CHAPTER 15. ENVIRONMENTAL ASSESSMENT FOR PROPOSED ENERGY

CONSERVATION STANDARDS FOR CENTRAL AIR CONDITIONERS AND HEAT

PUMPS

TABLE OF CONTENTS

15.1 INTRODUCTION

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15.2 METHODOLOGY

........................................................................................................ 15-2

15.2.1 Air Emissions

.......................................................................................................... ....... 15-2

15.2.2 Monetization of Emission Reductions Benefits

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15.3 RESULTS

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15-iCHAPTER 15. ENVIRONMENTAL ASSESSMENT FOR PROPOSED ENERGY

CONSERVATION STANDARDS FOR CENTRAL AIR CONDITONERS AND HEAT

PUIMPS

15.1 INTRODUCTION

The U.S. Department of Energy (DOE) will conduct an environmental assessment as part of the notice of proposed rulemaking. DOE will assess the impacts of proposed energy conservation standards for central air conditioners and heat pumps on certain environmental indicators using a variant of the Energy Information Administration (EIA)’s National Energy

1 Modeling System (NEMS). a EIA uses NEMS to produce the Annual Energy Outlook (AEO)

. DOE will use a variant known as NEMS-BT to provide key inputs to the analysis, based on the

2010 version of the AEO ( AEO2010 ). Results of the environmental assessment will be similar to those provided in AEO2010

.

The intent of the environmental impact assessment is to fulfill requirements to properly quantify and consider the envir onmental effects of all new Federal rules. DOE intends the environmental assessment to provi de emissions results to policym akers and other stakeholders, and to fulfill requirements that the environmental effects of all new Federal rules be properly quantified and considered.

The primary environmental effects of ener gy conservation standards for central air conditioners and heat pumps would be reduced power plant emissions resulting from reduced consumption of electricity; ther e are also reduced household emi ssions from gas appliances. The

environmental assessment considers th ree pollutants— sulfur dioxide (SO 2 ), nitrogen oxides (NO

x ), and mercury (Hg)—as well as carbon emis sions. The only form of carbon emissions tracked by NEMS-BT is carbon dioxide (CO 2 ), so the carbon discussed in this report is in the

form of CO 2 . For each of the trial standard levels, DOE will calculate power sector emissions using NEMS-BT, using additional external analysis as needed.

DOE notes that the Clean Air Act requires the U.S. Environmental Protection Agency (EPA) to set National Ambient Air Quality Standards for the following six common air pollutants, also know as “criteria pollutants”: (1 ) ozone, (2) particulate matter (PM), (3) carbon monoxide (CO), (4) nitrogen dioxide, (5) SO 2 , and (6) lead. 2 None of the “criteria pollutants” not already considered (i.e., ozone, PM, CO, and lead) are driven significantly by either electric utility power plants or fuel-fired appliances. Therefore, DOE does not intend on addressing them

in the environmental assessment. In the case of ozone and particulate matte r, other pollutants are precursors to their formation a nd atmospheric conditions are the driver behind their formation. Also, SO 2 and NO

x are the primary precursors to ozone and PM, respectively, and will already

a For more information on NEMS, please refer to the U.S. Department of Energy, Energy Information Administration documentation. A useful summary is National Energy Modeling System: An Overview 2003

, DOE/EIA-0581(2003), March 2003. EIA approves use of the name NEMS to describe only an official version of the model without any modification to code or data. Because this analysis entails some minor code modifications and the model is run under various policy scenarios that are variations on EIA assumptions, DOE refers to the model as NEMS-BT (BT is DOE’s Building Technologies Program). NEMS-BT was previously called NEMS-BRS.

15-1be addressed by the environmental assessment. In the case of CO, electric utilities and fuel-fired appliances are not significant sources. Finally, with regard to lead, i ndustrial processes (not electric utilities), including primary and secondary lead smelters and battery manufacturers, are responsible for most of the lead emissions.

