared an annualized R&D cost estimate by separating cost elements into direct annual costs (salaries) vs. indirect annual costs (laboratory equipment,
retoolin g and other capital costs). We conservatively estimated annual capital costs during the amortized R&D

112 NSPS Review/Revision, and Impact on Our Companies: A Manufacturer’s Position Statement. Prepared by Stove Builder

International and United States Stove Company. June 2010. Formatted: Space After: 12 pt, Line spacing: At least 18 pt9

- 13 cost period as the fraction that the indirect costs (IAC) are of the Total Annual Cost, approximately 34% annually. Ongoing costs such as taxes, overhea d, and other routine expenses would be incurred regardless of the NSPS standard, and are not included in this analysis. Table A

- 2 shows the estimated annualized cost of $63,850 per model, assuming an amortization period of 6 years and an interest rate of 7%.

Table A

- 2. Annual Cost Summary: Development of 4 Model Fireboxes 1,2 Direct Annual Costs (DAC)

Operator labor $141,667 Annual salary cost from Table 1, spread over 6 years.

Outside Consultants $26,667 Annual outside consultant cost from Table 1, spread over 6 years. Total Direct Costs (DC) $168,333 Indirect Annual Costs (IAC)

Laboratory Equipment 1 $10,490 The laboratory equipment cost of $50,000 was amortized over 6 years at an interest rate of 7%.

Re

- tooling 1 $25,175 The re

- tooling cost of $120,000 was amortized over 6 years at an interest rate of 7%.

Other Capital Costs 1,2 $51,400 Other capital costs include costs for prototypes ($25,000), test fuel ($30,000+$15,000), testing services ($100,000+$50,000), and market ing ($25,000) and were amortized over 6 years at an interest rate of 7%. Total Indirect Costs (IAC) $87,065 Total Annual Cost $255,399 Annual cost for development of 4 model fireboxes. Total Annual Cost $63,850 Average annual cost per firebox model.

1 An amortization period of 6 years for laboratory equipment, retooling and other capital costs was chosen based on industry's estimate that approximately 5 to 6 years of R&D are required to bring a product to market.

2 To conservatively estimate the addit ional cost to test with both cord wood and crib wood, the test fuel industry estimate of $30,000 based on crib only was increased by $15,000 and the testing services industry estimate of $100,000 based on crib only (which covered not only emissions testing but also efficiency and safety testing) was increased by $50,000.

B. Masonry Heaters

Masonry heaters manufacturing cost impacts vary by the type of producer and the type of certification method. According to one manufacturer 113 , the masonry heater industry in the U.S. is dominated by the Finnish firm Tulikivi, which manufactures and imports about half of the U.S. masonry heater units installed yearly through its network of installing distributors. The same manufacturer said tha t the second largest producer is a

113 Comments: Residential Solid Fuel Burning Appliance SBREFA Process. Product Category: Masonry Heaters. July 13, 2010.

Timothy Seaton, Timely Construction, Inc. p. 5. Formatted: Space After: 12 pt, Line spacing: At least 18 pt9

- 14 Canadian firm, Temp

- Cast. The remainder of the industry is “dozens” of small producers, with probably fewer than 100 (or at least fewer than 200) generating any masonry revenue at all. Some commercial operations sell

co re units and/or design kits based on their own design, and other sell units they license from other U.S. or foreign companies. Finally, some units are custom built. Based on this information, we assumed that 50 percent of masonry heaters sold per year in the U.S. are Tulikivi models and 35 percent are sold by other large manufacturers. The remaining 15 percent of units are sold by independent small volume contractors.

There are three major cost components to consider in evaluating the potential cost im pacts of the proposed NSPS: research and development (R&D), certification testing, and licensing fees for use of a computer software package approved for use in certifying a model design. According to information provided by one manufacturer 114 , R&D costs for a masonry heater may be estimated at $250,000 (compared to the $340,000 for other wood heater appliance models noted in Table A

- 1). In order to be conservative in our cost analysis, w W e assumed R&D costs were the same as for other wood heater appliance s

– that is, $63,850 annually for a 6

- year R&D amortization period. For facilities conducting R&D, these costs include the costs for certification testing. We estimate that the cost of testing a heater design in an EPA accredited lab to be approximately $10,000. 115

This cost analysis also makes use of a unique software package based on a European masonry heater design standard. This standard has been verified in the laboratory and under field conditions to produce masonry heaters that would meet the prop osed NSPS emission limits. The software produces for printout a certification for a given design application and the design definition documents as well as operating instructions customized to the given design, so that the software verification and certif ication record is created for and attached to the design. The resulting documents can be submitted as part of the certification application. The cost of this software to the user is approximately 1,000 Euros (approximately $1,500) for the package with a 300 Euro (approximately $450) annual fee that commences in the second year following purchase. 116

II. Estimated Manufacturer Cost Impacts

A. NSPS Options

We developed two primary options to evaluate the cost impacts of implementing new or revised NSPS standards for the residential wood heating appliance industry

– namely, the proposed approach (“Proposal”) and

114 Comments: Residential Solid Fuel Burning Appliance SBREFA Process. Product Category: Masonry Heaters. July 13, 2010.

Ti mothy Seaton, Timely Construction, Inc. p. 14. 115 Letter to Lucinda Power, EPA, from Brian Klipfel, Fire Works Masonry. September 10, 2010. 116 E

- mail from Timothy Seaton, Timely Construction Company, to Gil Wood, USEPA. April 21, 2011. Formatted: Space After: 12 pt, Line spacing: At least 18 pt, Don't adjust space between Latin and Asian text9

- 15 an alternative approach (“Alternative”). As de scribed in the unit cost memorandum 117 , the cost analyses assume specified phase

- in schedules which vary between the Proposal and Alternative.

The Proposal represents a scenario where all types of appliances (except masonry heaters) would be required to meet a specified Step 1 emission limit upon promulgation in 2014 and then a stricter Step 2 emission limit five years later in 2019. Under this Proposal, large manufacturers of masonry heaters would also be required to meet a specified Step 1 emission limit up on promulgation in 2014, while small custom manufacturers would not be required to meet this Step 1 emission limit until 2019. There is no Step 2 emission limit for masonry heaters being proposed. The Alternative approach represents a scenario where all t ypes of appliances (except masonry heaters) would be required to meet a specified Step 1 emission limit upon promulgation in 2014 and then an interim Alternative Step 2 emission limit three years after promulgation in 2017, followed by a stricter Alternati ve Step 3 emission limit eight years after promulgation in 2022. Masonry heaters would be regulated the same way under this Alternative approach as under the Proposal, as explained above. Note that the Proposal Step 2 emission limit is the same as the Alt ernative Step 3 emission limit, but the compliance dates differ for this stricter limit (i.e., 2019 versus 2022). These implementation periods represent a tentative schedule and are subject to change.

