1 Final Staff Report with Appendices

For Amendments to Rule 4905 SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DI STRICT

FINAL STAFF REPORT

Amendments to Rule 4905 (Natural Gas-fired, Fan-Type Central Furnaces)

January 22, 2015

Prepared by: Jesse Madsen, Air Quality Specialist

Reviewed by: Sharla Yang, Air Quality Specialist Brian Clerico, Air Quality Engineer II

Patrick Houlihan, Senior Air Quality Specialist Anna Myers, Senior Air Quality Specialist Errol Villegas, Strategies and Incentives Manager Sheraz Gill, Director of Strategies and Incentives

I. SUMMARY

Through extensive efforts during the development of the 2008 PM2.5 Plan , the San Joaquin Valley Air Pollution Control District (Dist rict) identified the opportunity to reduce the oxides of nitrogen (NOx) emissions from sources subject to Rule 4905. This would be accomplished by lowering the NOx emission limit for natural-gas-fired, fan-type residential central furnaces (residential units) with a rated h eating capacity of less than 175,000 British thermal units per hour (Btu/hr), and for co mbination heating and cooling units with a rated cooling capacity of less than 65,000 Btu/hr

. 1 The District initially committed to amend Rule 4905 (Natural Gas-fired, Fan-type Reside ntial Central Furnaces) in 2010; however, because advanced low-NOx technology was st ill in the early stages of development for residential furnaces, the District revised its commitment in the 2008

PM2.5 Plan to amend Rule 4905 in 2014. 2 The District’s 2012 PM2.5 Plan 3 and 2013 Plan

for the Revoked 1-Hour Ozone Standard 4 include this commitment and an additional commitment to explore the feasibility and cost effe ctiveness of adding a NOx emission limit for units installed in commercial buildings (commer cial units).

The purpose of the rule amendment is to fulfill the commitments in the 2008 PM2.5 Plan, 2012 PM2.5 Plan, and 2013 Plan for the Revoked 1-Ho ur Ozone Standard to further

1 SJVAPCD. (2008, April 30). 2008 PM2.5 Plan . Retrieved 9/29/14 from http://www.valleyair.org/Air_Quality_Plans/AQ_Final _Adopted_PM25_2008.htm

. 2 SJVAPCD. (2010, June 17). Proposed Amendment to the 2008 PM2.5 Plan to Extend the Rule Amendment Schedule for Rule 4905 (Natural Gas-Fired, Fan-Type Residential Central Furnaces . Retrieved 9/29/14 from http://valleyair.org/Board_meetings/GB/agenda_minut es/Agenda/2010/June/Agenda_Item_9_June_17_2010.pdf

. 3 SJVAPCD. (2012, December 20). 2012 PM2.5 Plan . Retrieved 5/22/13 from http://www.valleyair.org/Air_Quality_Plans/PM25Plan s2012.htm

. 4 SJVAPCD. (2013, September 19). 2013 Plan for the Revoked 1-Hour Ozone Standard . Retrieved 9/29/14 from http://www.valleyair.org/Air_Quality_Plans/OzoneOne HourPlan2013/AdoptedPlan.pdf

.SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DI STRICT

Final Staff Report: Rule 4905 January 22, 2015

2 Final Staff Report with Appendices

For Amendments to Rule 4905 reduce NOx emissions from residential units and exp lore the possibility of extending rule applicability to include NOx emission limits for co mmercial units. The amendments are analogous to the requirements of South Coast Air Qu ality Management District (SCAQMD) Rule 1111 (NOx Emissions from Natural Gas- fired, Fan type Central Furnaces) and provide for regulatory consistency in California. Amendments include the following:

• Lower the NOx emission limit for residential units to 14 nanograms of NOx per joule of heat output (ng/J) ,

• Expand the applicability to include commercial uni ts with a NOx emission limit of 14 ng/J,

• Expand the applicability to include units installe d in manufactured homes with an initial NOx emission limit of 40 ng/J which will th en be lowered to 14 ng/J in 2018,

and

• Allow the sale of non-compliant units during the i nitial implementation period (36- months) in exchange for the payment of an emissions fee for each non-compliant

unit sold

SCAQMD amended Rule 1111 in November 2009 to lower the NOx emission limit for applicable units from 40 ng/J to 14 ng/J, 5 and amended it again in September 2014 to extend the first compliance deadline and add an emi ssions fee option. 6 SCAQMD Rule 1111 already applies to both residential and commer cial furnaces, and units installed in manufactured homes have been required to comply wit h a 40 ng/J limit since October 2012 and will be required to comply with a 14 ng/J limit starting October 2018. Because no compliant units for the new lower NOx limit were commercially available at the time of the 2009 amendment, SCAQMD and the District co-fund ed a technology assessment to evaluate the performance of ultra-low NOx furnace t echnologies. 7 The technology

assessment resulted in the successful demonstration of several low-NOx furnace designs, which are expected to be commercially available by the SCAQMD Rule 1111 compliance

dates.

The District expects technology required for compli ance with amendments to be commercially available by the SCAQMD Rule 1111 comp liance dates and is therefore proposing to amend Rule 4905 as described above. F or those manufacturers that are not able to respond to increased demand for new units b y the compliance dates, the emissions fee option will allow them the option to continue selling units in the San Joaquin Valley (Valley). Rule amendments contribute to the Valley’s progress towards attainment of federal air quality standards for PM2.5 and ozon e by reducing NOx, which is a

5 SCAQMD. (2009, November 6). Final Staff Report with Socioeconomic Impact Assess ment . Retrieved 9/16/14 from http://www3.aqmd.gov/hb/2009/November/091130a.htm

. 6 SCAQMD. (2014, September 5). Governing Board Agenda Item, September 5, 2014: Ame nd Rule 1111 – Reduction of NOx Emissions from Natural-gas-fired, Fan-type Central Furnaces. Retrieved 9/9/14 from http://www.aqmd.gov/docs/default-source/Agendas/Gov erning-Board/2014/2014-sep5-032.pdf?sfvrsn=2

. 7 SCAQMD. (2014, September 5). Governing Board Agenda Item, September 5, 2014: Ame nd Rule 1111 – Reduction of NOx Emissions from Natural-gas-fired, Fan-type Central Furnaces. Retrieved 9/9/14 from http://www.aqmd.gov/docs/default-source/Agendas/Gov erning-Board/2014/2014-sep5-032.pdf?sfvrsn=2

.SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DI STRICT

Final Staff Report: Rule 4905 January 22, 2015

3 Final Staff Report with Appendices

For Amendments to Rule 4905 precursor for both PM2.5 and ozone. Amendments to Rule 4905 will achieve an estimated 2.10 tons per day (tpd) of NOx emission r eductions and ensure that Rule 4905 aligns with similar rules in other California air d istricts.

II. PROJECT BACKGROUND

A. Source Category

Rule 4905 is a point-of-sale rule that applies to a ny person who supplies, sells, offers for sale, installs, or solicits the installation of nat ural-gas-fired, fan-type residential central furnaces with a rated heat input capacity of less t han 175,000 Btu/hr and a rated cooling capacity of less than 65,000 Btu/hr for combination heating and cooling units. Affected parties include furnace manufacturers, residential heating wholesalers, supply stores, contractors and end-users. The point-of-sale appro ach has allowed the District to achieve NOx reductions without placing an undue fin ancial burden on the residents, operators and businesses that sell these units in t he Valley.

The above units are used in approximately 71% of Va lley residences 8 and are not

labeled for retail as “residential” or “commercial” furnaces. Units used in commercial buildings, while currently not subject to the requi rements of Rule 4905, are essentially the same as residential units with the exception of possible differences in usage patterns and indoor/outdoor location. An estimated 1,252,190 residential and commercial units will be operating in the Valley in 2017 (see Appendix C). Replacement will occur gradually as these units rea ch the end of the 20-year useful life.

The most common residential and commercial heat sou rces are boilers and furnaces; other heating options include heat pumps, active so lar heating, electric heating, wood or pellet stoves, portable and direct vent wall heater s, and fireplaces. 9 Heat distribution systems are either central heating, meaning heat is generated in a central location and distributed throughout the building, or point-of-us e or space heating, meaning supplemental heat is provided to a specific room. Types of central heating systems include forced air, steam radiant, radiant, hot wat er baseboards, and electric baseboards. Types of space heaters include wood or pellet stoves, portable and direct vent wall heaters, and fireplaces. Fuel types incl ude natural gas, propane, heating oil, electricity, and solid fuels such as wood or pellet s.

All heating systems have three basic components: a heat source, a heat distribution system, and a control system. The control system i s usually a programmable thermostat. The heat source, which generally deter mines the type of distribution system used, is selected based on many factors. The most important factor is geographical

8 KEMA, Inc. (Prepared for California Energy Commiss ion). (2010, October). 2009 California Residential Appliance Saturation Study

. Retrieved 9/17/13 from http://www.energy.ca.gov/2010publications/CEC-200-2 010-004/CEC-200-

2010-004-ES.PDF

. 9 Department of Energy. (2013, December 16). Energy Saver 101: Everything You Need to Know About Home Heating . Retrieved 12/17/13 from http://energy.gov/articles/energy-saver-101-infogra phic-home-heating

.SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DI STRICT

Final Staff Report: Rule 4905 January 22, 2015

4 Final Staff Report with Appendices

For Amendments to Rule 4905 location, which determines the climate and types of available fuel. Most commercial and residential buildings in the Valley have access to natural gas, which is typically the cheapest and most convenient fuel source in areas w here it is available.

Rule 4905 applies to furnaces fueled by natural gas that use forced air distribution, the most common type of heating system for residential and commercial buildings. Central furnaces are controlled by a thermostat, which send s signals to turn the device on or off when the building temperature does not match a chos en set point. A valve then opens to send natural gas to the burners, which combust t he gas directly into the heat exchangers. A blower pulls air from outside the bu ilding through a filter, across the heat exchanger, and through a series of ducts and vents to different areas of the building. Exhaust from the combustion exits the building thro ugh a separate duct. Condensing units use an additional heat exchanger to extract t he latent heat in the flue (exhaust) gas by cooling the combustion gasses to near ambien t temperature and thereby increase the heating efficiency by up to 10%. The water vapor in the flue gas is condensed, collected, and drained.

Units installed in manufactured homes utilize the s ame types of materials and operating principles as commercial and residential units; how ever, significant differences exist.

Furnaces installed in manufactured homes use sealed combustion, meaning all of the combustion air is taken from outside the building. These units also pre-heat the air, typically to 50-60°F, using a concentric vent where the combustion air is drawn in through the outer ring, while exhaust gases are ven ted through the inside core of the vent pipe. The air is pre-heated because the cold outside air does not mix well with the fuel, while pre-heated air blends well and allows f or quieter ignition and combustion.

Furnaces installed in manufactured homes also have to comply with strict space

restrictions. 10 Amendments allow until October 1, 2018 to comply for these units.

B. Current Rule

The purpose of Rule 4905 is to limit NOx emissions from natural gas-fired, fan-type residential central furnaces with rated heat inputs less than 175,000 Btu/hr and for combination heating and cooling units rated at a co oling capacity less than 65,000 Btu/hr. The rule currently requires that no person supply, sell, offer for sale, install, or solicit the installation of any unit within the Val ley that exceeds a NOx emission limit of 0.093 lb/MMBtu or 55 ppmv; this NOx emission limit is equivalent to 40 ng/J. The rule is not applicable to units installed in manufactured h omes, nonfan-type units and units using fuel other than natural gas.

Rule 4905 requires that manufacturers of units subj ect to the rule certify their units through either the District’s certification program , the SCAQMD certification process for

10 U.S. Department of Energy. (2014, July 7). Energy Conservation Program for Consumer Products: Energy

Conservation Standards for Residential Furnace Fans

. Retrieved 9/23/14 from https://www.federalregister.gov/articles/2014/07/03 /2014-15387/energy-conservation-program-for-consume rproducts-energy-conservation-standards-for-resident ial

.SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DI STRICT

Final Staff Report: Rule 4905 January 22, 2015

5 Final Staff Report with Appendices

For Amendments to Rule 4905 SCAQMD Rule 1111, or another emission certification program approved by the United States Environmental Protection Agency (EPA) and Di strict’s Air Pollution Control Officer. Manufacturers are also required to displa y the model number of the unit on the shipping container and rating plate. If requested by the APCO, each manufacturer must submit a statement confirming the unit is in compli ance, including a source test report verifying compliance with the emission limit.

