[Federal Register Volume 80, Number 26 (Monday, February 9, 2015)]
[Proposed Rules]
[Pages 7082-7130]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-02179]



[[Page 7081]]

Vol. 80

Monday,

No. 26

February 9, 2015

Part II





 Department of Energy





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10 CFR Part 430





Energy Conservation Program for Consumer Products: Energy Conservation 
Standards for Hearth Products; Proposed Rule

Federal Register / Vol. 80 , No. 26 / Monday, February 9, 2015 / 
Proposed Rules

[[Page 7082]]


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DEPARTMENT OF ENERGY

10 CFR Part 430

[Docket Number EERE-2014-BT-STD-0036]
RIN 1904-AD35


Energy Conservation Program for Consumer Products: Energy 
Conservation Standards for Hearth Products

AGENCY: Office of Energy Efficiency and Renewable Energy, Department of 
Energy.

ACTION: Notice of proposed rulemaking and announcement of public 
meeting.

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SUMMARY: The Energy Policy and Conservation Act of 1975 (EPCA), as 
amended, sets forth various provisions designed to improve energy 
efficiency for consumer products and certain commercial and industrial 
equipment. In addition to specifying a list of covered residential 
products and commercial equipment, EPCA contains provisions that enable 
the Secretary of Energy to classify additional types of consumer 
products as covered products. The U.S. Department of Energy (DOE) has 
previously published a proposed determination of coverage to classify 
gas-fired hearth products as covered consumer products under the 
applicable provisions in EPCA. In this document, DOE proposes an energy 
conservation standard for hearth products following its notice of 
proposed coverage determination. This proposed rule also announces a 
public meeting to receive comment on the proposed standard and 
associated analyses and results.

DATES: Comments: DOE will accept comments, data, and information 
regarding this notice of proposed rulemaking (NOPR) before and after 
the public meeting, but no later than April 10, 2015. See section VII, 
``Public Participation,'' for details.
    Meeting: DOE will hold a public meeting on Wednesday, March 23, 
2015, from 9 a.m. to 4 p.m., in Washington, DC. The meeting will also 
be broadcast as a webinar. See section VII, ``Public Participation,'' 
for webinar registration information, participant instructions, and 
information about the capabilities available to webinar participants.

ADDRESSES: The public meeting will be held at the U.S. Department of 
Energy, Forrestal Building, Room 8E-089, 1000 Independence Avenue SW., 
Washington, DC 20585. To attend, please notify Ms. Brenda Edwards at 
(202) 586-2945. Please note that foreign nationals visiting DOE 
Headquarters are subject to advance security screening procedures. Any 
foreign national wishing to participate in the meeting should advise 
DOE as soon as possible by contacting Ms. Edwards at the phone number 
above to initiate the necessary procedures. Please also note that any 
person wishing to bring a laptop computer or tablet into the Forrestal 
Building will be required to obtain a property pass. Visitors should 
avoid bringing laptops, or allow an extra 45 minutes. Persons may also 
attend the public meeting via webinar. For more information, refer to 
section VII, ``Public Participation,'' near the end of this notice.
    Instructions: Any comments submitted must identify the NOPR for 
Energy Conservation Standards for Hearth Products, and provide docket 
number EERE-2014-BT-STD-0036 and/or regulatory information number (RIN) 
number 1904-AD35. Comments may be submitted using any of the following 
methods:
    1. Federal eRulemaking Portal: www.regulations.gov. Follow the 
instructions for submitting comments.
    2. Email: <a href="/cdn-cgi/l/email-protection#58103d392a2c30103d392c31363f082a373c6a68696c0b0c1c68686b6e183d3d763c373d763f372e"><span class="__cf_email__" data-cfemail="733b161201071b3b1612071a1d1423011c1741434247202737434340453316165d171c165d141c05">[email protected]</span></a>. Include the 
docket number and/or RIN in the subject line of the message. Submit 
electronic comments in Word Perfect, Microsoft Word, PDF, or ASCII file 
format, and avoid the use of special characters or any form on 
encryption.
    3. Postal Mail: Ms. Brenda Edwards, U.S. Department of Energy, 
Building Technologies Office, Mailstop EE-5B, 1000 Independence Avenue 
SW., Washington, DC, 20585-0121. If possible, please submit all items 
on a compact disc (CD), in which case it is not necessary to include 
printed copies.
    4. Hand Delivery/Courier: Ms. Brenda Edwards, U.S. Department of 
Energy, Building Technologies Office, 950 L'Enfant Plaza, SW., Suite 
600, Washington, DC, 20024. Telephone: (202) 586-2945. If possible, 
please submit all items on a CD, in which case it is not necessary to 
include printed copies.
    Written comments regarding the burden-hour estimates or other 
aspects of the collection-of-information requirements contained in this 
proposed rule may be submitted to Office of Energy Efficiency and 
Renewable Energy through the methods listed above and by email to 
<a href="/cdn-cgi/l/email-protection#97d4fff6f3c8c4c8c0fffee3f2faf6f9d7f8faf5b9f2f8e7b9f0f8e1"><span class="__cf_email__" data-cfemail="bbf8d3dadfe4e8e4ecd3d2cfded6dad5fbd4d6d995ded4cb95dcd4cd">[email protected]</span></a>.
    No telefacsimilies (faxes) will be accepted. For detailed 
instructions on submitting comments and additional information on the 
rulemaking process, see section VII of this document (Public 
Participation).
    Docket: The docket, which will include all relevant Federal 
Register notices, public meeting attendee lists and transcripts, 
comments, and other supporting documents/materials, is available for 
review at www.regulations.gov. All documents in the docket are listed 
in the www.regulations.gov index. However, some documents listed in the 
index may not be publically available, such as those containing 
information that is exempt from public disclosure.
    A link to the docket Web page can be found at: http://www1.eere.energy.gov/buildings/appliance_standards/rulemaking.aspx?ruleid=84 . This Web page contains a link to the docket 
for this notice on the www.regulations.gov site. The 
www.regulations.gov Web page contains simple instructions on how to 
access all documents, including public comments, in the docket. See 
section VII, ``Public Participation,'' for further information on how 
to submit comments through www.regulations.gov.
    For further information on how to submit a comment, review other 
public comments and the docket, or participate in the public meeting, 
contact Ms. Brenda Edwards at (202) 586-2945 or by email: 
<a href="/cdn-cgi/l/email-protection#692b1b0c070d08472c0d1e081b0d1a290c0c470d060c470e061f"><span class="__cf_email__" data-cfemail="632111060d07024d260714021107102306064d070c064d040c15">[email protected]</span></a>.

FOR FURTHER INFORMATION CONTACT: Mr. John Cymbalsky, U.S. Department of 
Energy, Office of Energy Efficiency and Renewable Energy, Building 
Technologies Office, EE-5B, 1000 Independence Avenue SW., Washington, 
DC, 20585-0121. Telephone: (202) 287-1692. Email: 
<a href="/cdn-cgi/l/email-protection#c78fa2a6b5b3af8fa2a6b3aea9a097b5a8a3f5f7f6f3949383f7f7f4f187a2a2e9a3a8a2e9a0a8b1"><span class="__cf_email__" data-cfemail="d991bcb8abadb191bcb8adb0b7be89abb6bdebe9e8ed8a8d9de9e9eaef99bcbcf7bdb6bcf7beb6af">[email protected]</span></a>.
    Mr. Eric Stas, U.S. Department of Energy, Office of the General 
Counsel, GC-71, 1000 Independence Avenue SW., Washington, DC 20585-
0121. Telephone: (202) 5869507. Email: <a href="/cdn-cgi/l/email-protection#b7f2c5ded499e4c3d6c4f7dfc699d3d8d299d0d8c1"><span class="__cf_email__" data-cfemail="87c2f5eee4a9d4f3e6f4c7eff6a9e3e8e2a9e0e8f1">[email protected]</span></a>.
    For information on how to submit or review public comments, contact 
Ms. Brenda Edwards at (202) 586-2945 or by email: 
<a href="/cdn-cgi/l/email-protection#bffdcddad1dbde91fadbc8decddbccffdada91dbd0da91d8d0c9"><span class="__cf_email__" data-cfemail="a5e7d7c0cbc1c48be0c1d2c4d7c1d6e5c0c08bc1cac08bc2cad3">[email protected]</span></a>.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Summary of the Proposed Rule
    A. Benefits and Costs to Consumers
    B. Impact on Manufacturers
    C. National Benefits and Costs
    D. Conclusion
II. Introduction
    A. Authority
    B. Background
III. General Discussion
    A. Scope of Coverage
    B. Prescriptive Requirement for Standby Mode
    C. Product Classes

[[Page 7083]]

    D. Test Procedure
    E. Technological Feasibility
    1. General
    2. Maximum Technologically Feasible Levels
    F. Energy Savings
    1. Determination of Savings
    2. Significance of Savings
    G. Economic Justification
    1. Specific Criteria
    a. Economic Impact on Manufacturers and Consumers
    b. Savings in Operating Costs Compared to Increase in Price (LCC 
and PBP)
    c. Energy Savings
    d. Lessening of Utility or Performance of Products
    e. Impact of Any Lessening of Competition
    f. Need for National Energy Conservation
    g. Other Factors
    2. Rebuttable Presumption
    H. Compliance Date
    I. Standby Mode and Off Mode
IV. Methodology
    A. Market and Technology Assessment
    1. Consideration of Products for Inclusion in This Rulemaking
    2. Product Classes
    3. Technology Assessment
    B. Screening Analysis
    C. Engineering Analysis
    1. Representative Products for Analysis
    2. Design Options Analyzed
    3. Cost-Assessment Methodology
    a. Teardown Analysis
    b. Cost Model
    c. Manufacturing Production Cost
    d. Cost Comparison
    e. Manufacturer Markups
    f. Manufacturer Interviews
    4. Results
    D. Markups Analysis
    E. Energy Use Analysis
    F. Life-Cycle Cost and Payback Period Analysis
    1. Installed Cost
    2. Inputs to Operating Costs
    a. Energy Consumption
    b. Energy Prices
    c. Maintenance and Repair Costs
    d. Product Lifetime
    e. Discount Rates
    f. Base-Case Efficiency Distribution
    3. Inputs to Payback Period Analysis
    G. Shipments Analysis
    H. National Impact Analysis
    1. National Energy Savings
    2. Net Present Value of Consumer Benefit
    I. Consumer Subgroup Analysis
    J. Manufacturer Impact Analysis
    1. Overview
    2. Government Regulatory Impact Model
    a. Government Regulatory Impact Model Key Inputs
    b. Government Regulatory Impact Model Scenarios
    c. Manufacturer Interviews
    K. Emissions Analysis
    L. Monetizing Carbon Dioxide and Other Emissions Impacts
    1. Social Cost of Carbon
    2. Valuation of Other Emissions Reductions
    M. Utility Impact Analysis
    N. Employment Impact Analysis
V. Analytical Results and Conclusions
    A. Trial Standard Levels
    B. Economic Justification and Energy Savings
    1. Economic Impacts on Individual Consumers
    a. Life-Cycle Cost and Payback Period
    b. Consumer Subgroup Analysis
    c. Rebuttable Presumption Payback Period
    2. Economic Impacts on Manufacturers
    a. Industry Cash Flow Analysis Results
    b. Direct Impacts on Employment
    c. Impacts on Manufacturing Capacity
    d. Impacts on Subgroups of Manufacturers
    e. Cumulative Regulatory Burden
    3. National Impact Analysis
    a. Significance of Energy Savings
    b. Net Present Value of Consumer Costs and Benefits
    c. Indirect Impacts on Employment
    4. Impact on Product Utility or Performance
    5. Impact of Any Lessening of Competition
    6. Need of the Nation To Conserve Energy
    7. Other Factors
    8. Summary of National Economic Impacts
    C. Proposed Standard
    1. Benefits and Burdens of the Trial Standard Level Considered 
for Hearth Products
    2. Summary of Benefits and Costs (Annualized) of the Proposed 
Standards
VI. Procedural Issues and Regulatory Review
    A. Review Under Executive Orders 12866 and 13563
    B. Review Under the Regulatory Flexibility Act
    C. Review Under the Paperwork Reduction Act of 1995
    D. Review Under the National Environmental Policy Act of 1969
    E. Review Under Executive Order 13132
    F. Review Under Executive Order 12988
    G. Review Under the Unfunded Mandates Reform Act of 1995
    H. Review Under the Treasury and General Government 
Appropriations Act, 1999
    I. Review Under Executive Order 12630
    J. Review Under the Treasury and General Government 
Appropriations Act, 2001
    K. Review Under Executive Order 13211
    L. Review Under the Information Quality Bulletin for Peer Review
VII. Public Participation
    A. Attendance at the Public Meeting
    B. Procedure for Submitting Requests To Speak and Prepared 
General Statements for Distribution
    C. Conduct of the Public Meeting
    D. Submission of Comments
    E. Issues on Which DOE Seeks Comment
VIII. Approval of the Office of the Secretary

I. Summary of the Proposed Rule

    Title III, Part B\1\ of the Energy Policy and Conservation Act of 
1975 (EPCA or the Act), Public Law 94-163 (42 U.S.C. 6291-6309, as 
codified), established the Energy Conservation Program for Consumer 
Products Other Than Automobiles.\2\ In addition to specifying a list of 
covered residential products and commercial equipment, EPCA contains 
provisions that enable the Secretary of Energy to classify additional 
types of consumer products as covered products. (42 U.S.C. 6292(a)(20)) 
In a proposed determination of coverage published in the Federal 
Register on December 31, 2013, DOE proposed to classify hearth products 
as covered consumer products under EPCA. 78 FR 79638.
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    \1\ For editorial reasons, upon codification in the U.S. Code, 
Part B was redesignated Part A.
    \2\ All references to EPCA in this document refer to the statute 
as amended through the American Energy Manufacturing Technical 
Corrections Act (AEMTCA), Public Law 112-210 (Dec. 18, 2012).
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    Pursuant to EPCA, any new or amended energy conservation standard 
must be designed to achieve the maximum improvement in energy 
efficiency that is technologically feasible and economically justified. 
(42 U.S.C. 6295(o)(2)(A)) Furthermore, the new or amended standard must 
result in a significant conservation of energy. (42 U.S.C. 
6295(o)(3)(B)) The statute also provides that not later than 6 years 
after issuance of any final rule establishing or amending a standard, 
DOE must publish either a notice of determination that standards for 
the product do not need to be amended, or a notice of proposed 
rulemaking including new proposed energy conservation standards. (42 
U.S.C. 6295(m)(1))
    In accordance with these and other statutory provisions discussed 
in this notice, DOE proposes a new energy conservation standard for 
hearth products. The proposed standard is a prescriptive design 
requirement for standby mode operation that would disallow the use of 
continuously-burning pilots (i.e., ``standing pilots'' or ``constant-
burning pilots'') in hearth products. The proposed standard, if 
adopted, would apply to all hearth products, as defined in section 
IV.A, that are manufactured in, or imported into, the United States on 
and after the date 5 years after the publication of the final rule for 
this rulemaking. The proposed design standard would eliminate all 
standby mode gas consumption for hearth products as defined in the 
proposed determination rulemaking (78 FR 79638). DOE considered a 
combination of factors in developing its proposal to disallow 
continuously burning pilot lights, rather than other possibilities such 
as proposing to regulate active mode energy consumption with a 
performance standard or other prescriptive requirements. The rationale 
for this tentative decision to focus on standby mode energy consumption 
by the standing pilot is further explained in section III.B of this 
NOPR.

[[Page 7084]]

A. Benefits and Costs to Consumers

    Table I.1 presents DOE's evaluation of the economic impacts of the 
proposed standard on consumers of hearth products, as measured by the 
average life-cycle cost (LCC) savings and the simple payback period 
(PBP).\3\ The average LCC savings to consumers are positive and 
estimated at $165 over the lifetime of the average hearth product, and 
the PBP is estimated at 2.9 years, which is below the average hearth 
product lifetime of approximately 15 years.\4\ As noted above, these 
impacts result from the removal of a continuously-burning pilot in 
units that would otherwise have them, which reduces the standby mode 
fossil fuel energy consumption of hearth products.\5\
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    \3\ The average LCC savings are measured relative to the base-
case efficiency distribution, which depicts the hearth product 
market in the compliance year (see section III.H). The simple PBP, 
which is designed to compare specific hearth product efficiency 
levels, is measured relative to the baseline (see section IV.C.1).
    \4\ See section IV.F.2.d for the derivation of the average 
hearth product lifetime.
    \5\ Impacts of match-lit hearth products were not included in 
the analysis. For more details, see section IV.A.1.

    Table I.1--Impacts of Proposed Hearth Product Energy Conservation
                Standard on Consumers of Hearth Products
------------------------------------------------------------------------
                                                   Simple       Simple
                                                average LCC    payback
                    Product                       savings       period
                                                   2013$        years
------------------------------------------------------------------------
Hearth Products...............................          165          2.9
------------------------------------------------------------------------

B. Impact on Manufacturers

    The industry net present value (INPV) is the sum of the discounted 
cash flows for the industry from the base year through the end of the 
analysis period (2014 to 2050). Using a real discount rate of 8.7 
percent, DOE estimates that the base case INPV for manufacturers of gas 
hearth products is $125.3 million in 2013$.\6\ Under the proposed 
design standard, DOE expects that INPV impacts may range from a loss of 
2.6 percent of INPV to a gain of 0.4 percent.
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    \6\ All monetary values in this document are expressed in 2013 
dollars; discounted values are discounted to 2014 unless explicitly 
stated otherwise.
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C. National Benefits and Costs

    DOE's analyses indicate that the proposed energy conservation 
standard for hearth products would save a significant amount of energy 
in the form of reduced natural gas consumption during stand-by mode. 
The lifetime energy savings for hearth products purchased in the 30-
year period that begins in the first full year of compliance with an 
amended standard (2021-2050), relative to the base case without amended 
standards, amount to 0.69 quads\7\ of full-fuel-cycle (FFC) energy.\8\ 
This represents a savings of about 77 percent relative to the energy 
use of the hearth product ignition systems in the base case, which 
reflects the existing market share of electronic ignition systems.
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    \7\ A quad is equal to 10\15\ British thermal units (Btu).
    \8\ The reported savings are net savings after accounting for 
the slight increase in electricity use resulting from the proposed 
standard.
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    The cumulative net present value (NPV) of total consumer costs and 
savings for the proposed hearth products standard ranges from $1.03 
billion to $3.12 billion at 7-percent and 3-percent discount rates, 
respectively. This NPV expresses the estimated total value of future 
operating-cost savings minus the estimated increased product costs for 
hearth products purchased in 2021-2050.
    In addition, the proposed hearth products standard would have 
significant environmental benefits. The energy savings described above 
are expected to result in cumulative emission reductions of 37.0 
million metric tons (Mt)\9\ of carbon dioxide (CO<INF>2</INF>), 486 
thousand tons of methane (CH<INF>4</INF>), 125 thousand tons of 
nitrogen oxides (NO<INF>X</INF>), and 0.01 thousand tons of nitrous 
oxide (N<INF>2</INF>O).\10\ Projected emissions show an increase of 
4.26 thousand tons of sulfur dioxide (SO<INF>2</INF>) and 0.01 tons of 
mercury (Hg) due to higher electricity use associated with the shift to 
electronic ignition in the subject hearth products.\11\ The cumulative 
reduction in CO<INF>2</INF> emissions through 2030 amounts to 11.1 Mt, 
which is equivalent to the emissions resulting from the annual 
electricity use of 1.5 million homes.\12\
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    \9\ A metric ton is equivalent to 1.1 short tons. Results for 
emissions other than CO<INF>2</INF> are presented in short tons.
    \10\ The emissions reductions primarily concern reduction in 
combustion emissions from standing pilots. DOE calculated emissions 
reductions relative to the Annual Energy Outlook 2014 (AEO 2014) 
Reference case, which generally represents current legislation and 
environmental regulations, including recent government actions for 
which implementing regulations were available as of October 31, 
2013. The impacts on mercury emissions are expected to be 
negligible.
    \11\ DOE calculated power sector emissions impacts relative to 
the Annual Energy Outlook 2014 (AEO 2014) Reference case, which 
generally represents current legislation and environmental 
regulations, including recent government actions for which 
implementing regulations were available as of October 31, 2013. The 
impacts on mercury emissions are expected to be negligible.
    \12\ Environmental Protection Agency. EPA GHG calculator (Last 
Accessed; December 23, 2014) (Available at: http://www.epa.gov/cleanenergy/energy-resources/calculator.html#results).
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    The value of the CO<INF>2</INF> reduction is calculated using a 
range of values per metric ton of CO<INF>2</INF> (otherwise known as 
the Social Cost of Carbon, or SCC) developed by a recent Federal 
interagency process.\13\ The derivation of the SCC values is discussed 
in section IV.L. Using discount rates appropriate for each set of SCC 
values (see Table I.2), DOE estimates the present monetary value of the 
CO<INF>2</INF> emissions reduction is between $0.2 billion and $3.4 
billion, with a value of $1.1 billion using the central SCC case 
represented by $40.5/t in 2015. Additionally, DOE estimates the present 
monetary value of the NO<INF>X</INF> emissions reduction to be $0.06 
billion to $0.15 billion at 7-percent and 3-percent discount rates, 
respectively.\14\
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    \13\ Technical Update of the Social Cost of Carbon for 
Regulatory Impact Analysis Under Executive Order 12866, Interagency 
Working Group on Social Cost of Carbon, United States Government 
(May 2013; revised November 2013) (Available at: http://www.whitehouse.gov/sites/default/files/omb/assets/inforeg/technical-update-social-cost-of-carbon-for-regulator-impact-analysis.pdf).
    \14\ DOE is investigating valuation of avoided Hg and 
SO<INF>2</INF> emissions.
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    Table 1.2 summarizes the national economic benefits and costs 
expected to result from the proposed standard for hearth products.

 Table I.2--Summary of National Economic Benefits and Costs of Proposed Energy Conservation Standard for Hearth
                                                Products (TSL 1)*
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                                                   Present value
                    Category                       Billion 2013$                  Discount rate %
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                                                    Benefits
----------------------------------------------------------------------------------------------------------------
Consumer Operating Cost Savings................             1.536  7
                                                            4.128  3

[[Page 7085]]

 
CO2 Reduction Monetized Value ($12.0/t case) **             0.226  5
CO2 Reduction Monetized Value ($40.5/t case) **             1.098  3
CO2 Reduction Monetized Value ($62.4/t case) **             1.763  2.5
CO2 Reduction Monetized Value ($119/t case) **.             3.405  3 (95th percentile)
NOX Reduction Monetized Value (at $2,684/ton)               0.058  7
 **.
                                                            0.148  3
Total Benefits [dagger]........................             2.693  7
                                                            5.373  3
----------------------------------------------------------------------------------------------------------------
                                                      Costs
----------------------------------------------------------------------------------------------------------------
Consumer Incremental Installed Costs...........             0.505  7
                                                            1.004  3
----------------------------------------------------------------------------------------------------------------
                                               Total Net Benefits
----------------------------------------------------------------------------------------------------------------
Including Emissions Reduction Monetized Value               2.187  7
 [dagger].
                                                            4.369  3
----------------------------------------------------------------------------------------------------------------
* This table presents the costs and benefits associated with hearth products shipped in 2021-2050. These results
  include benefits to consumers that accrue after 2050 from the products purchased in 2021-2050. The results
  account for the incremental variable and fixed costs incurred by manufacturers due to the standard, some of
  which may be incurred in preparation for the rule.
** The CO2 values represent global monetized values of the SCC, in 2013$, in 2015 under several scenarios of the
  updated SCC values. The first three cases use the averages of SCC distributions calculated using 5%, 3%, and
  2.5% discount rates, respectively. The fourth case represents the 95th percentile of the SCC distribution
  calculated using a 3% discount rate. The SCC time series used by DOE incorporate an escalation factor. The
  value for NOX is the average of high and low values found in the literature.
[dagger] Total Benefits for both the 3% and 7% cases are derived using the series corresponding to average SCC
  with a 3-percent discount rate ($40.5/t in 2015).

    The benefits and costs of today's proposed energy conservation 
standard, for hearth products sold in 2021-2050, can also be expressed 
in terms of annualized values. The annualized monetary values are the 
sum of: (1) The annualized national economic value of the benefits from 
consumer operation of products that meet the proposed new or amended 
standards (consisting primarily of operating cost savings from using 
less energy, minus increases in product purchase and installation 
costs, which is another way of representing consumer NPV), and (2) the 
annualized monetary value of the benefits of emission reductions, 
including CO<INF>2</INF> emission reductions.\15\
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    \15\ To convert the time-series of costs and benefits into 
annualized values, DOE calculated a present value in 2014, the year 
used for discounting the NPV of total consumer costs and savings. 
For the benefits, DOE calculated a present value associated with 
each year's shipments in the year in which the shipments occur 
(2020, 2030, etc.), and then discounted the present value from each 
year to 2014. The calculation uses discount rates of 3 and 7 percent 
for all costs and benefits except for the value of CO<INF>2</INF> 
reductions, for which DOE used case-specific discount rates. Using 
the present value, DOE then calculated the fixed annual payment over 
a 30-year period, starting in the compliance year that yields the 
same present value.
---------------------------------------------------------------------------

    Although combining the values of operating savings and 
CO<INF>2</INF> emission reductions provides a useful perspective, two 
issues should be considered. First, the national operating savings are 
domestic U.S. consumer monetary savings that occur as a result of 
market transactions, whereas the value of CO<INF>2</INF> reductions is 
based on a global value. Second, the assessments of operating cost 
savings and CO<INF>2</INF> savings are performed with different methods 
that use different time frames for analysis. The national operating 
cost savings is measured for the lifetime of hearth products shipped in 
2021-2050. The SCC values, on the other hand, reflect the present value 
of some future climate-related impacts resulting from the emission of 
one ton of carbon dioxide in each year. These impacts continue well 
beyond 2100.
    Estimates of annualized benefits and costs of the proposed standard 
are shown in Table I.3. The results under the primary estimate are as 
follows. Using a 7-percent discount rate for benefits and costs other 
than CO<INF>2</INF> reduction (for which DOE used a 3-percent discount 
rate along with the average SCC series that uses a 3-percent discount 
rate ($40.5/t in 2015)), the cost of the hearth products standards 
proposed in this rule is $61.1 million per year in increased equipment 
costs, while the estimated benefits are $186 million per year in 
reduced equipment operating costs, $67 million per year in 
CO<INF>2</INF> reductions, and $7.0 million per year in reduced 
NO<INF>X</INF> emissions. In this case, the net benefit would amount to 
$199 million per year. Using a 3-percent discount rate for all benefits 
and costs and the average SCC series that uses a 3-percent discount 
rate ($40.5/t in 2015), the estimated cost of the hearth products 
standards proposed in this rule is $61.2 million per year in increased 
equipment costs, while the estimated benefits are $251 million per year 
in reduced equipment operating costs, $67 million per year in 
CO<INF>2</INF> reductions, and $9.0 million per year in reduced 
NO<INF>X</INF> emissions. In this case, the net benefit would amount to 
$266 million per year.

[[Page 7086]]



                     Table I.3--Annualized Benefits and Costs of Proposed Energy Conservation Standards for Hearth Products (TSL 1)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                             High net benefits  estimate
                                        Discount rate %              Primary  estimate *      Low net benefits  estimate *                *
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                 .............................                                     million 2013$/year
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                        Benefits
--------------------------------------------------------------------------------------------------------------------------------------------------------
Consumer Operating Cost Savings  7%...........................  186.........................  175.........................  195.
                                 3%...........................  251.........................  235.........................  265.
CO2 Reduction Monetized Value    5%...........................  20..........................  20..........................  20.
 ($12.0/t case) **.
CO2 Reduction Monetized Value    3%...........................  67..........................  67..........................  67.
 ($40.5/t case) **.
CO2 Reduction Monetized Value    2.50%........................  98..........................  98..........................  98.
 ($62.4/t case) **.
CO2 Reduction Monetized Value    3%...........................  207.........................  207.........................  207.
 ($119/t case) **.
NOX Reduction Monetized Value    7%...........................  7.00........................  7.00........................  7.00.
 (at $2,684/ton) **.             3%...........................  8.99........................  8.99........................  8.99.
Total Benefits [dagger]........  7% plus CO2 range............  212 to 400..................  202 to 389..................  222 to 410.
                                 7%...........................  260.........................  249.........................  269.
                                 3% plus CO2 range............  280 to 468..................  264 to 452..................  294 to 482.
                                 3%...........................  327.........................  311.........................  341.
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                          Costs
--------------------------------------------------------------------------------------------------------------------------------------------------------
Consumer Incremental Equipment   7%...........................  61.1........................  61.1........................  61.1.
 Costs.                          3%...........................  61.2........................  61.2........................  61.2.
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                       Net Benefits
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total [dagger].................  7% plus CO2 range............  151 to 339..................  141 to 328..................  161 to 349.
                                 7%...........................  199.........................  188.........................  208.
                                 3% plus CO2 range............  219 to 407..................  203 to 390..................  233 to 420.
                                 3%...........................  266.........................  250.........................  280.
--------------------------------------------------------------------------------------------------------------------------------------------------------
* This table presents the annualized costs and benefits associated with hearth products shipped in 2021-2050. These results include benefits to
  consumers that accrue after 2050 from the products purchased in 2021-2050. The results account for the incremental variable and fixed costs incurred
  by manufacturers due to the standard, some of which may be incurred in preparation for the rule. The Primary, Low Net Impacts, and High Net Impacts
  Estimates utilize projections of energy prices from the AEO 2014 Reference case, Low Estimate, and High Estimate, respectively. Incremental product
  costs are the same for each Estimate.
** The CO2 values represent global monetized values of the SCC, in 2013$, in 2015 under several scenarios of the updated SCC values. The first three
  cases use the averages of SCC distributions calculated using 5%, 3%, and 2.5% discount rates, respectively. The fourth case represents the 95th
  percentile of the SCC distribution calculated using a 3% discount rate. The SCC time series used by DOE incorporate an escalation factor. The value
  for NOX is the average of high and low values found in the literature.
[dagger] Total Benefits for both the 3% and 7% cases are derived using the series corresponding to the average SCC with a 3-percent discount rate ($40.5/
  t in 2015). In the rows labeled ``7% plus CO2 range'' and ``3% plus CO2 range,'' the operating cost and NOX benefits are calculated using the labeled
  discount rate, and those values are added to the full range of CO2 values.

D. Conclusion

    DOE has tentatively concluded that the proposed standard represents 
the maximum improvement in energy efficiency that is technologically 
feasible and economically justified, and would result in significant 
conservation of energy. DOE further notes that products achieving the 
proposed standard are already commercially available. Based on the 
analyses described previously, DOE has tentatively concluded that the 
benefits of the proposed standards to the Nation (energy savings, 
positive NPV of consumer benefits, consumer LCC savings, and emission 
reductions) would outweigh the burdens (loss of INPV for manufacturers 
and LCC increases for some consumers).
    Based on consideration of the public comments DOE receives in 
response to this notice and related information collected and analyzed 
during the course of this rulemaking, DOE may adopt the standard 
proposed in this notice, or some combination of options that 
incorporate the proposed standard in part.

II. Introduction

    The following section briefly discusses the statutory authority 
underlying today's proposal, as well as some of the relevant historical 
background related to the establishment of standards for hearth 
products.

A. Authority

    Title III, Part B of the Energy Policy and Conservation Act of 1975 
(EPCA or the Act), Public Law 94-163 (42 U.S.C. 6291-6309, as codified) 
established the Energy Conservation Program for Consumer Products Other 
Than Automobiles, a program designed to improve energy efficiency for 
consumer products and certain commercial and industrial equipment. In 
addition to specifying a list of covered residential products and 
commercial equipment, EPCA, as amended, contains provisions that enable 
the Secretary of Energy to classify additional types of consumer 
products as covered products. (42 U.S.C. 6292(a)(20)) Specifically, for 
a given product to be classified as a covered product, the Secretary 
must determine that:
    (A) Classifying the product as a covered product is necessary or 
appropriate for the purposes of carrying out EPCA; and
    (B) The average annual per-household energy use by products of such 
type is

[[Page 7087]]

likely to exceed 100 kilowatt-hours (or its Btu equivalent) per year.

(42 U.S.C. 6292(b)(1)(A) and (B))

    For the Secretary to prescribe an energy conservation standard 
pursuant to 42 U.S.C. 6295(o) and (p) for covered products added 
pursuant to 42 U.S.C. 6292(a)(20) and (b)(1), the Secretary must also 
determine that:
    (A) The average household energy use of the type (or class) of 
products has exceeded 150 kWh (or its Btu equivalent) per household for 
any 12-month period;
    (B) The aggregate 12-month household energy use of the type (or 
class) of products has exceeded 4.2 TWh;
    (C) Substantial improvement in energy efficiency is technologically 
feasible; and
    (D) Application of a labeling rule under 42 U.S.C. 6294 is unlikely 
to be sufficient to induce manufacturers to produce, and consumers and 
other persons to purchase, covered products of such type (or class) 
that achieve the maximum energy efficiency that is technologically 
feasible and economically justified.

(42 U.S.C. 6295(l)(1)(A)-(D)) \16\
---------------------------------------------------------------------------

    \16\ DOE notes that a drafting error arose at the time Congress 
adopted the amendments to EPCA contained in the Energy Independence 
and Security Act of 2007 (EISA 2007), Public Law 110-140. As part of 
the EISA 2007 amendments, Congress added metal halide lamp fixtures 
to the list of specifically enumerated covered products at 42 U.S.C. 
6292(a)(19) and shifted the provision for the Secretary to classify 
``any other type'' of a consumer product as a covered product to 42 
U.S.C. 6292(a)(20). However, Congress did not similarly amend the 
criteria and other requirements for setting energy conservation 
standards for ``other'' covered products in 42 U.S.C. 6295(l)(1) and 
(2). The provisions in 42 U.S.C. 6295(l) continued to refer to 
standards for ``any type'' of covered product, while continuing to 
refer to 42 U.S.C. 6292(a)(20). Clearly, the provisions at 42 U.S.C. 
6295(l) were intended to apply more broadly than to metal halide 
lamp fixtures, so DOE continues to apply this provision as if the 
drafting error had not occurred. To do otherwise would render the 
provision at 42 U.S.C. 6295(l) a nullity, thereby thwarting DOE's 
ability to set energy conservation standards for newly covered 
products, an outcome which Congress could not have intended.
---------------------------------------------------------------------------

    Pursuant to EPCA, DOE's energy conservation program for covered 
products consists essentially of four parts: (1) Testing; (2) labeling; 
(3) establishing Federal energy conservation standards; and (4) 
certification and enforcement procedures. The Federal Trade Commission 
(FTC) is primarily responsible for labeling, and DOE implements the 
remainder of the program.
    DOE must follow specific statutory criteria for prescribing 
standards for covered products, including hearth products. As indicated 
previously, 42 U.S.C. 6295(o) and (p) contain specific criteria for 
establishing or amending energy conservation standards for covered 
products. Any new or amended standard for a covered product must be 
designed to achieve the maximum improvement in energy efficiency that 
is technologically feasible and economically justified. (42 U.S.C. 
6295(o)(2)(A) and (3)(B)) Furthermore, DOE may not adopt any standard 
that would not result in the significant conservation of energy. (42 
U.S.C. 6295(o)(3)) Moreover, DOE may not prescribe a standard: (1) For 
certain products, including hearth products, if no test procedure has 
been established for the product,\17\ or (2) if DOE determines by rule 
that the proposed standard is not technologically feasible or 
economically justified. (42 U.S.C. 6295(o)(3)(A)-(B)) In deciding 
whether a proposed standard is economically justified, after receiving 
comments on the proposed standard, DOE must determine whether the 
benefits of the standard exceed its burdens. (42 U.S.C. 
6295(o)(2)(B)(i)) DOE must make this determination by, to the greatest 
extent practicable, considering the following seven factors:
---------------------------------------------------------------------------

    \17\ As discussed in section III.D, DOE is not prescribing a 
test procedure because it is unnecessary for the prescriptive energy 
conservation standards that were considered for this NOPR.
---------------------------------------------------------------------------

    (1) The economic impact of the standard on manufacturers and 
consumers of the products subject to the standard;
    (2) The savings in operating costs throughout the estimated average 
life of the covered products in the type (or class) compared to any 
increase in the price, initial charges, or maintenance expenses for the 
covered products that are likely to result from the standard;
    (3) The total projected amount of energy (or as applicable, water) 
savings likely to result directly from the standard;
    (4) Any lessening of the utility or the performance of the covered 
products likely to result from the standard;
    (5) The impact of any lessening of competition, as determined in 
writing by the Attorney General, that is likely to result from the 
standard;
    (6) The need for national energy and water conservation; and
    (7) Other factors the Secretary of Energy (Secretary) considers 
relevant. (42 U.S.C. 6295(o)(2)(B)(i)(I)-(VII))
    EPCA, as codified, also contains what is known as an ``anti-
backsliding'' provision, which prevents the Secretary from prescribing 
any amended standard that either increases the maximum allowable energy 
use or decreases the minimum required energy efficiency of a covered 
product. (42 U.S.C. 6295(o)(1)) Also, the Secretary may not prescribe 
an amended or new standard if interested persons have established by a 
preponderance of evidence that the standard is likely to result in the 
unavailability in the United States of any covered product type (or 
class) with performance characteristics (including reliability), 
features, sizes, capacities, and volumes that are substantially the 
same as those generally available in the United States. (42 U.S.C. 
6295(o)(4))
    Further, EPCA, as codified, establishes a rebuttable presumption 
that a standard is economically justified if the Secretary finds that 
the additional cost to the consumer of purchasing a product complying 
with an energy conservation standard level will be less than three 
times the value of the energy savings during the first year that the 
consumer will receive as a result of the standard, as calculated under 
the applicable test procedure. (42 U.S.C. 6295(o)(2)(B)(iii))
    Additionally, 42 U.S.C. 6295(q)(1) specifies requirements when 
promulgating an energy conservation standard for a covered product that 
has two or more subcategories. DOE must specify a different standard 
level for a type or class of covered product that has the same function 
or intended use, if DOE determines that products within such group: (A) 
Consume a different kind of energy from that consumed by other covered 
products within such type (or class); or (B) have a capacity or other 
performance-related feature that other products within such type (or 
class) do not have and such feature justifies a higher or lower 
standard. (42 U.S.C. 6295(q)(1)) In determining whether a performance-
related feature justifies a different standard for a group of products, 
DOE must consider such factors as the utility to the consumer of the 
feature and other factors DOE deems appropriate. Id. Any rule 
prescribing such a standard must include an explanation of the basis on 
which such higher or lower level was established. (42 U.S.C. 
6295(q)(2))
    Federal energy conservation requirements generally supersede State 
laws or regulations concerning energy conservation testing, labeling, 
and standards. (42 U.S.C. 6297(a)-(c)) DOE may, however, grant waivers 
of Federal preemption for particular State laws or regulations, in 
accordance with the procedures and other provisions set forth under 42 
U.S.C. 6297(d).
    In addition, pursuant to other amendments contained in EISA 2007, 
any final rule for new or amended

[[Page 7088]]

energy conservation standards promulgated after July 1, 2010 is 
required to address standby mode and off mode energy use. (42 U.S.C. 
6295(gg)(3)) Specifically, when DOE adopts a standard for a covered 
product after that date, it must, if justified by the criteria for 
adoption of standards under EPCA (42 U.S.C. 6295(o)), incorporate 
standby mode and off mode energy use into a single standard, or, if 
that is not feasible, adopt a separate standard for such energy use for 
that product. (42 U.S.C. 6295(gg)(3)(A)-(B))
    Finally, it is noted that under 42 U.S.C. 6295(m), the agency must 
periodically review established energy conservation standards for a 
covered product. Under this requirement, such review must be conducted 
no later than 6 years from the issuance of any final rule establishing 
or amending a standard for a covered product.

