9B-i APPENDIX 9B

. MODELING OF RARE EARTH PRICE IMPACTS

TABLE OF CONTENTS

9B.1 BACKGROUND .......................................................................................................... 9B- 1 9B.2 ANALYSIS ................................................................................................................... 9B- 2

LIST OF TABLES

Table 9B.2.1 Average Mass Content of Rare Earth Elements in 800 Series T5 and T8 Lamps .....................................................................................................9B-2 Table 9B.2.2 Average Rare Earth Element Weight Percentages used in GSFL Triband Phosphors .......................................................................................9B-2

LIST OF FIGURES

Figure 9B.1.1 Rare Earth Oxide Historic Prices .................................................................9B-1 Figure 9B.2.2 Inflation -Adjusted, Triband Phosphor REO Price Index for GSFLs ...........9B-39B-1 9B.1 B ACKGROUND

Lamp manufacturers use triband phosphors to increase the efficacy of fluorescent lamps and improve their color quality and lumen maintenance. All GSLFs that meet current efficiency standards use triband phosphors. Triband phosphor s contain certain rare earth elements - lanthanum (La), cerium (Ce), europium (Eu), terbium (Tb), and yttrium (Y) - which , according to manufacturer interv iews provided to the U.S. Department of Energy ( DOE ) , are generally purchased by lamp manufacturers in their oxide form. Between the second quarter of 2010 and the fourth quarter of 2011, the price of rare earth oxides (REOs) increased sharply 1 , as shown in Figure 9B.1.1 , causing concerns about the resulting price impacts on fluorescent lamps 2

. As described in chapter 2, DOE received a number of comments on the potential impacts of rare earth prices on lamp phosphors and therefore on the prices of the GSFLs covered in this rulemaking. This appendix describes the approach DOE took to projecting the potential impacts of volatile rare earth prices on lamp shipments, energy savings, and net present value of candidate standard levels considered in this preliminary analysis.

Figure 9B.1.1 R are Earth Oxide Historic Prices a

a The reported oxide prices correspond to 99% purity minimum Free

- on

- Board (FOB) China for Ce, La, and Tb, 99.9% purity minimum FOB China for Eu, and 99.999% purity minimum FOB China for Y.9B-2 9B.2 A NALYSIS

DOE analyzed the impact of REO prices on GSFL costs based on historical prices of REOs and on estimates of the average rare earth element content in phosphors of high efficacy T5 and T8 lamps , as reported in DOE’s 2011 Critical Materials Strategy (CMS). 2 The 2011 CMS estimated the content of rare earth elements in fluorescent lamp phosphors based on manufacturer interviews and lamps’ properties. According to the report, 800- series lamps use 100% triband phosphor, wh ereas 700

- series lamps use approximately 30% triband phosphor. For this rulemaking only high efficiency lamps (800 series and above) are relevant, because, according to manufacturers, the 700- series lamps cannot meet the current standards. 3

, b

According t o the 2011 CMS, the amount of phosphor included in fluorescent lamps is approximately proportional to the surface area of the lamps. Therefore, T8 lamps on average contain about 1.6 times more phosphor than T5 lamps of the same efficacy, and 8-foo t T8 lamp s contain twice as much phosphor as do 4-foo t T8 lamps of the same efficacy

. Table 9B.2.1 shows the average mass content of rare earth elements in 800 series T5 and T8 lamps, according to the 2011 CMS.

Table 9B.2.1 Average Mass Content of Rare Earth Elements in 800 Series T5 a nd T8 Lamps

Lam p type Rare Earth Content (grams)

4ft T8

– 800 series 2.33 4

4ft T5

– 800 series 1.4 58

8ft T8

– 800 series 4.668

Table 9B.2.2 shows the average percentage contribution of the five rare earth elements used in GSFL triband phosphors according to the 2011 CMS.

Table 9B.2.2 Average Rare Earth Element Weight Percentages used in GSFL Triband Phosphors

Element Content

Lanthanum 22%

Cerium 6.5 % Europium 4.5 %

Terbium 5%

Yttrium 62%

TOTAL 100%

b Manufacturers won an exception from standards for 700

- series lamps, which extends the compliance date by two years, until July 14, 2014. 39B-3 For the purposes of this rulemaking DOE calculated a triband phosphor price index for GSFLs that reflects the element mass content reported in Table 9B.2.2

. c The index is inflation adjusted and normalized with respect to the triband phosphor cost between 2006 and 2009, the longest period prior to the peak for which data for all relevant REOs were available. As shown in Figure 9B.2.2

, reflecting REO p rices, the index rose rapidly in 2010 from a relatively stable period to a peak in 2011 and dropped almost monotonically to less than half its peak value in 2012.