The District’s Governing Board adopted Rule 4905 on October 20, 2005 to establish the NOx limits mentioned above. EPA finalized approval for Rule 4905 on May 30, 2007.

C. South Coast AQMD Rule 1111

SCAQMD adopted Rule 1111 (Reduction of NOx Emission s from Natural-Gas-Fired, Fan-type Central Furnaces) in December 1978 to limi t NOx emissions from the same units as Rule 4905. The rule was amended in July 1 983, November 2009, and September 2014.

The July 1983 amendment to SCAQMD Rule 1111 expande d applicability to include

commercial units. November 2009 amendments lowered the NOx limit for residential and commercial units from 40 ng/J to 14 ng/J and ad ded a requirement for units installed in manufactured homes to comply with a 40 ng/J limit starting in October 2012 and a 14 ng/J limit starting in October 2018. Tier ed compliance deadlines were set for condensing, non-condensing, and weatherized units o n October 1 of 2014, 2015, and 2016, respectively. The 2009 amendments also estab lished an incentive program for early compliance and committed to conducting a tech nology assessment to develop and test ultra-low-NOx burner technologies. 11

The September 2014 amendments extended the October 1, 2014 compliance deadline for condensing units to April 1, 2015 to provide ma nufacturers additional time for testing new furnace designs and submitting and receiving ap proval of compliance plans for selling non-compliant condensing units. An emissio ns fee option was added to allow manufacturers to pay to sell non-compliant units fo r up to 36 months after the applicable compliance date. The emissions fees are set at $15 0 for non-condensing units and $200 for condensing units. The fees were set based on upper-limit estimates of the expected cost increase for consumers to purchase ne w compliant units. Manufacturers of units complying with the 14 ng/J emission limit, 90 days prior to the applicable compliance date, may receive $75 in incentive monie s for each non-condensing unit and $90 for each condensing unit. 12

11 SCAQMD. (2009, November 6). Final Staff Report with Socioeconomic Impact Assess ment . Retrieved 9/16/14

from http://www3.aqmd.gov/hb/2009/November/091130a.htm

. 12 SCAQMD. (2014, September 5). Governing Board Agenda Item, September 5, 2014: Ame nd Rule 1111 – Reduction of NOx Emissions from Natural-gas-fired, Fan-type Central Furnaces. Retrieved 9/9/14 from http://www.aqmd.gov/docs/default-source/Agendas/Gov erning-Board/2014/2014-sep5-032.pdf?sfvrsn=2

.SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DI STRICT

Final Staff Report: Rule 4905 January 22, 2015

6 Final Staff Report with Appendices

For Amendments to Rule 4905 D. Control Technology

At the time of the November 2009 amendment to SCAQM D Rule 1111, no compliant units were available to meet the new 14 ng/J emissi on limit. The District partnered with SCAQMD to fund a technology assessment, with additi onal funding provided by Southern California Gas Company, to develop and tes t low-NOx furnace technologies. The manufacturer-specific details of the technologi es developed during this assessment remain proprietary and confidential; however, the a ssessment was completed in the first quarter of 2014 and resulted in the successful deve lopment and testing of several prototypes that achieved the 14 ng/J NOx emission l imit from SCAQMD Rule 1111. 13

Four participants were selected to develop and test prototypes including two furnace manufacturers, a burner manufacturer, and a researc h institute experienced with combustion technologies. Successful prototypes inc luded condensing and noncondensing furnaces with single and variable firing rates and a variety of heat input capacities that encompassed the sizes of most units found in residential and small commercial buildings. These prototypes demonstrate d that the 14 ng/J NOx emission limit is achievable in all unit types subject to Ru le 4905, although development of units installed in manufactured homes will likely take si gnificantly longer. The prototypes implemented enhanced pre-mixing and modified burner s and passed safety and reliability testing.

At the time of completion for the technology assess ment, manufacturers still faced several obstacles to commercialization including de sign, materials, controls, and manufacturing. Conversations with technology asses sment participants indicated that most manufacturers will have new compliant furnaces commercially available by the SCAQMD Rule 1111 compliance deadlines, and more tha n one manufacturer claimed to already have compliant units ready for commercia lization. However; a few of the manufacturers, and the Air Conditioning, Heating, a nd Refrigeration Institute (AHRI) raised concerns regarding the compliance dates and requested an option that allows the sale of non-compliant units during the initial implementation period in exchange for

emissions fees.

One manufacturer indicated that their primary focus has been on meeting expected

demand in Southern California and additional time i s needed to meet expected demand in the San Joaquin Valley. Another manufacturer ha s developed compliant units, but expressed the need for additional time to demonstra te the reliability and durability necessary to be able to go to market. However, inf ormation obtained through the multiagency technology assessment project indicated that due to low anticipated demand, high cost to produce, new and costly tooling, and o ther products with higher potential

13 SCAQMD. (2014, September 5). Governing Board Agenda Item, September 5, 2014: Ame nd Rule 1111 – Reduction of NOx Emissions from Natural-gas-fired, Fan-type Central Furnaces. Retrieved 9/9/14 from http://www.aqmd.gov/docs/default-source/Agendas/Gov erning-Board/2014/2014-sep5-032.pdf?sfvrsn=2

.SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DI STRICT

Final Staff Report: Rule 4905 January 22, 2015

7 Final Staff Report with Appendices

For Amendments to Rule 4905 return on investment currently using development re sources, the manufacturer is not actively pursuing the development and manufacturing of complying units.

III. AMENDMENTS TO RULE 4905

A. Overview

The District is implementing the following amendmen ts to Rule 4905:

• Lower the NOx emission limit for residential units to 14 ng/J 14

• Expand the applicability of Rule 4905 to include:

o Commercial units with a NOx emission limit of 14 n g/J

o Units installed in manufactured homes with a NOx e mission limit of 40 ng/J, and lower that NOx emission limit to 14 ng/J in 2018

• Allow the sale of non-compliant units during the i nitial implementation period (36- months) in exchange for the payment of an emissions fee for each non-compliant

unit sold

• Add labeling requirements to new units shipped to or sold in the Valley

• Remove redundant and expired language, including S ection 7.0 (Compliance Schedule)

B. Amendments to Rule 4905

The following discussion details the amendments to Rule 4905. See Rule 4905 for exact language.

Section 1.0—Purpose

Amendments removed the word “residential” to expand the purpose of Rule 4905 to

include commercial units and units installed in man ufactured homes.

Section 2.0—Applicability

The word “residential” was removed to expand rule a pplicability to include commercial units of the same type and in the same size range a nd units installed in manufactured homes. Commercial units in this size range are ess entially the same as residential units. According to industry representatives, natu ral gas-fired, fan-type central furnaces

are not labeled as “residential” or “commercial” wh en sold. The word “District” was replaced with “San Joaquin Valley Air Basin” to imp rove clarity.

14 The previous version of Rule 4905 used pounds of N Ox per million British thermal units of heat output (lb/MMBtu). Amended Rule 4905 uses nanograms NOx per joule of h eat output (ng/J) to allow for regulatory consisten cy in

California. The two units of measurement are inter changeable using equivalency factors.SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DI STRICT

Final Staff Report: Rule 4905 January 22, 2015

8 Final Staff Report with Appendices

For Amendments to Rule 4905 Section 3.0—Definitions

To improve clarity, the term and definition for “Fa n-type Residential Central Furnace” (3.4) was amended to delete “residential” to reflec t expansion of rule applicability. The same definition for “Condensing Unit” as used in SC AQMD Rule 1111, for use with the tiered compliance deadlines was added to the rule. Redundant language was removed from definitions 3.6 (Heat Output (Central Furnace) ) and 3.7 (Manufactured Home). The term “Annual Fuel Utilization Efficiency” is al ready defined in 3.2; hence, the definition does not need to be repeated. Similarly , the United States Code and California Health and Safety Code references are in cluded in the definition for Manufactured Home, making the language from those r eferences redundant and unnecessary. Subsection numbers were changed to re flect the amendments.

Definition 3.12 was added to the rule to define “re sponsible official” as “for the purposes of this rule: for a corporation, a president or vic e-president of the corporation in charge of a principal business function or a duly authoriz ed person who performs similar policymaking functions; for a partnership or sole proprie torship, a general partner or proprietor, respectively.” Definition 3.13 was add ed to the rule to define “weatherized unit” as “for the purposes of this rule, designed f or installation outside of a building, equipped with a protective jacket and integral vent ing, and labeled for outdoor installation,” consistent with SCAQMD Rule 1111.

Section 4.0—Exemptions

All exemptions were removed from the rule and the s ection has been reserved for potential future exemptions.

Section 5.0—Requirements

More Stringent NOx Emission Limits Amendments lowered the NOx emission limit to 14 ng/ J for residential units with a rated heat input of less than 175,000 Btu/hr, and for com bination heating and cooling units a rated cooling capacity of less than 65,000 Btu/hr. Amendments also require new commercial units to meet the 14 ng/J NOx emission l imit and require new units installed

in manufactured homes to meet a NOx emission limit of 40 ng/J. The amended NOx emission limits in Table 1 take effect pursuant to the compliance dates in the same

table.SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DI STRICT

Final Staff Report: Rule 4905 January 22, 2015

9 Final Staff Report with Appendices

For Amendments to Rule 4905 Table 1 NOx Emission Limits (Effective on and afte r February 1, 2015)

Unit Type NOx Emission Limit (ng/J heat output) Compliance

Date

Units installed in manufactured homes 40 February 1,

2015 All non-weatherized condensing units except

those installed in manufactured homes 14 April 1, 2015

All non-weatherized, non-condensing units except those installed in manufactured homes 14 October 1, 2015

Weatherized units 14 October 1, 2016

Units installed in manufactured homes 14 October 1 , 2018

Compliance Deadlines Amendments provide retailers the opportunity to sel l through existing stock consisting of units manufactured prior to the applicable complian ce dates in Table 1 until the sellthrough period end dates in Table 2, provided the u nits are compliant with labeling requirements and the standards in effect on the dat e of manufacture.

Table 2 Sell-through Period End-Dates for Units Ma nufactured Prior to the Applicable Compliance Dates in Table 1
Unit Type Sell-through Period End-date All non-weatherized condensing units except

those installed in manufactured homes January 26, 2016

All non-weatherized, non-condensing units except those installed in manufactured homes July 27, 2016

Weatherized units July 27, 2017 Units installed in manufactured homes (for certified 40 ng/J units) July 27, 2019

SCAQMD included the same tiered compliance deadline s based on unit type to

accommodate difficulties associated with commercial izing different unit types. This accommodation was granted because the SCAQMD NOx em ission limits were

scheduled to take effect October 2014 for condensin g units, but some manufacturers needed additional time to commercialize the newly d eveloped compliant units. Based on the results of the low-NOx furnace technology as sessment and discussions with manufacturers and industry representatives, the tec hnology for compliant units will be available by the SCAQMD Rule 1111 compliance dates, and some units are even expected to be available at the time of this amendm ent.SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DI STRICT

Final Staff Report: Rule 4905 January 22, 2015

10 Final Staff Report with Appendices

For Amendments to Rule 4905 Emissions Fee Option To address concerns from manufacturers, the Distric t added an option to allow manufacturers to pay a per unit emissions fee for u nits sold in the Valley that meet the

current emission limits but do not meet the amended emission limits.