Following is a summary of the NSPS implementation as sumptions for each appliance type, grouped according to NSPS Subparts. This summary describes the specific emission limits under the Proposal and the Alternative approach.
Subpart AAA (“room heaters”): 1. Adjustable burn rate, single burn rate, and pellet stoves : Proposal : Step 1 limit of 4.5 g/hr upon promulgation in 2014; and Step 2 limit of 1.3 g/hr five years after promulgation in 2019. Alternative : Step 1 limit of 4.5 g/hr upon promulgation in 2014; Step 2 limit of 2.5 g/hr three years after pr omulgation in 2017; and Step 3 limit of 1.3 g/hr eight years after promulgation in 2022.
Notes on appliances already meeting these limits : The Step 1 limit is the 1995 Washington State standard for non

- catalytic stoves; the Alternative Step 2 limit is th e 1995 Washington State standard for catalytic stoves; and the proposed Step 2 (Alternative Step 3) limit is already met by the top performing catalytic, non

- catalytic and pellet stove models, according to industry data. 118 Although previously unregulated an d a less developed technology than adjustable burn rate stoves, single burn rate stove designs have been undergoing R&D in anticipation of the proposed NSPS and cleaner designs are nearly market

- ready. 119 Under both the Proposal and the Alternative, adjustab le burn rate wood stoves (both catalytic and

non

- catalytic), pellet stoves, and single burn rate stoves would face a Step 1 standard that is based on the current Washington state standards of 4.5 g/hr emissions for non

- catalytic stoves. Industry data 10

117 Memo to Gil Wood, USEPA, from Jill Mozier, EC/R, Inc. Unit Cost Estimates of Residential Wood Heating Appliances.

February 21, 2013

. 118 Letter to Gil Wood, EPA, from Robert Ferguson, Ferguson, Andors, & Company. April 30, 2010. EC/R made minor changes to

the data set us ed in this analysis. See Memo from Jeff Harris, EC/R to Project File. May 3, 2010. Changes to “Final HPBA Heater Database” from 2/25/10 Version. 119 2/8/13 telephone discussion between Gil Wood, USEPA, and a manufacturer of single burn rate stoves. Formatted: Space After: 12 pt, Line spacing: At least 18 pt9

- 16 fr om 2010 indicate that 90% (130 out of 145 catalytic, non

- catalytic and pellet stoves combined) already meet this limit, as shown in Table A

- 1 of Attachment A to the manufacturer’s cost memo

. The tables in that attachment show the emissions performance of wood stoves that are currently certified for which we have reproducible emissions data. This list was initially prepared by the Hearth, Patio and Barbecue Association (HPBA), and includes the results of an effort to delete models that are no longer manufa ctured and remove duplicate certifications. 10 Communication from HPBA confirmed that there were 110 non

- catalytic wood stoves and 15 catalytic wood stoves being manufactured in 2010 by 34 manufacturers or importers of EPA certified wood heaters. 120 We belie ve that manufacturers will focus on existing models that meet the Washington State limits in order to comply with the Step 1 standard. Furthermore, the HPBA data 10 indicates that 35% (52 out of 145 catalytic, non

- catalytic and pellet stoves combined) alrea dy meet the interim Alternative Step 2 limit of 2.5 g/hr. Finally, this same dataset indicates that 10% (14 out of 145 catalytic, non

- catalytic and pellet stoves combined) already meet the strictest proposed Step 2 standard (which is also the Alternative S tep 3 standard). Stoves meeting these limits are shown in Table A

- 1 of Attachment A, in which green rows indicate compliance with proposed Step 2/Alternative Step 3, green and blue rows indicate compliance with interim Alternative Step 2, and green, blue, and orange rows indicate compliance with Step 1. Attachment A also includes tables showing this same color

- coded compliance for the individual catalytic (Table A

- 2) and pellet stove (Table A

- 3) datasets. Based on this emission data for adjustable burn ra te and pellet stoves, for our cost analysis we conservatively assumed that while major R&D efforts are not needed to meet Step 1, R&D efforts would be required to meet the strictest standard. Single burn rate stoves would also be subject to these stepped s tandards under Subpart AAA. Given the relative lack of previous regulation of these appliance types in the United States, we believe that manufacturers will have to redesign all such models to meet the proposed emission limits, and reflected that major re

- design effort in our conservative cost estimates. Our specific cost and implementation assumptions under both the Proposal and Alternative scenarios are noted below in Sections B & D. Subpart QQQQ (“central heaters”): 2. Hydronic heaters (both outdoor and in door) : Proposal : Step 1 limit of 0.32 lb/mm BTU heat output upon promulgation in 2014; and Step 2 limit of 0.06 lb/mm BTU heat output five years after promulgation in 2019. Alternative : Step 1 limit of 0.32 lb/mm BTU heat output upon promulgation in 2014; Step 2 limit of 0.15 lb/mm BTU heat output three years after promulgation in 2017; and Step 3 limit of 0.06 lb/mm BTU heat output eight years after promulgation in 2022.
Notes on appliances already meeting these limits : The Step 1 limit is the EPA “Phase 2 ” voluntary program limit already met by 36 hydronic heater models (27 cord wood and 9 pellet models) built by 17 U.S. manufacturers; the Alternative Step 2 limit is already met by 11 hydronic heater models (6 cord wood and 5 pellet models) built by 6 U .S. manufacturers; and the proposed Step 2 (Alternative Step 3) limit is already met by 4 hydronic heater models (2 cord wood and 2 pellet models) built by 2 U.S. manufacturers 121 , as well as over 100 European manufacturers per test method EN 303

- 05. 122

120 Lette r to Lucinda Power, EPA, from John Crouch, HPBA. September 12, 2010.

121 See list of cleaner hydronic heaters participating in EPA’s voluntary program at http://www.epa.gov/burnwise/owhhlist.html 122 Eu ropean Wood

- Heating Technology Survey: An Overview of Combustion Principles and the Energy and Emissions Performance

Characteristics of Commercially Available Systems in Austria, Germany, Denmark, Norway, and Sweden; Final Report; Prepared for the New York State Energy Research and Development Authority; NYSERDA Report 10

– 01; April 2010.9

- 17 Based on the EPA’s experience with the hydronic heater market through the voluntary program, we understand that it is dominated by a few manufacturers in terms of the bulk of sales, and these manufacturers have qualifying units at some or all of the stepped emi ssion limits, as noted above. Therefore, on a sales

- weighted basis, only a percentage of the hydronic heater models currently sold would be required to undertake R&D to meet Step 1, with higher percentages needing R&D to meet the interim Alternative Step 2 and the proposed Step 2/Alternative Step 3 limits. However, in order to be conservative in our cost analysis, we assumed that all hydronic heater models would begin R&D in 2013 to meet the stricter phased

- in standards. Our specific cost and implementat ion assumptions under both the Proposal and Alternative scenarios are noted below in Sections B & D. 3. Forced Air Furnaces: Proposal : Step 1 limit of 0.93 lb/mm BTU heat output upon promulgation in 2014; and Step 2 limit of 0.06 lb/mm BTU heat output five y ears after promulgation in 2019. Alternative : Step 1 limit of 0.93 lb/mm BTU heat output upon promulgation in 2014; Step 2 limit of 0.15 lb/mm BTU heat output three years after promulgation in 2017; and Step 3 limit of 0.06 lb/mm BTU heat output eight year s after promulgation in 2022. 4. Notes on appliances already meeting these limits : The Step 1 limit is based on test data from development of Canadian standard B415.1

- 10 123 and conversation with industry regarding cleaner forced air furnace models currently be ing tested in R&D 124 . Forced air furnace designs able to meet the Alternative Step 2 and proposed Step 2 (Alternative Step 3) limits may be based on technology transferred from hydronic heater designs. Given the relative lack of previous regulation of these appliance types in the United States, we conservatively assume in our cost analysis that manufacturers will have to redesign all such models to meet the proposed emission limits, and reflect that major re

- design effort in our conservative cost estimates. Our specific cost and implementation assumptions under both the Proposal and Alternative scenarios are noted below in Sections B & D.
Subpart RRRR (masonry heaters): 5. Masonry Heaters: Proposal / Alternative (same): Step 1 limit of 0.32 lb/mm BTU heat outp ut upon promulgation in 2014 for large manufacturers (defined as manufacturers constructing ≥ 15 masonry heaters per year), with a 5

- year (2019) small volume manufacturer compliance extension (for companies constructing < 15 units/year). No other phased

- in limits are being proposed.

Notes on appliances already meeting these limits: Based on data submitted by the Masonry Heater Association 125 , over 10 models already meet this limit. The masonry heater market is dominated by a few large manufacturers and many small custom manufacturers, and these segments of the market will take different approaches to come into compliance based on their models (i.e., a couple models will undergo R&D, while others who already meet the standards will certify through

a conve ntional test or through a software product). Our cost analysis segmented the market accordingly and based our cost estimates on specific assumptions relevant to each segment of the market. These specific cost and implementation assumptions (which do not d iffer for the Proposal and Alternative) are explained below in Sections C & D.

