CHAPTER 15. ENVIRONMENTAL ASSESSMENT FOR PROPOSED ENERGY
 

CONSERVATION STANDARDS FOR CENTRAL AIR CONDITIONERS AND HEAT
 

PUMPS
 

TABLE OF CONTENTS
 

15.1 INTRODUCTION ......................................................................................................... 15-1 

15.2 METHODOLOGY ........................................................................................................ 15-2 

15.2.1 Air Emissions ................................................................................................................. 15-2 

15.2.2 Monetization of Emission Reductions Benefits ............................................................. 15-5 

15.3 RESULTS ...................................................................................................................... 15-7 

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CHAPTER 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 environmental effects of all new Federal rules. DOE intends the 

environmental assessment to provide emissions results to policymakers 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 energy conservation standards for central air 

conditioners and heat pumps would be reduced power plant emissions resulting from reduced 

consumption of electricity; there are also reduced household emissions from gas appliances. The 

environmental assessment considers three pollutants— sulfur dioxide (SO2), nitrogen oxides 

(NOx), and mercury (Hg)—as well as carbon emissions. The only form of carbon emissions 

tracked by NEMS-BT is carbon dioxide (CO2), so the carbon discussed in this report is in the 

form of CO2. 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) SO2, 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 matter, other pollutants are 

precursors to their formation and atmospheric conditions are the driver behind their formation. 

Also, SO2 and NOx 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. 

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be 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, industrial 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 (CO2) 

Carbon dioxide (CO2) is not a regulated or criteria pollutant, but it is of interest because 

of its classification as a greenhouse gas (GHG). GHGs 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, CO2, methane (CH4), nitrous oxide (N2O), and 

ozone (O3). Human activities, however, add to the levels of most of these naturally occurring 

gases. For example, CO2 is emitted to the atmosphere when solid waste, fossil fuels (oil, natural 

gas, and coal), wood, and wood products are burned. During the past 20 years, about threequarters of anthropogenic (i.e., human-made) CO2 emissions resulted from burning fossil fuels. 

Concentrations of CO2 in the atmosphere are naturally regulated by numerous processes, 

collectively known as the “carbon cycle.” The movement of carbon between the atmosphere and 

the land and oceans is dominated by natural processes, such as plant photosynthesis. While these 

natural processes can absorb some of the anthropogenic CO2 emissions produced each year, 

billions of metric tons are added to the atmosphere annually. In the U. S., CO2 emissions from 

both energy generation and industrial processes account for 84.6 percent of total U.S. GHG 

emissions. 

In the absence of any Federal emissions control regulation of power plant emissions of 

CO2, a DOE standard is likely to result in reductions of these emissions. The CO2 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 CO2 emissions using a detailed module that provides 

results with broad coverage of all sectors and inclusion of interactive effects. 

Sulfur Dioxide (SO2) 

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DOE has preliminarily determined that SO2 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 SO2 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 Air Act sets an annual emissions cap on SO2 for all affected 

EGUs. SO2emissions 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 those States and DC. (The recent legal history 

surrounding CAIR is discussed below.) The attainment 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 SO2 emission allowances resulting from the lower 

electricity demand caused by the imposition of an efficiency standard could be used to permit 

offsetting increases in SO2 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 SO2 emissions from the standards. While there remains some uncertainty about the 

ultimate effects of efficiency standards on SO2 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 physical reductions in power sector emissions would occur for SO2. 

Even if there is no significant reduction in the overall emissions of SO2 that results from 

the standard, there may still be some economic benefit from reduced demand for SO2 emission 

allowances that is not fully reflected in the cost savings experienced by individual consumers. 

Electricity savings that decrease the overall demand for SO2 emissions allowances could lower 

allowance prices and thereby result in some economic 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 (NOX) 

 Nitrogen oxides, or NOX, 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 (NO2), along with 

particles in the air can often be seen as a reddish-brown layer over many urban areas. NO2 is the 

specific form of NOX reported in this document. NOX is one of the main ingredients involved in 

the formation of ground-level ozone, which can trigger serious respiratory problems. It can 

contribute to the formation of acid rain, and can impair visibility in areas such as national parks. 

NOX also contributes to the formation of fine particles that can impair human health.3 

Nitrogen oxides form when fossil fuel is burned at high temperatures, as in a combustion 

process. The primary manmade sources of NOX are motor vehicles, electric utilities, and other 

industrial, commercial, and residential sources that burn fossil fuels. NOX can also be formed 

naturally. Electric utilities account for about 22 percent of NOX emissions in the United States.3 

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NEMS-BT has an algorithm for estimating NOX 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 

NOX in 28 eastern states and the District of Columbia. 70 FR 25162 (May 12, 2005).. 

Much like SO2 emissions, a cap on NOX 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 remanded 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. 2008); see also North Carolina v. EPA, 550 F.3d 

1176 (DC Cir. 2008). Because all States covered by CAIR opted to reduce NOX emissions 

through participation in cap-and-trade programs for electric generating units, emissions from 

these sources are capped across the CAIR region. 

Standards may produce an environmental-related economic benefit in the form of lower 

prices for emissions allowance credits. .As with SO2 emissions, a cap on NOX 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 SO2 allowance prices, DOE does not plan to monetize this particular benefit 

because the effect on the NOX 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 source 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 population of greatest concern. Children exposed to 

methylmercury before birth may be at increased risk of poor performance on neurobehavioral 

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tasks, such as those measuring attention, fine motor function, language skills, visual-spatial 

abilities, and verbal memory. 

Similar to emissions of SO2 and NOX, future emissions of Hg would have been subject to 

emissions caps. In May 2005, EPA issued the 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 power plants under the Clean Air Act (Section 112), 

consistent with the DC Circuit’s opinion on the CAMR. See 

http://www.epa.gov/air/mercuryrule/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, impacts 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 usually 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 does not separate direct PM emissions from power plants from the 

sulfate particulates indirectly produced through complex atmospheric chemical reactions. The 

great majority of PM emissions from power plants are of these secondary particles (secondary 

sulfates). Thus, it is not useful to examine how the amended standard impacts direct PM 

emissions independent of indirect PM production and atmospheric dynamics. Therefore, DOE is 

not planning to assess the impact of these standards on particulate emissions. Further, even the 

cumulative impact of PM emissions from power plants and indirect emissions of pollutants from 

other sources is unlikely to be significant. 

15.2.2 Monetization of Emission Reductions Benefits 

For those emissions for which real national emission reductions are anticipated (CO2, Hg, 

and NOX 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 (CO2) 

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

CO2 emissions, it is DOE’s intent to use in its analysis the most current Social Cost of Carbon 

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(SCC) values developed and/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 ecosystem 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 quantification and monetization, 

the SCC can be used to provide estimates of the social benefits of reductions in GHG emissions. 

At the time of this notice, the most recent interagency estimates of the potential global 

benefits resulting from reduced CO2 emissions in 2010 are $4.7, $21.4, $35.1, and $64.9 per 

metric ton in 2007 dollars. These values are then 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 percent 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 CO2 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 CO2 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 estimates 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 the basic science linking mercury emissions from power plants to 

impacts on humans is considered highly uncertain. 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 losses. 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 

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exposure 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 $0.745 million per ton in 2009$, 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 NOX and Hg, DOE will conduct two calculations 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 percent, in accordance with the U.S. Office of 

Management and Budget (OMB) guidance.c 

15.3 RESULTS 

The results for the environmental assessment are similar to a complete NEMS run, as 

published in the AEO2010. These include emissions for SO2, NOX, mercury, and CO2 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. 

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REFERENCES
 

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

2035, March 2010. Washington, DC. Report 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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