1

- i CHAPTER 1. INTRODUCTION

TABLE OF CONTENTS

1.1 PURPOSE OF THE DOCUM ENT

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

- 1
1.2 SUMMARY OF NATIONAL BENEFITS

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

- 1
1.3 OVERVIEW OF ENERGY C ONSERVATION STANDARD S FOR RESIDENTIAL
FURNACES AND CENTRAL AIR CONDITIONERS AND HEAT PUMPS

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

- 7
1.3.1 Furnaces

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

- 7
1.3.2 Central Air Conditioners and Heat Pumps

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

- 8
1.4 PROCESS FOR SETTING ENERGY CONSERVATION STANDARDS

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

- 10
1.5 STRUCTURE OF THE DOCUMENT

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

- 15

LIST OF TABLES

Table 1

- 1 Annualized Benefits and Costs of Standards for Furnace and Ce ntral Air Conditioner and Heat Pump Energy Efficiency (TSL 4)*

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

- 4
Table 1

- 2 Annualized Benefits and Costs of Standards for Furnace, Central Air Conditioner, and Heat Pump Standby Mode and Off Mode (TSL 2)*

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

- 6
Table 1

- 3 Energy Conservation Standards for Residential Furnaces Manufactured On or After November 19, 2015

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

- 7
Table 1

- 4 Analyses During Each Rulemaking Stage

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

- 121

- 1 CHAPTER 1. INTRODUCTION

1.1 PURPOSE OF THE DOCUM ENT

This technical support document (TSD) is a stand

- alone report that provides the technical analyses and results supporting the information p resented in the direct final rule for residential furnaces and central air conditioners and heat pumps

. This direct final rule TSD reports on the

act ivities and analyses conducted in support of the direct final rule

.

1.2 SUMMARY OF NATIONAL BENEFITS

DOE’s analyses indicate that today’s standards for energy efficiency and standby mode and off mode power would save a significant amount of energy

– an estimated 3. 36 to 4. 38 quads of cumulative energy in 2013

– 2045 for furnaces and in 2015

- 2045 for central air conditioners and heat pumps. a This amount is comprised of savings of 3. 20 to 4. 22 quads for today’s
standards on energy efficiency and 0.16 quads for today’ s standards on standby mode and off mode power. The total amount is approximately one

- fifth of the amount of total energy used annually by the U.S. residential sector. In addition, DOE expects the energy savings from today’s
standards to eliminate the need for approximately 3. 80 to 3.92 gigawatts (GW) of generating capacity by 2045

.

The cumulative national net present value (NPV) of total consumer costs and savings of today’s standards for products shipped in 2013

– 2045 for furnaces and in 2015

- 2045 for central air conditioners and heat pumps, in 2009$, ranges from $4.56 billion to $4. 30 billion to $4. 58
billion (at a 7

- percent discount rate) to $ 15.9 billion to $ 18.7 billion (at a 3

- per cent discount rate)

. b Th is NPV is the estimated total value of future operating

- cost savings during the analysis period, minus the estimated increased product costs (including installation) , discounted to 2011.

In addition, today’s standards would have significant environmental benefits. The energy savings would result in cumulative greenhouse gas emission reductions of 11 3 million to
14 3 million metric tons (Mt) c

a DOE has calculated the energy savings over a period that begins i n the year in which compliance with the proposed standards would be required (as described in the text preceding Table I

. 1) and continues through 2045. DOE used the same end year (2045) for both types of products to be consistent with the end year that it used in analyzing other
standard levels that it considered. of carbon dioxide (CO 2 ) in 2013

– 2045 for furnaces and in 2015

-

b DOE uses discount rates of 7 and 3 percent based on guidance from the Office of Management and Budget (OMB
Circular A

- 4, section E (Sept. 17, 2003)). See section IV.G of this notice for further information.

c A metric ton is equivalent to 1.1 short tons. Results for NO X and Hg are presented in short tons.1

- 2 2045 for central air conditioners and heat pumps. During this period, today’s standards would
also result in emissions reductions of 9 7 to 12 4 thousand tons of nitrogen oxides (NO X ) and
0. 143 to 0. 169 ton of mercury (Hg). d DOE estimates the present monetar y value of the total CO 2 emissions reduction s is between $0.5 74 billion and $11. 8 billion, expressed in 2009$ and discounted to 2011 using a range of discount rates (see notes to Table 1

- 1 ). DOE also es timates
the present monetary value of the NO X emission s reduction s , expressed in 2009$ and discounted to 2011, is between $12. 7 million and $16 9 million at a 7

- percent discount rate, and between $ 30.7 million and $ 403 million at a 3

- percent discount rate. e

The benefits and costs of today’s standards can also be expressed in terms of annualized values. The annualized monetary values are the sum of: (1) the annualized national economic value, expressed in 2009$ , of the benefits from operating products that mee t today’s standards (consisting primarily of operating cost savings from using less energy, minus increases in equipment purchase costs, which is another way of representing consumer NPV), and (2) the monetary value of the benefits of emission reductions, including CO 2 emission reductions. f The
value of the CO 2 reductions, otherwise known as the Social Cost of Carbon (SCC), is calculated using a range of values per metric ton of CO 2 developed by a recent interagency process. The monetary costs and benefits of cumulative emissions reductions are reported in 2009$ to permit comparisons with the other costs and benefits in the same dollar units. The derivation of the SCC
values is discussed in further detail in chapter 16 of this TSD

.