B. Estimated Manufacturer Costs

– General Approach

123 CSA B415.1

- 10, Performance Testing of Solid

- Fuel

- Burning Heating Appliances. Appendix D. March 2010. 124 2/8/13 telephone discussion between Gil Wood, USEPA, and a manufacturer of forced air furnaces. 125 Attachment to 3/25/2011 e

- mail from Timothy Seaton of Timely Construction to Gil Wood and Mike Toney of USEPA9

- 18 Manufacturers have told us that is takes several years to develop new models. We have spread the annualized R&D costs (sh own in Table A

- 2) over 6 years to conservatively represent the time and funds needed to develop the complying models. For the purposes of our cost estimate, we have assumed that when the NSPS revisions are proposed, all manufacturers will begin serious ef forts to develop complying models, although for many manufacturers we also know that they have been involved in intensive R&D efforts in anticipation of the proposed rule.

We estimated both the average annual cost to manufacturers of each appliance type and then extended those costs to nationwide total annual costs. The basic components to each manufacturer’s estimated annual cost

are:

6. Annualized R&D cost; 7. Ongoing annual Certification cost; and 8. Ongoing annual Reporting and Record Keeping cost.

The Annua lized R&D costs (shown in Table A

- 2, and based on the Table A

- 1 costs) are by far the largest cost component and we have applied these costs to most models in our cost analysis

– especially to models in previously unregulated appliance categories

– in orde r to present a reasonable conservative over

stated cost estimate of the costs . For example, as noted above, instead of estimating the number of hydronic heater models that already meet a specific limit and will therefore merely need to certify their emiss ions rather than undergo R&D, we instead assumed that 100% of hydronic heater models will undergo R&D beginning in 2013. We made similar conservative assumptions for single burn rate stoves and forced air furnaces.

Under the Proposal scenario, one round o f R&D is assumed

– beginning in 2013 and ending in 2018

– in order to meet the proposed Step 2 limit. Under the Alternative scenario, two rounds of R&D are assumed for all appliances except masonry heaters (for which there is only one standard with no add itional phased

- in standards to meet). Under the Alternative scenario, the first R&D round begins in 2013 and the second round begins in 2017 (which causes overlapping R&D costs in years 2017 and 2018 in this analysis)

– in order to meet the
interim Altern ative Step 2 limit in 2017 and the Alternative Step 3 limit in 2022. We also conservatively assumed that of the models undergoing the first round of R&D costs, 80% of these models undergo and assume
the second round of R& D costs in the Alternative scenario (i.e., we conservatively assumed that only 20% of models achieve the strictest limit in the first round of R&D).

Furthermore, for appliances like single burn rate stoves and forced air furnaces, which were previously

un regulated (and also were not pushed technologically by a voluntary program, as hydronic heaters were), we have conservatively doubled R&D costs during years 2013 and 2014. This doubling of R&D cost estimates is to Formatted: Space After: 12 pt, Line spacing: At least 18 pt

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- 19 represent an intensification of the R&D ef forts to meet the Step 1 limit and begin development of models to meet the stricter stepped limits

– R&D efforts which industry has indicated are already ongoing. 126

Note that all manufacturers, except for wood stoves that are subject to the current 1988 NSP S, will face ongoing certification costs above baseline conditions. However, in the 2013 to 2018 timeframe under the Proposal scenario and in the 2013 to 2022 timeframe under the Alternative scenario, we have incorporated these costs as part of the overal l R&D expenditures. After 2018 under the Proposal scenario and after 2022 under the Alternative scenario, the ongoing certification costs will be the only NSPS related costs faced by manufacturers besides ongoing reporting and recordkeeping costs.

Regar ding certification costs, we have assumed a cost of $10,000 per model for pellet stoves, single burn rate stoves and masonry heaters; and we have assumed a cost of $20,000 per model for hydronic heaters
and forced air furnaces. 127 We have spread these costs out over the 5 year certification life, assuming annual
certification costs for one

- fifth of the models.

For example, pellet stoves will incur certification costs in advance of complying with more stringent limits. As explained in Section A and shown in Table A

- 3 of Attachment A of the manufacturer’s cost memo
, approximately 30 percent of existing pellet stove models are expected to comply with the proposed Step 2 and Alternative Step 3 standard. However, in order to be sold, these stove models would now be required to demonstrate compliance with an emissions limit, incurring an upfront cost of $10,000 per model to become
certified. We have assumed that one fifth of the pellet stove models will certify in any given year.

We based reporting and recordk eeping (R&R) costs on the annual average costs derived from development of the Information Collection Request (ICR) supporting statements 128 . These are conservative annual estimates of the ongoing R&R burden to manufacturers associated with the Proposal and Alternative scenarios. (We do not expect the R&R burden to differ substantially between the two scenarios.)

The certification and reporting and recordkeeping costs were estimated to be incurred by manufacturers for the full 20

- year model design lifesp an. 129 Under the Proposal, we estimated costs from 2013 through 2038

– that is, 20 years after the 2019 compliance year marking the beginning of the model lifespan designed to meet the Proposal Step 2 limit. Under the Alternative, we estimated costs from 20 13 through 2041

– that is, 20 years after the 2022 compliance year marking the beginning of the model lifespan designed to meet the Alternative Step 3 limit.

126 2/8/13 telephone discussion between Gil Wood, USEPA, and a manufacturer of forced air furnaces and single burn rate stoves. 127 Conversation with Dennis Brazier, Central Boiler. August 9, 2010. 128 ICR Supporting Statements for the Proposed NSPS Subparts have not been finalized as of the date of this memo. 129 Memo to Gil Wood, USEPA, from Jill Mozier, EC/R, Inc. Unit Cost Estimates of Residential Wood Heating Appliances.

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- 20 C. Estimated Manufacturer Costs

– Masonry Heaters

As noted above, we addressed masonry heaters in a way which segmented the costs in keeping with the masonry heater market. There are three scenarios for potential cost impacts for large masonry heater manufacturers. In the case of Tulikivi and some U.S. firms, e.g., Timely Construction, these companie s have already invested in R&D in order to gain access to U.S. markets which restrict sales (e.g., Colorado) of uncertified units. These companies will face testing costs only, with an assumed total of nine tests conducted prior to the proposed compliance date (i.e., to certify a total of nine model lines). For purposes of our cost analysis, we assumed that two additional companies will conduct R&D to develop two new models each to meet the proposed NSPS. Finally, we have been told that Tulikivi will use the software certification approach to certify up to eight additional models. We also project that the remaining 15 percent of custom built units will use the software certification approach to certify compliance with the proposed NSPS starting in 2013 ( estimated date of the proposed standards) and that they will continue to renew their license in the following

years.
As explained in the unit cost memo 21

, we used data in the Frost & Sullivan Market (F&S) report 130 on 2008 masonry heater shipments by product category and F&S revenue forecasts which incorporated the weak economy in years 2009 and 2010, to calculate the reduced number of shipments in years 2009 and 2010. For years 2011 through 2038 (for the Proposal) and 2011 through 2041 (for the Alternative) estimated shipments are based on a forecasted revenue growth rate of 2.0%, in keeping with the average annual growth in real GDP predicted by the US Bureau of Economic Analysis. 131 For masonry heaters, our estima te of the number of custom built models is based on the average number of models sold per year in the 15 percent model category (i.e., 85 per year). We assumed each custom manufacturer would sell 2 models per year, for a total of 42 manufacturers particip ating in the software certification option.

Under both the Proposal and Alternative scenarios, most sales

- weighted masonry heater units face a 2014 Step 1 compliance date with no other phased

- in limits. However, under both the Proposal and Alternative

sce narios, companies that sell fewer than 15 units per year have until 2019 to come into compliance. We have assumed that the large manufacturers will comply by 2014 for the units that only require testing and/or software certification, with those expenditur es incurred annually starting in 2013. We also assumed that the 15 percent of custom built units will comply by 2019, but will begin certifying their units using the software certification approach as early as 2013, as noted above, as a selling point for their services. For those companies that start R&D when the NSPS is proposed in 2013, we have assumed that they will spread these costs over the 6

- year period from 2013 through 2018 for the four models affected, under both the Proposal and Alternative sce narios.