B. Background

    DOE has not previously conducted an energy conservation standards 
rulemaking for hearth products. Consequently, there are currently no 
Federal energy conservation standards for hearth products.
    On December 31, 2013, DOE published a notice of proposed 
determination (NOPD) of coverage to classify hearth products as covered 
products under EPCA. 78 FR 79638. In the proposed determination of 
coverage, DOE presented its preliminary findings relating to the energy 
use of hearth products to determine whether they could be classified as 
a type of covered product under the requirements of 42 U.S.C. 
6292(b)(1)(A) and (B), and whether they would meet the criteria for DOE 
to prescribe an energy conservation standard under 42 U.S.C. 
6295(l)(1)(A)-(D). (See section II.A for a discussion of these 
statutory criteria.) DOE also proposed to define a ``hearth product'' 
as ``a gas-fired appliance that simulates a solid-fueled fireplace or 
presents a flame pattern (for aesthetics or other purpose) and that may 
provide space heating directly to the space in which it is installed.'' 
78 FR 79638, 79640 (Dec. 31, 2013). The proposed determination is still 
pending, but as discussed in section IV.A, DOE is using the proposed 
definition to delineate the scope of this NOPR. In addition, DOE has 
considered some of the comments submitted in response to the proposed 
coverage determination, which are relevant to the development of 
proposed energy conservation standards for hearth products and 
addresses those comments as applicable in this NOPR.

III. General Discussion

A. Scope of Coverage

    In the December 2013 NOPD, DOE proposed to adopt a definition of 
hearth product that means a gas-fired appliance that simulates a solid-
fueled fireplace or presents a flame pattern (for aesthetics or other 
purpose) and that may provide space heating directly to the space in 
which it is installed.
    Based upon the scope arising from this proposed definition and 
after making the necessary energy use calculations, DOE tentatively 
determined that hearth products would meet the relevant statutory 
criteria so as to justify coverage as a consumer product under EPCA, 
and provided the relevant justifications in the notice. 78 FR 79638, 
79640-41 (Dec. 31, 2013). In the December 2013 NOPD, DOE provided 
examples of several common hearth product types that would be covered 
under the proposed definition, including vented decorative hearth 
products, vented heater hearth products, vented gas logs, gas stoves, 
outdoor hearth products, and vent-less hearth products. Id. at 79640.
    DOE used the definition proposed in the December 2013 NOPD (as 
stated above) to determine the scope of this NOPR.
    In setting forth new energy conservation standards for any type of 
covered product, EPCA requires DOE to determine that: (1) The product 
consumes more than 150 kilowatt-hours (or its Btu equivalent) per 
household in any 12 month period occurring before such a determination; 
(2) the aggregate energy use within the United States was more than 
4,200,000,000 kilowatt-hours (kWh) (or its Btu equivalent) in any 12 
month period occurring before such a determination; (3) substantial 
improvement in energy efficiency for the products is technologically 
feasible; and (4) the application of labeling is not likely to be 
sufficient for manufacturers to produce or for consumers to purchase 
products that would achieve the maximum energy efficiency which is 
technologically feasible and economically justified. (42 U.S.C. 
6295(l)(1)(A)-(D))
    With regards to the first and second criteria, DOE has estimated 
the average household consumption to be 7.5 million Btu (equal to 2,198 
kWh), and aggregate national energy use to be 95 trillion Btu (equal to 
27,800,000,000 kWh) for currently-installed hearth products. (Details 
on these calculations can be found in chapter 7 of the NOPR TSD.) With 
regard to the third criterion, DOE found that several technologies are 
available to substantially improve the energy efficiency (or reduce the 
overall energy consumption) of hearth products in standby-mode. These 
technologies are discussed in section IV.C.2. Finally, with regard to 
the last criterion, DOE found through product literature review and 
manufacturer interviews that labeling is already often included in 
manuals that suggest users extinguish the pilot light when the product 
is not in use. However, for products such as those that include a 
millivolt gas valve, the user must allow the standing pilot to remain 
on so that the valve can be activated or deactivated by a thermostat or 
remote control. Further, regardless of instructions in the manual, DOE 
understands that a significant percentage of consumers allow the 
standing pilot light to burn year-round. DOE has, therefore, 
tentatively determined that the application of labeling is not 
sufficient to result in the maximum energy savings that would be 
technologically feasible and economically justified (i.e., the savings 
achievable through the proposal presented, in this NOPR). In summary, 
DOE has tentatively determined that hearth products, under the proposed 
definition, meet all the criteria for establishing energy conservation 
standards under EPCA.
    The purpose of this NOPR is to propose energy conservation 
standards for products that, together with the December 2013 proposed 
coverage determination, would establish coverage and energy 
conservation standards for hearth products. DOE has not previously 
conducted an energy conservation standards rulemaking for hearth 
products. If, after public comment, DOE issues a final determination of 
coverage for this type of product, DOE would consider adoption of the 
energy conservation standards for hearth products proposed in this 
NOPR.
    DOE received several comments in response to the December 2013 NOPD 
that pertained to the definition and broad range of hearth product 
types. DOE notes that in general, these comments pertain to the 
determination of coverage process, not the energy conservation 
standards process, and so DOE will respond in full to these comments as 
part of the determination of coverage process. However, DOE 
acknowledges that certain comments on the December 2013 NOPD do have 
relevance for this NOPR and addresses them below and in section III.C 
in relevant part.
    Multiple commenters in response to the December 2013 NOPD stated 
that the proposed definition for ``hearth product'' is too broad, and 
that a

[[Page 7089]]

reasonable energy conservation standard regulation could not be 
achieved for a definition that encompassed such a wide variety of 
products. (Hearth, Patio and Barbecue Association (HPBA), No. 5 at p. 
6; National Propane Gas Association (NPGA), No. 7 at p. 2; RH Peterson, 
No. 8 at p. 2; Rasmussen, No. 9 at p. 2; Hearth & Home Technologies 
(HHT), No. 11 at p. 1; Empire, No. 12 at p. 1; Air-Conditioning, 
Heating, and Refrigeration Institute (AHRI), No. 15 at p. 2; Wolf 
Steel, No. 4 at p. 2; American Public Gas Association (APGA), No. 14 at 
p. 2) In response, DOE acknowledges that the hearth products market is 
broad and encompasses a wide range of products. DOE recognizes this as 
one product market and has proposed a definition accordingly. 
Nevertheless, DOE has chosen to conduct its analyses for this 
rulemaking using hearth product groups that have similar 
characteristics. For details about the physical characteristics of each 
product group for analysis, see chapter 5 of the NOPR TSD.
    DOE seeks additional comment regarding its proposed definition for 
hearth products found in the December 2013 NOPD and this is identified 
as Issue 1 in section VII.E ``Issues on Which DOE Seeks Comment.''

B. Prescriptive Requirement for Standby Mode

    As discussed previously, this NOPR proposes to adopt a prescriptive 
design requirement that would reduce hearth product energy consumption 
in standby mode. This design requirement would not affect energy 
consumption or efficiency in active mode. EPCA defines ``active mode'' 
energy consumption as the condition in which an appliance is connected 
to a main power source, has been activated, and provides one or more 
main functions. (42 U.S.C. 6295(gg)(1)(A)(i)) DOE notes that when the 
main burner of a hearth product is off, the product can no longer be 
considered in active mode. EPCA defines ``off mode'' as the condition 
in which the product is connected to its main power source and is not 
providing any standby or active mode function. (42 U.S.C. 
6295(gg)(1)(A)(ii)) DOE has tentatively concluded that this occurs for 
hearth products when the main burner is not lit and, for models with 
continuously-burning pilots, when the pilot light is not lit.
    EPCA defines ``standby mode'' energy consumption as the condition 
in which an appliance is connected to a main power source (in this case 
natural gas or propane connection) and facilitates the activation of 
other modes (including active mode) by remote switch, internal sensor, 
or timer, or serves other continuous functions. (42 U.S.C. 
6295(gg)(1)(A)(iii)) DOE notes that the standing pilot may serve 
several continuous functions. The continuous pilot may provide a safety 
function by proving gas is lit before opening the valve for the main 
burner. In the case of an unvented hearth product, the standing pilot 
provides a means for ensuring that oxygen levels in the room remain at 
a safe level through incorporation of an oxygen depletion sensor. In 
the case of a millivolt gas valve, a standing pilot facilitates 
activation of active mode using a remote control; this is accomplished 
by the pilot light heating a thermopile, which produces a voltage 
difference, thereby allowing use with electronic controls. Therefore, 
DOE has concluded that the standing pilot qualifies as standby mode 
energy use.
    DOE estimated the average annual amount of energy consumed by the 
main burner and by the standing pilot for each hearth product 
group.<SUP>18, 19</SUP> These estimates can be found in Table III.1. 
Active mode operation may use fossil fuels more intensively, but 
standby mode uses fossil fuels over significantly more hours on an 
annual basis.
---------------------------------------------------------------------------

    \18\ Description of the hearth product groups can be found in 
chapter 5 of the NOPR TSD.
    \19\ These values are calculated as the main burner operating 
hours multiplied by the average input capacity and the standing 
pilot operating hours multiplied by the average pilot light input 
rate, respectively. The operating hours can be found in chapter 7 of 
the NOPR TSD.

 Table III.1--Average Annual Energy Use in Active Mode (Main Burner) and
                      Standby Mode (Standing Pilot)
------------------------------------------------------------------------
                                        Main  burner     Standing  pilot
                                           energy            energy
    Hearth product analysis group        consumption       consumption
                                         (MMBtu/yr)        (MMBtu/yr)
------------------------------------------------------------------------
Vented Fireplaces, Inserts, and                   5.19              3.99
 Stoves.............................
Unvented Fireplaces, Inserts, and                 4.47              3.52
 Stoves.............................
Vented Gas Log Sets.................              8.31              3.13
Unvented Gas Log Set................              4.53              2.29
Outdoor.............................              7.02              3.52
Weighted Average....................              5.28              3.54
------------------------------------------------------------------------

    As shown in Table III.1, the standing pilot energy consumption 
makes up a significant portion of the overall energy consumption for 
hearth products. Further, the energy savings that can be achieved 
through disallowing standing pilot lights is greater than the savings 
that could be achieved through increasing the active mode efficiency 
via a performance standard. An active mode performance standard would 
only partially reduce the active mode energy consumption, whereas a 
prescriptive requirement to remove the standing pilot could be applied 
to all hearth product types and would reduce the standing pilot energy 
consumption to zero.
    DOE also considered whether a maximum energy use performance 
standard would be appropriate for hearth products in active mode. DOE 
recognizes that hearth products are available for a wide range of input 
capacities depending on the consumer's needs. In general, the gas input 
is proportional to the size of the hearth product. A performance 
standard for hearth products that establishes a maximum energy use 
would likely eliminate certain sizes of hearth products from the market 
and could negatively impact the utility of the product.
    DOE considered several individual technologies that could 
potentially reduce the energy consumption of hearth products as 
discussed in section IV.A.3. All of the technology options identified, 
except for the electronic ignition, pertain to active mode energy use. 
Based on manufacturer feedback, DOE tentatively concluded that five of 
the technologies considered (air-to-fuel ratio, burner port design, 
simulated log design, burner pan media or bead type, and reflective 
combustion zone surfaces) would result in immeasurable

[[Page 7090]]

or negligible active mode energy savings. Two of the considered 
technologies--the circulating fan and the condensing heat exchanger--
would only apply to a subset of hearth products. Also, these two 
technology options may only be implemented in those types of units that 
incorporate an enclosure to house the components (i.e., they would not 
be applicable for gas log sets and certain types of outdoor hearths).
    DOE has tentatively determined that all standby fossil fuel 
consumption would be eliminated by disallowing the use of standing 
pilots.\20\ When turning on a gas hearth appliance, a pilot light is 
first ignited before gas flows to the main burner and is lighted. The 
pilot light generally may be constant-burning (``standing'') or 
intermittent. In the case of a standing pilot, the pilot light 
continues to consume gas even when the main burner is not consuming 
gas, unless the consumer chooses to shut off gas to the pilot as well.
---------------------------------------------------------------------------

    \20\ See section III.I for discussion of electrical standby 
consumption for hearth products.
---------------------------------------------------------------------------

    The standby mode operation and energy use of hearth products are 
functions of ignition type. Ignition types for all hearth products fall 
under three categories: (1) Match-lit; (2), constant-burning or 
``standing'' pilot; and (3) electronic ignition. For match-lit ignition 
systems, in order to ignite the burner, the user must manually turn on 
the gas flow and light the main burner with a match, lighter, or other 
device. After use, the user should manually turn off the gas valve, 
thereby reducing the fuel flow to zero when the product is not in 
operation. Therefore, match-lit products do not consume energy when not 
in active mode. For products with electronic ignitions, the most common 
approach is an intermittent pilot ignition. In this system, upon a call 
for the burner to ignite (either from the user or a thermostat), a 
spark lights a pilot, which in turn ignites the main burner. When the 
main burner shuts off, the pilot also shuts off, and, thus, any energy 
use in standby mode is electrical. DOE has tentatively determined this 
electrical consumption is de minimis.\20\ For constant-burning pilots, 
the user must manually light the pilot each time it is extinguished, 
either manually with a match or through the use of a piezo-igniter. 
Then the pilot in turn lights the main burner. However, in this case, 
the pilot remains on after the main burner shuts off, awaiting future 
calls to ignite the burner. Therefore, hearth products with standing 
pilots continue to use gas typically at a rate between 700 and 1,200 
Btu/h when the pilot light is not extinguished. Since match-lit hearth 
products consume no energy in standby mode and off mode and since the 
electrical consumption of electronic ignitions has been tentatively 
determined to be de minimis, disallowing the use of constant-burning 
pilot ignition systems would effectively eliminate all standby mode 
energy use for these products. These characteristics are common to the 
standby mode operation across all hearth products.
    Therefore, while an energy efficiency performance standard for 
active mode and the technology options to achieve efficiency 
improvements could result in only a fractional reduction of energy 
consumption for a subset of hearth products, disallowing the standing 
pilot ignition type would eliminate all standby fossil fuel use for 
hearth products. Of the three general ignition types for hearth 
products--match-lit, standing pilot, and electronic ignition--only the 
standing pilot ignition systems contribute substantially to standby 
mode energy, so disallowing their use would effectively eliminate 
standby mode energy consumption of hearth products.
    DOE also considered performance standards for standby mode. Since 
the standing pilot light is used for several functions, reducing the 
allowable use during standby mode would hinder these products from 
providing these functions. (Note: Electronic ignitions are capable of 
providing the same functions as standing pilot ignition systems, and so 
disallowing standing pilots will not eliminate this utility from the 
market.) DOE is also unaware, as stated in section IV.A.3, of 
technologies for substantially reducing the consumption of pilot 
lights. Additionally, DOE has determined that a design requirement 
would be more effective and easier to implement than a performance 
standard addressing standby mode. A performance standard would likely 
also require a test procedure to be established and would increase 
manufacturer burden due to testing requirements.
    In summary, DOE has tentatively concluded the following:
    (1) A potential maximum energy use performance standard for active 
mode would likely restrict the sizes of available hearth products, 
eliminating part of the market.
    (2) The technology options available for reducing the active mode 
energy consumption of hearth products either result in immeasurable or 
negligible energy savings, or only apply to a subset of hearth products 
resulting in limited opportunity for energy savings;
    (3) A prescriptive requirement that disallows the use of standing 
pilot ignition systems would eliminate all standby mode fossil fuel 
use,\20\ which represents a large fraction of the overall energy use 
for hearth products;
    (4) An performance standard for standby mode would be less 
effective than a prescriptive requirement disallowing standing pilot 
ignitions, and would result in more manufacturer burden due to testing 
requirements; and
    (5) There are no technology options available to substantially 
reduce the energy consumption of pilot lights other than removing them; 
and
    (6) There is no associated public health or safety issue associated 
with replacing any constant-burning pilot with an intermittent pilot 
ignition system for the hearth products identified in this proposal. 
(DOE also requests comment on this assumption and this is identified as 
Issue 2 in section VII.E ``Issues on Which DOE Seeks Comment.'')
    For the reasons cited above, DOE has focused the analysis for this 
NOPR on a prescriptive requirement for standby mode energy use that 
would disallow the use of a constant-burning pilot light. DOE 
recognizes that an equivalent performance standard and test procedure 
could be proposed such that would measure the standby mode gas 
consumption and ensure it is zero. However, such a standard and 
accompanying test procedure would be unduly burdensome, since 
confirming that a hearth product does not have the components necessary 
for a standing pilot light ensures that there is no standby mode gas 
consumption.

C. Product Classes

    In evaluating and establishing energy conservation standards, DOE 
generally divides covered products into classes by the type of energy 
used or by capacity or other performance-related feature that justifies 
a different standard for products having such feature. (See 42 U.S.C. 
6295(q)) In deciding whether a feature justifies a different standard, 
DOE must consider factors such as the utility of the feature to users. 
Id. DOE may also consider other factors it deems appropriate when 
determining product classes. Id. DOE normally establishes different 
energy conservation standards for different product classes based on 
these criteria.
    According to the proposed definition of ``hearth product'' in the 
December 2013 NOPD, a hearth product is a gas-fired appliance that 
simulates a solid-fueled fireplace or presents a flame pattern. 78 FR 
79638, 79640 (Dec. 31, 2013). In the proposed definition, DOE

[[Page 7091]]

acknowledges that hearth products may serve one or more functions to 
the consumer, stating that a hearth product under the proposed 
definition ``presents a flame pattern (for aesthetics or other 
purpose)'' and ``may provide space heating.'' Id. DOE also suggested 
several examples of product types that would be covered under such a 
definition, including vented decorative hearth products, vented heater 
hearth products, vented gas logs, gas stoves, outdoor hearth products, 
and vent-less hearth products.
    DOE also received several comments that suggested an efficiency 
metric is unachievable or disadvantageous for decorative products or 
gas log sets. (HPBA, No. 5 at p. 9; American Gas Association (AGA), No. 
6 at p. 2; RH Peterson, No. 8 at p. 3; Rasmussen, No. 9 at p. 2; Wolf 
Steel, No. 4 at p. 1; AHRI, No. 15 at p. 3-4) Wolf Steel also suggested 
labeling requirements that would clearly identify decorative and heater 
products. (Wolf Steel, No. 4 at p.4)
    In addition to the December 2013 NOPD comments, DOE also examined 
current product offerings and product literature, performed teardown 
analyses (described in section IV.C.3.a), and conducted manufacturer 
interviews in an effort to better understand the market and feature 
sets unique to various hearth products to determine whether capacity or 
performance-related features would justify different standards. Based 
on this analysis, DOE has tentatively concluded the following and seeks 
comment (Issue 3 in section VII.E) regarding these conclusions:
    (1) Within the hearth industry, there is no universally accepted 
definition or set of defining features or other physical 
characteristics for what constitutes different categories of hearth 
products. The distinction between products is sometimes, though not 
always, defined by whether the product is vented or unvented. However, 
even within these groupings, the same product is sometimes certified to 
multiple ANSI standards and in other cases apparently are certified to 
different ANSI standards. For example, unvented gas log sets are 
sometimes certified to the ANSI Z21.60 decorative gas-fired appliance 
standard \21\ in addition to the ANSI Z21.11.2 unvented heater 
standard.\22\ Vented products are often advertised with an AFUE or 
thermal efficiency rating, and may be certified to either or both the 
ANSI Z21.88 vented heater fireplace standard \23\ or the ANSI Z21.50 
vented fireplace standard.\24\
---------------------------------------------------------------------------

    \21\ Latest version is ANSI Z21.60-2012, Decorative gas 
appliances for installation in solid-fuel burning fireplaces 
(Available at: http://shop.csa.ca/en/canada/gas-fired-domestic-and-commercial-heating-equipment-and-air-conditioning/ansi-z2160-2012csa-226-2012/invt/27019512012).
    \22\ Latest version is ANSI Z21.11.2-2013, Gas-fired room 
heaters, volume II, unvented room heaters (Available at: http://shop.csa.ca/en/canada/gas-fired-domestic-and-commercial-heating-equipment-and-air-conditioning/ansi-z21112-2013/invt/27017312013).
    \23\ Latest version is ANSI Z21.88-2014, Vented gas fireplace 
heaters (Available at: http://shop.csa.ca/en/canada/gas-fired-domestic-and-commercial-heating-equipment-and-air-conditioning/ansi-z2188-2014csa-233-2014/invt/27016252014).
    \24\ Latest version is ANSI Z21.50-2014, Vented gas fireplaces 
(Available at: http://shop.csa.ca/en/canada/gas-fired-domestic-and-commercial-heating-equipment-and-air-conditioning/ansi-z2150-2014csa-222-2014-/invt/27020142014).
---------------------------------------------------------------------------

    (2) Hearth products encompass a wide range of configurations to 
serve size, space, and other constraints. Fireplaces, freestanding 
stoves, and gas log sets vary widely in their physical characteristics, 
as well as input capacities.
    (3) Gas log sets are installed in existing fireboxes and masonry 
fireplaces. Therefore, the manufacturer of a gas log set has virtually 
no control over an array of factors that would affect the efficiency of 
their product, including the firebox size, shape, material, and in the 
case of vented gas logs, the amount of draft.
    DOE acknowledges that these issues represent challenges in 
establishing product classes (because differentiating between different 
types is often difficult due to the similarities of different types of 
hearths) or in developing an efficiency metric that would apply for all 
hearth products.
    In comments in response to the December 2013 NOPD, HPBA stated 
``under EPCA, a `covered product' is a type of product defined by a 
common functional utility and for which a common efficiency descriptor 
can be applied.'' HPBA further stated: ``the premise that a `covered 
product' must be defined by a common functional utility is the only 
premise that makes sense in EPCA's context, because the `efficiency' of 
a product can be determined only by reference to its function.'' (HPBA, 
No. 5 at p. 7)
    While DOE considered product classes in light of the issues 
presented above, these considerations pertain to the active mode 
operation of hearth products. As discussed in section III.B, DOE has 
tentatively concluded that a prescriptive requirement for standby mode 
(i.e., requiring the removal of standing pilot ignition systems) would 
have the most energy savings potential and would apply across all types 
of hearth products. Thus, DOE's analysis focused on standby mode. DOE 
found considerable similarity across hearth products in their standby 
mode functionality, components, and energy use.
    In summary, when DOE analyzed the hearth market to consider whether 
to establish product classes based on standby mode energy consumption, 
it found that there is a substantial similarity among hearth products 
of all types, in that the primary mechanism of energy consumption in 
standby mode is a constant-burning pilot. Therefore, DOE has 
tentatively concluded that the establishment of product classes is not 
necessary for the energy conservation standards proposed by this NOPR.

D. Test Procedure

    In this NOPR, DOE is proposing to adopt a prescriptive design 
requirement for hearth products. Specifically, DOE is proposing to 
disallow the use of a continuously-burning pilot light in these 
products. DOE typically establishes test procedures by which products 
must be tested in order to certify compliance with an energy 
conservation standard. Because this proposed standard is a design 
requirement and not a performance standard (i.e., minimum efficiency or 
maximum energy consumption), DOE has tentatively concluded that a test 
procedure is not required in order to determine compliance with the 
standard.
    EPCA states, in relevant part, that an amended or new standard may 
not be adopted if a test procedure has not been established for the 
relevant product type or class. (42 U.S.C. 6295(o)(3)(A)) However, 
later sections of EPCA acknowledge that DOE may establish prescriptive 
design requirements that by nature would not require a test procedure. 
For determining compliance with standards, EPCA requires use of the 
test procedures and criteria prescribed in 42 U.S.C. 6293, except for 
design standards. (42 U.S.C. 6295(s)) EPCA also states that a test 
procedure need not be prescribed if one cannot be designed to 
reasonably measure energy efficiency, energy use, water use, or annual 
operating cost, and not be unduly burdensome to conduct. (42 U.S.C. 
6293(d)(1)) EPCA requires that a determination be published in the 
Federal Register providing justification for such case. Id.
    DOE contends that any test procedure to determine whether a hearth 
product has a continuously-burning pilot would be unduly burdensome to 
conduct in light of fact that the proposed standard is in the form of a 
prescriptive design requirement. While a test could be

[[Page 7092]]

conducted to measure standby mode fuel consumption (which would 
indicate the presence of a continuously-burning pilot if such 
consumption is greater than zero), such a test procedure is not 
required since removing standing pilots will effectively reduce standby 
mode gas consumption to zero. Further, determining whether a 
continuously-burning pilot is present on the unit can be easily 
assessed without testing through a review of operating instructions and 
physical inspection. Therefore, DOE has tentatively concluded that 
adoption of a test procedure is not required for establishing the 
proposed energy conservation standards for hearth products since that 
standard is based upon a design requirement. If DOE were to consider a 
performance standard for hearth products in the future, the agency 
would develop an appropriate test procedure at that time.

E. Technological Feasibility

1. General
    In each energy conservation standards rulemaking, DOE conducts a 
screening analysis based on information gathered on all current 
technology and prototype designs that could improve the efficiency of 
the products or equipment that are the subject of the rulemaking. As 
the first step in such an analysis, DOE develops a list of technology 
options for consideration in consultation with manufacturers, design 
engineers, and other interested parties. DOE then determines which of 
those means for improving efficiency or reducing energy use are 
technologically feasible. DOE considers technologies incorporated in 
commercially-available products or in working prototypes to be 
technologically feasible. 10 CFR part 430, subpart C, appendix A, 
section 4(a)(4)(i).
    After DOE has determined that particular technology options are 
technologically feasible, it further evaluates each technology option 
in light of the following additional screening criteria: (1) 
Practicability to manufacture, install, and service; (2) adverse 
impacts on product utility or availability; and (3) adverse impacts on 
health or safety. 10 CFR part 430, subpart C, appendix A, section 
4(a)(4)(ii)-(iv). Additionally, it is DOE policy not to include in its 
analysis any proprietary technology that is a unique pathway to 
achieving a certain efficiency level. Section IV.B of this notice 
discusses the results of the screening analysis for hearth products, 
particularly the designs DOE considered, those it screened out, and 
those that are the basis for the trial standard levels (TSLs) in this 
rulemaking. For further details on the screening analysis for this 
rulemaking, see chapter 4 of the NOPR technical support document (TSD).
2. Maximum Technologically Feasible Levels
    When DOE proposes to adopt an amended standard for a type or class 
of covered product, it must determine the maximum improvement in energy 
efficiency or maximum reduction in energy use that is technologically 
feasible for such product. (42 U.S.C. 6295(p)(1)) Accordingly, in the 
engineering analysis, DOE determined the maximum technologically 
feasible (max-tech) improvements in energy use for hearth products, 
using the design parameters for the least energy-intensive products 
available on the market or in working prototypes. The max-tech level 
that DOE determined for this rulemaking are described in section IV.C 
of this proposed rule and in chapter 5 of the NOPR TSD.

F. Energy Savings

1. Determination of Savings
    For each TSL, DOE projected energy savings from the products that 
are the subject of this rulemaking purchased in the 30-year period that 
begins in the year of compliance with standards (2021-2050).\25\ The 
savings are measured over the entire lifetime of products purchased in 
the 30-year analysis period.\26\ DOE quantified the energy savings 
attributable to each TSL as the difference in energy consumption 
between the new standards case and the base case. The base case 
represents a projection of energy consumption in the absence of energy 
conservation standards, and it considers market forces and policies 
that affect demand for more-efficient products.
---------------------------------------------------------------------------

    \25\ DOE also presents a sensitivity analysis that considers 
impacts for products shipped in a 9-year period.
    \26\ In the past, DOE presented energy savings results for only 
the 30-year period that begins in the year of compliance. In the 
calculation of economic impacts, however, DOE considered operating 
cost savings measured over the entire lifetime of products purchased 
in the 30-year period. DOE has chosen to modify its presentation of 
national energy savings to be consistent with the approach used for 
its national economic analysis.
---------------------------------------------------------------------------

    DOE used its national impact analysis (NIA) spreadsheet model to 
estimate energy savings from potential standards for the products that 
are the subject of this rulemaking. The NIA spreadsheet model 
(described in section IV.H of this notice) calculates energy savings in 
site energy, which is the energy directly consumed by products at the 
locations where they are used. For electricity, DOE reports national 
energy savings on an annual basis in terms of primary (source) energy 
savings, which is the savings in the energy that is used to generate 
and transmit the site electricity. To calculate the primary energy 
savings, DOE derives annual conversion factors from the model used to 
prepare the Energy Information Administration's (EIA) most recent 
Annual Energy Outlook (AEO).
    DOE also estimates full-fuel-cycle (FFC) energy savings, as 
discussed in DOE's statement of policy and notice of policy amendment. 
76 FR 51282 (August 18, 2011), as amended at 77 FR 49701 (August 17, 
2012). The FFC metric includes the energy consumed in extracting, 
processing, and transporting primary fuels (i.e., coal, natural gas, 
petroleum fuels), and, thus, presents a more complete picture of the 
impacts of energy conservation standards. DOE's approach is based on 
the calculation of an FFC multiplier for each of the energy types used 
by covered products or equipment. For more information on FFC energy 
savings, see section IV.H.1.
2. Significance of Savings
    To adopt energy conservation standards for a covered product, DOE 
must determine that such action would result in ``significant'' energy 
savings. (42 U.S.C. 6295(o)(3)(B)) Although the term ``significant'' is 
not defined in the Act, the U.S. Court of Appeals for the District of 
Columbia Circuit, in Natural Resources Defense Council v. Herrington, 
768 F.2d 1355, 1373 (D.C. Cir. 1985), opined that Congress intended 
``significant'' energy savings in the context of EPCA to be savings 
that were not ``genuinely trivial.'' The energy savings for all of the 
trial standard levels considered in this rulemaking, including the 
proposed standards (presented in section V.C), are nontrivial, and, 
therefore, DOE considers them ``significant'' within the meaning of 
section 325 of EPCA.