Although combining the v alues of operating savings and CO 2 emission reductions provides a useful perspective, two issues should be considered. First, the national operating savings are

d DOE calculates emissions reductions relative to the most recent version of the Annual Energy Outlook ( AEO ) Reference case forecast. As noted in section 15.2.4 of TSD chapter 15, this forecast accounts for regulatory emissions reductions through 2008, including the Clean Air Interstate Rule (CAIR, 70 FR 25162 (May 12, 2005)), but not the Clean Air Mercury Rule (CAMR, 70 FR 28606 (May 18, 2005)). Subsequent regulations, including the currently proposed CAIR replacement rule, the Clean Air Transport Rule (75 FR 45210 (Aug. 2, 2010)), do not appear in the forecast.

e DOE is aware of multiple agency efforts to det ermine the appropriate range of values used in evaluating the potential economic benefits of reduced Hg emissions. DOE has decided to await further guidance regarding consistent valuation and reporting of Hg emissions before it once again monetizes Hg emis sions reductions in its rulemakings.

f DOE used a two

- step calculation process to convert the time

- series of costs and benefits into annualized values. First, DOE calculated a present value in 2011, the year used for discounting the NPV of total consumer c osts and savings

, for the time

- series of costs and benefits using discount rate s of three and seven percent for all costs and benefits except for the value of CO 2 reductions

. For the latter, DOE used a range of discount rates. From the present value, DOE then calculated the fixed annual payment over a 32

- year period , starting in 2011 that yield s the same present value. The fixed annual payment is the annualized value. Although DOE calculated annualized values, this does not imply that the time

- series of c ost and benefits from which the annualized values were determined would be a steady stream of payments

.1

- 3 domestic U.S. consumer monetary savings that occur as a result of market transactions, whereas
the value of CO 2 reductions is based on a global value. Second, the assessments of operating cost savings and CO 2 savings are performed with different methods that use quite different time frames for analysis. The national operating cost savings is measure d for the lifetime of products shipped in 2013

– 2045 for furnaces and 2015

- 2045 for central air conditioners and heat pumps. The SCC values, on the other hand, reflect the present value of future climate

- related impacts resulting from the emission of one me tric ton of carbon dioxide in each year. These impacts
continue well beyond 2100.

Estimates of annualized benefits and costs of today’s standards for furnace, central air conditioner, and heat pump energy efficiency are shown in Tabl e 1

- 1

. The results under the primary estimate are as follows. Using a 7

- percent discount rate for consumer impacts and the
SCC series that has a value of $ 22.1 /ton in 2010 (in 200 9 $ ), the cost of t he standards in today’s
rule is $ 527 million to $ 773 million per year in increased equipment costs, while the annualized benefits are $ 837 million to $ 1106 million per year in reduced equipment operating costs, $ 140
million to $178 million in CO 2 reduction s, and $ 5.3 million to $6.9 million in reduced NO X emissions. In this case , the net benefit amounts to $ 456 million to $ 517 million per year. DOE also calculated annualized net benefits using a range of potential electricity and equipment price
trend fore casts. Given the range of modeled price trends, the range of net benefits in this case is
from $ 295 million to $ 623 million per year

. The low estimate in Table I.3 corresponds to a scenario with a low electricity price trend and a constant real price trend for equipment, while the high estimate reflects a high electricity price trend and a strong declining real price trend for equipment.

Using a 3

- percent discount rate for consumer impacts and the SCC series that has a value of $ 22.1 /ton in 2010 (in 200 9 $ ) , the cost of the standards in today’s rule is $ 566 million to $ 825 million per year in increased equipment costs, while the benefits are $ 1289 million to $ 1686 million per year in reduced operating costs, $ 140 million to $178 million in CO 2 reductions, and $ 7.9 million to $10.2 million in reduced NO X emissions. In this case , the net benefit amounts to $ 871 million to $ 1049 million per year. DOE also calculated annualized net benefits using a range of potential electricity and equipment price trend forecasts. Given the range of modeled price trends, the range of net benefits in this case is from $ 601 million to $ 1,260 million per

year. The low estimate corresponds to a scenario with a low electricity price trend and a constant real price tren d for equipment, while the high estimate reflects a high electricity price trend and a strong declining real price trend for equipment

.1

- 4 Table 1

- 1 Annualized Benefits and Costs of Standards for Furnace and Ce ntral Air Conditioner and Heat Pump Energy Efficiency (TSL 4)*

Discount Rate Primary
Estimate** Low
Estimate** High
Estimate**

Monetized (million 2009$/year)

