105188 Federal Register / Vol. 89, No. 247 / Thursday, December 26, 2024 / Rules and Regulations 

DEPARTMENT OF ENERGY 

10 CFR Part 430 

[EERE–2017–BT–STD–0019] 

RIN 1904–AF65 

Energy Conservation Program: Energy 

Conservation Standards for Consumer 

Gas-fired Instantaneous Water Heaters 

AGENCY: Office of Energy Efficiency and 

Renewable Energy, Department of 

Energy. 

ACTION: Final rule. 

SUMMARY: The Energy Policy and 

Conservation Act, as amended 

(‘‘EPCA’’), prescribes energy 

conservation standards for various 

consumer products and certain 

commercial and industrial equipment, 

including gas-fired instantaneous water 

heaters, which are a type of consumer 

water heater. EPCA also requires the 

U.S. Department of Energy (‘‘DOE’’ or 

the ‘‘Department’’) to periodically 

review its existing standards to 

determine whether more-stringent 

standards would be technologically 

feasible and economically justified, and 

would result in significant energy 

savings. In this final rule, DOE is 

adopting amended energy conservation 

standards for gas-fired instantaneous 

water heaters. It has determined that the 

amended energy conservation standards 

for these products would result in 

significant conservation of energy, and 

are technologically feasible and 

economically justified. 

DATES: The effective date of this rule is 

March 11, 2025. Compliance with the 

amended standards established for gasfired instantaneous water heaters in this 

final rule is required on and after 

December 26, 2029. 

ADDRESSES: The docket for this 

rulemaking, which includes 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, not all documents listed in 

the index may be publicly available, 

such as information that is exempt from 

public disclosure. 

The docket web page can be found at 

www.regulations.gov/docket/EERE2017-BT-STD-0019. The docket web 

page contains instructions on how to 

access all documents, including public 

comments, in the docket. 

For further information on how to 

review the docket, contact the 

Appliance and Equipment Standards 

Program staff at (202) 287–1445 or by 

email: ApplianceStandardsQuestions@

ee.doe.gov. 

FOR FURTHER INFORMATION CONTACT: Ms. 

Julia Hegarty, 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) 586– 

0729. Email: 

ApplianceStandardsQuestions@

ee.doe.gov. 

Mr. Uchechukwu ‘‘Emeka’’ Eze, U.S. 

Department of Energy, Office of the 

General Counsel, GC–33, 1000 

Independence Avenue SW, Washington, 

DC, 20585–0121. Telephone: (240) 961– 

8879. Email: uchechukwu.eze@

hq.doe.gov. 

SUPPLEMENTARY INFORMATION: 

Table of Contents 

I. Synopsis of the Final Rule 

A. Benefits and Costs to Consumers 

B. Impact on Manufacturers 

C. National Benefits and Costs 

D. Conclusion 

II. Introduction 

A. Authority 

B. Background 

1. Current Standards 

2. History of Standards Rulemaking for 

Gas-fired Instantaneous Water Heaters 

III. General Discussion 

A. General Comments 

1. General Support 

2. Support for Updated Analysis and 

Standards at EL 2 

3. General Opposition 

4. Comments on Higher Standards Than 

Proposed in the NOPR 

B. Scope of Coverage 

C. Test Procedure 

D. Technological Feasibility 

1. General 

2. Maximum Technologically Feasible 

Levels 

E. Energy Savings 

1. Determination of Savings 

2. Significance of Savings 

F. 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 

IV. Methodology and Discussion of Related 

Comments 

A. Market and Technology Assessment 

1. Product Classes 

2. Technology Options 

B. Screening Analysis 

1. Screened-Out Technologies 

2. Remaining Technologies 

C. Engineering Analysis 

1. Products With Current UEF-Based 

Standards 

a. Efficiency Levels 

b. Design Options 

c. Cost Analysis 

d. Shipping Costs and Manufacturer 

Selling Price 

e. Cost-Efficiency Results 

2. Products Without Current UEF-Based 

Standards 

a. Crosswalk to Equivalent-Stringency 

UEF-Based Standards 

b. Consideration of More Stringent 

Standards 

D. Markups Analysis 

E. Energy Use Analysis 

1. Building Sample 

2. Hot Water Use Determination 

3. Energy Use Determination 

F. Life-Cycle Cost and Payback Period 

Analysis 

1. Product Cost 

2. Installation Cost 

a. Basic Installation Costs 

b. Venting Costs 

c. Condensate Management Costs 

3. Annual Energy Consumption 

4. Energy Prices 

5. Maintenance and Repair Costs 

6. Product Lifetime 

7. Discount Rates 

8. Energy Efficiency Distribution in the NoNew-Standards Case 

9. Payback Period Analysis 

10. Accounting for Product Switching 

11. Analytical Results 

G. Shipments Analysis 

1. Impact of Repair vs. Replace 

H. National Impact Analysis 

1. Product Efficiency Trends 

2. National Energy Savings 

3. Net Present Value Analysis 

I. Consumer Subgroup Analysis 

1. Low-Income Households 

2. Senior-Only Households 

3. Small Business Subgroup 

J. Manufacturer Impact Analysis 

1. Overview 

2. Government Regulatory Impact Model 

and Key Inputs 

a. Manufacturer Production Costs 

b. Shipments Projections 

c. Capital and Product Conversion Costs 

d. Manufacturer Markup Scenarios 

3. Discussion of MIA Comments 

K. Emissions Analysis 

1. Air Quality Regulations Incorporated in 

DOE’s Analysis 

L. Monetizing Emissions Impacts 

1. Monetization of Greenhouse Gas 

Emissions 

a. Social Cost of Carbon 

b. Social Cost of Methane and Nitrous 

Oxide 

2. Monetization of Other Emissions 

Impacts 

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 


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Federal Register / Vol. 89, No. 247 / Thursday, December 26, 2024 / Rules and Regulations 105189 

1All references to EPCA in this document refer 

to the statute as amended through the Energy Act 

of 2020, Public Law 116–260 (Dec. 27, 2020), which 

reflect the last statutory amendments that impact 

Parts A and A–1 of EPCA. 

2For editorial reasons, upon codification in the 

U.S. Code, Part B was redesignated Part A. 

c. Rebuttable Presumption Payback 

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. National Energy Savings 

b. Net Present Value of Consumer Costs 

and Benefits 

c. Indirect Impacts on Employment 

4. Impact on Utility or Performance of 

Products 

5. Impact of Any Lessening of Competition 

6. Need of the Nation To Conserve Energy 

7. Other Factors 

8. Summary of Economic Impacts 

C. Conclusion 

1. Benefits and Burdens of TSLs 

Considered for Gas-fired Instantaneous 

Water Heater Standards 

2. Annualized Benefits and Costs of the 

Adopted Standards 

3. Compliance Dates 

VI. Procedural Issues and Regulatory Review 

A. Review Under Executive Orders 12866, 

13563, and 14094 

B. Review Under the Regulatory Flexibility 

Act 

C. Review Under the Paperwork Reduction 

Act 

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. Information Quality 

M. Congressional Notification 

VII. Approval of the Office of the Secretary 

I. Synopsis of the Final Rule 

The Energy Policy and Conservation 

Act, Public Law 94–163, as amended 

(‘‘EPCA’’),1 authorizes DOE to regulate 

the energy efficiency of a number of 

consumer products and certain 

industrial equipment. (42 U.S.C. 6291– 

6317, as codified) Title III, Part B of 

EPCA 2 established the Energy 

Conservation Program for Consumer 

Products Other Than Automobiles. (42 

U.S.C. 6291–6309) These products 

include gas-fired instantaneous water 

heaters, the subject of this document. 

(42 U.S.C. 6292(a)(4)) 

Pursuant to EPCA, DOE is required to 

review its existing energy conservation 

standards for covered consumer 

products no later than six years after 

issuance of any final rule establishing or 

amending a standard. (42 U.S.C. 

6295(m)(1)) Pursuant to that statutory 

provision, DOE must publish either a 

notification of determination that 

standards for the product do not need to 

be amended, or a notice of proposed 

rulemaking (‘‘NOPR’’) including new 

proposed energy conservation standards 

(proceeding to a final rule, as 

appropriate). (Id.) Any new or amended 

energy conservation standard must be 

designed to achieve the maximum 

improvement in energy efficiency that 

DOE determines is technologically 

feasible and economically justified. (42 

U.S.C. 6295(o)(2)(A)) Furthermore, the 

new or amended standard must result in 

significant conservation of energy. (42 

U.S.C. 6295(o)(3)(B)) DOE has 

conducted this review of the energy 

conservation standards for gas-fired 

instantaneous water heaters under 

EPCA’s six-year-lookback authority 

described herein. Additionally, for gasfired instantaneous water heaters with 2 

or more gallons of storage volume and 

gas-fired instantaneous water heaters 

with less than or equal to 50,000 British 

thermal units per hour (‘‘Btu/h’’) of 

input, DOE is following the provisions 

in EPCA to translate the current energy 

factor (‘‘EF’’)-based standards to the 

uniform energy factor (‘‘UEF’’) metric. 

(42 U.S.C. 6295(e)(5)) 

In accordance with these and other 

statutory provisions discussed in this 

document, DOE analyzed the benefits 

and burdens of four trial standard levels 

(‘‘TSLs’’) for gas-fired instantaneous 

water heaters with less than 2 gallons of 

effective storage volume and rated 

inputs greater than 50,000 Btu/h. The 

TSLs and their associated benefits and 

burdens are discussed in detail in 

sections V.A through V.C of this 

document. As discussed in section V.C 

of this document, DOE has determined 

that TSL 2 represents the maximum 

improvement in energy efficiency that is 

technologically feasible and 

economically justified. The adopted 

standards, which are expressed in UEF 

are shown in table I.1. These standards 

apply to products with effective storage 

volumes less than 2 gallons and input 

ratings greater than 50,000 Btu/h (as 

listed in table I.1) and manufactured in, 

or imported into, the United States 

starting on December 26, 2029. 

For all other gas-fired instantaneous 

water heaters, DOE is adopting new 

standards that do not constitute an 

increase to stringency, but simply a 

change in rating metric to the UEF 

descriptor. These standards apply to all 

remaining products listed in table I.1 

and manufactured in, or imported into, 

the United States starting on December 

26, 2029. 

TABLE I.1—ENERGY CONSERVATION STANDARDS FOR GAS-FIRED INSTANTANEOUS WATER HEATERS

Product class Effective storage volume (Veff) * and input rating Draw pattern UEF 

Gas-fired Instantaneous Water Heater ...... <2 gallons (‘‘gal’’) and ≤50,000 Btu/h ...................... Very Small ........ 0.64 

Low ................... 0.64 

Medium ............. 0.64 

High .................. 0.64 

<2 gal and >50,000 Btu/h ........................................ Very Small ........ 0.89 

Low ................... 0.91 

Medium ............. 0.91 

High .................. 0.93 

≥2 gal and ≤200,000 Btu/h ...................................... Very Small ........ 0.2534¥(0.0018 × Veff) 

Low ................... 0.5226¥(0.0022 × Veff) 

Medium ............. 0.5919¥(0.0020 × Veff) 

High .................. 0.6540¥(0.0017 × Veff) 

* Veff is the Effective Storage Volume (in gallons), as determined pursuant to 10 CFR 429.17. 


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105190 Federal Register / Vol. 89, No. 247 / Thursday, December 26, 2024 / Rules and Regulations 

3All monetary values in this document are 

expressed in 2023 dollars unless indicated 

otherwise. For purposes of discounting future 

monetary values, the present year in the analysis 

was 2024. 

4The average LCC savings refer to consumers that 

are affected by a standard and are measured relative 

to the efficiency distribution in the no-newstandards case, which depicts the market in the 

compliance year in the absence of new or amended 

standards (see section IV.F.9 of this document). The 

simple PBP, which is designed to compare specific 

efficiency levels, is measured relative to the 

baseline product (see section IV.C of this 

document). 

5The quantity refers to full-fuel-cycle (‘‘FFC’’) 

energy savings. FFC energy savings 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 efficiency 

standards. For more information on the FFC metric, 

see section IV.H.2 of this document. 

6A metric ton is equivalent to 1.1 short tons. 

Results for emissions other than CO2 are presented 

in short tons. 

7 DOE calculated emissions reductions relative to 

the no-new-standards case, which reflects key 

assumptions in the Annual Energy Outlook 2023 

(‘‘AEO2023’’). AEO2023 reflects, to the extent 

possible, laws and regulations adopted through 

mid-November 2022, including the Inflation 

Reduction Act. See section IV.K of this document 

for further discussion of AEO2023 assumptions that 

affect air pollutant emissions. 

8Estimated climate-related benefits are provided 

in compliance with Executive Order 12866. 

9Technical Support Document: Social Cost of 

Carbon, Methane, and Nitrous Oxide Interim 

Estimates Under Executive Order 13990 published 

in February 2021 by the IWG. (‘‘February 2021 SC– 

GHG TSD’’). www.whitehouse.gov/wp-content/ 

uploads/2021/02/TechnicalSupportDocument_

SocialCostofCarbonMethaneNitrousOxide.pdf. 

https://www.epa.gov/system/files/documents/2023- 

12/eo12866_oil-and-gas-nsps-eg-climate-review2060-av16-final-rule-20231130.pdf; https://

www.epa.gov/system/files/documents/2023-12/epa_

scghg_2023_report_final.pdf (last accessed July 3, 

2024). 

10U.S. EPA. Estimating the Benefit per Ton of 

Reducing Directly-Emitted PM2.5, PM2.5 Precursors 

and Ozone Precursors from 21 Sectors. Available at: 

www.epa.gov/benmap/estimating-benefit-tonreducing-pm25-precursors-21-sectors. 

11 DOE estimates the economic value of these 

emissions reductions resulting from the considered 

TSLs for the purpose of complying with the 

requirements of Executive Order 12866. 

The following sections of this 

synopsis summarize the findings of the 

analysis carried out for gas-fired 

instantaneous water heaters with less 

than 2 gallons of effective storage 

volume and rated inputs greater than 

50,000 Btu/h. 

A. Benefits and Costs to Consumers 3

The average life-cycle cost (‘‘LCC’’) 

savings are $112, and the simple 

payback period (‘‘PBP’’),4 8.9 years, is 

less than the 20-year average lifetime of 

a gas-fired instantaneous water heater 

(see section IV.F of this document). 

DOE’s analysis of the impacts of the 

adopted standards on consumers is 

described in section IV.F of this 

document. 

B. Impact on Manufacturers 

The industry net present value 

(‘‘INPV’’) is the sum of the discounted 

cash flows to the industry from the base 

year through the end of the analysis 

period (2024–2059). Using a real 

discount rate of 9.6 percent, DOE 

estimates that the INPV for 

manufacturers of gas-fired instantaneous 

water heaters in the case without 

amended standards is $1,193.9 million 

in 2023$. Under the adopted standards, 

DOE estimates the change in INPV to 

range from ¥2.8 percent to 3.4 percent, 

which is approximately ¥$33.7 million 

to $40.5 million. In order to bring 

products into compliance with amended 

standards, it is estimated that industry 

will incur total conversion costs of 

$20.4 million. 

DOE’s analysis of the impacts of the 

adopted standards on manufacturers is 

described in section IV.J of this 

document. The analytic results of the 

manufacturer impact analysis (‘‘MIA’’) 

are presented in section V.B.2 of this 

document. 

C. National Benefits and Costs 

DOE’s analyses indicate that the 

adopted energy conservation standards 

for gas-fired instantaneous water heaters 

would save a significant amount of 

energy. Relative to the case without 

amended standards, the lifetime energy 

savings for gas-fired instantaneous water 

heaters purchased during the 30-year 

period that begins in the anticipated 

year of compliance with the amended 

standards (2030–2059), amount to 0.58 

quadrillion British thermal units 

(‘‘Btu’’), or quads.5 This represents a 

savings of 1.9 percent relative to the 

energy use of these products in the case 

without amended standards (referred to 

as the ‘‘no-new-standards case’’). 

The cumulative net present value 

(‘‘NPV’’) of total consumer benefits of 

the standards for gas-fired instantaneous 

water heaters ranges from $0.87 billion 

(at a 7-percent discount rate) to $3.06 

billion (at a 3-percent discount rate). 

This NPV expresses the estimated total 

value of future operating-cost savings 

minus the estimated increased product 

and installation costs for gas-fired 

instantaneous water heaters purchased 

during the period 2030–2059. 

In addition, the adopted standards for 

gas-fired instantaneous water heaters are 

projected to yield significant 

environmental benefits. DOE estimates 

that the standards will result in 

cumulative emission reductions (over 

the same period as for energy savings) 

of 32 million metric tons (‘‘Mt’’) 6 of 

carbon dioxide (‘‘CO2’’), 0.12 thousand 

tons of sulfur dioxide (‘‘SO2’’), 86 

thousand tons of nitrogen oxides 

(‘‘NOX’’), 398 thousand tons of methane 

(‘‘CH4’’), 0.06 thousand tons of nitrous 

oxide (‘‘N2O’’), and an increase of 

0.0004 tons of mercury (‘‘Hg’’) due to a 

small increase in electricity use at the 

adopted standards.7

DOE estimates the value of climate 

benefits from a reduction in greenhouse 

gases (‘‘GHG’’) using different estimates 

of the social cost of CO2 (‘‘SC–CO2’’), the 

social cost of methane (‘‘SC–CH4’’), and 

the social cost of nitrous oxide (‘‘SC– 

N2O’’).8 Together these represent the 

social cost of GHG (‘‘SC–GHG’’). DOE 

used an updated set of SC–GHG 

estimates published in 2023 by the 

Environmental Protection Agency 

(‘‘EPA’’) (‘‘2023 SC–GHG’’), as well as 

the interim SC–GHG values (in terms of 

benefit per ton of GHG avoided) 

developed by an Interagency Working 

Group on the Social Cost of Greenhouse 

Gases (‘‘IWG’’) in 2021 (‘‘2021 Interim 

SC–GHG’’), which DOE used in the 

notice of proposed rulemaking for this 

rule before the updated values were 

available.9 These values is discussed in 

section IV.L of this document. The 

climate benefits associated with the 

average SC–GHG at a 2-percent nearterm Ramsey discount rate using the 

2023 SC–GHG estimates are estimated to 

be $7.1 billion, and the climate benefits 

associated with the average 2021 

Interim SC–GHG estimates at a 3- 

percent discount rate are estimated to be 

$1.7 billion. DOE notes, however, that 

the adopted standards would be 

economically justified even without 

inclusion of the estimated monetized 

benefits of reduced GHG emissions. 

DOE estimated the monetary health 

benefits of SO2 and NOX emissions 

reductions using benefit per ton 

estimates from the EPA’s Benefits 

Mapping and Analysis Program,10 as 

discussed in section IV.L of this 

document. DOE did not monetize the 

change in mercury emissions because 

the quantity is very small. DOE 

estimated the present value of the health 

benefits would be $0.9 billion using a 7- 

percent discount rate, and $2.7 billion 

using a 3-percent discount rate.11 DOE 

is currently only monetizing health 

benefits from changes in ambient fine 

particulate matter (‘‘PM2.5’’) 

concentrations from two precursors 

(SO2 and NOX), and from changes in 

ambient ozone from one precursor 

(NOX), but will continue to assess the 

ability to monetize other effects such as 

health benefits from reductions in direct 

PM2.5 emissions. 

Table I.2 summarizes the monetized 

benefits and costs expected to result 

from the amended standards for gasVerDate Sep<11>2014 20:37 Dec 23, 2024 Jkt 265001 PO 00000 Frm 00004 Fmt 4701 Sfmt 4700 E:\FR\FM\26DER2.SGM 26DER2

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Federal Register / Vol. 89, No. 247 / Thursday, December 26, 2024 / Rules and Regulations 105191 

fired instantaneous water heaters. There 

are other important unquantified effects, 

including certain unquantified climate 

benefits, unquantified public health 

benefits from the reduction of toxic air 

pollutants and other emissions, 

unquantified energy security benefits, 

and distributional effects, among others. 

TABLE I.2—SUMMARY OF MONETIZED BENEFITS AND COSTS OF THE ADOPTED ENERGY CONSERVATION STANDARDS FOR

GAS-FIRED INSTANTANEOUS WATER HEATERS AT TSL 2 SHIPPED DURING THE PERIOD 2030–2059 

[Veff < 2 gal, Rated Input > 50,000 Btu/h] 

Billion 2023$ 

3% discount rate 

Consumer Operating Cost Savings ..................................................................................................................................................... 4.5 

Climate Benefits * (2023 SC–GHG estimates) .................................................................................................................................... 7.1 

Climate Benefits * (2021 interim SC–GHG estimates) ........................................................................................................................ 1.7 

Health Benefits ** ................................................................................................................................................................................. 2.7 

Total Benefits † (2023 SC–GHG estimates) ........................................................................................................................................ 14.3 

Total Benefits † (2021 interim SC–GHG estimates) ............................................................................................................................ 8.9 

Consumer Incremental Product Costs ‡ .............................................................................................................................................. 1.5 

Net Benefits † (2023 SC–GHG estimates) .......................................................................................................................................... 12.8 

Net Benefits † (2021 interim SC–GHG estimates) .............................................................................................................................. 7.4 

Change in Producer Cashflow (INPV) ‡‡ ............................................................................................................................................. (0.03)–0.04 

7% discount rate 

Consumer Operating Cost Savings ..................................................................................................................................................... 1.7 

Climate Benefits * (2023 SC–GHG estimates) .................................................................................................................................... 7.1 

Climate Benefits * (2021 interim SC–GHG estimates) ........................................................................................................................ 1.7 

Health Benefits ** ................................................................................................................................................................................. 0.9 

Total Benefits † (2023 SC–GHG estimates) ........................................................................................................................................ 9.6 

Total Benefits † (2021 interim SC–GHG estimates) ............................................................................................................................ 4.2 

Consumer Incremental Product Costs ‡ .............................................................................................................................................. 0.8 

Net Benefits † (2023 SC–GHG estimates) .......................................................................................................................................... 8.9 

Net Benefits † (2021 interim SC–GHG estimates) .............................................................................................................................. 3.4 

Change in Producer Cashflow (INPV) ‡‡ ............................................................................................................................................. (0.03)–0.04 

Note: These results include consumer, climate, and health benefits that accrue after 2030 from the products shipped during the period 2030– 

2059. 

