CHAPTER 17. REGULATORY IMPACT ANALYSIS 

TABLE OF CONTENTS 

17.1 INTRODUCTION ............................................................................................................ 17-1

17.2 MAJOR POLICY ALTERNATIVES............................................................................... 17-2

17.2.1 No New Regulatory Action ............................................................................... 17-2

17.2.2 Tax Credits, Rebates, and Other Financial Incentives.......................................17-2

17.2.3 Revisions to Voluntary Energy Efficiency Targets ........................................... 17-4

17.2.4 Bulk Government Purchases and Early Replacement Incentive Programs .......17-4

17.2.5 Prescriptive Standards that would Mandate Design Requirements ...................17-4

17.2.6 Performance Standards ...................................................................................... 17-5

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CHAPTER 17. REGULATORY IMPACT ANALYSIS FOR REFRIGERATED 

BEVERAGE VENDING MACHINES 

17.1 INTRODUCTION 

Under the Process Rule, the U.S. Department of Energy (DOE) is committed to exploring 

non-regulatory alternatives to energy conservation standards. This is a regulatory impact analysis 

prepared by DOE under Executive Order 12866, “Regulatory Planning and Review,” which will 

be subject to review by the Office of Information and Regulatory Affairs. 

Executive Order 12866, §1(b)(1), requires that each agency identify in writing the 

specific market failure or other problem that warrants new agency action, as well as assess the 

significance of that problem to determine whether any new regulation is necessary. 

DOE has determined that today’s regulatory action is not an “economically significant” 

action under §3(f)(1) of Executive Order 12866, “Regulatory Planning and Review”. 

In the advanced notice of proposed rulemaking (ANOPR) for this rulemaking, DOE 

requested feedback and data on a number of issues related to Executive Order 12866 and the 

existence of a market failure in the BVM industry. In this request, DOE sought: 

 data on the efficiency levels of existing beverage vending machines (BVM) in use by 

owner (i.e., site owner or machine operator), electricity price, equipment class (Class 

A or Class B machines) and installation type (i.e., indoors or outdoors); 

 comment on the availability of energy efficiency information to end users and the 

extent to which the information leads to informed choices, specifically given how 

such equipment is purchased; 

 detailed data on the distribution of energy efficiency levels for both the new site 

owner and equipment operator markets; 

 data on, and suggestions for the existence and extent of potential market failures to 

complete an assessment of the significance of these failures and, thus, the net benefits 

of regulation; and 

 comment on the weight that should be given to “external” benefits resulting from 

improved energy efficiency of BVMs that are not captured by the users of such 

equipment. These benefits include both environmental and energy security-related 

externalities that are not reflected in energy prices, such as reduced emissions of 

greenhouse gases and reduced use of natural gas and oil for electricity generation. 

DOE prepared a regulatory impact analysis (RIA) for this rulemaking. The RIA is subject 

to review by the Office of Information and Regulatory Affairs (OIRA) in the Office of 

Management and Budget (OMB). The RIA consists of: 

 a statement of the problem addressed by this regulation and the mandate for 

Government action; 

 a description and analysis of policy alternatives to this regulation; 

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 a qualitative review of the potential impacts of the alternatives; and 

 the national economic impacts of the proposed standard. 

The RIA assesses the effects of feasible policy alternatives to beverage vending machine 

standards and provides a comparison of the impacts of the alternatives. DOE evaluated the 

alternatives in terms of their ability to achieve significant energy savings at reasonable cost, and 

compared it to the effectiveness of the proposed rule. DOE analyzed these alternatives 

qualitatively with reference to the particular market dynamics of the beverage vending industry. 

17.2 MAJOR POLICY ALTERNATIVES 

DOE identified the following major policy alternatives for achieving increased beverage 

vending machine energy efficiency: 

 no new regulatory action; 

 financial incentives, including tax credits and rebates; 

 revisions to voluntary energy efficiency targets (e.g., ENERGY STAR program 

criteria); 

 early replacement; 

 bulk government purchases; and 

 prescriptive standards that would mandate design requirements (e.g., lighting and 

refrigeration controls). 