Benefits

Operating Cost Savings 7% 837 to 1,106 723 to 959 955 to 1,258

3% 1,289 to 1,686 1,083 to 1,422 1,493 to 1,948

CO 2 Reduction at $4. 9 /t † 5% 34 to 43 34 to 43 34 to 43

CO 2 Reduction at $2 2.1 /t † 3% 140 to 178 141 to 178 140 to 178

CO 2 Reduction at $3 6.3 /t † 2.5% 224 to 284 225 to 285 224 to 284

CO 2 Reduction at $6 7.1 /t † 3% 427 to 541 428 to 543 427 to 541

NO X Reduction at $2,519/t on † 7% 5.3 to 6.9 5.3 to 7.0 5.3 to 6.9

3% 7.9 to 10.2 7.9 to 10.3 7.9 to 10.2

Total †† 7% plus CO 2 range 876 to 1,653 762 to 1,509 994 to 1,805

7% 983 to 1,290 869 to 1,144 1,100 to 1,442

3% 1,437 to 1,874 1,232 to 1,611 1,641 to 2,136

3% plus CO 2 range 1,330 to 2,237 1,125 to 1,975 1,535 to 2,499

Costs

Incremental Product Costs 7% 527 to 773 574 to 840 555 to 819

3% 566 to 825 630 to 916 599 to 876

Net Benefits/Costs

Total †† 7% plus CO 2 range 349 to 880 188 to 669 438 to 986

7% 456 to 517 295 to 305 545 to 623

3% 871 to 1,049 601 to 695 1,042 to 1,260

3% plus CO 2 range 764 to 1,412 494 to 1,059 935 to 1,623

* The benefits and costs are calculated for products shipped in 2013

- 2045 for the furnace standards and in 2015

- 2045 for the central air conditioner and heat pump standards.

**The Primary, Low, and High Estimates utilize forecasts of energy prices and housing starts from the AEO2010 Reference case, Low Economic Growth case, and High Economic Growth case, respectively. In addition, the low estimate uses incremental product costs that reflects constant prices (no learning rate) for product prices, and the high estimate uses incremental product costs that reflects a declining trend (high learning rate) for product prices. The derivation and application of learning rates for product prices is explained in section IV.F.1.1

- 5 † The CO 2 values represent global monetized values (in 200 9 $) of th e social cost of CO 2 emissions in 2010 under several scenarios. The values of $ 4. 9 , $2 2.1 , and $3 6.3 per metric ton are the averages of SCC distributions calculated using 5

- percent , 3

- percent , and 2.5

- percent discount rates, respectively. The value of $6 7. 1 per ton represents the 95 th percentile of the SCC distribution calculated using a 3

- percent discount rate. The value for NO X (in 2009$) is the average of the low and high values used in DOE’s analysis.

†† Total Benefits for both the 3

- percent and 7

- percent cases are derived using the SCC value calculated at a 3

- percent discount rate, which is $2 2.1 /ton in 2010 (in 200 9 $). In the rows labeled as “7% plus CO 2 range” and “3% plus CO 2 range,” the operating cos t and NO X benefits are calculated using the labeled discount rate, and those values are added to the full range of CO 2 values.

Estimates of annualized benefits and costs of today’s standards for furnace, central air conditioner, and heat pump standby mode and off mode power are shown in Table 1

- 2

. The results under the primary estimate are as fo llows. Using a 7

- percent discount rate and the SCC value of $2 2.1 /ton in 2010 (in 200 9 $), the cost of the standards in today’s rule is $ 16.4 million per year in increased equipment costs, while the annualized benefits are $ 46.5 million per year in
reduced equipment operating costs, $ 12.4 million in CO 2 reductions, and $ 0.4 million in reduced
NO X emissions. In this case , the net benefit amounts to $ 42.8 million per year. Using a 3

- percent discount rate and the SCC value of $2 2.1 0/ton in 2010 (in 200 9 $), the cost of the standards in today’s rule is $ 19.1 million per year in increased equipment costs, while the benefits are $ 79.3 million per year in reduced operating costs, $ 12.4 million in CO 2 reductions, and $ 0.6 million in
reduced NO X emissions. In this case , the net benefit amounts to $ 73.2 million per year.1

- 6 Table 1

- 2 Annualized Benefits and Costs of Standards for Furnace, Central Air Conditioner, and Heat Pump Standby Mode and Off Mode (TSL 2)*

Discount Rate Primary
Estimate** Low
Estimate** High
Estimate**

Monetized (million 2009$/year)

Benefits

Operating Cost Savings 7% 46.5 40.4 52.8

3% 79.3 67.9 90.8

CO 2 Reduction at $4. 9 /t † 5% 2.9 2.9 2.9

CO 2 Reduction at $2 2.1 /t † 3% 12.4 12.4 12.4

CO 2 Reduction at $3 6.3 /t † 2.5% 19.9 19.9 19.9

CO 2 Reduction at $6 7.1 /t † 3% 37.6 37.6 37.6

NO X Reduction at $2,519/t on † 7% 0.4 0.4 0.4

3% 0.6 0.6 0.6

Total †† 7% plus CO 2 range 49.7 to 84.5 43.6 to 78.4 56.1 to 90.8

7% 59.2 53.1 65.5

3% 92.3 80.9 103.8

3% plus CO 2 range 82.8 to 117.5 71.4 to 106.2 94.3 to 129.1

Costs

Incremental Product Costs 7% 16.4 15.2 17.7

3% 19.1 17.6 20.6

Net Benefits/Costs

Total †† 7% plus CO 2 range 33.3 to 68.1 28.5 to 63.2 38.4 to 73.1

7% 42.8 38.0 47.9

3% 73.2 63.3 83.2

3% plus CO 2 range 63.7 to 98.4 53.8 to 88.5 73.7 to 108.5

* The benefits and costs are calculated for products shipped in 2013

- 2045 for the furnace standards and in 2015

- 2045 for the central air conditioner and heat pump standards.