* Climate benefits are calculated using different estimates of the social cost of carbon (SC–CO2), methane (SC–CH4), and nitrous oxide (SC– 

N2O). Climate benefits are estimated using two separate sets of estimates of the social cost for each greenhouse gas, an updated set published 

in 2023 by the Environmental Protection Agency (EPA) (‘‘2023 SC–GHG’’) and the interim set of estimates used in the NOPR which were published in 2021 by the Interagency Working Group on the SC–GHG (IWG) (‘‘2021 Interim SC–GHG’’) (see section IV.L of this document). For 

presentational purposes of this table, the climate benefits associated with the average SC–GHG at a 2 percent near-term Ramsey discount rate 

are shown for the 2023 SC–GHG estimates, and the climate benefits associated with the average SC–GHG at a 3 percent discount rate are 

shown for the 2021 interim SC–GHG estimates. 

** Health benefits are calculated using benefit-per-ton values for NOX and SO2. DOE is currently only monetizing (for SO2 and NOX) PM2.5 precursor health benefits and (for NOX) ozone precursor health benefits, but will continue to assess the ability to monetize other effects such as 

health benefits from reductions in direct PM2.5 emissions. Table 5 of the EPA’s Estimating the Benefit per Ton of Reducing PM2.5 Precursors 

from 21 Sectors TSD provides a summary of the health impact endpoints quantified in the analysis. See section IV.L of this document for more 

details. 

† Total and net benefits include those consumer, climate, and health benefits that can be quantified and monetized. For presentation purposes, 

total and net benefits for both the 3-percent and 7-percent cases are presented using the average SC–GHG with 2-percent near-term Ramsey 

discount rate for the 2023 estimate and the average SC–GHG with 3-percent discount rate for the 2021 interim SC–GHG estimate. 

‡ Costs include incremental equipment costs as well as installation costs. 

‡‡ Operating Cost Savings are calculated based on the life-cycle costs analysis and national impact analysis as discussed in detail below. See 

sections IV.F and IV.H of this document. DOE’s national impacts analysis includes all impacts (both costs and benefits) along the distribution 

chain beginning with the increased costs to the manufacturer to manufacture the product and ending with the increase in price experienced by 

the consumer. DOE also separately conducts a detailed analysis on the impacts on manufacturers (i.e., manufacturer impact analysis, or ‘‘MIA’’). 

See section IV.J of this document. In the detailed MIA, DOE models manufacturers’ pricing decisions based on assumptions regarding investments, conversion costs, cashflow, and margins. The MIA produces a range of impacts, which is the rule’s expected impact on the INPV. The 

change in INPV is the present value of all changes in industry cash flow, including changes in production costs, capital expenditures, and manufacturer profit margins. Change in INPV is calculated using the industry weighted average cost of capital value of 9.6 percent that is estimated in 

the MIA (see chapter 12 of the final rule technical support document (‘‘TSD’’) for a complete description of the industry weighted average cost of 

capital). For gas-fired instantaneous water heaters, the change in INPV ranges from ¥$34 million to $41 million. DOE accounts for that range of 

likely impacts in analyzing whether a TSL is economically justified. See section V.C of this document. DOE is presenting the range of impacts to 

the INPV under two manufacturer markup scenarios: the Preservation of Gross Margin scenario, which is the manufacturer markup scenario 

used in the calculation of Consumer Operating Cost Savings in this table; and the Preservation of Operating Profit scenario, where DOE assumed manufacturers would not be able to increase per-unit operating profit in proportion to increases in manufacturer production costs. DOE includes the range of estimated INPV in the above table, drawing on the MIA explained further in section IV.J of this document to provide additional context for assessing the estimated impacts of this final rule to society, including potential changes in production and consumption, which 

is consistent with OMB’s Circular A–4 and E.O. 12866. If DOE were to include the INPV into the net benefit calculation (2023 SC–GHG estimates) for this final rule, the net benefits would be $12.8 billion at 3-percent discount rate and $8.9 billion at 7-percent discount rate. Parentheses indicate negative ( ) values. 


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12To convert the time-series of costs and benefits 

into annualized values, DOE calculated a present 

value in 2024, 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 (e.g., 2020 or 2030), and then 

discounted the present value from each year to 

2024. 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. 

13 DOE notes that using consumption-based 

discount rates (e.g., 2 or 3 percent) is appropriate 

when discounting the value of climate impacts. 

Combining climate effects discounted at an 

appropriate consumption-based discount rate with 

other costs and benefits discounted at a capitalbased rate (i.e., 7 percent) is reasonable because of 

the different nature of the types of benefits being 

measured. 

The benefits and costs of the adopted 

standards can also be expressed in terms 

of annualized values. The monetary 

values for the total annualized net 

benefits are: (1) the reduced consumer 

operating costs, minus (2) the increase 

in product purchase prices and 

installation costs, plus (3) the value of 

climate and health benefits of emission 

reductions, all annualized.12

The national operating cost savings 

are domestic private U.S. consumer 

monetary savings that occur as a result 

of purchasing the covered products and 

are measured for the lifetime of gas-fired 

instantaneous water heaters shipped 

during the period 2030–2059. The 

benefits associated with reduced 

emissions achieved as a result of the 

adopted standards are also calculated 

based on the lifetime of gas-fired 

instantaneous water heaters shipped 

during the period 2030–2059. Total 

benefits for both the 3-percent and 7- 

percent cases are presented using the 

average SC–GHG with a 2 percent nearterm Ramsey discount rate for the 2023 

SC–GHG estimates and the average SC– 

GHG with 3-percent discount rate for 

the 2021 interim SC–GHG estimates.13

Table I.3 presents the total estimated 

monetized benefits and costs associated 

with the adopted standard, expressed in 

terms of annualized values. The results 

under the primary estimate are as 

follows. 

Using a 7-percent discount rate for 

consumer benefits and costs and health 

benefits from reduced NOX and SO2

emissions, and the 2-percent near-term 

Ramsey discount rate case or the 3- 

percent discount rate case for climate 

benefits from reduced GHG emissions, 

the estimated cost of the standards 

adopted in this rule is $88 million per 

year in increased equipment costs, 

while the estimated annual benefits are 

$187 million in reduced equipment 

operating costs, $349 million in climate 

benefits (using the 2023 SC–GHG 

estimates) or $98 million in climate 

benefits (using the 2021 interim SC– 

GHG estimates), and $101 million in 

health benefits. In this case, the net 

benefit would amount to $549 million 

per year (using the 2023 SC–GHG 

estimates) or $297 million per year 

(using the 2021 interim SC–GHG 

estimates). 

Using a 3-percent discount rate for 

consumer benefits and costs and health 

benefits from reduced NOX and SO2

emissions, and the 2-percent near-term 

Ramsey discount rate case or the 3- 

percent discount rate case for climate 

benefits from reduced GHG emissions, 

the estimated cost of the standards is 

$87 million per year in increased 

equipment costs, while the estimated 

annual benefits are $268 million in 

reduced operating costs, $349 million in 

climate benefits (using the 2023 SC– 

GHG estimates) or $98 million in 

climate benefits (using the 2021 interim 

SC–GHG estimates), and $158 million in 

health benefits. In this case, the net 

benefit would amount to $689 million 

per year (using the 2023 SC–GHG 

estimates) or $437 million per year 

(using the 2021 interim SC–GHG 

estimates). 

TABLE I.3—ANNUALIZED BENEFITS AND COSTS OF THE ADOPTED ENERGY CONSERVATION STANDARDS FOR GAS-FIRED

INSTANTANEOUS WATER HEATERS AT TSL 2 SHIPPED DURING THE PERIOD 2030–2059 

[Veff <2 gal, rated input >50,000 Btu/h] 

Million 2023$/year 

Primary 

estimate 

Low-netbenefits 

estimate 

High-netbenefits 

estimate 

3% discount rate 

Consumer Operating Cost Savings ............................................................................................. 268 249 288 

Climate Benefits * (2023 SC–GHG estimates) ............................................................................ 349 344 355 

Climate Benefits * (2021 interim SC–GHG estimates) ................................................................ 98 96 100 

Health Benefits ** ......................................................................................................................... 158 156 161 

Total Benefits † (2023 SC–GHG estimates) ................................................................................ 776 749 804 

Total Benefits † (2021 interim SC–GHG estimates) .................................................................... 525 502 548 

Consumer Incremental Product Costs ‡ ...................................................................................... 87 86 89 

Net Benefits † (2023 SC–GHG estimates) .................................................................................. 689 663 715 

Net Benefits † (2021 interim SC–GHG estimates) ...................................................................... 437 416 459 

Change in Producer Cashflow (INPV) ‡‡ .................................................................................... (3)–4 (3)–4 (3)–4 

7% discount rate 

Consumer Operating Cost Savings ............................................................................................. 187 174 200 

Climate Benefits * (2023 SC–GHG estimates) ............................................................................ 349 344 355 

Climate Benefits * (2021 interim SC–GHG estimates) ................................................................ 98 96 100 

Health Benefits ** ......................................................................................................................... 101 99 102 

Total Benefits † (2023 SC–GHG estimates) ................................................................................ 637 616 658 

Total Benefits † (2021 interim SC–GHG estimates) .................................................................... 386 369 402 

Consumer Incremental Product Costs ‡ ...................................................................................... 88 87 90 

Net Benefits † (2023 SC–GHG estimates) .................................................................................. 549 530 568 

Net Benefits † (2021 interim SC–GHG estimates) ...................................................................... 297 283 312 


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14The information on climate benefits is provided 

in compliance with Executive Order 12866. 

15Procedures, Interpretations, and Policies for 

Consideration in New or Revised Energy 

Conservation Standards and Test Procedures for 

Consumer Products and Commercial/Industrial 

Equipment, 86 FR 70892, 70901 (Dec. 13, 2021). 

TABLE I.3—ANNUALIZED BENEFITS AND COSTS OF THE ADOPTED ENERGY CONSERVATION STANDARDS FOR GAS-FIRED

INSTANTANEOUS WATER HEATERS AT TSL 2 SHIPPED DURING THE PERIOD 2030–2059—Continued 

[Veff <2 gal, rated input >50,000 Btu/h] 

Million 2023$/year 

Primary 

estimate 

Low-netbenefits 

estimate 

High-netbenefits 

estimate 

Change in Producer Cashflow (INPV) ‡‡ .................................................................................... (3)–4 (3)–4 (3)–4 

Note: These results include consumer, climate, and health benefits that accrue after 2059 from the products shipped during the period 2030– 

2059. The Primary, Low Net Benefits, and High Net Benefits Estimates utilize projections of energy prices from the AEO2023 Reference case, 

Low Economic Growth case, and High Economic Growth case, respectively. In addition, incremental equipment costs reflect a medium decline 

rate in the Primary Estimate, a low decline rate in the Low Net Benefits Estimate, and a high decline rate in the High Net Benefits Estimate. The 

methods used to derive projected price trends are explained in sections IV.F.1 and IV.H.3 of this document. Note that the Benefits and Costs 

may not sum to the Net Benefits due to rounding. 

* Climate benefits are calculated using different estimates of the global SC–GHG (see section IV.L of this document). Climate benefits are estimated using two separate sets of estimates of the social cost for each greenhouse gas, an updated set published in 2023 by the Environmental 

Protection Agency (EPA) (‘‘2023 SC–GHG’’) and the interim set of estimates used in the NOPR which were published in 2021 by the Interagency 

Working Group on the SC–GHG (IWG) (‘‘2021 Interim SC–GHG’’) (see section IV.L of this document). For presentational purposes of this table, 

the climate benefits associated with the average SC–GHG at a 2 percent near-term Ramsey discount rate are shown for the 2023 SC–GHG estimates, and the climate benefits associated with the average SC–GHG at a 3 percent discount rate are shown for the 2021 interim SC–GHG estimates. 

** Health benefits are calculated using benefit-per-ton values for NOX and SO2. DOE is currently only monetizing (for SO2 and NOX) PM2.5 precursor health benefits and (for NOX) ozone precursor health benefits, but will continue to assess the ability to monetize other effects such as 

health benefits from reductions in direct PM2.5 emissions. Table 5 of the EPA’s Estimating the Benefit per Ton of Reducing PM2.5 Precursors 

from 21 Sectors TSD provides a summary of the health impact endpoints quantified in the analysis. See section IV.L of this document for more 

details. 

† Total benefits for both the 3-percent and 7-percent cases are presented using the average SC–GHG with 2-percent near-term Ramsey discount rate for the 2023 estimate and the average SC–GHG with 3-percent discount rate for the 2021 interim SC–GHG estimate. 

‡ Costs include incremental equipment costs as well as installation costs. 

‡‡ Operating Cost Savings are calculated based on the life-cycle costs analysis and national impact analysis as discussed in detail below. See 

sections IV.F and IV.H of this document. DOE’s national impacts analysis includes all impacts (both costs and benefits) along the distribution 

chain beginning with the increased costs to the manufacturer to manufacture the product and ending with the increase in price experienced by 

the consumer. DOE also separately conducts a detailed analysis on the impacts on manufacturers (i.e., MIA). See section IV.J of this document. 

In the detailed MIA, DOE models manufacturers’ pricing decisions based on assumptions regarding investments, conversion costs, cashflow, and 

margins. The MIA produces a range of impacts, which is the rule’s expected impact on the INPV. The change in INPV is the present value of all 

changes in industry cash flow, including changes in production costs, capital expenditures, and manufacturer profit margins. The annualized 

change in INPV is calculated using the industry weighted average cost of capital value of 9.6 percent that is estimated in the MIA (see chapter 

12 of the final rule TSD for a complete description of the industry weighted average cost of capital). For gas-fired instantaneous water heaters, 

the annualized change in INPV ranges from ¥$3 million to $4 million. DOE accounts for that range of likely impacts in analyzing whether a TSL 

is economically justified. See section V.C of this document. DOE is presenting the range of impacts to the INPV under two manufacturer markup 

scenarios: the Preservation of Gross Margin scenario, which is the manufacturer markup scenario used in the calculation of Consumer Operating 

Cost Savings in this table; and the Preservation of Operating Profit scenario, where DOE assumed manufacturers would not be able to increase 

per-unit operating profit in proportion to increases in manufacturer production costs. DOE includes the range of estimated annualized change in 

INPV in the above table, drawing on the MIA explained further in section IV.J of this document to provide additional context for assessing the estimated impacts of this final rule to society, including potential changes in production and consumption, which is consistent with OMB’s Circular 

A–4 and E.O. 12866. If DOE were to include the INPV into the annualized net benefit calculation (2023 SC–GHG estimates) for this final rule, 

the annualized net benefits would range from $686 million to $693 million at 3-percent discount rate and would range from $546 million to $553 

million at 7-percent discount rate. Parentheses indicate negative ( ) values. 

DOE’s analysis of the national impacts 

of the adopted standards is described in 

sections IV.H, IV.K, and IV.L of this 

document. 

D. Conclusion 

DOE concludes that the standards 

adopted in this final rule represent the 

maximum improvement in energy 

efficiency that is technologically 

feasible and economically justified, and 

would result in the significant 

conservation of energy. Specifically, 

with regards to technological feasibility 

products achieving these standard levels 

are already commercially available. As 

for economic justification, DOE’s 

analysis shows that the benefits of the 

standards exceed, to a great extent, the 

burdens of the standards. 

Using a 7-percent discount rate for 

consumer benefits and costs and NOX

and SO2 reduction benefits, and a 2- 

percent near-term Ramsey discount rate 

case or the 3-percent discount rate case 

for GHG social costs, the estimated cost 

of the standards for gas-fired 

instantaneous water heaters is $88 

million per year in increased product 

costs, while the estimated annual 

benefits are $187 million in reduced 

product operating costs, $349 million in 

climate benefits (using the 2023 SC– 

GHG estimates) or $98 million in 

climate benefits (using the 2021 interim 

SC–GHG estimates), and $101 million in 

health benefits. The net benefit amounts 

to $549 million per year (using the 2023 

SC–GHG estimates) or $297 million per 

year (using the 2021 interim SC–GHG 

estimates). DOE notes that the net 

benefits are substantial even in the 

absence of the climate benefits,14 and 

DOE would adopt the same standards in 

the absence of such benefits. 

The significance of energy savings 

offered by a new or amended energy 

conservation standard cannot be 

determined without knowledge of the 

specific circumstances surrounding a 

given rulemaking.15 For example, some 

covered products and equipment have 

most of their energy consumption occur 

during periods of peak energy demand. 

The impacts of these products on the 

energy infrastructure can be more 

pronounced than the impacts of 

products with relatively constant 

demand. Accordingly, DOE evaluates 

the significance of energy savings on a 

case-by-case basis. 


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16As noted previously, for editorial reasons, upon 

codification in the U.S. Code, Part B was 

redesignated Part A. 

As previously mentioned, the 

standards are projected to result in 

estimated national energy savings 

(‘‘NES’’) of 0.58 quads full-fuel-cycle 

(‘‘FFC’’), the equivalent of the primary 

annual energy use of 4 million homes. 

Based on these findings, DOE has 

determined the energy savings from the 

standard levels adopted in this final rule 

are ‘‘significant’’ within the meaning of 

42 U.S.C. 6295(o)(3)(B). A more detailed 

discussion of the basis for these 

conclusions is contained in the 

remainder of this document and the 

accompanying TSD. 

II. Introduction 

The following section briefly 

discusses the statutory authority 

underlying this final rule, as well as 

some of the relevant historical 

background related to the establishment 

of standards for gas-fired instantaneous 

water heaters, which, as discussed in 

section III.B of this document, are a 

subset of consumer water heaters. Gasfired instantaneous water heaters are 

defined at 10 CFR 430.2 as a water 

heater that uses gas as the main energy 

source, has a nameplate input rating less 

than 200,000 Btu/h, and contains no 

more than one gallon of water per 4,000 

Btu per hour of input. 

A. Authority 

EPCA authorizes DOE to regulate the 

energy efficiency of a number of 

consumer products and certain 

industrial equipment. (42 U.S.C. 6291– 

6317, as codified) Title III, Part B of 

EPCA 16 established the Energy 

Conservation Program for Consumer 

Products Other Than Automobiles. (42 

U.S.C. 6291–6309) These products 

include gas-fired instantaneous water 

heaters, the subject of this document. 

(42 U.S.C. 6292(a)(4)) 

The energy conservation program 

under EPCA, consists essentially of four 

parts: (1) testing, (2) labeling, (3) the 

establishment of Federal energy 

conservation standards, and (4) 

certification and enforcement 

procedures. Relevant provisions of 

EPCA specifically include definitions 

(42 U.S.C. 6291), test procedures (42 

U.S.C. 6293), labeling provisions (42 

U.S.C. 6294), energy conservation 

standards (42 U.S.C. 6295), and the 

authority to require information and 

reports from manufacturers (42 U.S.C. 

6296). 

Federal energy efficiency 

requirements for covered products 

established under EPCA generally 

supersede State laws and regulations 

concerning energy conservation testing, 

labeling, and standards. (42 U.S.C. 

6297(a)–(c)) DOE may, however, grant 

waivers of Federal preemption in 

limited circumstances for particular 

State laws or regulations, in accordance 

with the procedures and other 

provisions set forth under EPCA. (42 

U.S.C. 6297(d)) 

Subject to certain criteria and 

conditions, DOE is required to develop 

test procedures to measure the energy 

efficiency, energy use, or estimated 

annual operating cost of each covered 

product. (42 U.S.C. 6295(o)(3)(A) and 42 

U.S.C. 6295(r)) Manufacturers of 

covered products must use the 

prescribed DOE test procedure as the 

basis for certifying to DOE that their 

product complies with the applicable 

energy conservation standards and as 

the basis for any representations 

regarding the energy use or energy 

efficiency of the product. (42 U.S.C. 

6295(s) and 42 U.S.C. 6293(c)). 

Similarly, DOE must use these test 

procedures to evaluate whether a basic 

model complies with the applicable 

energy conservation standard(s). (42 

U.S.C. 6295(s)) The DOE test procedures 

for gas-fired instantaneous water heaters 

appear at title 10 of the Code of Federal 

Regulations (‘‘CFR’’) part 430, subpart B, 

appendix E (‘‘appendix E’’). 

EPCA prescribed energy conservation 

standards for gas-fired instantaneous 

water heaters (42 U.S.C. 6295(e)(1)) and 

directed DOE to conduct future 

rulemakings to determine whether to 

amend these standards. (42 U.S.C. 

6295(e)(4)) Not later than six years after 

the issuance of any final rule 

establishing or amending a standard, 

DOE must publish either a notice of 

determination (‘‘NOPD’’) that standards 

for the product do not need to be 

amended, or a NOPR including new 

proposed energy conservation standards 

(proceeding to a final rule, as 

appropriate). (42 U.S.C. 6295(m)(1)) 

DOE must make the analysis on which 

a NOPD or NOPR is based publicly 

available and provide an opportunity for 

written comment. (42 U.S.C. 6295(m)(2)) 

Not later than two years after a NOPR 

is issued, DOE must publish a final rule 

amending the energy conservation 

standard for the product. (42 U.S.C. 

6295(m)(3)(A)) 

DOE must follow specific statutory 

criteria for prescribing new or amended 

standards for covered products, 

including gas-fired instantaneous water 

heaters. Any new or amended standard 

for a covered product must be designed 

to achieve the maximum improvement 

in energy efficiency that the Secretary of 

Energy (‘‘Secretary’’) determines is 

technologically feasible and 

economically justified. (42 U.S.C. 

6295(o)(2)(A)) Furthermore, DOE may 

not adopt any standard that would not 

result in the significant conservation of 

energy. (42 U.S.C. 6295(o)(3)(B)) 

Moreover, DOE may not prescribe a 

standard if: (1) for certain products, 

including gas-fired instantaneous water 

heaters, no test procedure has been 

established for the product; or (2) DOE 

determines by rule that the 

establishment of such standard will not 

result in significant conservation of 

energy (or, for certain products, water), 

or 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, 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 after 

receiving comments on the proposed 

standard, and by considering, to the 

greatest extent practicable, the following 

seven statutory factors: 

(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 

considers relevant. 