130 Market Research and Report on North American Residential Wood Heaters, Fireplaces, and Hearth Heating Products Market.

Prepared by Frost & Sullivan. April 26, 2010. P. 31

- 32. 131 2013 Global Outlook projections prepared by the Conference Board in November 2012; http://www.conference

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- 21 D. Estimated Manufacturer Costs

– Specific Assumptions & Resulting Costs

Table A

- 3a shows the estimated annual cost per manufacturer under the Proposal for all appliances.
Table A

- 3b shows the nationwide annual costs under the Proposal. The footnotes associated with the tables (not included in the tables shown on the following pages) help better explain the details we assumed for the cost analysis and are listed below. For the Pro posal, the footnoted assumptions underlying Tables A

- 3a and A

- 3b

are:

1. Nationwide Annual Cost assumes R&D investment is amortized over 6 years (2013 through 2018). Ongoing certification costs are incurred through 2038 (based on a model brought to market in 2019 with a lifespan of 20 years), except for woodstoves which already incur certification costs under the existing NSPS. 2. Since certification is required every 5 years (except for the software certification option for masonry heaters), it is assumed that c ertification costs will be spread out so that 1/5 of the models certify each
year. 3. This analysis considers additional costs resulting from the proposed NSPS. For wood stoves, the analysis conservatively assumes that 5% meet Step 2 already so that 95% of th e models will undergo

re

- design to meet the Step 2 level. The costs modeled for years 2020 through 2038 exclude the ongoing certification costs and ongoing reporting and recordkeeping costs incurred by wood stove manufacturers who already had to certify an d report under the existing NSPS. 4. For pellet stoves, the analysis assumes that 30% meet Step 2 already so that 70% of models undergo R&D re

- design to meet Step 2. The R&D budget includes certification costs. The analysis also assumes that the 30% of the pe llet stove models which already meet Step 2 will certify in an ongoing basis starting in 2013. The analysis reflects the certification costs beginning in 2013 for the 30% of models meeting Step 2, and beginning in 2019 for the remaining 70% of models whic h underwent R&D re

- design. 5. Based on conversations with industry (2/2013), single burn rate stoves and forced air furnaces have been undergoing R&D prior to 2013 to develop cleaner models. Because these devices were previously unregulated and may need to tr ansfer technology from adjustable burn rate stoves and hydronic heaters respectively, this analysis conservatively assumes that these efforts will intensify in 2013 and 2014. Therefore estimated R&D costs are doubled in 2013 and 2014 in order to meet the 2014 Step 1 standard while also beginning R&D to develop models to meet the more stringent 2019 Step 2 standard. 6. For single burn rate stoves, forced air furnaces, and hydronic heating systems, the analysis conservatively assumes that only a small percentag e meet Step 2 so that approximately 100% of the models undergo R&D re

- design to meet Step 2. The R&D budget includes certification costs. Ongoing certification costs for the re

- designed models are reflected in this analysis beginning in 2019. 7. For masonry h eaters, the cost analysis assumes one round of R&D to meet 0.32 lb/mmBTU standard (no additional stepped standards, although large manufacturers will be required to meet the limit in 2014, while small volume manufacturers will be given a 5 year extension u ntil 2019 to meet the limit). For masonry heater manufacturers using software certification, the analysis assumes the purchased software will be used for certifying all models developed by that manufacturer. Formatted: Space After: 12 pt, Line spacing: At least 18 pt9

- 22 8. Reporting and recordkeeping costs (R&R) [for all appliances but masonry heaters] are based on the annual average costs derived from the ICR and are conservative estimates of the ongoing R&R burden to manufacturers associated with the proposed NSPS. The annual average nationwide R&R burden estimated to m anufacturers for Subpart AAA is $440,443, and for Subpart QQQQ is $119,249. These R&R costs do not include the R&R burden to laboratories; the annual average nationwide R&R burden incurred by laboratories subject to requirements under Subpart AAA is estima ted to be $75,745, and incurred by laboratories subject to requirements under Subpart QQQQ is estimated to be $50,496. 9. [Masonry Heater] Reporting and recordkeeping costs (R&R) are based on the annual average costs derived from the ICR and are conservative estimates of the ongoing R&R burden to manufacturers associated with the proposed NSPS. The annual average nationwide R&R burden estimated to manufacturers for Subpart RRRR is $98,788 for small/custom masonry heater manufacturers and $25,929 for large maso nry heater manufacturers. These R&R costs do not include the R&R burden to laboratories; the annual average nationwide R&R burden incurred by laboratories subject to requirements under Subpart RRRR is estimated to be $37,872.

Table A

- 4a shows the estimated annual cost per manufacturer under the Alternative approach for all appliances. Table A

- 4b shows the nationwide annual costs under the Alternative. For the Alternative approach, the footnoted assumptions underlying Tables 4a and 4b (where different from the footnotes listed above) are:

1. Nationwide Annual Cost assumes R&D investment is amortized over 6 years (round one from 2013 through 2018 and round two from 2017 through 2022). Ongoing certification costs are incurred through 2041 (based on a model broug ht to market in 2022 with a lifespan of 20 years), except for woodstoves which already incur certification costs under the existing NSPS. 2. (Same as above) 3. This analysis considers additional costs resulting from the proposed NSPS. For wood stoves, the analys is conservatively assumes that 5% meet Step 3 already so that 95% of the models will undergo

re

- design in round one, and 80% of those 95% will require another round of R&D to meet the Step 3 level. The costs exclude the ongoing certification costs and ongo ing reporting and recordkeeping costs incurred by wood stove manufacturers who already had to certify and report under the existing NSPS. 4. For pellet stoves, the analysis conservatively assumes that 30% meet Step 3 already so that 70% of models undergo re

- d esign in round one, and 80% of those 70% require another round of R&D to meet Step 3. The R&D budget includes certification costs. The analysis also assumes that the 30% of the pellet stove models which already meet Step 3 will certify in an ongoing basis starting in 2013. 5. Based on conversations with industry (2/2013), single burn rate stoves and forced air furnaces have been undergoing R&D prior to 2013 to develop cleaner models. Because these devices were previously unregulated and may need to transfer te chnology from adjustable burn rate stoves and hydronic heaters respectively, this analysis conservatively assumes that these efforts will intensify in 2013 and 2014. Therefore estimated R&D costs are doubled in 2013 and 2014 in order to meet the 2014 Step 1 standard while also beginning R&D to develop models to meet the more stringent 2017 Step 2 and 2022 Step 3 standards. Formatted: Space After: 12 pt, Line spacing: At least 18 pt9

- 23 6. For single burn rate stoves, forced air furnaces, and hydronic heating systems, the analysis conservatively assumes that only a small pe rcentage meet Step 3 so that approximately 100% of the models undergo re

- design in round one, and 80% require another round of R&D to meet Step 3. The R&D budget includes certification costs. 7. (Same as above) 8. (Same as above) 9. (Same as above)

### 24 Table A

- 3a. Average Annual Cost per Manufacturer under the Proposal

2013 (Step 1 compliance)

2014 2015 2016 2017 2018 (Step 2 compliance)

2019 2020 through
2038 2 Wood Stoves (R&D) 3 34 125 $223,004 $223,004 $223,004 $223,004 $223,004 $223,004 $0 $0 Pellet Stoves (R&D, R&R) 4,8 29 125 $199,681 $199,681 $199,681 $199,681 $199,681 $199,681 $7,031 $7,031 Pellet Stoves (certification) 4 29 125 $2,586 $2,586 $2,586 $2,586 $2,586 $2,586 $8,621 $8,621 Single Burn Rate Stoves (R&D, R&R, cert.) 5, 6, 8 3 20 $862,204 $862,204 $436,539 $436,539 $436,539 $436,539 $24,208 $24,208