**The Primary, Low, and High Estimates utilize forecasts of energy prices and housing starts from the AEO2010 Reference case, Low Economic Growth case, and High Economic Growth case, respectively. In addition, the low estimate uses incremental product cost s that reflects constant prices (no learning rate) for product prices, and the high estimate uses incremental product costs that reflects a declining trend (high learning rate) for product prices. The derivation and application of learning rates for produ ct prices is explained in section IV.F.1.1

- 7 † The CO 2 values represent global monetized values (in 200 9 $) of the social cost of CO 2 emissions in 2010 under several scenarios. The values of $ 4. 9 , $2 2.1 , and $3 6.3 per metric ton are the averages of SCC distrib utions calculated using 5

- percent , 3

- percent , and 2.5

- percent discount rates, respectively. The value of $6 7.1 per ton represents the 95 th percentile of the SCC distribution calculated using a 3

- percent discount rate. The value for NO X (in 2009$) is the av erage of the low and high values used in DOE’s analysis.

†† Total Benefits for both the 3

- percent and 7

- percent cases are derived using the SCC value calculated at a 3

- percent discount rate, which is $2 2.1 /ton in 2010 (in 200 9 $). In the rows labeled as “7% plus CO 2 range” and “3% plus CO 2 range,” the operating cost and NO X benefits are calculated using the labeled discount rate, and those values are added to the full range of CO 2 values.

1.3 OVERVIEW OF ENERGY CONSERVATION STANDARDS FOR R ESIDENTIAL

F URNACES AND C ENTRAL A IR C ONDITIONERS AND H EAT P UMPS

1.3.1 Furnaces

The National Appliance Energy Conservation Act of 1987 (NAECA) amended the Energy Policy and Conservation Act (EPCA) to establish EPCA’s original energy conservation standards for furnaces, which are still in force, consisting of minimum AFUE levels at 75

- percent AFUE for mobile home furnaces and 78

- percent AFUE for all other furnaces except “small” gas furnaces. The standard for mobile home furnaces has applied to products
manufactured for sale in the United States or imported into the United States, since September 1,
1990 ; and the standard for most other furnaces has applied to products manufactured or imported since January 1, 1992. (42 U.S.C. 6295(f)(1)

– (2)) Pursuant to EPCA, (42 U.S.C. 6295( f)(1)(B)) in November 1989 DOE adopted a mandatory minimum AFUE level for “small” furnaces at 78

- percent AFUE, applicable for products manufactured on or after January 1, 1992 54 FR 7916.
The NAECA amendments to EPCA also requir ed DOE to conduct an initi al rulemaking to
determin e whether to amend the standards for mobile home furnaces, and then to conduct two more cycles of rulemakings to determin e whether to amend all of the standards for furnaces

. (42 U.S.C. 6295( f ) (4)(A)

- (C))

Pursuant to 42 U.S.C. 62 95(f)(4)(B), DOE published a final rule on November 19, 2007 (the November 2007 Rule) that revised the minimum energy conservation standards for all but two product classes of furnaces. 72 FR 65136

. This rule completed the first of the two rulemakings requ ired under 42 U.S.C. 6295( f )( 4 ) (B)

- (C) to consider amend ing the standards for
furnaces. The minimum AFUE standards set in the November 2007 Rule for each of the six classes of furnaces ( 10 CFR 430.32( e ) (ii)) and are listed in Table 1

- 3 below.

Table 1

- 3 Energy Conservation Standards for Residential Furnaces Manufactured On or After November 19, 2015
Product Class AFUE (perc ent)

Non

- weatherized Gas Furnaces 80
Weatherized Gas Furnaces 81
Mobile Home Oil

- Fired Furnaces 75

Non

- weatherized Oil

- Fired Furnaces 82
Weatherized Oil

- Fired Furnaces 781

- 8 In response to the November 2007 final rule, the state of New York, city of New York, state of Connecticut, commonwealth of Massachusetts, and Natural Resources Defense Council filed a joint lawsuit against DOE in the United States Court of Appeals for the Second Circuit. The petitioners asserted that the standards for residential furnaces promulgated by the November 2007 final rule did not reflect the “maximum improvement in energy efficiency” that “is technologically feasible and economically justified,” as required by section 325(o)(2)(A) of EPCA. On April 16, 2009, DOE filed a motion for voluntary remand that the petitioners did not oppose. The motion requires DOE to revisit its initial conclusions outlined in the November 2007 final rule. As part of the remand, DOE originally agreed to issue a final rule amending the

energy con servation standards for residential furnaces by May 1, 2011. Subsequently, because the furnaces rulemaking was combined with the central air conditio ners and heat pumps rulemaking , the petitioners and DOE agreed that the final rule for furnaces should be i ssued on June 30, 2011, to coincide with the date by which the central air conditioner and heat pump rulemaking is required to be issued.