(42 U.S.C. 6295(o)(2)(B)(i)(I)–(VII)) 

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)) 

EPCA, as codified, also contains what 

is known as an ‘‘anti-backsliding’’ 


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17The requirement for a consumer water heater 

test procedure using UEF as a metric, as well as the 

requirement for DOE to undertake a conversion 

factor rulemaking to translate existing consumer 

water heater standards denominated in terms of EF 

to ones denominated in terms of UEF, were part of 

the amendments to EPCA contained in the 

American Energy Manufacturing Technical 

Corrections Act (‘‘AEMTCA’’), Public Law 112–210 

(Dec. 18, 2012). 

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 the evidence that 

the standard is likely to result in the 

unavailability in the United States in 

any covered product type (or class) of 

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)) 

Additionally, EPCA specifies 

requirements when promulgating an 

energy conservation standard for a 

covered product that has two or more 

subcategories. A rule prescribing an 

energy conservation standard for a type 

(or class) of product must specify a 

different standard level for a type or 

class of products 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 which 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 considers such factors as 

the utility to the consumer of such a 

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)) 

Finally, pursuant to the amendments 

to EPCA contained in the Energy 

Independence and Security Act of 2007, 

Public Law 110–140, any final rule for 

new or amended 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)) 

DOE is publishing this final rule 

pursuant to the six-year-lookback 

review requirement in EPCA described 

herein for gas-fired instantaneous water 

heaters with less than 2 gallons of 

effective storage volume and rated 

inputs greater than 50,000 Btu/h. (42 

U.S.C. 6295(m)) DOE is also publishing 

this final rule pursuant to its authority 

to establish uniform efficiency 

descriptors for covered water heaters (42 

U.S.C. 6295(e)(5)) 

B. Background 

1. Current Standards 

As directed by EPCA (42 U.S.C. 

6295(e)(4)), DOE conducted two cycles 

of rulemakings to determine whether to 

amend the statutory standards for 

consumer water heaters found in 42 

U.S.C. 6295(e)(1). The most recent 

rulemaking from April 2010 resulted in 

amended standards using the EF metric 

originally prescribed by EPCA with a 

requirement for compliance starting on 

April 16, 2015. 75 FR 20112 (Apr. 16, 

2010) (the ‘‘April 2010 Final Rule’’). 

Later amendments to EPCA directed 

DOE to establish a uniform efficiency 

metric for consumer water heaters (see 

42 U.S.C. 6295(e)(5)(B)).17 The Federal 

test procedure was revised to use a new 

metric, UEF, in a final rule published on 

July 11, 2014 (the ‘‘July 2014 UEF TP 

Final Rule’’). 79 FR 40542. In a final 

rule published in the Federal Register 

on December 29, 2016, the existing EFbased energy conservation standards 

were then translated from EF to UEF 

using a ‘‘conversion factor’’ method for 

water heater basic models that were in 

existence at the time. 81 FR 96204 

(‘‘December 2016 Conversion Factor 

Final Rule’’). 

The resulting standards for gas-fired 

instantaneous water heaters set forth in 

DOE’s regulations at 10 CFR 

430.32(d)(1) are shown in table II.1. 

TABLE II.1—FEDERAL ENERGY EFFICIENCY STANDARDS FOR GAS-FIRED INSTANTANEOUS WATER HEATERS

Product class Rated storage volume and input rating Draw pattern * Uniform 

energy factor 

Instantaneous Gas-fired Water Heater ............................... <2 gal and >50,000 Btu/h ................................... Very Small ........ 0.80 

Low ................... 0.81 

Medium ............. 0.81 

High .................. 0.81 

* The draw pattern dictates the frequency and duration of hot water draws during the 24-hour simulated use test, and is an indicator of delivery 

capacity of the water heater. Draw patterns are assigned based on the first hour rating (‘‘FHR’’), for non-flow-activated water heaters, or maximum GPM rating (‘‘Max GPM’’), for flow-activated water heaters. For the specific FHR and Max GPM ranges which correspond to each draw 

pattern, see section 5.4.1 of appendix E to subpart B of 10 CFR part 430. 

In the December 2016 Conversion 

Factor Final Rule, DOE declined to 

develop conversion factors and UEFbased standards for consumer water 

heaters of certain sizes (by rated storage 

volume or input rating) and of certain 

types (i.e., oil-fired instantaneous water 

heaters) where models did not exist on 

the market at the time to inform the 

analysis of the standards conversion. 81 

FR 96204, 96210–96211. For consumer 

water heaters that did not receive 

converted UEF-based standards, DOE 

provided its interpretation that the 

original statutory standards—found at 

42 U.S.C. 6295(e)(1) and expressed in 

terms of the EF metric—still applied; 

however, DOE would not enforce those 

statutorily-prescribed standards until 

such a time that conversion factors are 

developed for these products and they 

can be converted to UEF. Id. Thus, the 

EF-based standards specified by EPCA 

apply to any consumer water heaters 

which do not have UEF-based standards 

found at 10 CFR 430.32(d). The EFbased standards for gas-fired 

instantaneous water heaters which do 

not have UEF-based standards are set 


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forth at 42 U.S.C. 6295(e)(1) and are 

repeated in table II.2. 

TABLE II.2—EF-BASED FEDERAL ENERGY CONSERVATION STANDARDS FOR GAS-FIRED CONSUMER WATER HEATERS

Product class Energy factor * 

Gas water heaters .......................................................................................................................................................... 0.62¥(0.0019 × Vr) 

* Vr is the rated storage volume (in gallons), as determined pursuant to 10 CFR 429.17. 

2. History of Standards Rulemaking for 

Gas-Fired Instantaneous Water Heaters 

On May 21, 2020, DOE initiated the 

most recent rulemaking for consumer 

water heaters, including gas-fired 

instantaneous water heaters, by 

publishing in the Federal Register a 

request for information (‘‘May 2020 

RFI’’), soliciting public comment on 

various aspects of DOE’s planned 

analyses to help DOE determine 

whether to amend energy conservation 

standards for consumer water heaters. 

85 FR 30853 (May 21, 2020). DOE 

subsequently published a notice 

requesting feedback on its preliminary 

analysis and technical support 

document (‘‘preliminary TSD’’) on 

March 1, 2022 (the ‘‘March 2022 

Preliminary Analysis’’) with a 60-day 

comment period. 87 FR 11327 (Mar. 1, 

2022). The comment period was 

extended by 14 days in a notice 

published on May 4, 2022. 87 FR 26303. 

On October 21, 2022, DOE received a 

set of recommendations on amended 

energy conservation standards for 

consumer water heaters from a coalition 

of seven public- and private-sector 

organizations, including two water 

heater manufacturers, three energy 

efficiency organizations, one 

environmental group, and one consumer 

organization—collectively the Joint 

Stakeholders—which, in part, addressed 

standards for gas-fired instantaneous 

water heaters. This coalition’s 

submission has been referred to as the 

‘‘Joint Stakeholder Recommendation.’’ 

(See Document No. 49 in Docket No. 

EERE–2017–BT–STD–0019.) 

On July 28, 2023, DOE published in 

the Federal Register a notice of 

proposed rulemaking (‘‘July 2023 

NOPR’’) and technical support 

document (‘‘NOPR TSD’’) with a 60-day 

comment period that proposed new and 

amended standards for consumer water 

heaters, including gas-fired 

instantaneous water heaters. 88 FR 

49058 (Jul. 28, 2023). On September 13, 

2023, DOE presented the proposed 

standards and accompanying analysis at 

a public meeting. The submissions DOE 

received in response to the July 2023 

NOPR pertaining to gas-fired 

instantaneous water heaters are listed in 

table II.3. 

TABLE II.3—LIST OF COMMENTERS WITH WRITTEN SUBMISSIONS SPECIFIC TO GAS-FIRED INSTANTANEOUS WATER

HEATERS IN RESPONSE TO THE JULY 2023 NOPR 

Commenter(s) Abbreviation Comment number 

in the docket Commenter type 

Individual ................................................................................................................ Hardy .......................... 0185 ..................... Individual. 

NPGA, APGA, AGA, and Rinnai ........................................................................... NPGA, APGA, AGA, 

and Rinnai.

0441 ..................... Trade Associations and Manufacturer. 

Carolinas Natural Gas Coalition ............................................................................ CNGC ......................... 0648 ..................... Trade Association. 

Jackson Energy Authority ...................................................................................... JEA ............................. 0865 ..................... Utility. 

Watertown Municipal Utilities ................................................................................ WMU ........................... 0872 ..................... Utility. 

Philadelphia Gas Works ........................................................................................ PGW ........................... 0886 ..................... Utility. 

Southeast Gas ....................................................................................................... Southeast Gas ............ 0887 ..................... Utility. 

Consumer Energy Alliance .................................................................................... CEA ............................ 0914 ..................... Consumer Advocate. 

American Society of Gas Engineers ..................................................................... ASGE .......................... 0976 ..................... Trade Association. 

Chesapeake Utilities Corporation .......................................................................... CHPK .......................... 1008 ..................... Utility. 

Georgia Office of the Attorney General ................................................................ Attorney General of 

GA.

1026 ..................... State Official/Agency. 

Advanced Water Heating Initiative ........................................................................ AWHI .......................... 1036 ..................... Efficiency Organization. 

Tennessee Attorney General’s Office ................................................................... Attorney General of 

TN.

1149 ..................... State Official/Agency. 

American Pipeline Contractors Association .......................................................... APCA .......................... 1152 ..................... Trade Association. 

Texas Public Policy Foundation ............................................................................ TPPF .......................... 1153 ..................... Academic Institute. 

Midwest Energy Efficiency Alliance, Northeast Energy Efficiency Partnerships, 

Northwest Energy Efficiency Alliance, South-central Partnership for Energy 

Efficiency as a Resource, Southeast Energy Efficiency Alliance, Southwest 

Energy Efficiency Project.

Joint Regional Advocacy Groups.1154 ..................... Efficiency Organizations. 

American Council for an Energy-Efficient Economy, Natural Resources Defense 

Council, Appliance Standards Awareness Project, Northwest Energy Efficiency Alliance, Consumer Federation of America, Rheem Manufacturing.

Joint Stakeholders ...... 1156 ..................... Coalition. 

Office of Governor Brian P. Kemp ........................................................................ Governor of GA .......... 1157 ..................... State Official/Agency. 

Bradford White Corporation ................................................................................... BWC ........................... 1164 ..................... Manufacturer. 

Air-Conditioning, Heating, and Refrigeration Institute ........................................... AHRI ........................... 1167 ..................... Trade Association. 

California Energy Commission .............................................................................. CEC ............................ 1173 ..................... State Official/Agency. 

Pacific Gas and Electric Company; Southern California Edison; and San Diego 

Gas & Electric Company; collectively, the California Investor-owned Utilities.

CA IOUs ..................... 1175 ..................... Utilities. 

Huntsville Utilities .................................................................................................. Huntsville Utilities ....... 1176 ..................... Utility Association. 

Rheem Manufacturing Company ........................................................................... Rheem ........................ 1177 ..................... Manufacturer. 

AGA, APGA, NPGA, Spire .................................................................................... Gas Association Commenters.1181 ..................... Utility Association. 

A.O. Smith Corporation ......................................................................................... A.O. Smith .................. 1182 ..................... Manufacturer. 

Rinnai America Corporation .................................................................................. Rinnai ......................... 1186 ..................... Manufacturer. 

Northwest Energy Efficiency Alliance .................................................................... NEEA .......................... 1199 ..................... Efficiency Organization. 

ONE Gas, Inc ........................................................................................................ ONE Gas .................... 1200 ..................... Utility. 

Noritz America Corporation ................................................................................... Noritz .......................... 1202 ..................... Efficiency Organization. 


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18The parenthetical reference provides a 

reference for information located in the docket of 

DOE’s rulemaking to develop energy conservation 

standards for consumer water heaters. (Docket No. 

EERE–2017–BT–STD–0019, which is maintained at: 

www.regulations.gov). The references are arranged 

as follows: (commenter name, comment docket ID 

number at page of that document). 

TABLE II.3—LIST OF COMMENTERS WITH WRITTEN SUBMISSIONS SPECIFIC TO GAS-FIRED INSTANTANEOUS WATER

HEATERS IN RESPONSE TO THE JULY 2023 NOPR—Continued 

Commenter(s) Abbreviation Comment number 

in the docket Commenter type 

Robert Bosch LLC ................................................................................................. Bosch .......................... 1204 ..................... Manufacturer. 

U.S. House of Representatives (Nine members, all from Georgia) ...................... U.S. House of Representatives.1205 ..................... Government Official/Agency. 

Subsequent to the July 2023 NOPR, 

DOE determined it would continue to 

consider comments prior to finalizing 

standards for gas-fired instantaneous 

water heaters, although standards for all 

other consumer water heaters were 

finalized in a rule published on May 6, 

2024 (‘‘May 2024 Final Rule’’). 89 FR 

37778. Most recently, DOE published a 

notice of data availability in the Federal 

Register on July 23, 2024 (‘‘July 2024 

NODA’’). 89 FR 59692. The purpose of 

the July 2024 NODA was to make 

publicly available a full set of analytical 

results specific to gas-fired 

instantaneous water heaters, including 

updates as compared to the analysis 

conducted for the July 2023 NOPR after 

considering the comments received. 

DOE received comments in response to 

the July 2024 NODA from the interested 

parties listed in table II.4. 

In response to the July 2024 NODA, 

a larger coalition of stakeholders cosigned a joint comment recommending 

standards for gas-fired instantaneous 

water heaters. This coalition— 

consisting of AHRI (a trade association 

representing the views of multiple 

manufacturers), three energy efficiency 

organizations, one environmental group, 

and one consumer organization— 

submitted the previous Joint 

Stakeholder Recommendation for 

renewed consideration by DOE. Hence 

the submission by this larger, more 

recent coalition is still referred to as the 

Joint Stakeholder Recommendation 

throughout this final rule. 

TABLE II.4—LIST OF COMMENTERS WITH WRITTEN SUBMISSIONS IN RESPONSE TO THE JULY 2024 NODA 

Commenter(s) Abbreviation Comment number 

in the docket Commenter type 

Sophie Charlotte DuBard-Weis .............................................................. DuBard-Weis ................................. 1430 ..................... Individual. 

Lucy Anderson ....................................................................................... Anderson ....................................... 1431 ..................... Individual. 

Anonymous ............................................................................................. Anonymous .................................... 1432 ..................... Individual. 

American Gas Association (AGA), American Public Gas Association 

(APGA), National Propane Gas Association (NPGA), and Rinnai 

America Corporation.

Joint Requesters ........................... 1433 ..................... Utility Associations; Manufacturer. 

Northwest Energy Efficiency Alliance .................................................... NEEA ............................................. 1434 ..................... Efficiency Organization. 

Rinnai America Corporation ................................................................... Rinnai ............................................ 1435, 1443 ........... Manufacturer. 

Rheem Manufacturing Company ........................................................... Rheem ........................................... 1436 ..................... Manufacturer. 

Air-Conditioning, Heating, and Refrigeration Institute ............................ AHRI .............................................. 1437 ..................... Trade Association. 

AHRI, ACEEE, ASAP, CFA, NRDC, and NEEA .................................... AHRI and the Joint Stakeholders .. 1438 ..................... Trade Association. 

American Gas Association (AGA), American Public Gas Association 

(APGA), and National Propane Gas Association (NPGA).

AGA et al ....................................... 1439 ..................... Utility Association. 

A.O. Smith Corporation .......................................................................... A.O. Smith ..................................... 1440 ..................... Manufacturer. 

Bradford White Corporation ................................................................... BWC .............................................. 1441 ..................... Manufacturer. 

Pacific Gas and Electric Company; Southern California Edison; and 

San Diego Gas & Electric Company; collectively, the California Investor-owned Utilities.

CA IOUs ........................................ 1442 ..................... Utility. 

ASAP, ACEEE, CFA, NCLC, NRDC, NBI, and NEEA .......................... Joint Advocates ............................. 1444 ..................... Efficiency Organization. 

U.S. House of Representatives (Three members, all from Georgia) .... U.S. House of Representatives ..... 1445 ..................... Government Official/Agency. 

A parenthetical reference at the end of 

a comment quotation or paraphrase 

provides the location of the item in the 

public record.18 To the extent that 

interested parties have provided written 

comments that are substantively 

consistent with any oral comments 

provided during the September 13, 

2023, public meeting, DOE cites the 

written comments throughout this final 

rule. DOE did not identify any oral 

comments provided during the 

September 13, 2023, public meeting that 

are not substantively addressed by 

written comments. 

III. General Discussion 

DOE developed this final rule after a 

review of the market for the subject gasfired instantaneous water heaters. DOE 

also considered comments, data, and 

information from interested parties that 

represent a variety of interests. This 

final rule addresses issues raised by 

these commenters. 

A. General Comments 

This section summarizes general 

comments received from interested 

parties regarding rulemaking timing and 

process. 

In response to the July 2024 NODA, 

the Joint Requesters recommended that 

DOE provide stakeholders with an 

additional 30 days (i.e., for a total of 60 

days) to comment. The Joint Requesters 

stated that the 30 days provided by DOE 

does not allow stakeholders to 

sufficiently analyze the NODA and the 

related documents, which appear to 

incorporate new data, use new 

methodologies, and reach different 

results from the July 2023 NOPR. The 

Joint Requesters further commented that 

their organizations had limited staff 

availability during the comment period. 

(Joint Requesters, No. 1433 at pp. 2–3) 

DOE notes the limited scope of the 

NODA and reiterates that the July 2024 

NODA updated only specific aspects of 

DOE’s analysis of potential amended 

energy conservation standards for gasfired instantaneous water heaters. The 

analysis from the July 2023 NOPR was 

updated to reflect the latest available 

versions of the data sources used. 

Overall, the cost-benefit analysis 


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19The number of comments reflects the number 

of individual party submissions. Specifically, form 

letters with multiple submissions count each 

submission individually. 

20Commenters who are directly referenced in this 

final rule and appear in table II.3 are not counted 

in these statistics because these submitters typically 

expressed detailed views that could not be 

generalized as either clear support or clear 

opposition for all aspects of the proposal. 

21One comment in support of the proposed 

standards, including the proposal for gas-fired 

instantaneous water heaters, had 8,357 signatories. 

methodology remains largely unchanged 

between the July 2024 NODA and the 

July 2023 NOPR (see 89 FR 59692, 

59693). Furthermore, this analysis has 

been subject to extensive stakeholder 

input and feedback throughout the 

course of this rulemaking. Commenters 

were provided a full 60-day comment 

period to review the July 2023 NOPR 

analysis, and the July 2024 NODA 

described in depth the specific areas 

where DOE’s analysis was updated 

while providing the rationale for each 

update. As such, DOE believes a 30-day 

comment period was appropriate for 

stakeholders to review a limited set of 

revisions to a previously published 

analysis and provide meaningful 

comments on the notice. (See Document 

No. 1446 in Docket No. EERE–2017–BT– 

STD–0019.) 

AGA et al. stated that due to the use 

of data designed for other natural gas 

appliances and not gas-fired 

instantaneous water heaters specifically, 

DOE should restart the rulemaking 

process for gas-fired instantaneous 

water heaters, or at a minimum issue a 

supplemental notice. (AGA et al., No. 

1439 at p. 1) 

In response, DOE notes that it 

published the July 2024 NODA to 

inform stakeholders of newly available 

data and results with respect to 

potential amended standards for gasfired instantaneous water heaters, a 

limited update to the July 2023 NOPR 

analysis. 

1. General Support 

In response to the July 2023 NOPR, 

DOE received 2,880 19 general 

comments (those which provided 

general remarks on the impact of the 

rulemaking) 20 with a significant 

number of commenters expressing 

support of the proposed standards— 

including those proposed for gas-fired 

instantaneous water heaters—and 

acknowledging the significant energy 

savings that would result from the 

adoption of the proposed standards.21

AWHI expressed support for more 

stringent standards for gas-fired 

instantaneous water heaters. (AWHI, 

No. 1036 at pp. 3–4) The Joint 

Stakeholders stated that the proposed 

standards for gas-fired instantaneous 

water heaters are consistent with their 

recommendations. (Joint Stakeholders, 

No. 1156 at p. 2) NEEA, the Joint 

Regional Advocacy Groups (citing the 

estimated FFC and monetary savings), 

and Bosch supported the proposed 

standards for gas-fired instantaneous 

water heaters. (NEEA, No. 1199 at p. 9; 

Joint Regional Advocacy Groups, No. 

1154 at p. 1; Bosch, No. 1204 at p. 2) 

Bosch commented that condensing gasfired instantaneous water heaters are 

readily available and widely accepted in 

the market, and can create significant 

energy savings and emissions 

reductions. Bosch stated that nearly 

every gas-fired instantaneous water 

heater manufacturer sells a condensinglevel product and, therefore, the 

required technology is well-understood 

and minimal research and development 

efforts would be required to achieve the 

proposed efficiency levels. (Bosch, No. 

1204 at p. 2) 

CEC and A.O. Smith also supported 

DOE’s proposed standards for gas-fired 

instantaneous water heaters because 

they would result in significant savings, 

lower monthly energy bills for 

homeowners, and also provide 

emissions benefits. CEC urged DOE to 

finalize the proposed standards as soon 

as possible. (CEC, No. 1173 at p. 12; 

A.O. Smith, No. 1182 at p. 14) 

Two individual commenters 

expressed support for the proposed 

rulemaking on the basis that clean 

energy is necessary for securing a 

peaceful and prosperous future and for 

the economic benefits that will result 

from the proposed rulemaking. (DuBardWeis, No. 1430 at p. 1; Anderson, No. 

1431 at p. 1) An anonymous commenter 

also expressed support for the proposed 

rulemaking on the basis of reducing 

emissions related to water heaters for 

the benefit of the planet. (Anonymous, 

No. 1432 at p. 2) 

2. Support for Updated Analysis and 

Standards at EL 2 

In response to the July 2024 NODA, 

DOE received the following comments 

in support of the updated analytical 

results and potential amended standards 

at efficiency level (‘‘EL’’) 2. 