15.2 METHODOLOGY

DOE plans to conduct the utility impact analysis as a policy deviation from the 2010

version of the AEO ( AEO2010 ), 1 applying the same basic set of assumptions. For example, the emissions characteristics of an electricity generating plant will be exactly those used in

AEO2010 . The NEMS reference case and alternative growth scenarios are as described in the utility impact analysis (see Chapter 13 of the preliminary technical support document). Below are descriptions of the air emissions that DOE will analyze in the environmental assessment.

15.2.1 Air Emissions

Carbon Dioxide (CO 2 )

Carbon dioxide (CO 2 ) is not a regulated or criteria pollu tant, but it is of interest because of its classification as a greenhouse gas (GHG). G HGs trap the sun’s radiation inside the Earth’s atmosphere and either occur naturally in the atmosphere or result from human activities. Naturally occurring GHGs include water vapor, CO 2 , methane (CH 4 ), nitrous oxide (N 2 O), and ozone (O 3 ). Human activities, however, add to the levels of most of these naturally occurring gases. For example, CO 2 is emitted to the atmosphere when solid waste, fossil fuels (oil, natural gas, and coal), wood, and wood products are burne d. During the past 20 years, about threequarters of anthropogenic (i.e., human-made) CO 2 emissions resulted from burning fossil fuels.

Concentrations of CO 2 in the atmosphere are naturally regulated by numerous processes, collectively known as the “carbon cycle.” The mo vement of carbon betwee n the atmosphere and the land and oceans is dominated by natural proce sses, such as plant photosynthesis. While these natural processes can absorb some of the anthropogenic CO 2 emissions produced each year,

billions of metric tons are added to the atmosphere a nnually. In the U. S., CO 2 emissions from both energy generation and industrial processe s account for 84.6 percent of total U.S. GHG

emissions.

In the absence of any Federal emissions cont rol regulation of power plant emissions of

CO 2 , a DOE standard is likely to result in reductions of these emissions. The CO 2 emission reductions likely to result from a standard will be estimated using NEMS-BT and national energy savings estimates drawn from the NIA spreadsheet model. The net benefit of the standard is the difference between emissions estimated by NEMS-BT at each standard level considered and the

AEO Reference Case. NEMS-BT tracks CO 2 emissions using a deta iled module that provides results with broad coverage of all sector s and inclusion of interactive effects.

Sulfur Dioxide (SO 2 )

15-2DOE has preliminarily determined that SO 2 emissions from affected Electric Generating Units (EGUs) are subject to nationwide and regional emissions cap and trading programs that are likely to eliminate the standards’ impact on SO 2 emissions. The costs of meeting such emission cap requirements are reflected in the electricity prices and forecasts used in DOE’s analysis of

the standards. Title IV of the Clean Ai r Act sets an annual emissions cap on SO 2 for all affected

EGUs. SO 2 emissions from 28 eastern States and the District of Columbia (DC) are also limited under the Clean Air Interstate Rule (CAIR, published in the Federal Register on May 12, 2005. 70 FR 25162 (May 12, 2005)), which creates an allowance-based trading program that will gradually replace the Title IV program in thos e States and DC. (The recent legal history surrounding CAIR is discussed below.) The attainme nt of the emissions caps is flexible among EGUs and is enforced through the use of emissions allowances and tradable permits. Under existing EPA regulations, any excess SO 2 emission allowances resulting from the lower electricity demand caused by the imposition of an efficiency standard could be used to permit offsetting increases in SO 2 emissions by any regulated EGU. However, if the standard resulted in a permanent increase in the quantity of unused emission allowances, there would be an overall

reduction in SO 2 emissions from the standards. While th ere remains some uncertainty about the ultimate effects of efficiency standards on SO 2 emissions covered by the existing cap and trade system, the NEMS-BT modeling system that DOE plans to use to forecast emissions reductions currently indicates that no phys ical reductions in power sector emissions would occur for SO 2

.