As with central air conditioners and heat pumps, section 306(a) of EISA 2007 amended
EPCA to allow DOE to consider the establishment of separate regional standards for furnaces. ( 42 U.S.C. 6295 (o)(6)(A)) Specifically, EPCA allows for the establishment of a single more

restrictive regional standard in addition to the base national standard for furn a ces. ( 42 U.S.C.
6295 (o)( 6)(B)) EPCA stipulates that the regions must include only contiguous states (with the exception of Alaska and Hawaii, which can be included in regions that they are not contiguous with) and that each state may be placed in only one region ( i.e.

, a state ca nnot be divided among two regions). ( 42 U.S.C. 6295 (o)(6)(C)) EPCA mandates that a regional standard must produce significant energy savings in comparison to a single national standard. Further, EPCA provides
that DOE must determine that the additional sta ndards are economically justified and consider the impact of the additional regional standards on consumers, manufacturers, and other market participants, including product distributors, dealers, contractors, and installers. ( 42 U.S.C.
6295 (o)(6)(C)

- (D)). For single

- package air conditioners and single

- package heat pumps, DOE has analyzed the regional standards on a national basis because the standards considered would be identical in each region. Additionally, given the low level of shipments of these pro ducts, DOE determined that an analysis of regional standards would not produce significant differences in comparison to a single national standard . DOE made a similar determination for oil

- fired
furnaces.

1.3.2 Central Air Conditioners and Heat Pumps

NAECA also amended EPCA to establish energy conservation standards for central air conditioners and heat pumps as well as requirements for determining whether these standards should be amended. Specifically, NAECA established energy conservation standards for centra l air conditioners and heat pumps in the form of minimum limits on the seasonal energy efficiency ratio (SEER) for air conditioners and for heat pumps operating in the cooling mode, and on the heating seasonal performance factor (HSPF) for heat pumps opera ting in the heating mode. NAECA established the following standards for central air conditioners and heat pumps: 10.01

- 9 SEER/6.8 HSPF for split systems, g 9.7 SEER/6.6 HSPF for single

- package systems. h

Pursuant to 42 U.S.C. 6295(d)(3)(A), DOE published a final rule in the Federal Register on January 22, 2001 (2001 final rule), a mending the energy conservation standards for central ai r conditioners and heat pumps. 66 FR 7170. The amended standards would have increased the
minimum SEER to 13 and the minimum HSPF to 7.7. These standards became effective January 1, 1992 for split systems; standards for single

- package systems came into effect one year later. See 42 U.S.C. 6295(d)(1)(A)

- (B) and (2)(A)

- (B). NAECA also required that DOE conduct two cycles of rulemakings to determine if more stringent standards are economically justified and technologically feasible. (42 U.S.C. 6295(d)(3)(A)

- (B))

Id.

EPCA was further amended by the Energy Policy Act of 2005 (EPACT), Pub. L. 109

- 58. In Section 141 of EPACT, Congress directed DOE to submit an initial report regarding a plan for expeditiously prescribing new or revised standards. Pursuant to Section 141 of E PACT, DOE submitted an implementation report This final rule constituted the first cycle of revised standards for central air conditioners and heat pumps

. Shortly after the publication of the 2001 final rule, DOE postponed the effective date of the rule to take time to reconsider the amended standards for central air conditioners and heat pumps. DOE ev entually promulgated a 12 SEER standard in a final rule published May 23, 2002 (2002 final rule), 67 FR
36368 ; but the U.S. Court of Appeals for the Second Circuit ruled that DOE had done so improperly. Natural Resources Defense Council v. Abraham , 355 F. 3d 179 (2d Cir. 2 004). As a result, DOE published a technical amendment on August 17, 2004, which established a 13 SEER standard for all central air conditioners and heat pumps, excluding through

- the

- wall and space

constrained systems. 69 FR 50997.

i

g “Split systems” consist of outdoor and indoor units which are “split” from each other and connected via refrigerant tubing. The outdoor unit reside s outdoors and consists of a compressor, heat exchanger coil, fan, and fan motor. The indoor unit, consisting of a heat exchanger coil, resides either within a furnace or blower

- coil unit, and conditioned air is conveyed to the home via ducts to Congress in January 2006. This report specified a schedule for the completion of the second rulemaking cycle of revised standards for central air conditioners and heat pumps, requiring DOE to publish a fina l rule by June 2011, with a standards compliance effective date of June 2016. In separate court proceedings ( New York v.
Bodman , No. 05 Civ. 7807 (S.D.N.Y. filed Sept. 7, 2005) and Natural Resources Defense
Council v. Bodman , No. 05 Civ. 7808 (S.D.N.Y. fi led Sept. 7, 2005) the resulting consent decree

h In “singl e

- package systems,” all the components that comprise a split system, including the air circulation equipment, are placed in a single cabinet. The single

- package system resides outdoors, and conditioned air is conveyed to the home via ducts.