NEEA, AHRI, AHRI and the Joint 

Stakeholders, the Joint Advocates, 

Rheem, and BWC expressed support for 

the standards proposed at EL 2 for gasfired instantaneous water heaters in the 

July 2023 NOPR, with NEEA, AHRI, 

AHRI and the Joint Stakeholders, the 

Joint Advocates, and BWC noting the 

significant national energy savings and 

LCC savings for consumers. NEEA, The 

Joint Advocates, and BWC stated that 

the proposed standard aligns with the 

Joint Stakeholder Recommendations 

made in 2022. AHRI and the Joint 

Stakeholders expressed concern that 

DOE had not yet adopted these 

standards and commented that the 

proposed levels would, enable a broad 

set of consumer options while meeting 

EPCA’s directives of achieving 

significant national energy savings as 

well as cost effectiveness and 

technological feasibility for consumers 

who install these products. The Joint 

Advocates supported DOE’s proposal to 

adopt EL 2 for gas-fired instantaneous 

water heaters because EL 2 represents 

an intermediate condensing level and 

reflects the Joint Stakeholder 

recommendations. The Joint Advocates 

further commented that DOE’s updated 

analysis in the NODA reinforces the 

economic and energy benefits of 

adopting EL 2 for gas-fired 

instantaneous water heaters and, while 

similar to those in the July 2023 NOPR, 

the updates in the July 2024 NODA 

improve the analysis. (NEEA, No. 1434 

at p. 1; Rheem, No. 1436 at p. 1; AHRI, 

No. 1437 at p. 2; AHRI and the Joint 

Stakeholders, No. 1438 at p. 1; BWC, 

No. 1441 at p. 1; Joint Advocates, No. 

1444, at pp. 1–2) 

NEEA commented that the July 2024 

NODA effectively updates the analysis 

for gas-fired instantaneous water heaters 

to thoroughly represent the market and 

better account for manufacturer impacts 

of updating standards for gas-fired 

instantaneous water heaters by updating 

from Energy Information 

Administration’s Residential Energy 

Consumption Survey (‘‘RECS’’) 2015 to 

RECS 2020 data, accounting for the use 

of concentric pipe venting for both 

condensing and non-condensing gasfired instantaneous water heaters, and 

updating the analysis to include outdoor 

installations of gas-fired instantaneous 

water heaters that don’t require venting 

or that require short through-the-wall 

vents. NEEA commented that according 

to DOE’s analysis, impacts on 

manufacturers from a condensing-level 

standard would be modest and 

potentially beneficial to domestic 

production. NEEA recommended that 

DOE quickly issue a final rule for gasfired instantaneous water heaters, as 

NEEA agreed with DOE that 

condensing-level standards at EL 2 

would be cost effective and deliver 

significant energy savings while having 

minimal negative impacts. (NEEA, No. 

1434 at pp. 1–3) 

Rheem recommended that DOE 

amend standards for gas-fired 

instantaneous water heaters to EL 2, 

stating that DOE’s analysis remains 

justified. (Rheem, No. 1436 at p. 1) BWC 

urged DOE to establish minimum energy 


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22BWC cited analytical results provided in the 

original Joint Stakeholder Recommendation 

(Document No. 49 in this docket), which relied on 

DOE’s results from the March 2022 Preliminary 

Analysis (see Joint Stakeholder, No. 49 at p. 5). 

DOE’s most up-to-date analysis provided in this 

final rule indicates a potential for 0.58 quads of 

national energy savings, with an average consumer 

LCC savings of $112. 

23 ‘‘Tankless’’ models are instantaneous water 

heaters with very little storage volume. These 

designs comprise the majority of consumer gas-fired 

instantaneous water heaters on the market today. 

24The commenter used the phrase ‘‘tank water 

heaters’’ but did not clarify how amended standards 

for gas-fired instantaneous water heaters would 

impede a market transition towards more efficient 

types of storage water heaters; however, they later 

reiterate the concern regarding a shift towards gasfired storage water heaters, which, in general, tend 

to have lower UEF ratings today compared to gasfired instantaneous water heaters. 

25 In West Virginia v. EPA, 597 U.S. 697 (2022), 

the Court expounded on the major questions 

doctrine, and held that agencies could not adopt 

rules with, as Rinnai put it, ‘‘significant economic, 

industry and consumer choice impacts’’ without 

having clear congressional authorization to do so. 

(Rinnai, No. 1443 at p. 24) 

conservation standards for gas-fired 

instantaneous water heaters at EL 2 as 

originally proposed in the July 2023 

NOPR and in accordance with the Joint 

Stakeholder Recommendation. BWC 

stated that establishing standards 

consistent with the Joint Stakeholder 

Recommendation would result in 

national energy savings of 0.8 quads and 

provide individual consumers average 

savings of $31 per year.22 (BWC, No. 

1441 at p. 1) 

3. General Opposition 

In response to the July 2023 NOPR, 

DOE received comments from several 

stakeholders raising concern over the 

impact of the proposed standards. 

An individual commenter requested 

careful consideration of the impacts of 

the proposed levels for gas-fired 

instantaneous water heaters on the 

economy. The individual commenter 

noted that they work at a propane 

company whose installation and 

servicing of tankless 23 water heaters is 

a large part of its income, asserting that 

the proposals, if adopted, could be 

detrimental to the economy. (Hardy, No. 

185 at p. 1) 

Commenters from the U.S. House of 

Representatives indicated that the 

popularity of non-condensing gas-fired 

instantaneous water heaters among 

homeowners and small business owners 

across the United States reflects the 

efficiency and affordability of the 

products. Additionally, the Commenters 

from the U.S. House of Representatives 

stated that restricting consumer access 

to gas-fired instantaneous water heaters 

by adopting higher standards would 

reduce consumer choice and increase 

product prices. (U.S. House of 

Representatives, No. 1205 at p. 1) Then, 

in response to the July 2024 NODA, the 

Commenters from the U.S. House of 

Representatives stated that gas-fired 

instantaneous water heaters are 

projected to reach 11 percent of the U.S. 

market by 2028 and that sales of noncondensing tankless water heaters from 

2005 to 2022 have saved 339 million 

MMBtus (0.34 quads) and 37.7 billion 

pounds (17 million metric tons) of 

carbon emissions. Commenters from the 

U.S. House of Representatives also 

stated that the July 2023 NOPR would 

eliminate the non-condensing gas-fired 

instantaneous water heaters while 

leaving costlier or higher emission 

profile products on the market. (U.S. 

House of Representatives, No. 1445 at p. 

1) 

Regarding stakeholders’ comments 

that the standards proposed in the July 

2023 NOPR would discourage adoption 

of gas-fired instantaneous water heaters, 

DOE notes that it expects the share of 

gas-fired instantaneous water heaters to 

continue to increase as a percentage of 

the overall U.S. market in both the nonew-standards case and standards cases. 

See section IV.F.10 for a discussion 

regarding why adoption of other types 

of water heaters in response to amended 

standards for gas-fired instantaneous 

water heaters is highly unlikely. 

Additionally, DOE notes that only onethird of gas-fired instantaneous water 

heaters shipped in 2024 were noncondensing models, with a market share 

that is projected to decrease even in the 

absence of amended standards. See 

section IV.G of this document and 

chapter 9 of the final rule TSD for 

additional information on DOE’s 

shipments analysis. 

In addition to emphasizing several of 

the points it made in response to the 

July 2023 NOPR, Rinnai claimed that, 

although the July 2024 NODA appears 

to make some adjustments for data 

provided by Rinnai as well as other 

inputs, methods and approaches, it does 

not sufficiently account for historic 

market data and trends, consumer 

decision making, product and 

installation costs, and concerns with 

modeling and methodology, nor does it 

suffice to meet statutory requirements 

relating to economic justification, 

significant energy savings, or product 

unavailability. Rinnai stated that the 

analysis in the July 2024 NODA does 

not change its conclusion that the 

proposed rule would limit the 

affordable, efficient options available to 

consumers, would impede a marketdriven shift toward more efficient 

storage-type water heaters,24 and would 

likely result in a net reduction in energy 

savings and an increase in carbon 

emissions. Rinnai therefore requested 

that DOE correct its claimed 

deficiencies and flaws in the July 2024 

NODA, issue a supplemental notice of 

proposed rulemaking to address these 

changes and allow thorough stakeholder 

input, and reconsider the July 2023 

NOPR’s proposed rule. Rinnai suggested 

that DOE should either maintain the 

existing standard for gas-fired 

instantaneous water heaters, or 

alternatively promulgate separate 

standards for condensing and noncondensing gas-fired instantaneous 

water heaters. (Rinnai, No. 1443 at pp. 

2–3) 

Rinnai raised concern with the 

condensing-level standards supported 

by the Joint Stakeholders, asserting that 

such standards would not adequately 

consider the gas-fired instantaneous 

water heater market and industry as a 

whole. Specifically, Rinnai expressed 

that it does not believe that noncondensing gas-fired instantaneous 

water heaters are ‘‘on the way out’’ of 

the market. According to Rinnai, the 

July 2024 NODA showed a projected 30 

percent of gas-fired instantaneous water 

heater sales in 2030 would be noncondensing models, consistent with 

current trends. Rinnai stated that it 

would suffer the direct impacts of this 

rule, being not only one of the leading 

manufacturers of gas-fired instantaneous 

water heaters in general but also the 

market leader in sales of noncondensing models, producing 

approximately 60 percent of the market 

share of non-condensing models. 

(Rinnai, No. 1443 at pp. 23–24) Rinnai 

argued that DOE’s consumer water 

heater rulemaking, and in particular its 

actions with regard to gas-fired 

instantaneous water heaters, depend 

heavily on DOE’s interpretation of 

several statutory provisions in EPCA. 

According to Rinnai, DOE’s 

interpretations of statutory provisions 

are not entitled to deference—for 

example, DOE’s interpretation of the 

unavailability provision, section 

6295(o)(4), the ‘‘significant conservation 

of energy’’ provision, section 6295(o)(3), 

the economic justification provision, 

section 6295(o)(2)(B), and the separate 

standards provision, section 6295(q). 

Rinnai expressed its concern that DOE’s 

consumer water heater rulemaking, in 

conjunction with its rulemaking 

proceedings on furnaces and boilers, 

represent a significant overhaul of the 

appliance manufacturing industry. 

Rinnai commented that, in line with the 

outcome of West Virginia v. EPA,25


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EPCA was not intended to allow DOE to 

favor one fuel or type of appliance over 

another or to reshape the appliance 

industry. (Rinnai, No. 1443 at pp. 23– 

24) 

DOE’s rulemaking to amend energy 

conservation standards for gas-fired 

instantaneous water heaters does not 

disallow the production, import, or sale 

of water heaters using any specific fuel 

type. Moreover, gas-fired instantaneous 

water heaters will not be made 

unavailable as a result of this 

rulemaking. Stakeholders have not 

indicated that raising standards for gasfired instantaneous water heaters would 

push consumers towards electric or oilfired water heaters—and such a case 

would be highly improbable based on 

DOE’s own analysis of consumer 

purchasing decisions. Instead, 

stakeholders such as Rinnai and the Gas 

Association Commenters appear to 

indicate that more-stringent standards 

for gas-fired instantaneous water heaters 

may impact shipments of other gas-fired 

water heaters, and these comments are 

discussed further in section IV.F.10 of 

this document. As such, there is no 

evidence to support Rinnai’s suggestion 

that DOE’s action ‘‘favors’’ one fuel type 

over another. Furthermore, since the 

statutory consumer water heater 

standards were established by EPCA at 

42 U.S.C. 6295(e)(1), DOE has 

maintained separate product classes 

(i.e., separate standards) for gas-fired, 

oil-fired, and electric water heaters. See 

10 CFR 430.32(d)(1)–(2). These separate 

product classes are consistent with the 

statutory provisions at 42 U.S.C. 

6295(q). 

DOE has statutory authority to 

routinely evaluate and address 

minimum efficiency levels for gas-fired 

instantaneous water heaters (and all 

other consumer water heaters). See 

section II.A of this document. As a 

general matter, energy conservation 

standards save energy by removing the 

least-efficient technologies and designs 

from the market. Discussed further in 

section IV.A.1 of this document, noncondensing gas-fired instantaneous 

water heaters use only one heat 

exchanger that operates at a higher 

temperature, whereas condensing gasfired instantaneous water heaters make 

use of corrosion-resistant condensing 

heat exchangers that can extract far 

more energy from the flue gases 

exhausted by combustion—causing the 

exhaust flue gases to condense into 

liquid (hence, the term ‘‘condensing’’). 

Because of this, condensing gas-fired 

instantaneous water heaters are a step 

up in efficiency from non-condensing 

products. The energy-saving purposes of 

EPCA would be frustrated if DOE were 

required to set standards that maintain 

less-energy-efficient covered products 

and equipment in the market based 

simply on the fact that they use a 

specific type of less-efficient design. 

DOE has evaluated the statutory 

criteria—technological feasibility, 

significant energy savings, and 

economic justification—and considered 

the application of the statutory 

‘‘unavailability provision’’ (see 42 

U.S.C. 6295(o)(4)) to determine the 

product class structure for gas-fired 

instantaneous water heaters; see section 

IV.A.1 of this document for further 

details. DOE has not sought to ‘‘reshape 

the appliance industry,’’ but rather to 

set standards in accordance with the 

statutory requirements of EPCA. 

Analytical results from multiple 

rulemakings indicate that certain 

segments of the space and water heating 

industries have made significant 

progress in transitioning the market 

towards more-efficient condensing 

products, and the analysis herein for 

gas-fired instantaneous water heaters 

also reflects this trend. As such, DOE is 

not setting condensing-level standards 

simply to increase the usage of 

condensing technology. Rather, DOE has 

found that condensing-level standards 

are justified for gas-fired instantaneous 

water heaters based on extensive 

analysis and review. 

4. Comments on Higher Standards Than 

Proposed in the NOPR 

EL 3 corresponds to the efficiency that 

would meet the current ENERGY STAR 

Specification version 5.0, and as such is 

an efficiency level that many 

manufacturers currently target. In the 

July 2023 NOPR, DOE tentatively 

determined that the additional benefits 

and savings from amended standards at 

EL 3 could be considered significant, 

but there was uncertainty as to whether 

manufacturing capacity of EL 3 models 

could be scaled up to meet national 

demand for gas-fired instantaneous 

water heaters. 88 FR 49058, 49161. 

While the July 2023 NOPR proposed 

standards at EL 2, DOE requested 

additional information on the benefits 

and burdens of a potential amended 

standard for gas-fired instantaneous 

water heaters at EL 3, especially with 

respect to manufacturers being able to 

scale their entire production to EL 3 in 

the compliance time frame being 

considered by this rulemaking. Id. 

In response, Bosch stated that EL 3 

would be significantly more difficult to 

reach compared to EL 2, adding that 

though EL 3 is feasible with current 

technology, the technology comes with 

increased complexity. Specifically, 

Bosch stated that the most significant 

challenge in raising the efficiency of a 

gas-fired instantaneous water heater 

from a UEF of 0.93 to 0.95 for the high 

draw pattern is the need for significant 

burner modulation. Bosch 

recommended DOE retain the EL 2 

proposal for gas-fired instantaneous 

water heaters. (Bosch, No. 1204 at pp. 

4–5) Noritz stated that EL 3 is 

significantly more difficult to reach than 

EL 2, due to complexity related to the 

software, controls, fan, and gas valve, as 

well as higher material costs due to 

increased heat exchanger surface area. 

(Noritz, No. 1202 at p. 3) BWC 

recommended against adopting 

standards for gas-fired instantaneous 

water heaters at EL 3 because this would 

be inconsistent with the Joint 

Stakeholder Recommendation, and the 

proposed standards at EL 2 already 

amount to substantial increase in 

efficiency. (BWC, No. 1164 at p. 16) 

Rheem stated that it does not support EL 

3 for gas-fired instantaneous water 

heaters as the costs to the manufacturer 

outweigh the benefit of the slight 

increase in UEF. Rheem further stated 

that EL 3 requires completely different 

condensing technology than EL 2 and 

will have significantly more impact on 

existing manufacturing facilities. 

(Rheem, No. 1177 at p. 13) 

AHRI stated that gas-fired 

instantaneous water heaters would 

experience more difficulty achieving EL 

3 compared to EL 2 due to increasing 

complexity, driven by designs 

incorporating full burner modulation. 

AHRI further stated that this would 

require substantial research and 

development and more expensive 

components. (AHRI, No. 1167 at pp. 12– 

13) 

CEC stated that if DOE received data 

in response to the request for 

information in the July 2023 NOPR, 

DOE should consider finalizing a 

standard consistent with EL 3 for gasfired instantaneous water heaters. (CEC, 

No. 1173 at p. 12) 

In response to the July 2023 NOPR, 

the CA IOUs encouraged DOE to set 

more stringent standards for gas-fired 

instantaneous water heaters, 

recommending that DOE establish the 

standards proposed at TSL 6 in the July 

2023 NOPR, equivalent to max-tech (i.e., 

EL 4). According to the CA IOUs, more 

stringent standards for all gas-fired 

consumer water heater sub-classes, 

specifically at condensing efficiencies, 

would result in significant savings of 

natural gas in California and across the 

United States. Regarding statements 

from some stakeholders that significant 

installation barriers are associated with 

gas condensing water heaters, the CA 

IOUs referred DOE to a report docketed 


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Federal Register / Vol. 89, No. 247 / Thursday, December 26, 2024 / Rules and Regulations 105201 

26EERE–2018–BT–ST–0018–0062. February 28, 

2019. Available at: www.regulations.gov/comment/ 

EERE-2018-BT-STD-0018-0062 (last accessed: Oct. 

1, 2024). 

27The term ‘‘current shipments’’ refers to no-newstandards shipments estimated to occur in 2024 (the 

reference year). 

in 2019 titled ‘‘Investigation of 

Installation Barriers and Costs for 

Condensing Gas Appliances.’’ 26 Key 

findings from this report indicate that 

these challenges impact less than 5 

percent of condensing gas retrofit 

installations for residential and 

commercial applications, and that 

condensate management and chimney 

relining were minor concerns for 

installing gas condensing products. (CA 

IOUs, No. 1175 at p. 2) In response to 

the July 2024 NODA, the CA IOUs 

reiterated that more-stringent efficiency 

standards for gas-fired instantaneous 

water heaters would conserve natural 

gas, reduce emissions, and lower utility 

payments for Californians. The CA IOUs 

stated that while a standard based on EL 

2 would generate between $0.13 billion 

($2022, at a 7-percent discount rate) and 

$0.47 billion ($2022, at a 3-percent 

discount rate) in consumer benefits for 

all Californians over 30 years, a 

standard based on EL 3 would generate 

between $0.21 billion ($2022, at a 7- 

percent discount rate) and $0.75 billion 

($2022, at a 3-percent discount rate) in 

consumer benefits for all Californians 

over the same time period. The CA IOUs 

stated that adoption of EL 3 would 

increase consumer benefits by 60 

percent relative to EL 2 and reiterated 

that EL 3 has the shortest simple 

payback period of any gas-fired 

instantaneous water heater efficiency 

level. The CA IOUs urged DOE to adopt 

a standard for gas-fired instantaneous 

water heaters based on EL 3. (CA IOUs, 

No. 1442 at pp. 1–2) 

In this final rule analysis, DOE finds 

that although EL 3 would present many 

consumer benefits, the average 

estimated simple payback period for EL 

3 is 8.3 years, whereas for EL 2 it is 8.9 

years, which is not strikingly different 

in the context of the product’s lifespan, 

which is estimated to be about 20 years. 

DOE acknowledges that setting 

standards at EL 3 for gas-fired 

instantaneous water heaters would 

require notably higher levels of 

investment compared to EL 2 for gasfired instantaneous water heaters. In 

this final rule, DOE is adopting TSL 2, 

which corresponds to EL 2 for gas-fired 

instantaneous water heaters. DOE notes 

that industry would need to 

significantly scale up production of 

models that meet EL 3 given the lower 

quantity of shipments of these models 

today. Approximately 60 percent of gasfired instantaneous water heater 

shipments currently meet the adopted 

level (i.e., EL 2).27 However, only 15 

percent of gas-fired instantaneous water 

heater shipments currently meet EL 3. 

To meet EL 3, DOE expects 

manufacturers would implement a more 

efficient heat exchanger design (e.g., 

replacing a tube condensing heat 

exchanger with a flat plate condensing 

heat exchanger) and increase the 

condensing heat exchanger area relative 

to EL 2. DOE understands that 

implementing the larger, improved 

condensing heat exchanger technology 

could increase the complexity of the 

manufacturing process compared to the 

tube design condensing heat exchanger 

technology analyzed at EL 1 and EL 2. 

Given the low shipments volumes and 

increased complexity of EL 3 models, 

DOE expects most manufacturers would 

need to add new production lines to 

maintain existing capacity at TSL 3. 

DOE does not expect most 

manufacturers would need to add new 

production lines or incur notable capital 

investments to meet TSL 2. DOE 

estimates that industry conversion costs 

at EL 2 would reach approximately $20 

million whereas industry conversion 

costs would triple at EL 3 

(approximately $60 million). See section 

V.B.2.a of this document for the 

estimated industry conversion costs at 

each TSL. See section V.C.1 of this 

document for the benefits and burdens 

of the TSLs considered in this 

rulemaking. 

B. Scope of Coverage 

Gas-fired instantaneous water heaters 

are a subset of consumer water heaters. 

Generally, DOE defines a ‘‘water 

heater,’’ consistent with EPCA’s 

definition at 42 U.S.C. 6291(27) and 

codified at 10 CFR 430.2, as a product 

which utilizes oil, gas, or electricity to 

heat potable water for use outside the 

heater upon demand. An instantaneoustype water heater is one that heats water 

but contains no more than one gallon of 

water per 4,000 Btu per hour of input, 

and consumer gas-fired instantaneous 

water heaters are additionally defined as 

having an input rating less than 200,000 

Btu per hour. 10 CFR 430.2; (42 U.S.C. 

6291(27)). 

This rulemaking does not cover gasfired circulating water heaters, which 

must be used in combination with 

recirculation pump and a storage tank or 

recirculation loop, and therefore 

constitute storage-type water heaters. 10 

CFR 430.2. 

As stated in section I of this 

document, EPCA prescribed energy 

conservation standards for all consumer 

water heaters (i.e., those that meet the 

definition of ‘‘water heater’’ above). For 

the purposes of this final rule, DOE is 

solely considering ‘‘gas-fired 

instantaneous water heaters,’’ including 

those for which there are no current 

UEF-based standards codified at 10 CFR 

430.32(d)(1). 

See section IV.A.1 of this document 

for discussion of the product classes 

analyzed in this final rule. 