To help minimize unfair competitive disadvantage fo r manufacturers that will provide compliant units to the San Joaquin Valley, the amen dments allow the sale of noncompliant units during the initial implementation p eriod (36-months) in exchange for the payment of an emissions fee for each non-compliant unit sold. This allowance is necessary to ensure adequate supply for the expecte d demand for new units in the San Joaquin Valley. However, the emissions fee is set at a level to provide a financial disincentive for continued sale of non-compliant un its as follows:

It is estimated that the retail value for non-compl iant units will be approximately $150 less for non-condensing units and $200 less for con densing units. One way to disincentivize the sale of non-compliant units woul d have been to set the emissions fees at this price differential. However, to encourage manufacturers to produce compliant

units with lower emissions the emissions fees inclu de an additional surcharge of $75 for non-condensing units and $90 for condensing units. This surcharge equates to the incentive rebate currently provided by South Coast AQMD and is expected to put the Valley in a more favorable position for receiving c ompliant units. Therefore, the emissions fees are set to $225 for each non-condens ing unit and $290 for each condensing unit.

Section 5.4 was added to Rule 4905 with the followi ng language:

5.4 Emissions Fee Option

Any manufacturer of units regulated by this rule m ay elect to pay a per unit emissions fee of $290 for each condensing furnace a nd $225 for each non-condensing or manufactured home furnace distrib uted or sold into the San Joaquin Valley in lieu of meeting the 14 ng/J e mission limit in Table 1 of this rule, provided the NOx emission rate is les s than or equal to 40 ng/J. A manufacturer may elect to pay the per unit emissions fee for a time period of no more than 36 months after the app licable compliance

date in Table 1. A manufacturer shall submit a com pliance plan for each 12-month time period after the applicable complianc e date during which the manufacturer elects to pay the emissions fee in lieu of meeting the

NOx emission limit.

5.4.1 Any manufacturer electing to comply using thi s emissions fee option shall submit to the APCO a compliance plan n o later than 30 days prior to the applicable compliance date in Tab le 1. The compliance plan shall include the following:SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DI STRICT

Final Staff Report: Rule 4905 January 22, 2015

11 Final Staff Report with Appendices

For Amendments to Rule 4905 5.4.1.1 A letter with the name of the manufacturer requesting the emissions fee option signed by a responsible offici al identifying the unit type and the 12-month emission s fee option compliance period that the emissions fees co ver.

5.4.1.2 An estimate of the quantity of applicable u nits to be distributed or sold into the San Joaquin Valley Air Basin during the emissions fee option compliance period a nd supporting documentation. The estimate shall be ba sed on

total distribution and sales records or invoices of condensing, non-condensing, weatherized or mobile h ome fan-type central furnaces that were distributed or sold into the San Joaquin Valley Air Basin during the 12-mont h period of July 1 to June 30 prior to the applicable compliance date, along with supporting documentatio n.

5.4.2 The manufacturer shall submit a report to the APCO, signed by the responsible official for the manufacturer, identify ing by model number the quantity of applicable units actually di stributed or sold into the San Joaquin Valley Air Basin during the ap plicable 12- month emissions fee option compliance period and a check for payment of emissions fees for those units. The rep ort and payment

of emissions fees must be submitted to the APCO no later than thirty (30) days after the end of each 12-month emi ssions fee option compliance period.

At the end of each 12 month emissions fee option co mpliance period, the number of

units distributed or sold into the District will be reconciled and the manufacturer will pay fees for each noncompliant unit sold under the emis sions fee option.

Units Installed in Manufactured Homes

The District examined whether other air districts r egulate units installed in manufactured

homes and found that until 2009 these units were no t regulated in any of the air districts, including SCAQMD, Bay Area Air Quality Management D istrict (BAAQMD), Sacramento Metropolitan Air Quality Management District (SMAQM D) and Ventura County Air Pollution Control District (VCAPCD). SCAQMD added requirements during the 2009

amendment of Rule 1111 for units installed in manuf actured homes to meet a NOx emission limit of 40 ng/J, effective October 1, 201 2, and an emission limit of 14 ng/J,

effective October 2018. Most of the basic technolo gy is the same for residential units and units installed in manufactured homes, but ther e are significant differences in configuration, sizing, and air supply between the t wo unit types. Even so, SCAQMD added the new requirements because units installed in manufactured homes are capableSAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DI STRICT

Final Staff Report: Rule 4905 January 22, 2015

12 Final Staff Report with Appendices

For Amendments to Rule 4905 of complying with the 40 ng/J NOx emission limit wi thout additional modifications. 15
Amendments do not allow for a sell-through period f or these units in the amended rule, because they have already been required in SCAQMD s ince 2012. Amendments allow until October 2018 for manufacturers to develop and commercialize units installed in manufactured homes that comply with the amended 14 ng/J NOx emission limit and provide for a 300-day sell-through period.

Weatherized Units Amendments address weatherized units as a separate technology, consistent with
SCAQMD Rule 1111. Conversations with manufacturers and comments from

stakeholders indicated that some of the manufacture rs produce weatherized units using the same components and technology as non-weatheriz ed units, while others produce them as a separate unit type, utilizing different c omponents than non-weatherized units. Because some manufacturers produce weatherized unit s using different components and technology as non-weatherized units, some of th e manufacturers have requested

additional time to commercialize weatherized units that comply with the amended 14 ng/J NOx emission limit. Amendments allow until Oc tober 1, 2016 for manufacturers to comply with the new 14 ng/J NOx emission limit, wit h a sell-through period until July 27, 2017. These compliance deadlines are consistent wi th SCAQMD Rule 1111.

Section 6.0—Administrative Requirements

Amendments revised the labeling requirements for cl arity and added a new requirement to accompany the amended emission limits. The amen ded labeling requirements take effect on and after the applicable compliance dates in Table 1, and require manufacturers to display the heat input capacity or cooling capacity, the applicable NOx emission limit, and the date of manufacture or date code on the shipping container and rating plate of the unit. The amended labeling req uirements ensure compliance with the multiple amended emission limits and the sell-throu gh period requirements and align the requirements of Rule 4905 with those of SCAQMD Rule 1111.

Amendments clarify the testing requirements of Sect ion 6.2.1 by specifying that each natural gas-fired, fan-type central furnace model m ust be tested according to the requirements, rather than each unit.

Section 7.0—Compliance Schedule

Section 7.0 (Compliance Schedule) was removed to el iminate redundancy. The compliance schedule is already specified in Section s 5.0 (Requirements) and 6.0 (Administrative Requirements).

15 SCAQMD. (2009, November 6). Final Staff Report with Socioeconomic Impact Assess ment . Retrieved 9/16/14

from http://www3.aqmd.gov/hb/2009/November/091130a.htm

.SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DI STRICT

Final Staff Report: Rule 4905 January 22, 2015

13 Final Staff Report with Appendices

For Amendments to Rule 4905 IV. SUPPORTING ANALYSES

A. Global Climate Change and Greenhouse Gases

The California Global Warming Solutions Act of 2006 (AB 32) created a comprehensive, multi-year program to reduce greenhouse gas (GHG) e missions in California, with the overall goal of restoring emissions to 1990 levels by the year 2020. ARB and the Legislature are developing policies and programs to implement AB 32. The District

believes that the evidence and the rationale that c limate change is occurring is compelling and convincing. In addition to the long -term consequences of climate change, the District is concerned with the potentia l ramifications of more moderate but imminent changes in weather patterns. The Valley d epends heavily on agriculture for its economy and has developed agricultural practice s based on the last several decades of weather patterns. Unanticipated and large fluct uations in these patterns could have a devastating effect on the Valley’s economy.

While there are many win-win strategies that can re duce both GHG and criteria/toxic pollutant emissions, when faced with situations tha t involve tradeoffs between the two, District staff believes that the more immediate pub lic health concerns that may arise from an increase in criteria or toxic pollutant emi ssions should take precedence. The District’s Governing Board adopted the Climate Chan ge Action Plan (CCAP) in August 2008. For California Environmental Quality Act (CE QA) requirements, one of the goals of the CCAP is to establish District processes for assessing the significance of greenhouse gas impacts. The District has developed a policy and guidance for addressing greenhouse gases under CEQA.

B. Health Benefits

The District is a public health agency whose missio n is to improve the health and quality of life for all Valley residents through efficient, effective and entrepreneurial air quality management strategies. The District periodically c ompiles attainment plans to identify individual regulations and other strategies that wi ll achieve the emissions reductions needed for the Valley to meet federal health-based air quality standards (National Ambient Air Quality Standards, or NAAQS). Guided b y its Health-Risk Reduction Strategy, the District develops and implements both attainment plans and regulations to attain the NAAQS in the quickest, most health-prote ctive, and most cost-effective manner. Amendments to Rule 4905 are one component of this overall control strategy. Since this rule amendment reduces NOx, it benefits public health by contributing to improved ozone and PM2.5 air quality.

C. Emission Reduction Analysis

As presented in the 2012 PM2.5 Plan , the annual NOx emissions from the source category currently subject to Rule 4905 are expecte d to be 2.54 tons per day (tpd) in 2017. The District did not make a specific emissio n reduction commitment for this ruleSAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DI STRICT

Final Staff Report: Rule 4905 January 22, 2015

14 Final Staff Report with Appendices

For Amendments to Rule 4905 amendment in that plan in lieu of conducting a more thorough emission reduction analysis in this rule amendment.

Amendments lower the allowed NOx emission rates by 65% for new units sold in the San Joaquin Valley. This will result in approximat ely 2.10 tpd NOx emission reductions upon full turnover of existing units in 2036, refle cting a greater than 50% reduction from projected emissions without the reductions achieved by amendments. The complete emission reduction analysis is presented in Appendi x B of this Final Staff Report.

D. Cost Effectiveness Analysis

Pursuant to California Health & Safety Code (CH&SC) Section 40920.6(a), the District has prepared a cost effectiveness analysis to analy ze the economic feasibility of the

rule amendments. The estimated cost effectiveness for implementing the amendments for natural gas-fired, fan type central furnaces is estimated to range from $30,598 to $40,808 per ton of NOx emission reductions. The di fferential cost to purchase a 14 ng/J compliant unit is estimated to range from $160.12 t o $213.49, making these amendments cost effective. The complete analysis i s presented in Appendix C of this Final Staff Report.

E. Socioeconomic Analysis

Pursuant to CH&SC 40728.5(a), “Whenever a district intends to propose the adoption, amendment, or repeal of a rule or regulation that w ill significantly affect air quality or emissions limitations, that agency shall, to the ex tent data are available, perform an assessment of the socioeconomic impacts of the adop tion, amendment, or repeal of the rule or regulation.” No significant socioeconomic impacts are expected from the rule amendments. The complete socioeconomic analysis is presented in Appendix D of this Final Staff Report.

F. Rule Consistency Analysis

Pursuant to CH&SC Section 40727.2, the District pre pared a rule consistency analysis, comparing the elements of the amendments with the c orresponding elements of other District rules and federal regulations. The Distri ct found that none of the amendments conflict with other District rules, or federal rule s, regulations, or policies covering similar stationary sources. The complete rule consistency analysis is presented in Appendix E of this Final Staff Report.

G. CEQA

According to the California Environmental Quality A ct (CEQA) statues and pursuant to Section 15061 of the CEQA Guidelines, the District investigated the possible environmental impacts of the amendments to Rule 490 5. Based on the District’s investigation and lack of evidence to the contrary, the District has concluded that theSAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DI STRICT

Final Staff Report: Rule 4905 January 22, 2015

15 Final Staff Report with Appendices

For Amendments to Rule 4905 rule amendments will not have any significant adver se effects on the environment. As such, the District finds that the rule amendments d o not constitute a project under the provisions of the California Environmental Quality Act of 1970 (CEQA). Furthermore, the rule amendments are exempt per the general rule that CEQA applies only to projects which have the potential for causing a sig nificant effect on the environment (CEQA Guidelines §15061 (b)(3)). Therefore pursuan t to Section 15062 of the CEQA Guidelines, Staff filed a Notice of Exemption upon Governing Board approval of

amendments to Rule 4905.