DOE qualitatively evaluated each alternative’s ability to achieve significant energy 

savings at reasonable cost and compared it to the effectiveness of the proposed rule. The policy 

alternatives are discussed in the following sections. 

17.2.1 No New Regulatory Action 

The case in which no regulatory action is taken for BVMs constitutes the base case (or 

No Action) scenario. By definition, no new regulatory action yields zero energy savings and a 

net present value of zero dollars. 

17.2.2 Tax Credits, Rebates, and Other Financial Incentives 

DOE considered the impact of various financial incentives at both the ENERGY STAR 

Tier 2 level and higher efficiency levels, and examined the likelihood of an increase in customers 

purchasing high-efficiency equipment because of these financial incentives. 

In considering the impact of financial incentives, DOE reviewed existing rebate programs 

for BVMs. Most existing rebate programs are utility-sponsored programs that provide incentives 

for incorporating lighting and temperature controllers. Also, similar rebates for other 

technologies (e.g., electronically commutated motors for evaporator fans) are provided in other 

industries, such as in the food sales industry for commercial refrigerated display cases, and could 

theoretically be adapted for BVMs. However, utility rebate programs are aimed at the site of 

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installation and not at the purchasers of the machines (as most of the controllers covered by the 

rebate are add-on devices), and utility rebates are only provided for reduction of electricity at 

sites served by the utility. Because BVMs purchased by large scale bottlers may not remain on a 

given site, tracking the location of rebated equipment could be an issue for utilities. Also, 

because most utility rebate programs are not aimed at the purchasers of the machines, they do not 

provide an incentive for the large bottlers who purchase the machines to choose high-efficiency 

equipment. 

Besides utility-sponsored rebate programs, other programs possibilities include national 

manufacturer rebates, purchaser rebates, or tax incentives. Typically, these programs are 

advocated as a means to encourage households or organizations that are sensitive to the first cost 

of equipment to purchase or manufacture more-costly efficient equipment that has an ultimate 

favorable life cycle cost payoff either to the purchaser, to society, or both. The incentive can be 

given to the buyer of the equipment, the rate payer, or the manufacturer, depending on which 

method is considered to be most administratively effective. However, the nature of the BVM 

industry and market makes this approach largely ineffective. 

At least 75 percent of BVMs are purchased by two companies (Coca-Cola and PepsiCo) 

and their affiliated bottlers and distributors. In the ANOPR public meeting, representatives of 

PepsiCo stated that all BVMs purchased by the company are required to meet ENERGY STAR 

Tier 2 levels. Representatives of Coca-Cola stated that by 2010, the BVMs purchased by the 

company would use half as much energy as they do now, which would meet at least ENERGY 

STAR Tier 1 levels. These companies purchase ENERGY STAR equipment despite the first-cost 

increase, because it improves their public image, which results in higher sales in the long run. 

Direct compensation for the energy savings is not assured but comes only through a negotiation 

with the site. Because the driving economic force for these companies is product sales, not 

equipment purchases, lowering the purchase price of equipment would make no significant 

difference in market behavior, and the program would simply transfer the amount of tax credit or 

rebate to the rebated entity without having induced extra purchases of efficient BVMs. With 

regard to the use of rebates or other incentives beyond Tier 2 efficiency levels, it is not clear how 

the buying policy of Coca-Cola and PepsiCo would be influenced by tax credits or rebates. 

However, the companies are large enough to successfully finance the higher costs of BVMs 

more efficient than Tier 2 with or without tax credits or rebates. 

While rebates or tax credits may affect small purchasers, their influence over the 

marketplace for BVMs is marginal. In addition, because of the existing market dynamics, any 

economic incentive paid for the purchase of Tier 2 efficiency equipment faces the possibility of a 

significant proportion of the rebates being free riders. This is particularly true of rebates paid to 

manufacturers. Rebates to purchasers would necessarily have to be limited to small volumes of 

purchases by individual rebatees to avoid this and target non-bottler, site-owned equipment. Tax 

credits to purchasers face similar issues. Currently, no national manufacturer rebates, purchaser 

rebates, or tax incentives are available for enhancement of beverage vending machine efficiency. 