C. Test Procedure 

EPCA sets forth generally applicable 

criteria and procedures for DOE’s 

adoption and amendment of test 

procedures. (42 U.S.C. 6293) 

Manufacturers of covered products must 

use these test procedures as the basis for 

certifying to DOE that their product 

complies with the applicable energy 

conservation standards and as the basis 

for any representations regarding the 

energy use or energy efficiency of the 

product. (42 U.S.C. 6295(s) and 42 

U.S.C. 6293(c)). Similarly, DOE must 

use these test procedures to evaluate 

whether a basic model complies with 

the applicable energy conservation 

standard(s). 10 CFR 429.110(e). The 

current test procedure for consumer and 

residential-duty commercial water 

heaters is codified at 10 CFR part 430, 

subpart B, appendix E. Appendix E 

includes provisions for determining 

UEF, the metric on which current 

standards are based. 10 CFR 

430.32(d)(1). 

DOE most recently amended the test 

procedure for these products at 

appendix E in the consumer and 

residential-duty commercial water 

heater test procedure final rule 

published on June 21, 2023 (‘‘June 2023 

TP Final Rule’’) pursuant to the 7-year 

review requirement as specified by 

EPCA. (42 U.S.C. 6293(b)(1)(A) and 42 

U.S.C. 6314(a)(1)(A)) In that final rule, 

DOE established effective storage 

volume (‘‘Veff’’) as a metric to address 

how much hot water could be 

immediately delivered by the system, 

taking into account the temperature of 

the stored water and, in the case of 

circulating water heaters, the volume of 

the paired storage tank. 88 FR 40406. 

The amended test procedure established 

by the June 2023 TP Final Rule is 

mandatory for gas-fired instantaneous 

water heater testing starting December 

18, 2023, 180 days after publication. Id. 

In response to the July 2023 NOPR, 

BWC reiterated its comments in 

response to the March 2022 Preliminary 

Analysis asserting that there is evidence 

to suggest that gas-fired instantaneous 

water heaters may gain an unfair 

advantage in the current test procedure 


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28 In applying these design options, DOE would 

only include those that are compatible with each 

other that when combined, would represent the 

theoretical maximum possible efficiency. 29 DOE also presents a sensitivity analysis that 

considers impacts for products shipped in a 9-year 

period. 

as compared to gas-fired storage water 

heaters. The commenter provided DOE 

with a study published by the Davis 

Energy Group, Inc. and requested that 

DOE elaborate on its disagreement with 

the outcome of that study. In particular, 

BWC pointed out that while gas-fired 

instantaneous water heaters are not 

subjected to standby losses like their 

storage-type counterparts, the number, 

timing, and frequency of draws required 

for these products causes the heat 

exchanger to be raised to temperature 

for each draw; and this, according to 

Davis Energy Group, Inc., can cause a 

bias toward higher efficiency ratings for 

gas-fired instantaneous water heaters. 

BWC requested further discussion on 

this topic to ensure that both types of 

gas-fired products are treated fairly. 

(BWC, No. 1164 at pp. 9–10) 

In response, DOE notes that the 

current test procedure for consumer 

water heaters is designed to represent 

generally how consumer water heaters 

are used in-field. As such, if one type of 

water heater generally receives higher 

efficiency ratings than another, it would 

be the result of that water heater type 

having a more efficient design for actual 

consumer usage patterns than the other. 

This difference would therefore not be 

a bias, but a reflection of actual 

differences in operating efficiency being 

captured by the test result. The Davis 

Energy Group, Inc. study cited by BWC 

shows the efficiency of the gas-fired 

instantaneous water heater that was 

tested was more affected by the time 

between water draws than that of the 

gas-fired storage water heater that was 

tested. That is, the efficiency of the gasfired instantaneous water heater 

degraded more when the time between 

water draws increased than did the gasfired storage water heater. However, for 

these findings to have any significance, 

DOE would also need evidence to show 

that the water draw sequencing of the 

current test procedure at appendix E is 

unrepresentative. The draw sequence 

was developed as a representative test 

method in the 2014 test procedure 

rulemaking that established the UEF test 

method, and it considered factors such 

as standby loss periods, test stand 

capabilities, and water heater recovery 

rates (see 79 FR 40542). In the absence 

of sufficient data provided by BWC or 

the Davis Energy Group, Inc. report 

demonstrating that the current test 

procedure is unrepresentative, DOE 

cannot conclude that the prescribed test 

method results in an unfair advantage 

for gas-fired instantaneous water heaters 

over gas-fired storage water heaters. In 

this standards analysis, DOE has relied 

on an efficiency-level approach to 

identify potential standards based on 

UEF ratings that are demonstrated 

(certified) for gas-fired instantaneous 

water heaters on the basis of testing 

under the DOE test procedure. 

Therefore, hypothetically, even if these 

products do benefit from factors in the 

test procedure that allow them to have 

higher UEF ratings, all gas-fired 

instantaneous water heaters would 

benefit equally, and the increase in UEF 

is reflected in product ratings and the 

efficiency levels selected for the 

analysis. By basing its analysis around 

commercially available products and 

their certified ratings in the product 

classes separately, DOE is ensuring that 

the standards it is setting for gas-fired 

instantaneous water heaters are 

reflective of these products’ 

performance under the appendix E test 

procedure. DOE used a similar approach 

for all other types of consumer water 

heaters (e.g., gas-fired storage water 

heaters) when it finalized amended 

standards in a May 6, 2024 final rule 

pertaining to those products. 89 FR 

37778. 

D. Technological Feasibility 

1. General 

As discussed, any new or amended 

energy conservation standard must be 

designed to achieve the maximum 

improvement in energy efficiency that 

DOE determines is technologically 

feasible and economically justified. (42 

U.S.C. 6295(o)(2)(A)) 

To determine whether potential 

amended standards would be 

technologically feasible, DOE first 

develops a list of all known 

technologies and design options that 

could improve the efficiency of the 

products or equipment that are the 

subject of the rulemaking. DOE 

considers technologies incorporated in 

commercially available products or in 

working prototypes to be 

‘‘technologically feasible.’’ 10 CFR part 

430, subpart C, appendix A, sections 

6(a)(3)(iii)(A) and 7(b)(1). Section IV.A.2 

of this document discusses the 

technology options identified by DOE 

for this analysis. For further details on 

the technology assessment conducted 

for this final rule, see chapter 3 of the 

final rule technical support document 

(‘‘TSD’’). 

After DOE has determined which, if 

any, technologies and design options are 

technologically feasible, it further 

evaluates each technology and design 

option in light of the following 

additional screening criteria: (1) 

practicability to manufacture, install, 

and service; (2) adverse impacts on 

product utility or availability; (3) 

adverse impacts on health or safety; and 

(4) unique-pathway proprietary 

technologies. 10 CFR part 430, subpart 

C, appendix A, sections 6(a)(3)(iii)(B) 

through (E) and 7(b)(2) through (5). 

Those technology options that are 

‘‘screened out’’ based on these criteria 

are not considered further. Those 

technology and design options that are 

not screened out are considered as the 

basis for higher efficiency levels that 

DOE could consider for potential 

amended standards. Section IV.B of this 

document discusses the results of this 

screening analysis conducted for this 

final rule. For further details on the 

screening analysis conducted for this 

final rule, see chapter 4 of the final rule 

TSD. 

2. Maximum Technologically Feasible 

Levels 

EPCA requires that for any proposed 

rule that prescribes an amended or new 

energy conservation standard, or 

prescribes no amendment or no new 

standard for a type (or class) of covered 

product, DOE must determine the 

maximum improvement in energy 

efficiency or maximum reduction in 

energy use that is technologically 

feasible for each type (or class) of 

covered products. (42 U.S.C. 6295(p)(1)) 

Accordingly, in the engineering 

analysis, DOE identifies the maximum 

efficiency level currently available on 

the market. DOE also defines a ‘‘maxtech’’ efficiency level, representing the 

maximum theoretical efficiency that can 

be achieved through the application of 

all available technology options retained 

from the screening analysis.28 In many 

cases, the max-tech efficiency level is 

not commercially available because it is 

not currently economically feasible. 

The max-tech levels that DOE 

determined for this analysis are 

described in section IV.C.1.a of this 

document and in chapter 5 of the final 

rule TSD. 

E. Energy Savings 

1. Determination of Savings 

For each TSL, DOE projected energy 

savings from application of the TSL to 

gas-fired instantaneous water heaters 

purchased during the 30-year period 

that begins in the first year of 

compliance with the amended standards 

(2030–2059).29 The savings are 

measured over the entire lifetime of 

products purchased during the 30-year 


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30The FFC metric is discussed in DOE’s 

statement of policy and notice of policy 

amendment. 76 FR 51282 (Aug. 18, 2011), as 

amended at 77 FR 49701 (Aug. 17, 2012). 

31The numeric threshold for determining the 

significance of energy savings established in a final 

rule published on February 14, 2020 (85 FR 8626, 

8670) was subsequently eliminated in a final rule 

published on December 13, 2021 (86 FR 70892). 

analysis period. DOE quantified the 

energy savings attributable to each TSL 

as the difference in energy consumption 

between each standards case and the nonew-standards case. The no-newstandards case represents a projection of 

energy consumption that reflects how 

the market for a product would likely 

evolve in the absence of amended 

energy conservation standards. 

DOE used its national impact analysis 

(‘‘NIA’’) spreadsheet models to estimate 

NES from potential amended standards 

for gas-fired instantaneous water 

heaters. The NIA spreadsheet model 

(described in section IV.H of this 

document) calculates energy savings in 

terms of site energy, which is the energy 

directly consumed by products at the 

locations where they are used. For 

electricity, DOE reports NES in terms of 

primary energy savings, which is the 

savings in the energy that is used to 

generate and transmit the site 

electricity. For natural gas, the primary 

energy savings are considered to be 

equal to the site energy savings. DOE 

also calculates NES in terms of FFC 

energy savings. 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.30 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.2 

of this document. 

2. Significance of Savings 

To adopt any new or amended 

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)) 

The significance of energy savings 

offered by a new or amended energy 

conservation standard cannot be 

determined without knowledge of the 

specific circumstances surrounding a 

given rulemaking.31 For example, some 

covered products and equipment have 

most of their energy consumption occur 

during periods of peak energy demand. 

The impacts of these products on the 

energy infrastructure can be more 

pronounced than the impacts of 

products with relatively constant 

demand. Accordingly, DOE evaluates 

the significance of energy savings on a 

case-by-case basis, taking into account 

the significance of cumulative FFC 

national energy savings, the cumulative 

FFC emissions reductions, and the need 

to confront the global climate crisis, 

among other factors. 

As stated, the standard levels adopted 

in this final rule are projected to result 

in NES of 0.58 quad, the equivalent of 

the primary annual energy use of about 

4 million homes. Based on the amount 

of FFC savings, the corresponding 

reduction in emissions, and the need to 

confront the global climate crisis, DOE 

has determined the energy savings from 

the standard levels adopted in this final 

rule are ‘‘significant’’ within the 

meaning of 42 U.S.C. 6295(o)(3)(B). 

F. Economic Justification 

1. Specific Criteria 

As noted previously, 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 

potential new or amended standards on 

manufacturers, DOE conducts a 

manufacturer impact analysis (‘‘MIA’’), 

as discussed in section IV.J of this 

document. First, DOE 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 NPV of 

the consumer costs and benefits 

expected to result from particular 

standards. DOE also evaluates the 

impacts of potential standards on 

identifiable subgroups of consumers 

that may be affected disproportionately 

by a 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 

analysis. 

The LCC is the sum of the purchase 

price of a product (including its 

installation) and the operating cost 

(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 discount rates appropriate 

for consumers. 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. 

The PBP is the estimated amount of 

time (in years) it takes consumers to 

recover the increased purchase cost 

(including installation) of a moreefficient 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. 

For its LCC and PBP analysis, DOE 

assumes that consumers will purchase 

the covered products in the first year of 

compliance with new or amended 

standards. The LCC savings for the 

considered efficiency levels are 

calculated relative to the case that 

reflects projected market trends in the 

absence of new or amended standards. 

DOE’s LCC and PBP analysis is 


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32U.S. Department of Energy’s Compliance 

Certification Database is available at 

regulations.doe.gov/certification-data (last accessed 

July 19, 2024). 

33Air-Conditioning, Heating and Refrigeration 

Institute’s Directory of Certified Product 

Performance is available at https://

ahridirectory.org/search/searchhome?

Returnurl=%2f (last accessed July 23, 2024). 

34California Energy Commission’s Modernized 

Appliance Efficiency Database System is available 

at cacertappliances.energy.ca.gov/Pages/Search/ 

AdvancedSearch.aspx (last accessed July 19, 2024). 

35ENERGY STAR Product Finder is available at 

www.energystar.gov/productfinder (last accessed 

July 22, 2024). 

discussed in further detail in section 

IV.F of this document. 

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 models to project 

NES. 

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 adopted 

in this document would not reduce the 

utility or performance of the gas-fired 

instantaneous water heaters under 

consideration in this rulemaking. 

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 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 

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)) To assist the 

Department of Justice (‘‘DOJ’’) in making 

such a determination, DOE transmitted 

copies of its proposed rule and the 

NOPR TSD to the Attorney General for 

review, with a request that the DOJ 

provide its determination on this issue. 

In its assessment letter responding to 

DOE, DOJ concluded that the proposed 

energy conservation standards for gasfired instantaneous water heaters are 

unlikely to substantially lessen 

competition. DOE is publishing the 

Attorney General’s assessment at the 

end of this final rule. 

In response to the July 2023 NOPR, 

Rinnai asserted that eliminating noncondensing gas-fired instantaneous 

water heaters from the market would 

create detrimental effects on 

competition by limiting consumer 

choice, raising prices on more efficient 

products, eliminating consumers’ option 

to make like-for-like product 

replacements, all of which would place 

Rinnai at a disadvantage as a smaller 

competitor in a concentrated water 

heater market. (Rinnai, No. 1186 at p. 7) 

In response to the July 2024 NODA, 

Rinnai commented that the consumer 

water heater market is already a highly 

concentrated market with three 

dominant players, and that moving to a 

standard for gas-fired instantaneous 

water heaters that requires condensing 

technology would impede competition. 

(Rinnai, No. 1443 at p. 22) 

DOE recognizes the importance of 

competition in the marketplace. For this 

final rule, DOE reviewed its Compliance 

Certification Database,32 AirConditioning, Heating, and Refrigeration 

Institute’s Directory of Certified Product 

Performance,33 California Energy 

Commission’s Modernized Appliance 

Efficiency Database System,34 and the 

ENERGY STAR Product Finder 

dataset 35 to ensure an up-to-date 

assessment of gas-fired instantaneous 

water heater manufacturers operating in 

the United States. Through its review, 

DOE identified 12 OEMs of gas-fired 

instantaneous water heaters subject to 

more stringent standards under this 

rulemaking. All 12 OEMs already 

manufacture condensing gas-fired 

instantaneous water heaters. Of these 12 

manufacturers, 10 manufacturers, 

including Rinnai, manufacture products 

that meet the standards adopted in this 

final rule. Collectively, these 10 OEMs 

offer 71 basic models (accounting for 51 

percent of model listings and 60 percent 

of shipments in 2024) that meet the 

adopted level (TSL 2). Thus, a variety of 

companies already participate in the 

condensing gas-fired instantaneous 

water heater market. Comparatively, 

only eight OEMs currently manufacture 

non-condensing gas-fired instantaneous 

water heaters. See chapter 3 of the final 

rule TSD for a complete list of 

manufacturers of gas-fired instantaneous 

water heaters. Based on Rinnai’s 

comments in response to the July 2023 

NOPR, DOE understands that Rinnai’s 

market share of non-condensing gasfired instantaneous water heaters is 60 

percent and their market share of 

condensing gas-fired instantaneous 

water heater sales is 20 percent. (Rinnai 

No. 1186 at p. 1) Given that all 12 

manufacturers already offer condensing 

gas-fired instantaneous water heater 

products, DOE does not anticipate 

lessening of competition in the gas-fired 

instantaneous water heater market; 

which is estimated to represent 14 

percent of the total consumer water 

heater market in 2030. As previously 

discussed, this conclusion is also 

supported by the DOJ’s assessment 

letter. 

f. Need for National Energy 

Conservation 

DOE also considers the need for 

national energy and water 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 the adopted 

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 of 

this document. 

DOE maintains that environmental 

and public health benefits associated 

with the more efficient use of energy are 

important to take into account when 

considering the need for national energy 

conservation. The adopted standards are 

likely to result in environmental 

benefits in the form of reduced 

emissions of air pollutants and GHGs 

associated with energy production and 

use. DOE conducts an emissions 

analysis to estimate how potential 

standards may affect these emissions, as 

discussed in section IV.K of this 

document; the estimated emissions 

impacts are reported in section V.B.6 of 

this document. DOE also estimates the 

economic value of emissions reductions 

resulting from the considered TSLs, as 

discussed in section IV.L of this 

document. 

g. Other Factors 

In determining whether an energy 

conservation standard is economically 

justified, DOE may consider any other 

factors that the Secretary deems to be 

relevant. (42 U.S.C. 6295(o)(2)(B)(i)(VII)) 

To the extent DOE identifies any 

relevant information regarding 


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economic justification that does not fit 

into the other categories described 

previously, 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 effect potential amended 

energy conservation standards would 

have on the PBP for consumers. These 

analyses include, but are not limited to, 

the 3-year PBP 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 IV.F of this final 

rule. 

IV. Methodology and Discussion of 

Related Comments 

This section addresses the analyses 

DOE has performed for this rulemaking 

with regard to gas-fired instantaneous 

water heaters. Separate subsections 

address each component of DOE’s 

analyses. 

DOE used several analytical tools to 

estimate the impact of the standards 

considered in this document. The first 

tool is a spreadsheet that calculates the 

LCC savings and PBP of potential 

amended or new energy conservation 

standards. The NIA uses a second 

spreadsheet set that provides shipments 

projections and calculates NES and NPV 

of total consumer costs and savings 

expected to result from potential energy 

conservation standards. DOE uses the 

third spreadsheet tool, the Government 

Regulatory Impact Model (‘‘GRIM’’), to 

assess manufacturer impacts of potential 

standards. These three spreadsheet tools 

are available on the DOE website for this 

rulemaking: www.regulations.gov/ 

docket/EERE-2017-BT-STD-0019. 

Additionally, DOE used output from the 

latest version of the Energy Information 

Administration’s (‘‘EIA’s’’) Annual 

Energy Outlook (‘‘AEO’’) for the 

emissions and utility impact analyses. 

A. Market and Technology Assessment 

DOE develops information in the 

market and technology assessment 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 

rulemaking include: (1) a determination 

of the scope of the rulemaking and 

product classes, (2) manufacturers and 

industry structure, (3) existing 

efficiency programs, (4) shipments 

information, (5) market and industry 

trends, and (6) technologies or design 

options that could improve the energy 

efficiency of gas-fired instantaneous 

water heaters. The key findings of DOE’s 

market assessment are summarized in 

the following sections. See chapter 3 of 

the final rule TSD for further discussion 

of the market and technology 

assessment. 

1. Product Classes 

When evaluating and establishing or 

amending energy conservation 

standards, DOE establishes separate 

standards for a group of covered 

products (i.e., establish a separate 

product class) based on the type of 

energy used, or if DOE determines that 

a product’s capacity or other 

performance-related feature justifies a 

different standard. (42 U.S.C. 6295(q)) In 

making a determination whether a 

performance-related feature justifies a 

different standard, DOE considers such 

factors as the utility of the feature to the 

consumer and other factors DOE 

determines are appropriate. (Id.) 

EPCA, as amended by the National 

Appliance Energy Act (NAECA; Pub. L. 

100–12), established initial energy 

conservation standards for consumer 

water heaters, expressed in EF, that 

were based on three product classes 

differentiated by fuel type: (1) gas-fired, 

(2) oil-fired, and (3) electric. (42 U.S.C. 

6295(e)(1)) These standards applied to 

consumer water heaters manufactured 

on or after January 1, 1990. Gas-fired 

instantaneous water heaters were, at the 

time, required to comply with the same 

EF standards as gas-fired storage water 

heaters because the standards were not 

differentiated by storage versus 

instantaneous water heaters. 

DOE subsequently amended these EF 

standards twice, most recently in the 

April 2010 Final Rule, with which 

compliance was required starting on 

April 16, 2015. 75 FR 20112. By the 

April 2010 Final Rule, DOE had further 

divided gas-fired consumer water 

heaters into product classes based on 

demand type (storage, instantaneous), 

storage volume, and input rate. While 

the April 2010 Final Rule had separate 

standards for gas-fired instantaneous 

water heaters and gas-fired storage water 

heaters, DOE did not adopt standards 

for gas-fired instantaneous water heaters 

with less than 50,000 Btu/h of input 

because, at that time, there were no such 

low-input gas-fired instantaneous water 

heaters available on the market. Id. at 75 

FR 20127. 

Most recently, the December 2016 

Conversion Factor Final Rule, published 

and effective on December 29, 2016, 

translated the EF-based standards to 

UEF-based standards. 81 FR 96204. In 

doing so, separate product classes were 

created for each of the four draw 

patterns (very small, low, medium, and 

high) in the UEF test procedure. 

However, due to concerns that the UEF 

test procedure would not apply to gasfired instantaneous water heaters 2 

gallons or larger at the time, DOE 

determined that the translated UEFbased standards would apply only to 

gas-fired instantaneous water heaters 

with less than 2 gallons of storage 

volume. Id. at 81 FR 96205. As a result, 

UEF-based standards were established 

only for gas-fired instantaneous water 

heaters with less than 2 gallons of 

storage volume and more than 50,000 

Btu/h of input. Id. at 81 FR 96205. As 

discussed in the December 2016 

Conversion Factor Final Rule, the 

standards established in EPCA do not 

define a minimum fuel input rate or 

maximum storage volume for gas-fired 

instantaneous water heaters; therefore, 

the original standards established by 

EPCA in terms of EF remained 

applicable to all gas-fired instantaneous 

water heaters without UEF-based 

standards. Id. at 81 FR 96209–96211. 

The four product classes for which DOE 

has currently established UEF-based 

standards are summarized in table IV.1. 

The product classes without UEF-based 

standards, for which EF-based standards 

from EPCA apply, are shown in table 

IV.2. 