G. Economic Justification

1. Specific Criteria
    EPCA provides seven factors to be evaluated in determining whether 
a potential energy conservation standard is economically justified. (42 
U.S.C. 6295(o)(2)(B)(i)(I)-(VII)) The following sections discuss how 
DOE has addressed each of those seven factors in this rulemaking.
a. Economic Impact on Manufacturers and Consumers
    In determining the impacts of a potential energy conservation 
standard

[[Page 7093]]

on manufacturers, DOE conducts a manufacturer impact analysis (MIA), as 
discussed in section IV.J. DOE first uses an annual cash-flow approach 
to determine the quantitative impacts. This step includes both a short-
term assessment--based on the cost and capital requirements during the 
period between when a regulation is issued and when entities must 
comply with the regulation--and a long-term assessment over a 30-year 
period. The industry-wide impacts analyzed include: (1) INPV, which 
values the industry on the basis of expected future cash flows; (2) 
cash flows by year; (3) changes in revenue and income; and (4) other 
measures of impact, as appropriate. Second, DOE analyzes and reports 
the impacts on different types of manufacturers, including impacts on 
small manufacturers. Third, DOE considers the impact of standards on 
domestic manufacturer employment and manufacturing capacity, as well as 
the potential for standards to result in plant closures and loss of 
capital investment. Finally, DOE takes into account cumulative impacts 
of various DOE regulations and other regulatory requirements on 
manufacturers.
    For individual consumers, measures of economic impact include the 
changes in LCC and PBP associated with new or amended standards. These 
measures are discussed further in the following section. For consumers 
in the aggregate, DOE also calculates the national net present value of 
the economic impacts applicable to a particular rulemaking. DOE also 
evaluates the LCC impacts of potential standards on identifiable 
subgroups of consumers that may be affected disproportionately by a 
national standard.
b. Savings in Operating Costs Compared to Increase in Price (LCC and 
PBP)
    EPCA requires DOE to consider the savings in operating costs 
throughout the estimated average life of the covered product in the 
type (or class) compared to any increase in the price of, or in the 
initial charges for, or maintenance expenses of, the covered product 
that are likely to result from a standard. (42 U.S.C. 
6295(o)(2)(B)(i)(II)) DOE conducts this comparison in its LCC and PBP 
analyses.
    The LCC is the sum of the purchase price of a product (including 
its installation) and the operating expense (including energy, 
maintenance, and repair expenditures) discounted over the lifetime of 
the product. The LCC analysis requires a variety of inputs, such as 
product prices, product energy consumption, energy prices, maintenance 
and repair costs, product lifetime, and consumer discount rates. To 
account for uncertainty and variability in specific inputs, such as 
product lifetime and discount rate, DOE uses a distribution of values, 
with probabilities attached to each value. For its analysis, DOE 
assumes that consumers will purchase the covered products in the first 
year of compliance with amended standards.
    The PBP is the estimated amount of time (in years) it takes 
consumers to recover the increased purchase cost (including 
installation) of a more-efficient product through lower operating 
costs. DOE calculates the PBP by dividing the change in purchase cost 
due to a more-stringent standard by the change in annual operating cost 
for the year that standards are assumed to take effect.
    The LCC savings for the considered energy conservation levels are 
calculated relative to a base case that reflects projected market 
trends in the absence of new or amended standards. DOE identifies the 
percentage of consumers estimated to receive LCC savings or experience 
an LCC increase, in addition to the average LCC savings associated with 
a particular standard level. In contrast, the PBP is measured relative 
to the baseline product. DOE's LCC and PBP analysis is discussed in 
further detail in section IV.F.
c. Energy Savings
    Although significant conservation of energy is a separate statutory 
requirement for adopting an energy conservation standard, EPCA requires 
DOE, in determining the economic justification of a standard, to 
consider the total projected energy savings that are expected to result 
directly from the standard. (42 U.S.C. 6295(o)(2)(B)(i)(III)) As 
discussed in section IV.H, DOE uses the NIA spreadsheet to project 
national energy savings.
d. Lessening of Utility or Performance of Products
    In establishing product classes and in evaluating design options 
and the impact of potential standard levels, DOE evaluates potential 
standards that would not lessen the utility or performance of the 
considered products. (42 U.S.C. 6295(o)(2)(B)(i)(IV)) Based on data 
available to DOE, the standards proposed in this notice would not 
reduce the utility or performance of the products under consideration 
in this rulemaking. DOE seeks comment regarding this tentative 
conclusion in Issue 4 of section VII.E ``Issues on Which DOE Seeks 
Comment.''
e. Impact of Any Lessening of Competition
    EPCA directs DOE to consider the impact of any lessening of 
competition, as determined in writing by the Attorney General, that is 
likely to result from a proposed standard. (42 U.S.C. 
6295(o)(2)(B)(i)(V)) It also directs the Attorney General to determine 
the impact, if any, of any lessening of competition likely to result 
from a proposed standard and to transmit such determination to the 
Secretary within 60 days of the publication of a proposed rule, 
together with an analysis of the nature and extent of the impact. (42 
U.S.C. 6295(o)(2)(B)(ii)) DOE will transmit a copy of this proposed 
rule to the Attorney General with a request that the Department of 
Justice (DOJ) provide its determination on this issue. DOE will publish 
and respond to the Attorney General's determination in the final rule.
f. Need for National Energy Conservation
    DOE also considers the need for national energy conservation in 
determining whether a new or amended standard is economically 
justified. (42 U.S.C. 6295(o)(2)(B)(i)(VI)) The energy savings from new 
or amended standards are likely to provide improvements to the security 
and reliability of the nation's energy system. Reductions in the demand 
for electricity also may result in reduced costs for maintaining the 
reliability of the nation's electricity system. DOE conducts a utility 
impact analysis to estimate how standards may affect the nation's 
needed power generation capacity, as discussed in section IV.M.
    New or amended standards also are likely to result in environmental 
benefits in the form of reduced emissions of air pollutants and 
greenhouse gases associated with energy production. DOE conducts an 
emissions analysis to estimate how standards may affect these 
emissions, as discussed in section IV.K. DOE also estimates the 
economic value of emissions reductions resulting from the considered 
TSLs, as discussed in section IV.L.
g. Other Factors
    EPCA allows the Secretary of Energy, in determining whether a 
standard is economically justified, to consider any other factors that 
the Secretary deems to be relevant. (42 U.S.C. 6295(o)(2)(B)(i)(VII)) 
To the extent interested parties submit any relevant information 
regarding economic justification that does not fit into the other 
categories described previously,

[[Page 7094]]

DOE could consider such information under ``other factors.''
2. Rebuttable Presumption
    As set forth in 42 U.S.C. 6295(o)(2)(B)(iii), EPCA creates a 
rebuttable presumption that an energy conservation standard is 
economically justified if the additional cost to the consumer of a 
product that meets the standard is less than three times the value of 
the first year's energy savings resulting from the standard, as 
calculated under the applicable DOE test procedure. DOE's LCC and PBP 
analyses generate values used to calculate the effects that proposed 
energy conservation standards would have on the payback period for 
consumers. These analyses include, but are not limited to, the 3-year 
payback period contemplated under the rebuttable-presumption test. In 
addition, DOE routinely conducts an economic analysis that considers 
the full range of impacts to consumers, manufacturers, the Nation, and 
the environment, as required under 42 U.S.C. 6295(o)(2)(B)(i). The 
results of this analysis serve as the basis for DOE's evaluation of the 
economic justification for a potential standard level (thereby 
supporting or rebutting the results of any preliminary determination of 
economic justification). The rebuttable presumption payback calculation 
is discussed in section V.B.1.c of this proposed rule.

H. Compliance Date

    EPCA typically establishes a lead time between the publication of 
new or amended energy conservation standards and the date by which 
manufacturers must comply with that standard. As specifically relates 
to hearth products, EPCA requires that any new or amended standard for 
a consumer product which the Secretary classifies as a covered product 
under 42 U.S.C. 6292(b) shall not apply to products manufactured within 
five years after the publication of a final rule establishing such 
standard. (42 U.S.C. 6295(l)(2)) Accordingly, presuming DOE makes a 
final coverage determination, compliance with any standard for hearth 
products would be required five years after publication of the final 
rule.

I. Standby Mode and Off Mode

    As discussed in section II.A of this NOPR, any final rule for 
amended or new energy conservation standards that is published on or 
after July 1, 2010 must address standby mode and off mode energy use. 
(42 U.S.C. 6295(gg)(3)) As previously stated, DOE considers the use of 
a continuously-burning pilot light to be standby mode energy 
consumption, and that disallowing use of the constant-burning pilot 
ignition systems would eliminate gas consumption for hearth products in 
standby mode.
    In addition, DOE has tentatively determined that there is no off 
mode gas consumption for a hearth product's ignition module. As 
indicated in section III.B, this energy conservation standards 
rulemaking not only addresses but focuses on standby mode fossil fuel 
energy use.
    DOE notes that in some instances, certain hearth product ignition 
modules may also have some ancillary electrical energy consumption in 
standby mode and/or off mode (see chapter 7 of the TSD). However, DOE 
has tentatively determined that such standby mode and off mode 
electrical energy consumption is de minimis, and consequently, DOE did 
not analyze energy conservation standards to regulate electrical 
standby mode and off mode energy consumption. DOE seeks comment on this 
assumption, which is identified as Issue 5 in section VII.E, ``Issues 
on Which DOE Seeks Comment.''

IV. Methodology

    This section addresses the analyses DOE has performed for this 
rulemaking with regard to hearth products. Separate subsections will 
address each component of DOE's analyses.
    DOE used three spreadsheet tools to estimate the impact of today's 
proposed standards. The first spreadsheet calculates LCCs and PBPs of 
potential standards. The second provides shipments forecasts and then 
calculates national energy savings and net present value impacts of 
potential standards. Finally, DOE assessed manufacturer impacts, 
largely through use of the Government Regulatory Impact Model (GRIM). 
All three spreadsheet tools are available online at the rulemaking 
portion of DOE's Web site: www1.eere.energy.gov/buildings/appliance_standards/product.aspx?productid=83.
    Additionally, DOE estimated the impacts on utilities and the 
environment that would be likely to result from potential standards for 
hearth products. DOE used the most recent version of EIA's National 
Energy Modeling System (NEMS) for the utility and environmental 
analyses.\27\ NEMS simulates the energy sector of the U.S. economy. EIA 
uses NEMS to prepare its Annual Energy Outlook, a widely-known energy 
forecast for the United States. NEMS offers a sophisticated picture of 
the effect of standards, because it accounts for the interactions 
between the various energy supply and demand sectors and the economy as 
a whole.
---------------------------------------------------------------------------

    \27\ For more information on NEMS, refer to the U.S. Department 
of Energy, Energy Information Administration documentation. A useful 
summary is National Energy Modeling System: An Overview, DOE/EIA-
0581(2009) (October 2009) (Available at: http://www.eia.gov/oiaf/aeo/overview/).
---------------------------------------------------------------------------

A. Market and Technology Assessment

    DOE develops information that provides an overall picture of the 
market for the products concerned, including the purpose of the 
products, the industry structure, manufacturers, market 
characteristics, and technologies used in the products. This activity 
includes both quantitative and qualitative assessments, based primarily 
on publicly-available information. The subjects addressed in the market 
and technology assessment for this hearth products rulemaking include: 
(1) A determination of the scope of the rulemaking and product classes; 
(2) manufacturers and industry structure; (3) quantities and types of 
products sold and offered for sale; (4) retail market trends; (5) 
regulatory and non-regulatory programs; and (6) technologies or design 
options that could improve the energy efficiency of the product(s) 
under examination. The key findings of DOE's market assessment are 
summarized below. See chapter 3 of the NOPR TSD for further discussion 
of the market and technology assessment.
1. Consideration of Products for Inclusion in This Rulemaking
    In section III.A, DOE presented the scope of coverage for the 
rulemaking. Presently, hearth products are not covered consumer 
products. Section III.A discusses the scope and coverage for this 
rulemaking in the context of the notice of proposed coverage 
determination published in the Federal Register on December 31, 2013 
(December 2013 NOPD). 78 FR 79638.
    There is no statutory definition of ``hearth product.'' In the 
December 2013 NOPD, DOE proposed to adopt a definition of hearth 
product that means a gas-fired appliance that simulates a solid-fueled 
fireplace or presents a flame pattern (for aesthetics or other purpose) 
and that may provide space heating directly to the space in which it is 
installed.
    In the December 2013 NOPD, DOE provided examples of several common 
hearth product types that would be covered under the proposed 
definition, including vented decorative hearth products, vented heater 
hearth products, vented gas logs, gas stoves, outdoor hearth products, 
and vent-less hearth

[[Page 7095]]

products. Id. For purposes of analysis, DOE separated hearth products 
into product groups. For more details on the product groups DOE used 
for its analysis, see chapter 5 of the NOPR TSD.
    DOE recognizes that match-lit hearth products would be covered 
under the proposed definition for ``hearth product.'' However, since 
these products do not include a standing pilot ignition system, they 
would not be affected by the proposed prescriptive standard. Therefore, 
DOE did not include match-lit products in its analysis, and 
accordingly, the results of the analysis do not reflect impacts on 
match-lit products.
2. Product Classes
    As discussed in section III.C, EPCA contains criteria that DOE 
follows when establishing product classes for setting different energy 
conservation standards for covered product types. (42 U.S.C. 6295(q)) 
DOE has tentatively concluded that, based on the information presented 
in section III.C, separate hearth product classes are not necessary for 
the prescriptive design requirement disallowing the use of standing 
pilots that is proposed in this NOPR.
    In comments on the December 2013 NOPD, HPBA stated that there is no 
basis to assume that a ban on standing pilot lights could reasonably be 
implemented for the diverse range of products at issue. (HPBA, No. 5 at 
p. 9) With regards to this comment as it applies to product classes, it 
is unclear why a prescriptive requirement banning standing pilots could 
not be implemented across hearth product types. As previously stated, 
DOE surveyed product literature, performed teardown analyses, and 
conducted manufacturer interviews which revealed that the key 
components of electronic ignitions are shared by multiple product 
types. DOE found that alternatives to constant-burning pilot lights, 
namely match-lit and electronic ignition, were offered on all types of 
hearth systems, and that some of the alternatives (specifically 
electronic ignitions) would meet the safety requirements of those local 
jurisdictions where such requirements apply. Such evidence supports the 
conclusion that alternatives to constant-burning pilot lights are 
technologically feasible across the broad range of hearth products on 
the market. However, DOE also found that the implementation of 
alternatives to a constant-burning pilot are not implemented uniformly 
across all hearth types, given their slightly different 
characteristics. Thus, alternatives could be relatively more or less 
expensive to implement depending on the type of hearth product.
    As shown in the engineering analysis of section IV.C below, while 
the prescriptive requirement would apply to all hearth products without 
establishing classes, DOE chose to analyze the most common hearth 
styles separately to more accurately assess the potential impacts of 
imposing a prescriptive requirement that would disallow the use of 
standing pilot ignition systems.
3. Technology Assessment
    In a technology assessment, DOE identifies technologies and designs 
that could be used to improve the energy efficiency or performance of 
covered equipment. For this NOPR, DOE conducted a technology assessment 
to identify technologies or designs that could reduce the fuel 
consumption of hearth products. DOE has summarized the technologies and 
designs identified in Table IV.1. DOE seeks comment on its list of 
available technologies to reduce fuel consumption for hearth products; 
this is identified as Issue 6 in section VII.E, ``Issues on Which DOE 
Seeks Comment.'' See chapter 3 of the NOPR TSD for a detailed 
description of each technology option.

       Table IV.1--Technologies DOE Considered for Hearth Products
------------------------------------------------------------------------
           Technology option                       Description
------------------------------------------------------------------------
Air-to-fuel ratio......................  Change in air-to-fuel ratio to
                                          achieve fuel savings.
Burner port design.....................  Size, shape, and pattern of
                                          burner ports to reduce fuel
                                          consumption.
Simulated log design...................  Log style or size that allows
                                          use of less fuel for flame
                                          pattern.
Pan burner media/bead type.............  Sand, silica, or other media
                                          that achieves taller/more
                                          attractive flame with less
                                          fuel.
Reflective walls and/or other            Increase apparent size of
 components inside combustion zone.       flames without requiring
                                          additional fuel input.
                                          Potentially allows for the use
                                          of burners with smaller
                                          inputs.
Circulating blower.....................  Circulate heated air more
                                          effectively.
Electronic ignition....................  Removes need for continuous
                                          standing pilot.
Condensing heat exchanger..............  Transfers more heat from flue
                                          gas into ambient air.
------------------------------------------------------------------------

    After identifying all potential technology options for reducing the 
energy consumption of hearth products, DOE performed the screening 
analysis (see section IV.B of this NOPR and chapter 4 of the NOPR TSD) 
on these technologies to determine which could be considered further in 
the analysis and which should be eliminated.
    During manufacturer interviews, DOE inquired about these 
technologies or design considerations with regard to their prevalence 
and potential to achieve energy savings. With regard to the air-to-fuel 
ratio, burner port design, simulated log design, pan burner media, or 
reflective components, manufacturers found that these options resulted 
in either immeasurable or negligible energy savings. DOE received 
several responses during its manufacturer interviews that the design 
considerations DOE listed would have little or no bearing on reducing 
the input needed to achieve the required flame pattern. Manufacturers 
also indicated that an energy conservation standard based on one or 
more of these design options may inhibit hearth product manufacturers 
from providing a variety of overall aesthetic options. For these 
reasons, DOE did not consider these design options in the screening 
analysis.

B. Screening Analysis

    DOE uses the following four screening criteria to determine which 
technology options are suitable for further consideration in an energy 
conservation standards rulemaking:
    1. Technological feasibility. DOE will consider technologies 
incorporated in commercial products or in working prototypes to be 
technologically feasible.
    2. Practicability to manufacture, install, and service. If mass 
production and reliable installation and servicing of a technology in 
commercial products could be achieved on the scale necessary to serve 
the relevant market at the time of the compliance date of the

[[Page 7096]]

standard, then DOE will consider that technology practicable to 
manufacture, install, and service.
    3. Adverse impacts on product utility or product availability. If 
DOE determines a technology would have a significant adverse impact on 
the utility of the product to significant subgroups of consumers, or 
would result in the unavailability of any covered product type with 
performance characteristics (including reliability), features, sizes, 
capacities, and volumes that are substantially the same as products 
generally available in the United States at the time, it will not 
consider this technology further.
    4. Adverse impacts on health or safety. If DOE determines that a 
technology would have significant adverse impacts on health or safety, 
it will not consider this technology further.

10 CFR part 430, subpart C, appendix A, 4(a)(4) and 5(b).

    DOE considered several design options to assess their potential to 
reduce the fuel consumption of the products that are the subject of 
this rulemaking, both in active mode and in standby mode. In the end, 
three technology options were considered in the screening analysis: (1) 
electronic ignition; (2), condensing heat exchangers; and (3) 
circulating blowers. All technologies considered in the technology 
assessment are listed in Table IV.1.See chapter 3 of the NOPR TSD for a 
detailed description of each technology option.
    DOE has tentatively concluded that the electronic ignition, 
condensing heat exchanger, and circulating blower would not be screened 
out by any of the four screening criteria listed above. DOE notes that 
these technologies are currently commercially available for hearth 
products as well as other residential products and commercial 
equipment, and that their use does not pose any significant health or 
safety hazard.
    With regards to impact of the electronic ignition on product 
availability, DOE notes that an electronic ignition provides the same 
functionality as a millivolt standing pilot gas valve, specifically the 
ability to be used with a remote control or thermostat. DOE has also 
tentatively determined that electronic ignition components are 
available for a wide range of gas-fired equipment beyond hearth 
products, and that the ability of hearth manufacturers to comply with 
the standard will not be restricted for lack of available components.
    DOE seeks comment regarding the tentative conclusions reached in 
its screening analysis including impacts on product availability or 
product utility. This is Issue 4 in section VII.E ``Issues on Which DOE 
Seeks Comment.''

C. Engineering Analysis

    This engineering analysis determines the change in manufacturing 
cost of hearth products associated with a prescriptive design 
requirement that disallows the use of a standing pilot. This 
relationship between manufacturer selling price and reduced energy 
consumption serves as the basis for cost-benefit calculations for 
individual consumers, manufacturers, and the Nation. DOE has identified 
the following three methodologies to generate the manufacturing costs 
needed for the engineering analysis: (1) The design-option approach, 
which provides the incremental costs of adding to a baseline model 
design options that will improve its efficiency; (2) the efficiency-
level approach, which provides the relative costs of achieving 
increases in energy efficiency levels, without regard to the particular 
design options used to achieve such increases; and (3) the cost-
assessment (or reverse-engineering) approach, which provides ``bottom-
up'' manufacturing cost assessments for both standing pilot models and 
electronic ignition models, based on detailed data as to costs for 
parts and material, labor, shipping/packaging, and investment.
    For this NOPR, DOE conducted the engineering analysis for hearth 
products using a combination of the design-option approach and the 
cost-assessment approach. DOE selected hearth models that represented a 
range of hearth configurations (e.g., vented fireplaces, vented 
fireplace inserts, unvented fireplace inserts, vented gas log sets, and 
unvented gas log sets). In light of the analytical focus on a 
prescriptive requirement for standby mode energy consumption (as 
discussed in section III.B) representative models were chosen that 
would allow a direct comparison between standing pilot and electronic 
ignition systems. DOE gathered additional information using reverse-
engineering methodologies, product information from manufacturer 
catalogs and manuals, and discussions with manufacturers and other 
experts on hearth products.
    DOE generated a bill of materials (BOM) by disassembling products 
representing a range of hearth configurations, including vented and 
unvented fireplaces, inserts, and stoves, vented and unvented gas log 
sets, and outdoor products. The BOMs describe the product in detail, 
including all manufacturing steps required to make and/or assemble each 
part. Subsequently, DOE developed a cost model that converted the BOMs 
into manufacturer production costs (MPCs). By applying derived 
manufacturer markups to the MPCs, DOE calculated the manufacturer 
selling prices.
    DOE seeks comment on its general approach to the engineering 
analysis. This is Issue 7 in section VII.E, ``Issues on Which DOE Seeks 
Comment.'' See chapter 5 of the NOPR TSD for additional details about 
the engineering analysis.
1. Representative Products for Analysis
    For the engineering analysis, DOE reviewed the most common types of 
hearth products. Within each hearth type, DOE chose units for analysis 
that represent a cross-section of the hearth products market. As 
discussed in section IV.C.2 below, DOE eliminated the circulating 
blower and condensing heat exchanger technology options prior to the 
engineering analysis, since this rulemaking is focused on the standby 
mode energy use as described in section III.B. Consequently, the 
remaining technology--electronic ignition--became the main focus of 
DOE's analysis. DOE selected representative products for analysis that 
allowed DOE to determine whether any differences existed in ignition 
systems between hearth product types. DOE assumed that, should standing 
pilot ignitions be disallowed, manufacturers would convert standing 
pilot models to electronic ignition models rather than match-lit in 
order to provide the same level of safety, comfort, and functionality.
    In order to inform the model selection process, DOE first surveyed 
product literature to determine whether clear differences in ignition 
systems existed between hearth products. Parts lists contained in 
installation and operation manuals for hearth products revealed that 
the key purchased components for electronic ignition systems--gas 
valves, pilot assemblies, and digital or analog control modules--are 
common across various hearth products, particularly for indoor 
fireplaces, fireplace inserts, stoves, and gas log sets. DOE also is 
aware that while gas log sets share these ignition components with 
other hearth product types, the nature of a gas log set (lacking a 
firebox or cabinet), means these components (particularly the gas valve 
and control module on electronic ignition systems) are more difficult 
to conceal. DOE seeks comment on the availability of these components 
and their applicability across hearth product

[[Page 7097]]

configurations. This is identified as Issue 8 in section VII.E, 
``Issues on Which DOE Seeks Comment.''
    DOE selected units that represented the hearth configurations in 
Table IV.2.

                      Table IV.2--Representative Hearth Categories for Engineering Analysis
----------------------------------------------------------------------------------------------------------------
 Hearth product analysis category      Standing pilot valve                Electronic ignition system
----------------------------------------------------------------------------------------------------------------
Vented Fireplaces, Inserts, and     Millivolt.................  Intermittent Pilot Ignition.
 Stoves.
                                    Millivolt.................  Intermittent Pilot Ignition.
Unvented Fireplaces, Inserts, and   Millivolt.................  Intermittent Pilot Ignition.
 Stoves.
Vented Gas Log Sets...............  Manual....................  Intermittent Pilot Ignition.
Unvented Gas Logs Sets............  Manual....................  Intermittent Pilot Ignition.
Outdoor Hearth Products...........  Manual....................  Intermittent Pilot Ignition (Hot Wire).
                                    Manual....................  Intermittent Pilot Ignition.
----------------------------------------------------------------------------------------------------------------

    As stated in section IV.A.2, DOE is aware of the industry claim 
that different hearth products serve different functions and differ in 
design. However, this engineering analysis is limited to a 
determination of the difference in manufacturer production cost between 
ignition styles (standing pilot and electronic ignition). DOE has 
tentatively determined that there is no difference in ignition 
components between various types of vented hearth products. DOE 
believes that the same gas valves, control modules, and pilot 
assemblies are used interchangeably between vented fireplaces, inserts, 
and stoves. Therefore, the engineering analysis determined one MPC that 
would apply globally to vented fireplaces, inserts, and stoves. DOE 
seeks comment on the assumption that vented fireplaces, inserts, and 
stoves are equivalent in terms of ignition component costs. This is 
identified as Issue 9 in section VII.E, ``Issues on Which DOE Seeks 
Comment.''
    Unvented hearth products differ from their vented counterparts in 
several respects; with regards to the ignition components, unvented 
hearth products require an oxygen depletion sensor. The oxygen 
depletion sensor consists of a thermocouple and a precisely calibrated 
pilot light. DOE analyzed a separate unvented fireplace, insert, and 
stove category and an unvented gas log set category in order to account 
for any potential cost difference for these components.
    In addition, DOE considered that there are two main standing pilot 
valve types: manual and millivolt. The manual valve requires the user 
to manually open and close the valve and is, therefore, smaller, 
simpler, and cheaper. The millivolt gas valve uses a thermopile to 
generate a voltage difference such that the valve can be coupled with 
additional control systems, for example a remote control or thermostat. 
Since gas log sets are subject to physical space constraints that 
fireplaces, inserts, and stoves are not, DOE selected gas log sets with 
manual valves as representative of gas log sets with standing pilots. 
DOE selected models with millivolt gas valves as being representative 
of the fireplace, insert and stove vented and unvented categories.
    The pilot light on manual or millivolt valves may be ignited using 
a match or using a piezo-electric or battery-powered sparker. Because 
the standing pilot can be ignited manually without the use of a 
sparker, and because the function of the pilot is not affected by how 
it is initially lit, DOE does not consider this sparker an integral 
component to the ignition system for the purposes of this analysis. 
Therefore, DOE did not include these costs in its analysis of the cost 
of a standing pilot ignition.
2. Design Options Analyzed
    As indicated in section III.B, in light of the greater energy 
savings possible from a design requirement disallowing standing pilot 
ignitions as opposed to a performance standard, this rulemaking is 
focused on standby mode energy consumption. However, two of the three 
technologies that passed the screening analysis in Section IV.B (the 
condensing heat exchanger and circulating fan) are technologies that 
affect the active mode energy consumption of a subset of hearth 
products. DOE therefore eliminated the condensing heat exchanger and 
circulating fan prior to conducting its engineering analysis. Rather, 
DOE focused its engineering analysis on the impacts of a prescriptive 
design requirement to remove the standing pilot ignition system and 
replace it with a system that does not use a continuously burning 
pilot.
    For each of the representative products, DOE estimated manufacturer 
production costs for standing pilot ignitions and electronic ignitions. 
DOE has tentatively determined that the pilot light is a feature that 
can potentially be present on any type of hearth product and is the 
primary mode of energy consumption for those hearth products. Neither 
public comment nor the manufacturer interview process revealed 
additional design options that could replace a standing pilot or 
substantially reduce the fuel consumption of the pilot light, save for 
a match-lit burner. (However, a match-lit burner would not comply with 
the American National Standards Institute (ANSI) safety standards, and, 
thus, was not considered as a direct replacement for standing pilot 
ignition systems.) DOE has also tentatively concluded that a 
performance standard for standby mode as opposed to a design 
requirement would be impractical, since DOE found that there were no 
additional design options that would reduce the fuel consumption of a 
pilot light. In addition, a performance standard would increase burden 
on manufacturers, as it would require testing to demonstrate compliance 
with such standard.
    As previously stated, hearth products currently are not covered 
products. They would become covered products should the December 2013 
NOPD result in a positive final determination of coverage. Therefore, 
there is currently no minimum efficiency standard in place for DOE to 
use as a baseline for comparison. In terms of standby mode operation, 
DOE has tentatively determined that the standing pilot ignition system 
represents the baseline design in terms of energy consumption. A 
standing pilot consumes the most energy during standby mode operation; 
match-lit and intermittent pilots both represent reductions in energy 
consumption compared to the standing pilot.
    DOE understands that in those jurisdictions where match-lit systems 
are permissible, and particularly for gas log sets, match-light remains 
a viable

[[Page 7098]]

alternative to a standing pilot. A match-lit burner does not have an 
ignition system, and so DOE understands that the manufacturing cost of 
a match-lit burner is less than either a standing pilot or electronic 
ignition system. However, DOE recognizes that many jurisdictions 
require ANSI safety standard certification, and as such, a match-lit 
burner is not permissible. Since a match-lit system cannot serve as a 
replacement to current standing pilot models in these jurisdictions, 
electronic ignition would be the only viable alternative. The analysis, 
therefore, assumes that the representative change in cost for hearth 
products resulting from this proposed standard would be that associated 
with a change from a standing pilot to electronic ignition.
    EPCA requires DOE to determine the maximum improvement in energy 
efficiency or maximum reduction in energy use that is technologically 
feasible for each class of covered products. (42 U.S.C. 6295(o)) As 
described previously (see section IV.A.2 and IV.B), none of the 
technologies identified by DOE to improve active mode efficiency could 
be applied to all hearth products, so DOE's analysis focused on 
reducing the standby mode energy consumption as providing the greatest 
opportunity for energy savings. In the case of a standing pilot, the 
maximum reduction in energy use possible is removal of the standing 
pilot entirely, and switching to either a match-lit or electronic 
ignition system. Both of these possibilities would be compliant with 
the proposed requirement to disallow the use of standing pilot ignition 
systems. This is the scenario DOE has chosen to analyze (see Table 
IV.2); as noted above, DOE is unaware of any other design options on 
the market that would substantially reduce the energy consumption of 
hearth products during standby operation.
3. Cost-Assessment Methodology
    DOE identified intermittent pilot ignition as the relevant design 
option for reducing standing pilot energy consumption, as determined in 
the market assessment. Next, DOE selected products for the physical 
teardown analysis that represented the most common configurations of 
hearth products. DOE gathered the information from the physical 
teardown analysis to create bills of materials using a reverse 
engineering methodology. DOE then calculated the manufacturer 
production cost (MPC) for complete hearth products utilizing both 
design options, standing pilot and intermittent pilot ignition systems.
    During the preparation and refining of the cost-efficiency 
comparison and MPCs for this NOPR, DOE also held interviews with 
manufacturers to gain insight into the hearth industry. DOE used the 
information gathered from these interviews, along with the information 
gathered through additional teardown analysis, to refine assumptions in 
the cost model. Next, DOE converted the MPCs into MSPs using publicly-
available industry financial data, in addition to manufacturers' 
feedback. Further information on the analysis methodology is presented 
in subsections (a) through (g) of this section. For additional detail, 
see chapter 5 of the NOPR TSD.
a. Teardown Analysis
    To assemble bills of materials (BOMs) and to calculate the 
manufacturing costs of the different components in hearth products, DOE 
disassembled several hearth products into their base components and 
estimated the materials, processes, and labor required for the 
manufacture of each individual component, a process referred to as a 
``physical teardown.'' Using the data gathered from the physical 
teardowns, DOE characterized each component according to its weight, 
dimensions, material, quantity, and the manufacturing processes used to 
fabricate and assemble it. The teardown analysis for this engineering 
analysis included 14 physical teardowns.
    DOE used the teardown analysis to create detailed, structured BOMs 
for each hearth type or style. The BOMs incorporate all materials, 
components, and fasteners (classified as either raw materials or 
purchased parts and assemblies), and characterize the materials and 
components by weight, manufacturing processes used, dimensions, 
material, and quantity. The BOMs from the teardown analysis were then 
used as inputs placed into the cost model to calculate the MPC for the 
representative product for each product type and for each ignition 
type. See chapter 5 of the NOPR TSD for more details on the teardown 
analysis.
b. Cost Model
    The cost model is a computer spreadsheet that converts the 
materials and components in the BOMs into dollar values based on the 
price of materials, average labor rates associated with manufacturing 
and assembling, and the cost of overhead and depreciation. To convert 
the information in the BOMs to dollar values for the NOPR analysis, DOE 
collected information on labor rates, tooling costs, raw material 
prices, and other factors. For purchased parts, the cost model 
estimates the purchase price based on volume-variable price quotations 
and discussions with manufacturers. For fabricated parts, the prices of 
raw metal materials (e.g., tube, sheet metal) are estimated on the 
basis of 5-year averages (from July 2009 to June 2014).\28\ The cost of 
transforming the intermediate materials into finished parts is 
estimated and confirmed through manufacturer interviews. Chapter 5 of 
the NOPR TSD describes DOE's cost model and definitions, assumptions, 
and estimates.
---------------------------------------------------------------------------

    \28\ Raw material prices were obtained from American Metals 
Market (Available at: www.amm.com) (Last accessed June 2014).
---------------------------------------------------------------------------

c. Manufacturing Production Cost
    Once the cost estimate for each teardown unit was finalized, DOE 
totaled the cost of materials, labor, and direct overhead used to 
manufacture a product in order to calculate the manufacturer production 
cost for the NOPR. The total cost of the product was broken down into 
two main costs: (1) The full manufacturer production cost or MPC; and 
(2) the non-production cost, which includes selling, general, and 
administration (SG&A) expenses; the cost of research and development; 
and interest from borrowing for operations or capital expenditures. DOE 
estimated the MPC for both ignition designs (i.e., standing pilot and 
intermittent pilot). After DOE incorporates all of the assumptions into 
the cost model, DOE calculates the different percentages of each aspect 
of production cost (i.e. materials, labor, depreciation, and overhead) 
that make up the total production cost. DOE uses these production cost 
percentages in the MIA (see section IV.J).
d. Cost Comparison
    The result of this engineering analysis is a typical MPC for a unit 
with standing pilot in each product group and the added incremental 
cost of converting a standing pilot ignition to an electronic ignition. 
DOE determined five of these MPCs and incremental costs, each 
corresponding to one of the five hearth product groups DOE selected for 
analysis. Section IV.C.4 of this NOPR and chapter 5 of the NOPR TSD 
contain the MPCs and incremental costs.
e. Manufacturer Markups
    DOE uses MSPs to conduct its downstream economic analyses. DOE 
calculated the MSPs by multiplying the manufacturer production cost by 
a mark-up and adding the product's

[[Page 7099]]

shipping cost. The production price of the product is marked up to 
ensure that manufacturers can make a profit on the sale of the 
equipment. DOE gathered information from manufacturer interviews to 
determine the mark-up used by different manufacturers. Using this 
information, DOE calculated an average mark-up of 1.45 for hearth 
products. DOE requests comments on the proposed mark-up, and this is 
identified as Issue 10 in section VII.E, ``Issues on Which DOE Seeks 
Comment.''
f. Manufacturer Interviews
    Throughout the rulemaking process, DOE seeks feedback and insight 
from interested parties to improve the information used in its 
analyses. DOE interviewed manufacturers as a part of the NOPR 
manufacturer impact analysis (see section IV.J). During the 
confidential interviews, DOE sought feedback on all aspects of its 
analyses for hearth products. For the engineering analysis, DOE 
discussed the analytical assumptions, estimates, and purchased part 
prices with manufacturers. DOE considered all the information 
manufacturers provided when refining the cost model and assumptions. 
However, DOE incorporated equipment and manufacturing process figures 
into the analysis as averages in order to avoid disclosing sensitive 
information about individual manufacturers' products or manufacturing 
processes. More details about the manufacturer interviews are contained 
in chapter 12 of the NOPR TSD.
4. Results
    The results from the engineering analysis are shown in Table IV.3. 
The cost model calculates an MPC for an associated annual production 
volume. As described in section IV.C.3.b, the cost model calculates 
manufacturer overhead and depreciation costs on a per-unit basis. 
Therefore, given the same number of employees, tooling, and equipment, 
a higher annual production volume will generally result in a lower MPC. 
Additionally, purchased parts scale non-linearly with volume: at low 
volumes, purchase part prices increase exponentially. Production 
volumes varied significantly across the segments of the hearth products 
industry. Replacing a standing pilot ignition system with an 
intermittent pilot ignition system largely means switching out one set 
of purchased part components with another. Purchased part component 
prices are dependent upon the volumes in which they are purchased, and 
as a result, the annual production volume for a given market segment 
could have a large impact on the cost of changing from a standing pilot 
ignition system to an intermittent pilot ignition system. As part of 
the confidential manufacturer interview process, DOE asked 
manufacturers to confirm costs and quantities particularly for purchase 
parts associated with the ignition system. DOE notes that this feedback 
is crucial in obtaining MPCs that accurately reflect typical industry 
values. Accordingly, DOE is seeking further feedback on the derived 
MPCs found in Table IV.3. This is Issue 10 in section VII.E, ``Issues 
on Which DOE Seeks Comment.''

                           Table IV.3--Estimated Typical Manufacturer Production Costs
----------------------------------------------------------------------------------------------------------------
                                                                                               Added electronic
                  Product category                      Representative    Standing pilot MPC    ignition system
                                                       production volume                          (EIS) cost
----------------------------------------------------------------------------------------------------------------
Vented Fireplaces, Inserts, Stoves..................              10,000                $322                 $28
Unvented Fireplaces, Inserts, Stoves................               2,000                 281                  32
Vented Gas Log Sets.................................               2,000                 190                  70
Unvented Gas Log Sets...............................               5,000                 208                  56
Outdoor.............................................               3,000                 210                  55
----------------------------------------------------------------------------------------------------------------

    The ``Standing Pilot MPC'' represents the cost to the manufacturer 
of the complete hearth product with a typical standing pilot ignition. 
The ``Added EIS Cost'' represents the incremental cost to the 
manufacturer of replacing the standing pilot ignition components with 
an electronic ignition. DOE has not included remote control or other 
user control features as part of either ignition system. While DOE 
acknowledges many electronic ignition systems are sold with a remote 
control and receiver, DOE does not consider these components necessary 
to the intermittent function of the pilot light. Therefore, DOE has not 
considered remote controls or remote control receivers in the ``Added 
EIS Cost.''
    The standing pilot MPC derived for vented fireplaces, inserts and 
stoves is higher than for unvented for several reasons. The 
representative models used for the vented category are direct vent. 
These units typically include a glass viewing pane with spring-loaded 
clamps holding the viewing pane in place. They also include blowers 
that regulate airflow and moderate surface temperatures so that the 
unit can be installed flush against combustible building materials. 
Again, DOE estimates that the MPC of similarly-sized vented units are 
the same. DOE makes this assumption because product advertising and 
literature and manuals indicated that key components to the ignitions 
systems are shared across product types and throughout industry.
    In the case of gas log sets, the analysis used standing pilot 
models with manual gas valves. These valves are less expensive than 
millivolt gas valves, and so the difference between standing pilot and 
electronic ignition system is higher for gas log sets than for 
fireplaces, inserts, and stoves.
    The results from the engineering analysis were used in the LCC 
analysis to determine consumer prices for hearth products using both 
design options, standing pilot and electronic ignition. Using the 
manufacturer markup, DOE calculated the MSPs of the representative 
hearth products from the MPCs developed using the cost model.
    Again, DOE seeks comment on the MPCs estimated for hearth products 
and this is identified as Issue 10 in section VII.E ``Issues on Which 
DOE Seeks Comment.'' Chapter 5 of the NOPR TSD provides the full list 
of MPCs and MSPs for each analyzed representative product group.