Even if there is no significant redu ction in the overall emissions of SO 2 that results from the standard, there may still be some ec onomic benefit from reduced demand for SO 2 emission allowances that is not fully reflected in the co st savings experienced by individual consumers. Electricity savings that decrease the overall demand for SO 2 emissions allowances could lower allowance prices and thereby result in some econo mic benefits for all electricity consumers, not just those that reduced their electricity use as a result of an efficiency standard. DOE does not plan to monetize this particular benefit because the effect on the allowance price from any single energy conservation standard is likely small and highly uncertain.

Nitrogen Oxides (NO X )

Nitrogen oxides

, or NO X , are the generic term for a group of highly reactive gases, all of which contain nitrogen and oxygen in varying amounts. Many of the nitrogen oxides are colorless and odorless. However, one common pollutant, nitrogen dioxide (NO 2 ), along with particles in the air can often be seen as a re ddish-brown layer over many urban areas. NO 2 is the specific form of NO X reported in this document. NO X is one of the main ingredients involved in the formation of ground-level ozone, which can tr igger serious respiratory problems. It can contribute to the formation of acid rain, and can impair visibility in areas such as national parks.

NO X also contributes to the formation of fi ne particles that can impair human health. 3

Nitrogen oxides form when fossil fuel is bur ned at high temperatures, as in a combustion process. The primary manmade sources of NO X are motor vehicles, electric utilities, and other industrial, commercial, a nd residential sources that burn fossil fuels. NO X can also be formed naturally. Electric utilities account for about 22 percent of NO X emissions in the United States. 3

15-3NEMS-BT has an algorithm for estimating NO X emissions from power generation. The impact of these emissions, however, will be affected by the CAIR, which the Environmental Protection Agency (EPA) issued on May 12, 2005. CAIR will permanently cap emissions of

NO X in 28 eastern states and the District of Columbia. 70 FR 25162 (May 12, 2005)..

Much like SO 2 emissions, a cap on NO X emissions means that energy conservation standards may have little or no physical effect on these emissions in the 28 eastern States and DC covered by CAIR. Although CAIR has been re manded to the EPA by the DC Circuit, it will remain in effect until it is replaced by a rule consistent with the Court’s July 11, 2008, opinion in North Carolina v. EPA. 531 F.3d 896 (DC Cir. 20 08); see also North Carolina v. EPA, 550 F.3d 1176 (DC Cir. 2008). Because all States covered by CAIR opted to reduce NO X emissions through participation in cap-and-trade progra ms for electric generating units, emissions from these sources are capped across the CAIR region.

Standards may produce an envi ronmental-related ec onomic benefit in the form of lower prices for emissions allowance credits. .As with SO 2 emissions, a cap on NO X emissions means that equipment efficiency standards may have no physical effect on these emissions in the 28 eastern States and DC covered by CAIR. While the emissions cap may mean that physical emissions reductions will not result from standards in those states covered by CAIR, standards could produce an environmental -related economic benefit in the form of lower prices for

emissions allowance credits.

As with SO 2 allowance prices, DOE does not plan to monetize this particular benefit

because the effect on the NO X allowance price from any single energy conservation standard is likely small and highly uncertain.

Accordingly, DOE plans to use NEMS-BT to estimate the emissions reductions from possible standards in the 22 States where emissions are not capped.

Mercury (Hg)

Coal-fired power plants emit Hg found in coal during the burning process. While coalfired power plants are the largest remaining s ource of human-generated Hg emissions in the United States, they contribute very little to the global Hg pool or to contamination of U.S. waters. U.S. coal-fired power plants emit Hg in three different forms: oxidized Hg (likely to deposit within the United States); elemental Hg , which can travel thousands of miles before depositing to land and water; and Hg that is in particulate form. Atmospheric Hg is then deposited on land, lakes, rivers, and estuaries through rain, snow, and dry deposition. Once there, it can transform into methylmercury and accumulate in fish tissue through

bioaccumulation.

Americans are exposed to methylmercury primarily by eating contaminated fish. Because the developing fetus is the most sensitive to the toxic effects of methylmercury, women of childbearing age are regarded as the populati on of greatest concern. Children exposed to methylmercury before birth may be at increased risk of poor performa nce on neurobehavioral

15-4tasks, such as those measuring attention, fine motor function, language skills, visual-spatial abilities, and verbal memory.