3 Energy Conservation Standards Activities , January 2006. This document can be downloaded from the DOE
website at: http://www.eere.energy.gov/buildings/appliance_standards/2006_schedule_setting.html

.1

- 10 (filed November 6, 2006) adopted the schedule for central air conditioners and heat pumps that DOE published in the January 2006 report to Congress ( i.e. , June 30, 2011).

More recently, EPCA was amended by t he Energy Independence and Security Act of 2007 (EISA 2007), Pub. L. 110

- 140. In Section 306 of EISA 2007, Congress directed DOE to consider regional standards for central air conditioners and heat pumps for one or two regions in
addition to a base nation al standard. (42 U.S.C. 6295(o)(6)) EISA 2007 states that in considering regional standards, DOE may consider regions made up of contiguous States only. Further, in Section 310 of EISA 2007, Congress directed DOE to consider amended test procedures and standards for standby

- mode and off

- mode energy consumption by covered equipment for any amended standard published after July 1, 2010. (42 U.S.C. 6295(gg)(3)) Because this energy conservation standards rulemaking for central air conditioners and heat

pum ps and furnaces will be completed in 2011, the requirement to incorporate standby

- mode and
off

- mode energy use into the energy conservation standards analysis is applicable.

1.4 PROCESS FOR SETTING ENERGY CONSERVATION STANDARDS

Under EPCA, when DOE studies new or amended standards, it must consider to the greatest extent practicable the following seven factors:

**•** the economic impact of the standard on the manufacturers and consumers of the products subject to the standard;

**•** the savings in operating costs throughou t the estimated average life of the products in the type (or class) compared to any increases in the price, initial charges, or maintenance expense for the products that are likely to result from the imposition of the standard;

**•** the total projected amount o f energy savings likely to result directly from the imposition of the standard;

**•** any lessening of the utility or the performance of the products likely to result from the imposition of the standard;

**•** the impact of any lessening of competition, as determined in writing by the Attorney General, that is likely to result from the imposition of the standard;

**•** the need for national energy conservation; and

**•** other factors the Secretary considers relevant. (42 U.S.C. 6295(o)(2)(B)(i))

Other statutory requirements are s et forth in 42 U.S.C. 6295(o)(1)

- (2)(A), (2)(B)(ii)

- (iii), and (3)

- (4).1

- 11 DOE considers the participation of interested parties a very important part of the process for setting energy conservation standards. Through formal public notifications ( i.e.

, Federal Register notices), DOE encourages the participation of all interested parties during the comment period in each stage of the rulemaking. Throughout the entire duration of the rulemaking process

, interactions among interested parties provide a balanced dis cussion of the information that is required for the standards rulemaking.

Before DOE determines whether to adopt a proposed energy conservation standard, it must first solicit comments on the proposed standard. (42 U.S.C 6313(a)(6)(B)(i)) Any new or
amende d standard must be designed to achieve significant additional conservation of energy and be technologically feasible and economically justified. (42 U.S.C. 6313(a)(6)(A)) To determine whether economic justification exists, DOE must review comments on the p roposal and determine that the benefits of the proposed standard exceed its burdens to the greatest extent practicable, weighing the seven factors listed above. (42 U.S.C. 6295(o)(2)(B)(i))

EPCA also authorizes DOE to issue a direct final rule establishing an energy conservation standard for a covered product on receipt of a statement submitted jointly by interested persons that are fairly representative of relevant points of view (including representatives of
manufacturers of covere d products, States, and efficiency advocates) that contains recommendations with respect to an energy conservation standard that are in accordance with the provisions of 42 U. S.C. 6295(o). EPCA requires that a notice of proposed rulemaking that

proposes an identical energy efficiency standard be published simultaneously with the direct final rule. (42 U.S.C. 6295(p)(4)) If one or more adverse comments or an alternative joint recommendation are received relating to the direct final rule, DOE must determine w hether the comments or alternative recommendation may provide a reasonable basis for withdrawal under 42 U.S.C. 6295(o) or other applicable law. If DOE makes such a determination, DOE must withdraw the direct final rule and proceed with the simultaneously published notice of proposed rulemaking. DOE must also publish in the Federal Register the reason why the direct final rule
was withdrawn. Id

T he energy conservation standards rulemaking process usually involves three formal public notices ( which are publ ishe d in the Federal Register ) after the framework document

. .

j

j Due to the abbreviated rulemaking schedule, the framework doc ument and preliminary analysis for furnaces was replaced by the rulemaking analysis plan (RAP). The first of the rulemaking notices is typically a notice of public meeting ( NOPM ) and availability of a preliminary TSD , which is designed to publicly vet the models and tools used in the preli minary analysis and to facilitate public participation before the notice of proposed rulemaking ( NOPR ) stage. The second notice is usually the NOPR, which typically presents a discussion of comments received in response to the NOPM and the preliminary anal yses and1

- 12 analytical tools; analyses of the impacts of potential amended energy conservation standards on consumers, manufacturers, and the Nation; DOE’s weighting of these impacts of amended energy conservation standards; and the proposed energy conservati on standards for each product.
The third notice is usually the final rule, which presents a discussion of the comments received in response to the NOPR; the revised analyses; DOE’s weighting of these impacts; the amended energy conservation standards DOE i s adopting for each product; and the compliance dates of the amended energy conservation standards. Table 1

- 4 shows the analyses that occur during each phase of the typical rulemaking process.