V. RULE DEVELOPMENT PROCESS

A. Public Workshop for Rule 4905

The District hosted a public workshop to present dr aft amendments and receive public comments on October 16, 2014. The draft rule and s taff report were made available for the public workshop. The public workshop was follo wed by a two-week public comment period ending at 5:00 PM on October 30, 2014. All significant comments received before the comment period deadline were reviewed an d incorporated into the proposed rule, staff report, and appendices as appropriate.

B. Public Hearing for Rule 4905

In accordance with CH&SC Section 40725, the propose d amendments to Rule 4905 and the final draft staff report were publicly noti ced and made available prior to the December 18, 2014 Governing Board public hearing to consider adoption of the proposed rule amendments. The public was invited t o provide comments to District Governing Board members during the public hearing. At the public hearing the Governing Board made a motion to postpone the adopt ion of the rule until the next regularly scheduled Governing Board public hearing meeting, on January 22, 2015.

Because significant changes were made to the propos ed rule from the version made available on November 18, 2014 for public review an d comment the District published a

new version of the rule in accordance with CH&SC Se ction 40725 requirements prior to the January 22, 2015 Governing Board public hearing to consider adoption of the proposed rule amendments. The public was again inv ited to provide comments to the District Governing Board at the public hearing on J anuary 22, 2015.SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DI STRICT

Final Staff Report: Rule 4905 January 22, 2015

16 Final Staff Report with Appendices

For Amendments to Rule 4905 This page intentionally blank.SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DI STRICT

Appendix A: Comments and Responses January 22, 20 15

A - 1 Final Staff Report with Appendices

For Amendments to Rule 4905 

### APPENDIX A

Summary of Significant Comments and Responses

For Amendments to Rule 4905

January 22, 2015SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DI STRICT

Appendix A: Comments and Responses January 22, 20 15

A - 2 Final Staff Report with Appendices

For Amendments to Rule 4905 This page intentionally blank.SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DI STRICT

Appendix A: Comments and Responses January 22, 20 15

A - 3 Final Staff Report with Appendices

For Amendments to Rule 4905 SUMMARY OF SIGNIFICANT COMMENTS RULE 4905 (NATURAL GAS-FIRED, FAN-TYPE RESIDENTIAL CENTRAL FURNACES) PROPOSED RULE PACKAGE – January 22, 2015

The rule package for proposed amendments to Rule 49 05 (Natural Gas-Fired, FanType Residential Central Furnaces) was heard before the District’s Governing Board at a public hearing on January 22, 2015. The followin g is a summary of comments received at the public hearing.

EPA REGION IX COMMENTS:

1. COMMENT: The proposed addition of provisions allowing fee pa yment in lieu of compliance with emission limits (Section 5.4) under mines Rule 4905’s enforceability and thus limits our ability to rely on it for SIP emission reduction credit in accordance with long-standing national po licy on economic incentive programs (EIPs) and other non-traditional emission reduction measures (see, e.g., Improving Air Quality with Economic Incentive Programs, EPA-452/R-01- 001, January 2001).

RESPONSE: The emissions fee option is only allowed in the f irst three years of implementation, while projected emission reductions are based on the 20 year period to reach full turnover of existing units. T he District expects compliant units to be available by the compliance dates and manufac turer participation in the emissions fee option will be minimal.

2. COMMENT: To clarify the impact of the proposed rule revision s, we request that the District clarify, in the associated staff repor t, the calculated cost of NOx reductions ($/ton) based on the fee included in Sec tion 5.4 in the revised draft of

Rule 4905.

RESPONSE: The District has included sufficient information in the Staff Report regarding the cost effectiveness of implementing th e proposed amendments.

ARB COMMENTS:

A comment letter was not received from ARB.

PUBLIC COMMENTS: Comments were received from the following:

Air-Conditioning, Heating, & Refrigeration Institut e (AHRI)SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DI STRICT

Appendix A: Comments and Responses January 22, 20 15

A - 4 Final Staff Report with Appendices

For Amendments to Rule 4905 1. COMMENT: The emissions fee should be $150-$200 consistent wi th the South Coast Air Quality Management District’s (SCAQMD) Ru le 1111, because in concept, the fee in the SCAQMD rule puts compliant and noncompliant units on an approximate equal cost base. (AHRI)

RESPONSE: The proposed emissions fee is designed to provide an advantage to manufacturers that produce compliant units while still offering an avenue for manufacturers of noncompliant units to offer produc ts while ramping up production of compliant units during the initial im plementation period.SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DI STRICT

Appendix A: Comments and Responses January 22, 20 15

A - 5 Final Staff Report with Appendices

For Amendments to Rule 4905 SUMMARY OF SIGNIFICANT COMMENTS FOR PROPOSED AMENDMENTS TO RULE 4905 (NATURAL GAS-F IRED, FANTYPE RESIDENTIAL CENTRAL FURNACES) PROPOSED RULE PACKAGE – December 18, 2014

The rule package for proposed amendments to Rule 49 05 (Natural Gas-Fired, FanType Residential Central Furnaces) was heard before the District’s Governing Board at a public hearing on December 18, 2014. The followi ng is a summary of comments received at the public hearing.

EPA REGION IX COMMENTS:

No verbal comments were received from EPA at the pu blic hearing.

ARB COMMENTS:

No verbal comments were received from ARB at the pu blic hearing.

PUBLIC COMMENTS: Comments were received from the following:

Southern California Gas Company (SCGC)

1. COMMENT: We appreciate the District’s support in obtaining the research and development funding for the technology assessment. We also appreciate the District making proposed Rule 4905 consistent with South Coast Air Quality Management District (SCAQMD) Rule 1111 and we suppo rt the proposed rule amendments. (SCGC)

RESPONSE: The District recognizes and appreciates efforts o n the part of SCGC in developing new technology and participating in the rule amendment process for proposed Rule 4905.SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DI STRICT

Appendix A: Comments and Responses January 22, 20 15

A - 6 Final Staff Report with Appendices

For Amendments to Rule 4905 SUMMARY OF SIGNIFICANT COMMENTS FOR PROPOSED AMENDMENTS TO RULE 4905 (NATURAL GAS-F IRED, FANTYPE RESIDENTIAL CENTRAL FURNACES) PROPOSED RULE PACKAGE – November 18, 2014

The rule package for proposed amendments to Rule 49 05 (Natural Gas-Fired, FanType Residential Central Furnaces) was made availab le for public review and comment by the San Joaquin Valley Unified Air Pollution Con trol District (District) on November 18, 2014. Summaries of significant comments receiv ed during the public comment period are summarized below.

EPA REGION IX COMMENTS:

A comment letter was not received from EPA.

ARB COMMENTS:

A comment letter was not received from ARB.

PUBLIC COMMENTS: Comments were received from the following:

Air-Conditioning, Heating, & Refrigeration Institut e (AHRI) Goodman Global, Inc. (Goodman)

1. COMMENT: The District should revise Proposed Rule 4905 in on e or both of the following ways:

• Add an emissions fee option to Proposed Rule 4905.

• Extend the compliance deadlines in Proposed Rule 4 905 by one year to allow additional time for manufacturers to develop compli ant units and plan inventory positions. (AHRI, Goodman)

RESPONSE: The compliance deadlines and 300-day sell-through p eriod within Proposed Rule 4905 are consistent with those recent ly adopted by SCAQMD. It is expected that new units will be available by the proposed compliance deadlines. To satisfy plan commitments and provide for regulatory consistency in California, the District will not extend the pro posed amendments an additional year; however, to address the concerns presented, t he District will consider adding an emissions fee option to Proposed Rule 490 5. This additional option will be presented to the Governing Board at the Pub lic Hearing on December 18, 2014. If the Board approves of adding an emissions fee option to Rule 4905, the District will return to the Board with updated amen dments for consideration in early 2015.SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DI STRICT

Appendix A: Comments and Responses January 22, 20 15

A - 7 Final Staff Report with Appendices

For Amendments to Rule 4905 SUMMARY OF SIGNIFICANT COMMENTS

FOR DRAFT AMENDMENTS TO RULE 4905 (NATURAL GAS-FIRED, FAN TYPE RESIDENTIAL CENTRAL FU RNACES)

PUBLIC WORKSHOP – OCTOBER 16, 2014

The San Joaquin Valley Unified Air Pollution Contro l District (District) held a public workshop to present, discuss, and hear comments on the draft amendments to Rule 4905 and draft staff report on October 16, 2014. S ummaries of significant comments received during the public workshop and the associa ted two-week commenting period following the workshop are summarized below.

EPA REGION IX COMMENTS:

3. COMMENT: Clarify if all units or only reference units from t he manufacturer

should be tested and certified under Section 6.2.1.

RESPONSE: Clarifying language has been added to section 6.2 .1. See the Proposed Rule and Final Draft Staff Report for thes e changes.

4. COMMENT: Correct the typographic error referencing ARB Method 100.1 in

section 6.2.2.

RESPONSE: The reference to CARB Method 100.1 in Section 6.2 .2 was changed to CARB Method 100, which was approved by E PA June 28, 1997. See the Proposed Rule for this change.

5. COMMENT: The District should reduce the sell-through period from the 1 year that is currently proposed to a shorter period. An alogous South Coast Rule 1111 allows for a 300 day sell through period.

RESPONSE: The sell-through period has been amended to be co nsistent with the sell-through period in South Coast Rule 1111. See the Proposed Rule and Final Draft Staff Report for these changes.

ARB COMMENTS:

The District did not receive a comment letter from ARB.SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DI STRICT

Appendix A: Comments and Responses January 22, 20 15

A - 8 Final Staff Report with Appendices

For Amendments to Rule 4905 PUBLIC COMMENTS: Comments were received from the following:

Air-Conditioning, Heating, & Refrigeration Institu te (AHRI) Ingersoll Rand (IR) Southern California Gas Company (SCGC)

6. COMMENT: What is the price differential between new units an d old units based on? (SCGC)

RESPONSE: The price differential between new units and old units is based on the information used by SCAQMD to set the prices of the emissions fee option during the September 5, 2014 amendments to Rule 111 1.

7. COMMENT: The SCAQMD Rule lists the new lower NOx emission limit as 14 ng/J, and in the Staff Report for September 5, 2014 amendments, states that the this is equivalent to 20 ppmv. The District has a ppmv limit of 19.5. This may cause problems due to regulatory inconsistency betw een the two air districts. (AHRI, IR, SCGC)

RESPONSE: The NOx limit has been revised in proposed Rule 4 905 to 20 ppmv for simplicity and consistency.

8. COMMENT: The District should verify with manufacturers tha t the labeling requirements added to Draft Rule 4905 are feasible to implement. (SCGC)

RESPONSE: The labeling requirements match those in SCAQMD R ule 1111, which were adopted after extensive meetings with in dustry representatives and public workshops.

9. COMMENT: The District should add an emissions fee option t o proposed Rule

4905 to allow manufacturers that are unable to comm ercialize new units to still sell non-compliant units in the District. The Dist rict should also extend the compliance deadlines beyond those in the SCAQMD to allow additional time for manufacturers to commercialize new units and respon d to the increase in production volume. (AHRI, IR)

RESPONSE: As discussed in the Final Draft Staff Report, the compliance deadlines within Proposed Rule 4905 are consistent with the deadlines recently adopted by SCAQMD. Additionally, some manufacturer s have indicated that compliant models are currently ready for sale, and the District expects additionalSAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DI STRICT

Appendix A: Comments and Responses January 22, 20 15

A - 9 Final Staff Report with Appendices

For Amendments to Rule 4905 manufacturers to have compliant units available by the compliance deadlines. Refer to the Final Draft Staff Report for further d etails.