Similar to emissions of SO 2 and NO X , future emissions of Hg would have been subject to emissions caps. In May 2005, EPA issued th e Clean Air Mercury Rule (CAMR). 70 FR 28606 (May 18, 2005). CAMR would have permanently capped emissions of mercury for new and existing coal-fired power plants in all States by 2010. However, on February 8, 2008, the DC

Circuit issued its decision in New Jersey v. Environmental Protection Agency , in which the DC Circuit, among other actions, vacated the CAMR. 517 F.3d 574 (DC Cir. 2008). EPA has decided to develop emissions standards for pow er plants under the Clean Air Act (Section 112),

consistent with the DC Circ uit’s opinion on the CAMR. See http://www.epa.gov/air/mercuryr ule/pdfs/certpetition_withdrawal.pdf . Pending EPA's forthcoming revisions to the rule, DOE is excluding the CAMR from its Environmental Analysis. In the absence of CAMR, energy conservation standards would likely reduce Hg emissions, and DOE plans to use NEMS-BT to estimate these emission reductions.

Particulate Matter

DOE acknowledges that particulate matter (PM) impacts are of concern due to human exposures that can impact health. However, imp acts of PM emissions reduction are much more difficult to estimate than other emissions reductions due to the complex interactions between PM, other power plant emissions, meteorology, and atmospheric chemistry that impact human exposure to particulates. Human exposure to PM us ually occurs at a significant distance from the power plants that are emitting particulates and particulate precursors. When power plant emissions travel this distance, they undergo highly complex atmospheric chemical reactions. Although the EPA does keep inventories of direct PM emissions of power plants, in its source attribution reviews, the EPA doe s not separate direct PM emissions from power plants from the sulfate particulates indirectly produced through complex atmos pheric chemical reactions. The great majority of PM emissions from power plan ts are of these seconda ry particles (secondary sulfates). Thus, it is not useful to examine how the amended standard impacts direct PM emissions independent of indir ect PM production and atmospheric dynamics. Therefore, DOE is not planning to assess the impact of these standa rds on particulate emissions. Further, even the cumulative impact of PM emissions from power plan ts and indirect emissions of pollutants from other sources is unlikely to be significant.

15.2.2 Monetization of Emissi on Reductions Benefits

For those emissions for which real nationa l emission reductions are anticipated (CO 2 , Hg,

and NO X for 22 states), ranges of estimated economic values based on environmental damage studies of varying quality and applicability are available. Therefore, DOE plans on reporting estimates of monetary benefits derived using these values and plans to consider these benefits in weighing the costs and benefits of each of the standard levels considered.

Carbon Dioxide (CO 2 )

In order to estimate the monetary value of benefits resulting from reduced emissions of

CO 2 emissions, it is DOE’s intent to use in its an alysis the most current Social Cost of Carbon

15-5(SCC) values developed a nd/or agreed to by interagency reviews. The SCC is intended to be a monetary measure of the incremental damage resulting from greenhouse gas (GHG) emissions, including, but not limited to, net agricultural productivity loss, human health effects, property damage from sea level rise, and changes in ecosy stem services. Any effort to quantify and to monetize the harms associated with climate change will raise serious questions of science, economics, and ethics; but with full regard for the limits of both quantifi cation and monetization, the SCC can be used to provide estimates of the social benefits of reduc tions in GHG emissions.

At the time of this notice, the most recen t interagency estimates of the potential global benefits resulting from reduced CO 2 emissions in 2010 are $4.7, $21.4, $35.1, and $64.9 per

metric ton in 2007 dollars. These values are th en adjusted to 2009$ using the standard GDP deflator value for 2008 and 2009. For emissions (or emission reductions) that occur in later years, these values grow in real terms over time . Additionally, the interagency group determined that a range of values from 7 percent to 23 per cent should be used to adjust the global SCC to calculate domestic effects, although preference will be given to consideration of the global benefits of reducing CO 2 emissions. To calculate a present value of the stream of monetary values, DOE will discount the values in each of the four cases using the discount rates that had been used to obtain the SCC values in each case. See appendix A of the Annex to this chapter for the full range of annual SCC estimates from 2010 to 2050.