In situations where DOE receives a consensus agreement and exer cises its authority to issue a direct final rule, the NOPR and direct final rule are published in the Federal Register simultaneously. The NOPR proposes the exact same standards as the direct final rule and briefly discusses the weighting of the benefits a nd burdens of the proposed standards being adopted in
the direct final rule. The direct final rule notice presents a discussion of comments received in
response to prior phases of the analyses; D OE’s analyses of the impacts of potential amended

energy cons ervation standards on consumers, manufacturers, and the Nation; DOE’s weighting of these impacts of amended energy conservation standards; and the adopted energy conservation standards for each product.

Table 1

- 4 Analyses During Each Rulemaking Stage Preliminary Analyses* NOPR ** Final Rule †
Market and Technology Assessment Revised Preliminary Analyses Revised NOPR Analyses Screening Analysis Life

- Cycle Cost Sub

- Group Analysis Engineering Analysis Manufacturer Impact Analysis Energy Use Characterization Utility Impact Analysis Markups to Determine Equipment
Price Employment Impact Analysis
Life

- Cycle Cost and Payback Period Analyses Environmental Assessment

Shipments Analysis Regulatory Impact Analysis National Impact Analysis Preliminary Manufacturer Impact Analysis
* For furnaces, DOE did not conduct a preliminary analysis due to the shortened rule making schedule agreed . DOE instead published the RAP for residential furnaces detailing its proposed approach and assumptions.

** For a direct final rule, the NOPR analyses are performed for the direct final rule. † During the f inal r ule phase, DOE considers the comments submitted by the U.S. Department of Justice in the NOPR phase concerning the impact of any lessening of competition that is likely to result from the imposition of the standard. (42 U.S.C. 6295(o)(2)(B)(v))1

- 13 For furnaces, DOE agreed to complete the rulemaking on an accelerated schedule as a part of the remand agreem ent. Section 307 of EISA 2007 amended EPCA by removing the requirement for DOE to publish an advanced notice of proposed rulemaking (ANOPR) when amending standards for consumer products. Because DOE had recently completed a rulemaking analysis for amended energy conservation standards for furnaces (the November 2007 final rule), and given the shortened timeline of the rulemaking and lack of an ANOPR requirement in EPCA, DOE developed an alternative rulemaking pathway, which consisted of a notice of public meeting (NOPM) and a rulemaking analysis plan (RAP) in place of a framework document and preliminary analysis. After the RAP, DOE planned to pursue a typical rulemaking path that includes a NOPR followed by a final rule.

On March 15, 2010, DOE published the NOPM and the availability of a RAP. 75 FR 12144. The RAP contained information on the methodologies, data, and key assumptions that DOE planned to use for the NOPR analyses. In the RAP, DOE announced that it was considering combining the furnace rule making process with the central air conditioner and heat pump rulemaking process. The public meeting was held on March 31, 2010 and a comment period was extended to April 27, 2010, to allow interested parties to comment on the details of
the RAP and elabo rate on any comme nts made at the public meeting. 75 FR 19296.

For central air conditioners and heat pumps, DOE published a notice of public meeting and availability of the framework document i n June 2008

. 73 FR 32243 (June 6, 2008)

. Th is framework document, Rulemaking Framework for Residential Central Air Conditioners and Heat Pumps , describes the procedural and analytical approaches DOE anticipated using to evaluate the establishment of energy conservation standards for CAC. This docume nt is
available at:

http://www1.eere.energy.gov/buildings/appliance_standards/residential/central_ac_hp_standards.
html.

Subsequently, DOE held a public meeting on June 12, 2008 , to discuss procedural and analytical approaches to the rulemaking and to inf orm and facilitate stakeholders’ involvement in the rulemaking process. The analytical framework presented at the public meeting described different analyses, such as the engineering analysis and the life

- cycle cost (LCC) and payback period (PBP) analyses , the methods proposed for conducting them, and the relationships among the various analyses.

After receiving feedback on the planned approaches in the framework and conducting preliminary interviews with manufacturers (described in chapter 12 of the pre liminary analysis TSD for central air conditioners and heat pumps), DOE developed its preliminary analysis for central air conditioners and heat pumps. On March 15, 2010, DOE published the NOPM and availability of the preliminary TSD. 75 FR 14368. The pre liminary TSD provides technical analyses and results that support the information presented in the preliminary NOPM for residential central air conditioners and heat pumps. The preliminary TSD is available on DOE’s
website at http://www1.eere.energy.gov/buildings/appliance_standards/residential/cac_tsd_031010.html

.1

- 14 DOE held a public meeting on May 5, 2010, to facilitate discussion about the preliminary analyses that were performed for the NOPM. In addition to the public meeting, a written comment period was open until May 17, 2010, to allow interested parties to provide new comments or elaborate on any comments made at the public meeting. 75 FR 27227.