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36American Water Heaters. See the ProLine® XE 

Polaris® PG10–34–150–2NV 34-gallon 

‘‘Commercial-Grade Residential Gas Water Heater’’ 

with 150,000 Btu input rate. Information available 

online at www.americanwaterheater.com/media/ 

28107/nrgss03316.pdf (Last accessed Aug. 29, 

2024). 37HTP. See the ‘‘High Efficiency Crossover Floor 

Water Heater,’’ with information provided to 

compare against typical residential 50-gallon gasfired storage water heaters and tankless 199,000 

Btu/h gas-fired instantaneous water heaters. 

Information available online at 

www.htproducts.com/literature/mktlit-117.pdf (Last 

accessed Aug. 27, 2024). 

TABLE IV.1—GAS-FIRED INSTANTANEOUS WATER HEATER PRODUCT CLASSES WITH CURRENT UEF-BASED STANDARDS

Product type Rated storage volume and input rating Draw patterns 

Instantaneous Gas-Fired Water Heater ............. <2 gal and >50,000 Btu/h ................................ Very Small. 

Low. 

Medium. 

High. 

TABLE IV.2—GAS-FIRED INSTANTANEOUS WATER HEATER PRODUCT CLASSES WITHOUT CURRENT UEF-BASED

STANDARDS

Product class Rated storage volume and input rating 

(if applicable) 

Gas-fired Instantaneous ........................................................................... <2 gal and ≤50,000 Btu/h. 

≥2 gal. 

In response to the July 2024 NODA, 

A.O. Smith noted that the conversion 

factor rulemaking did not establish a 

product class for gas-fired instantaneous 

water heaters ≥2 gallons and ≤200,000 

Btu/h. A.O. Smith noted that, while the 

intent of the December 2016 Conversion 

Factor Final Rule was to satisfy the 

requirements of AEMTCA, DOE is not 

statutorily required under EPCA to 

establish standards in terms of UEF for 

the entirety of this product class 

because some products meet the criteria 

for exclusion on account of being 

commercial equipment. (A.O. Smith, 

No. 1440 at p. 3) A.O. Smith claimed 

that the hot water delivery capacity, as 

a function of input capacity and storage 

volume, of a subset of products in the 

≥2 gallon, ≤200,000 Btu/h proposed 

product class for gas-fired instantaneous 

water heaters includes equipment that 

would not be used or installed 

residentially and would only be suitable 

for commercial applications. A.O. Smith 

noted that equipment meeting the 

capacity ranges of the proposed product 

class already exist on the market and are 

exclusively used in commercial 

applications. (A.O. Smith, No. 1440 at 

pp. 3–4) A.O. Smith recommended that 

DOE re-evaluate the gas-instantaneous 

water heater product class structure and 

avoid prescribing a UEF test metric and 

standard for these water heaters where 

the UEF metric is inappropriate. A.O. 

Smith noted that EPCA’s definition for 

commercial gas-fired instantaneous 

water heaters does not include a 

minimum input or volume limit and 

claimed that it does not prevent DOE 

from specifying a reasonable storage 

volume threshold for gas-fired 

instantaneous water heaters above 

which the product would be rated to 

commercial metrics and considered as 

commercial equipment. (A.O. Smith, 

No. 1440 at p. 4) 

As stated earlier, in the December 

2016 Conversion Factor Final Rule, DOE 

determined that the translated UEFbased standards would apply only to 

gas-fired instantaneous water heaters 

with less than 2 gallons of storage 

volume due to concerns at the time that 

the UEF test procedure would not apply 

to gas-fired instantaneous water heaters 

2 gallons or larger. 81 FR 96204, 96205. 

However, after conducting the market 

assessment for this rulemaking, DOE is 

now aware of multiple gas-fired 

instantaneous water heaters with 2 or 

more gallons of storage volume 

presently on the market. These products 

are specifically marketed for residential 

applications in publicly available 

product listings and literature.36 37 DOE 

is not aware of, nor has A.O. Smith 

provided, evidence suggesting that 

products in this product class are 

designed or marketed exclusively for 

commercial applications. As such, 

products in this size range have 

demonstrated residential use and 

therefore do not meet the requirement 

for exclusion from the UEF descriptor as 

specified at 42 U.S.C. 6295(e)(5)(F)(i). 

In response to the July 2023 NOPR, 

some stakeholders provided comments 

specific to the proposed standards for 

gas-fired instantaneous water heaters in 

reference to the ‘‘unavailability 

provision’’ found in EPCA, 42 U.S.C. 

6295(o)(4). DOE indicated that these 

comments would not be addressed in 

the May 2024 Final Rule. 89 FR 37778, 

37814. After further consideration of 

these comments DOE is addressing them 

in this final rule. Relatedly, DOE 

received a multitude of comments 

throughout this rulemaking pertaining 

to a potential product class structure 

that differentiates between noncondensing and condensing products. 

Per 42 U.S.C. 6295(o)(4), which 

outlines certain criteria for prescribing 

new or amended standards, the 

Secretary may not prescribe an amended 

or new standard under this section if the 

Secretary finds (and publishes such 

finding) that interested persons have 

established by a preponderance of the 

evidence that the standard is likely to 

result in the unavailability in the United 

States in any covered product type (or 

class) of performance characteristics 

(including reliability), features, sizes, 

capacities, and volumes that are 

substantially the same as those generally 

available in the United States at the time 

of the Secretary’s finding. The failure of 

some types (or classes) to meet this 

criterion shall not affect the Secretary’s 

determination of whether to prescribe a 

standard for other types (or classes). 

Briefly, condensing and noncondensing products differ in how 

efficiently they make use of flue gas 

heat. A baseline gas-fired instantaneous 

water heater relies on a single heat 

exchanger, which extracts heat energy 

from the flue gases and transfers it to the 

water being delivered to the consumer. 

However, these flue gases contain more 

heat energy than the baseline heat 

exchanger is able to extract and, as a 

result, much of the heat in the flue gases 

is lost as they are exhausted outdoors. 

Enhancements to the heat exchanger— 

including the use of a secondary heat 

exchanger—enable high-efficiency gasfired instantaneous water heaters to 

extract much more of the energy 

available in the flue gases. When 

enough energy is extracted by the heat 

exchangers, the flue gases cool to the 

point where they begin to condense, 


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38 DOE finds the better reading of the term 

‘‘features’’ in the unavailability provision (i.e., those 

features that cannot be eliminated by the 

establishment of a new or amended energy 

conservation standard) to be those features that 

provide a consumer unique utility during the 

operation of the appliance in performance of its 

major function(s). Stated another way, the 

‘‘features’’ provision and the related utility of such 

features pertain to those aspects of the appliance 

with which the consumer interacts during the 

operation of the product (i.e., when the product is 

providing its ‘‘useful output’’) and the utility 

derived from those features during normal 

operation. 86 FR 73947, 73955. 

forming liquid condensate. This results 

in a significant rise in efficiency. See 

chapter 3 of the final rule TSD for 

further discussion of condensing heat 

exchangers. 

As noted in the comments submitted 

by NPGA, APGA, AGA, and Rinnai in 

response to the July 2023 NOPR, the 

UEF requirements for gas-fired 

instantaneous water heaters as proposed 

in the July 2023 NOPR would require 

condensing technology. (NPGA, APGA, 

AGA, and Rinnai, No. 441 at pp. 2–3) 

Rinnai contended that the proposed rule 

exceeds DOE’s authority because it is in 

conflict with statutory provisions in 

EPCA, most notably the unavailability 

provision. Rinnai added that if the 

proposed rule were adopted, it would 

eliminate non-condensing tankless 

water heaters, one of its product 

offerings. (Rinnai, No. 1186 at p. 2) 

Rinnai further argued that DOE may not 

make non-condensing gas-fired 

instantaneous water heaters unavailable 

pursuant to the section 6295(o)(4) of 

EPCA (the ‘‘unavailability provision’’). 

Rinnai cited to DOE’s interpretation of 

the unavailability provision in a recent 

rulemaking for residential furnaces and 

commercial water heaters and suggested 

that DOE’s interpretation of the 

provision is unduly narrow and not 

supported by the provision’s plain 

language.38 (Rinnai, No. 1186 at p. 9) 

Rinnai noted that there is no reference 

to ‘‘consumer utility’’ in the 

unavailability provision detailed in 

section 6295(o)(4) of EPCA. Rinnai 

stated that, rather than relying on the 

plain language of section 6295(o)(4) 

itself, DOE’s interpretation of the 

unavailability provision in section 

6295(o)(4) of EPCA relies on reading 

section 6295(q) as a redundant 

companion provision to section 

6295(o)(4) and suggested there is no 

basis to do so. Rinnai added that this 

misinterpretation constitutes an evasion 

of the limits placed on DOE’s authority 

by section 6295(o)(4) of EPCA. (Rinnai, 

No. 1186 at p. 10) 

Rinnai stated that even if DOE’s 

interpretation of the unavailability 

provision in section 6295(o)(4) of EPCA 

is taken as correct, non-condensing gasfired instantaneous water heaters still 

provide utility because the consumer’s 

operation of, or interaction with, the 

appliance necessarily depends on 

whether or not the appliance can be 

installed. Rinnai added that installation 

costs should be considered under the 

unavailability provision in section 

6295(o)(4) of EPCA, not just as part of 

determining whether or not a standard 

is economically justified. (Rinnai, No. 

1186 at pp. 10–11) Similarly, ONE Gas 

claimed that DOE’s proposed standards 

for gas-fired instantaneous water heaters 

violate section 6295(o)(4) of EPCA 

because the unavailability provision is 

not only limited to product classes and 

types, but also certain performance 

characteristics including, features, 

reliability, sizes, capacities, and 

volumes within those product classes 

and types. ONE Gas asserted that DOE’s 

association of customer utility with 

understanding of, and interaction with, 

the covered appliance is incorrect and is 

an overreach in interpretation of section 

6295 of EPCA. (ONE Gas, No. 1200 at 

pp. 4–5) 

In response to the July 2024 NODA, 

Rinnai reiterated its position that noncondensing gas-fired instantaneous 

water heaters have useful and valuable 

features, including the ability to have 

like-for-like replacements, compatibility 

for easier and wider applications of 

installations, compatibility with noncondensing venting, smaller space 

requirements, and greater efficiency at 

lower cost than gas-fired storage water 

heaters. Rinnai claimed that there is no 

sound statutory basis for DOE’s refusal 

to recognize that non-condensing gasfired instantaneous water heaters have 

distinct features and characteristics 

from those of condensing gas-fired 

instantaneous water heaters that provide 

utility to consumers. Rinnai stated that 

DOE could instead establish separate 

standards for condensing and noncondensing gas-fired instantaneous 

water heaters to recognize the different 

functions, capabilities, and installation 

requirements while preserving 

consumer choice, and therefore retain 

the increased energy efficiency standard 

for condensing gas-fired instantaneous 

water heaters. Rinnai requested that 

DOE run an analysis of this proposal 

with product substitution and other 

factors taken properly into account. 

(Rinnai, No. 1443 at pp. 4–5) 

Regarding Rinnai’s request for further 

analysis on product substitution, see 

section IV.F.10 of this document for 

further details. 

Regarding Rinnai’s assertion that 

DOE’s interpretation of the 

unavailability provision requires a 

redundant reading of 42 U.S.C. 6295(q) 

to 42 U.S.C. 6295(o)(4), DOE notes that 

while these provisions are related, they 

are not redundant. EPCA provides DOE 

authority to establish product classes 

with different standard levels under 42 

U.S.C. 6295(q). Under this authority, 

DOE has to determine if a performancerelated feature justifies a different 

standard, i.e., is worth preserving in the 

market, by considering, among other 

things, utility to the consumer. In 

contrast, for the performance 

characteristics, features, sizes, 

capacities, and volumes protected under 

the unavailability provision, Congress 

has already made the determination that 

they should be preserved in the market. 

DOE uses its authority under the 

product class provision at 42 U.S.C. 

6295(q) to then ensure that these 

performance characteristics, features, 

sizes, capacities, and volumes are 

preserved in the market. Without the 

product class authority, DOE would 

have to set one standard for a covered 

product that preserves every aspect of a 

covered product protected under the 

unavailability provision. For example, 

larger capacity gas-fired storage water 

heaters are generally less-efficient than 

smaller capacity units because standby 

losses are higher for larger capacity 

storage tanks. As a result, the lower 

efficiency of the largest capacity models 

could limit DOE’s ability to set 

standards under 42 U.S.C. 6295(o)(4). 

But 42 U.S.C. 6295(q) lets DOE set a 

more-stringent standard for smaller 

capacity gas-fired storage water heaters 

that saves more energy and a lessstringent standard for larger capacity 

gas-fired storage water heaters that helps 

preserve their presence in the market. 

Finally, it is important to note that the 

product class provision is not just 

limited to implementing the 

unavailability provision. As the product 

class provision contemplates that the 

utility of some performance-related 

features to the consumer may not justify 

preservation in the market under a 

separate product class, it is clear that 

Congress intended this provision to 

apply to a larger set of performancerelated features than would be protected 

under the unavailability provision. 

As for Rinnai’s statement that there is 

no reference to ‘‘consumer utility’’ in 

the unavailability provision detailed in 

section 6295(o)(4) of EPCA, Rinnai’s 

own comment also cited a House of 

Representatives report that stated the 

purpose of the unavailability provision 

is to ensure that an amended standard 

does not deprive consumers of product 

choices and characteristics, features, 

sizes, etc., and that significant energy 

savings can be achieved without 


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sacrificing the utility of an appliance to 

a consumer. (Rinnai, No. 1186 at pp. 

10). Performance characteristics, 

features, sizes, capacities, and volumes 

all offer some utility or benefit to the 

consumer. To the extent that Rinnai is 

suggesting that the protection of the 

unavailability provision in EPCA should 

be extended to aspects of a covered 

product that offer no utility to a 

consumer during operation, like the 

less-efficient heat exchanger design of a 

non-condensing gas-fired water heater, 

or whether the venting material is 

plastic or stainless steel, DOE strongly 

disagrees. Any interpretation of the 

unavailability provision not based on 

the assumption that Congress was 

concerned with preserving the utility of 

covered products, results in a regulatory 

framework where DOE is forced to 

create so many product classes that 

achieving any significant amount of 

energy savings is all but impossible. 

DOE also disagrees with Rinnai’s 

contention that the specific provisions 

of the unavailability provision— 

performance characteristics (including 

reliability), features, sizes, capacities, 

and volumes—should be read to also 

include, among other things, 

‘‘installation costs’’ and ‘‘greater 

efficiency at lower cost than gas-fired 

storage water heaters.’’ Extending the 

unavailability provision to installation 

costs and efficiency is demonstrably an 

impossibly broad interpretation of what 

DOE is expected to preserve in the 

market under the unavailability 

provision. Efficiency is certainly a 

performance characteristic of a water 

heater as it measures how well a water 

heater performs its intended function. 

However, it would be nonsensical for 

efficiency to be a performance 

characteristic under the unavailability 

provision as the express purpose of the 

statute is to improve the energy 

efficiency of covered products and 

equipment, i.e., eliminate less-efficient 

products and equipment from the 

market. Furthermore, cost is certainly a 

feature of a product. Arguably, it is one 

of the most important features of a 

product to a consumer. But again, the 

energy-saving purposes of EPCA would 

be frustrated if DOE were required to set 

standards under the unavailability 

provision that maintain less-energyefficient covered products based solely 

on the fact that they cost less to install. 

Instead, EPCA expressly contemplates 

increases in the installed cost of a 

covered product or equipment in the 

economic justification analysis where 

DOE is directed to consider, among 

other things, the savings in operating 

costs compared to any increase in the 

initial and maintenance costs of a 

covered product. (42 U.S.C. 

6295(o)(2)(B)(i)(II)). At bottom, Rinnai’s 

argument is that DOE may not eliminate 

one water-heating option (noncondensing gas instantaneous water 

heaters) if that option is cheaper to 

install than another, different option 

(condensing gas-fired instantaneous 

water heaters). But, Congress made it 

clear that kind of comparative 

assessment is to be done as part of the 

economic analysis and has no role 

under the unavailability provision. As 

discussed at length elsewhere in this 

document, DOE’s economic analysis 

considers the extent to which its 

standards for gas-fired instantaneous 

water heaters will affect the market. 

Additionally, in determining whether 

a standard is economically justified 

under EPCA, DOE is directed, among 

other things, to consider any lessening 

of the utility or performance of the 

covered product likely to result from the 

standard. Thus, extending the 

unavailability provision to preserve any 

performance characteristic or feature 

would frustrate EPCA’s purpose and 

statutory scheme. Simply put, EPCA 

requires DOE to adopt standards set at 

the maximum improvement in energy 

efficiency determined to be 

technologically feasible and 

economically justified. EPCA 

anticipates that new or amended energy 

conservation standards will result in the 

unavailability of certain inefficient 

technologies. An overly broad reading of 

the unavailability provision to include 

attributes of the covered product not 

addressed by the text of that provision 

(i.e., efficiency, costs, installation costs, 

etc.) would be at odds with the statute’s 

energy-saving purposes. Similarly, DOE 

disagrees with reading other qualifiers 

into the unavailability provisions, 

including ‘‘like-for-like replacements, 

compatibility for easier and wider 

applications of installations, 

compatibility with non-condensing 

venting, smaller space requirements.’’ 

As discussed further below, an existing 

non-condensing gas-fired instantaneous 

water heater can always be replaced 

with a condensing gas-fired 

instantaneous water heater in the same 

place (i.e., it is always technically 

feasible). 

As discussed previously, DOE’s 

interpretation of the unavailability 

provision does not require a redundant 

reading of 42 U.S.C. 6295(q). Instead, 

DOE interprets these two provisions as 

complementing one another. EPCA 

provides DOE some discretionary 

authority to establish product classes 

with different standard levels under 42 

U.S.C. 6295(q). Under this authority, 

DOE has to determine if a performancerelated feature justifies a different 

standard by considering, among other 

things, utility to the consumer. And 

based on DOE’s own research as well as 

information presented in stakeholder 

comments, differences in cost or 

complexity of installation between 

different methods of venting (e.g., a 

condensing water heater versus a noncondensing water heater) do not make 

specific methods of venting a 

performance-related feature under 42 

U.S.C. 6295(q)(1)(B), so as to justify 

separating the products into different 

product classes. In reaching this 

determination, DOE considered 

Category III venting (for non-condensing 

designs) and Category IV venting (for 

condensing designs), which are 

associated but external to the covered 

product, and concluded that condensing 

gas-fired instantaneous water heaters 

can be installed in the same locations 

where non-condensing gas-fired water 

heaters are currently installed. As stated 

throughout this rulemaking, installation 

costs and considerations are very 

relevant to the establishment of energy 

conservation standards, and are 

accounted for in the LCC analysis to 

determine the economic justification of 

standards. 

Unlike specific methods of venting, a 

covered product’s capacity is addressed 

under the unavailability provision in 42 

U.S.C. 6295(o)(4), and described under 

the product class provision in 42 U.S.C. 

6295(q)(1)(B). DOE notes that a water 

heater’s capacity provides utility to a 

consumer during use (unlike the type of 

venting or installation costs). For 

example, water heaters with higher 

capacities enable consumers to run 

multiple applications requiring hot 

water at the same time. Further, DOE is 

required to preserve the utility offered 

by larger capacity water heaters in the 

market under the unavailability 

provision in 42 U.S.C. 6295(o)(4). 

Unlike capacity, a lower installation 

cost has no effect on the performance of 

a water heater and offers no utility to a 

consumer during use. In addition to 

capacity, DOE has also established 

product classes for water heaters based 

on: volumes (e.g., a division at 2 

gallons), input rating (e.g., a division at 

50,000 Btu/h), delivery capacities (e.g., 

divisions for the very small, low, 

medium, and high usage patterns), and 

demand type (e.g., storage versus 

instantaneous); in addition to 

distinguishing by context and 

applications (e.g., consumer product 

versus commercial equipment) as well 

as fuel types (e.g., gas-fired, oil-fired, or 


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39For example, the Historic Beacon Hill District 

in Boston, Massachusetts has an architectural 

commission to review proposed alterations to 

exterior architectural features within the district 

that are open to view from a public way. Guidelines 

for this district are provided by the City of Boston, 

available at: www.cityofboston.gov/images_

documents/Beacon%20Hill%20Architectural

%20Commission%20Guidelines_tcm3-17489.pdf 

(last accessed August 6, 2024). 

40See, for example, the 2023 report by The Center 

for Historic Buildings, available at: www.gsa.gov/ 

system/files/Stewardship2023_0.pdf (last accessed 

August 8, 2024). 

electric) as required under 42 U.S.C. 

6295(q)(1)(A). 

APCA opposed DOE’s proposed 

standards for gas-fired instantaneous 

water heaters because these standards 

would require condensing operation. 

(APCA, No. 1152 at p. 1) The Governor 

of Georgia commented that the proposed 

standards would limit consumer choice 

by reducing the availability of many 

non-condensing tankless water heaters 

currently on the market, negatively 

impact consumers through increased 

product costs, and contradict EPCA 

requirements. (Governor of Georgia, No. 

1157 at pp. 1–3) 

ONE Gas indicated that noncondensing/positive vent pressure gasfired instantaneous water heaters peak 

at approximately 0.82 UEF and that UEF 

ratings from 0.89 to 0.93 would be 

technologically infeasible for noncondensing products. (ONE Gas, No. 

1200 at pp. 2–3) Huntsville Utilities 

expressed opposition to the proposed 

standards for gas-fired water heaters, 

adding that it is especially concerned 

with the proposed standards for gasfired instantaneous water heaters that 

require an efficiency level over 91 

percent, effectively eliminating the noncondensing option for this product 

class. (Huntsville Utilities, No. 1176 at 

p. 1) JEA, WMU, PGW, Southeast Gas, 

CEA, ASGE and ONE Gas stated that the 

proposed standard for gas-fired water 

heaters would effectively eliminate the 

option of a non-condensing 

instantaneous water heater and 

requested that DOE reassess the negative 

impacts on public gas utility customers 

and manufacturers of water heaters that 

would result from the proposed 

standard for gas-fired water heaters. 

(JEA, No. 865 at pp. 1–2; WMU, No. 872 

at pp. 1–2; PGW, No. 886 at pp. 1–2; 

Southeast Gas, No. 887 at pp. 1–2; CEA, 

No. 914 at pp. 1–2; ASGE, No. 976 at pp. 