10. COMMENT: The District should address weatherized units as a separate category, with a later compliance deadline than non -weatherized units. (AHRI, IR)

RESPONSE: The District amended the Proposed Rule to impleme nt compliance
dates that are consistent with SCAQMD. Manufacture rs of weatherized units would have until October 1, 2016, with a sell-throu gh period until July 27, 2017, to comply with the proposed 0.0325 lb/MMBtu NOx emi ssion limit. See Proposed Rule 4905 and the Final Draft Staff Report for further details.SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DI STRICT

Appendix A: Comments and Responses January 22, 20 15

A - 10 Final Staff Report with Appendices

For Amendments to Rule 4905 This page intentionally blank.SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DI STRICT

Appendix B: Emission Reduction Analysis January 2 2, 2015

B - 1 Final Staff Report with Appendices

For Amendments to Rule 4905 

### APPENDIX B

Emission Reduction Analysis

For Amendments to Rule 4905

January 22, 2015SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DI STRICT

Appendix B: Emission Reduction Analysis January 2 2, 2015

B - 2 Final Staff Report with Appendices

For Amendments to Rule 4905 This page intentionally blank.SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DI STRICT

Appendix B: Emission Reduction Analysis January 2 2, 2015

B - 3 Final Staff Report with Appendices

For Amendments to Rule 4905 EMISSION REDUCTION ANALYSIS

FOR AMENDMENTS TO RULE 4905

I. SUMMARY

Rule 4905 reduces emissions of oxides of nitrogen ( NOx) by establishing NOx emissions for natural gas-fired, fan-type residenti al central furnaces (residential units) sold in the San Joaquin Valley (Valley) with a rate d heat input capacity of less than 175,000 British thermal units per hour (Btu/hr), an d for combination heating and cooling units, a rated cooling capacity less than 65,000 Bt u/hr.

Amendments to Rule 4905 lowered the NOx emission li mit for residential units and

added NOx emission limits for units installed in co mmercial buildings (commercial units)

and units installed in manufactured homes. The NOx emission limit for residential units was lowered and the applicability expanded to inclu de commercial units and units

installed in manufactured homes. Because Rule 4905 is a point-of-sale rule, emission reductions will be achieved gradually as older unit s are replaced over the 20 year turnover period from 2017 through 2036.

The District’s 2008 PM2.5 Plan, 2012 PM2.5 Plan, and 2013 Plan for the Revoked 1-

hour Ozone Standard

included commitments to amend Rule 4905, but did n ot specify

an emission reduction commitment for this rule amen dment; therefore, there is no comparison between a plan emission reduction commit ment and the amended rule

emissions reduction. The baseline NOx emissions an d estimated NOx emission

reductions for residential and commercial units are summarized in Table B-1 below.

Table B-1 Summary of Emission Reductions from Natu ral Gas-Fired, Fan-Type Central Furnaces (2036)

Furnace Category 2036 Baseline NOx

Emissions Inventory (tons per day) NOx Emission

Reduction Upon Full

Turnover in 2036 (tons per day) Percent Reduction

from Projected 2036 Baseline (%)

Residential 3.24 1.61 50.0

Commercial 0.92 0.48 52.2

TOTAL 4.16 2.10 50.5

II. BACKGROUND

Rule 4905 applies to any person who supplies, sells , offers for sale, installs, or solicits the installation of natural gas-fired, fan-type res idential central furnaces with a rated heat input capacity less than 175,000 Btu/hr, and f or combination heating and cooling units, a rated cooling capacity less than 65,000 Bt u/hr. Units in the applicable size range are used in nearly all residences with access to natural gas and the majority ofSAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DI STRICT

Appendix B: Emission Reduction Analysis January 2 2, 2015

B - 4 Final Staff Report with Appendices

For Amendments to Rule 4905 commercial buildings. As demonstrated in this appe ndix, the 2036 total baseline NOx emission inventory for units affected by rule amend ments is 4.16 tons per day (tpd).

The rule amendments lowered the NOx emission limit for residential units to 14 ng/J; established a NOx emission limit of 14 ng/J for com mercial units; and require units installed in manufactured homes to comply with a NO x emission limit of 40 ng/J and

lower the NOx emission limit for these units to 14 ng/J in 2018. The compliance dates

for amendments are as follows:

• February 1, 2015 for units installed in manufactur ed homes,

• April 1, 2015 for condensing residential and comme rcial units,

• October 1, 2015 for non-condensing residential and commercial units, and

• October 1, 2018 for the lower NOx emission limit f or units installed in

manufactured homes.

Manufacturers, distributors, and retailers are allo wed a 300-day sell-through period for units manufactured prior to the applicable complian ce date. Manufacturers that are unable to commercialize new units, or that are unab le to respond to the increase in demand in time for the compliance dates have the op tion of paying a per unit emissions fee for each noncompliant unit sold in the San Joaq uin Valley for up to 36 months after the applicable compliance date. As a point-of-sale rule, Rule 4905 emission reductions will be achieved through attrition as older units a re replaced over the 20 year expected life-span of the units during the period from 2017 through the end of 2036.

Units installed in manufactured homes already achie ve the amended 40 ng/J NOx limit without requiring any modifications 1 , but residential and commercial units require new control technologies to achieve the amended NOx emi ssion limit of 14 ng/J. Based on technology assessment results (see Staff Report), n ew units will likely exceed the amended NOx emission limit of 14 ng/J; however, the District will claim SIP credit for emission reductions gained from implementing the am ended NOx emission limit of 14 ng/J. The following section details the assumption s made for the emission reduction analysis, and describes the research and equations used to estimate the total NOx emission reductions upon full turnover at the end o f 2036.

III. EMISSION REDUCTION ANALYSIS

A. Assumptions for the Emission Reduction Analysis

District staff gathered data from District staff re ports, plans, and emissions inventory methodologies; South Coast Air Quality Management D istrict (SCAQMD) Staff Reports from the November 2009 and September 2014 amendment s to Rule 1111 2,3 ; the California Air Resources Board (CARB) emissions inv entory 4 ; a 2009 California

1 SCAQMD. (2009, November 6). Final Staff Report with Socioeconomic Impact Assess ment . Retrieved

9/16/14 from http://www3.aqmd.gov/hb/2009/November/091130a.htm

.SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DI STRICT

Appendix B: Emission Reduction Analysis January 2 2, 2015

B - 5 Final Staff Report with Appendices

For Amendments to Rule 4905 Residential Appliance Saturation Study prepared by KEMA, Inc. for the California Energy Commission (CEC) (KEMA Study) 5 ; and Pacific Gas and Electric’s (PG&E) Commercial Building Survey Report. 6

For the purposes of this Emission Reduction Analysi s, the following assumptions were

made:

1. The emissions inventory category (EIC) used for residential units (610-606-0110- 0000) includes emissions from units installed in ma nufactured homes.

2. The KEMA Study accurately estimates the percent of California population residing in mobile homes and the percent of mobile homes using natural gas heating. These estimates serve as accurate surroga tes for the use of natural gas in manufactured homes in the Valley.

According to the KEMA Study, 3.5% of the California population lives in mobile homes, and 70% of mobile homes use gas heating. As suming that all gas heating in mobile homes is attributed to furnaces, the fraction of emissions from combustion of natural gas for residential space hea ting in manufactured homes is (0.035) x (0.7) = 0.0245 (or 2.45%).

3. No additional emission reductions will be achiev ed from units installed in manufactured homes because these units are already meeting the 40 ng/J NOx emission limit. Although reductions will be achiev ed from units installed in manufactured homes after the amended 14 ng/J NOx em ission limit is implemented in 2018, these reductions are expected to be insignificant in comparison to total reductions; therefore, the Dist rict did not analyze these

reductions and will not claim SIP credit for them.

4. The EIC used for commercial units (060-020-0110- 0000) was calculated by assuming that commercial natural gas combustion for space heating is attributable to small boilers; however, the PG&E Commercial Building Survey

2 SCAQMD. (2009, November 6). Final Staff Report with Socioeconomic Impact Assess ment . Retrieved

9/16/14 from http://www3.aqmd.gov/hb/2009/November/091130a.htm

. 3 SCAQMD. (2014, September 5). Governing Board Agenda Item, September 5, 2014: Ame nd Rule 1111 – Reduction of NOx Emissions from Natural-gas-fired , Fan-type Central Furnaces. Retrieved 9/9/14 from http://www.aqmd.gov/docs/default-source/Agendas/Gov erning-Board/2014/2014-sep5-032.pdf?sfvrsn=2

. 4 CEPAM, Norcal, Version 1.04. Retrieved 9/9/14 fro m < planning inventory not available to public >
5 KEMA, Inc. (Prepared for California Energy Commiss ion). (2010, October). 2009 California Residential Appliance Saturation Study . Retrieved 9/17/13 from http://www.energy.ca.gov/2010publications/CEC200-2010-004/CEC-200-2010-004-ES.PDF

. 6 Pacific Gas and Electric Company. (1999). Commercial Building Survey Report . Retrieved 9/17/13 from http://www.pge.com/includes/docs/pdfs/mybusiness/en ergysavingsrebates/analyzer/buildingreport/ceus_ 1999.pdf

.SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DI STRICT

Appendix B: Emission Reduction Analysis January 2 2, 2015

B - 6 Final Staff Report with Appendices

For Amendments to Rule 4905 Report cited in the methodology references gas furnaces a s providing the majority of commercial space heating. Because the EIC does not separate space heating device types, an estimate was needed for the portion of commercial natural gas combustion for space heating attributed to gas furnaces.

The PG&E Commercial Building Survey Report is assumed to accurately estimate the total capacity of natural gas combusti on attributed to space heating from gas furnaces used in commercial buildings in t he Valley. The total percent of emissions attributed to gas furnaces was obtaine d by dividing the total heating capacity of gas furnaces in the Valley by the total heating capacity of all device types in the Valley.

Total percent of heating capacity from gas furnaces in the valley and desert/mountain climate regions:

= (total gas furnace capacity / total heating capac ity of all units) = (12,494 MMBtu/ 17,805 MMBtu) = 70.2%

5. Because the ARB emission inventory only projects up to 2035, an estimate was

made for NOx emissions from residential and commerc ial units in 2036. An estimated increase in emissions based on the averag e annual increase during the previous five years (2031-2035) was used.

6. The baseline NOx emission factor (EF) for commer cial units is the same as the

baseline NOx EF for residential units because the u nits are essentially the same; therefore, the baseline NOx EF for residential and commercial units is assumed to be the current Rule 4905 limit of 40 ng/J.

7. Based on the amended compliance dates and sell-t hrough periods, the District will claim emission reductions starting in 2017. N on-weatherized units are expected to make up the vast majority of sales in t he District because weatherized units are primarily installed in region s with severe weather. The emission reduction calculations in this analysis ar e conservative because the non-weatherized units are required to comply with t he amended emission limits in January and July of 2016 for condensing and non- condensing units, respectively. The unclaimed reductions from these units in 2016 will easily exceed the reductions that will potentially be clai med early for weatherized units.