During the rulemaking process for furnaces and central air conditioners and heat pumps,

o n January 15, 2010, a number of interested parties k

After receiving comments from interested parties at both the furnace and the central air conditioner and heat pump public meetings and during the written comment peri ods (including the consensus agreement recommendations) , DOE revised the central air conditioner and heat

pump preliminary analys i s and developed a furnaces analysis, based on the feedback from interested parties . Additionally, because of the significant i nteraction between these two products as part of the residential heating, ventilation, and air conditioning (HVAC) system, the fact that the rulemakings were on similar schedules, and the potential for product switching, DOE combined the two rulemakings to allow DOE to analyze the impacts of various standard levels and consider the product switching that may occur at various standard levels

. DOE organized a second round of interviews with manufacturers to gather additional feedback on the analyses as
part o f the manufacturer impact analysi s that was conducted for the direct final rule

. submitted a joint comment to DOE’s residential furnaces and central air conditioners/ heat pumps rulemakings recom mending adoption of a package of minimum energy conservation standards for residential central air conditioners, heat pumps, and furnaces, as well as associated comp liance dates for such
standards. T he original agreement was completed on October 13, 2009, and had 15 signatories, including Air

- Conditioning, Heating, and Refrigeration Institute (AHRI), American Council for an Energy

- Efficient Economy (ACEEE), Alliance to Save Energy (ASE), Appliance Standards Awareness Project (ASAP), National Resources Defen se Council (NRDC), and Northeast Energy Efficiency Partnership (NEEP) , Northwest Power and Conservation Council (NPCC), California Energy Commission (CEC), Bard Manufacturing Company Inc., Carrier Residential and Light Commercial Systems, Goodman Global In c., Lennox Residential, Mitsubishi Electric & Electronics USA, National Comfort Products, and Trane Residential. The consensus agreement signatories recommended specific energy conservation standards for residential
furnaces and central air conditioners an d heat pumps that they believed would satisfy the EPCA requirements in 42 U.S.C. 6295(o).

In addition to the developing new analyses for furnaces and revising the various preliminary analyses for central air conditioners , DOE also performed an LCC sub

- group

k The consensus agreement was submitted to DOE for consideration as a joint comment made by the following organizations: AHRI, ACEEE, ASE, ASAP, NNRDC, and NEEP . ( DOE Docket No. EERE

– 2009

– BT

– STD

– 0022, Comment 1.3.001; DOE Docket No. EERE

– 2008

– BT

– STD

– 0006, Comment 47.)1

- 15 analysis, manufacturer impact analysis, utility impact analysis, employment impact analysis, and regulatory impact analysis for th e direct final rule stage of this rulemaking.

1.5 STRUCTURE OF THE DOC UMENT

This TSD describes the analytical approaches and dat a sources used in this rulemaking.
The TSD consists of the following chapters , and a number of appendices.

Chapter 1 Introduction: provides an overview of the appliance and equipment standards program and how it applies to the residential furnaces and c entral air conditioners and heat pumps rulemaking, and outlines the structure of the document.

Chapter 2 Analytical Framework: describes the rulemaking process step by step and
summarizes the major components of DOE’s analysis

.

Chapter 3 Market and Tech nology Assessment: characterizes the residential furnaces and central air conditioners and heat pumps equipment market and the technologies available for increasing equipment efficiency.

Chapter 4 Screening Analysis: determines which technology options are viable for consideration in the engineering analysis.

Chapter 5 Engineering Analysis: discusses the methods used for developing the relationship between increased manufacturer price and increased efficiency.

Chapter 6 Markups Analysis : discusses th e methods used for establishing markups for converting manufacturer prices to customer product prices.

Chapter 7 Energy Use Analysis : discusses the pro cess used for generating energy

- use estimates of residential furnaces and central air conditioners and heat pumps for a variety of product classes , climate locations, and standard levels.

Chapter 8 Life

- Cycle Cost and Payback Period Analyses: discusses the economic effects of
standards on individual consumers of the products and compares the LCC and

PBP o f products with and without higher efficiency standards.

Chapter 9 Shipments Analysis: discusses the methods used for forecasting shipments with and without higher efficiency standards.

Chapter 10 National Impact Analysis: discusses the methods used fo r forecasting national energy consumption and national economic impacts based on annual product shipments and estimates of future product efficiency distributions in the absence and presence of higher efficiency standards.1

- 16 Chapter 11 Consumer Sub

- Group An alysis: discusses the effects of standards on subgroup s of residential furnaces and central air conditioners and heat pumps customers and compares the LCC and PBP of products with and without higher efficiency
standards for these customers

.

Chapter 12 Manufacturer Impact Analysis: discusses the effects of standards on the finances and profitability of product manufacturers.

Chapter 13 Utility Impact Analysis: discusses the effects of standards on the installed generation capacity of electric utilities.

Chapter 14 Employment Impact Analysis: discusses the effects of standards on National employment.

Chapter 15 Environmental Assessment : discusses the effects of standards on air

- borne
emissions of electric utilities and site emissions

.

Chapte r 16 Emissions Monetization: discusses the monetization of reductions in CO 2 and
NO X emissions.

Chapter 17 Regulatory Impact Analysis: discusses the present regulatory actions as well as the impact of non

- regulatory alternatives to setting energy efficien cy standards.

Chapter 18 Regional Standards Impacts on Market Participants: discusses the effects of regional standards on distributors, dealers, contractors, and installers.