Forced Air Furnaces (R&D, R&R, cert.) 5, 6, 8 7 50 $917,148 $917,148 $461,079 $461,079 $461,079 $461,079 $33,582 $33,582 Hydronic Heating Systems (R&D, R&R, cert.) 6, 8 30 120 $258,204 $258,204 $258,204 $258,204 $258,204 $258,204 $18,806 $18,806

MH - large companies (R&D, R&R, cert.) 9 2 4 $130,169 $130,169 $130,169 $130,169 $130,169 $130,169 $6,469 $6,469 MH - large companies (R&R, cert.) 9 3 9 $9,704 $9,704 $9,704 $9,704 $9,704 $9,704 $9,704 $9,704 MH - large companies (R&R, software cert.) 7, 9 1 8 $11,378 $10,328 $10,328 $10,328 $10,328 $10,328 $10,328 $10,328 MH - small companies (R&R, software cert.) 7, 9 42 85 $3,852 $2,802 $2,802 $2,802 $2,802 $2,802 $2,802 $2,802 Average Annual Cost per Manufacturer based on 6-year R&D round (2013-2018) to meet Step 1 and Step 2 limits with ongoing certification costs (through 2038)
#Manufacturers # Models

QQQQ: Central Heaters

RRRR: Masonry Heaters AAA: Room Heaters NSPS Subpart Appliance Type

Formatted: No underline, Font color: Auto

### 25 Table A

- 3b. Nationwide Annual Costs under the Proposal

2013 (Step 1 compliance)

2014 2015 2016 2017 2018 (Step 2 compliance)

2019 2020 through
2038 2 Wood Stoves (R&D) 3 34 125 $7,582,146 $7,582,146 $7,582,146 $7,582,146 $7,582,146 $7,582,146 $0 $0 Pellet Stoves (R&D, R&R) 4,8 29 125 $5,790,753 $5,790,753 $5,790,753 $5,790,753 $5,790,753 $5,790,753 $203,909 $203,909 Pellet Stoves (certification) 4 29 125 $75,000 $75,000 $75,000 $75,000 $75,000 $75,000 $250,000 $250,000 Single Burn Rate Stoves (R&D, R&R, cert.) 5, 6, 8 3 20 $2,586,611 $2,586,611 $1,309,618 $1,309,618 $1,309,618 $1,309,618 $72,625 $72,625 $16,034,510 $16,034,510 $14,757,517 $14,757,517 $14,757,517 $14,757,517 $526,534 $526,534 Forced Air Furnaces (R&D, R&R, cert.) 5, 6, 8 7 50 $6,420,038 $6,420,038 $3,227,556 $3,227,556 $3,227,556 $3,227,556 $235,073 $235,073 Hydronic Heating Systems (R&D, R&R, cert.) 6, 8 30 120 $7,746,133 $7,746,133 $7,746,133 $7,746,133 $7,746,133 $7,746,133 $564,176 $564,176 $14,166,171 $14,166,171 $10,973,689 $10,973,689 $10,973,689 $10,973,689 $799,249 $799,249 MH - large companies (R&D, R&R, cert.) 9 2 4 $260,337 $260,337 $260,337 $260,337 $260,337 $260,337 $12,939 $12,939 MH - large companies (R&R, cert.) 9 3 9 $29,112 $29,112 $29,112 $29,112 $29,112 $29,112 $29,112 $29,112 MH - large companies (R&R, software cert.) 7, 9 1 8 $11,378 $10,328 $10,328 $10,328 $10,328 $10,328 $10,328 $10,328 MH - small companies (R&R, software cert.) 7, 9 42 85 $161,788 $117,688 $117,688 $117,688 $117,688 $117,688 $117,688 $117,688 $462,616 $417,466 $417,466 $417,466 $417,466 $417,466 $170,067 $170,067

$30,663,297 $30,618,147 $26,148,672 $26,148,672 $26,148,672 $26,148,672 $1,495,850 $1,495,850 #Manufacturers # Models Nationwide Annual Costs 1

QQQQ: Central Heaters

RRRR: Masonry Heaters AAA: Room Heaters NSPS Subpart Appliance Type

Annual Cost of the Rule Formatted: No underline, Font color: Auto

### 26 Table A

- 4a. Average Annual Cost per Manufacturer under the Alternative Approach

2013 (Step 1 compliance)

2014 2015 2016 (Step 2 compliance)

2017 2018 2019 2020 2021 (Step 3 compliance)

2022 2023 through
2041 2 Wood Stoves (R&D) 3 34 125 $223,004 $223,004 $223,004 $223,004 $394,080 $394,080 $171,076 $171,076 $171,076 $171,076 $0 Pellet Stoves (R&D, R&R) 4, 8 29 125 $199,681 $199,681 $199,681 $199,681 $347,471 $347,471 $154,821 $154,821 $154,821 $154,821 $7,031 Pellet Stoves (certification) 4 29 125 $2,586 $2,586 $2,586 $2,586 $2,586 $2,586 $3,793 $3,793 $3,793 $3,793 $8,621 Single Burn Rate Stoves (R&D, R&R, cert.) 5, 6, 8 3 20 $862,204 $862,204 $436,539 $436,539 $763,085 $763,085 $340,087 $340,087 $340,087 $340,087 $24,208

Forced Air Furnaces (R&D, R&R, cert.) 5, 6, 8 7 50 $917,148 $917,148 $461,079 $461,079 $810,949 $810,949 $360,594 $360,594 $360,594 $360,594 $33,582 Hydronic Heating Systems (R&D, R&R, cert.) 6, 8 30 120 $258,204 $258,204 $258,204 $258,204 $454,131 $454,131 $201,933 $201,933 $201,933 $201,933 $18,806

MH - large companies (R&D, R&R, cert.) 9 2 4 $130,169 $130,169 $130,169 $130,169 $130,169 $130,169 $6,469 $6,469 $6,469 $6,469 $6,469 MH - large companies (R&R, cert.) 9 3 9 $9,704 $9,704 $9,704 $9,704 $9,704 $9,704 $9,704 $9,704 $9,704 $9,704 $9,704 MH - large companies (R&R, software cert.) 7, 9 1 8 $11,378 $10,328 $10,328 $10,328 $10,328 $10,328 $10,328 $10,328 $10,328 $10,328 $10,328 MH - small companies (R&R, software cert.) 7, 9 42 85 $3,852 $2,802 $2,802 $2,802 $2,802 $2,802 $2,802 $2,802 $2,802 $2,802 $2,802 Appliance Type #Manufacturers # Models Average Annual Cost per Manufacturer based on initial 6-year R&D round (2013-2018) and second R&D round (2017-2022) to meet Step 3 level with ongoing certification costs (through 2041)

QQQQ: Central Heaters

RRRR: Masonry Heaters AAA: Room Heaters NSPS Subpart Formatted: No underline, Font color: Auto