D. Markups Analysis

    DOE uses distribution channel markups (e.g., manufacturer markups, 
retailer markups, distributor markups, contractor markups) and sales 
taxes (where appropriate) to convert the manufacturer production cost 
estimates from the engineering analysis to consumer prices, which are 
then used in the LCC and PBP analysis and in the manufacturer impact 
analysis. The markups are multipliers that are applied to the purchase 
cost at each stage in the distribution channel for hearth products. 
Before developing markups,

[[Page 7100]]

DOE defines key market participants and identifies distribution 
channels.
    DOE characterized two distribution channels to describe how hearth 
products pass from the manufacturer to consumers: (1) Replacement 
market and (2) new construction. The replacement market channel is 
characterized as follows:

Manufacturer [rtarr4] Wholesaler [rtarr4] Mechanical contractor 
[rtarr4] Consumer

    The new construction distribution channel is characterized as 
follows:

Manufacturer [rtarr4] Wholesaler [rtarr4] Mechanical contractor 
[rtarr4] General contractor [rtarr4] Consumer

    The derivation of the manufacturer mark-up is discussed in section 
IV.C.3.e. To develop mark-ups for the parties involved in the 
distribution of the product, DOE utilized several sources, including: 
(1) The Heating, Air-Conditioning & Refrigeration Distributors 
International (HARDI) 2013 Profit Report \29\ to develop wholesaler 
mark-ups; (2) the Air Conditioning Contractors of America's (ACCA) 2005 
financial analysis for the heating, ventilation, air-conditioning, and 
refrigeration (HVACR) contracting industry \30\ to develop mechanical 
contractor mark-ups, and (3) U.S. Census Bureau 2007 Economic Census 
data \31\ for the residential and commercial building construction 
industry to develop general contractor mark-ups.
---------------------------------------------------------------------------

    \29\ Heating, Air Conditioning & Refrigeration Distributors 
International 2013 Profit Report (Available at: http://www.hardinet.org/Profit-Report) (Last accessed April 10, 2013).
    \30\ Air Conditioning Contractors of America (ACCA), Financial 
Analysis for the HVACR Contracting Industry: 2005 (Available at: 
http://www.acca.org/store/product.php?pid=142) (Last accessed April 
10, 2013).
    \31\ U.S. Census Bureau, 2007 Economic Census Data (Available 
at: http://www.census.gov/econ/) (Last accessed April 10, 2013).
---------------------------------------------------------------------------

    For wholesalers and contractors, DOE develops baseline and 
incremental mark-ups based on the product mark-ups at each step in the 
distribution chain. The baseline mark-up relates the change in the 
manufacturer selling price of baseline models to the change in the 
consumer purchase price. The incremental mark-up relates the change in 
the manufacturer selling price of higher-efficiency models (the 
incremental cost increase) to the change in the consumer purchase 
price.
    In addition to the mark-ups, DOE derived State and local taxes from 
data provided by the Sales Tax Clearinghouse.\32\ These data represent 
weighted-average taxes that include county and city rates. DOE derived 
shipment-weighted-average tax values for each region considered in the 
analysis.
---------------------------------------------------------------------------

    \32\ Sales Tax Clearinghouse Inc., State Sales Tax Rates Along 
with Combined Average City and County Rates, 2013 (Available at: 
http://thestc.com/STrates.stm) (Last accessed May 27, 2014).
---------------------------------------------------------------------------

    Chapter 6 of the NOPR TSD provides further detail on the estimation 
of markups.

E. Energy Use Analysis

    The purpose of the energy use analysis is to determine the annual 
energy consumption of pilot lights in residential hearth products in 
use in the United States in representative homes and to assess the 
energy savings potential in switching from standing pilot lights to 
intermittent pilot lights. DOE used information from teardowns and 
manufacturer literature to establish a representative input capacity 
for each hearth product pilot light option. These input capacities are 
consistent with comments received from stakeholders during the previous 
rulemaking.\33\ DOE estimated the annual energy consumption of hearth 
product pilot lights across a range of climate zones for a sample of 
houses that use hearth products. The annual energy consumption includes 
the natural gas used by the standing pilot or the electricity used by 
the intermittent pilot. The annual energy consumption of hearth product 
pilot lights is used in subsequent analyses, including the LCC and PBP 
analysis and the national impacts analysis.
---------------------------------------------------------------------------

    \33\ Docket Number EERE-2011-BT-STD-0047.
---------------------------------------------------------------------------

    The energy use analysis seeks to capture the range of operating 
conditions for hearth products in the field (i.e., as they are actually 
used by consumers). To determine the field energy use of hearth product 
pilot lights, DOE established a sample of households using hearth 
products from the Energy Information Administration's (EIA) 2009 
Residential Energy Consumption Survey (RECS 2009).\34\ DOE included in 
the sample all households who reported having a fireplace fueled by 
natural gas or liquefied petroleum gas (LPG).
---------------------------------------------------------------------------

    \34\ U.S. Department of Energy: Energy Information 
Administration, Residential Energy Consumption Survey: 2009 RECS 
Survey Data (2013) (Available at: http://www.eia.gov/consumption/residential/data/2009/) (Last accessed March, 2013).
---------------------------------------------------------------------------

    DOE derived a range of possible operating hours for hearth products 
from field studies.<SUP>35 36</SUP> The hearth product operating hours 
for each household were sampled based on typical behavior patterns and 
household-specific characteristics, such as heating load, length of 
heating season, and primary heating appliance. DOE established three 
ranges that correspond to three modes of consumer behavior: (1) 
Consumers who closely monitor the standing pilot light operation and 
only use it when starting the hearth product; (2) consumers who leave 
the standing pilot light on for the entirety of the heating season but 
turn it off for the remainder of the year; or (3) consumers who leave 
the standing pilot light on for the entire year. DOE represented each 
of these three modes with a continuous distribution of standing pilot 
operating hours. The field data suggest that more than half of natural 
gas-fired hearth product users leave the pilot on year round.
---------------------------------------------------------------------------

    \35\ Hayden, A.C.S. Fireplace Pilots Take Gas Use Sky High. Home 
Energy Magazine (Jan. 1997). (Available at: http://www.homeenergy.org/show/article/nav/hvac/page/28/id/1264).
    \36\ Menkedick, John, Pam Hartford, Shawna Collins, Shawn 
Shumaker, and Darlene Wells, Hearth Products Meter Study (1995-
1997), Rep. no. GRI-97/0298, Gas Research Institute (1997).
---------------------------------------------------------------------------

    DOE used the household location data from RECS 2009 to establish 
the length of the heating season for each household by accounting for 
the National Oceanic and Atmospheric Administration (NOAA) weather data 
for that location.\37\ To establish the maximum standing pilot 
operating hours during the heating season, DOE estimated the burner 
operating hours (BOH) of the hearth product from the annual space 
heating fuel use reported in RECS 2009. (Note that the pilot light 
remains on when the main burner is operating.)
---------------------------------------------------------------------------

    \37\ National Oceanic and Atmospheric Administration, NNDC 
Climate Data Online (2009) (Available at: http://www7.ncdc.noaa.gov/CDO/CDODivisionalSelect.jsp) (Last accessed July 29, 2014).
---------------------------------------------------------------------------

    RECS 2009 data also provided other information about the household 
that was used to further refine the analysis, such as primary heating 
appliance type, whether the hearth product was the primary heating 
appliance, fuel type of primary heating appliance, whether the hearth 
product was vented or vent-less, and whether the house has a chimney.
    The pilot light operating hours, coupled with the data on fuel use 
per hour from the engineering analysis, allowed for the calculation of 
hearth products' pilot light annual energy usage. The average energy 
use of a hearth product's standing pilot is approximately 3.6 million 
Btu per year. To estimate the annual electricity used by an 
intermittent pilot, DOE used the representative burner input and the 
average duty cycle length to calculate the number of cycles, and a 
conservative estimate of 30 seconds on-time per ignition. DOE coupled 
the above value with the representative input of 50 W to derive 
electricity consumption. The average energy use of the intermittent

[[Page 7101]]

pilot option is less than one kWh per year.
    In the RECS 2009 sample, 23 percent of households with hearth 
products used liquefied petroleum gas (LPG). Because LPG is a 
relatively expensive fuel, DOE understands that this subset of users 
closely monitors pilot light operation. Therefore, for households with 
LPG-fired hearth products, DOE assumed the pilot operating hours to be 
approximately equal to the hearth product BOH.
    DOE seeks comment regarding its assumptions and methodology used in 
determining pilot light energy use and this is identified as Issue 11 
in section VII.E ``Issues on Which DOE Seeks Comment.''
    In evaluating the energy savings of the considered efficiency 
measure, DOE considered the heat input of the pilot light into the 
conditioned space. Eliminating the gas pilot would mean that some of 
the heat would not contribute to heating the home, which would mean 
that the main heating system would need to operate somewhat more, and 
the air conditioning system would operate slightly less in cases where 
the pilot is left on year-round. DOE based its analysis for vented 
hearth products on a report from the Canadian Centre for Housing 
Technology,\38\ which quantified the fraction of energy consumed by the 
standing pilot light that is delivered into the conditioned space as 
useful heat. DOE used this study to estimate the ratio of energy 
consumed by the standing pilot light to the heat delivered to the 
conditioned space for each vented hearth product group. For unvented 
hearth products, DOE assumed that the majority of the heat from the 
pilot is input into the space. For outdoor units, none of the energy 
consumed by the pilot is considered useful heat. The additional energy 
use of the heating system was calculated for each sample household 
based on its estimated heating load and heating equipment. The 
reduction in air conditioning energy use was calculated in a similar 
manner. Inclusion of the indirect effects on heating and cooling 
systems reduces the gross savings from eliminating the standing pilot 
by approximately 20 percent on average.
---------------------------------------------------------------------------

    \38\ Armstrong M.M., Swinton, M.C. and Szadkowski, F., 
Assessment of the Impact of a Natural Gas Fireplace on Heating 
Energy Consumption and Room Temperatures at the Canadian Centre for 
Housing Technology (March 31, 2010) Canada Mortgage and Housing 
Corporation (Available at: http://chic.cmhc-schl.gc.ca/uhtbin/cgisirsi.exe/?ps=Ey6u7UxnJz/CHIC/17510006/60/502/X).
---------------------------------------------------------------------------

    It is important to note that DOE is proposing a prescriptive 
standard to eliminate the use of standing pilots in hearth products. As 
such, it would only reduce standby energy use, and would have no effect 
on hearth products' active-mode energy consumption. Therefore, the 
standard, if adopted, would not be expected to affect consumer usage of 
the product, and, thus, no rebound effect was applied to the energy use 
of hearth products.
    DOE projected that household weights and household characteristics 
in 2021, the first full year of compliance with any new energy 
conservation standards for hearth products, would be the same as in 
RECS 2009. To characterize future new homes, DOE used a subset of RECS 
2009 homes that were built after 2000.
    DOE adjusted the energy use estimated for 2009 to normalize for 
weather by using 10-year heating degree-day (HDD) data from NOAA for 
each geographical region.\39\ Historical monthly HDD data from NOAA for 
each geographical region was used to disaggregate the total energy use 
into monthly amounts, which allows DOE to apply monthly energy prices 
in the LCC and PBP analysis. See chapter 7 in the NOPR TSD for 
additional detail on the energy analysis for hearth product ignition 
devices.
---------------------------------------------------------------------------

    \39\ National Oceanic and Atmospheric Administration, NNDC 
Climate Data Online (2009) (Available at: http://www7.ncdc.noaa.gov/CDO/CDODivisionalSelect.jsp) (Last accessed July 29, 2014).
---------------------------------------------------------------------------

    DOE requests comment on the extent of assumed pilot light usage, 
specifically the percentages of consumers who operate their hearth 
product's standing pilot: (a) Year-round; (b) during the heating 
season; and (c) only when operating the unit. DOE also requests comment 
on the pilot operating hours of LPG-fired hearth products and 
determination of heat input from the pilot light into the conditioned 
space. This is Issue 12 in section VII.E, ``Issues on Which DOE Seeks 
Comment.''

F. Life-Cycle Cost and Payback Period Analysis

    In determining whether an energy conservation standard is 
economically justified, DOE considers the economic impact of potential 
standards on consumers. The effect of new or amended standards on 
individual consumers usually includes a reduction in operating cost and 
an increase in purchase cost. DOE used the following two metrics to 
measure consumer impacts:
    <bullet> LCC (life-cycle cost) is the total consumer cost of an 
appliance or product, generally over the life of the appliance or 
product. The LCC calculation includes total installed cost 
(manufacturer selling price, distribution chain markups, sales tax, and 
installation costs), operating costs (energy, repair, and maintenance 
costs), equipment lifetime, and discount rate. Future operating costs 
are discounted to the time of purchase and summed over the lifetime of 
the appliance or product.
    <bullet> PBP (payback period) measures the amount of time it takes 
consumers to recover the assumed higher purchase price of a more 
energy-efficient product through reduced operating costs. Inputs to the 
payback period calculation include the installed cost to the consumer 
and the first-year operating costs.
    DOE analyzed the net effect of potential hearth product standards 
on consumers by calculating the LCC and PBP for each household for each 
considered pilot option. DOE measured the PBP and the change in LCC 
when switching from standing pilot to intermittent pilot in each hearth 
product type.
    DOE performed the LCC and PBP analysis using a spreadsheet model 
combined with Crystal Ball (a commercially-available software program 
used to conduct stochastic analysis using Monte Carlo simulation and 
probability distributions) to account for uncertainty and variability 
among the input variables (e.g., energy prices, installation cost, and 
repair and maintenance costs). It uses weighting factors to account for 
distributions of shipments to different building types and States to 
generate LCC savings by potential standard level. Each Monte Carlo 
simulation consists of 10,000 LCC and PBP calculations using input 
values that are either sampled from probability distributions and 
household samples or characterized with single point values. The 
analytical results include a distribution of 10,000 data points showing 
the range of LCC savings and PBPs for a given standards level relative 
to the base-case forecast (i.e., without new energy conservation 
standards). In performing an iteration of the Monte Carlo simulation 
for a given consumer, the probability that a hearth product type and 
pilot option is chosen is based on the existing market share. If the 
chosen pilot light for the consumer is intermittent, the LCC 
calculation reveals that a consumer is not impacted by the standard 
level. Similarly, for those consumers who diligently operate their 
standing pilot lights, the LCC calculation results in either a net cost 
or no impact, depending on the specific simulation round. By accounting 
for consumers who already purchase more-efficient products or operate 
their units efficiently, DOE avoids overstating the

[[Page 7102]]

potential benefits from increasing product energy conservation.
    EPCA establishes a rebuttable presumption that a standard is 
economically justified if the Secretary finds that the additional cost 
to the consumer of purchasing a product complying with an energy 
conservation standard level will be less than three times the value of 
the energy (and, as applicable, water) savings during the first year 
that the consumer will receive as a result of the standard, as 
calculated under the test procedure in place for that standard. (42 
U.S.C. 6295(o)(2)(B)(iii)) DOE determines the value of the first year's 
energy savings by calculating the quantity of those savings in 
accordance with the applicable DOE test procedure and multiplying that 
amount by the average energy price forecast for the year in which 
compliance with the amended standards would be required. Since there is 
no DOE test procedure for hearth products, DOE based its rebuttable pay 
back analysis on the average energy use and costs calculated in the LCC 
analysis.
    As discussed in section IV.E, DOE developed nationally 
representative household samples from 2009 RECS. For each sampled 
household, DOE determined the energy consumption of the hearth product 
pilot light and the appropriate energy prices in the area where the 
household is located.
    DOE calculated the LCC and PBP for all hearth product consumers as 
if each were to purchase the product in the year that compliance with 
amended standards is required. At the time of preparation of the NOPR 
analysis, the expected issuance date for the final rule was in December 
2015. For newly-covered products, EPCA prescribes a five-year period 
between the standard's publication date and the compliance date (42 
U.S.C. 6295(l)(2)), which leads to a compliance date in December 2020. 
For purposes of its analysis, DOE modeled hearth products purchased on 
or after this date as if they operated for a full year beginning on 
January 1, 2021 and continuing thereafter.
    As noted above, DOE's LCC and PBP analyses generate values that 
calculate the payback period for consumers of potential energy 
conservation standards, which includes, but is not limited to, the 
three-year payback period contemplated under the rebuttable presumption 
test. However, DOE routinely conducts a full economic analysis that 
considers the full range of impacts, including those to the consumer, 
manufacturer, Nation, and environment, as required under 42 U.S.C. 
6295(o)(2)(B)(i). The results of this analysis serve as the basis for 
DOE to definitively evaluate the economic justification for a potential 
standard level (thereby supporting or rebutting the results of any 
preliminary determination of economic justification).
1. Installed Cost
    The primary inputs for establishing the total installed cost are 
the baseline consumer product price, standard-level consumer price 
increases, and installation costs (labor and material cost). Baseline 
consumer prices and standard-level consumer price increases were 
determined by applying mark-ups to manufacturer selling price 
estimates, including sales tax where appropriate. The installation cost 
is added to the consumer price to arrive at a total installed cost.
    DOE found that the historic real (i.e., adjusted for inflation) 
producer price index (PPI) for floor and wall furnaces, unit heaters, 
infrared heaters, and mechanical stokers from 1999 to 2013 has been 
relatively flat.\40\ Hearth products are generally similar to the 
products in this PPI. In the absence of any data indicating a trend in 
hearth product prices, DOE elected to use a constant future price 
trend. DOE requests feedback on the assumption of a constant future 
price trend for hearth products. This is identified as Issue 13 in 
section VII.E, ``Issues on Which DOE Seeks Comment.''
---------------------------------------------------------------------------

    \40\ Series ID: PCU3334143334147 (Available at: http://www.bls.gov/ppi/).
---------------------------------------------------------------------------

    Because the pilot light is a component of the hearth product, the 
installation costs for most installations was $0. In a fraction of 
installations, the intermittent pilot could necessitate an electrical 
connection, although many intermittent pilots are battery powered, and 
many hearth products already have electrical connections. For the cases 
where a new electrical connection is needed, DOE assumed a percentage 
of these needed electrical connection retrofits, with the probability 
increasing the older the house is. Similar assumptions were made for 
electrical grounding. For these cases needing retrofits, labor and 
material information was obtained from RS Means 2013 Residential Cost 
Data.\41\ DOE requests feedback on the installation and retrofit 
assumptions regarding electrical connections and grounding. This is 
identified as Issue 14 in section VII.E, ``Issues on Which DOE Seeks 
Comment.''
---------------------------------------------------------------------------

    \41\ RS Means Company Inc., RS Means Residential Cost Data 
(2013) (Available at: http://rsmeans.reedconstructiondata.com/).
---------------------------------------------------------------------------

2. Inputs to Operating Costs
    The primary inputs for calculating the operating costs are product 
energy consumption, product efficiency, energy prices and forecasts, 
maintenance and repair costs, product lifetime, and discount rates. DOE 
uses discount rates to determine the present value of lifetime 
operating expenses. The discount rate used in the LCC analysis 
represents the rate from an individual consumer's perspective. Much of 
the data used for determining consumer discount rates comes from the 
Federal Reserve Board's triennial Survey of Consumer Finances.\42\
---------------------------------------------------------------------------

    \42\ Available at www.federalreserve.gov/econresdata/scf/scfindex.htm.
---------------------------------------------------------------------------

a. Energy Consumption
    For each sample household, DOE determined the energy consumption 
for the hearth product ignition devices using the approach described in 
section IV.E. As noted previously, because the proposed standard 
concentrates on reduction in standby mode energy consumption, DOE does 
not anticipate a rebound effect in terms of consumer usage.
b. Energy Prices
    Using the most current data from EIA on average energy prices in 
various States and regions,<SUP>43 44 45</SUP> DOE assigned an 
appropriate energy price to each household in the sample, depending on 
its location (see chapter 8 of the NOPR TSD for details). Average 
electricity and natural gas prices from the EIA data were adjusted 
using seasonal marginal price factors to derive monthly marginal 
electricity and natural gas prices. For a detailed discussion of the 
development of marginal energy price factors, see appendix 8-C of the 
NOPR TSD.
---------------------------------------------------------------------------

    \43\ U.S. Department of Energy--Energy Information 
Administration, Form EIA-826 Database Monthly Electric Utility Sales 
and Revenue Data (2013) (Available at: http://www.eia.doe.gov/cneaf/electricity/page/eia826.html).
    \44\ U.S. Department of Energy--Energy Information 
Administration, Natural Gas Navigator (2013) (Available at: http://tonto.eia.doe.gov/dnav/ng/ng_pri_sum_dcu_nus_m.htm).
    \45\ U.S. Department of Energy--Energy Information 
Administration, 2012 State Energy Consumption, Price, and 
Expenditure Estimates (SEDS) (2013) (Available at: http://www.eia.doe.gov/emeu/states/_seds.html).
---------------------------------------------------------------------------

    To estimate future prices, DOE used the projected annual changes in 
average residential natural gas, LPG, and electricity prices in the 
Reference case projection in AEO 2014.
c. Maintenance and Repair Costs
    Repair costs are associated with repairing or replacing components 
in the hearth product that have failed,

[[Page 7103]]

whereas maintenance costs are routine annual costs associated with 
maintaining the proper operation of the equipment. DOE's review of 
product literature suggests that that no maintenance is required for 
the ignition device. DOE estimated that a 7 percent failure rate for 
ignition systems in hearth products based on repair rates for 
residential furnace ignition systems.\46\ DOE estimated separate repair 
costs for each ignition system option as a function of the manufacturer 
price estimated in the engineering analysis (section IV.C). Due to the 
increased price of the intermittent pilot, the cost of repairing these 
units was approximately 44 percent higher than for units with standing 
pilots. See chapter 8 of the NOPR TSD for details. DOE requests 
feedback on the repair cost assumptions. This is identified as Issue 15 
in section VII.E, ``Issues on Which DOE Seeks Comment.''
---------------------------------------------------------------------------

    \46\ Jakob, F.E., J.J. Crisafulli, J.R. Menkedick, R.D. Fischer, 
D.B. Philips, R.L. Osbone, J.C. Cross, G.R. Whitacre, J.G. Murray, 
W.J. Sheppard, D.W. DeWirth, and W.H. Thrasher, Assessment of 
Technology for Improving the Efficiency of Residential Gas Furnaces 
and Boilers, Volume I and II--Appendices (September 1994) Gas 
Research Institute. AGA Laboratories. Report No. GRI-94/0175.
---------------------------------------------------------------------------

d. Product Lifetime
    Product lifetime is the age at which an appliance is retired from 
service. DOE assumed that the lifetime of the ignition device is 
identical to the lifetime of the hearth product. DOE conducted an 
analysis of hearth product lifetimes using a combination of data on 
shipments and the hearth product stock (see section IV.G) and RECS 2009 
data on the age of the hearth products in homes. The data allowed DOE 
to develop a survival function, which provides a range from minimum to 
maximum lifetime, as well as an average lifetime. The average lifetime 
estimated for hearth products is 16 years. Chapter 8 of the NOPR TSD 
provides further details on the methodology and sources DOE used to 
develop hearth product lifetimes. DOE requests feedback on the lifetime 
assumptions. This is identified as Issue 16 in section VII.E, ``Issues 
on Which DOE Seeks Comment.''
e. Discount Rates
    In the calculation of LCC, DOE applies discount rates to estimate 
the present value of future operating costs. The discount rate used in 
the LCC analysis represents the rate from an individual consumer's 
perspective.
    To establish discount rates for consumers, DOE's approach involved 
identifying all relevant household debt or asset classes in order to 
approximate a consumer's opportunity cost of funds related to appliance 
energy cost savings and maintenance costs. It estimated the average 
percentage shares of the various types of debt and equity by household 
income group using data from the Federal Reserve Board's Survey of 
Consumer Finances (SCF) for 1995, 1998, 2001, 2004, 2007, and 2010.\47\ 
Using the SCF and other sources, DOE then developed a distribution of 
rates for each type of debt and asset by income group to represent the 
rates that may apply in the year in which amended standards would take 
effect. DOE assigned each sample household a specific discount rate 
drawn from one of the distributions. The average rate across all types 
of household debt and equity and income groups, weighted by the shares 
of each class, is 4.2 percent.
---------------------------------------------------------------------------

    \47\ The Federal Reserve Board, Survey of Consumer Finances 
1989, 1992, 1995, 1998, 2001, 2004, 2007, 2010 (Available at: http://www.federalreserve.gov/pubs/oss/oss2/scfindex.html).
---------------------------------------------------------------------------

    See chapter 8 in the NOPR TSD for further details on the 
development of discount rates for the LCC analysis.
f. Base-Case Efficiency Distribution
    To estimate the share of consumers affected by a potential energy 
conservation standard, DOE's LCC and PBP analysis considers the 
projected distribution (i.e., market shares) of product efficiencies 
that consumers will purchase in the first compliance year in the base 
case (i.e., the case without amended energy conservation standards).
    For each of the hearth product groups, DOE estimated current market 
shares of the two pilot system types based on model information and 
manufacturer interviews. Because there are no data indicating trends in 
the market shares, DOE used the current shares to represent the market 
in 2021 (see Table IV.4).

 Table IV.4--Base-Case Efficiency Distribution for Hearth Product Groups
                                 in 2021
------------------------------------------------------------------------
                                           Pilot system market share
                                     -----------------------------------
            Product group              Standing pilot     Intermittent
                                          (percent)      pilot (percent)
------------------------------------------------------------------------
Vented Fireplaces, Inserts, Stoves..               42%               58%
Unvented Fireplaces, Inserts, Stoves                88                12
Vented Gas Log Sets.................                87                13
Unvented Gas Log Sets...............                94                 6
Outdoor.............................                52                48
------------------------------------------------------------------------

    For further information on DOE's estimation of the base-case 
efficiency distributions for hearth products, see chapter 8 of the NOPR 
TSD. DOE requests feedback on the base-case efficiency distribution. 
This is identified as Issue 17 in section VII.E, ``Issues on Which DOE 
Seeks Comment.''
3. Inputs to Payback Period Analysis
    The PBP is the amount of time it takes the consumer to recover the 
additional installed cost of more-efficient products, compared to 
baseline products, through energy cost savings. The simple PBP does not 
account for changes in operating expense over time or the time value of 
money. Payback periods are expressed in years. Payback periods that 
exceed the life of the product mean that the increase in total 
installed cost is not recovered in reduced operating expenses.
    The inputs to the PBP calculation are the total installed cost of 
the product to the customer for each efficiency level and the average 
annual operating expenditures for each efficiency level. The PBP 
calculation uses the same inputs as the LCC analysis, except that 
discount rates are not needed.
    EPCA establishes a rebuttable presumption that a standard is 
economically justified if the Secretary finds that the additional cost 
to the consumer of purchasing a product complying with an energy 
conservation standard level will be less than three times the value of 
the energy (and, as applicable, water) savings during the first year 
that the consumer will receive as a result of the standard, as 
calculated

[[Page 7104]]

under the test procedure in place for that standard. (42 U.S.C. 
6295(o)(2)(B)(iii)) For each considered standard level, DOE determined 
the value of the first year's energy savings by calculating the 
quantity of those savings in accordance with the applicable DOE test 
procedure and multiplying that amount by the average energy price 
forecast for the year in which compliance with the amended standard 
would be required.
    The results of DOE's PBP analysis are presented in section V.B.1.

G. Shipments Analysis

    DOE uses forecasts of product shipments to calculate the national 
impacts of potential new or amended energy conservation standards on 
energy use, NPV, and future manufacturer cash flows. Historical data 
indicate that shipments of hearth products are very sensitive to 
overall economic activity. Because DOE observed a strong correlation 
between housing starts and hearth product shipments, it used a 10-year 
average of the ratio of hearth product shipments to housing starts, 
along with the forecasted housing starts from AEO 2014, to project 
future hearth product shipments.
    To estimate the impact of the considered standard on future hearth 
product shipments, DOE applied the same product price elasticity as it 
has used in many previous rulemakings for consumer products (see 
chapter 9 of the NOPR TSD). This elasticity relates an incremental 
increase in the price of hearth products to a decrease in shipments.
    Regarding the potential for consumers to switch to other products, 
DOE recognizes that hearth products are purchased for the convenience 
of natural gas as a fuel source (as opposed to wood) and realistic 
flame characteristics (relative to electric-powered units). For this 
reason, DOE assumed that fuel switching among these products due to the 
imposition of the design standard would be negligible. DOE requests 
comment on this assumption, and this is identified as Issue 18 in 
Section VII.E, ``Issues on Which DOE Seeks Comment.''
    DOE requests feedback on the methodology for hearth product 
shipment projections. This is identified as Issue 19 in section VII.E, 
``Issues on Which DOE Seeks Comment.'' For details on the shipments 
analysis, see chapter 9 of the NOPR TSD.

H. National Impact Analysis

    The NIA assesses the national energy savings (NES) and the net 
present value (NPV) from a national perspective of total consumer costs 
and savings expected to result from new or amended energy conservation 
standards at specific efficiency levels. DOE determined the NPV and NES 
for the potential standard levels considered for the hearth product 
types analyzed.
    To make the analysis more accessible and transparent to all 
interested parties, DOE used a computer spreadsheet model (as opposed 
to probability distributions) to calculate the energy savings and the 
national consumer costs and savings from each TSL.\48\ The NIA 
calculations are based on the annual energy consumption and total 
installed cost data from the energy use analysis and the LCC analysis. 
In the NIA, DOE forecasted the lifetime energy savings, energy cost 
savings, installed product costs, and NPV of consumer benefits over the 
lifetime of hearth products sold from 2021 through 2050.
---------------------------------------------------------------------------

    \48\ DOE's use of spreadsheet models provides interested parties 
with access to the models within a familiar context. In addition, 
the TSD and other documentation that DOE provides during the 
rulemaking help explain the models and how to use them, and 
interested parties can review DOE's analyses by changing various 
input quantities within the spreadsheet.
---------------------------------------------------------------------------

    A key component of the NIA is the trend in energy efficiency 
forecasted for the base case (without new or amended standards) and 
each of the standards cases. Section IV.F.2.f describes how DOE 
developed a base-case energy efficiency distribution for hearth 
products for the first full year of compliance (2021). DOE projected 
base-case efficiency assuming a constant efficiency distribution over 
the 30-year period. Historical trends of data for this product are not 
available, especially regarding the necessary ignition details. 
Therefore, DOE has estimated current standing pilot shipments and 
assumed those would be constant during the 30-year period starting from 
compliance (2021-2050).
    To estimate the impact that energy conservation standards for 
hearth products (i.e., a design requirement) may have in the year 
compliance becomes required, DOE used a ``roll-up'' scenario: (1) 
Products with efficiencies in the base case that do not meet a 
potential standard level would ``roll up'' to meet that standard level, 
and (2) products at efficiencies above the standard level under 
consideration would not be affected. After the year of compliance, all 
hearth products would utilize electronic ignition devices. For further 
details about the NIA efficiency distributions, see chapter 10 of the 
NOPR TSD.
1. National Energy Savings
    To develop the NES, DOE calculates annual energy consumption of the 
considered products for the base case and then compares that to each 
potential standards case (TSL). DOE calculates the annual energy 
consumption for each case using the appropriate per-unit annual energy 
use data multiplied by the projected hearth product shipments for each 
year. As explained in section IV.E, DOE did not include a rebound 
effect for hearth products.
    To estimate the national energy savings expected from appliance 
standards, DOE used a multiplicative factor to convert site electricity 
consumption (at the home) into primary energy consumption (the energy 
required to convert and deliver the site electricity). These conversion 
factors account for the energy used at power plants to generate 
electricity. The factors vary over time due to changes in generation 
sources (i.e., the power plant types projected to provide electricity 
to the country) projected in AEO 2014. The factors that DOE developed 
are marginal values, which represent the response of the electricity 
sector to an incremental decrease in consumption associated with 
potential appliance standards. Cumulative energy savings are the sum of 
the NES for each year over the timeframe of the analysis.
    In response to the recommendations of a committee on ``Point-of-Use 
and Full-Fuel-Cycle Measurement Approaches to Energy Efficiency 
Standards'' appointed by the National Academy of Sciences, DOE 
announced its intention to use full-fuel-cycle (FFC) measures of energy 
use and greenhouse gas and other emissions in the national impact 
analyses and emissions analyses included in future energy conservation 
standards rulemakings. 76 FR 51281 (August 18, 2011). After evaluating 
the approaches discussed in the August 18, 2011 notice, DOE published a 
statement of amended policy in the Federal Register in which DOE 
explained its determination that NEMS is the most appropriate tool for 
its FFC analysis and its intention to use NEMS for that purpose. 77 FR 
49701 (August 17, 2012). The FFC factors incorporate losses in 
production and delivery in the case of natural gas (including fugitive 
emissions) and energy used to produce and deliver the fuels used by 
power plants. The approach used for this NOPR is described in appendix 
10-B of the NOPR TSD.

[[Page 7105]]

2. Net Present Value of Consumer Benefit
    The inputs for determining NPV are: (1) Total annual installed 
cost; (2) total annual savings in operating costs; (3) a discount 
factor to calculate the present value of costs and savings; (4) present 
value of costs; and (5) present value of savings. To develop the 
national NPV of consumer benefits from potential energy conservation 
standards, DOE calculates annual operating costs (energy costs and 
repair and maintenance costs) and annual installed costs for the base 
case and the standards cases. DOE calculates annual energy expenditures 
from annual energy consumption using forecasted energy prices in each 
year. DOE calculates annual product expenditures by multiplying the 
price per unit times the projected shipments in each year. As discussed 
in section IV.F.1, DOE assumed a constant future product price trend.
    The aggregate difference each year between operating cost savings 
and increased installed costs is the net savings. DOE multiplies the 
net savings in future years by a discount factor to determine their 
present value. DOE estimates the NPV of consumer benefits using both a 
3-percent and a 7-percent real discount rate, in accordance with 
guidance provided by the Office of Management and Budget (OMB) to 
Federal agencies on the development of regulatory analysis.\49\ The 7-
percent real value is an estimate of the average before-tax rate of 
return to private capital in the U.S. economy. It approximates the 
opportunity cost of capital, and it is the appropriate discount rate 
whenever the main effect of a regulation is to displace or alter the 
use of capital in the private sector. Circular A-4 also states that 
when the regulation primarily and directly affects private consumption, 
a lower discount rate is appropriate. The 3-percent real value 
represents the ``societal rate of time preference,'' which is the rate 
at which society discounts future consumption flows to their present 
value. If one takes the rate that the average saver uses to discount 
future consumption as a measure of the social rate of time preference, 
then the real rate of return on long-term government debt may provide a 
fair approximation. Over the last thirty years, the rate has averaged 
around 3 percent in real terms on a pre-tax basis. Energy conservation 
standards for appliances and equipment affect both the use of capital 
and private consumption. It is noted that the discount rates for the 
determination of NPV are in contrast to the discount rates used in the 
LCC analysis, which are designed to reflect a consumer's perspective.
---------------------------------------------------------------------------

    \49\ OMB Circular A-4, section E, ``Identifying and Measuring 
Benefits and Costs'' (Sept. 17, 2003) (Available at: http://www.whitehouse.gov/omb/memoranda/m03-21.html).
---------------------------------------------------------------------------

I. Consumer Subgroup Analysis

    In analyzing the potential impacts of new or amended standards on 
consumers, DOE evaluated the impacts on identifiable subgroups of 
consumers that may be disproportionately affected by a national 
standard. The purpose of a subgroup analysis is to determine the extent 
of any such disproportional impacts. For this NOPR, DOE evaluated 
impacts of potential standards on two subgroups: (1) Senior households 
and (2) low-income households. The subgroup samples were identified 
from RECS 2009 data on income and age of household members. DOE used 
the LCC and PBP spreadsheet model to analyze the LCC impacts and PBP 
for those particular consumers at the considered standard. The consumer 
subgroup results for the hearth products TSL are presented in section 
V.B.1.b of this notice and in chapter 11 of the NOPR TSD.