DOE recognizes that scientific and economic knowledge continues to evolve rapidly as

to the contribution of CO 2 and other GHG to changes in the future global climate and the potential resulting damages to the world economy. Thus, these values are subject to change.

Nitrogen Oxides (NOx)

As discussed earlier, with respect to NOx the CAIR rule has been reinstated by the courts. Therefore, NOx emissions in those states covered by CAIR will be subject to a cap with corresponding annual allowances openly traded.

For those states not covered by CAIR, DOE plans on estimating the monetized benefits of NOx emissions reductions in these states based on environmental damage estimates from the

literature. Available esti mates suggest a very wide range of monetary values for NOx emissions, ranging from $370 per ton to $3,800 per ton of NOx from stationary sources, measured in 2001$, (equivalent to a range of $447 to $4,591 per ton in 2009$). 4

Mercury (Hg)

DOE plans on estimating the monetized benefits of Hg emissions reductions based on environmental damage estimates from the literature. For Hg emissions reductions, DOE has previously determined that t he basic science linking mercury e missions from power plants to impacts on humans is considered highly uncertai n. However, DOE identified two estimates of the environmental damages of mercury based on two estimates of the adverse impact of childhood exposure to methyl mercury on IQ for American children, and subsequent loss of lifetime economic productivity resulting from these IQ losse s. The high-end estimate is based on an estimate of the current aggregate cost of the loss of IQ in American children that results from

15-6exposure to mercury of U.S. power plant origin

─ $1.3 billion per year in 2000$, which translates to $33.7 million per ton emitted per year in 2009$. 5 DOE derived the low-end estimate of $0.66 million per ton emitted in 2004$, or $0.745 million pe r ton in 2009$, from a published evaluation of mercury control using different methods and assumptions from the first study, but also based on the present value of the lifetime earnings of children exposed to mercury. 6 b

For both NO X and Hg, DOE will conduct two calcula tions of the monetary benefits derived using each of the economic values used, one using a real discount rate of 3 percent and another using a real discount rate of 7 per cent, in accordance with the U.S. Office of Management and Budget (OMB) guidance. c

15.3 RESULTS

The results for the environmental assessmen t are similar to a complete NEMS run, as published in the AEO2010 . These include emissions for SO 2 , NO X , mercury, and CO 2 in fiveyear forecasted increments, extrapolated to the year 2045. DOE will report the outcome of the analysis for each trial standard level as a deviation from the AEO2010 reference case results.

b The estimate was derived by back-calculating the annual benefits per ton from the net present value of benefits reported in the study.

15-7REFERENCES

1. Energy Information Administration, Annual Energy Outlook 2010 with Projections to

2035 , March 2010. Washington, DC. Re port No. DOE/EIA-0383(2010).

2. U.S. Environmental Protection Agency, National Ambient Air Quality Standards, 2008. (Last accessed March 11, 2008.) < http://www.epa.gov/air/urbanair / >

3. U.S. Environmental Protection Agency, Nitrogen Oxides Health and Environmental Impacts of NOx (Posted May 26th, 2009)

< http://www.epa.gov/air/urbanair/nox/hlth.html >

4. 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. Washington, DC.

< http://www.whitehouse.gov/omb/inforeg/2006_cb/2006_cb_final_report.pdf >

5. Trasande, L., C. Schechter, K.A. Haynes, and P.J. Landrigan,, Applying Cost Analyses to Drive Policy That Protects Children : Mercury as a Case Study . Annals of the New York Academy of Sciences , 2006. 1076

6. Ted Gayer and Robert Hahn, Designing Environmental Policy: Lessons from the Regulation of Mercury Emissions,” 2004. AEI-Brookings Joint Center For Regulatory Studies. A version of this paper was published in the Journal of Regulatory Economics in

2006.

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