### 27 Table A

- 4b. Nationwide Annual Costs under the Alternative Approach

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 through
2041 2 Wood Stoves (R&D) 3 34 125 $7,582,146 $7,582,146 $7,582,146 $7,582,146 $13,398,730 $13,398,730 $5,816,584 $5,816,584 $5,816,584 $5,816,584 $0 Pellet Stoves (R&D, R&R) 4, 8 29 125 $5,790,753 $5,790,753 $5,790,753 $5,790,753 $10,076,657 $10,076,657 $4,489,813 $4,489,813 $4,489,813 $4,489,813 $203,909 Pellet Stoves (certification) 4 29 125 $75,000 $75,000 $75,000 $75,000 $75,000 $75,000 $110,000 $110,000 $110,000 $110,000 $250,000 Single Burn Rate Stoves (R&D, R&R, cert.) 5, 6, 8 3 20 $2,586,611 $2,586,611 $1,309,618 $1,309,618 $2,289,254 $2,289,254 $1,020,261 $1,020,261 $1,020,261 $1,020,261 $72,625 $16,034,510 $16,034,510 $14,757,517 $14,757,517 $25,839,640 $25,839,640 $11,436,657 $11,436,657 $11,436,657 $11,436,657 $526,534 Forced Air Furnaces (R&D, R&R, cert.) 5, 6, 8 7 50 $6,420,038 $6,420,038 $3,227,556 $3,227,556 $5,676,644 $5,676,644 $2,524,161 $2,524,161 $2,524,161 $2,524,161 $235,073 Hydronic Heating Systems (R&D, R&R, cert.) 6, 8 30 120 $7,746,133 $7,746,133 $7,746,133 $7,746,133 $13,623,945 $13,623,945 $6,057,987 $6,057,987 $6,057,987 $6,057,987 $564,176 $14,166,171 $14,166,171 $10,973,689 $10,973,689 $19,300,588 $19,300,588 $8,582,148 $8,582,148 $8,582,148 $8,582,148 $799,249 MH - large companies (R&D, R&R, cert.) 9 2 4 $260,337 $260,337 $260,337 $260,337 $260,337 $260,337 $12,939 $12,939 $12,939 $12,939 $12,939 MH - large companies (R&R, cert.) 9 3 9 $29,112 $29,112 $29,112 $29,112 $29,112 $29,112 $29,112 $29,112 $29,112 $29,112 $29,112 MH - large companies (R&R, software cert.) 7, 9 1 8 $11,378 $10,328 $10,328 $10,328 $10,328 $10,328 $10,328 $10,328 $10,328 $10,328 $10,328 MH - small companies (R&R, software cert.) 7, 9 42 85 $161,788 $117,688 $117,688 $117,688 $117,688 $117,688 $117,688 $117,688 $117,688 $117,688 $117,688 $462,616 $417,466 $417,466 $417,466 $417,466 $417,466 $170,067 $170,067 $170,067 $170,067 $170,067

$30,663,297 $30,618,147 $26,148,672 $26,148,672 $45,557,694 $45,557,694 $20,188,873 $20,188,873 $20,188,873 $20,188,873 $1,495,850 Appliance Type

Annual Cost of the Rule #Manufacturers # Models Nationwide Annual Costs 1

QQQQ: Central Heaters

RRRR: Masonry Heaters AAA: Room Heaters NSPS Subpart Formatted: No underline, Font color: Auto

### 9

- 1 It should be noted that Tables A

- 3a, A

- 3b, A

- 4a, and A

- 4b are based on a 7% interest rate and are in 2010 dollars($). We also prepared these cost estimates based on a 3% interest rate. Note also that costs vary by appliance type based on the average number of models per manufacturer. The estimate of the number of model types are descri bed in the unit cost memo. 132 

### For numbers of manufacturers, we started with HPBA data, modified based on internet searches of manufacturers of the major appliance types. 133



### The total nationwide cost of the r ule from years 2014 through 2022 for the Proposal and the Alternative differ based on the underlying cost and implementation assumptions described in this memo, and are summarized below in Table A

- 5.

Table A

- 5. Nationwide Annual Cost of the Rule under the Proposal and Alternative Appro ach

Year Cost under Proposal (2010$) Cost under Alternative Approach (2010$)

2014 30,618,147 30,618,147

2015 26,148,672 26,148,672

2016 26,148,672 26,148,672

2017 26,148,672 45,557,694

2018 26,148,672 45,557,694

2019 1,495,850 20,188,873

2020 1,495,850 20,188,873

132 Memo to Gil Wood, USEPA, from Jill Mozi er, EC/R, Inc. Unit Cost Estimates of Residential Wood Heating Appliances. February 21, 2013. 133 HPBA Solid Fuel Product List. Attachment to E

- mail from John Crouch, HBPS, to Gil Wood, EPA. September 24, 2010. Formatted: Space After: 12 pt, Line spacing: At least 18 pt, Don't adjust space between Latin and Asian text
Formatted: Width: 11", Height: 8.5"

Formatted: Space After: 12 pt, Line spacing: At least 18 pt

### 9

- 2 2021 1,495,850 20,188,873

2022 1,495,850 20,188,873

Finally, Tables A

- 6 and A

- 7 provide annual costs and emissions, and emission reductions associated with the Proposal and Alternative options, respectively, for each year included in the analyses, including impacts of the rule beyond 2022 , and cumulative impacts for each option

. Formatted: Space After: 12 pt, Line spacing: At least 18 pt

### 9

- 3 Table A

- 6. Cost Effectiveness (CE) based on annual and cumulative PM 2.5 emissions from Central Heaters (Forced Air Furnaces and Hydronic Heating Systems) and Room Heaters (Wood Stoves, Pellet Stoves, and Single Burn Rate Stoves) for the Proposal Option

Year Annual Capital Costs Nationwide Annual Cost 1 Nationwide Average An nual Cost Annual Snapshots Emission Reduction, cumulative per year CE based on total cost & cumulative emission reduction over 20

- year stove lifespan (per ton) Baseline

PM 2.5 Emissions 2

(tons) NSPS PM 2.5 Emissions

2 (tons) Emission Reduction

(tons) CE based

on nationwide

average annual cost

(per ton) Baseline PM 2.5 Emissions

(tons) NSPS PM 2.5 Emissions

(tons) Emission Reduction

(tons)
2013 3 $4,754,29 5 $10,883,300 $3,289,936

2014 4 $4,754,295 $10,883,300 $3,289,936 5,587 1,760

2015 $4,068,766 $9,314,021 $3,289,936 9.1.1 5, 69 9 9.1.2 1

, 7 9 5 9.1.3 3

, 9 0 3 9.1.4 $8 43 9.1.5 1 1, 2 8 5 9.1.6 3, 5 5 6 9.1.7 7

, 7 3 0

2016 $4,068,766 $9,314,021 $3,289,936 5,812 1,831 3,981 $826 17,098 5,387 11,711
2017 $4,068,766 $9,314,021 $3,289,936 5,929 1,868 4,061 $810 23,026 7,255 15,771
2018 $4,068,766 $9,314,021 $3,289,936 6,047 1,905 4,142 $794 29,074 9,161 19,913
2019 4 $0 $1,325,783 $3,289,936 6,168 464 5,705 $577 35,242 9,624 25,618
2020 $0 $1,325,783 $3,289,936 6,292 473 5,819 $565 41,534 10,097 31,437
2021 $0 $1,325,783 $3,289,936 6,417 482 5,935 $554 47,951 10,579 37,372
2022 $0 $1,325,783 $3,289,936 6,546 492 6,054 $543 54,497 11,071 43,425
2023 $0 $1,325,783 $3,289,936 6,677 502 6,175 $533 61,174 11,573 49,600 Formatted

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- 4 2024 $0 $1,325,783 $3,289,936 6,810 512 6,298 $522 67,984 12,085 55,899
2025 $0 $1,325,783 $3,289,936 6,946 522 6,424 $512 74,930 12,607 62,323
2026 $0 $1,325,783 $3,289,936 7,085 533 6,553 $502 82,016 13,140 68,876
2027 $0 $1,325,783 $3,289,936 7,227 543 6,684 $492 89,243 13,683 75,560
2028 $0 $1,325,783 $3,289,936 7,372 554 6,818 $483 96,614 14,237 82,377
2029 $0 $1,325,783 $3,289,936 7,519 565 6,954 $473 104,133 14,802 89,331

2030 $0 $1,325,783 $3,289,936 7,669 576 7,093 $464
2031 $0 $1,325,783 $3,289,936 7,823 588 7,235 $455 119,626 15,967 103,659
2032 $0 $1,325,783 $3,289,936 7,979 600 7,380 $446 127,605 16,566 111,039

2033 $0 $1,325,783 $3,289,936 8,139 612 7,527 9.1.8 $4 37 9.1.9 1 3 5, 7 4 4 9.1.10 1 7, 1 7 8 9.1.11 1 1 8