J. Manufacturer Impact Analysis

1. Overview
    DOE performed a Manufacturer Impact Analysis (MIA) to estimate the 
financial impact of an energy conservation standard on manufacturers of 
gas hearth products and to calculate the potential impact of such 
standards on employment and manufacturing capacity. The MIA has both 
quantitative and qualitative aspects. The quantitative part of the MIA 
primarily relies on the Government Regulatory Impact Model (GRIM), an 
industry cash-flow model with inputs specific to this rulemaking. The 
key GRIM inputs are data on the industry cost structure, product costs, 
shipments, and assumptions about markups and conversion expenditures. 
The key output is the industry net present value (INPV). DOE used the 
GRIM to calculate cash flows using standard accounting principles and 
to compare changes in the INPV between a base case and each TSL (the 
standards case). The difference in INPV between the base case and a 
standards case represents the financial impact of energy conservation 
standards on gas hearth product manufacturers. DOE used different sets 
of assumptions (markup scenarios) to represent the uncertainty 
surrounding potential impacts on prices and manufacturer profitability 
as a result of standards. Different sets of assumptions will produce a 
range of INPV results. The qualitative part of the MIA addresses the 
proposed standard's potential impacts on manufacturing capacity and 
industry competition, as well as factors such as product 
characteristics, impacts on particular subgroups of firms, and 
important market and product trends. The complete MIA is outlined in 
chapter 12 of the NOPR TSD.
    DOE conducted the MIA for this rulemaking in three phases. In Phase 
1 of the MIA, DOE prepared a profile of the gas hearth industry. This 
industry characterization was based on the market and technology 
assessment, preliminary manufacturer interviews, and publicly-available 
information. Specifically, DOE developed its industry profile using a 
combination of sources, including public information, such as 
Securities and Exchange Commission (SEC) 10-K reports,\50\ market 
research tools (e.g., Hoovers \51\), corporate annual reports, the U.S. 
Census Bureau's 2011 Annual Survey of Manufacturers (ASM),\52\ and the 
2010 Energy Conservation Standard Final Rule for Residential Water 
Heaters, Direct Heating Equipment, and Pool Heaters (75 FR 20112 (April 
16, 2010)); information obtained through DOE's engineering analysis, 
life-cycle cost analysis, and market and technology assessment prepared 
for this rulemaking; and information obtained directly from 
manufacturers through interviews.
---------------------------------------------------------------------------

    \50\ U.S. Securities and Exchange Commission, Annual 10-K 
Reports (Various Years) (Available at: www.sec.gov).
    \51\ Hoovers Inc., Company Profiles, Various Companies 
(Available at: www.hoovers.com/).
    \52\ U.S. Census Bureau, Annual Survey of Manufacturers: General 
Statistics: Statistics for Industry Groups and Industries (2011) 
(Available at: http://www.census.gov/manufacturing/asm/index.html).
---------------------------------------------------------------------------

    As part of Phase 1, DOE conducted structured, detailed interviews 
with a representative cross-section of manufacturers. During these 
interviews, DOE discussed engineering, manufacturing, procurement, and 
financial topics to identify key issues or concerns and to inform and 
validate assumptions used in the GRIM. The industry profile developed 
as a result of Phase 1 research and interviews includes: (1) Further 
detail on the overall market and product characteristics; (2) financial 
parameters such as net plant, property, and equipment; selling, general 
and administrative (SG&A) expenses; research and development (R&D) 
expenses; cost of goods sold; and tax rates; and (3) trends in the 
number of

[[Page 7106]]

firms, market, and product characteristics.
    In Phase 2 of the MIA, DOE prepared an industry cash-flow analysis 
to quantify the potential impacts of an energy conservation standard on 
manufacturers of gas hearth products. In general, energy conservation 
standards can affect manufacturer cash flow in three distinct ways: (1) 
Create a need for increased investment; (2) raise production costs per 
unit; and (3) alter revenue due to higher per-unit prices and/or 
possible changes in sales volumes. To quantify these impacts, DOE used 
the GRIM to perform a cash-flow analysis for the gas hearth industry 
using financial values derived during Phase 1 and the shipment scenario 
used in the NIA.
    In Phase 3 of the MIA, DOE evaluated subgroups of manufacturers 
that may be disproportionately impacted by energy conservation 
standards or that may not be represented accurately by the average cost 
assumptions used to develop the industry cash-flow analysis. For 
example, small manufacturers, niche players, or manufacturers 
exhibiting a cost structure that largely differs from the industry 
average could be more negatively affected. DOE identified two subgroups 
for separate impact analyses: (1) Manufacturers of gas log sets; and 
(2) small businesses. The subgroup of gas log set manufacturers is 
discussed in section V.B.2.d of this notice, ``Impacts on Subgroups of 
Manufacturers,'' and the small manufacturer subgroup is discussed in 
section VI.B, ``Review Under the Regulatory Flexibility Act.'' Impacts 
on both subgroups are also addressed in chapter 12 of the NOPR TSD.
2. Government Regulatory Impact Model
    DOE uses the GRIM to quantify changes in cash flow due to new 
standards that result in a higher or lower industry value. The GRIM 
uses a standard, annual cash-flow analysis using standard accounting 
principles that incorporates manufacturer costs, markups, shipments, 
and industry financial information as inputs. The GRIM models changes 
in costs, distribution of shipments, investments, and manufacturer 
margins that could result from a potential energy conservation 
standard. The GRIM spreadsheet uses the inputs to arrive at a series of 
annual cash flows, beginning in 2014 (the base year of the analysis) 
and continuing to 2050. Manufacturers incur capital and product 
conversion costs in the period between the date at which the rule is 
promulgated and the compliance date of an amended standard. To capture 
the impacts of these expenditures on industry finances, the MIA 
analysis period begins before the compliance year. DOE calculated INPVs 
by summing the stream of annual discounted cash flows during this 
period. For gas hearth manufacturers, DOE used a real discount rate of 
8.7 percent, which was derived from industry financial information and 
then modified according to feedback received during manufacturer 
interviews.
    After calculating industry cash flows and INPV, DOE compared 
changes in INPV between the base case and the standards case. The 
difference in INPV between the base case and the standards case 
represents the financial impact of that potential energy conservation 
standard on manufacturers. As discussed previously, DOE collected 
information on key GRIM inputs from a number of sources, including 
publicly-available data and confidential interviews with manufacturers 
(described in the next section). The GRIM results are shown in section 
V.B.2. Additional details about the GRIM, the discount rate, and other 
financial parameters can be found in chapter 12 of the NOPR TSD.
a. Government Regulatory Impact Model Key Inputs
Manufacturer Production Costs
    Manufacturing a higher-efficiency product is typically more 
expensive than manufacturing a baseline product due to the use of more 
complex components, which are typically more costly than baseline 
components. The changes in the manufacturer production costs (MPCs) of 
the analyzed products can affect the revenues, gross margins, and cash 
flow of the industry, making these equipment cost data key GRIM inputs 
for DOE's analysis.
    In the MIA, DOE used the MPCs calculated in the engineering 
analysis, as described in section IV.C and further detailed in chapter 
5 of the NOPR TSD. In addition, DOE used information from its teardown 
analysis, described in chapter 5 of the TSD, to disaggregate the MPCs 
into material, labor, and overhead costs. These costs were shared with 
manufacturers and revised to incorporate their feedback.
Shipments Forecasts
    The GRIM estimates manufacturer revenues based on total unit 
shipment forecasts and the distribution of these values by product 
group and ignition type. Changes in sales volumes and product mix over 
time can significantly affect manufacturer finances. For this analysis, 
the GRIM uses the NIA's annual shipments forecasts derived in the 
shipments analysis for the period 2014 (the base year) to 2050 (the end 
year of the analysis). The NIA shipments forecasts assume price 
elasticity of demand, whereby shipment volumes in the standards case 
decline relative to the base case as MPCs rise and, in doing so, drive 
up end-user purchase prices. See section IV.G. above and chapter 9 of 
the NOPR TSD for additional details.
Product and Capital Conversion Costs
    An energy conservation standard would cause manufacturers to incur 
one-time conversion costs to bring their production facilities and 
product designs into compliance. DOE evaluated the level of conversion-
related expenditures that would be needed to comply with a design 
standard eliminating standing pilot lights. For the MIA, DOE classified 
these conversion costs into two major groups: (1) Product conversion 
costs; and (2) capital conversion costs. Product conversion costs are 
one-time investments in research, development, testing, certification, 
marketing, and other non-capitalized costs necessary to make products 
comply with an energy conservation standard. Capital conversion costs 
are one-time investments in property, plant, and equipment necessary to 
adapt or change existing production facilities such that new compliant 
product designs can be fabricated and assembled.
    To evaluate the level of capital conversion expenditures 
manufacturers would likely incur to comply with a potential energy 
conservation standard, DOE used manufacturer interviews to gather data 
on the anticipated level of capital investment that would be required 
to adapt to a design standard eliminating standing pilot lights. Based 
on manufacturer feedback, DOE estimated an average capital expenditure 
per manufacturer, which it then applied to the entire industry. DOE 
validated manufacturer comments through estimates of capital 
expenditure requirements derived from the product teardown analysis and 
engineering analysis described in chapter 5 of the NOPR TSD.
    DOE assessed the product conversion costs by integrating 
quantitative and qualitative data. DOE considered feedback from 
manufacturers regarding potential product conversion costs and 
validated those numbers against engineering estimates of redesign 
efforts. Manufacturer data were aggregated to better reflect the 
industry as a whole and to protect confidential information.

[[Page 7107]]

    DOE assumes that all conversion-related investments occur between 
the year of publication of the final rule and the year by which 
manufacturers must comply with the new standard. The conversion cost 
figures used in the GRIM can be found in section V.B.2 of this notice. 
For additional information on the estimated product and capital 
conversion costs, see chapter 12 of the NOPR TSD.
b. Government Regulatory Impact Model Scenarios
Markup Scenarios
    Manufacturer selling prices (MSPs) include direct manufacturing 
production costs (i.e., labor, materials, and overhead estimated in 
DOE's MPCs) and all non-production costs (i.e., SG&A, R&D, and 
interest), along with profit. To calculate the MSPs in the GRIM, DOE 
applied non-production cost markups to the MPCs estimated in the 
engineering analysis. Modifying these markups in the standards case 
yields different sets of impacts on manufacturers. For the MIA, DOE 
modeled two standards-case markup scenarios to represent the 
uncertainty regarding the potential impacts on prices and profitability 
for manufacturers following the implementation of potential energy 
conservation standards: (1) A preservation of gross margin percentage 
markup scenario; and (2) a preservation of per-unit operating profit 
markup scenario. These scenarios lead to different markup values that, 
when applied to the inputted MPCs, result in varying revenue and cash 
flow impacts.
    Under the preservation of gross margin percentage scenario, DOE 
applied a single uniform ``gross margin percentage'' markup across all 
efficiency levels, which assumes that manufacturers would be able to 
maintain the same amount of profit as a percentage of revenues at all 
efficiency levels for the product in question. As production costs 
increase with efficiency, this scenario implies that the absolute 
dollar markup will increase as well. Based on publicly-available 
financial information for manufacturers of gas hearth products, as well 
as comments received during manufacturer interviews, DOE assumed the 
average non-production cost markup--which includes SG&A expenses, R&D 
expenses, interest, and profit--to be 1.45 for all gas hearth products.
    Because this markup scenario assumes that manufacturers would be 
able to maintain their gross margin percentage markups as production 
costs increase in response to an energy conservation standard, it 
represents a high bound to industry profitability, as manufacturers are 
able to fully pass through additional costs due to standards to 
consumers.
    In the preservation of per unit operating profit scenario, 
manufacturer markups are set so that operating profit one year after 
the compliance date of the energy conservation standard is the same as 
in the base case on a per-unit basis. Under this scenario, as the costs 
of production increase under a standards case, manufacturers are 
generally required to reduce their markups to a level that maintains 
base-case operating profit per unit. The implicit assumption behind 
this markup scenario is that the industry can only maintain its 
operating profit in absolute dollars per unit after compliance with the 
new standard is required. Therefore, operating margin in percentage 
terms is reduced between the base case and standards case. DOE adjusted 
the manufacturer markups in the GRIM at each TSL to yield approximately 
the same earnings before interest and taxes in the standards case as in 
the base case. This markup scenario represents a low bound to industry 
profitability under an energy conservation standard, because 
manufacturers are not able to fully pass through to consumers the 
additional costs due to standards.
c. Manufacturer Interviews
    As part of MIA, DOE discussed the potential impacts of an energy 
conservation standard with manufacturers of gas hearth products. The 
information gathered during these interviews enabled DOE to tailor the 
GRIM to reflect the unique financial characteristics of the industry. 
All interviews provided information that DOE used to evaluate the 
impacts of potential energy conservation standards on manufacturer cash 
flows, manufacturing capacities, and employment levels.
    In interviews, DOE asked manufacturers to describe their concerns 
with the rulemaking regarding gas hearth products. The following 
section highlights manufacturer concerns that helped to shape DOE's 
understanding of potential impacts of an energy conservation standard 
on the industry. Manufacturer interviews are conducted under non-
disclosure agreements (NDAs), so DOE does not document these 
discussions in the same way that it does public comments in the comment 
summaries. The following sections highlight the most significant of 
manufacturers' statements, although all concerns expressed by 
manufacturers were considered in DOE's analysis.
Impacts on Profitability
    According to manufacturers, units with electronic ignition systems 
are more expensive to manufacture than units with standing pilot 
lights. Manufacturers indicated that purchasing components for 
electronic ignition systems increases per-unit production costs and, by 
extension, raises the retail price of products. Manufacturers stated 
that by driving up their cost of goods sold as well as the end-user 
purchase price, a standard eliminating standing pilot lights could lead 
to a drop in consumer demand. Because gas hearth products are not 
typically purchased exclusively for heating purposes but rather are 
valued by customers for their aesthetic appeal, manufacturers indicated 
that higher prices could depress demand if customers decide the 
decorative benefit of gas hearth products does not merit the higher 
costs. A fall in sales could, in turn, impact industry profitability.
    Additionally, manufacturers stated that shipments of gas hearth 
products declined significantly over the last decade, in part due to 
the economic recession and a related decline in new-home construction. 
Several manufacturers forecast steady or declining shipments in future 
years absent an energy conservation standard. Those interviewed 
generally argued that if an energy conservation standard raises the 
price of gas hearth products, depresses demand, and reduces 
profitability, it could drive manufacturers to exit the market.
Impacts on Industry Competition
    Small manufacturers expressed concern that an energy conservation 
standard for gas hearth products could alter the competitive dynamics 
of the market, favoring a subset of large manufacturers over their 
small-business competitors. Based on economies of scale, manufacturers 
that produce gas hearth products at high volumes are typically able to 
source components at lower per-unit prices than manufacturers that 
produce at lower volumes. In general, manufacturers of gas hearth 
products do not manufacture the components used for electronic ignition 
systems in-house. Rather, they source them from component suppliers. In 
interviews, manufacturers indicated that large manufacturers with high 
production volumes are able to source these components at relatively 
low cost. Small manufacturers with lower production volumes, in 
contrast, noted that the comparatively high cost they would incur to 
purchase electronic ignition system components would

[[Page 7108]]

exacerbate the pricing advantage of large manufacturers and could lead 
to loss of price competitiveness for smaller players in the market.
Impacts on Product Performance
    Multiple manufacturers stated that electronic ignition systems 
represent a more complicated and less reliable technology than standing 
pilot lights. These manufacturers indicated that units with electronic 
ignition systems often require more effort to repair and maintain. One 
manufacturer stated that electronic ignition systems account for a 
small fraction of their sales but the vast majority of their service 
calls, and several manufacturers suggested higher costs of maintaining 
units with electronic ignition systems compared to standing pilot 
lights. Additionally, several manufacturers suggested that electronic 
ignition systems are not as well suited to cold climates, where 
standing pilot lights may help to maintain buoyancy through the flue 
and to prevent condensation from building up on glass.

K. Emissions Analysis

    In the emissions analysis, DOE estimated the reduction in emissions 
of carbon dioxide (CO<INF>2</INF>), nitrogen oxides (NO<INF>X</INF>), 
sulfur dioxide (SO<INF>2</INF>), and mercury (Hg) from potential 
amended energy conservation standards for hearth products. In addition, 
DOE estimated emissions impacts in production activities (extracting, 
processing, and transporting fuels). These are referred to as 
``upstream'' emissions. Together, these emissions account for the FFC. 
In accordance with DOE's FFC Statement of Policy (76 FR 51281 (Aug. 18, 
2011) as amended at 77 FR 49701 (August 17, 2012)), the FFC analysis 
also includes impacts on emissions of methane (CH<INF>4</INF>) and 
nitrous oxide (N<INF>2</INF>O), both of which are recognized as 
greenhouse gases. The combustion emissions factors and the method DOE 
used to derive upstream emissions factors are described in chapter 13 
of the NOPR TSD. The cumulative emissions reduction estimated for 
hearth products is presented in section V.B.6.
    Today's proposed standard would reduce use of fuel at the site and 
slightly increase electricity use. DOE accounted for the associated 
reduction in site emissions and the upstream emissions associated with 
natural gas use, which include fugitive emissions. DOE also estimated 
the change in power sector emissions and the upstream emissions 
associated with electricity generation.
    DOE primarily conducted the emissions analysis using emissions 
factors for CO<INF>2</INF> and most of the other gases derived from 
data in AEO 2014. Combustion emissions of CH<INF>4</INF> and 
N<INF>2</INF>O were estimated using emissions intensity factors 
published by the U.S. Environmental Protection Agency (EPA) in its GHG 
Emissions Factors Hub.\53\ Site emissions of CO<INF>2</INF> and 
NO<INF>X</INF> were estimated using emissions intensity factors from a 
separate EPA publication.\54\ DOE developed separate emissions factors 
for site, power sector, and upstream emissions. The method that DOE 
used to derive emissions factors is described in chapter 13 of the NOPR 
TSD.
---------------------------------------------------------------------------

    \53\ See http://www.epa.gov/climateleadership/guidance/ghg-emissions.html.
    \54\ U.S. Environmental Protection Agency, Compilation of Air 
Pollutant Emission Factors, AP-42, Fifth Edition, Volume I: 
Stationary Point and Area Sources (1998) (Available at: http://www.epa.gov/ttn/chief/ap42/index.html).
---------------------------------------------------------------------------

    For CH<INF>4</INF> and N<INF>2</INF>O, DOE calculated emissions 
reduction in tons and also in terms of units of carbon dioxide 
equivalent (CO<INF>2</INF>eq). Gases are converted to CO<INF>2</INF>eq 
by multiplying each ton of the greenhouse gas by the gas's global 
warming potential (GWP) over a 100-year time horizon. Based on the 
Fifth Assessment Report of the Intergovernmental Panel on Climate 
Change,\55\ DOE used GWP values of 28 for CH<INF>4</INF> and 265 for 
N<INF>2</INF>O.
---------------------------------------------------------------------------

    \55\ IPCC, 2013: Climate Change 2013: The Physical Science 
Basis. Contribution of Working Group I to the Fifth Assessment 
Report of the Intergovernmental Panel on Climate Change [Stocker, 
T.F., D. Qin, G.-K. Plattner, M. Tignor, S.K. Allen, J. Boschung, A. 
Nauels, Y. Xia, V. Bex and P.M. Midgley (eds.)]. Cambridge 
University Press, Cambridge, United Kingdom and New York, NY, USA. 
Chapter 8.
---------------------------------------------------------------------------

    EIA prepares the AEO using the NEMS. Each annual version of NEMS 
incorporates the projected impacts of existing air quality regulations 
on emissions. AEO 2014 generally represents current legislation and 
environmental regulations, including recent government actions, for 
which implementing regulations were available as of October 31, 2013.
    Because the on-site operation of gas hearth products requires use 
of fossil fuels and results in emissions of CO<INF>2</INF>, 
NO<INF>X</INF>, and SO<INF>2</INF> at the sites where these appliances 
are used, DOE also accounted for the reduction in these site emissions 
and the associated upstream emissions due to potential standards.
    SO<INF>2</INF> emissions from affected electric generating units 
(EGUs) are subject to nationwide and regional emissions cap-and-trade 
programs. Title IV of the Clean Air Act sets an annual emissions cap on 
SO<INF>2</INF> for affected EGUs in the 48 contiguous States and the 
District of Columbia (DC). (42 U.S.C. 7651 et seq.) SO<INF>2</INF> 
emissions from 28 eastern States and DC were also limited under the 
Clean Air Interstate Rule (CAIR; 70 FR 25162 (May 12, 2005)), which 
created an allowance-based trading program that operates along with the 
Title IV program. CAIR was remanded to the EPA by the U.S. Court of 
Appeals for the District of Columbia Circuit, but it remained in 
effect.\56\ In 2011, EPA issued a replacement for CAIR, the Cross-State 
Air Pollution Rule (CSAPR). 76 FR 48208 (August 8, 2011). On August 21, 
2012, the D.C. Circuit issued a decision to vacate CSAPR.\57\ The court 
ordered EPA to continue administering CAIR. The emissions factors used 
for today's NOPR, which are based on AEO 2014, assume that CAIR remains 
a binding regulation through 2040.\58\
---------------------------------------------------------------------------

    \56\ See North Carolina v. EPA, 550 F.3d 1176 (D.C. Cir. 2008); 
North Carolina v. EPA, 531 F.3d 896 (D.C. Cir. 2008).
    \57\ See EME Homer City Generation, LP v. EPA, 696 F.3d 7, 38 
(D.C. Cir. 2012), cert. granted, 81 U.S.L.W. 3567, 81 U.S.L.W. 3696, 
81 U.S.L.W. 3702 (U.S. June 24, 2013) (No. 12-1182).
    \58\ On April 29, 2014, the U.S. Supreme Court reversed the 
judgment of the D.C. Circuit and remanded the case for further 
proceedings consistent with the Supreme Court's opinion. The Supreme 
Court held in part that EPA's methodology for quantifying emissions 
that must be eliminated in certain States due to their impacts in 
other downwind States was based on a permissible, workable, and 
equitable interpretation of the Clean Air Act provision that 
provides statutory authority for CSAPR. See EPA v. EME Homer City 
Generation, No 12-1182, slip op. at 32 (U.S. April 29, 2014). 
Because DOE is using emissions factors based on AEO 2014 for today's 
NOPR, the NOPR assumes that CAIR, not CSAPR, is the regulation in 
force. The difference between CAIR and CSAPR is not relevant for the 
purpose of DOE's analysis of SO<INF>2</INF> emissions.
---------------------------------------------------------------------------

    The attainment of emissions caps is typically flexible among EGUs 
and is enforced through the use of emissions allowances and tradable 
permits. Beginning in 2016, however, SO<INF>2</INF> emissions will 
decline significantly as a result of the Mercury and Air Toxics 
Standards (MATS) for power plants. 77 FR 9304 (Feb. 16, 2012). In the 
final MATS rule, EPA established a standard for hydrogen chloride as a 
surrogate for acid gas hazardous air pollutants (HAP), and also 
established a standard for SO<INF>2</INF> (a non-HAP acid gas) as an 
alternative equivalent surrogate standard for acid gas HAP. The same 
controls are used to reduce HAP and non-HAP acid gas; thus, 
SO<INF>2</INF> emissions will be reduced as a result of the control 
technologies installed on coal-fired power plants to comply with the 
MATS requirements for acid gas. AEO 2014 assumes that, in order to 
continue operating, coal plants must have either flue gas 
desulfurization or dry sorbent injection systems installed by 2016. 
Both technologies, which are used to reduce acid gas emissions, also 
reduce SO<INF>2</INF>

[[Page 7109]]

emissions. Under the MATS, emissions will be far below the cap 
established by CAIR, so it is likely that the increase in electricity 
demand associated with the highest hearth product efficiency levels 
would increase SO<INF>2</INF> emissions.
    CAIR established a cap on NO<INF>X</INF> emissions in 28 eastern 
States and the District of Columbia.\59\ Thus, it is unlikely that the 
increase in electricity demand associated with the considered hearth 
product standard would increase NO<INF>X</INF> emissions in those 
States covered by CAIR. However, it would be expected to slightly 
increase power sector NO<INF>X</INF> emissions in the States not 
affected by the caps, so DOE estimated NO<INF>X</INF> emissions 
increases for these States. As shown in section V.B.6, however, the 
decrease in site NO<INF>X</INF> emissions is much larger than the 
slight increase in power sector NO<INF>X</INF> emissions.
---------------------------------------------------------------------------

    \59\ CSAPR also applies to NO<INF>X</INF>, and it would 
supersede the regulation of NO<INF>X</INF> under CAIR. As stated 
previously, the current analysis assumes that CAIR, not CSAPR, is 
the regulation in force. The difference between CAIR and CSAPR with 
regard to DOE's analysis of NO<INF>X</INF> is slight.
---------------------------------------------------------------------------

    The MATS limit mercury emissions from power plants, but they do not 
include emissions caps and, as such, the increase in electricity demand 
associated with the considered hearth product standard would be 
expected to slightly increase Hg emissions. DOE estimated mercury 
emissions using emissions factors based on AEO 2014, which incorporates 
the MATS.

L. Monetizing Carbon Dioxide and Other Emissions Impacts

    As part of the development of this proposed rule, DOE considered 
the estimated monetary benefits from the reduced emissions of 
CO<INF>2</INF> and NO<INF>X</INF> that are expected to result from the 
TSL considered. In order to make this calculation similar to the 
calculation of the NPV of consumer benefit, DOE considered the reduced 
emissions expected to result over the lifetime of equipment shipped in 
the forecast period. This section summarizes the basis for the monetary 
values used for each of these emissions and presents the values 
considered in this rulemaking.
    For today's NOPR, DOE is relying on a set of values for the social 
cost of carbon (SCC) that was developed by a Federal interagency 
process. A summary of the basis for these values is provided below, and 
a more detailed description of the methodologies used is provided as an 
appendix to chapter 14 of the NOPR TSD.
1. Social Cost of Carbon
    The SCC is an estimate of the monetized damages associated with an 
incremental increase in carbon emissions in a given year. It is 
intended to include (but is not limited to) changes in net agricultural 
productivity, human health, property damages from increased flood risk, 
and the value of ecosystem services. Estimates of the SCC are provided 
in dollars per metric ton of carbon dioxide. A domestic SCC value is 
meant to reflect the value of damages in the United States resulting 
from a unit change in carbon dioxide emissions, while a global SCC 
value is meant to reflect the value of damages worldwide.
    Under section 1(b)(6) of Executive Order 12866, ``Regulatory 
Planning and Review,'' 58 FR 51735 (Oct. 4, 1993), agencies must, to 
the extent permitted by law, ``assess both the costs and the benefits 
of the intended regulation and, recognizing that some costs and 
benefits are difficult to quantify, propose or adopt a regulation only 
upon a reasoned determination that the benefits of the intended 
regulation justify its costs.'' The purpose of the SCC estimates 
presented here is to allow agencies to incorporate the monetized social 
benefits of reducing CO<INF>2</INF> emissions into cost-benefit 
analyses of regulatory actions. The estimates are presented with an 
acknowledgement of the many uncertainties involved and with a clear 
understanding that they should be updated over time to reflect 
increasing knowledge of the science and economics of climate impacts.
    As part of the interagency process that developed the SCC 
estimates, technical experts from numerous agencies met on a regular 
basis to consider public comments, explore the technical literature in 
relevant fields, and discuss key model inputs and assumptions. The main 
objective of this process was to develop a range of SCC values using a 
defensible set of input assumptions grounded in the existing scientific 
and economic literatures. In this way, key uncertainties and model 
differences transparently and consistently inform the range of SCC 
estimates used in the rulemaking process.
a. Monetizing Carbon Dioxide Emissions
    When attempting to assess the incremental economic impacts of 
carbon dioxide emissions, the analyst faces a number of challenges. A 
recent report from the National Research Council \60\ points out that 
any assessment will suffer from uncertainty, speculation, and lack of 
information about: (1) Future emissions of greenhouse gases; (2) the 
effects of past and future emissions on the climate system; (3) the 
impact of changes in climate on the physical and biological 
environment; and (4) the translation of these environmental impacts 
into economic damages. As a result, any effort to quantify and monetize 
the harms associated with climate change will raise questions of 
science, economics, and ethics and should be viewed as provisional.
---------------------------------------------------------------------------

    \60\ National Research Council, Hidden Costs of Energy: Unpriced 
Consequences of Energy Production and Use, National Academies Press: 
Washington, DC (2009).
---------------------------------------------------------------------------

    Despite the limits of both quantification and monetization, SCC 
estimates can be useful in estimating the social benefits of reducing 
carbon dioxide emissions. The agency can estimate the benefits from 
reduced (or costs from increased) emissions in any future year by 
multiplying the change in emissions in that year by the SCC value 
appropriate for that year. The net present value of the benefits can 
then be calculated by multiplying each of these future benefits by an 
appropriate discount factor and summing across all affected years.
    It is important to emphasize that the interagency process is 
committed to updating these estimates as the science and economic 
understanding of climate change and its impacts on society improves 
over time. In the meantime, the interagency group will continue to 
explore the issues raised by this analysis and consider public comments 
as part of the ongoing interagency process.
b. Development of Social Cost of Carbon Values
    In 2009, an interagency process was initiated to offer a 
preliminary assessment of how best to quantify the benefits from 
reducing carbon dioxide emissions. To ensure consistency in how 
benefits are evaluated across agencies, the Administration sought to 
develop a transparent and defensible method, specifically designed for 
the rulemaking process, to quantify avoided climate change damages from 
reduced CO<INF>2</INF> emissions. The interagency group did not 
undertake any original analysis. Instead, it combined SCC estimates 
from the existing literature to use as interim values until a more 
comprehensive analysis could be conducted. The outcome of the 
preliminary assessment by the interagency group was a set of five 
interim values: Global SCC estimates for 2007 (in 2006$) of $55, $33, 
$19, $10, and $5 per metric ton of CO<INF>2</INF>. These interim values 
represented the first sustained interagency effort within the U.S. 
government to develop an SCC for use in regulatory analysis. The 
results of this preliminary effort

[[Page 7110]]

were presented in several proposed and final rules.
c. Current Approach and Key Assumptions
    After the release of the interim values, the interagency group 
reconvened on a regular basis to generate improved SCC estimates. 
Specifically, the group considered public comments and further explored 
the technical literature in relevant fields. The interagency group 
relied on three integrated assessment models commonly used to estimate 
the SCC: The FUND, DICE, and PAGE models. These models are frequently 
cited in the peer-reviewed literature and were used in the last 
assessment of the Intergovernmental Panel on Climate Change (IPCC). 
Each model was given equal weight in the SCC values that were 
developed.
    Each model takes a slightly different approach to model how changes 
in emissions result in changes in economic damages. A key objective of 
the interagency process was to enable a consistent exploration of the 
three models, while respecting the different approaches to quantifying 
damages taken by the key modelers in the field. An extensive review of 
the literature was conducted to select three sets of input parameters 
for these models: Climate sensitivity, socio-economic and emissions 
trajectories, and discount rates. A probability distribution for 
climate sensitivity was specified as an input into all three models. In 
addition, the interagency group used a range of scenarios for the 
socio-economic parameters and a range of values for the discount rate. 
All other model features were left unchanged, relying on the model 
developers' best estimates and judgments.
    In 2010, the interagency group selected four sets of SCC values for 
use in regulatory analyses. Three sets of values are based on the 
average SCC from three integrated assessment models, at discount rates 
of 2.5 percent, 3 percent, and 5 percent. The fourth set, which 
represents the 95th-percentile SCC estimate across all three models at 
a 3-percent discount rate, is included to represent higher-than-
expected impacts from climate change further out in the tails of the 
SCC distribution. The values grow in real terms over time. 
Additionally, the interagency group determined that a range of values 
from 7 percent to 23 percent should be used to adjust the global SCC to 
calculate domestic effects, although preference is given to 
consideration of the global benefits of reducing CO<INF>2</INF> 
emissions.\61\ Table IV.5 presents the values in the 2010 interagency 
group report,\62\ which is reproduced in appendix 14-A of the NOPR TSD.
---------------------------------------------------------------------------

    \61\ It is recognized that this calculation for domestic values 
is approximate, provisional, and highly speculative. There is no a 
priori reason why domestic benefits should be a constant fraction of 
net global damages over time.
    \62\ Social Cost of Carbon for Regulatory Impact Analysis Under 
Executive Order 12866, Interagency Working Group on Social Cost of 
Carbon, United States Government (February 2010) (Available at: 
http://www.whitehouse.gov/sites/default/files/omb/inforeg/for-agencies/Social-Cost-of-Carbon-for-RIA.pdf).

                      Table IV.5--Annual SCC Values From 2010 Interagency Report, 2010-2050
                                      [In 2007 dollars per metric ton CO2]
----------------------------------------------------------------------------------------------------------------
                                                                           Discount rate
                                                 ---------------------------------------------------------------
                                                        5%              3%             2.5%             3%
                      Year                       ---------------------------------------------------------------
                                                                                                       95th
                                                      Average         Average         Average       Percentile
----------------------------------------------------------------------------------------------------------------
2010............................................             4.7            21.4            35.1            64.9
2015............................................             5.7            23.8            38.4            72.8
2020............................................             6.8            26.3            41.7            80.7
2025............................................             8.2            29.6            45.9            90.4
2030............................................             9.7            32.8            50.0           100.0
2035............................................            11.2            36.0            54.2           109.7
2040............................................            12.7            39.2            58.4           119.3
2045............................................            14.2            42.1            61.7           127.8
2049............................................            15.7            44.9            65.0           136.2
----------------------------------------------------------------------------------------------------------------

    The SCC values used for today's notice were generated using the 
most recent versions of the three integrated assessment models that 
have been published in the peer-reviewed literature. Table IV.6 shows 
the updated sets of SCC estimates from the 2013 interagency update \63\ 
in five-year increments from 2010 to 2050. Appendix 14-B of the NOPR 
TSD provides the full set of values. The central value that emerges is 
the average SCC across models at a 3-percent discount rate. However, 
for purposes of capturing the uncertainties involved in regulatory 
impact analysis, the interagency group emphasizes the importance of 
including all four sets of SCC values.
---------------------------------------------------------------------------

    \63\ Technical Update of the Social Cost of Carbon for 
Regulatory Impact Analysis Under Executive Order 12866, Interagency 
Working Group on Social Cost of Carbon, United States Government 
(May 2013; revised November 2013) (Available at: http://www.whitehouse.gov/sites/default/files/omb/assets/inforeg/technical-update-social-cost-of-carbon-for-regulator-impact-analysis.pdf).

                      Table IV.6--Annual SCC Values From 2013 Interagency Update, 2010-2050
                                      [In 2007 dollars per metric ton CO2]
----------------------------------------------------------------------------------------------------------------
                                                                           Discount rate
                                                 ---------------------------------------------------------------
                                                        5%              3%             2.5%             3%
                      Year                       ---------------------------------------------------------------
                                                                                                       95th
                                                      Average         Average         Average       Percentile
----------------------------------------------------------------------------------------------------------------
2010............................................              11              32              51              89
2015............................................              11              37              57             109

[[Page 7111]]

 
2020............................................              12              43              64             128
2025............................................              14              47              69             143
2030............................................              16              52              75             159
2035............................................              19              56              80             175
2040............................................              21              61              86             191
2045............................................              24              66              92             206
2049............................................              26              71              97             220
----------------------------------------------------------------------------------------------------------------

    It is important to recognize that a number of key uncertainties 
remain, and that current SCC estimates should be treated as provisional 
and revisable since they will evolve with improved scientific and 
economic understanding. The interagency group also recognizes that the 
existing models are imperfect and incomplete. The National Research 
Council report mentioned previously points out that there is tension 
between the goal of producing quantified estimates of the economic 
damages from an incremental ton of carbon and the limits of existing 
efforts to model these effects. There are a number of analytical 
challenges that are being addressed by the research community, 
including research programs housed in many of the Federal agencies 
participating in the interagency process to estimate the SCC. The 
interagency group intends to periodically review and reconsider those 
estimates to reflect increasing knowledge of the science and economics 
of climate impacts, as well as improvements in modeling.
    In summary, in considering the potential global benefits resulting 
from reduced CO<INF>2</INF> emissions, DOE used the values from the 
2013 interagency report, adjusted to 2013$ using the Gross Domestic 
Product price deflator. For each of the four SCC cases specified, the 
values used for emissions in 2015 were $12.0, $40.5, $62.4, and $119 
per metric ton avoided (values expressed in 2013$). DOE derived values 
after 2050 using the relevant growth rates for the 2040-2050 period in 
the interagency update.
    DOE multiplied the CO<INF>2</INF> emissions reduction estimated for 
each year by the SCC value for that year in each of the four cases. To 
calculate a present value of the stream of monetary values, DOE 
discounted the values in each of the four cases using the specific 
discount rate that had been used to obtain the SCC values in each case.
2. Valuation of Other Emissions Reductions
    As noted previously, DOE has taken into account how the considered 
energy conservation standard would reduce site NO<INF>X</INF> emissions 
nationwide and increase power sector NO<INF>X</INF> emissions in those 
22 States not affected by the CAIR. DOE estimated the monetized value 
of net NO<INF>X</INF> emissions reductions based on estimates found in 
the relevant scientific literature. Estimates of monetary value for 
reducing NO<INF>X</INF> from stationary sources range from $476 to 
$4,893 per ton in 2013$.\64\ DOE calculated monetary benefits using a 
medium value for NO<INF>X</INF> emissions of $2,684 per short ton (in 
2013$) and real discount rates of 3 percent and 7 percent.
---------------------------------------------------------------------------

    \64\ U.S. Office of Management and Budget, Office of Information 
and Regulatory Affairs, 2006 Report to Congress on the Costs and 
Benefits of Federal Regulations and Unfunded Mandates on State, 
Local, and Tribal Entities (2006) (Available at: http://www.whitehouse.gov/sites/default/files/omb/assets/omb/inforeg/2006_cb/2006_cb_final_report.pdf).
---------------------------------------------------------------------------

    DOE is evaluating appropriate monetization of avoided 
SO<INF>2</INF> and Hg emissions in energy conservation standards 
rulemakings. DOE has not included monetization of those emissions in 
the current analysis.