8. Based on research conducted for the 2005 adoptio n of Rule 4905, the average life for applicable units is 20 years.

9. Five percent (5%) of units are replaced every ye ar for 20 years, with full compliance reached at the end of 2036.

10. The emissions fee option will not impact expect ed emission reductions.SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DI STRICT

Appendix B: Emission Reduction Analysis January 2 2, 2015

B - 7 Final Staff Report with Appendices

For Amendments to Rule 4905 B. Baseline NOx Emissions Inventory for Uncontrolle d Units in 2036

The baseline emissions inventories for units used i n residential and commercial buildings were obtained from CARB’s CEPAM Norcal V. 1.04. The Emission Inventory Categories (EIC) for residential and comm ercial units are 610-606- 0110-0000 and 060-020-0110-0000, respectively. For both categories, the emissions in 2036 were estimated using the average growth rate of emissions from the previous five years. The total rule basel ine emissions inventory for uncontrolled units in residential buildings was cal culated as follows:

Baseline residential total (in 2036) = Baseline residential emissions in 2035 + average annual increase in emissions from

2031-2035 = 3.21 tpd (in 2035) + {[3.21 tpd (in 2035) – 3.05 tpd (in 2031)]/5} = 3.24 tpd (in 2036)

For units used in commercial buildings, the fractio n of emissions attributed to furnaces was estimated using the PG&E Commercial Building Survey Report

. As with residential units, the emissions for 2036 w ere calculated using average annual emission increase for the previous five year s. The rule baseline emissions inventory for uncontrolled units used in commercial buildings was

calculated as follows:

Baseline commercial total (in 2036) = Baseline commercial emissions from all devices in 2035 + average annual increase in emissions for previous five years = 1.30 tpd (in 2035) + {[1.30 tpd (in 2035) - 1.25 tpd (in 2031)]/5} = 1.31 tpd (in 2036)

Baseline commercial net = Baseline emissions from furnaces used in commercial buildings = (% of heating capacity for gas furnaces in Valley) x (Baseline commercial total ) = (70.2%) x (1.31 tpd) = 0.92 tpd (in 2036)

Baseline total = Baseline residential + Baseline commercial = 3.24 tpd + 0.92 tpd = 4.16 tpd (in 2036)SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DI STRICT

Appendix B: Emission Reduction Analysis January 2 2, 2015

B - 8 Final Staff Report with Appendices

For Amendments to Rule 4905 C. Annual Reductions

The number of units purchased each year is projecte d to rise continually during the turnover period; the District will claim reduct ions from the replacement of units currently in use. Five percent (5%) of the e xisting units operating in 2017 will be replaced annually, starting in 2017, with f ull turnover reached at the end of

2036. The annual reductions were calculated as fol lows:

Annual Reductions = (emissions from 5% of units rep laced annually, starting in 2017) x (reduction in NOx EF) = (net baseline emissions in 2017) x (0.05) x [1- (14 ng/J/ 40 ng/J)]

For residential units, the emissions from units ins talled in manufactured homes were estimated using the KEMA California Residential Appliance Saturation Study and removed from the baseline because no additiona l emission reductions

will be claimed as a result of amendments for these units. The net rule baseline emissions inventory for residential units meeting o nly the current NOx emission limit of 0.093 lb/MMBtu (or 55 ppm), with emissions from manufactured homes removed, was calculated as follows:

Baseline manufactured homes = (Baseline residential total ) x (% population in mobile homes) x (% of mobile homes using natural gas) = 2.54 tpd (in 2017) x (3.5%) x (70%) = 0.06 tpd (in 2017)

Baseline residential net = Baseline emissions from residential units with

emissions from manufactured homes removed

= Baseline residential total (from CARB emission inventory) 7 – Baseline manufactured homes = 2.54 tpd (in 2017) – 0.06 tpd (in 2017) = 2.48 tpd (in 2017)

The annual reduction in NOx emissions from resident ial units was calculated as

follows:

Annual Reductions residential = (Baseline residential net ) x (5% of units replaced annually) x (reduction in NOx EF) = (2.48) x (0.05) x [1-(14/40)] = 0.081 tpd

7 CEPAM, Norcal, Version 1.04. Retrieved 9/9/14 fro m < planning inventory not available to public >SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DI STRICT

Appendix B: Emission Reduction Analysis January 2 2, 2015

B - 9 Final Staff Report with Appendices

For Amendments to Rule 4905 For commercial units, the net baseline emissions we re calculated the same way as they were for 2036 as follows:

Baseline commercial net = Baseline emissions from furnaces used in commercial buildings = (% of heating capacity attributed to gas furnaces in Valley) x (Baseline commercial total ) = 70.2% x 1.07 tpd (in 2017) = 0.75 tpd (in 2017)

The annual reduction in NOx emissions from commerci al units was calculated as

follows:

Annual Reductions commercial = (Baseline commercial net ) x (5% of units replaced annually) x (reduction in NOx EF) = (0.75) x (0.05) x [1-(0.0325 /0.093)] = 0.024 tpd

The annual reduction in NOx emission from all units was calculated as follows:

Annual Reductions total = (Reductions residential + Reductions commercial ) = 0.105 tpd total annual NOx emission

reductions

D. Percent Reduction upon Full Turnover of Existing Units at the End of 2036

The percent reduction upon full turnover at the end of 2036 was calculated by dividing the total reductions by the total baseline emission inventory. In this case, the baseline inventory includes manufactured homes. While no reductions are claimed for these units, they are still include d in the plan inventory; therefore, the final percent reduced should reflect the percen t reduction in emissions from the entire source category. The final percent redu ction upon full turnover at the

end of 2036 is calculated as follows:

Final reductions = (Total annual reductions) x (20 years turnover period) = 0.105 tpd/year x 20 years = 2.10 tpd

Final Percent Reduction = (Final reductions/Baselin e emissions in 2036) x

100% = 2.10 tpd/4.16 tpd x 100% = 50.5% total percent reduction in NOx emissions upon full turnover in 2036SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DI STRICT

Appendix B: Emission Reduction Analysis January 2 2, 2015

B - 10 Final Staff Report with Appendices

For Amendments to Rule 4905 IV. CONCLUSION

As a point-of-sale rule, the NOx emission reduction s from this rule amendment will occur gradually through attrition as older units ar e replaced between 2017 and 2036. The total NOx emission reduction of 2.10 tpd will o ccur upon full turnover at the end of

2036. Table B-2 illustrates the cumulative NOx emi ssion reductions over this 20 year period.

Table B-2 NOx Emission Reductions for Five-Year In tervals from 2020-2036 (tpd)

Year 202 1 202 6 203 1 203 6

Current Total NOx Emission

Inventory 3.47 3.69 3.92 4.16

Total NOx Emission Reductions 0.53 1.05 1.58 2.10 NOx Emission Inventory with Amendments Implemented 2.94 2.64 2.34 2.06SAN JOAQUIN VALLEY AIR POLLUTION CONTROL DISTRICT

Appendix C: Cost Effectiveness Analysis January 22, 2015

C - 1 Final Staff Report with Appendices

For Amendments to Rule 4905 

### APPENDIX C

Cost Effectiveness Analysis

For Amendments to Rule 4905

January 22, 2015SAN JOAQUIN VALLEY AIR POLLUTION CONTROL DISTRICT

Appendix C: Cost Effectiveness Analysis January 22, 2015

C - 2 Final Staff Report with Appendices

For Amendments to Rule 4905 This page intentionally blank.SAN JOAQUIN VALLEY AIR POLLUTION CONTROL DISTRICT

Appendix C: Cost Effectiveness Analysis January 22, 2015

C - 3 Final Staff Report with Appendices

For Amendments to Rule 4905 COST EFFECTIVENESS ANALYSIS

FOR AMENDMENTS TO RULE 4905

I. SUMMARY

Per California Health and Safety Code (CH&SC) Secti on 40920.6(a), the San Joaquin Valley Air Pollution Control District (District) co nducts absolute and incremental cost effectiveness analyses of available emission contro l options to evaluate the economic reasonableness of a new rule or rule amendment prio r to adoption. A cost effectiveness analysis examines the added cost (in dollars per ye ar) of the control technology or technique, divided by the emission reductions achie ved (in tons per year (tpy)).

This rule amendment lowered the NOx emission limit to 14 nanograms per joule (ng/J) for natural gas-fired, fan-type, residential centra l furnaces with a rated heat input of less than 175,000 British thermal units per hour (Btu/hr ), and for combination heating and cooling units a rated cooling capacity of less than 65,000 Btu/hr (referenced in this document as residential units). Amendments also ex panded applicability to include

units installed in manufactured homes and units ins talled in commercial buildings (commercial units).

As Rule 4905 is a point-of-sale rule, the amendment s require any units supplied, sold, or installed in the San Joaquin Valley (Valley) to meet the amended NOx emission limits effective on and after the dates specified in Table 1 in the amended Rule (see Staff Report). Manufacturers that are unable to commerci alize compliant units, or unable to meet the increased demand for compliant units befor e the compliance dates have the option of paying a per unit emissions fee for up to 36 months after the applicable compliance deadline to sell noncompliant units in t he Valley.

Based on the analysis in this appendix, the absolut e cost effectiveness is summarized

in Table C-1. Incremental cost effectiveness is no t applicable to this project.

Table C-1 Cost Effectiveness Analysis Findings for Amended Rule 4905

Number of Units

Affected* Differential Cost for a 0.0325 lb/MMBtu (or 20 ppmv) Compliant Unit Absolute Cost

Effectiveness ($ per ton NOx reduced) 1,252,190 $18.73 to $24.94 $30,598 to $40,808

*Rule 4905 is point-of-sale; therefore, units will not be replaced immediately, but will instead be re placed

at the end of the useful life.

Cost Effectiveness ( $/ton ) = Compliance Cost ( $/year ) Emission Reductions ( ton/year )SAN JOAQUIN VALLEY AIR POLLUTION CONTROL DISTRICT

Appendix C: Cost Effectiveness Analysis January 22, 2015

C - 4 Final Staff Report with Appendices

For Amendments to Rule 4905 II. ESTIMATED COMPLIANCE COSTS

Estimated compliance costs for a rule project can i nclude, but are not limited to, capital equipment costs, engineering design costs, addition al labor or fuel costs, installation costs, and costs incurred from implementing new saf ety requirements. The District does not expect any additional engineering costs, l abor costs, installation costs, or costs from new safety requirements resulting from this ru le amendment. Therefore, compliance costs for this rule amendment consist so lely of the price differential between 14 ng/J and 40 ng/J compliant units.

Units installed in manufactured homes are already i n compliance with the amended NOx emission limit of 40 ng/J without requiring mod ifications; 1 therefore, there are no

costs associated with these amendments. The final cost effectiveness for weatherized

units and units installed in manufactured homes tha t comply with the amended 14 ng/J NOx emission limit is expected to be similar to tha t of other unit types; therefore a separate cost effectiveness analysis was not perfor med for these units because cost information is not currently available.

III. ABSOLUTE COST EFFECTIVENESS ANALYSIS

Absolute cost effectiveness of a control option is additional annual compliance cost, in dollars per year, to meet the amended rule’s requir ements divided by the emission reductions achieved in tons of pollutant reduced pe r year. This absolute cost effectiveness analysis examines the differential co st of a 14 ng/J compliant unit and a 40 ng/J compliant unit and the emission reductions anticipated from lowering the NOx emission limit to 14 ng/J for residential units and adding a 14 ng/J NOx emission limit for

commercial units.

A. Assumptions and Formulas

The following assumptions and formulas were used fo r calculating the absolute cost effectiveness of lowering the NOx emission limit fo r residential units to 14 ng/J and adding this same limit for commercial units. As th ese sources are not permitted or registered, and the new compliant units are not yet commercially available, the number of units subject to amendments and the price differ ential have been estimated using the

best available data.

1 SCAQMD. (2009, November 6). Final Staff Report with Socioeconomic Impact Assess ment . Retrieved

9/16/14 from http://www3.aqmd.gov/hb/2009/November/091130a.htm

.SAN JOAQUIN VALLEY AIR POLLUTION CONTROL DISTRICT

Appendix C: Cost Effectiveness Analysis January 22, 2015

C - 5 Final Staff Report with Appendices

For Amendments to Rule 4905 1. Price Differential (PD):

The estimated price differential for 14 ng/J and 40 ng/J compliant units is taken from the SCAQMD Staff Report from the September 201 4 amendment to their

Rule 1111. 2 The emissions fee option for SCAQMD, $150 for non -condensing units and $200 for condensing units, was set to mat ch the highest estimates of the final price increases to consumers for new comp liant units. 3

Commercially available units currently range from a pproximately $800 to $2,500, with the largest price difference being between con densing and non-condensing units. It is expected that new units will be more efficient than the units they replace, which will help mitigate the price increas e over the life of the unit.

The District calculated a cost effectiveness range based on the SCAQMD emissions fees, where the low estimate for the pric e differential was set to the fee for non-condensing units and the high estimate was set to the fee for condensing units. The $150 to $200 price differential range w ould represent scenarios where either all sales are non-condensing units, at $150 increase to each consumer, or all sales are condensing units, at $200 increase to each consumer. Actual sales will be some fraction of each unit type, but accura te estimates were not available for those sales fractions. Because the final price differentials for both noncondensing and condensing units are expected to be significantly lower than $150 and $200, respectively, this cost-effectivenes s analysis conservatively represents a worst case scenario.