DOE does see value in the continued use of rebates for lighting and temperature 

controller technologies even under the standards proposed in this notice of proposed rulemaking. 

Because the impact of these technologies is not captured in the DOE test procedure for BVMs, 

employing these technologies in the field will continue to provide reductions in energy 

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consumption above and beyond those that can be achieved by the standards proposed for BVMs. 

The reductions will continue to accrue at the site of installation; therefore, these rebates, 

primarily for the purchase of aftermarket controller equipment, should continue to be provided to 

the installation site directly. 

17.2.3 Revisions to Voluntary Energy Efficiency Targets 

The voluntary ENERGY STAR program currently has two levels of efficiency targets: 

Tier 1 and Tier 2. The current ENERGY STAR program appears to have been effective at 

inducing large-scale adoption of ENERGY STAR Tier 1 equipment. Furthermore, it is expected 

by the beverage vending industry that ENERGY STAR will be highly effective in securing 

purchases of Tier 2 equipment because of the favorable response of the two large purchasers, 

Coca-Cola and PepsiCo, who essentially define the market. While it is possible that voluntary 

programs for equipment more efficient than Tier 2 would also be effective, DOE lacks a 

quantitative basis to determine how effective or ineffective such a beyond-Tier 2 program might 

be. As noted previously, broader economic and social considerations are in play than simple 

economic return to the equipment purchaser. DOE lacks the data necessary to quantitatively 

project the degree to which such voluntary programs for more expensive, higher efficiency 

equipment would modify the market. 

17.2.4 Bulk Government Purchases and Early Replacement Incentive Programs 

DOE also considered, but did not analyze, the potential of bulk Government purchases 

and early replacement incentive programs as alternatives to the proposed standards. In the case 

of bulk Government purchases, BVMs are a small part of the total market and the volume of 

high-efficiency equipment purchases that the Federal Government might make directly (versus 

equipment installed by bottlers are Federal Government sites) would have very limited impact on 

improving the overall market efficiency of BVMs. In the case of replacement incentives, several 

policy options exist to promote early replacement, including a direct national program of 

customer incentives, incentives paid to utilities to promote an early replacement program, market 

promotions through equipment manufacturers, and replacement of Federally owned equipment. 

Previous analysis by DOE of methods to promote early replacement for other covered equipment 

have suggested that the energy savings realized through a one-time early replacement of existing 

stock equipment has not resulted in energy savings commensurate to the cost to run and 

administer the program. As a consequence, DOE did not analyze this option in detail. 

17.2.5 Prescriptive Standards that would Mandate Design Requirements 

EPCA provides that standards regulating the energy use of certain equipment may be 

design standards, which require specific features that are required in the design of the equipment; 

or performance standards, which describe a required level of equipment performance 

(e.g., maximum kWh/year energy consumption) and provide a manufacturer with discretion in 

determining—among the many available options—how best to meet that performance level. 

However, BVMs are not one of the specified equipment for which the Energy Policy and 

Conservation Act (EPCA) allows a standard to consist of a design requirement. Furthermore, 

EPCA specifically requires DOE to base its test procedure for this equipment on American 

National Standards Institute (ANSI)/American Society of Heating, Refrigerating and Air17-4 

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Conditioning Engineers (ASHRAE) Standard 32.1-2004, Methods of Testing for Rating Vending 

Machines for Bottled, Canned or Other Sealed Beverages. The test methods in ANSI/ASHRAE 

Standard 32.1-2004 consist of means to measure energy consumption. 

For these reasons, DOE does not intend to develop design requirements for this 

equipment. Instead, DOE intends to develop standards such that each beverage vending machine 

would be subject to a maximum level of energy use, and manufacturers could meet these 

standards with their own choice of design methods. 

17.2.6 Performance Standards 

The difficulty in using these non-regulatory alternatives must be gauged against the more 

direct benefits calculated for the performance standards DOE is proposing in this NOPR. 

Based on the qualitative review, DOE is not confident that any of the alternatives DOE 

examined would save as much energy as today’s proposed rule, and the financial incentives in 

particular may engender significant free ridership issues. Also, several of the alternatives would 

require new enabling legislation, since authority to carry out those alternatives does not exist. 

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