M. Utility Impact Analysis

    The utility impact analysis estimates several effects on the power 
generation industry that would result from the adoption of new or 
amended energy conservation standards. In the utility impact analysis, 
DOE analyzes the changes in installed electrical capacity and 
generation that would result for each trial standard level. The 
analysis is based on published output from NEMS, which is a public 
domain, multi-sectored, partial equilibrium model of the U.S. energy 
sector. Each year, NEMS is updated to produce the AEO reference case, 
as well as a number of side cases that estimate the economy-wide 
impacts of changes to energy supply and demand. DOE uses those 
published side cases that incorporate efficiency-related policies to 
estimate the marginal impacts of reduced energy demand on the utility 
sector. The output of this analysis is a set of time-dependent 
coefficients that capture the change in electricity generation, primary 
fuel consumption, installed capacity and power sector emissions due to 
a unit reduction in demand for a given end use. These coefficients are 
multiplied by the stream of electricity savings calculated in the NIA 
to provide estimates of selected utility impacts of new or amended 
energy conservation standards. Chapter 15 of the NOPR TSD describes the 
utility impact analysis in further detail.

N. Employment Impact Analysis

    Employment impacts from new or amended energy conservation 
standards include direct and indirect impacts. Direct employment 
impacts are any changes in the number of employees of manufacturers of 
the products subject to standards; the MIA addresses those impacts. 
Indirect employment impacts are changes in national employment that 
occur due to the shift in expenditures and capital investment caused by 
the purchase and operation of more-efficient appliances. Indirect 
employment impacts from standards consist of the jobs created or 
eliminated in the national economy, other than in the manufacturing 
sector being regulated, due to: (1) Reduced spending by end users on 
energy; (2) reduced spending on new energy supply by the utility 
industry; (3) increased consumer spending on the purchase of new 
products; and (4) the effects of those three factors throughout the 
economy.
    One method for assessing the possible effects on the demand for 
labor of such shifts in economic activity is to compare sector 
employment statistics developed by the Labor Department's Bureau of 
Labor Statistics (BLS). BLS regularly

[[Page 7112]]

publishes its estimates of the number of jobs per million dollars of 
economic activity in different sectors of the economy, as well as the 
jobs created elsewhere in the economy by this same economic activity. 
Data from BLS indicate that expenditures in the utility sector 
generally create fewer jobs (both directly and indirectly) than 
expenditures in other sectors of the economy.\65\ There are many 
reasons for these differences, including wage differences and the fact 
that the utility sector is more capital-intensive and less labor-
intensive than other sectors. Energy conservation standards have the 
effect of reducing consumer utility bills. Because reduced consumer 
expenditures for energy likely lead to increased expenditures in other 
sectors of the economy, the general effect of efficiency standards is 
to shift economic activity from a less labor-intensive sector (i.e., 
the utility sector) to more labor-intensive sectors (e.g., the retail 
and service sectors). Thus, based on the BLS data alone, DOE believes 
net national employment may increase because of shifts in economic 
activity resulting from standards for hearth products.
---------------------------------------------------------------------------

    \65\ See Bureau of Economic Analysis, ``Regional Multipliers: A 
Handbook for the Regional Input-Output Modeling System (RIMS II),'' 
U.S. Department of Commerce (1992).
---------------------------------------------------------------------------

    For the standard considered in this NOPR, DOE estimated indirect 
national employment impacts using an input/output model of the U.S. 
economy called Impact of Sector Energy Technologies, Version 3.1.1 
(ImSET).\66\ ImSET is a special-purpose version of the ``U.S. Benchmark 
National Input-Output'' (I-O) model, which was designed to estimate the 
national employment and income effects of energy-saving technologies. 
The ImSET software includes a computer-based I-O model having 
structural coefficients that characterize economic flows among the 187 
sectors. ImSET's national economic I-O structure is based on a 2002 
U.S. benchmark table, specially aggregated to the 187 sectors most 
relevant to industrial, commercial, and residential building energy 
use. DOE notes that ImSET is not a general equilibrium forecasting 
model and understands the uncertainties involved in projecting 
employment impacts, especially changes in the later years of the 
analysis. Because ImSET does not incorporate price changes, the 
employment effects predicted by ImSET may over-estimate actual job 
impacts over the long run. For the NOPR, DOE used ImSET only to 
estimate short-term (through 2026) employment impacts.
---------------------------------------------------------------------------

    \66\ M.J. Scott, O.V. Livingston, P.J. Balducci, J.M. Roop, and 
R.W. Schultz, ImSET 3.1: Impact of Sector Energy Technologies, PNNL-
18412, Pacific Northwest National Laboratory (2009) (Available at: 
www.pnl.gov/main/publications/external/technical_reports/PNNL-18412.pdf).
---------------------------------------------------------------------------

    For more details on the employment impact analysis, see chapter 16 
of the NOPR TSD.

V. Analytical Results and Conclusions

    The following section addresses the results from DOE's analyses 
with respect to a potential energy conservation standard for hearth 
products. Additional details regarding the analyses conducted by DOE 
are contained in the publicly-available NOPR TSD supporting this 
notice.

A. Trial Standard Levels

    DOE typically considers multiple TSLs for a standards rulemaking. 
However, the hearth products rulemaking is proposing a prescriptive 
standard that would disallow the use of continuously-burning pilots, 
thereby largely eliminating the standby mode energy consumption of 
these products. The analysis is considering an established alternative 
to a standing pilot, which is an intermittent pilot. Other options that 
are present in other combustion appliances, such as hot surface 
ignition, are virtually non-existent in the hearth product market 
primarily due to the increased cost and additional engineering 
challenges. Therefore, hearth products have only one TSL, which 
reflects a standard that would disallow the use of a standing pilot. 
For the purposes of this analysis, TSL1 assumes that all covered hearth 
products would use an intermittent pilot (see Table V.1).

           Table V.1--Trial Standard Level for Hearth Products
------------------------------------------------------------------------
                      Ignition type                            TSL 1
------------------------------------------------------------------------
Standing Pilot..........................................              0%
Intermittent Pilot......................................            100%
------------------------------------------------------------------------

B. Economic Justification and Energy Savings

1. Economic Impacts on Individual Consumers
    DOE analyzed the economic impacts of the proposed rule on hearth 
products consumers by looking at the effect on the LCC and the PBP. DOE 
also examined the impacts of potential standards on consumer subgroups. 
These analyses are discussed below.
a. Life-Cycle Cost and Payback Period
    In general, higher-efficiency products affect consumers in two 
ways: (1) Purchase price typically increases, and (2) annual operating 
costs typically decrease. Inputs used for calculating the LCC and PBP 
include total installed costs (i.e., product price plus installation 
costs), and operating costs (i.e., annual energy savings, energy 
prices, energy price trends, repair costs, and maintenance costs). The 
LCC calculation also uses product lifetime and a discount rate.
    Table V.2 shows the LCC and PBP results for the considered TSL. The 
simple payback is measured relative to the baseline product, and 
reflects the number of years it would take for the consumer to recover 
the increased costs of higher-efficiency products as a result of 
operating cost savings. The PBP is an economic benefit-cost measure 
that uses benefits and costs without discounting. Table V.3 shows the 
LCC savings relative to the base case in the compliance year. 
Additionally, 23 percent of consumers experience net cost because their 
standing pilot lights have relatively low hours of operation, and thus 
achieve modest energy savings from using an intermittent pilot 
ignition.

                                     Table V.2--Average LCC and PBP Results by Efficiency Level for Hearth Products
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                            Average costs 2013$
                                                   -------------------------------------------------------------------- Simple  payback      Average
              TSL                      Design                          First year's       Lifetime                            years      lifetime  years
                                                     Installed cost   operating cost   operating cost        LCC
--------------------------------------------------------------------------------------------------------------------------------------------------------
1..............................  Intermittent                 $268              $15             $174             $442              2.9             15.0
                                  Pilot.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: The results are calculated assuming that all consumers use products with that design. The simple PBP is measured relative to the baseline product.


[[Page 7113]]


          Table V.3--LCC Savings Relative to the Base-Case Efficiency Distribution for Hearth Products
----------------------------------------------------------------------------------------------------------------
                                                                                  Life-cycle cost savings
                                                                         ---------------------------------------
                    TSL                                Design               % of consumers
                                                                            that experience     Average savings
                                                                               net cost             *2013$
----------------------------------------------------------------------------------------------------------------
1.........................................  Intermittent Pilot..........                23%                $165
----------------------------------------------------------------------------------------------------------------
\*\ The calculation includes households with zero LCC savings (no impact).

b. Consumer Subgroup Analysis
    In the consumer subgroup analysis, DOE estimated the impacts of the 
considered standard on senior-only households. The average LCC savings 
and simple PBPs for senior-only households are shown in Table V.4. The 
LCC savings are somewhat lower for the senior-only subgroup. Chapter 11 
of the NOPR TSD presents detailed results of the consumer subgroup 
analysis.

           Table V.4--Comparison of Impacts for Consumer Subgroups With All Consumers, Hearth Products
----------------------------------------------------------------------------------------------------------------
                                        Average LCC savings  2013$             Simple payback period  years
               TSL               -------------------------------------------------------------------------------
                                      Senior-only        All consumers        Senior-only        All consumers
----------------------------------------------------------------------------------------------------------------
1...............................               $121                $165                 3.5                 2.9
----------------------------------------------------------------------------------------------------------------

c. Rebuttable Presumption Payback Period
    As discussed in section III.G.2, EPCA establishes a rebuttable 
presumption that an energy conservation standard is economically 
justified if the increased purchase cost for a product that meets the 
standard is less than three times the value of the first-year energy 
savings resulting from the standard. Accordingly, DOE calculated a 
rebuttable-presumption PBP for the proposed hearth products standard 
based on the average energy use and costs calculated in the LCC 
analysis. DOE routinely conducts an economic analysis that considers 
the full range of impacts to the consumer, manufacturer, Nation, and 
environment, as required by EPCA under 42 U.S.C. 6295(o)(2)(B)(i). The 
results of that analysis serve as the basis for DOE to definitively 
evaluate the economic justification for a potential standard level, 
thereby supporting or rebutting the results of any preliminary 
determination of economic justification. Table V.5 shows the 
rebuttable-presumption PBP for the considered TSL for hearth products.

  Table V.5--Rebuttable-Presumption Payback Periods (Years) for Hearth
                                Products
------------------------------------------------------------------------
                                                          Rebuttable
                                                          presumption
                       Product                         payback  (years)
                                                     -------------------
                                                             TSL 1
------------------------------------------------------------------------
Hearth Products.....................................                2.3
------------------------------------------------------------------------

2. Economic Impacts on Manufacturers
    DOE performed a manufacturer impact analysis (MIA) to estimate the 
impact of an energy conservation standard on manufacturers of gas 
hearth products. The following section describes the expected impacts 
on manufacturers of a ban on standing pilot lights. Chapter 12 of the 
NOPR TSD explains the analysis in further detail.
a. Industry Cash Flow Analysis Results
    Table V.6 and Table V.7 depict a range of estimated financial 
impacts (represented by changes in industry net present value, or INPV) 
of an energy conservation standard on manufacturers of gas hearth 
products, as well as the conversion costs that DOE expects 
manufacturers would incur to comply with the standard.
    As discussed in section IV.J.2, DOE modeled two different markup 
scenarios to evaluate the range of cash flow impacts on the gas hearth 
industry: (1) The preservation of gross margin percentage markup 
scenario; and (2) the preservation of per-unit operating profit markup 
scenario. Each of these scenarios is discussed immediately below.
    To assess the less severe end of the range of potential impacts, 
DOE modeled a preservation of gross margin percentage markup scenario, 
in which a uniform ``gross margin percentage'' markup is applied. In 
this scenario, DOE assumed that a manufacturer's absolute dollar markup 
would increase as production costs increase in the standards case.
    To assess the more severe end of the range of potential impacts, 
DOE modeled the preservation of per-unit operating profit markup 
scenario, which reflects manufacturer concerns surrounding their 
inability to maintain margins as manufacturing production costs 
increase to comply with an energy conservation standard. In this 
scenario, as manufacturers incur higher costs of goods sold and make 
the investments necessary to produce new standards-compliant products, 
their percentage markup decreases. Operating profit does not change in 
absolute dollars but decreases as a percentage of revenue.
    As noted in the MIA methodology discussion (see section IV.J.2), in 
addition to markup scenarios, the MPC, shipments, and conversion cost 
assumptions also affect INPV results.
    Each of the modeled scenarios results in a unique set of cash flows 
and corresponding industry values under an energy conservation 
standard. In the following discussion, the INPV results refer to the 
difference in industry value between the base case and the standards 
case that results from the sum of discounted cash flows from the base 
year 2014 through 2050, the end of the analysis period. To provide 
perspective on the short-run cash flow impact, DOE includes in the 
discussion of results a comparison of free cash flow between the base 
case and the standards case in the year before the standard would take 
effect. This figure provides an understanding of the magnitude of the 
required conversion costs relative to the cash flow generated by the 
industry in the base case.
    Table V.6 presents estimated financial impacts under the 
preservation of gross margin percentage markup scenario, and

[[Page 7114]]

Table V.7 presents impacts under the preservation of per-unit operating 
profit markup scenario. Estimated conversion costs and free cash flow 
in the year prior to the compliance date of the standard do not vary 
with markup scenario.

    Table V.6--Manufacturer Impact Analysis Results Under the Preservation of Gross Margin Percentage Markup
                                                    Scenario
----------------------------------------------------------------------------------------------------------------
                                                               Units            Base case       Standards case *
----------------------------------------------------------------------------------------------------------------
INPV...................................................             2013$M              125.3             125.8
Change in INPV.........................................             2013$M  .................               0.5
                                                                         %  .................               0.4
Product Conversion Costs...............................             2013$M  .................               7.8
Capital Conversion Costs...............................             2013$M  .................               0.9
Total Conversion Costs.................................             2013$M  .................               8.7
Free Cash Flow (base case = 2020)......................             2013$M               10.9               8.2
Change in Free Cash Flow...............................             2013$M  .................              (2.6)
                                                                         %  .................             (24.0)
----------------------------------------------------------------------------------------------------------------
* Parentheses indicate negative values


   Table V.7--Manufacturer Impact Analysis Results Under the Preservation of Per-Unit Operating Profit Markup
                                                    Scenario
----------------------------------------------------------------------------------------------------------------
                                                               Units            Base case       Standards case *
----------------------------------------------------------------------------------------------------------------
INPV...................................................             2013$M              125.3             122.0
Change in INPV.........................................             2013$M  .................              (3.3)
                                                                         %  .................              (2.6)
Product Conversion Costs...............................             2013$M  .................               7.8
Capital Conversion Costs...............................             2013$M  .................               0.9
Total Conversion Costs.................................             2013$M  .................               8.7
Free Cash Flow (base case = 2020)......................             2013$M               10.9               8.2
Change in Free Cash Flow...............................             2013$M  .................              (2.6)
                                                                         %  .................             (24.0)
----------------------------------------------------------------------------------------------------------------

    DOE estimates the impacts of an energy conservation standard on 
INPV to range from -$3.3 million to $0.5 million, or a change of -2.6 
percent to 0.4 percent. Industry free cash flow is estimated to 
decrease by $2.6 million, or a change of -24.0 percent compared to the 
base-case value of $10.9 million in the year before the compliance date 
(2020).
    The capital and product conversion costs required to bring non-
compliant models into compliance with standards drive the lower-bound 
negative INPV results at this level. To bring all non-compliant 
products into compliance, DOE estimates total industry conversion costs 
of $8.7 million. This estimate assumes that all non-compliant models 
(i.e., models with standing pilot lights) would be redesigned to 
accommodate electronic ignition systems. This represents a conservative 
assumption, as manufacturers may choose to discontinue some models with 
standing pilot lights. Models already available with the option of 
electronic ignition would not require any one-time conversion costs by 
the manufacturer in order to achieve compliance.
    During interviews, some manufacturers expressed concern that an 
energy conservation standard could pose a significant conversion cost 
burden with regard to labeling requirements. Under Canadian law, 
manufacturers must test and label gas fireplaces, stoves, and inserts 
with a fireplace efficiency (FE) rating. If a Federal energy 
conservation standard mandated an alternative efficiency metric for 
hearth products (e.g., AFUE), manufacturers indicated they could be 
required to hold separate SKUs for the Canadian and U.S. markets in 
order to comply with each jurisdiction's requirements. However, because 
the proposed standard is a prescriptive design requirement and does not 
establish a minimum efficiency rating or require products to be labeled 
with a particular efficiency metric, DOE did not factor the cost of 
holding duplicate SKUs into its conversion cost model.
    Beyond conversion costs, the change in MPCs also impact 
manufacturer financials. The cost to manufacturers of producing 
equipment with electronic ignition systems tends to be greater than the 
cost of producing equipment with standing pilot lights. A higher per-
unit manufacturer production cost could, in turn, result in a higher 
per-unit retail price to the end user. In interviews, manufacturers 
expressed concerned that higher prices could lead to a change in 
industry shipments. The increase in MPC and the change in pricing to 
the manufacturer's first customer are reflected in the GRIM and in the 
INPV results. Shipments used in the GRIM are consistent with the 
Shipments Analysis, presented in section IV.G, which includes 
assumptions regarding price elasticity of demand.
    DOE requests feedback on the expected total conversion costs for 
the industry. This is identified as Issue 20 in section VII.E, ``Issues 
on Which DOE Seeks Comment.''
b. Direct Impacts on Employment
    To quantitatively assess the potential impacts of energy 
conservation standards on direct employment in the gas hearth industry, 
DOE used the GRIM to estimate the domestic labor expenditures and 
number of employees in the base case and the standards case from 2014 
through 2050. DOE used statistical data from the U.S. Census Bureau's 
2011 Annual Survey of Manufacturers,\67\ the results of the engineering 
analysis, and interviews with manufacturers to determine the inputs 
necessary to calculate industry-wide labor expenditures and domestic 
direct employment levels. Labor expenditures related to manufacturing 
of the product are a function of the labor

[[Page 7115]]

intensity of the product, the sales volume, and an assumption that 
wages remain fixed in real terms over time. The total labor 
expenditures in each year are calculated by multiplying the MPCs by the 
labor percentage of MPCs.
---------------------------------------------------------------------------

    \67\ U.S. Census Bureau, Annual Survey of Manufacturers: General 
Statistics: Statistics for Industry Groups and Industries (2011) 
(Available at http://www.census.gov/manufacturing/asm/index.html).
---------------------------------------------------------------------------

    The total labor expenditures in the GRIM were then converted to 
domestic production employment levels by dividing production labor 
expenditures by the annual payment per production worker (production 
worker hours times the labor rate found in the U.S. Census Bureau's 
2011 Annual Survey of Manufacturers). The production worker estimates 
in this section only cover workers up to the line-supervisor level who 
are directly involved in fabricating and assembling a product within an 
original equipment manufacturer (OEM) facility. Workers performing 
services that are closely associated with production operations, such 
as materials handling tasks using forklifts, are also included as 
production labor. DOE's estimates only account for production workers 
who manufacture the specific products covered by this rulemaking. The 
direct employment impacts calculated represent a range of potential 
changes in the number of production workers resulting from an energy 
conservation standard for hearth products, as compared to the base 
case.
    To estimate an upper bound to employment change, DOE assumes all 
domestic manufacturers would continue producing the same scope of 
covered products in the U.S. and would not move production to foreign 
countries. To estimate a lower bound to employment, DOE assumes 
manufacturers would not redesign any non-compliant models and that 
there would be a proportionate loss of production employment.
    Table V.8 shows the estimated range of impacts of a potential 
energy conservation standard on U.S. production workers of gas hearth 
products. In the base case, DOE estimates that the gas hearth industry 
would employ 1,565 domestic production workers in 2021, the first full 
year of compliance. DOE estimates that 86 percent of gas hearth 
products sold in the United States are manufactured domestically.

 Table V.8--Potential Changes in the Total Number of Production Workers
                   in the Gas Hearth Industry in 2021
------------------------------------------------------------------------
                                    Base case          Standards case
------------------------------------------------------------------------
Domestic Production Workers in              1,565  657 to 1,514.
 2021.
Potential Changes in Domestic   .................  (908) to (51).
 Production Workers in 2021*.
------------------------------------------------------------------------
* DOE presents a range of potential employment impacts. Parentheses
  indicate negative values.

    The less severe end of the range of potential employment impacts 
estimates a loss of 51 domestic production jobs in 2021 in the 
standards case. This assumes manufacturers would continue to produce 
the same scope of covered products within the United States. However, 
because the shipment model predicts a decline in shipment volumes under 
an energy conservation standard, DOE estimates a related reduction in 
labor inputs and employment.
    The more severe end of the range represents the maximum decrease in 
total number of U.S. production workers that could be expected to 
result from an energy conservation standard. For the hearths industry, 
DOE assumed a worst-case scenario in which all products sold with 
standing pilot lights in the base case would be eliminated in the 
standards case and would not be replaced by any additional sales of 
compliant products. DOE then assumed industry labor requirements would 
shrink in proportion to lost sales volumes. The NIA shipments analysis 
forecasts that 58 percent of base-case shipments would consist of units 
with standing pilot lights in 2021. Based on the worst-case scenario 
assumptions above, DOE modeled a 58-percent decline in direct 
production employment. As a result, DOE estimates a loss of up to 908 
domestic production jobs in 2021 resulting from a design standard that 
eliminates standing pilot lights.
    This conclusion is independent of any conclusions regarding 
indirect employment impacts in the broader United States economy, which 
are documented in chapter 15 of the NOPR TSD.
    DOE requests comment on the portion of the industry's hearths 
production consisting of units equipped with standing pilot lights and 
on potential direct employment impacts resulting from a requirement for 
the elimination of standing pilot lights. This is identified as Issue 
21 in section VII.E, ``Issues on Which DOE Seeks Comment.''
c. Impacts on Manufacturing Capacity
    According to gas hearth manufacturers interviewed, a requirement 
eliminating standing pilot lights would not likely constrain 
manufacturing production capacity. Converting a gas hearth product's 
ignition system from a standing pilot light to an electronic ignition 
system is primarily a matter of purchasing and assembling different 
ignition system components. While this may entail higher costs for 
purchased parts and changes in assembly, it is not likely to impede 
manufacturers' capacity to continue producing gas hearth equipment in 
line with demand. Moreover, several manufacturers stated that the 
higher costs of producing equipment with electronic ignition systems 
could lead to a decline in demand, potentially leaving them with excess 
production capacity. Accordingly, DOE does not believe manufacturers 
will face capacity constraints as a result of today's proposed 
standard.
d. Impacts on Subgroups of Manufacturers
    As discussed above, using average cost assumptions to develop an 
industry cash flow estimate is not adequate for assessing differential 
impacts among subgroups of manufacturers. Small manufacturers, niche 
players, or manufacturers exhibiting a cost structure that differs 
largely from the industry average could be affected disproportionately. 
For the hearth products industry, DOE used the results of the industry 
characterization to group manufacturers exhibiting similar 
characteristics. Specifically, DOE identified and separately evaluated 
the impacts of an energy conservation standard on two subgroups of 
manufacturers: (1) Manufacturers of gas log sets and (2) small business 
manufacturers.
    During interviews, multiple manufacturers commented that gas log 
sets represent a distinct market segment within the gas hearth 
industry. These manufacturers indicated that gas log sets serve a 
different market niche and face different space constraints than other 
gas hearth products. Additionally, gas log sets often sell at lower 
prices than

[[Page 7116]]

other gas hearth products. As a result, an increase in manufacturing 
costs and, by extension, retail price resulting from an energy 
conservation standard could have a proportionally greater impact on gas 
log sets relative to other gas hearth products.
    Gas log sets are typically designed for use in existing wood-
burning fireplaces. During interviews, manufacturers of gas log sets 
stated that unlike other gas hearth products, gas log sets compete with 
wood, coal, and wood/wax logs. These alternatives are typically 
inexpensive to purchase, such that consumers could feasibly substitute 
away from gas log sets and toward wood and/or wood/wax logs if an 
energy conservation standard leads to higher prices. According to these 
manufacturers, if design constraints specific to gas log sets cause an 
energy conservation standard to alter product aesthetics, it could 
further drive consumer product-switching.
    Because gas log sets are designed to fit within existing wood-
burning fireplaces, manufacturers indicated that design options for gas 
log sets are constrained by the geometric configurations of pre-
existing fireplaces. Manufacturers stated that electronic ignition 
systems take up more space than standing pilot lights and that 
accommodating electronic ignition systems inside existing fireplaces 
could, in turn, reduce the size of the gas log sets consumers could 
purchase for their fireplaces. Manufacturers also indicated that 
electronic ignition system components can be difficult to conceal 
within a gas log set's design. Unlike other gas hearth products, gas 
log sets are not sold as part of a packaged unit, leaving manufacturers 
with limited options for obscuring the gas valve, pilot assembly, 
control module, wiring, and other components that make up an electronic 
ignition system. As a result, these components may be more exposed when 
used with gas log sets compared to other gas hearth products. 
Manufacturers also stated that electric outlets may not be situated in 
close enough proximity to wood-burning fireplaces to enable ready 
installation of units with electronic ignition systems. In such cases, 
the need for extension cords could impact the aesthetic appeal of 
products. Alternatively, hiring an electrician could raise installation 
costs and potentially deter price-sensitive consumers.
    Alongside aesthetic impacts, manufacturers expressed concern 
regarding the cost implications of a potential ban on standing pilot 
lights. As discussed previously, purchasing components for electronic 
ignition systems typically costs manufacturers more than purchasing 
components for standing pilot lights. Higher manufacturing costs, in 
turn, lead to higher retail prices. To estimate the potential 
difference in cost resulting from a requirement eliminating standing 
pilot lights, DOE modeled the manufacturer production costs (MPCs) for 
both vented and unvented gas log sets using both standing pilot lights 
and electronic ignition systems. DOE similarly modeled MPCs for other 
categories of gas hearth products. Table V.9 presents the relative 
increase in MPC for products manufactured with electronic ignition 
systems as opposed to standing pilot lights. See chapter 5 of the TSD 
for a more detailed discussion of how MPCs were calculated.

  Table V.9--Relative Cost Impacts of Converting Gas Log Sets From Standing Pilot Lights to Electronic Ignition
                                                     Systems
----------------------------------------------------------------------------------------------------------------
                                                             Estimated
                                                          increase in MPC
                                                         of switching from  % Increase in MPC    % Increase in
                     Product group                       standing pilot to     of ignition        overall MPC
                                                             electronic           system
                                                             ignition *
----------------------------------------------------------------------------------------------------------------
Vented Fireplace/Insert/Stove..........................                $28                 56                  9
Unvented Fireplace/Insert/Stove........................                 32                 47                 11
Vented Gas Logs........................................                 70                227                 37
Unvented Gas Logs......................................                 56                194                 27
Outdoor................................................                 55                 65                 26
----------------------------------------------------------------------------------------------------------------
* DOE understands that standing pilot ignitions largely use two styles of gas valves: (1) Manual and (2)
  millivolt. The incremental costs of switching from standing pilot lights to electronic ignition systems
  presented here assume gas fireplaces, inserts, and stoves use standing pilot lights with millivolt gas valves
  while gas log sets and outdoor hearth products use standing pilot lights with manual gas valves. The millivolt
  gas valve uses a thermopile placed in the pilot light to generate a voltage difference, thereby allowing a
  remote control to be used to turn the burner on and off. These valves are larger and more expensive than
  manual gas valves, which are operated by hand. Based on public comments on previous rulemakings and
  manufacturer interviews, DOE recognizes the importance of space constraints and cost burden associated with
  control systems for gas log sets. For the purposes of analysis, DOE chose to represent gas log sets with
  standing pilots using manual gas valves. Fireplaces, inserts, and stoves provide more opportunity to package
  and conceal larger, more complex ignition systems. Accordingly, DOE chose to represent the standing pilot
  variation of this product category with models using millivolt gas valves.

    As the results above indicate, DOE estimates that the cost of 
switching from a standing pilot light to an electronic ignition system 
could disproportionately impact gas log set manufacturers. These 
results are driven by two primary factors. First, the results are based 
on the assumption that gas log sets use standing pilot lights with 
manual gas valves, which are smaller and less expensive than standing 
pilot lights with millivolt gas valves. Under this assumption, the 
higher cost of purchasing electronic ignition system components would 
represent a more significant expenditure in absolute dollars for 
manufacturers of gas log sets using manual standing pilot lights 
relative to manufacturers of other hearth products (e.g. fireplaces, 
inserts, and stoves) using more expensive millivolt standing pilot 
lights. Second, the overall cost of manufacturing gas log sets is often 
lower than the overall cost of manufacturing other types of gas hearth 
products. This means the same increase in MPC in absolute dollars would 
result in a higher proportional increase in MPC for gas log sets. 
Assuming, as described above, that manufacturers of gas log sets are 
likely to see a greater increase in MPC in absolute dollars compared to 
manufacturers of other products, this would imply an even greater 
proportional increase in overall MPC of gas log sets. If retail prices 
scale with MPCs, manufacturers indicated that demand for gas log sets 
from price-sensitive consumers could decline and, in turn, negatively 
impact manufacturer profitability.

[[Page 7117]]

    For the small business subgroup analysis, DOE applied the small 
business size standards published by the Small Business Administration 
(SBA) to determine whether a company is considered a small business. 65 
FR 30836, 30848 (May 15, 2000), as amended at 65 FR 53533, 53544 (Sept. 
5, 2000) and codified at 13 CFR part 121. To be categorized as a small 
business, a gas hearth product manufacturer and its affiliates may 
employ a maximum of 500 employees. This 500-employee threshold includes 
all employees in a business's parent company and any other subsidiaries 
and applies to all hearth products, categorized respectively under 
North American Industry Classification System (NAICS) code 333414, 
``Heating Equipment (Except Warm Air Furnaces) Manufacturing'' and 
NAICS code 335228, ``Other Major Household Appliance Manufacturing.'' 
Based on this classification, DOE identified at least 66 manufacturers 
that qualify as domestic small businesses.
    Small business concerns surrounding the proposed standard centered 
on issues of purchasing power and economies of scale. During 
interviews, small manufacturers expressed concern regarding the impact 
of eliminating standing pilot lights on their ability to compete with 
larger manufacturers. Because large manufacturers often produce at 
higher volumes, they may be able to source components for electronic 
ignition systems at lower per-unit prices than small manufacturers that 
produce at lower volumes. If the per-unit production costs increase 
more for small manufacturers than for large manufacturers, and if small 
manufacturers are not able to pass costs through to price-sensitive 
consumers, they could potentially face reduced markups and profits, as 
well as a decline in market share. The impacts on small business 
manufacturers are discussed in greater detail in the regulatory 
flexibility analysis, in section VI.B of this notice and in chapter 12 
of the NOPR TSD.
e. Cumulative Regulatory Burden
    While any one regulation may not impose a significant burden on 
manufacturers, the combined effects of several recent impending 
regulations may have serious consequences for some manufacturers, 
groups of manufacturers, or an entire industry. Assessing the impact of 
a single regulation may overlook this cumulative regulatory burden. 
Multiple regulations affecting the same manufacturer can strain profits 
and can lead companies to abandon product lines or markets with lower 
expected future returns than competing products. For these reasons, DOE 
conducts an analysis of cumulative regulatory burden as part of its 
rulemakings pertaining to appliance efficiency.
    For the cumulative regulatory burden analysis, DOE looks at other 
product-specific Federal regulations that could affect gas hearth 
product manufacturers and that will take effect approximately three 
years before or after the 2021 compliance date of the proposed energy 
conservation standard. In interviews, manufacturers cited a Consumer 
Product Safety Commission regulation requiring barrier screens on gas 
hearth products. However, this requirement is set to take effect in 
January 2015 and, therefore, is not considered in this analysis. DOE 
did not identify any other Federally-mandated product-specific 
regulations that will take effect in the three years before or after 
the 2021 compliance date for this rulemaking and, therefore, has not 
presented any other regulations in this analysis of cumulative 
regulatory burden.
    DOE requests comment on product-specific regulations that take 
effect between 2018 and 2024 that would contribute to manufacturers' 
cumulative regulatory burden. DOE requests information identifying the 
specific regulations, as well as data quantifying the associated cost 
burden on manufacturers. This is identified as Issue 22 in section 
VII.E, ``Issues on Which DOE Seeks Comment.''
3. National Impact Analysis
    The shipments projections are a key input to the NIA. The base case 
forecast shows shipments of the covered product growing from 
approximately 978,000 in 2021 to 980,000 in 2050.
a. Significance of Energy Savings
    DOE projected energy savings for hearth products purchased in the 
30-year period that begins in the first full year of anticipated 
compliance with the proposed standard (2021-2050). The savings are 
measured over the entire lifetime of products purchased in the 30-year 
period. DOE quantified the energy savings attributable to the 
considered TSL as the difference in energy consumption between the 
standards case and the base case. Table V.10 presents the estimated 
primary and FFC energy savings. The approach for estimating national 
energy savings is further described in section IV.H.1.

   Table V.10--Cumulative National Primary and FFC Energy Savings for
                    Hearth Products Sold in 2021-2050
------------------------------------------------------------------------
                                                         Trial standard
                                                             level
             Product                 Energy savings   ------------------
                                                            (quads)
------------------------------------------------------------------------
Hearth Products.................  Primary............               0.62
                                  Full-Fuel-Cycle....               0.69
------------------------------------------------------------------------

    OMB Circular A-4 \68\ requires agencies to present analytical 
results, including separate schedules of the monetized benefits and 
costs that show the type and timing of benefits and costs. Circular A-4 
also directs agencies to consider the variability of key elements 
underlying the estimates of benefits and costs. For this rulemaking, 
DOE undertook a sensitivity analysis using 9, rather than 30, years of 
product shipments. The choice of a 9-year period is a proxy for the 
timeline in EPCA for the review of certain energy conservation 
standards and potential revision of and compliance with such revised 
standards.\69\ The review timeframe established in EPCA is

[[Page 7118]]

generally not synchronized with the product lifetime, product 
manufacturing cycles, or other factors specific to hearth products. 
Thus, such results are presented for informational purposes only and 
are not indicative of any change in DOE's analytical methodology. The 
impacts are counted over the lifetime of hearth products purchased in 
2021-2029. Table V.11 shows the national FFC energy savings for this 
period.
---------------------------------------------------------------------------

    \68\ U.S. Office of Management and Budget, ``Circular A-4: 
Regulatory Analysis'' (Sept. 17, 2003) (Available at: http://www.whitehouse.gov/omb/circulars_a004_a-4/).
    \69\ Section 325(m) of EPCA requires DOE to review its standards 
at least once every 6 years, and requires, for certain products, a 
3-year period after any new standard is promulgated before 
compliance is required, except that in no case may any new standards 
be required within 6 years of the compliance date of the previous 
standards. While adding a 6-year review to the 3-year compliance 
period adds up to 9 years, DOE notes that it may undertake reviews 
at any time within the 6 year period and that the 3-year compliance 
date may yield to the 6-year backstop. A 9-year analysis period may 
not be appropriate given the variability that occurs in the timing 
of standards reviews and the fact that for some consumer products, 
the compliance period is 5 years rather than 3 years.