, 5 6 6

2034 $0 $1,325,783 $3,289,936 8,302 624 7,678 $429 138,459 16,042 122,417
2035 $0 $1,325,783 $3,289,936 8,468 636 7,831 $420 141,228 14,883 126,345
2036 $0 $1,325,783 $3,289,936 8,637 649 7,988 $412 144,052 13,701 130,352
2037 $0 $1,325,783 $3,289,936 8,810 662 8,148 $404 146,933 12,495 134,439
2038 $0 $1,325,783 $3,289,936 8,986 675 8,311 $396 149,872 11,265 138,607
2039 143,704 10,801 132,903
2040 137,412 10,328 127,084

2041 130,995 9,846 121,149
2042 124,449 9,354 115,095
2043 117,772 8,852 108,920 Formatted

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- 5 2044 110,962 8,340 102,622
2045 104,016 7,818 96,198
2046 96,930 7,286 89,645

2047 89,703 6,742 82,961
2048 82,332 6,188 76,143
2049 74,812 5,623 69,189
2050 67,143 5,047 62,096
2051 59,320 4,459 54,862
2052 51,341 3,859 47,482
2053 43,202 3,247 39,955
2054 34,900 2,623 32,277

26,433 1,987 24,446
2056 17,796 1,338 16,458
2057 8,986 675 8,311

Nationwide cumulative cost 5 $85,538,348 Cumulative Emission Reduction over 20

- year stove lifespan 1,546,402 $55

1 Estimated nationwide annual costs are in 2010 $ and are based on a 6

- year amortizatio n period of R&D costs at a 7% interest rate (during 2013

- 2018), plus annual certification and reporting & recordkeeping costs (ongoing through 2038). Years 2039 through 2057 are past the 20

- year model design lifespan used in this analysis.

2 Estimated an nual emissions are based on a forecasted revenue growth rate (as a surrogate for shipments) of 2.0 % from 2011 through 2038, in keeping with the average annual growth in real GDP predicted by the US Bureau of Economic Analysis (2013 Global Outlook projecti ons prepared by the Conference Board in November 2012; see http://www.conference

- board.org/data/globaloutlook.cfm ).

3 2013 costs assume manufacturers will begin R& D phase and begin certifying models in anticipation of the 2014 rule compliance date. Emissions in 2013, however, are not included in this analysis because it is prior to the rule compliance date.

4 Estimated emissions assume Step 1 standard becomes appli cable in 2014 and Step 2 standard in 2019. No emission reductions are estimated to result from woodstoves and pellet stoves until 2019, although emission reductions are estimated for all other devices starting in 2014 . Formatted

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### 9

- 6 5 The nationwide cumulative cost represents the cost to manufacturers resulting from the R&D re

- design to meet the proposed NSPS and the NSPS

- caused certification and reporting & recordkeeping costs to bring these stoves to market from 2013 through 2038. Th ese stoves have lifespans of 20 years or more (a conservative estimate) ; thus stoves shipped in 2038 will be emitting through 2057.

Table A

- 7. Cost Effectiveness (CE) based on annual and cumulative PM 2.5 emissions from Central Heaters (Forced Air Furnaces and Hydronic Heating Systems) and Room Heaters (Wood Stoves, Pellet Stoves, and Single Burn Rate Stoves) for the Alternative Option

Year Annual Capital Costs Nationwide Annual Cost 1 Nationwide Average Annual Cost Annual Snapshots Emission Reduction, cumulative per year CE based on total cost & cumulative emission reduction over 20

- year stove lifespan Baseline

PM 2.5 Emissions 2

(tons) NSPS PM 2.5 Emissions 2

(tons) Emission Reduction

(tons) CE based

on nationwide

average annual cost

(per ton) Baseline PM 2.5 Emissions

(tons) NSPS PM 2.5 Emissions

(tons) Emission Reduction

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- 7 (per ton)

2013 3 $10,295,398 $30,200,681 $10,600,322
2014 4 $10,295,398 $30,200,681 $10,600,322 5,587 1,760 3,827 $2,770 5,587 1,760 3,827
2015 $8,771,756 $25,731,206 $10,600,322 5,699 1 ,795 3,903 $2,716 11,285 3,556 7,730

2016 $8,771,756
2017 4 $15,388,282 $45,140,228 $10,600,322 5,929 906 5,022 $2,111 23,026 6,294 16,733
2018 $15,388,282 $45,140,228 $10,600,322 6,047 925 5,123 $2,069 29,074 7,218 21,856
2019 $6,824,401 $20,018,806 $10,600,322 6,168 943 5,225 $2,029 35,242 8,161 27,081
2020 $6,824,401 $20,018,806 $10,600,322 6,292 962 5,330 $1,989 41,534 9,123 32,411

2021 $6,824,401 $20,018,806 $10,600,322
2022 4 $6,824,401 $20,018,806 $10,600,322 6,546 492 6,054 $1,751 54,497 10,596 43,901
2023 $0 $1,325,783 $10,600,322 6,677 502 6,175 $1,717 61,174 11,098 50,076
2024 $0 $1,325,783 $10,600,322 6,810 512 6,298 $1,683 67,984 11,610 56,374
2025 $0 $1,325,783 $10,600,322 6,946 522 6,424 $1,650 74,930 12,132 62,798 Formatted

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- 8 2026 $0 $1,325,783 $10,600,322 7,085 533 6,553 $1,618 82,016 12,664 69,351
2027 $0 $1,325,783 $10,600,322 7,227 543 6,684 $1,586 89,243 13,208 76,035
2028 $0 $1,325,783 $10,600,322 7,372 554 6,818 $1,555 96,614 13,762 82,853
2029 $0 $1,325,783 $10,600,322 7,519 565 6,954 $1,524 104,133 14,327 89,806
2030 $0 $1,325,783 $10,600,322 7,669 576 7,093 $1,494 111,803 14,903 96,899
2031 $0 $1,325,783 $10,600,322 7,823 588 7,235 $1,465 119,626 15,491 104,134

2032 $0 $1,325,783 $10,600,322 7,979
2033 $0 $1,325,783 $10,600,322 8,139 612 7,527 $1,408 135,744 16,703 119,041
2034 $0 $1,325,783 $10,600,322 8,302 624 7,678 $1,381 138,459 15,567 122,892
2035 $0 $1,325,783 $10,600,322 8,468 636 7,831 $1,354 141,228 14,408 126,820
2036 $0 $1,325,783 $10,600,322 8,637 649 7,988 $1,327 144,052 13,225 130,827
2037 $0 $1,325,783 $10,600,322 8,810 662 8,148 $1,301 146,933 12,981 133,952
2038 $0 $1,325,783 $10,600,322 8,986 675 8,311 $1,276 149,872 12,732 137,140
2039 $0 $1,325,783 $10,600,322 9,166 689 8,477 $1,251 152,870 12,478 140,392
2040 $0 $1,325,783 $10,600,322 9,349 703 8,646 $1,226 155,927 12,219 143,708
2041 $0 $1,325,783 $10,600,322 9,536 717 8,819 $1,202 159,045 11,954 147,091
2042 152,500 11,462 141,037
2043 145,823 10,960 134,863
2044 139,013 10,449 128,564
2045 132,066 9,926 122,140
2046 124,981 9,394 115,587
2047 117,754 8,851 108,903

2048 110,382 8,297 102,086 9.1.12

2049 102,863 7,731 95,132
2050 95,194 7,155 88,039 Formatted

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- 9 2051 87,371 6,567 80,804

79,392 5,967
2053 71,253 5,356 65,897
2054 62,951 4,732 58,220
2055 54,483 4,095 50,388
2056 45,846 3,446 42,400
2057 37,037 2,784 34,253
2058 28,051 2,108 25,942 2059 18,885 1,419 17,466
2060 9,536 717 8,819

Nationwide cumulative cost 5 $307,409,335 Cumulative Emission Reduction over 20

- year stove lifespan 1,641,055 $187

1 Estimated nationwide annual costs are in 2010 $ and are based on 6

- year amortization periods of R&D costs at a 7% interest rate (during 2013

- 2018 for round one R&D a nd 2017

- 2022 for round two R&D), plus annual certification and reporting & recordkeeping costs (ongoing through 2041). Years 2042 through 2060 are past the 20

- year model design lifespan used in this analysis.