1–2; ONE Gas, No. 1200 at p. 2) 

The Gas Association Commenters 

expressed that the transition to 

condensing-level efficiencies for gasfired instantaneous water heaters would 

result in the unavailability of products 

with what it considered to be 

performance characteristics and features 

provided by non-condensing products. 

This group of commenters cited 

comments submitted by Rinnai, stating 

that non-condensing gas-fired 

instantaneous water heaters can be 

installed and used in cases where 

condensing products cannot be (e.g., in 

high-rise buildings, historically 

protected buildings, or any other 

building with complications to venting 

capabilities). According to EPCA, the 

Gas Association Commenters stated, 

DOE should decline to adopt the 

proposed standard for gas-fired 

instantaneous water heaters on the 

grounds that it would result in the 

unavailability of products with 

‘‘performance characteristics’’ and 

‘‘features’’ currently available to 

consumers in the United States. (Gas 

Association Commenters, No. 1181 at p. 

7) 

In response to these comments, DOE 

acknowledges that the standards for gasfired instantaneous water heaters cannot 

be achieved by non-condensing designs. 

Nevertheless, in response to comments 

from ONE Gas suggesting that the 

amended standards are technologically 

infeasible, condensing-level standards 

are still technologically feasible because 

condensing designs are widely available 

on the market. DOE has determined that 

non-condensing technology does not 

provide any inherent performance 

benefit to consumers beyond what is 

provided by condensing designs. 

Instead, as discussed previously in this 

section of this document, DOE has 

determined that non-condensing 

technology does not constitute a 

performance-related feature for which a 

separate product class must be 

established under EPCA, nor does noncondensing technology warrant 

preservation under the unavailability 

provision. Condensing gas-fired 

instantaneous water heaters can be 

installed in the same locations where 

non-condensing gas-fired water heaters 

are currently installed with proper 

consideration for the venting 

requirements of condensing water 

heaters. As discussed in section IV.F.2 

of this document, the venting 

requirements of each type of water 

heater are considered in the analysis of 

installation costs. Moreover, DOE has 

not identified, nor have commenters 

provided, any specific examples of 

buildings that currently use gas-fired 

water heaters that cannot be retrofitted 

to accommodate a condensing gas-fired 

water heater in place of an existing noncondensing gas-fired water heater. DOE 

research indicates that historically 

protected buildings can be renovated 

with appropriate permitting from local 

jurisdictions.39 In the case of buildings 

preserved under the U.S. General 

Services Administration’s stewardship 

program, HVAC renovations have 

increased energy and water efficiency.40

When a chimney is not used to vent the 

flue gases (such as when sidewall 

venting is used), venting terminations 

on the exterior of a building are visually 

unobtrusive—far less prominent than 

outdoor units for air-conditioning 

systems that are often installed in 

privately-owned homes in historic 

districts. With respect to high-rise 

buildings, DOE has found that these 

buildings are uncommonly outfitted 

with consumer gas-fired instantaneous 

water heaters at present because these 

types of buildings more commonly rely 

on central domestic hot water 

production (i.e., commercial water 

heaters). This is because if consumer 

gas-fired instantaneous water heaters are 

centrally located in a multi-family 

building, they could require multiple 

long vents for flue gases and for 

combustion air, which can be generally 

prohibitive for both non-condensing and 

condensing products alike. However, 

even if gas-fired instantaneous water 

heaters are located in some high-rise 

buildings, they can be located near 

exterior walls, and therefore each unit 

can have separate venting. If high-rise 

buildings rely on non-condensing gasfired instantaneous water heaters that 

are installed in each individual 

dwelling rather than in a central 

location, the building would already 

have venting in place (which would 

need to be modified to accommodate a 

condensing product, resulting in added 

installation cost, just as any other case). 

In general, as any gas-fired 

instantaneous water heater would 

already require venting to the outside, 

the existing non-condensing venting can 

always be converted to condensing 

venting. These installation costs and 

considerations have been included in 

the quantitative factors of the analysis. 

See section IV.F.2 for details on how 

they are accounted for in the installation 

cost analysis and the development of 

LCC estimates. In summary, DOE has 

not found any cases where 

complications in venting cannot be 

overcome. As a result, DOE finds that 

interested persons have not established 

by a preponderance of the evidence that 

the standard is likely to result in the 

unavailability of gas-fired instantaneous 

water heaters in certain applications, 

e.g., high-rise buildings, historically 

protected buildings, or any other 

building with complications to venting 

capabilities. So, any argument that noncondensing gas-fired instantaneous 


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41Consumer gas-fired instantaneous water heaters 

often have little to no storage volume (i.e., can have 

0 gallons of rated storage volume), however. These 

models are also referred to as ‘‘tankless.’’ Hence 

volume of the gas-fired instantaneous water heater 

is not typically a consideration for most consumers, 

nor does it substantially affect the model’s ability 

to deliver hot water on-demand. 

42 In 2021, the National Fire Protection 

Association (NFPA) and American National 

Standards Institute (ANSI) published the NFPA 54/ 

ANSI Z223.1, ‘‘National Fuel Gas Code.’’ (NFPA 

54–2021). Chapter 3 of NFPA 54–2021 divides the 

‘‘vented appliance’’ definition into four categories 

according to whether the appliance operates with 

positive or nonpositive static pressure in the vent 

and whether there is excessive condensate 

formation in the vent. NFPA 54–2021 can be found 

online at: www.nfpa.org/codes-and-standards/nfpa54-standard-development/54. (Last accessed 

December 4, 2024). 

water heaters should be preserved in the 

market under 42 U.S.C. 6295(o)(4) must 

be based on a performance characteristic 

(e.g., reliability), feature, size, capacity, 

or volume that is unique to noncondensing gas-fired instantaneous 

water heaters. 

First, regarding reliability, as 

discussed in the March 2022 

preliminary analysis and the July 2023 

NOPR, standards adopted at EL 2 would 

result in a transition towards 

condensing technology for gas-fired 

instantaneous water heaters (for those 

with less than 2 gallons of storage 

volume and more than 50,000 Btu/h of 

rated input) but would not result in the 

unavailability of reliably-performing 

products. (See chapter 2 of the 

preliminary analysis TSD; 88 FR 49058, 

49079). Condensing gas-fired 

instantaneous water heaters have been 

on the market for many years. DOE has 

noted clusters of models at condensing 

efficiency levels as far back as the April 

2010 Final Rule. (See table IV.11 at 75 

FR 20112, 20145, which includes 

condensing technology at efficiency 

level 7). Over time, condensing models 

have only grown in popularity. Today, 

about two-thirds of gas-fired 

instantaneous water heater shipments 

are condensing products. Given this 

substantial market penetration, and the 

fact that a significant portion of these 

shipments are installed in replacement 

applications where the upfront cost is 

likely higher than for non-condensing 

products, and that DOE does not expect 

that consumers on a large scale would 

trade off efficiency for reliability, DOE 

concludes that condensing gas-fired 

instantaneous water heaters are likely to 

be just as reliable as non-condensing 

models—otherwise, they would not 

comprise more than half of nationwide 

shipments. See chapter 9 of the final 

rule TSD for more details on product 

shipments. 

Regarding sizes, capacities and 

volumes, gas-fired instantaneous water 

heaters are typically described in terms 

of capacity, i.e., Btu/hr. Based on DOE’s 

market assessment, gas-fired 

instantaneous water heaters that meet 

the adopted EL 2 efficiency are available 

over the full range of capacities up to 

the maximum input that is allowable by 

statute (200,000 Btu/h), and models on 

the market also offer modulating 

burners to meet reduced demands. 

Therefore, no sizes, capacities or 

volumes 41 will be made unavailable as 

a result of DOE not separating product 

classes for non-condensing and 

condensing gas-fired instantaneous 

water heaters in this rule. As a result, 

DOE finds that interested persons have 

not established by a preponderance of 

the evidence that the standard is likely 

to result in the unavailability of any 

sizes, capacities, or volumes of gas-fired 

instantaneous water heaters that are 

substantially the same as those generally 

available in the market. 

DOE has found no sound statutory 

basis for interpreting ‘‘size’’ to refer to 

the physical dimensions or total 

installation footprint of a covered 

product. As technology advances, many 

products get smaller. Computers used to 

be the size of rooms and now they can 

fit in a pocket. Similarly, televisions, 

which are covered products under 42 

U.S.C. 6292(a)(12) and are typically 

referred to by screen size, have 

undergone significant technological 

advances over the past two decades as 

the market has shifted from cathode-raytube (CRT) televisions and rearprojection televisions to liquid-crystaldisplay (LCD) televisions. LCD 

televisions are a fraction of the physical 

size of a CRT television or rearprojection television for the same screen 

size. It would make little sense for the 

unavailability provision to require DOE 

to preserve CRT and rear-projection 

televisions in the market because they 

take up more space than an LCD 

television with the same screen size. As 

such, DOE views size, capacities, and 

volumes as product-specific terms that 

all refer to the same aspect of a covered 

product. 

Nonetheless, even if a smaller 

installation footprint is considered a 

performance characteristic or feature, 

interested persons have not established 

by a preponderance of the evidence that 

the standard is likely to result in the 

unavailability of gas-fired instantaneous 

water heaters with smaller installation 

footprints. Gas-fired instantaneous 

water heaters that only just meet the 

current standards (‘‘baseline’’ models) 

are designed with a combustion blower 

to help exhaust the flue gases and 

improve heat exchange. These designs 

use ‘‘category III’’ 42 venting, which is a 

type of vent made for pressurized flue 

gases (such as those generated by a 

baseline gas-fired instantaneous water 

heater with a combustion blower). 

While category III venting is for noncondensing appliances, it is similar to 

category IV venting (used for 

condensing appliances) because both 

types handle pressurized flue gases from 

appliances with blowers. Condensing 

gas-fired instantaneous water heaters 

also use combustion blowers. The 

primary difference in the venting for 

these designs is the material that the 

vent is made of: category III vents 

handle higher temperatures and are 

therefore made of metal, whereas 

category IV vents have to be able to 

withstand corrosion from condensate 

but can be made of less expensive 

plastics due to the lower temperatures 

produced by condensing appliances 

(condensing appliances do not exhaust 

as much heat as non-condensing 

appliances do because condensing 

appliances are more effective at 

transferring the heat to the water). In a 

replacement scenario, the existing 

category III venting must be removed 

and replaced with category IV venting, 

however the new venting can utilize the 

existing vent run because both venting 

types operate with positive static 

pressure and can be configured 

horizontally or vertically. As a result, 

the installation footprint can be 

maintained when switching from a noncondensing to a condensing gas-fired 

instantaneous water heater. As 

discussed previously, the replacement 

of the venting will incur additional 

labor and material costs, but it is 

technically feasible. See section IV.F.2 

for further details on installation costs. 

See chapter 3 of the TSD for more 

details on venting types and baseline 

components and operation. 

For these reasons, DOE has concluded 

that interested persons have not 

established by a preponderance of the 

evidence that the standard is likely to 

result in the unavailability in the United 

States of gas-fired instantaneous water 

heaters with performance characteristics 

(including reliability), features, sizes, 

capacities, and volumes that are 

substantially the same as those generally 

available in the United States. 

Additionally, DOE has determined that 

separate product classes for inefficient 

non-condensing technology and designs 

are not justified under 42 U.S.C. 

6295(q)(1)(B). 

Lastly, DOE notes that the 

condensing-level standards adopted by 

this final rule do not apply to all gasVerDate Sep<11>2014 20:37 Dec 23, 2024 Jkt 265001 PO 00000 Frm 00024 Fmt 4701 Sfmt 4700 E:\FR\FM\26DER2.SGM 26DER2

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fired instantaneous water heaters, but 

only those with less than 2 gallons of 

storage volume and more than 50,000 

Btu/h of rated input. While these 

products comprise the vast majority of 

gas-fired instantaneous water heaters, it 

is not the entirety. Further discussion of 

condensing standards for other gas-fired 

instantaneous water heaters is presented 

in section IV.C.2.b of this document. 

2. Technology Options 

In the July 2023 NOPR market 

analysis and technology assessment, 

DOE identified several technology 

options initially determined to improve 

the efficiency of gas-fired instantaneous 

water heaters, as measured by the DOE 

test procedure. The technology options 

DOE identified are listed in table IV.3. 

These technology options pertain to gasfired instantaneous water heaters with 

less than 2 gallons of stored volume and 

over 50,000 Btu/h of rated input. 

Technology options for other types of 

gas-fired instantaneous water heaters are 

largely similar; however, additional 

options may be used to complement the 

applications of those products. For 

example, gas-fired instantaneous water 

heaters with substantial storage volume 

may employ thicker insulation to 

improve UEF ratings by reducing 

standby losses. As discussed in section 

IV.C of this document, the engineering 

analysis for products with 2 or more 

gallons of storage volume and for 

products with less than 50,000 Btu/h of 

rated input consists of a ‘‘crosswalk,’’ 

i.e., a translation of existing standards 

from one metric (EF) to another (UEF). 

Because a crosswalk maintains the same 

stringency of standards, DOE has not 

completed an assessment of the market 

for technology options used to improve 

UEF in models subject to the translated 

standards. DOE will continue to monitor 

the market and assess the designs of 

these models as more information 

pertaining to UEF ratings becomes 

available. 

TABLE IV.3—POTENTIAL TECHNOLOGIES FOR INCREASING GAS-FIRED INSTANTANEOUS WATER HEATER EFFICIENCY

Technology option 

Electronic ignition ............................ Intermittent pilot ignition. 

Intermittent direct ignition. 

Hot surface ignition. 

Improved burners ............................ Condensing pulse combustion. 

Power burner. 

Reduced burner size (burner derating). 

Modulating burners ................................................................................ Step modulating burners. 

Fully modulating burners. 

Heat exchanger improvements ....... Increased heat exchanger surface area. 

Flue baffle. 

Condensing technology. 

Improved venting ............................. Direct venting. 

Concentric direct venting. 

Improved controls ............................ Modulating controls. 

B. Screening Analysis 

DOE uses the following five screening 

criteria to determine which technology 

options are suitable for further 

consideration in an energy conservation 

standards rulemaking: 

(1) Technological feasibility. 

Technologies that are not incorporated 

in commercial products or in 

commercially viable, existing prototypes 

will not be considered further. 

(2) Practicability to manufacture, 

install, and service. If it is determined 

that mass production of a technology in 

commercial products and reliable 

installation and servicing of the 

technology could not be achieved on the 

scale necessary to serve the relevant 

market at the time of the projected 

compliance date of the standard, then 

that technology will not be considered 

further. 

(3) Impacts on product utility. If a 

technology is determined to have a 

significant adverse impact on the utility 

of the product to subgroups of 

consumers, or 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 be considered 

further. 

(4) Safety of technologies. If it is 

determined that a technology would 

have significant adverse impacts on 

health or safety, it will not be 

considered further. 

(5) Unique-pathway proprietary 

technologies. If a technology has 

proprietary protection and represents a 

unique pathway to achieving a given 

efficiency level, it will not be 

considered further, due to the potential 

for monopolistic concerns. 

10 CFR part 430, subpart C, appendix A, 

sections 6(a)(3)(iii) and 7(b). 

In sum, if DOE determines that a 

technology, or a combination of 

technologies, fails to meet one or more 

of the listed five criteria, it will be 

excluded from further consideration in 

the engineering analysis. The reasons 

for eliminating any technology are 

discussed in the following sections. 

The subsequent sections include 

DOE’s evaluation of each technology 

option against the screening analysis 

criteria, and whether DOE determined 

that a technology option should be 

excluded (‘‘screened out’’) based on the 

screening criteria. 

1. Screened-Out Technologies 

In the July 2023 NOPR, DOE screened 

out the following technology options 

pertaining to gas-fired instantaneous 

water heaters based on the previously 

described criteria: condensing pulse 

combustion and reduced burner size. 88 

FR 49058, 49083. DOE did not modify 

its screening analysis in the July 2024 

NODA or in this final rule analysis. 

Regarding condensing pulse 

combustion, DOE has determined it is 

not technologically feasible for the 

broader market and not likely to be 

practicable to manufacture, install, and 

service this technology on the scale 

necessary to serve the relevant market at 

the time of the effective date of this 

standard. Although condensing pulse 


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105212 Federal Register / Vol. 89, No. 247 / Thursday, December 26, 2024 / Rules and Regulations 

43As discussed in section III.B of this document, 

circulating gas-fired water heaters are storage-type 

water heaters that are outside the scope of this final 

rule. 

combustion technology shows 

promising results in increasing 

efficiency, it has not yet been 

demonstrated in any commerciallyavailable consumer gas-fired 

instantaneous water heaters. Similar 

efficiencies are achievable with other 

technologies that have already been 

introduced on the market such that it is 

unlikely for manufacturing with 

condensing pulse combustion 

technology to be scaled up in the future. 

DOE screened out reduced burner size 

due to adverse impacts to consumer 

utility (because reducing the burner size 

reduces the amount of heat the water 

heater can provide). Further details of 

the screening analysis are provided in 

chapter 4 of the final rule TSD. 

2. Remaining Technologies 

Through a review of each technology, 

DOE tentatively concludes that all of the 

other identified technologies listed in 

section IV.B.2 met all five screening 

criteria to be examined further as design 

options in DOE’s final rule analysis. In 

summary, DOE did not screen out the 

following technology options: 

TABLE IV.4—REMAINING TECHNOLOGY OPTIONS

Technology option 

Electronic ignition ............................ Intermittent pilot ignition. 

Intermittent direct ignition. 

Hot surface ignition. 

Burner improvements ...................... Power burner. 

Modulating burners ................................................................................ Step modulating burners. 

Fully modulating burners. 

Heat exchanger improvements ....... Increased heat exchanger surface area. 

Flue baffle. 

Condensing technology. 

Improved venting ............................. Direct venting. 

Concentric direct venting. 

Improved controls ............................ Modulating controls. 

DOE determined that these 

technology options are technologically 

feasible because they are being used or 

have previously been used in 

commercially available products or 

working prototypes. DOE also finds that 

all of the remaining technology options 

meet the other screening criteria (i.e., 

practicable to manufacture, install, and 

service; do not result in adverse impacts 

on consumer utility, product 

availability, health, or safety; and do not 

utilize unique-pathway proprietary 

technologies). For additional details, see 

chapter 4 of the final rule TSD. 

C. Engineering Analysis 

The purpose of the engineering 

analysis is to establish the relationship 

between the efficiency and cost of the 

product. There are two elements to 

consider in the engineering analysis: the 

selection of efficiency levels to analyze 

(i.e., the ‘‘efficiency analysis’’), and the 

determination of product cost at each 

efficiency level (i.e., the ‘‘cost 

analysis’’). In determining the 

performance of higher-efficiency 

products, DOE considers technologies 

and design option combinations not 

eliminated by the screening analysis. 

For each product class, DOE estimates 

the baseline cost, as well as the 

incremental cost for the product/ 

equipment at efficiency levels above the 

baseline. The output of the engineering 

analysis is a set of cost-efficiency 

‘‘curves’’ that are used in downstream 

analyses (i.e., the LCC and PBP analyses 

and the NIA). 

As discussed in section IV.A.1 of this 

document, certain classes of gas-fired 

instantaneous water heaters currently 

have UEF-based standards, while for 

others EPCA’s EF-based standards 

apply. For this rulemaking, DOE 

analyzed amended UEF standards for 

the product classes that currently have 

standards in terms of UEF. For the 

product classes with EF-based 

standards, DOE developed translated 

standards in terms of UEF for use in the 

analysis but did not analyze higher 

efficiency levels because, as discussed 

in section IV.C.2.b of this document, 

DOE does not currently have sufficient 

information to determine which higher 

efficiencies may be economically 

justified and result in significant 

national energy savings. 

DOE has analyzed standards with 

respect to the effective storage volume 

metric (as proposed in the July 2023 

NOPR) to allow consistency between 

standards in different product classes. 

As outlined in the July 2023 NOPR, 

there are two types of water heaters that 

can cause the system to store more 

energy than would be otherwise 

determined by the rated storage volume: 

(1) water heaters capable of operating 

with an elevated tank temperature, and 

(2) circulating water heaters.43 88 FR 

49058, 49086. For water heaters that are 

not capable of storing water at elevated 

tank temperatures, including ‘‘tankless’’ 

models (e.g., products with current 

UEF-based standards), the effective 

storage volume is equivalent to the rated 

storage volume. However, some gasfired instantaneous water heaters can 

include smaller tanks (i.e., the product 

class for models with at least 2 gallons 

of storage volume), therefore the 

effective storage volume metric was 

determined to be useful for gas-fired 

instantaneous water heaters as well. 

The product classes analyzed in this 

final rule and the respective analytical 

approaches utilized are listed in table 

IV.5. 


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TABLE IV.5—ANALYSIS APPROACH BY PRODUCT CLASS

Product category analyzed in this final rule Distinguishing characteristics 

(effective storage volume and input rating) Analysis 

Gas-fired Instantaneous Water Heater .............. <2 gal and ≤50,000 Btu/h ................................ Converting EF-based standards to UEF-based 

standards. 

<2 gal and >50,000 Btu/h; All Draw Patterns .. Amending UEF-based standards. 

≥2 gal and ≤200,000 Btu/h .............................. Converting EF-based standards to UEF-based 

standards. 

1. Products With Current UEF-Based 

Standards 

DOE typically uses one of two 

approaches to develop energy efficiency 

levels for the engineering analysis: (1) 

relying on observed efficiency levels in 

the market (i.e., the efficiency-level 

approach), or (2) determining the 

incremental efficiency improvements 

associated with incorporating specific 

design options to a baseline model (i.e., 

the design-option approach). Using the 

efficiency-level approach, the efficiency 

levels established for the analysis are 

determined based on the market 

distribution of existing products (in 

other words, based on the range of 

efficiencies and efficiency level 

‘‘clusters’’ that already exist on the 

market). Using the design option 

approach, the efficiency levels 

established for the analysis are 

determined through detailed 

engineering calculations and/or 

computer simulations of the efficiency 

improvements from implementing 

specific design options that have been 

identified in the technology assessment. 

DOE may also rely on a combination of 

these two approaches. For example, the 

efficiency-level approach (based on 

actual products on the market) may be 

extended using the design option 

approach to interpolate to define ‘‘gap 

fill’’ levels (to bridge large gaps between 

other identified efficiency levels) and/or 

to extrapolate to the ‘‘max-tech’’ level 

(particularly in cases where the ‘‘maxtech’’ level exceeds the maximum 

efficiency level currently available on 

the market). 