    Table V.11--Cumulative National FFC Energy Savings for the Trial
          Standard Level for Hearth Products Sold in 2021-2029
------------------------------------------------------------------------
                                                         Trial standard
                                                             level
                                                      ------------------
                       Product                              (quads)
                                                      ------------------
                                                               1
------------------------------------------------------------------------
Hearth Products......................................               0.21
------------------------------------------------------------------------

b. Net Present Value of Consumer Costs and Benefits
    DOE estimated the cumulative NPV of the total costs and savings for 
consumers that would result from the TSL considered for hearth 
products. In accordance with OMB's guidelines on regulatory 
analysis,\70\ DOE calculated the NPV using both a 7-percent and a 3-
percent real discount rate. Table V.12 shows the consumer NPV results 
for the TSL considered for hearth products. In each case, the impacts 
cover the lifetime of products purchased in 2021-2050.
---------------------------------------------------------------------------

    \70\ OMB Circular A-4, section E (Sept. 17, 2003) (Available at: 
http://www.whitehouse.gov/omb/circulars_a004_a-4).

  Table V.12--Cumulative Net Present Value of Consumer Benefits for the
       Trial Standard Level for Hearth Products Sold in 2021-2050
------------------------------------------------------------------------
              Product               Discount rate (%)    Trial standard
------------------------------------------------------       level
                                                      ------------------
                                                         Trial standard
           Product class             Discount rate %         level
                                                      ------------------
                                                        (billion 2013$)
------------------------------------------------------------------------
Hearth Products...................                 3%               3.12
                                                   7%               1.03
------------------------------------------------------------------------

    The NPV results based on the aforementioned nine-year analytical 
period are presented in Table V.13. The impacts are counted over the 
lifetime of products purchased in 2021-2029. As mentioned previously, 
such results are presented for informational purposes only and are not 
indicative of any change in DOE's analytical methodology or decision 
criteria.

  Table V.13--Cumulative Net Present Value of Consumer Benefits for the
       Trial Standard Level for Hearth Products Sold in 2021-2029
------------------------------------------------------------------------
              Product               Discount rate (%)    Trial standard
------------------------------------------------------       level
                                                      ------------------
                                                         Trial standard
           Product class             Discount rate %         level
                                                      ------------------
                                                        (billion 2013$)
------------------------------------------------------------------------
Hearth Products...................                 3%               1.04
                                                   7%               0.46
------------------------------------------------------------------------

    The results presented here reflect the use of a flat trend for the 
price of hearth products over the analysis period (see section IV.F.1).
c. Indirect Impacts on Employment
    DOE expects that energy conservation standards for heath products 
would reduce energy costs for consumers, with the resulting net savings 
being redirected to other forms of economic activity. Those shifts in 
spending and economic activity could affect the demand for labor. As 
described in section IV.N, DOE used an input/output model of the U.S. 
economy to estimate indirect employment impacts of the TSL that DOE 
considered in this rulemaking. DOE understands that there are 
uncertainties involved in projecting employment impacts, especially 
changes in the later years of the analysis. Therefore, DOE generated 
results for near-term time frames (2021 to 2026), where these 
uncertainties are reduced.
    The results suggest that the proposed standard would likely have a 
negligible impact on the net demand for labor in the economy. The net 
change in jobs is so small that it would be imperceptible in national 
labor statistics and might be offset by other, unanticipated effects on 
employment. Chapter 16 of the NOPR TSD presents detailed results 
regarding indirect employment impacts.
4. Impact on Product Utility or Performance
    DOE has tentatively concluded that the standard it is proposing in 
this NOPR would not lessen the utility or performance of hearth 
products.
5. Impact of Any Lessening of Competition
    DOE considered any lessening of competition that is likely to 
result from the proposed standard. The Attorney General determines the 
impact, if any, of any lessening of competition likely to

[[Page 7119]]

result from a proposed standard, and transmits such determination in 
writing to the Secretary, together with an analysis of the nature and 
extent of such impact. To assist the Attorney General in making such 
determination, DOE has provided DOJ with copies of this NOPR and the 
TSD for review. DOE will consider DOJ's comments on the proposed rule 
in preparing the final rule, and DOE will publish and respond to DOJ's 
comments in that document.
6. Need of the Nation To Conserve Energy
    Enhanced energy efficiency, where economically justified, improves 
the Nation's energy security, strengthens the economy, and reduces the 
environmental impacts (costs) of energy production and use. Energy 
savings from energy conservation standards for hearth products covered 
by this NOPR may also produce environmental benefits in the form of 
reduced emissions of air pollutants and greenhouse gases. Table V.14 
provides DOE's estimate of cumulative emissions reductions projected to 
result from the TSL considered. The table includes site, power sector, 
and upstream emissions. The emissions were calculated using the 
multipliers discussed in section IV.K. DOE reports annual emissions 
reductions in chapter 13 of the NOPR TSD.

Table V.14--Cumulative Emissions Reduction Estimated for Hearth Products
                          Trial Standard Level
------------------------------------------------------------------------
                                                          Trial standard
                                                              level
------------------------------------------------------------------------
                    Site and Power Sector Emissions*
------------------------------------------------------------------------
CO2 (million metric tons)..............................          32.3
SO2 (thousand tons)....................................          (4.23)
NOX (thousand tons)....................................          49.2
Hg (tons)..............................................          (0.014)
CH4 (thousand tons)....................................           0.28
N2O (thousand tons)....................................           0.01
------------------------------------------------------------------------
                           Upstream Emissions
------------------------------------------------------------------------
CO2 (million metric tons)..............................           4.78
SO2 (thousand tons)....................................          (0.03)
NOX (thousand tons)....................................          75.8
Hg (tons)..............................................          (0.000)
CH4 (thousand tons)....................................         485
N2O (thousand tons)....................................           0.01
------------------------------------------------------------------------
                           Total FFC Emissions
------------------------------------------------------------------------
CO2 (million metric tons)..............................          37.0
SO2 (thousand tons)....................................          (4.26)
NOX (thousand tons)....................................         125
Hg (tons)..............................................          (0.014)
CH4 (thousand tons)....................................         486
CH4 (thousand tons CO2eq)**............................      13,595
N2O (thousand tons)....................................           0.01
N2O (thousand tons CO2eq)**............................           3.35
------------------------------------------------------------------------
* Primarily site emissions.
** CO2eq is the quantity of CO2 that would have the same global warming
  potential (GWP).
Note: Parentheses indicate negative values.

    As part of the analysis for this proposed rule, DOE estimated 
monetary benefits likely to result from the reduced emissions of 
CO<INF>2</INF> and NO<INF>X</INF> that DOE estimated for the TSL 
considered for hearth products. As discussed in section IV.L, for 
CO<INF>2</INF>, DOE used the most recent values for the SCC developed 
by an interagency process. The four sets of SCC values for 
CO<INF>2</INF> emissions reductions in 2015 resulting from that process 
(expressed in 2013$) are represented by $12.0/metric ton (the average 
value from a distribution that uses a 5-percent discount rate), $40.5/
metric ton (the average value from a distribution that uses a 3-percent 
discount rate), $62.4/metric ton (the average value from a distribution 
that uses a 2.5-percent discount rate), and $119/metric ton (the 95th-
percentile value from a distribution that uses a 3-percent discount 
rate). The values for later years are higher due to increasing damages 
(emissions-related costs) as the projected magnitude of climate change 
increases.
    Table V.15 presents the global value of CO<INF>2</INF> emissions 
reductions at the considered TSL. DOE calculated a present value of the 
stream of annual values using the same discount rate as was used in the 
studies upon which the dollar-per-ton values are based. DOE calculated 
domestic values as a range from 7 percent to 23 percent of the global 
values, and these results are presented in chapter 14 of the NOPR TSD.

[[Page 7120]]



       Table V.15--Estimates of Global Present Value of CO2 Emissions Reduction Under Hearth Products TSL
----------------------------------------------------------------------------------------------------------------
                                                                         SCC Case*
                                         -----------------------------------------------------------------------
                   TSL                                                                             3% discount
                                             5% discount       3% discount      2.5% discount      rate, 95th
                                            rate, average     rate, average     rate, average      percentile
----------------------------------------------------------------------------------------------------------------
                                                                       million 2013$
----------------------------------------------------------------------------------------------------------------
                                         Site and Power Sector Emissions
----------------------------------------------------------------------------------------------------------------
1.......................................               196               956             1,535             2,966
----------------------------------------------------------------------------------------------------------------
                                               Upstream Emissions
----------------------------------------------------------------------------------------------------------------
1.......................................                29               142               228               440
----------------------------------------------------------------------------------------------------------------
                                               Total FFC Emissions
----------------------------------------------------------------------------------------------------------------
1.......................................               226             1,098             1,763             3,405
----------------------------------------------------------------------------------------------------------------
* For each of the four cases, the corresponding SCC value for emissions in 2015 is $12.0, $40.5, $62.4, and $119
  per metric ton (2013$). The values are for CO2 only (i.e., not CO2eq of other greenhouse gases).

    DOE is well aware that scientific and economic knowledge about the 
contribution of CO<INF>2</INF> and other greenhouse gas (GHG) emissions 
to changes in the future global climate and the potential resulting 
damages to the world economy continues to evolve rapidly. Thus, any 
value placed on reducing CO<INF>2</INF> emissions in this rulemaking is 
subject to change. DOE, together with other Federal agencies, will 
continue to review various methodologies for estimating the monetary 
value of reductions in CO<INF>2</INF> and other GHG emissions. This 
ongoing review will consider the comments on this subject that are part 
of the public record for this and other rulemakings, as well as other 
methodological assumptions and issues. However, consistent with DOE's 
legal obligations, and taking into account the uncertainty involved 
with this particular issue, DOE has included in this proposed rule the 
most recent values and analyses resulting from the interagency review 
process.
    DOE also estimated a range for the cumulative monetary value of the 
economic benefits associated with NO<INF>X</INF> emissions reductions 
anticipated to result from the proposed standards for hearth products 
that are the subject of this NOPR. The dollar-per-ton values that DOE 
used are discussed in section IV.L. Table V.16 presents the cumulative 
present values for NO<INF>X</INF> emissions reductions for the 
considered TSL calculated using the average dollar-per-ton value--
$2,684 (2013$)--and 7-percent and 3-percent discount rates.
    DOE seeks comment on the approach for estimating monetary benefits 
associated with emissions reductions. This is identified as issue 23 in 
section VII.E, ``Issues on Which DOE Seeks Comment.''

 Table V.16--Estimates of Present Value of NOX Emissions Reduction Under
                         the Hearth Products TSL
------------------------------------------------------------------------
                                            3% Discount     7% Discount
                   TSL                         rate            rate
------------------------------------------------------------------------
                                                   million 2013$
------------------------------------------------------------------------
                     Site and Power Sector Emissions
------------------------------------------------------------------------
1.......................................            58.0            22.8
------------------------------------------------------------------------
                           Upstream Emissions
------------------------------------------------------------------------
1.......................................            89.5            35.2
------------------------------------------------------------------------
                          Total FFC Emissions*
------------------------------------------------------------------------
1.......................................             148            57.9
------------------------------------------------------------------------
* Components may not sum due to rounding.

7. Other Factors
    The Secretary of Energy, in determining whether a standard is 
economically justified, may consider any other factors that the 
Secretary deems to be relevant. (42 U.S.C. 6295(o)(2)(B)(i)(VI)) No 
other factors were considered in this analysis.
8. Summary of National Ecnomic Impacts
    The NPV of the monetized benefits associated with emissions 
reductions can be viewed as a complement to the NPV of the consumer 
savings calculated for the new TSL considered in this rulemaking. Table 
V.17 presents the NPV values that result from adding the estimates of 
the potential economic benefits resulting from reduced CO<INF>2</INF> 
and NO<INF>X</INF> emissions in each of four valuation scenarios to the 
NPV of consumer savings calculated for the TSL for hearth products 
considered in this rulemaking, at both a 7-percent and a 3-percent 
discount rate. The CO<INF>2</INF> values used in the columns of each 
table correspond to the four sets of SCC values discussed above.

[[Page 7121]]



   Table V.17--Hearth Products: Net Present Value of Consumer Savings Combined With Present Value of Monetized
                                 Benefits From CO2 and NOX Emissions Reductions
----------------------------------------------------------------------------------------------------------------
                                                         Consumer NPV at 3% discount rate added with:
                                             -------------------------------------------------------------------
                                              SCC case $12.0/  SCC case $40.5/  SCC case $62.4/   SCC case $119/
                     TSL                      metric ton CO2*  metric ton CO2*  metric ton CO2*  metric ton CO2*
                                                 and medium       and medium       and medium       and medium
                                               value for NOX    value for NOX    value for NOX    value for NOX
----------------------------------------------------------------------------------------------------------------
                                                                         Billion 2013$
----------------------------------------------------------------------------------------------------------------
1...........................................             3.5              4.4              5.0              6.7
----------------------------------------------------------------------------------------------------------------
                                                         Consumer NPV at 7% discount rate added with:
----------------------------------------------------------------------------------------------------------------
                                              SCC case $12.0/  SCC case $40.5/  SCC case $62.4/   SCC case $119/
TSL                                           metric ton CO2*  metric ton CO2*  metric ton CO2*  metric ton CO2*
----------------------------------------------------------------------------------------------------------------
                                                                         Billion 2013$
----------------------------------------------------------------------------------------------------------------
1...........................................             1.3              2.2              2.9              4.5
----------------------------------------------------------------------------------------------------------------
* These label values represent the global SCC in 2015, in 2013$. For NOX emissions, each case uses the medium
  value, which corresponds to $2,684 per ton.

    Although adding the value of consumer savings to the values of 
emission reductions provides a valuable perspective, two issues should 
be considered. First, the national operating cost savings are domestic 
U.S. consumer monetary savings that occur as a result of market 
transactions, while the value of CO<INF>2</INF> reductions is based on 
a global value. Second, the assessments of operating cost savings and 
the SCC are performed with different methods that use different time 
frames for analysis. The national operating cost savings is measured 
for the lifetime of products shipped in 2021-2050. The SCC values, on 
the other hand, reflect the present value of future climate-related 
impacts resulting from the emission of one metric ton of CO<INF>2</INF> 
in each year; these impacts continue well beyond 2100.

C. Proposed Standard

    When considering proposed standards, the new or amended energy 
conservation standards that DOE adopts for any type (or class) of 
covered product, including hearth products, must be designed to achieve 
the maximum improvement in energy efficiency that is technologically 
feasible and economically justified. (42 U.S.C. 6295(o)(2)(A)) As 
discussed previously, in determining whether a standard is economically 
justified, the Secretary must determine whether the benefits of the 
standard exceed its burdens by, to the greatest extent practicable, 
considering the seven statutory factors discussed previously. (42 
U.S.C. 6295(o)(2)(B)(i)) The new or amended standard must also ``result 
in significant conservation of energy.'' (42 U.S.C. 6295(o)(3)(B))
    The tables in this section summarize the quantitative analytical 
results for the considered TSL, based on the assumptions and 
methodology discussed herein. In addition to the quantitative results 
presented in the tables, DOE also considers other burdens and benefits 
that affect economic justification. These include the impacts on 
identifiable subgroups of consumers who may be disproportionately 
affected by a national standard (see section V.B.1.b), and impacts on 
employment. DOE discusses the impacts on direct employment in hearth 
products manufacturing in section V.B.2.b, and discusses the indirect 
employment impacts in chapter 16 of the NOPR TSD.
    DOE also notes that the economics literature provides a wide-
ranging discussion of how consumers trade off upfront costs and energy 
savings in the absence of government intervention. Much of this 
literature attempts to explain why consumers appear to undervalue 
energy efficiency improvements. There is evidence that consumers 
undervalue future energy savings as a result of: (1) A lack of 
information; (2) a lack of sufficient salience of the long-term or 
aggregate benefits; (3) a lack of sufficient savings to warrant 
delaying or altering purchases; (4) excessive focus on the short term, 
in the form of inconsistent weighting of future energy cost savings 
relative to available returns on other investments; (5) computational 
or other difficulties associated with the evaluation of relevant 
tradeoffs; and (6) a divergence in incentives (for example, renter 
versus owner or builder versus purchaser). Other literature indicates 
that with less than perfect foresight and a high degree of uncertainty 
about the future, consumers may trade off at a higher than expected 
rate between current consumption and uncertain future energy cost 
savings. This undervaluation suggests that regulation that promotes 
energy efficiency can produce significant net private gains (as well as 
producing social gains by, for example, reducing pollution).
    In DOE's current regulatory analysis, potential changes in the 
benefits and costs of a regulation due to changes in consumer purchase 
decisions are included in two ways. First, if consumers forego a 
purchase of a product in the standards case, this decreases sales for 
product manufacturers and the cost to manufacturers is included in the 
MIA. Second, DOE accounts for energy savings attributable only to 
products actually used by consumers in the standards case; if a 
standard decreases the number of products purchased by consumers, this 
decreases the potential energy savings from an energy conservation 
standard. DOE provides estimates of changes in the volume of product 
purchases in chapter 9 of the NOPR TSD. DOE's current analysis does not 
explicitly control for heterogeneity in consumer preferences, 
preferences across subcategories of products or specific features, or 
consumer price

[[Page 7122]]

sensitivity variation according to household income.\71\
---------------------------------------------------------------------------

    \71\ P.C. Reiss and M.W. White, Household Electricity Demand, 
Revisited, Review of Economic Studies (2005) 72, 853-883.
---------------------------------------------------------------------------

    While DOE is not prepared at present to provide a fuller 
quantifiable framework for estimating the benefits and costs of changes 
in consumer purchase decisions due to an energy conservation standard, 
DOE is committed to developing a framework that can support empirical 
quantitative tools for improved assessment of the consumer welfare 
impacts of appliance standards. DOE has posted a paper that discusses 
the issue of consumer welfare impacts of appliance standards and 
potential enhancements to the methodology by which these impacts are 
defined and estimated in the regulatory process.\72\ DOE welcomes 
comments on how to more fully assess the potential impact of energy 
conservation standards on consumer choice and how to quantify this 
impact in its regulatory analysis.
---------------------------------------------------------------------------

    \72\ Alan Sanstad, Notes on the Economics of Household Energy 
Consumption and Technology Choice. Lawrence Berkeley National 
Laboratory (2010) (Available at: http://www1.eere.energy.gov/buildings/appliance_standards/pdfs/consumer_ee_theory.pdf (Last 
accessed May 3, 2013).
---------------------------------------------------------------------------

1. Benefits and Burdens of the Trial Standard Level Considered for 
Hearth Products
    Table V.18 and Table V.19 summarize the quantitative impacts 
estimated for the potential standard for hearth products. The national 
impacts are measured over the lifetime of hearth products purchased in 
the 30-year period that begins in the year of compliance with the 
considered standard (2021-2050). The energy savings, emissions 
reductions, and value of emissions reductions refer to FFC results.

 Table V.18--Summary of Analytical Results for Hearth Products: National
                                 Impacts
------------------------------------------------------------------------
                Category                              TSL 1
------------------------------------------------------------------------
                   National FFC Energy Savings (quads)
------------------------------------------------------------------------
                                         0.69.
------------------------------------------------------------------------
                NPV of Consumer Benefits (2013$ billion)
------------------------------------------------------------------------
3% discount rate.......................  3.1.
7% discount rate.......................  1.0.
------------------------------------------------------------------------
          Cumulative Emissions Reduction (Total FFC Emissions)
------------------------------------------------------------------------
CO2 (million metric tons)..............  37.0.
SO2 (thousand tons)....................  (4.26).
NOX (thousand tons)....................  125.
Hg (tons)..............................  (0.01).
CH4 (thousand tons)....................  486.
CH4 (thousand tons CO2eq) *............  13,595.
N2O (thousand tons)....................  0.01.
N2O (thousand tons CO2eq)..............  3.35.
------------------------------------------------------------------------
           Value of Emissions Reduction (Total FFC Emissions)
------------------------------------------------------------------------
CO2 (2013$ billion) **.................  0.226 to 3.405.
NOX--3% discount rate (2013$ million)..  148.
NOX--7% discount rate (2013$ million)..  57.9.
------------------------------------------------------------------------
* CO2eq is the quantity of CO2 that would have the same global warming
  potential (GWP).
** Range of the economic value of CO2 reductions is based on estimates
  of the global benefit of reduced CO2 emissions.
Note: Parentheses indicate negative values.


     Table V.19--Summary of Analytical Results for Hearth Products:
                    Manufacturer and Consumer Impacts
------------------------------------------------------------------------
                Category                              TSL 1
------------------------------------------------------------------------
                          Manufacturer Impacts
------------------------------------------------------------------------
Industry NPV (2013$ million)...........  122-125.8.
Base Case = $125.3
Change in Industry NPV (2013$ million).  (3.3) to 0.5.
Change in Industry NPV (%)[dagger].....  (2.6) to 0.4.
------------------------------------------------------------------------
                    Consumer Mean LCC Savings (2013$)
------------------------------------------------------------------------
Hearth Products........................  165.
------------------------------------------------------------------------
                       Consumer Simple PBP (years)
------------------------------------------------------------------------
Hearth Products........................  2.9.
------------------------------------------------------------------------
                          Consumer LCC Impacts
------------------------------------------------------------------------
Consumers with Net Cost (%)............  23.
------------------------------------------------------------------------
Note: Parentheses indicate negative values.

    At TSL 1, DOE estimates there would be a savings of 0.69 quads of 
energy, an amount DOE considers significant. TSL 1 has an estimated NPV 
of consumer benefit of $1.03 billion using a 7-percent discount rate, 
and $3.12 billion using a 3-percent discount rate.
    The cumulative emissions reductions at TSL 1 are 37.0 million 
metric tons (Mt) \73\ of carbon dioxide (CO<INF>2</INF>), 486 thousand 
tons of methane (CH<INF>4</INF>), 125 thousand tons of nitrogen oxides 
(NO<INF>X</INF>), and 0.01 thousand tons of nitrous oxide 
(N<INF>2</INF>O). Projected emissions show an increase of 4.26 thousand 
tons of sulfur dioxide (SO<INF>2</INF>) and 0.01 tons of mercury (Hg). 
The increase is due to increased electricity use associated with the 
shift to electronic ignition in the subject hearth products. The 
estimated monetary value of the CO<INF>2</INF> emissions reductions at 
TSL 1 ranges from $0.226 billion to $3.405 billion.
---------------------------------------------------------------------------

    \73\ A metric ton is equivalent to 1.1 short tons. Results for 
emissions other than CO<INF>2</INF> are presented in short tons.
---------------------------------------------------------------------------

    At TSL 1, the average LCC savings are $165. The simple PBP is 2.9 
years. The share of consumers experiencing a net LCC cost is 23 
percent.
    At TSL 1, the projected change in INPV ranges from a decrease of 
$3.3 million to an increase of $0.5 million. If the decrease of $.3.3 
million were to occur, TSL 1 could result in a net loss of up to 2.6 
percent of INPV for manufacturers of covered hearth products.
    The Secretary tentatively concludes that, at TSL 1 for hearth 
products, the benefits of energy savings, positive NPV of total 
consumer benefits at a 3-percent and 7-percent discount rate, average 
consumer LCC savings, emission reductions, and the estimated monetary 
value of the emissions reductions outweigh the reduction in industry 
value and the net LCC cost for a small number of consumers. 
Accordingly, the Secretary of Energy has tentatively concluded that TSL 
1 would save a significant amount of energy and is economically 
justified. Based upon the above considerations, DOE proposes to adopt 
as an energy conservation standard the prescriptive design requirement 
that would disallow the use of continuously-burning pilots (i.e., 
``standing pilots'' or ``constant-burning pilots'') in hearth products.
2. Summary of Benefits and Costs (Annualized) of the Proposed Standards
    The benefits and costs of today's proposed standard can also be 
expressed in terms of annualized values. The annualized monetary values 
are the sum of: (1) the annualized national economic value (expressed 
in 2013$) of the benefits from operating products that meet the 
proposed standards (consisting primarily of operating cost savings from 
using less energy, minus increases in product purchase costs, which is 
another way of representing consumer NPV), and (2) the annualized 
monetary value of the benefits of

[[Page 7123]]

emission reductions, including CO<INF>2</INF> emission reductions.\74\ 
The value of CO<INF>2</INF> reductions, otherwise known as the Social 
Cost of Carbon (SCC), is calculated using a range of values per metric 
ton of CO<INF>2</INF> developed by a recent interagency process.
---------------------------------------------------------------------------

    \74\ To convert the time-series of costs and benefits into 
annualized values, DOE calculated a present value in 2014, the year 
used for discounting the NPV of total consumer costs and savings. 
For the benefits, DOE calculated a present value associated with 
each year's shipments in the year in which the shipments occur 
(2020, 2030, etc.), and then discounted the present value from each 
year to 2014. The calculation uses discount rates of 3 and 7 percent 
for all costs and benefits except for the value of CO<INF>2</INF> 
reductions, for which DOE used case-specific discount rates. Using 
the present value, DOE then calculated the fixed annual payment over 
a 30-year period, starting in the compliance year that yields the 
same present value.
---------------------------------------------------------------------------

    Although combining the values of operating savings and 
CO<INF>2</INF> emission reductions provides a useful perspective, two 
issues should be considered. First, the national operating savings are 
domestic U.S. consumer monetary savings that occur as a result of 
market transactions, while the value of CO<INF>2</INF> reductions is 
based on a global value. Second, the assessments of operating cost 
savings and CO<INF>2</INF> savings are performed with different methods 
that use different time frames for analysis. The national operating 
cost savings is measured for the lifetime of hearth products shipped in 
2021-2050. The SCC values, on the other hand, reflect the present value 
of some future climate-related impacts resulting from the emission of 
one metric ton of carbon dioxide in each year; these impacts continue 
well beyond 2100.
    Estimates of annualized benefits and costs of the proposed 
standards for hearth products are shown in Table V.20. The results 
under the primary estimate are as follows. Using a 7-percent discount 
rate for benefits and costs other than CO<INF>2</INF> reduction (for 
which DOE used a 3-percent discount rate along with the average SCC 
series that uses a 3-percent discount rate ($40.5/t in 2015)), the 
estimated cost of the hearth products standards proposed in this rule 
is $61.1 million per year in increased equipment costs, while the 
estimated benefits are $186 million per year in reduced equipment 
operating costs, $67 million per year in CO<INF>2</INF> reductions, and 
$7.0 million per year in reduced NO<INF>X</INF> emissions. In this 
case, the net benefit would amount to $199 million per year.
    Using a 3-percent discount rate for all benefits and costs and the 
average SCC series that uses a 3-percent discount rate ($40.5/t in 
2015), the estimated cost of the hearth products standards proposed in 
this rule is $61.2 million per year in increased equipment costs, while 
the estimated benefits are $251 million per year in reduced equipment 
operating costs, $67 million per year in CO<INF>2</INF> reductions, and 
$9.0 million per year in reduced NO<INF>X</INF> emissions. In this 
case, the net benefit would amount to $266 million per year.

                                             Table V.20--Annualized Benefits and Costs of Proposed Standard
                                                              (TSL 1) for Hearth Products *
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                         Discount rate                Primary estimate          Low net benefits estimate    High net benefits estimate
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                   million 2013$/year
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                        Benefits
--------------------------------------------------------------------------------------------------------------------------------------------------------
Consumer Operating Cost Savings  7%...........................  186.........................  175.........................  195.
                                 3%...........................  251.........................  235.........................  265.
CO2 Reduction Monetized Value    5%...........................  20..........................  20..........................  20.
 ($12.0/t case)**.
CO2 Reduction Monetized Value    3%...........................  67..........................  67..........................  67.
 ($40.5/t case)**.
CO2 Reduction Monetized Value    2.5%.........................  98..........................  98..........................  98.
 ($62.4/t case)**.
CO2 Reduction Monetized Value    3%...........................  207.........................  207.........................  207.
 ($119/t case)**.
NOX Reduction Monetized Value    7%...........................  7.00........................  7.00........................  7.00.
 (at $2,684/ton)**.              3%...........................  8.99........................  8.99........................  8.99.
Total Benefits [dagger]........  7% plus CO2 range............  212 to 400..................  202 to 389..................  222 to 410.
                                 7%...........................  260.........................  249.........................  269.
                                 3% plus CO2 range............  280 to 468..................  264 to 452..................  294 to 482.
                                 3%...........................  327.........................  311.........................  341.
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                          Costs
--------------------------------------------------------------------------------------------------------------------------------------------------------
Consumer Incremental Equipment   7%...........................  61.1........................  61.1........................  61.1
 Costs.                          3%...........................  61.2........................  61.2........................  61.2
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                      Net Benefits
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total[dagger]..................  7% plus CO2 range............  151 to 339..................  141 to 328..................  161 to 349
                                 7%...........................  199.........................  188.........................  208
                                 3% plus CO2 range............  219 to 407..................  203 to 390..................  233 to 420
                                 3%...........................  266.........................  250.........................  280
--------------------------------------------------------------------------------------------------------------------------------------------------------
* This table presents the annualized costs and benefits associated with hearth products shipped in 2021-2050. These results include benefits to
  consumers that accrue after 2050 from the products purchased in 2021-2050. The results account for the incremental variable and fixed costs incurred
  by manufacturers due to the standard, some of which may be incurred in preparation for the rule. The Primary, Low Benefits, and High Benefits
  Estimates utilize projections of energy prices from the AEO 2014 Reference case, Low Economic Growth case, and High Economic Growth case,
  respectively. Incremental product costs are the same in each Estimate.

[[Page 7124]]

 
** The interagency group selected four sets of SCC values for use in regulatory analyses. Three sets of values are based on the average SCC from the
  three integrated assessment models, at discount rates of 2.5, 3, and 5 percent. The fourth set, which represents the 95th percentile SCC estimate
  across all three models at a 3-percent discount rate, is included to represent higher-than-expected impacts from temperature change further out in the
  tails of the SCC distribution. The values in parentheses represent the SCC in 2015. The SCC time series incorporate an escalation factor. The value
  for NOX is the average of the low and high values used in DOE's analysis.
[dagger] Total benefits for both the 3-percent and 7-percent cases are derived using the series corresponding to average SCC with a 3-percent discount
  rate ($40.5/t in 2015). In the rows labeled ``7% plus CO2 range'' and ``3% plus CO2 range,'' the operating cost and NOX benefits are calculated using
  the labeled discount rate, and those values are added to the full range of CO2 values.

VI. Procedural Issues and Regulatory Review

A. Review Under Executive Orders 12866 and 13563

    Section 1(b)(1) of Executive Order 12866, ``Regulatory Planning and 
Review,'' 58 FR 51735 (Oct. 4, 1993), requires each agency to identify 
the problem that it intends to address, including, where applicable, 
the failures of private markets or public institutions that warrant new 
agency action, as well as to assess the significance of that problem. 
The problems these proposed standards address are as follows:
    (1) A lack of consumer information and difficulties in analyzing 
relevant information leads some consumers to miss opportunities to make 
cost-effective investments in energy efficiency.
    (2) In some cases, the benefits of more-efficient products are not 
realized due to misaligned incentives between purchasers and users. An 
example of such a case is when the product purchase decision is made by 
a building contractor or building owner who does not pay the energy 
costs.
    (3) There are external benefits resulting from improved energy 
efficiency of hearth products that are not captured by the users of 
such products. These benefits include externalities related to public 
health, environmental protection, and national security that are not 
reflected in energy prices, such as reduced emissions of air pollutants 
and greenhouse gases that impact human health and global warming.
    In addition, DOE has determined that this regulatory action is a 
``significant regulatory action'' under section 3(f)(1) of Executive 
Order 12866. Accordingly, section 6(a)(3) of the Executive Order 
requires that DOE prepare a regulatory impact analysis (RIA) on this 
rule and that the Office of Information and Regulatory Affairs (OIRA) 
in the Office of Management and Budget (OMB) review this rule. DOE 
presented to OIRA for review the draft rule and other documents 
prepared for this rulemaking, including the RIA, and has included these 
documents in the rulemaking record. The assessments prepared pursuant 
to Executive Order 12866 can be found in the technical support document 
for this rulemaking.
    DOE has also reviewed this regulation pursuant to Executive Order 
13563. 76 FR 3281 (Jan. 21, 2011). Executive Order 13563 is 
supplemental to and explicitly reaffirms the principles, structures, 
and definitions governing regulatory review established in Executive 
Order 12866. To the extent permitted by law, agencies are required by 
Executive Order 13563 to: (1) Propose or adopt a regulation only upon a 
reasoned determination that its benefits justify its costs (recognizing 
that some benefits and costs are difficult to quantify); (2) tailor 
regulations to impose the least burden on society, consistent with 
obtaining regulatory objectives, taking into account, among other 
things, and to the extent practicable, the costs of cumulative 
regulations; (3) select, in choosing among alternative regulatory 
approaches, those approaches that maximize net benefits (including 
potential economic, environmental, public health and safety, and other 
advantages; distributive impacts; and equity); (4) to the extent 
feasible, specify performance objectives, rather than specifying the 
behavior or manner of compliance that regulated entities must adopt; 
and (5) identify and assess available alternatives to direct 
regulation, including providing economic incentives to encourage the 
desired behavior, such as user fees or marketable permits, or providing 
information upon which choices can be made by the public.
    DOE emphasizes as well that Executive Order 13563 requires agencies 
to use the best available techniques to quantify anticipated present 
and future benefits and costs as accurately as possible. In its 
guidance, the Office of Information and Regulatory Affairs has 
emphasized that such techniques may include identifying changing future 
compliance costs that might result from technological innovation or 
anticipated behavioral changes. For the reasons stated in the preamble, 
DOE believes that this NOPR is consistent with these principles, 
including the requirement that, to the extent permitted by law, 
benefits justify costs and that net benefits are maximized.

B. Review Under the Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) requires 
preparation of an initial regulatory flexibility analysis (IRFA) for 
any rule that by law must be proposed for public comment, unless the 
agency certifies that the rule, if promulgated, will not have a 
significant economic impact on a substantial number of small entities. 
As required by Executive Order 13272, ``Proper Consideration of Small 
Entities in Agency Rulemaking,'' 67 FR 53461 (August 16, 2002), DOE 
published procedures and policies on February 19, 2003, to ensure that 
the potential impacts of its rules on small entities are properly 
considered during the rulemaking process. 68 FR 7990. DOE has made its 
procedures and policies available on the Office of the General 
Counsel's Web site (http://energy.gov/gc/office-general-counsel). DOE 
has prepared the following IRFA for the products that are the subject 
of this rulemaking.
    For manufacturers of gas hearth products, the Small Business 
Administration (SBA) has set a size threshold, which defines those 
entities classified as ``small businesses'' for the purposes of the 
statute. DOE used the SBA's small business size standards to determine 
whether any small entities would be subject to the requirements of the 
rule. 65 FR 30836, 30848 (May 15, 2000), as amended at 65 FR 53533, 
53544 (Sept. 5, 2000) and codified at 13 CFR part 121. The size 
standards are listed by North American Industry Classification System 
(NAICS) code and industry description and are available at http://www.sba.gov/sites/default/files/files/Size_Standards_Table.pdf. 
Manufacturing of heating hearth products is classified under NAICS code 
333414, ``Heating Equipment (Except Warm Air Furnaces) Manufacturing,'' 
and manufacturing of decorative hearth products is classified under 
NAICS code 335228, ``Other Major Household Appliance Manufacturing.'' 
For both NAICS codes, the SBA sets a threshold of 500 employees or 
fewer for an entity to be considered a small business. This 500-
employee threshold includes all employees in a business's parent 
company and any other subsidiaries.

