Cost-Effectiveness of Alternative Wood Stove 

New Source Performance Standards

David Harrison, Ph.D.

Andrew Foss

Andrew Stuntz

Prepared on behalf of the Hearth, Patio and Barbecue Association

Presentation to the Office of Management and Budget

September 25, 2013

Preliminary Analysis
1 Preliminary Analysis · September 25, 2013

Contents

 Background and Objectives

 Methodology

 Results

 Conclusions
2 Preliminary Analysis · September 25, 2013

Background and Objectives

 Current new source performance standard (NSPS) of 7.5 grams 

of particulate matter emissions per hour (g/h) for new noncatalytic wood stoves (“Phase II”)

– “Certified” non-catalytic stoves meet the current 7.5 g/h standard

– “Non-certified” stoves have higher emission rates

 Two potential additional wood stove NSPS “Steps”

– Step I standard of 4.5 g/h

– Step II standard of either 2.5 g/h or 1.3 g/h

 Study objectives

– Estimate costs and emissions reductions (tons of particulate matter) 

from potential NSPS

– Evaluate the incremental cost-effectiveness ($/ton) of increasingly 

stringent NSPS
3 Preliminary Analysis · September 25, 2013

Overview of Methodology

 Estimate costs and emissions reductions of NSPS in an illustrative future 

year (2018)

– Calculate annualized costs and annual emissions 

– Include effects on emissions of existing stoves

 Use detailed industry data

– Includes compliance cost components, historical sales, current prices, and 

emissions by stove type

– Provided by industry experts; cost data validated by expert group

 Based on sound economic principles

– Costs and emissions calculations consistent with EPA/OMB guidelines

– Compare incremental cost per ton for alternative NSPS
4 Preliminary Analysis · September 25, 2013

Four Major Elements in CostEffectiveness Methodology

1. Estimate potential per stove compliance costs 

– Cost per stove for modifying wood stoves to meet different emissions 

standards

2. Estimate price, sales and social costs in illustrative year

– Compare price and sales in baseline and under potential NSPS

– Include demand (price) effect and resulting consumer surplus deadweight 

loss

3. Estimate emissions reductions in illustrative year

– Relative to baseline emissions

– Net effect of compliance, demand effect, and scrappage effect

4. Calculate and compare cost-effectiveness of alternative NSPS

– Compliance costs per ton of emissions reduction ($/ton)

– Step I (4.5 g/h standard) and Step II (2.5 or 1.3 g/h standard)
5 Preliminary Analysis · September 25, 2013

Key Caveats

 Empirical estimates in this study are based upon the best available data on 

costs and emissions of relevant stove models.

 These data have certain inherent limitations, however, that should be kept in 

mind when interpreting the results. In particular, costs may be understated 

and emissions gains may be overstated due to potential changes in EPA 

certification testing methods, the way compliance with the standard is 

determined and differences between emissions certification values (laboratory 

values with artificial fuel) and actual emissions under in-home conditions.

– Costs: EPA is considering a more stringent compliance algorithm; even if 

compliance with the proposed standards can be achieved with this approach, it 

would mean greater NSPS compliance costs. 

– Emission gains: Certification values do not necessarily correlate with actual 

emissions. Even if they did, due to the inherent variability when burning wood, the 

EPA test methods cannot reliably distinguish emissions performance differences in 

the range of the proposed standards. 

 References:

 Curkeet, R. and R. Ferguson, EPA Wood Heater Test Method Variability Study, October 

2010

 Houck, J. A Comparison of Particulate Emission Rates from the In-Home Use of Certified 

Wood Stove Models with U.S. EPA Certification Emission Values, February 1, 2012
6 Preliminary Analysis · September 25, 2013

Element 1: Estimate potential per 

stove compliance costs 

 Develop estimates of compliance costs to modify stove models to 

meet different emissions standards 

– Ferguson (2013) estimates per model compliance costs based upon 

detailed cost components

– Cost estimates based on current EPA compliance testing 

algorithm (more stringent algorithm would raise costs)

 Annualize capital and other model costs

– 10 years and 7% discount rate

 Translate to per stove compliance costs using estimate of 

average annual units sold per stove model (1,000)

– Average units per model estimated using EPA and industry data
7 Preliminary Analysis · September 25, 2013

Element 2: Estimate effects on 

price, sales and total social costs 

 Estimate baseline sales and average price by stove emissions 

category

– Linear projection of Houck (2011) and HPBA historical total wood stove sales

– Sales and average price by emissions rate estimated using Ferguson & Page 

(2013) stove pricing survey

 Estimate effects of NSPS compliance costs on price and sales

– NSPS retail price increase includes compliance cost and 40% stove retailer 

gross margin (industry estimate)