The SCAQMD emissions fees are assumed to be valued in 2014 dollars. Because 2014 is the latest year available in the BL S Inflation Calculator , the average annual inflation rate for years 2010-2014 w as calculated by taking the arithmetic mean of the annual differences in adjust ed dollar values of the price differential (PD 2010 , PD 2011 , PD 2012 , PD 2013 , PD 2014 ). The average annual inflation rate was used to calculate the low and high estimat es for the price differential in 2017. The low and high estimates for the price dif ferential (PD) in 2017 were

calculated as follows:

PD 2014 Dollars, Low Estimate = Emissions fee option for noncondensing units sold in SCAQMD = $150

2 SCAQMD. (2014, September 5). Governing Board Agenda Item, September 5, 2014: Ame nd Rule 1111 – Reduction of NOx Emissions from Natural-gas-fired , Fan-type Central Furnaces. Retrieved 9/9/14 from http://www.aqmd.gov/docs/default-source/Agendas/Gov erning-Board/2014/2014-sep5-032.pdf?sfvrsn=2

. 3 SCAQMD. (2014, September 5). Governing Board Agenda Item, September 5, 2014: Ame nd Rule 1111 – Reduction of NOx Emissions from Natural-gas-fired , Fan-type Central Furnaces. Retrieved 9/9/14 from http://www.aqmd.gov/docs/default-source/Agendas/Gov erning-Board/2014/2014-sep5-032.pdf?sfvrsn=2

.SAN JOAQUIN VALLEY AIR POLLUTION CONTROL DISTRICT

Appendix C: Cost Effectiveness Analysis January 22, 2015

C - 6 Final Staff Report with Appendices

For Amendments to Rule 4905 PD {2010,2011,2012,2013,2014} = Adjusted value of (PD 2014 Dollars, Low

Estimate ) in years 2010-2014, based on

BLS Inflation Calculator = {$137.52, $141.86, $144.79, $146.91, $150}

Average Annual Inflation Rate = {[(PD 2011 /PD 2010 ) + (PD 2012 /PD 2011 ) + (PD 2013 /PD 2012 ) + (PD 2014 /PD 2013 )]/4} – 1 = {[(141.86/137.52) + (144.79/141.86) + (146.91/144.79) + (150/146.91)]/4} – 1 = 0.022 (or 2.2%)

PD 2017 Dollars, Low Estimate = (PD 2014 Dollars, Low Estimate ) x (1 + Average annual inflation rate)^ 3
= $150 x (1 + 0.022) 3

= $160.12

PD 2014 Dollars, High Estimate = Emissions fee option for condensing
units sold in SCAQMD = $200

Because the inflation rates in the BLS Inflation Calculator are independent of the dollar amount being adjusted, the Average Annual In flation Rate calculated above is the same for both the high and low price d ifferential estimates.

Average Annual Inflation Rate = 0.022 (or 2.2%) (sa me as calculated above for the low estimate PD)

PD 2017 Dollars, High Estimate = (PD 2014 Dollars, High Estimate ) x (1 + Average annual inflation rate)^ 3
= $200 x (1 + 0.022) 3

= $213.49

2. Annualized Compliance Cost (ACC) Formula:

The annualized compliance cost (ACC) shows the pric e differential per year of purchasing a new unit over the entire lifespan of t he unit. The ACC was

calculated as follows:

ACC = Price Differential x Capital Recovery Factor (CRF)SAN JOAQUIN VALLEY AIR POLLUTION CONTROL DISTRICT

Appendix C: Cost Effectiveness Analysis January 22, 2015

C - 7 Final Staff Report with Appendices

For Amendments to Rule 4905 The capital recovery factor (CRF) is used to conver t the price differential into equal annual payments over a specified time, at a s pecified interest rate. The

CRF was calculated as follows:

CRF = 1 ) 1( ) 1(

− + +

n n

i i i

= 1

)1.0 1( )1.0 1(1.0

20 20

− + + = 0.117

Where: i = Interest rate (10%) n = Equipment life (20 years) 4

3. Total Number of Units: The number of homes in the Valley was obtained fro m the 2010 Census 5 for the years 2010-2012.

Number of homes in 2010 = 1,332,454 Number of homes in 2011 = 1,336,374 Number of homes in 2012 = 1,338,667

The average rate of increase in number of homes was calculated for that period by taking the arithmetic mean of the annual rates of increase, and

used to estimate the number of homes in 2017 as fol lows:

Average rate of increase 2010-2012 = {[(# of Homes 2011 / # of Homes 2010 ) + (#

of Homes 2012 / # of Homes 2011 )]/2} – 1 = {[(1,336,374/1,332,454) + (1,338,667/1,336,374)]/2} – 1 = 0.0023 (or 0.23 %)

Number of homes in 2017 = (number of homes in 2012) x (1 + average rate of increase in number of homes from 2010-2012)^ 5

= 1,338,667 x (1 + 0.0023) 5

= 1,354,133 homes in 2017

The estimated number of homes in 2017 was multiplie d by the estimated percent of homes using gas heating 6 to obtain the number of residential units subject to Rule 4905 in the Valley. It was assumed that all h omes using gas heating use a natural-gas-fired, fan-type central furnace in the applicable size range. The

4 SJVAPCD. (2005, October 20). Adopt Proposed Rule 4905 (Natural Gas-Fired, Fan-ty pe Residential Central Furnaces) . Retrieved 12/17/13 from http://www.valleyair.org/Board_meetings/GB/agenda_m inutes/Agenda/2005/2005-Oct-20/Item10/GB_Agenda_2005_Oct_20_Item-10.pdf

. 5 U.C. Census Bureau (2010). United States Census 2010 . Retrieved 12/17/13 from http://www.census.gov/2010census/

. 6 KEMA, Inc. (Prepared for California Energy Commiss ion). (2010, October). 2009 California Residential Appliance Saturation Study . Retrieved 9/17/13 from http://www.energy.ca.gov/2010publications/CEC200-2010-004/CEC-200-2010-004-ES.PDF

.SAN JOAQUIN VALLEY AIR POLLUTION CONTROL DISTRICT

Appendix C: Cost Effectiveness Analysis January 22, 2015

C - 8 Final Staff Report with Appendices

For Amendments to Rule 4905 number of residential units subject to amended Rule 4905 in 2017 was calculated

as follows:

Residential units in 2017 = Number of homes in 2017 x percent of homes using gas heating = 1,354,133 x (0.71) = 961,434 homes subject to Rule 4905 in

2017

The number of commercial units was estimated by mul tiplying the number of residential units by the ratio of emissions from co mmercial units to residential units. The emissions were taken from Appendix B of this Final Staff Report. It is assumed that commercial units subject to Rule 4905 are, on average, the same size as residential units, and the usage patterns a re similar. The number of commercial units subject to amended Rule 4905 in 20 17 was calculated as

follows:

Commercial units in 2017 = Number of residential un its subject to

amended Rule 4905 in 2017 x (emissions from commercial units/emissions from residential units) = 961,434 x (0.75/2.48)
= 290,756

The total number of residential and commercial unit s subject to amended Rule

4905 in 2017 was calculated as follows:

Total number of units = Residential units in 2017 + Commercial

units in 2017
= 961,434 + 290,756 = 1,252,190 units subject to amended

Rule 4905 in 2017

4. Total Annualized Cost (TAC) Formula:

The total annualized cost (TAC) shows the total ann ual cost of replacing all applicable units over the lifetime of those units. The TAC was calculated as

follows:

TAC = (ACC) x (Total Number of Units)SAN JOAQUIN VALLEY AIR POLLUTION CONTROL DISTRICT

Appendix C: Cost Effectiveness Analysis January 22, 2015

C - 9 Final Staff Report with Appendices

For Amendments to Rule 4905 5. Total Emission Reductions: The total emission reductions upon full turnover o f existing units in 2036 were calculated based on the analysis in Appendix B as

follows:

Total Reductions tpd = 2.10 tons per day in 2036 (from Appendix B)

Total Reductions tpy = (Total Reductions tpd ) x 365 days/year = 2.10 tpd x 365 days/year = 766.5 tons per year

6. Absolute Cost Effectiveness (ACE) Formula:

The absolute cost effectiveness, as defined above, is the total annual cost of replacing all applicable units, in dollars per year , divided by the total annual emission reductions upon full turnover of existing units. The ACE was calculated

as follows:

ACE = (TAC) / (Total Emission Reductions)

B. Annualized Compliance Cost Calculations

ACC = Price Differential x CRF

ACC Low Estimate = $160.12 x 0.117 = $18.73 (low estimate)

ACC High Estimate = $213.49 x 0.117 = $24.98 (high estimate)

C. Total Annualized Cost (TAC) Calculations

TAC = (ACC) x (Total Number of Units)

TAC Low Estimate = $18.73 x 1,252,190 = $23,453,518.70 (low estimate)

TAC High Estimate = $24.94 x 1,252,190 = $31,229,618.60 (high estimate)

D. Absolute Cost Effectiveness (ACE) Calculations

ACE = (TAC) / (Total Emission Reductions)SAN JOAQUIN VALLEY AIR POLLUTION CONTROL DISTRICT

Appendix C: Cost Effectiveness Analysis January 22, 2015

C - 10 Final Staff Report with Appendices

For Amendments to Rule 4905 ACE Low Estimate = $23,453,518.70 / 766.5 tpy = $30,598.20 per ton of NOx reduced (low estimate)

ACE High Estimate = $31,279,706.20 / 773.8 tpy = $40,808.49 per ton of NOx reduced (high estimate)

IV. INCREMENTAL COST EFFECTIVENESS ANALYSIS

The incremental cost effectiveness is the differenc e in cost between successively more effective controls divided by the additional emissi on reductions achieved. The amended

NOx emission limit is considered the lowest feasibl e achievable NOx emission limit. An incremental cost effectiveness analysis is not appl icable to this project.

V. CONCLUSION

The additional cost for a 0.0325 lb/MMBtu (or 20 pp mv) compliant unit is expected to range from $160.12 to $213.49 in 2017. The differe ntial cost is distributed over the 20 year lifetime of the unit, which reduces the financ ial impact for stakeholders. Also, the absolute cost effectiveness is estimated to range f rom $30,598.20 to $40,808.49 per ton of NOx reduced. Therefore, lowering the NOx emissi on limit to 0.0325 lb/MMBtu (or 20 ppmv) for natural gas-fired, fan-type central furna ces in this size range and expanding rule applicability to include commercial units and units installed in manufactured homes is a cost effective and economically reasonable rul e amendment.SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DI STRICT

Appendix D: Socioeconomic Analysis January 22, 2 015

D - 1 Final Staff Report with Appendices

For Amendments to Rule 4905 

### APPENDIX D

Socioeconomic Analysis

For Amendments to Rule 4905

January 22, 2015SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DI STRICT

Appendix D: Socioeconomic Analysis January 22, 2 015

D - 2 Final Staff Report with Appendices

For Amendments to Rule 4905 This page intentionally blank.SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DI STRICT

Appendix D: Socioeconomic Analysis January 22, 2 015

D - 3 Final Staff Report with Appendices

For Amendments to Rule 4905 SOCIOECONOMIC ANALYSIS

FOR AMENDMENTS TO RULE 4905

I. INTRODUCTION

Pursuant to California Health and Safety Code (CH&S C) Section 40728.5 as well as the 2011 Economic Analysis Process Recommendations

, 1 the San Joaquin Valley Air Pollution Control District (District) conducts a so cioeconomic analysis of a rule or rule amendment that will significantly affect air qualit y or emission limitations prior to rule adoption. A socioeconomic analysis examines how a rule project may impact industries, businesses, employment rates, and the e conomy in the San Joaquin Valley (Valley).