2 Estimated annual emissions are based on a forecasted revenue growth rate (as a surrogate for shipments) of 2.0 % from 2011 th rough 2041, in keeping with the average annual growth in real GDP predicted by the US Bureau of Economic Analysis (2013 Global Out look projections prepared by the Conference Board in November 2012; see http://www.conference

- board.org/data/globaloutlook.cfm ).

3 2013 costs assume manufacturers will begin R& D phase and begin certifying models in anticipation of the 2014 rule compliance date. Emissions in 2013, however, are not included in this analysis because it is prior to the rule compliance date.

4 Estimated emissions assume Step 1 standard becomes appli cable in 2014, Step 2 standard in 2017, and Step 3 standard in 2022. No emission reductions are estimated for woodstoves and pellet stoves until 2017, although emission reductions are estimated for all other devices starting in 201 4.

5 The nationwide cumulative cost represents the cost to manufacturers resulting from the R&D round(s) to meet the proposed NSPS and the NSPS

- caused certification and reporting & recordkeeping costs to bring these stoves to market from 2013 through 2041. The se stoves have lifespans of 20 years or more (a conservative estimate) ; thus stoves shipped in 2041 will be emitting through 2060. Formatted

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### 9

- 10 Attachment A Table A A

- 1. Non

- Catalytic, Catalytic, and Pellet Stove Emissions (HPBA Data)

Rank Type EPA M28 Weighted Cat. / Non. Cat Avg. Emissions
or Pellet g/hour 1 Non

- Cat 0.70 2 Non

- Cat 0.80 3 Cat. 0.80 4 Pellet 1.00 5 Cat. 1.10 6 Pellet 1.10 7 Pellet 1.10

### 9

- 11 8 Non

- Cat 1.10 9 Pellet 1.15 10 Pellet 1.20 11 Pellet 1.20 12 Pellet 1.30 13 Non

- Cat 1.30 14 Cat. 1.30 15 Cat. 1.35 16 Non

- Cat 1.40 17 Cat. 1.40 18 Pellet 1.40 19 Pellet 1.40 20 Non

- Cat 1.50 21 Pellet 1.50 22 Non

- Cat 1.60 23 Pellet 1.60 24 Pellet 1.60 25 Pellet 1.60 26 Cat. 1.60 27 Pellet 1.67 28 Pellet 1.70 29 Pellet 1.80 30 Non

- Cat 1.89 31 Non

- Cat 1.90 32 Cat. 1.90 33 Non

- Cat 2.00 34 Non

- Cat 2.00 35 Pellet 2.00 36 Cat. 2.00 37 Non

- Cat 2.00 38 Cat. 2.10 39 Non

- Cat 2.10

### 9

- 12 40 Cat. 2.10 41 Non

- Cat 2.10 42 Pellet 2.20 43 Non

- Cat 2.30 44 Pellet 2.30 45 Cat. 2.40 46 Cat. 2.40 47 Non

- Cat 2.40 48 Non

- Cat 2.40 49 Non

- Cat 2.40 50 Non

- Cat 2.43 51 Non

- Cat 2.50 52 Cat. 2.50 53 Non

- Cat 2.60 54 Non

- Cat 2.60 55 Non

- Cat 2.60 56 Pellet 2.60 57 Non

- Cat 2.70 58 Non

- Cat 2.70 59 Non

- Cat 2.70 60 Non

- Cat 2.70 61 Non

- Cat 2.88 62 Non

- Cat 2.90 63 Non

- Cat 2.90 64 Non

- Cat 2.90 65 Non

- Cat 2.90 66 Non

- Cat 3.00 67 Non

- Cat 3.00 68 Non

- Cat 3.00 69 Non

- Cat 3.00 70 Non

- Cat 3.01 71 Non

- Cat 3.06

### 9

- 13 72 Non

- Cat 3.10 73 Pellet 3.10 74 Non

- Cat 3.10 75 Pellet 3.10 76 Non

- Cat 3.10 77 Non

- Cat 3.10 78 Non

- Cat 3.10 79 Non

- Cat 3.20 80 Non

- Cat 3.30 81 Non

- Cat 3.35 82 Non

- Cat 3.40 83 Non

- Cat 3.40 84 Non

- Cat 3.40 85 Non

- Cat 3.40 86 Non

- Cat 3.47 87 Non

- Cat 3.50 88 Non

- Cat 3.50 89 Non

- Cat 3.50 90 Non

- Cat 3.50 91 Non

- Cat 3.60 92 Non

- Cat 3.60 93 Non

- Cat 3.60 94 Non

- Cat 3.60 95 Non

- Cat 3.60 96 Non

- Cat 3.60 97 Non

- Cat 3.60 98 Non

- Cat 3.70 99 Cat. 3.70 100 Non

- Cat 3.71 101 Non

- Cat 3.72 102 Non

- Cat 3.80 103 Non

- Cat 3.80

### 9

- 14 104 Non

- Cat 3.80 105 Non

- Cat 3.90 106 Non

- Cat 3.90 107 Non

- Cat 4.00 108 Non

- Cat 4.00 109 Non

- Cat 4.00 110 Pellet 4.00 111 Non

- Cat 4.10 112 Cat. 4.10 113 Non

- Cat 4.10 114 Non

- Cat 4.10 115 Non

- Cat 4.18 116 Non

- Cat 4.19 117 Non

- Cat 4.20 118 Non

- Cat 4.20 119 Non

- Cat 4.20 120 Non

- Cat 4.30 121 Non

- Cat 4.30 122 Non

- Cat 4.31 123 Non

- Cat 4.40 124 Non

- Cat 4.40 125 Non

- Cat 4.40 126 Non

- Cat 4.40 127 Non

- Cat 4.40 128 Non

- Cat 4.50 129 Non

- Cat 4.50 130 Non

- Cat 4.50 131 Non

- Cat 4.70 132 Non

- Cat 4.80 133 Non

- Cat 4.80 134 Non

- Cat 5.10 135 Non

- Cat 5.20

### 9

- 15 136 Non

- Cat 5.30 137 Non

- Cat 5.50 138 Pellet 5.50 139 Non

- Cat 5.90 140 Non

- Cat 6.00 141 Non

- Cat 6.00 142 Non

- Cat 6.10 143 Non

- Cat 6.90 144 Non

- Cat 7.30 145 Non

- Cat 7.50

Table A A

- 2. Catalytic Stove Emissions (HPBA Data)

Rank Type EPA M28 Weighted Cat. / Non. Cat Avg. Emissions
or Pellet g/hour 1 Cat. 0.80 2 Cat. 1.10 3 Cat. 1.30 4 Cat. 1.35 5 Cat. 1.40 6 Cat. 1.60 7 Cat. 1.90 8 Cat. 2.00 9 Cat. 2.10 10 Cat. 2.10 11 Cat. 2.40 12 Cat. 2.40 13 Cat. 2.50

### 9

- 16 14 Cat. 3.70 15 Cat. 4.10

### 9

- 17 Table A A

- 3. Pellet Stove Emissions (HPBA Data)

Rank Type EPA M28 Weighted Cat. / Non. Cat Avg. Emissions
or Pellet g/hour 1 Pellet 1.00 2 Pellet 1.10 3 Pellet 1.10 4 Pellet 1.15 5 Pellet 1.20 6 Pellet 1.20 7 Pellet 1.30 8 Pellet 1.40 9 Pellet 1.40 10 Pellet 1.50 11 Pellet 1.60 12 Pellet 1.60 13 Pellet 1.60 14 Pellet 1.67 15 Pellet 1.70 16 Pellet 1.80 17 Pellet 2.00 18 Pellet 2.20 19 Pellet 2.30 20 Pellet 2.60 21 Pellet 3.10 22 Pellet 3.10 23 Pellet 4.00

### 9

- 18 24 Pellet 5.50