[[Page 7125]]

1. Description and Estimated Number of Small Entities Regulated
a. Methodology for Estimating the Number of Small Entities
    DOE reviewed the potential standard levels considered in today's 
NOPR under the provisions of the Regulatory Flexibility Act and the 
procedures and policies published on February 19, 2003. To better 
assess the potential impacts of this rulemaking on small entities, DOE 
conducted a more focused inquiry of the companies that could be small 
business manufacturers of products covered by this rulemaking. During 
its market survey, DOE used publicly-available information to identify 
potential small manufacturers. DOE's research involved industry trade 
association membership directories (e.g., HPBA), information from 
previous rulemakings, individual company Web sites, and market research 
tools (e.g., Hoover's reports) to create a list of companies that 
manufacture gas hearth products covered by this rulemaking. DOE also 
asked stakeholders and industry representatives if they were aware of 
any additional small manufacturers during manufacturer interviews. DOE 
reviewed publicly-available data and contacted various companies on its 
complete list of manufacturers to determine whether they met the SBA's 
definition of a small business manufacturer of gas hearth products. DOE 
screened out companies that do not manufacture products impacted by 
this rulemaking, do not meet the definition of a ``small business,'' or 
are foreign owned and operated.
    DOE identified 90 potential manufacturers of gas hearth products 
sold in the U.S. that would be affected by today's proposal. Of these, 
DOE identified 66 as domestic small business manufacturers. DOE 
contacted a subset of small businesses to invite them to take part in a 
manufacturer impact analysis interview. Of 25 small businesses 
contacted, DOE was able to reach and discuss potential standards with 
five of those entities. DOE also obtained information about small 
businesses and potential impacts on small businesses while interviewing 
large manufacturers.
    In interviews, small manufacturers expressed concern regarding the 
impact of disallowing standing pilot lights on their ability to compete 
with larger manufacturers. Manufacturers stated that gas hearth 
products with electronic ignition systems cost more to produce than gas 
hearth products with standing pilot lights, as the components purchased 
for electronic ignition systems tend to be more expensive. Since large 
manufacturers often produce at higher volumes, they may be able to 
source components at lower per-unit prices than small manufacturers 
that produce at lower volumes. Because small manufacturers may not 
benefit from the same economies of scale as large manufacturers, an 
energy conservation standard disallowing standing pilot lights could 
disproportionately impact their production costs and, in turn, the 
prices at which they sell their products. This anticipated change in 
manufacturer production costs (MPCs) drove small manufacturer concerns 
surrounding the impact of an energy conservation standard on their 
ability to remain competitive in the gas hearth market.
2. Description and Estimate of Compliance Requirements
    To evaluate small manufacturers' concerns regarding the competitive 
implications of disallowing standing pilot lights, DOE modeled the 
difference in cost small manufacturers might face when sourcing 
components at lower volumes. Due to limited available information on 
the relative sales volumes of small and large manufacturers, DOE 
selected volumes of 1,000 units (used to represent small manufacturers) 
and 10,000 units (used to represent large manufacturers) for each 
product group analyzed. DOE developed its analysis based on the 
engineering teardown analysis and cost model, as well as manufacturer 
feedback on the costs of electronic ignition systems.
    The table below presents the estimated added per-unit cost of an 
electronic ignition system compared to a standing pilot system at the 
two representative production volumes modeled. As the results indicate, 
manufacturers would likely pay less per unit when producing 10,000 
units versus 1,000 units. Estimated costs would be expected to decline 
further as production volumes climb higher.

           Table VI.1--Added Cost of Electronic Ignition Systems at Representative Production Volumes
----------------------------------------------------------------------------------------------------------------
                                                                                   Added cost at   Added cost at
                          Product group                            Baseline MPC     1,000 units    10,000 units
----------------------------------------------------------------------------------------------------------------
Vented Fireplace/Insert/Stove...................................            $322             $31             $26
Unvented Fireplace/Insert/Stove.................................             281              33              24
Vented Log Sets.................................................             190              70              58
Unvented Log Sets...............................................             208              69              51
Outdoor Hearths.................................................             210              65              42
----------------------------------------------------------------------------------------------------------------

    DOE's analysis suggests that disallowing standing pilot lights 
would increase the per-unit MPCs of gas hearth products by a greater 
amount for small-volume producers than for large-volume producers. 
Higher MPCs, in turn, typically lead to higher end-user purchase 
prices. If products manufactured by small businesses cannot compete 
with products manufactured by large businesses at lower cost, small 
businesses could potentially experience a decline in profits and/or 
choose to exit the market.
    DOE recognizes that larger manufacturers may have a competitive 
advantage due to their size and ability to source purchased parts at 
lower cost. If the per-unit cost of products increases more for small 
manufacturers than for large manufacturers, and if small manufacturers 
are not able to pass costs through to price-sensitive consumers, they 
could potentially face reduced markups and profits, as well as a 
decline in market share. Because the proposed standard could cause 
competitive concerns for small manufacturers, DOE cannot certify that 
the proposed standard would not have a significant impact on a 
substantial number of small businesses.
3. Duplication, Overlap, and Conflict With Other Rules and Regulations
    DOE is not aware of any rules or regulations that duplicate, 
overlap, or conflict with the rule being considered today.
4. Significant Alternatives to the Rule
    DOE is required by EPCA to establish standards that achieve the 
maximum improvement in energy efficiency that is

[[Page 7126]]

technically feasible and economically justified and results in a 
significant conservation of energy. The discussion above analyzes 
impacts on small businesses that would result from the ban on standing 
pilot lights that DOE is proposing in today's notice. In addition to 
the ban on standing pilot lights being considered, the NOPR TSD 
includes a regulatory impact analysis (RIA) in chapter 17. For gas 
hearth products, the RIA discusses the following policy alternatives: 
(1) No change in standard; (2) consumer rebates; (3) consumer tax 
credits; (4) manufacturer tax credits; (5) voluntary energy efficiency 
targets; and (6) government bulk purchases. While these alternatives 
may mitigate to some varying extent the economic impacts on small 
entities compared to the proposed standards, DOE does not intend to 
consider these alternatives further because in several cases, they 
would not be feasible to implement without authority and funding from 
Congress, and in all cases, DOE has determined that the site energy 
savings of these alternatives are significantly smaller than those that 
would be expected to result from adoption of the proposed standard 
(ranging from approximately 0.0 percent to 15.9 percent of the site 
energy savings from the proposed standard). Accordingly, DOE is 
declining to adopt any of these alternatives and is proposing the 
standard set forth in this rulemaking. (See chapter 17 of the NOPR TSD 
for further detail on the policy alternatives DOE considered.)
    DOE continues to seek input from small businesses that would be 
affected by this rulemaking and will consider comments received in the 
development of any final rule.

C. Review Under the Paperwork Reduction Act of 1995

    Manufacturers of hearth products must certify to DOE that their 
products comply with any applicable energy conservation standards. DOE 
has established regulations for the certification and recordkeeping 
requirements for all covered consumer products and commercial equipment 
(76 FR 12422 (March 7, 2011)) and plans to establish such regulations 
for hearth products pending the outcome of the proposed determination 
of coverage and energy conservation standards rulemakings. The 
collection-of-information requirement for the certification and 
recordkeeping is subject to review and approval by OMB under the 
Paperwork Reduction Act (PRA). DOE will seek OMB approval under the PRA 
in the rulemaking that establishes the certification requirements for 
hearth products, which will be conducted subsequent to the current 
proceeding if the proposed determination is ultimately positive and 
energy conservation standards are ultimately adopted.
    Notwithstanding any other provision of the law, no person is 
required to respond to, nor shall any person be subject to a penalty 
for failure to comply with, a collection of information subject to the 
requirements of the PRA, unless that collection of information displays 
a currently valid OMB Control Number.

D. Review Under the National Environmental Policy Act of 1969

    Pursuant to the National Environmental Policy Act (NEPA) of 1969, 
DOE has determined that the proposed rule fits within the category of 
actions included in Categorical Exclusion (CX) B5.1 and otherwise meets 
the requirements for application of a CX. See 10 CFR part 1021, App. B, 
B5.1(b); 1021.410(b) and Appendix B, B(1)-(5). The proposed rule fits 
within the category of actions because it is a rulemaking that 
establishes energy conservation standards for consumer products or 
industrial equipment, and for which none of the exceptions identified 
in CX B5.1(b) apply. Therefore, DOE has made a CX determination for 
this rulemaking, and DOE does not need to prepare an Environmental 
Assessment or Environmental Impact Statement for this proposed rule. 
DOE's CX determination for this proposed rule is available at http://cxnepa.energy.gov/.

E. Review Under Executive Order 13132

    Executive Order 13132, ``Federalism,'' 64 FR 43255 (Aug. 10, 1999), 
imposes certain requirements on Federal agencies formulating and 
implementing policies or regulations that preempt State law or that 
have Federalism implications. The Executive Order requires agencies to 
examine the constitutional and statutory authority supporting any 
action that would limit the policymaking discretion of the States and 
to carefully assess the necessity for such actions. The Executive Order 
also requires agencies to have an accountable process to ensure 
meaningful and timely input by State and local officials in the 
development of regulatory policies that have Federalism implications. 
On March 14, 2000, DOE published a statement of policy describing the 
intergovernmental consultation process it will follow in the 
development of such regulations. 65 FR 13735. DOE has examined this 
proposed rule and has tentatively determined that it would not have a 
substantial direct effect on the States, on the relationship between 
the national government and the States, or on the distribution of power 
and responsibilities among the various levels of government. EPCA 
governs and prescribes Federal preemption of State regulations as to 
energy conservation for the products that are the subject of this 
proposed rule. States can petition DOE for exemption from such 
preemption to the extent, and based on criteria, set forth in EPCA. (42 
U.S.C. 6297) Therefore, no further action is required by Executive 
Order 13132.

F. Review Under Executive Order 12988

    With respect to the review of existing regulations and the 
promulgation of new regulations, section 3(a) of Executive Order 12988, 
``Civil Justice Reform,'' imposes on Federal agencies the general duty 
to adhere to the following requirements: (1) Eliminate drafting errors 
and ambiguity; (2) write regulations to minimize litigation; (3) 
provide a clear legal standard for affected conduct rather than a 
general standard; and (4) promote simplification and burden reduction. 
61 FR 4729 (Feb. 7, 1996). Regarding the review required by section 
3(a), section 3(b) of Executive Order 12988 specifically requires that 
Executive agencies make every reasonable effort to ensure that the 
regulation: (1) Clearly specifies the preemptive effect, if any; (2) 
clearly specifies any effect on existing Federal law or regulation; (3) 
provides a clear legal standard for affected conduct while promoting 
simplification and burden reduction; (4) specifies the retroactive 
effect, if any; (5) adequately defines key terms; and (6) addresses 
other important issues affecting clarity and general draftsmanship 
under any guidelines issued by the Attorney General. Section 3(c) of 
Executive Order 12988 requires Executive agencies to review regulations 
in light of applicable standards in section 3(a) and section 3(b) to 
determine whether they are met or it is unreasonable to meet one or 
more of them. DOE has completed the required review and determined 
that, to the extent permitted by law, this proposed rule meets the 
relevant standards of Executive Order 12988.

G. Review Under the Unfunded Mandates Reform Act of 1995

    Title II of the Unfunded Mandates Reform Act of 1995 (UMRA) 
requires each Federal agency to assess the effects of Federal 
regulatory actions on State, local, and Tribal governments and the 
private sector. Public Law 104-4, sec. 201 (codified at 2 U.S.C. 1531). 
For a proposed regulatory action likely to

[[Page 7127]]

result in a rule that may cause the expenditure by State, local, and 
Tribal governments, in the aggregate, or by the private sector of $100 
million or more in any one year (adjusted annually for inflation), 
section 202 of UMRA requires a Federal agency to publish a written 
statement that estimates the resulting costs, benefits, and other 
effects on the national economy. (2 U.S.C. 1532(a), (b)) The UMRA also 
requires a Federal agency to develop an effective process to permit 
timely input by elected officers of State, local, and Tribal 
governments on a proposed ``significant intergovernmental mandate,'' 
and requires an agency plan for giving notice and opportunity for 
timely input to potentially affected small governments before 
establishing any requirements that might significantly or uniquely 
affect them. On March 18, 1997, DOE published a statement of policy on 
its process for intergovernmental consultation under UMRA. 62 FR 12820. 
DOE's policy statement is also available at http://energy.gov/gc/office-general-counsel.
    Although this proposed rule, which proposes energy conservation 
standards for hearth products, does not contain a Federal 
intergovernmental mandate, it may require expenditures of $100 million 
or more on the private sector. Specifically, the proposed rule would 
likely result in a final rule that could require expenditures of $100 
million or more, including: (1) Investment in research and development 
and in capital expenditures by residential hearth product manufacturers 
in the years between the final rule and the compliance date for the new 
standards, and (2) incremental additional expenditures by consumers to 
purchase higher-efficiency hearth products, starting at the compliance 
date for the applicable standard.
    Section 202 of UMRA authorizes a Federal agency to respond to the 
content requirements of UMRA in any other statement or analysis that 
accompanies the proposed rule. (2 U.S.C. 1532(c)) The content 
requirements of section 202(b) of UMRA relevant to a private sector 
mandate substantially overlap the economic analysis requirements that 
apply under section 325(o) of EPCA and Executive Order 12866. The 
SUPPLEMENTARY INFORMATION section of the NOPR and the ``Regulatory 
Impact Analysis'' section of the TSD for this proposed rule respond to 
those requirements.
    Under section 205 of UMRA, the Department is obligated to identify 
and consider a reasonable number of regulatory alternatives before 
promulgating a rule for which a written statement under section 202 is 
required. (2 U.S.C. 1535(a)) DOE is required to select from those 
alternatives the most cost-effective and least burdensome alternative 
that achieves the objectives of the proposed rule unless DOE publishes 
an explanation for doing otherwise, or the selection of such an 
alternative is inconsistent with law. Pursuant to 42 U.S.C. 6292(a)(20) 
and (b)(1) and 42 U.S.C. 6295(l)(1)-(2) and (o), this proposed rule 
would establish amended energy conservation standards for hearth 
products that are designed to achieve the maximum improvement in energy 
efficiency that DOE has determined to be both technologically feasible 
and economically justified. A full discussion of the alternatives 
considered by DOE is presented in the ``Regulatory Impact Analysis'' 
section of the TSD for this proposed rule.

H. Review Under the Treasury and General Government Appropriations Act, 
1999

    Section 654 of the Treasury and General Government Appropriations 
Act, 1999 (Pub. L. 105-277) requires Federal agencies to issue a Family 
Policymaking Assessment for any rule that may affect family well-being. 
This rule would not have any impact on the autonomy or integrity of the 
family as an institution. Accordingly, DOE has concluded that it is not 
necessary to prepare a Family Policymaking Assessment.

I. Review Under Executive Order 12630

    Pursuant to Executive Order 12630, ``Governmental Actions and 
Interference with Constitutionally Protected Property Rights,'' 53 FR 
8859 (March 15, 1988), DOE has determined that this proposed rule would 
not result in any takings that might require compensation under the 
Fifth Amendment to the U.S. Constitution.

J. Review Under the Treasury and General Government Appropriations Act, 
2001

    Section 515 of the Treasury and General Government Appropriations 
Act, 2001 (44 U.S.C. 3516 note) provides for Federal agencies to review 
most disseminations of information to the public under information 
quality guidelines established by each agency pursuant to general 
guidelines issued by OMB. OMB's guidelines were published at 67 FR 8452 
(Feb. 22, 2002), and DOE's guidelines were published at 67 FR 62446 
(Oct. 7, 2002). DOE has reviewed this NOPR under the OMB and DOE 
guidelines and has concluded that it is consistent with applicable 
policies in those guidelines.

K. Review Under Executive Order 13211

    Executive Order 13211, ``Actions Concerning Regulations That 
Significantly Affect Energy Supply, Distribution, or Use,'' 66 FR 28355 
(May 22, 2001), requires Federal agencies to prepare and submit to OIRA 
at OMB, a Statement of Energy Effects for any proposed significant 
energy action. A ``significant energy action'' is defined as any action 
by an agency that promulgates or is expected to lead to promulgation of 
a final rule, and that: (1) Is a significant regulatory action under 
Executive Order 12866, or any successor order; and (2) is likely to 
have a significant adverse effect on the supply, distribution, or use 
of energy, or (3) is designated by the Administrator of OIRA as a 
significant energy action. For any proposed significant energy action, 
the agency must give a detailed statement of any adverse effects on 
energy supply, distribution, or use should the proposal be implemented, 
and of reasonable alternatives to the action and their expected 
benefits on energy supply, distribution, and use.
    DOE has tentatively concluded that this regulatory action, which 
would adopt energy conservation standards for hearth products, is not a 
significant energy action because the proposed standards are not likely 
to have a significant adverse effect on the supply, distribution, or 
use of energy, nor has it been designated as such by the Administrator 
at OIRA. Accordingly, DOE has not prepared a Statement of Energy 
Effects on this proposed rule.

L. Review Under the Information Quality Bulletin for Peer Review

    On December 16, 2004, OMB, in consultation with the Office of 
Science and Technology Policy (OSTP), issued its Final Information 
Quality Bulletin for Peer Review (the Bulletin). 70 FR 2664 (Jan. 14, 
2005). The Bulletin establishes that certain scientific information 
shall be peer reviewed by qualified specialists before it is 
disseminated by the Federal Government, including influential 
scientific information related to agency regulatory actions. The 
purpose of the bulletin is to enhance the quality and credibility of 
the Government's scientific information. Under the Bulletin, the energy 
conservation standards rulemaking analyses are ``influential scientific 
information,'' which the Bulletin defines as ``scientific information 
the agency reasonably can determine will have or does have a clear and 
substantial impact on important public policies or private sector 
decisions.'' Id. at 2667.

[[Page 7128]]

    In response to OMB's Bulletin, DOE conducted formal in-progress 
peer reviews of the energy conservation standards development process 
and analyses and has prepared a Peer Review Report pertaining to the 
energy conservation standards rulemaking analyses. Generation of this 
report involved a rigorous, formal, and documented evaluation using 
objective criteria and qualified and independent reviewers to make a 
judgment as to the technical/scientific/business merit, the actual or 
anticipated results, and the productivity and management effectiveness 
of programs and/or projects. The ``Energy Conservation Standards 
Rulemaking Peer Review Report,'' dated February 2007, has been 
disseminated and is available at the following Web site: 
www1.eere.energy.gov/buildings/appliance_standards/peer_review.html.

VII. Public Participation

A. Attendance at the Public Meeting

    The time, date, and location of the public meeting are listed in 
the DATES and ADDRESSES sections at the beginning of this notice. If 
you plan to attend the public meeting, please notify Ms. Brenda Edwards 
at (202) 586-2945 or <a href="/cdn-cgi/l/email-protection#94d6e6f1faf0f5bad1f0e3f5e6f0e7d4f1f1baf0fbf1baf3fbe2"><span class="__cf_email__" data-cfemail="531121363d37327d163724322137201336367d373c367d343c25">[email protected]</span></a>. As explained in the 
ADDRESSES section, foreign nationals visiting DOE Headquarters are 
subject to advance security screening procedures. Any foreign national 
wishing to participate in the meeting should advise DOE of this fact as 
soon as possible by contacting Ms. Brenda Edwards to initiate the 
necessary procedures.
    In addition, you can attend the public meeting via webinar. Webinar 
registration information, participant instructions, and information 
about the capabilities available to webinar participants will be 
published on DOE's Web site at: http://www1.eere.energy.gov/buildings/appliance_standards/rulemaking.aspx?ruleid=84. Participants are 
responsible for ensuring their systems are compatible with the webinar 
software.

B. Procedure for Submitting Requests To Speak and Prepared General 
Statements for Distribution

    Any person who has an interest in the topics addressed in this 
notice, or who is representative of a group or class of persons that 
has an interest in these issues, may request an opportunity to make an 
oral presentation at the public meeting. Such persons may hand-deliver 
requests to speak to the address shown in the ADDRESSES section at the 
beginning of this notice between 9:00 a.m. and 4:00 p.m., Monday 
through Friday, except Federal holidays. Requests may also be sent by 
mail or email to: Ms. Brenda Edwards, U.S. Department of Energy, 
Building Technologies Office, Mailstop EE-5B, 1000 Independence Avenue 
SW., Washington, DC 20585-0121, or <a href="/cdn-cgi/l/email-protection#f0b282959e9491deb5948791829483b09595de949f95de979f86"><span class="__cf_email__" data-cfemail="a9ebdbccc7cdc887eccddec8dbcddae9cccc87cdc6cc87cec6df">[email protected]</span></a>. Persons 
who wish to speak should include with their request a computer diskette 
or CD-ROM in WordPerfect, Microsoft Word, PDF, or text (ASCII) file 
format that briefly describes the nature of their interest in this 
rulemaking and the topics they wish to discuss. Such persons should 
also provide a daytime telephone number where they can be reached.
    DOE requests persons scheduled to make an oral presentation to 
submit an advance copy of their statements at least one week before the 
public meeting. DOE may permit persons who cannot supply an advance 
copy of their statement to participate, if those persons have made 
advance alternative arrangements with the Building Technologies 
Program. As necessary, requests to give an oral presentation should ask 
for such alternative arrangements.

C. Conduct of the Public Meeting

    DOE will designate a DOE official to preside at the public meeting 
and may also use a professional facilitator to aid discussion. The 
meeting will not be a judicial or evidentiary-type public hearing, but 
DOE will conduct it in accordance with section 336 of EPCA (42 U.S.C. 
6306). A court reporter will be present to record the proceedings and 
prepare a transcript. DOE reserves the right to schedule the order of 
presentations and to establish the procedures governing the conduct of 
the public meeting. There shall not be discussion of proprietary 
information, costs or prices, market share, or other commercial matters 
regulated by U.S. anti-trust laws. After the public meeting, interested 
parties may submit further comments on the proceedings, as well as on 
any aspect of the rulemaking, until the end of the comment period.
    The public meeting will be conducted in an informal, conference 
style. DOE will present summaries of comments received before the 
public meeting, allow time for prepared general statements by 
participants, and encourage all interested parties to share their views 
on issues affecting this rulemaking. Each participant will be allowed 
to make a general statement (within time limits determined by DOE), 
before the discussion of specific topics. DOE will allow, as time 
permits, other participants to comment briefly on any general 
statements.
    At the end of all prepared statements on a topic, DOE will permit 
participants to clarify their statements briefly and comment on 
statements made by others. Participants should be prepared to answer 
questions by DOE and by other participants concerning these issues. DOE 
representatives may also ask questions of participants concerning other 
matters relevant to this rulemaking. The official conducting the public 
meeting will accept additional comments or questions from those 
attending, as time permits. The presiding official will announce any 
further procedural rules or modification of the above procedures that 
may be needed for the proper conduct of the public meeting.
    A transcript of the public meeting will be included in the docket, 
which can be viewed as described in the Docket section at the beginning 
of this notice and will be accessible on the DOE Web site. In addition, 
any person may buy a copy of the transcript from the transcribing 
reporter.

D. Submission of Comments

    DOE will accept comments, data, and information regarding this 
proposed rule before or after the public meeting, but no later than the 
date provided in the DATES section at the beginning of this proposed 
rule. Interested parties may submit comments, data, and other 
information using any of the methods described in the ADDRESSES section 
at the beginning of this notice.
    Submitting comments via www.regulations.gov. The 
www.regulations.gov Web page will require you to provide your name and 
contact information. Your contact information will be viewable to DOE 
Building Technologies staff only. Your contact information will not be 
publicly viewable except for your first and last names, organization 
name (if any), and submitter representative name (if any). If your 
comment is not processed properly because of technical difficulties, 
DOE will use this information to contact you. If DOE cannot read your 
comment due to technical difficulties and cannot contact you for 
clarification, DOE may not be able to consider your comment.
    However, your contact information will be publicly viewable if you 
include it in the comment itself or in any documents attached to your 
comment. Any information that you do not want to be publicly viewable 
should not be included in your comment, nor in any document attached to 
your comment.

[[Page 7129]]

Otherwise, persons viewing comments will see only first and last names, 
organization names, correspondence containing comments, and any 
documents submitted with the comments.
    Do not submit to www.regulations.gov information for which 
disclosure is restricted by statute, such as trade secrets and 
commercial or financial information (hereinafter referred to as 
Confidential Business Information (CBI)). Comments submitted through 
www.regulations.gov cannot be claimed as CBI. Comments received through 
the Web site will waive any CBI claims for the information submitted. 
For information on submitting CBI, see the Confidential Business 
Information section below.
    DOE processes submissions made through www.regulations.gov before 
posting. Normally, comments will be posted within a few days of being 
submitted. However, if large volumes of comments are being processed 
simultaneously, your comment may not be viewable for up to several 
weeks. Please keep the comment tracking number that www.regulations.gov 
provides after you have successfully uploaded your comment.
    Submitting comments via email, hand delivery/courier, or mail. 
Comments and documents submitted via email, hand delivery, or mail also 
will be posted to www.regulations.gov. If you do not want your personal 
contact information to be publicly viewable, do not include it in your 
comment or any accompanying documents. Instead, provide your contact 
information in a cover letter. Include your first and last names, email 
address, telephone number, and optional mailing address. The cover 
letter will not be publicly viewable as long as it does not include any 
comments
    Include contact information each time you submit comments, data, 
documents, and other information to DOE. If you submit via mail or hand 
delivery/courier, please provide all items on a CD, if feasible, in 
which case, it is not necessary to submit printed copies. No 
telefacsimiles (faxes) will be accepted.
    Comments, data, and other information submitted to DOE 
electronically should be provided in PDF (preferred), Microsoft Word or 
Excel, WordPerfect, or text (ASCII) file format. Provide documents that 
are not secured, that are written in English, and that are free of any 
defects or viruses. Documents should not contain special characters or 
any form of encryption and, if possible, they should carry the 
electronic signature of the author.
    Campaign form letters. Please submit campaign form letters by the 
originating organization in batches of between 50 to 500 form letters 
per PDF or as one form letter with a list of supporters' names compiled 
into one or more PDFs. This reduces comment processing and posting 
time.
    Confidential Business Information. Pursuant to 10 CFR 1004.11, any 
person submitting information that he or she believes to be 
confidential and exempt by law from public disclosure should submit via 
email, postal mail, or hand delivery/courier two well-marked copies: 
one copy of the document marked ``confidential'' including all the 
information believed to be confidential, and one copy of the document 
marked ``non-confidential'' with the information believed to be 
confidential deleted. Submit these documents via email or on a CD, if 
feasible. DOE will make its own determination about the confidential 
status of the information and treat it according to its determination.
    Factors of interest to DOE when evaluating requests to treat 
submitted information as confidential include: (1) A description of the 
items; (2) whether and why such items are customarily treated as 
confidential within the industry; (3) whether the information is 
generally known by or available from other sources; (4) whether the 
information has previously been made available to others without 
obligation concerning its confidentiality; (5) an explanation of the 
competitive injury to the submitting person which would result from 
public disclosure; (6) when such information might lose its 
confidential character due to the passage of time; and (7) why 
disclosure of the information would be contrary to the public interest.
    It is DOE's policy that all comments may be included in the public 
docket, without change and as received, including any personal 
information provided in the comments (except information deemed to be 
exempt from public disclosure).

E. Issues on Which DOE Seeks Comment

    Although DOE welcomes comments on any aspect of this proposal, DOE 
is particularly interested in receiving comments and views of 
interested parties concerning the following issues:

    1. DOE seeks comment on the proposed definition for hearth 
products found in the December 2013 NOPD (78 FR 79638) and the range 
of products covered by the proposed rule if this definition were 
applied in the final rulemaking. DOE requests comment on which 
products would fall into each of the product groups as currently 
defined (1. vented fireplaces/stoves/inserts, 2. unvented 
fireplaces/stoves, inserts, 3. vented gas log sets, 4. unvented gas 
log sets, and 5. outdoor) and whether additional clarifying criteria 
should be added to the definition to cover intended products. DOE 
requests comment on which hearth products that are ``gas appliances 
that simulate a solid-fueled fireplace or presents a flame pattern'' 
may by the proposed definition be grouped into the hearth product 
category, but may warrant a different design standard due to such 
factors as utility of the feature to users. (See section III.A.)
    2. DOE seeks input on the assumption that should standing pilot 
ignitions be disallowed, electronic intermittent ignitions would 
provide the same level of safety as a standing pilot and whether a 
standing pilot provides a means for ensuring that gas is lit prior 
to opening the gas valve and ensuring that oxygen levels in a the 
room remain at a safe levels prior to the main burner ignition. DOE 
request comment on whether there are any ANSI safety standard 
certification, building code, or other industry safety standard that 
may preclude a manufacturer from selling a particular hearth product 
with an electronic intermittent ignition. (See section III.B.)
    3. DOE seeks comment on its tentative conclusions regarding 
hearth product definitions and categorizations as they pertain to 
active mode energy use. (See section III.C and chapter 3 of the 
TSD.)
    4. DOE seeks comment on its screening analysis including any 
potential impacts on product utility or availability. (See section 
III.G.1.d and chapter 4 of the TSD.)
    5. DOE seeks comment on its assumptions regarding the electrical 
energy consumption of the ignition module for hearth products. (See 
section III.I and chapter 7 of the TSD).
    6. DOE seeks comment on its list of identified technologies for 
reducing the fuel consumption of hearth products. (See section 
IV.A.3 and chapter 3 of the TSD.)
    7. DOE seeks comment on its general engineering analysis 
approach for hearth products. (See section IV.C and chapter 5 of the 
TSD.)
    8. DOE seeks comment on the availability and applicability of 
intermittent pilot ignition components for hearth products. (See 
section IV.C.1 and chapter 5 of the TSD.)
    9. DOE requests comment on its assumption that ignition 
component costs for vented fireplaces, inserts, and stoves are 
equivalent. (See section IV.C.1 and chapter 5 of the TSD.)
    10. DOE requests comment on the derived manufacturer production 
costs and markups. (See sections IV.C.3.e and IV.C.4 and chapter 5 
of the TSD.)
    11. DOE seeks input on the representative input capacities 
(kBtu/h) used to calculate the fuel used by the standing pilot for 
each of the five hearth product groups identified in the proposal 
and discussed in Chapter 7 of the TSD. In particular, the agency 
seeks input on whether the RECS 2009 annual space heating energy 
consumption numbers for vented and unvented fireplaces is 
representative of all hearth products and any data that would be 
helpful in estimating the energy consumption for the hearth product 
groups identified. DOE also seeks comment

[[Page 7130]]

on the average on-time per cycle assumption of 30 seconds for 
intermittent pilot ignition and any data indicating specific on-time 
per cycle for different product groups to help inform the energy use 
analysis. (See section IV.E and chapter 7 of the TSD.)
    12. DOE requests comment on the assumed pilot light usage, 
specifically the percentages of consumers who operate their hearth 
product standing pilots year round, for only the heating season, 
only when operating the unit, the treatment of LPG units, and the 
treatment of heat input into the space by the standing pilot. (See 
section IV.E and chapter 7 of the TSD.)
    13. DOE requests comment on the assumption to not apply a trend 
to its manufacturer selling price, as well as any information that 
would support the use of alternate assumptions. (See section IV.F.1 
and chapter 8 of the TSD.)
    14. DOE requests comment on installation and retrofit 
assumptions regarding electrical connections and grounding. (See 
section IV.F.1 and chapter 8 of the TSD.)
    15. DOE requests comment on intermittent pilot ignition module 
repair frequency and cost components applied in the life-cycle cost 
and payback period analysis. The agency requests input on the use of 
$142.89 as the bare material cost of repair of the intermittent 
pilot compared the bare material cost of a standing pilot of $43.72. 
In addition, the agency requests comment on the labor hours 
associated with the repair of both the standing pilot and 
intermittent pilot, which were both determined to be 1.50 labor 
hours as referenced in Section 8.2.3.2 of the TSD. DOE also requests 
comment on whether consumers may choose to replace the entire 
product as opposed to repair the failed ignition device and at what 
price point consumers would make that decision and for which hearth 
products. (See section IV.F.2.c and chapter 8 of the TSD.)
    16. DOE requests comment on lifetime assumptions applied in the 
life-cycle cost and payback period analysis where DOE assumes the 
minimum lifetime of both the hearth product and ignition system to 
be 5 years and 1 year, respectively and that for purposes of the 
life-cycle cost analysis that any repair costs would be free to the 
consumer during this warranty period. In addition, DOE requests 
comment on the product lifetime distribution for hearth products 
that are average are assumed to be 15 years and for hearth product 
ignition systems are assumed to be 7.3 years as laid out in Section 
8.2.3.3 of the TSD. DOE requests input on lifetime for products 
identified in the five different hearth product groups (vented 
fireplaces, unvented fireplaces, vented log sets, unvented log sets, 
and outdoor) that may inform the lifetime distribution analysis. 
(See section IV.F.2.d and chapter 8 of the TSD.)
    17. DOE requests comment on the estimated base-case efficiency 
distribution. (See section IV.F.2.f and chapter 8 of the TSD.)
    18. DOE requests comment on its assumption that switching from 
gas to electric hearth products due to the imposition of the design 
standard would be negligible. (See section IV.G and chapter 9 of the 
TSD.)
    19. DOE requests comment on DOE's methodology to correlate 
housing starts with hearth products shipments. In addition, DOE 
requests comment on the assumed three-to-one ratio between non-HPBA 
and HPBA shipments used to develop the total patio heater shipments 
assumptions. DOE also requests comment on the assumed fraction of 
match-lit shipments for each hearth product group and the use of the 
midpoint of the HPBA range as representative of the market shares of 
match lit units for each product group as represented in Table 9.3.2 
of the TSD. DOE also requests comment on the assumed 0.754 ratio of 
housing starts to hearth products shipments as discussed in section 
9.5 of the TSD and what percentage of these hearth products are 
connected to natural gas pipelines versus homeowners' propane 
storage tanks. (See section IV.G and chapter 9 of the TSD.)
    20. DOE requests comment on expected industry capital and 
product conversion costs. For the capital conversion costs, DOE 
requests comment on the determination that the design standard would 
primarily entail a component swap, in which manufacturers would 
assemble hearth products using a different set of purchased parts 
for the ignition system and that re-tooling or reconfiguring 
production facilities likely would be limited. In particular, DOE 
requests comment on the assigned nominal capital conversion cost per 
manufacturer, equivalent to $10,000, to account for any one-time 
capital investments and calculated industry conversion costs of $0.9 
million as discussed in Chapter 12.4.6 of the TSD. For the product 
conversion costs, DOE requests comment on the conversion cost 
estimates on the assumption that manufacturers would incur limited 
costs related to R&D, testing and certification, and development of 
marketing materials in order to bring into compliance models not 
currently offered with the option of an electronic ignition system. 
In particular, DOE requests comment on the assumed product 
conversion cost of $10,000 in fixed costs per model to arrive at the 
total industry product conversion costs of $7.8 million. DOE also 
requests comment on the number of hearth product manufacturers who 
may need to invest in capital equipment, assumed to be 90 
manufacturers, and the number of hearth product models, assumed to 
be 781 models, that may need model redesigns in order to comply with 
the proposed standards. (See section V.B.2 and chapter 12 of the 
TSD.)
    21. DOE requests comment on potential impacts of an energy 
conservation standard on domestic production employment. (See 
section V.B.2 and chapter 12 of the TSD.)
    22. DOE requests comment on product-specific regulations that 
take effect between 2018 and 2024 that would contribute to 
manufacturers' cumulative regulatory burden. DOE requests 
information identifying the specific regulations, as well as data 
quantifying the associated cost burden on manufacturers. (See 
section V.B.2 and chapter 12 of the TSD.)
    23. DOE requests comment on the approach for estimating monetary 
benefits associated with emissions reductions. (See section V.B.6 
and chapter 14 of the TSD.)

VIII. Approval of the Office of the Secretary

    The Secretary of Energy has approved publication of today's notice 
of proposed rulemaking.

List of Subjects in 10 CFR Part 430

    Administrative practice and procedure, Confidential business 
information, Energy conservation, Household appliances, Imports, 
Intergovernmental relations, Small businesses.

    Issued in Washington, DC, on January 28, 2015.
David T. Danielson,
Assistant Secretary, Energy Efficiency and Renewable Energy.

    For the reasons set forth in the preamble, DOE proposes to amend 
part 430 of chapter II, subchapter D, of title 10 of the Code of 
Federal Regulations, as set forth below:

PART 430--ENERGY CONSERVATION PROGRAM FOR CONSUMER PRODUCTS

0
1. The authority citation for part 430 continues to read as follows:

    Authority:  42 U.S.C. 6291-6309; 28 U.S.C. 2461 note.

0
2. Section 430.2 is amended by adding the definition of ``Hearth 
product,'' in alphabetical order, to read as follows:


Sec.  430.2  Definitions.

* * * * *
    Hearth product means a gas-fired appliance that simulates a solid-
fueled fireplace or presents a flame pattern (for aesthetics or other 
purpose) and that may provide space heating directly to the space in 
which it is installed.
* * * * *
0
3. Section 430.32 is amended by adding paragraph (z) to read as 
follows:


Sec.  430.32  Energy and water conservation standards and their 
compliance dates.

* * * * *
    (z) Hearth Products. Any hearth product manufactured on and after 
[DATE 5 YEARS AFTER PUBLICATION OF THE FINAL RULE] shall not be 
equipped with a constant-burning pilot light.

[FR Doc. 2015-02179 Filed 2-6-15; 8:45 am]
BILLING CODE 6450-01-P


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