The rule amendments achieve emission reductions by lowering the NOx emission limit for natural gas-fired, fan-type residential central furnaces (residential units) with a rated heat input of less than 175,000 British thermal uni ts per hour (Btu/hr), and for combination heating and cooling units, a rated cool ing capacity of less than 65,000 Btu/hr to 14 ng/J. Amendments also expanded applic ability to include units installed in commercial buildings (commercial units) and units i nstalled in manufactured homes.

The CH&SC requires discussion of the necessity of a dopting, amending, or repealing a rule to attain state and federal ambient air qualit y standards; this requirement is met through the discussion in the body of the Final Sta ff Report. The other five CH&SC requirements for a socioeconomic analysis are satis fied through this appendix, which examines the following items:

• Type of industries or businesses affected by the r ule amendments

• Range of probable costs for the rule amendments (f ull discussion contained in Appendix C)

• Emission reduction potential of the rule amendment s (full discussion contained in Appendix B)

• Availability and cost effectiveness of alternative s to the rule amendments

• How the rule amendments impact the Valley’s employ ment and economy

The District also evaluated two additional items in this socioeconomic analysis, per the

District’s 2011 Economic Analysis Process Recommendations :

1 San Joaquin Valley Air Pollution Control District (SJVAPCD). (2011, October 20). Enhancements to District Economic Analysis of Regulations. Fresno, CA. Retrieved 12/17/13 from http://www.valleyair.org/Board_meetings/GB/agenda_m inutes/Agenda/2011/October/GB_Agenda_Item_13_Oct_20

_ 2011.pdf

.SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DI STRICT

Appendix D: Socioeconomic Analysis January 22, 2 015

D - 4 Final Staff Report with Appendices

For Amendments to Rule 4905 • Costs and socioeconomic impacts from previous vers ions of the rule

• Impacts of rule amendments to small businesses, mu nicipalities, and at-risk

communities

II. AFFECTED INDUSTRIES AND BUSINESSES

Natural gas-fired, fan-type central furnaces are ut ilized in a variety of settings, including, but not limited to, the following areas:

• Residential buildings (houses, apartments, etc.)

• Small commercial buildings (offices, manufacturing facilities, hotels, restaurants, hospitals, educational and religious organizations, etc.)

• Manufactured homes (mobile homes, etc.)

End-users of natural gas-fired, fan-type central fu rnaces will be affected by the rule amendments, as they will not be allowed to purchase 40 ng/J compliant units and could potentially pay more for 14 ng/J compliant units.

Manufacturers of natural gas-fired, fan-type centra l furnaces will be affected by the rule amendments, but there are currently no furnace manu facturers in the Valley. There are Valley wholesalers, suppliers, and contractors who purchase units from manufacturers to sell in the Valley that will be affected by the rule amendments. These businesses will no longer be allowed to sell, distribute, or instal l units meeting a NOx emission limit of 40 ng/J, unless the manufacturer has paid a per uni t emissions fee for each noncompliant unit sold into the Valley. In that ca se, the manufacturer will pay the additional cost and Valley businesses will not be a ffected.

III. COSTS AND SOCIOECONOMIC IMPACTS FROM PREVIOUS VERSIONS OF

RULE 4905

Rule 4905 was adopted in October 2005. These amend ments represent the second generation of this rule. In order to account for t he cumulative impact of multiple generations of rules on this source category, the 2011 Economic Analysis Process

Recommendations advises that staff reports include descriptions and cost estimates for previous generations of air pollution controls and reference previous socioeconomic analyses as each rule is amended.

The Final Draft Staff Report from the October 20, 2005 adoption of Rule 4905 determined that there was no significant cost diffe rence between noncompliant units and compliant units. 2

2 SJVAPCD. (2005, October 20). Adopt Proposed Rule 4905 (Natural Gas-Fired, Fan-ty pe Residential Central Furnaces) . Retrieved 12/17/13 fromSAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DI STRICT

Appendix D: Socioeconomic Analysis January 22, 2 015

D - 5 Final Staff Report with Appendices

For Amendments to Rule 4905 IV. COSTS AND EMISSION REDUCTION POTENTIAL FROM AME NDED RULE

4905

The amendments to Rule 4905 are expected to result in 2.10 tons per day (tpd) of NOx emission reductions upon full turnover of existing units(see Appendix B), and the average annual cost of a 14 ng/J compliant unit is expected to range from $18.73 to $24.94 per year (see Appendix C).

V. ALTERNATIVES TO RULE AMENDMENT

The amended NOx emission limit is considered the lo west achievable NOx emission limit in practice. Therefore, there are no alterna tives to this rule amendment that would be more stringent or achieve additional emissions r eductions.

VI. SOCIOECONOMIC IMPACTS

A socioeconomic impact is an effect on the Valley’s employment or economy due to a regulatory action. There are no socioeconomic impa cts anticipated for these rule amendments because there are no significant impacts to the following three groups that could potentially be affected by this rule-amending project:

• The end-users of units;

• Manufacturers of units; and

• Wholesalers, suppliers, and/or contractors who sup ply or install units.

End-Users Rule 4905 is a point-of-sale rule that does not req uire end-users to replace existing units within a certain time frame; rather, as exist ing units reach the end of their life and the users replace them, they will purchase a unit t hat meets the amended 14 ng/J NOx emission limit, thus ensuring that end-users are no t forced to incur additional costs when their current units are still operable. The p rice differential between 40 ng/J and 14 ng/J compliant units is expected to range from $160 .12 to $213.49 in 2017. This price increase is relatively minor when compared to the t otal cost of approximately $800 to $2,500, with most units costing $1,000 to $1,500. New units are also expected to be more efficient than the units they replace, which w ill help mitigate the price increase

over the life of the unit.

Manufacturers Manufacturers build natural gas-fired, fan-type cen tral furnaces and sell them to wholesalers, suppliers, or contractors for distribu tion to the end-users. These rule

http://www.valleyair.org/Board_meetings/GB/agenda_m inutes/Agenda/2005/2005-Oct-20/Item10/GB_Agenda_2005_Oct_20_Item-10.pdf

.SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DI STRICT

Appendix D: Socioeconomic Analysis January 22, 2 015

D - 6 Final Staff Report with Appendices

For Amendments to Rule 4905 amendments will have a minimal impact to furnace ma nufacturers, because any additional costs to manufacture the 14 ng/J complia nt units will be passed on to the

consumer. Manufacturers that are unable to commerc ialize new units before the compliance dates or unable to respond to increased demand are able to continue selling units in the Valley by paying an emissions fee for each noncompliant unit sold.

District staff has not identified any furnace manuf acturers that have manufacturing facilities located in the Valley. During the Octob er 16, 2014 workshop for the draft rule amendment, the District solicited information regar ding furnace manufacturers in the Valley.

Wholesalers, Suppliers, and/or Contractors Wholesalers, suppliers, and contractors are the med ium between the manufacturing facilities and the end-users, as these parties purc hase units from the manufacturers to

sell and distribute to users. These businesses wil l no longer be allowed to sell, distribute, or install units meeting a NOx emission limit of 40 ng/J. The amendments provide these wholesalers and suppliers with a 300- day period after the effective compliance dates to sell through existing inventory . Units meeting the NOx emission limit of 14 ng/J will be commercially available by the end of 2015. Also, as discussed in Appendix C (Cost Effectiveness Analysis), the price differential between a 40 ng/J and 14 ng/J compliant unit is $160.12 to $213.49. Cont ractors’, suppliers’, and wholesalers’ sales volumes will not be adversely impacted. Prof it margins will remain the same as the cost will be passed on to the consumer.

VII. IMPACTS TO SMALL BUSINESSES, MUNICIPALITIES, A ND AT-RISK

COMMUNITIES

Per the 2011 Economic Analysis Process Recommendations document, District staff is

advised to evaluate how new rules or rule amendment s may impact small businesses, municipalities, and at-risk communities where the m ajor employer may respond to additional compliance costs by laying off workers. As discussed in Section VI above, these rule amendments are not expected to result in any significant socioeconomic impacts, nor any decreased employment for small bus inesses and industries in the Valley. As such, municipalities and at-risk commun ities are not expected to incur any economic or employment effects from these rule amen dments.SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DI STRICT

Appendix E: Rule Consistency Analysis January 22 , 2015

E - 1 Final Staff Report with Appendices

For Amendments to Rule 4905 

### APPENDIX E

Rule Consistency Analysis

For Amendments to Rule 4905

January 22, 2015SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DI STRICT

Appendix E: Rule Consistency Analysis January 22 , 2015

E - 2 Final Staff Report with Appendices

For Amendments to Rule 4905 This page intentionally blank.SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DI STRICT

Appendix E: Rule Consistency Analysis January 22 , 2015

E - 3 Final Staff Report with Appendices

For Amendments to Rule 4905 RULE CONSISTENCY ANALYSIS

FOR AMENDMENTS TO RULE 4905

I. REQUIREMENTS FOR RULE CONSISTENCY ANALYSIS

Pursuant to Section 40727.2 of the California Healt h and Safety Code, prior to adopting, amending, or repealing a rule or regulation, the Di strict is required to perform a written analysis that identifies and compares the air pollu tion control elements of the rule or regulation with corresponding elements of existing or proposed District and United States Environmental Protection Agency (EPA) rules, regulations, and guidelines that apply to the same source category. The elements an alyzed are emission standards, monitoring and testing requirements, and recordkeep ing and reporting requirements. The analysis is discussed in Section II below.

II. RESULTS OF ANALYSIS

A. District Rules

There is no other District prohibitory rule or regu lation tailored specifically for natural gas-fired, fan-type central furnaces (4354 applies to glass melting furnaces). Sources could be subject to other District rules including:

 Rule 1020 Definitions

 Rule 1140 Applicability of Emissions Limits

 Rule 4301 Fuel Burning Equipment

 Rule 6150 Enforcement

The requirements of the rules listed above are not in conflict with, nor are they inconsistent with the requirements of amended Rule 4905.

B. Federal Rules, Regulations, and Policies

There are no applicable Control Technique Guideline s (CTG), Alternative Control Techniques (ACT), New Source Performance Standards (NSPS), National Emission Standards for Hazardous Air Pollutants (NESHAP), Be st Available Control Technology (BACT), or Maximum Achievable Control Technology (M ACT) guidelines for natural gas-fired, fan-type central furnaces with a rated h eat input capacity less than 175,000 Btu/hr or, for combination heating and cooling unit s, a rated cooling capacity less than 65,000 Btu/hr.

1. Control Technique Guidelines (CTG)

District review of the EPA CTG list indicates that there is no CTG for natural gasfired, fan-type central furnaces of this size.SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DI STRICT

Appendix E: Rule Consistency Analysis January 22 , 2015

E - 4 Final Staff Report with Appendices

For Amendments to Rule 4905 2. EPA Alternative Control Techniques (ACT) Documen t

District review of the EPA ACT list indicates that there is no ACT for natural gasfired, fan-type central furnaces of this size.

3. EPA New Source Performance Standard (NSPS)

District review of 40 CFR 60 (NSPS) indicates that there is no NSPS for natural gas-fired, fan-type central furnaces of this size.

4. National Emission Standard for Hazardous Air Pol lutants (NESHAP) and Maximum Achievable Control Technology (MACT)

District review of 40 CFR 61 (NESHAP) and 40 CFR 63 (MACT) indicates that there is no NESHAP or MACT for natural gas-fired, f an-type central furnaces of

this size.

5. EPA Best Available Control Technology (BACT) Req uirements

District review of EPA BACT requirements indicates that there are no BACT requirements listed for natural gas-fired, fan-type central furnaces of this size.

6. EPA Policy on Recordkeeping

EPA has a policy that mandates stationary sources k eep and maintain records for at least five years; however, as a point-of-sal e rule, natural gas-fired, fan-type

commercial and residential central furnaces of this size are not permitted sources and are thus not required to follow specific record keeping guidelines. Therefore, units subject to Rule 4905 are not subject to EPA’s Policy on Recordkeeping.

III. CONCLUSION

Based on the above analysis, District staff found t hat the amendments to Rule 4905 do not conflict with any District or federal rules, re gulations, or policies covering similar stationary sources.