– Account for reduced sales from higher stove price (“demand effect”), 

assuming -1.6 elasticity of demand from EPA (1986) wood heat analysis

 Estimate total social costs 

– Cost of compliance to meet NSPS standard for units actually sold

– Cost to consumers who are priced out of the market (“consumer surplus 

deadweight loss”)
8 Preliminary Analysis · September 25, 2013

Element 3: Estimate emissions 

reductions

 Estimate baseline total particulate matter emissions and emission 

rates (tons/year) by stove type 

– Use Houck (2011) study on stock of in-use stoves and EPA certified 

stove emission rates (g/h)

 Calculate three components of NSPS net emissions impact:

1. Demand Effect (-): rise in stove prices causes sales to fall, so 

fewer units are emitting

2. Compliance Effect (-): units converted to comply with NSPS emit 

less (by assumption)

3. Scrappage Effect (+): reduced scrappage of existing, non-certified 

units leads to more emissions from existing stoves 

 Non-certified stoves have higher emission rates than new stoves

 Use estimate that 40% of new stove purchases are replacements (Ferguson 

& Page 2013 retailer survey)
9 Preliminary Analysis · September 25, 2013

Element 4: Compare incremental 

cost/ton for three potential NSPS

 Incremental cost per ton

= Increased Costs / Increased Emissions Reductions

1. Step I standard of 4.5 g/h compared to current standard 

of 7.5 g/h

2. Step II standards of 2.5 g/h and 1.3 g/h compared to Step 

I standard of 4.5 g/h

3. Step II standard of 1.3 g/h compared to Step II standard 

of 2.5 g/h (“1.3 incremental from 2.5”)
10 Preliminary Analysis · September 25, 2013

Results: Impacts on Stove Sales 

and Social Costs

STEP I STEP II

7.5 → 4.5 g/h 4.5 → 2.5 g/h 4.5 → 1.3 g/h

1.3 incremental 

from 2.5

Sales with demand effect 70,500 57,400 49,700 N/A

Social cost

Compliance cost $600,000 $7,880,000 $12,071,000 $4,191,000

Consumer surplus deadweight loss $51,000 $1,610,000 $4,337,000 $2,727,000

Total cost $651,000 $9,490,000 $16,407,000 $6,918,000

Note: Totals may differ from sum of rows due to independent rounding
11 Preliminary Analysis · September 25, 2013

Results: Components of Emissions 

Reductions

STEP I STEP II

7.5 → 4.5 g/h 4.5 → 2.5 g/h 4.5 → 1.3 g/h

1.3 incremental 

from 2.5

Emissions change (tons)

Demand effect -52 -163 -259 -95

Compliance effect -37 -218 -324 -106

Scrappage effect +31 +163 +258 +95

Net emissions change (tons) -58 -218 -325 -107

Note: Totals may differ from sum of rows due to independent rounding
12 Preliminary Analysis · September 25, 2013

Results: Incremental CostEffectiveness of Alternative NSPS

STEP I STEP II

7.5 → 4.5 g/h 4.5 → 2.5 g/h 4.5 → 1.3 g/h

1.3 incremental 

from 2.5

Total social cost $651,000 $9,490,000 $16,407,000 $6,918,000

Net emissions change (tons) -58 -218 -325 -107

Cost per ton $11,200 $43,400 $50,500 $65,000
13 Preliminary Analysis · September 25, 2013

Conclusions

 Step II NSPS standards of 2.5 g/h and 1.3 g/h are both considerably 

less cost-effective than a Step I standard of 4.5 g/h

 The Step II standard of 1.3 g/h is particularly costly relative to 

emission gains, as shown by incremental cost-effectiveness results

 Caveat. Estimates assume the current EPA wood stove compliance 

algorithm and use of EPA test methods and certified emission rates, 

which may understate costs and overstate emission gains
14 Preliminary Analysis · September 25, 2013

References

 EPA. NSPS for new residential wood heaters: Regulatory Impact 

Analysis, December 1, 1986.

 Ferguson, R. Wood Heater Economic Modeling Detail, July 15, 

2013.

 Ferguson & Page. HPBA Wood Stove Pricing Survey, February 

19, 2013.

 Ferguson & Page. HPBA Stove Retailer Survey, May 21, 2013.

 Houck, J. The Fraction of Freestanding Wood-Fueled Stoves in 

Current Use That are U.S. EPA Certified Cordwood Stoves and 

Wood Pellet Stoves, July 23, 2011.
David Harrison, Ph.D.

Senior Vice President

NERA Economic Consulting

Boston

+1 617 927 4512

David.Harrison@nera.com

Andrew Foss

Consultant

NERA Economic Consulting

Boston

+1 617 927 4582

Andrew.Foss@nera.com

Andrew Stuntz

Research Associate

NERA Economic Consulting

Boston

+1 617 927 4530

Andrew.Stuntz@nera.com