The future trajectory of REO prices is highly uncertain. Therefore, DOE developed alternative scenarios for high and low REO prices

, reflecting their 2011 peak price and the ir 2006 – 2009 baseline average price. The reference assumption for REO prices is that they remain constant at the October 2012 level. These data were used in this preliminary analysis, because they are the most recent price data that are available.

Figure 9B.2.1 Inflation

- Adjusted, Triband P hosphor REO Price Index for GSFLs

To project the potential future impact of REO costs on GSFL manufacturing over the analysis period, DOE calculated three scenarios for lamp prices based on historic REO costs - a reference REO cost , a high REO cost , and a low REO cost . DOE use d the price index to set the se , reference, high, and low, val u es.

c This analysis assumes that the relative percentages of rare earth elements reflects the relative percentages of rare earth oxides consumed in manufacturing

.9B-4 The price of each GSFL, as a function of the REO cost, is expressed as follows:

p ( y ) GSFL = m r × � c REO

, scen + c ( y ) else �

Eq. B.1 W here:

p ( y ) GSFL = la mp price at year y , m r = markup of m anufacturer cost to retail price: (calculated as 2.28),

c REO
, scen = REO cost for price scenario (high, low, and reference), and

c ( y ) else = Cost to manufacture lamp at year y , excluding C REO
, scen
The retail price markup was estimated from data presented in the 2009 GSFL- IRL f inal

r ule t echnical support document, ch apter 13 (Manufacturer Impact Analysis) , using the retail price and the manufacturer production cost of each lamp option for all product classes , according to the following equation:

m r = 1
N × ∑ p i

, GSFL MP C i N i Eq. B.2

Where:

N = total number of GSFL lamp options for all product classes,
p i = price of GSFL for lamp option i MP C i = m anufacturer production cost for lamp option i

. DOE addresses price learning in its shipments and national impact analysis ( NIA ) calculations

. However, because price learning is not applicable to raw materials inputs to manufacturing and

, therefore , is not applicable to the REO part of lamps costs, Eq. B.1 was rewritten in the following way for use in the shipments and NIA models:

p ( y ) GSFL = m r × � SM × c REO

, Ref + PLF ( y ) × � P GSFL

, 0

m r − c REO

, Ref � �

Eq. B.3 W here :

SM = s cenario multiplier for REO cost scenarios (described below),

c REO
, Ref = r eference scenario REO cost per GSFL ( itemized below), PLF ( y ) = p rice learning correction factor at year y (described below) and

, p GSFL
, 0 = 2012 ‘medium’ GSFL price

.

The scenario multiplier ( SM ) is based on the triband phosphor price index, normalized to its reference scenario value. The high, reference, and low scenarios correspond to each of the following, res pectively: the price index peak, the index for the most recent data (October 2012),9B-5 and the 2006 – 2009 baseline average price. Renormalized to the October 2012 reference value, the scenario multipliers use d in the preliminary analysis were:

• High scenario

, SM = 3

• Reference scenario

, SM = 1

• Low scenario

, SM = 1

4 The reference scenario REO cost ( c REO
, Ref ) is inflation adjusted ($2011) and is based on Oct. 9 , 2012 REO prices, as follows:

• 4ft T8
, c REO
, Ref = $ 0. 47 / GSFL

,

• 4ft T5
, c REO
, Ref = $ 0. 30 / GSFL , and

• 8 ft T8
, c REO
, Ref = $ 0. 95 /GSFL

. The price learning correction factor ( PLF ) is defined according to the following expression:

PLF ( y ) = ( X ( y )
X ( y 0 ) ) −b

Eq. B.4 Where:

X ( y ) = the cumulative production (total shipments) of GSFL between the year of introduction to the market to year y , as defined in Eq. 9.5, X ( y 0 ) = the cumulative production (total shipments) of GSFL between the year of introduction the market to the in itial year of the forecasting period (2012) , and b = the learning rate parameter, as defined in Eq. 9.4.

The medium 2012 lamp price ( p GSFL
, 0 ) is derived from chapter 5, Engineering Analysis.

REFERENCES

1 Metal -pages. Historical Prices. 2012. www.metal -pages.com . Last accessed Oct. 09 2012

2 U.S. Department of Energy. DOE. 2011. Critical Materials Strategy. December 2011. Washington, DC. http://energy.gov/sites/prod/files/DOE_CMS2011_FINAL_Full.pdf

3 United States Department of Energy, Office of Hearings and A ppeals. Case Nos: EXC

12-0001, EXC-12- 0002, EXC -12-0003, April 16, 2012.