In the July 2023 NOPR, DOE 

developed efficiency levels with a 

combination of the efficiency-level and 

design-option approaches. DOE 

conducted a market analysis of 

currently available models listed in 

DOE’s Compliance Certification 

Database to determine which efficiency 

levels were most representative of the 

current distribution of gas-fired 

instantaneous water heaters available on 

the market. DOE also completed 

physical teardowns of commercially 

available units to determine which 

design options manufacturers may use 

to achieve certain efficiency levels. DOE 

requested comments from stakeholders 

concerning these efficiency levels, 

which, in this final rule, are consistent 

with those analyzed in the July 2024 

NODA. 

a. Efficiency Levels 

For each product class, DOE generally 

selects a baseline model as a reference 

point for each class, and measures 

anticipated changes resulting from 

potential energy conservation standards 

against the baseline model. The baseline 

model in each product class represents 

the characteristics of a product typical 

of that class (e.g., capacity, physical 

size). Generally, a baseline model is one 

that just meets current energy 

conservation standards, or, if no 

standards are in place, the baseline is 

typically the most common or least 

efficient unit on the market. The 

maximum available efficiency level is 

the highest efficiency unit currently 

available on the market. DOE also 

defines a ‘‘max-tech’’ efficiency level to 

represent the maximum possible 

efficiency for a given product. 

In this final rule, DOE has analyzed 

the same efficiency levels as were 

considered in the July 2023 NOPR and 

the July 2024 NODA. These efficiency 

levels are presented in table IV.6. For 

each draw pattern, EL 2 corresponded 

with the levels proposed in the Joint 

Stakeholder Recommendation (‘‘JSR’’) 

as discussed in section II.B.2 of this 

document. See chapter 5 of the final 

rule TSD for further details regarding 

the efficiency level analysis. 

TABLE IV.6—EFFICIENCY LEVELS FOR PRODUCTS WITH Veff <2 GAL, RATED INPUT >50,000 BTU/H

Efficiency level 

UEF 

Very small * Low * Medium High 

0 (Baseline) ...................................................................................................... 0.80 0.81 0.81 0.81 

1 ....................................................................................................................... † 0.86 † 0.87 0.87 0.89 

2 (JSR) ............................................................................................................. † 0.89 † 0.91 0.91 0.93 

3 ....................................................................................................................... † 0.90 † 0.92 0.92 0.95 

4 (Max-Tech) ................................................................................................... † 0.91 † 0.93 0.93 0.96 

* Only one brand has commercially-available products in the very small draw pattern and low draw pattern at the time of this analysis. 

† DOE applied the differences in efficiency levels from the medium draw pattern to define the Efficiency Levels 1 through 4 for the very small 

draw pattern and the low draw pattern. 

In response to the July 2023 NOPR, 

ONE Gas stated that as efficiencies of 

non-condensing instantaneous gas water 

heaters have increased since their 

introduction, replacements would 

accrue efficiency gains and emissions 

reductions over the products when first 

introduced in the 2000s and now at the 

end of their predicted lives (20 years 

according to the Department’s analysis). 

(ONE Gas, No. 1200 at p. 4) 

DOE agrees that efficiencies of gasfired instantaneous water heaters have 

increased over time. In the present 

rulemaking, DOE considered the 

baseline efficiency of gas-fired 

instantaneous water heaters to be 

equivalent to the current standards. This 

efficiency was required as a result of the 

April 2010 Final Rule, which set 

standards at a level that typically 

corresponds to electronic ignition, larger 

non-condensing heat exchangers, and 

power venting. As shown in chapter 3 


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of the final rule TSD, models are now 

able to achieve significantly higher 

efficiencies (e.g., condensing levels). 

With respect to efficiency level 2, 

Rinnai stated that DOE’s proposed 

standard is not technically achievable 

by non-condensing gas-fired 

instantaneous water heaters, and, 

accordingly, will make them obsolete. 

Rinnai noted that it had previously 

submitted comments on the July 2023 

NOPR, stating that the proposed rule 

would eliminate one of Rinnai’s two 

residential water heater product 

offerings and significantly impact 

Rinnai’s tankless water heater sales and 

manufacturing facility. (Rinnai, No. 

1443 at pp. 1–2) 

DOE has concluded that the efficiency 

levels analyzed in this rulemaking are 

technologically feasible for gas-fired 

instantaneous water heaters through the 

use of condensing heat exchangers, 

which are widely used in the market 

today. DOE understands Rinnai’s 

concern regarding the elimination of 

less-efficient models impacting the 

manufacturer, and therefore these topics 

are addressed more in detail in section 

IV.J.3 of this document, which discusses 

MIA comments. After consideration of 

feedback from commenters, DOE is 

maintaining the efficiency levels 

provided in the July 2024 NODA. 

b. Design Options 

Based on its teardown analyses and 

feedback provided by manufacturers in 

confidential interviews, DOE 

determined the technology options that 

are most likely to constitute the 

pathway to achieving the efficiency 

levels assessed. These technology 

options are referred to as ‘‘design 

options.’’ While manufacturers may 

achieve a given efficiency level using 

more than one design strategy, the 

selected design options reflect what 

DOE expects to be the most likely 

approach (most likely to prove costeffective) for the market in general in a 

standards-case scenario. Further details 

are provided in chapter 5 of the final 

rule TSD. 

DOE has found that gas-fired 

instantaneous water heaters are often 

differentiated based on heat exchanger 

and burner designs. Step-modulating 

burners feature a manifold with 

multiple solenoids regulating the gas 

flow into the burner. Sections of the 

burner can be shut off or opened up as 

demand for hot water varies. Each 

additional open solenoid means another 

‘‘step up’’ in heat input. By contrast, 

fully modulating burners make use of 

the full combustion chamber and heat 

exchanger surface area, modulating the 

input rate in tandem with the 

combustion blower. Such systems tend 

to be more complex than stepmodulating gas-fired instantaneous 

water heaters. In the March 2022 

Preliminary Analysis, DOE observed 

some manufacturers using fully 

modulating burners in lieu of stepmodulating burners at the max-tech 

efficiency level. In the July 2023 NOPR, 

DOE analyzed an additional efficiency 

level, EL 3, that was close to the maxtech level, EL 4, and used generally 

similar design options. However, in the 

July 2024 NODA, upon further review 

DOE found products that meet EL 3 but 

not EL 4 using step modulation. Thus, 

DOE tentatively determined that fully 

modulating burners are more likely to 

be implemented in only EL 4 designs. In 

the July 2024 NODA, based on 

additional data collected in its analyses, 

DOE also surmised that EL 4 efficiencies 

could still be met without the use of 

fully modulating burners—i.e., relying 

mainly on improvements to the 

condensing heat exchanger. DOE stated 

that this result is consistent with the 

conclusion in the July 2023 NOPR 

because the pathway relying on heat 

exchanger improvements could be more 

cost-effective for manufacturers to massproduce designs at a scale necessary to 

meet national demand, therefore the 

Department expects that such designs 

may be more common if standards were 

to be set at EL 4 than in the current 

market. As such, DOE analyzed EL 4 to 

be achievable using either step 

modulating or fully modulating burners, 

and the manufacturer production cost 

for EL 4 estimated in the July 2024 

NODA reflected an average of these 

design pathways. 89 FR 59692, 59693– 

59694. Due to the uncertainty regarding 

which design pathway would be more 

prevalent in the case of standards set at 

the max-tech efficiency level, DOE 

raised the issue to seek additional 

information from interested parties on 

this topic. 

In response to the July 2024 NODA, 

AHRI disagreed with DOE’s assessment 

that EL 3 and EL 4 can be achieved 

using step modulating burners. AHRI 

stated that fully modulating burners are 

required to achieve EL 3 and EL 4. AHRI 

claimed that fully modulating burners 

provide the precise control necessary to 

optimize combustion efficiency, 

minimize energy waste, and 

consistently achieve the higher 

performance levels associated with EL 3 

and EL 4. AHRI claimed that this is 

supported by current market data, 

which shows that the vast majority of 

gas-fired instantaneous water heaters 

achieving high efficiency levels, 

particularly those with a UEF above 

0.93, rely on fully modulating burners. 

AHRI claimed DOE’s findings are not 

supported by the existing market 

landscape. AHRI urged DOE to consider 

performing a detailed review of the 

efficiency gains that can be realistically 

expected from step modulating versus 

fully modulating burners, as well as a 

comprehensive assessment of market 

data in order to support the claim that 

step-modulating burners can be used to 

achieve EL 3 and EL 4. (AHRI, No. 1437 

at pp. 1–2) 

Rinnai requested that DOE analyze 

and validate the assumptions regarding 

the feasibility of achieving EL 3 or EL 

4 using step modulating burners, a 

change made in the July 2024 NODA. 

According to Rinnai, fully modulating 

burners consistently achieve EL 3 and 

EL 4, which the July 2024 NODA now 

contradicts. (Rinnai, No. 1443 at p. 23) 

Rheem disagreed with the design 

options for EL 3 and EL 4 as described 

in the July 2024 NODA, claiming that 

step modulation was not reflected in the 

MPCs. Rheem indicated that there are 

currently no models utilizing step 

modulating burners on the market that 

meet EL 4. In addition, Rheem stated 

that, while there are step modulating 

designs currently on the market that 

meet EL 3, some are complex downfired designs that were not reflected in 

the technology options discussed in the 

NOPR TSD. Finally, Rheem questioned 

whether traditional step modulating 

designs can meet EL 3 at all input rates. 

(Rheem, No. 1436 at p. 2) 

A.O. Smith stated that DOE’s 

engineering analysis should reflect the 

technologies and design pathways 

currently available on the market and 

avoid making speculative assumptions 

regarding cost and performance of 

theoretical designs which have not been 

fully vetted or proven to be market 

ready and emphasized that the use of 

theoretical design pathways is more 

prone to inaccurate or incomplete cost 

estimates. (A.O. Smith, No. 1440 at pp. 

5–6) 

BWC agreed that designs utilizing 

step modulating burners can achieve EL 

4, but stated that manufacturers do not 

widely design their products in this way 

due to their increased complexity, 

which correlates with reduced product 

lifetimes. Additionally, the 

manufacturer stressed that added 

product complexity would entail more 

specialized manufacturing processes, 

leading to additional costs passed on to 

consumers. (BWC, No. 1441 at pp. 1–2) 

BWC further stated that for products 

achieving EL 4 efficiencies with the use 

of step modulating burners the 

increased complexity of step 

modulating burners would make 


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44See chapter 5 of the TSD to the October 2023 

commercial water heater standards final rule, 

available online at: www.regulations.gov/document/ 

EERE-2021-BT-STD-0027-0038. 

products more difficult to efficiently 

mass produce, requiring the 

development of more specialized 

manufacturing processes. BWC stated 

that this would lead to increased 

production costs that may be passed on 

to consumers. (BWC No. 1441 at p. 2) 

To clarify, DOE bases its assignment 

of design options not only on publicly 

available product literature, but also on 

its independent analysis of teardown 

samples. DOE combines this 

information to determine what the most 

cost-effective pathway to increasing 

efficiency may be. 

With respect to burner configuration 

(i.e., up-fired vs. down-fired), DOE notes 

that it has not found evidence to suggest 

that the configuration itself lends to 

improvements in UEF. Although the 

topic was discussed, burner 

configuration was not attributed as a 

design option to improve the efficiency 

of commercial gas-fired instantaneous 

water heaters in DOE’s recent 

rulemaking pertaining to standards for 

that equipment.44 Traditional designs of 

consumer gas-fired instantaneous water 

heaters utilize an ‘‘up-fired’’ approach 

where the burner is located at the 

bottom and directs the flame upwards 

through a heat exchanger above it. This 

configuration is the natural choice for 

product lines that used buoyancy to 

vent the flue gases away because the hot 

flue gases can rise through the heat 

exchanger and exit through the vent. 

However, baseline models today utilize 

power burners with blowers to expel the 

flue gases without the need for 

buoyancy to move these gases out. 

Because of this, designs are no longer 

limited to up-fired configurations. 

Down-fired configurations—where the 

burner and blower are located above the 

heat exchanger—may be preferred by 

some manufacturers due to this design’s 

natural ability to manage condensate in 

condensing models. In a down-fired 

configuration, gravity allows the 

condensate to collect at a receiver near 

the secondary (condensing) heat 

exchanger because, in this 

configuration, the condensing heat 

exchanger is towards the bottom of the 

water heater. Teardown samples show 

that both firing configurations are used 

in condensing models today. As such, 

DOE finds that the burner configuration 

is likely the manufacturer’s preference 

rather than an inherent benefit to 

efficiency. See chapters 3 and 5 of the 

final rule TSD for more details. 

Where DOE has found a correlation 

between down-fired configurations and 

UEF is in the implementation of fully 

modulating burners. Down-fired 

configurations tend to have higher UEF 

ratings because fully modulating 

burners are typically always down-fired. 

This may be because, as discussed 

further in the following paragraphs, 

fully modulating burners require 

different manufacturing equipment and 

production lines. For example, if a 

manufacturer is designing a new 

production line for models with fully 

modulating burners, there may be an 

opportunity to implement a down-fired 

design for the condensate. However, the 

research and teardown analyses 

conducted by DOE did not yield 

evidence to suggest that the down-fired 

configuration causes an increase in UEF 

without the implementation of a fully 

modulating burner. Hence DOE 

maintains that the pathway to 

increasing efficiencies up to the maxtech level includes incorporating fully 

modulating burner designs, which 

happen to be down-fired. For 

condensing efficiency levels below the 

max-tech level, DOE’s teardown 

analyses indicate that there would not 

be a significant difference in MPC 

between a down-fired design and an upfired design, all else the same. 

Therefore, DOE has not directly 

analyzed the incorporation of downfired burners as a design option in this 

engineering analysis except where fully 

modulating burners are used. 

With respect to the burner modulation 

type, DOE agrees that fully modulating 

burners are capable of achieving higher 

efficiencies, including those from EL 1 

through EL 4. However, in its 

teardowns, DOE identified samples of 

gas-fired instantaneous water heaters 

currently on the market meeting the 

efficiencies as high as EL 3 using stepmodulating burners. Additionally, the 

comments from Rheem implicitly 

provide that fully modulating designs 

are associated with higher costs 

compared to step-modulating designs, 

which may be a reason step-modulating 

burners are still commonly used at 

higher efficiencies. DOE’s teardown 

analyses verify this understanding— 

fully modulating burners use more 

advanced components that cause MPCs 

to rise commensurately. Responding to 

the comments from BWC, DOE 

understands that a production line built 

to manufacture step-modulating burners 

would have additional equipment that a 

fully modulating burner production line 

would not require. For example, 

manufacturers typically need additional 

metal presses and/or dies to stamp the 

compartments of a step-modulated 

burner and combustion chamber. Each 

manufacturer has the ability to choose 

which type of burner to implement in 

its designs, taking into consideration the 

pros and cons of each approach (e.g., 

step-modulating burners may cost less 

overall, but have a trade-off in that they 

require more equipment to 

manufacture). The availability of stepmodulating burners at various efficiency 

levels strongly suggests that 

manufacturers do opt to use this 

pathway despite the added complexity 

of the production line. 

As stated earlier, DOE aims to identify 

the most cost-effective and likely 

pathway to achieving higher efficiency 

levels. The cost-efficiency curves serve 

as estimates for what the overall 

market—not just one manufacturer— 

would experience in a scenario where 

standards are set to that efficiency 

levels. In the July 2024 NODA, DOE 

tentatively determined that the 

continued use of step-modulating 

burners, along with heat exchanger 

improvements, would be the most costeffective pathway to achieve EL 3. Then, 

to reach EL 4, fully modulating burners 

may have similar cost-effectiveness such 

that manufacturers could opt to use 

either a step-modulating burner with an 

even larger heat exchanger or a fully 

modulating burner at this level. 

DOE once again reviewed its 

teardowns and online product literature 

to assess how different manufacturers 

implement step-modulating and fully 

modulating burner designs, as suggested 

by AHRI. To Rheem’s point, DOE once 

again found that step-modulating 

designs on the market today can achieve 

EL 3 and can span the full range of 

capacities (up to 200,000 Btu/h), as 

described in chapter 5 of the final rule 

TSD. While there may be some cases of 

product lines not reaching EL 3 across 

the full span of capacities, DOE believes 

these discrepancies in efficiency can be 

addressed by improving the heat 

exchanger (and the added costs of doing 

so are included in DOE’s estimates of 

MPCs). Considering this, the 

Department has confirmed that the 

design option pathway to EL 3 could be 

more cost-effective using stepmodulating burners. 

DOE also found that, although stepmodulating designs would be capable of 

meeting EL 4 (as BWC indicated), more 

manufacturers use fully-modulating 

burners at EL 4. To determine whether 

step-modulating burners would be 

appropriate to consider for EL 4, DOE 

evaluated the comments from 

manufacturers regarding manufacturing 

complexity. Currently, approximately 

only 8 percent of shipments currently 


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meet EL 4. In a standards-case-scenario, 

manufacturers would have to 

significantly ramp up production 

capacity such that 100 percent of 

models sold in the U.S. would meet that 

efficiency level. The comments from 

multiple manufacturers serve as a strong 

indication that, in a standards-casescenario where production capacity for 

these high-efficiency models would 

have to be multiplied, it is more realistic 

to expect designs to use fully 

modulating burners to simplify the 

production process. Hence, DOE agrees 

with commenters indicating that fully 

modulating burners are more 

appropriate for EL 4. 

As a result, the design options 

analyzed in this final rule are listed in 

table IV.7. 

TABLE IV.7—DESIGN OPTIONS FOR GAS-FIRED INSTANTANEOUS: Veff <2 GAL, RATED INPUT >50,000 BTU/H

EL Design options 

0 ............. Step modulating burner; Non-condensing tube-and-fin heat exchanger. 

1 ............. Step modulating burner; Condensing tube heat exchanger. 

2 ............. Step modulating burner; Larger condensing heat exchanger. 

3 ............. Step modulating burner; Larger, flat plate condensing heat exchanger. 

4 ............. Fully modulating burner; Larger condensing heat exchanger. 

c. Cost Analysis 

The cost analysis portion of the 

engineering analysis is conducted using 

one or a combination of cost 

approaches. The selection of cost 

approach depends on a suite of factors, 

including the availability and reliability 

of public information, characteristics of 

the regulated product, the availability 

and timeliness of purchasing the 

product on the market. The cost 

approaches are summarized as follows: 

• Physical teardowns: Under this 

approach, DOE physically dismantles a 

commercially available product, 

component-by-component, to develop a 

detailed bill of materials for the product. 

• Catalog teardowns: In lieu of 

physically deconstructing a product, 

DOE identifies each component using 

parts diagrams (available from 

manufacturer websites or appliance 

repair websites, for example) to develop 

the bill of materials for the product. 

• Price surveys: If neither a physical 

nor catalog teardown is feasible (e.g., for 

tightly integrated products such as 

fluorescent lamps, which are infeasible 

to disassemble and for which parts 

diagrams are unavailable), costprohibitive, or otherwise impractical 

(e.g., large commercial boilers), DOE 

conducts price surveys using publicly 

available pricing data published on 

major online retailer websites and/or by 

soliciting prices from distributors and 

other commercial channels. 

In the present case, DOE conducted 

the analysis using a combination of the 

physical and catalog teardown 

approaches to develop estimates of the 

manufacturer production cost (‘‘MPC’’) 

at each UEF efficiency level analyzed. 

Data from the teardowns were used to 

create bills of materials (‘‘BOMs’’) that 

capture all of the materials, 

components, and manufacturing 

processes necessary to manufacture 

products at various efficiency levels 

spanning the full range of efficiencies 

from the baseline to max-tech. DOE 

used the BOMs along with publicly 

available material and component cost 

data as the basis for estimating the 

MPCs. DOE refined its cost estimates 

and its material and component cost 

data based on feedback received during 

confidential manufacturer interviews 

conducted during this rulemaking. 

To perform this analysis, DOE selects 

representative capacities for each 

product class. These capacities reflect 

the most common or average size of a 

gas-fired instantaneous water heater in 

that product class, and this step is 

important because the MPC is 

dependent upon the size of the water 

heater—water heaters with higher input 

rates cost more to manufacture. In the 

July 2023 NOPR and July 2024 NODA, 

DOE analyzed input rates of 120,000 

Btu/h and 199,000 Btu/h as 

representative capacities for the 

medium and high draw patterns, 

respectively. DOE has determined that 

these capacities remain representative 

in this final rule. Based on the results 

of the market assessment, DOE has 

determined that there are very few 

models in the low draw pattern, with 

only one manufacturer making these 

products. There are no very small draw 

pattern gas-fired instantaneous water 

heaters greater than 50,000 Btu/h in 

input rating. DOE’s teardown analyses 

have shown that the design option 

pathways and manufacturer production 

cost versus efficiency curves are 

generally similar for all tankless gasfired instantaneous water heaters, such 

that the results from a direct analysis of 

the medium and high draw patterns 

would be representative for the very 

small and low draw patterns as well. 

Thus, the very small and low draw 

patterns were not directly analyzed 

product classes in this final rule. 

Rheem stated that the incremental 

MPCs from EL 2 to EL 3 and from EL 

3 to EL 4 are too low, and do not 

adequately capture the higher costs 

associated with the new step 

modulation or fully modulating burner 

systems. Furthermore, Rheem reiterated 

its comment in response to the July 

2023 NOPR that the incremental retail 

cost between step modulating and fully 

modulating gas-fired instantaneous 

water heater designs is 50 percent lower 

than expected. (Rheem, No. 1436 at pp. 

2–3) 

As described in section IV.C.1.b, DOE 

determined that the burner design 

options for EL 3 and EL 4 would be 

step-modulating burners and fully 

modulating burners, respectively. The 

July 2024 NODA assumed that only a 

fraction of the market would switch to 

fully modulating burners at EL 4, and, 

therefore, the incremental cost increase 

reflected an average of some 

manufacturers retaining the stepmodulating burner (no additional 

burner cost) and some manufacturers 

switching to fully modulating burners 

(significant additional burner cost). As a 

result, the incremental MPC between EL 

3 and EL 4 in the July 2024 NODA 

averaged out to be lower than the 

estimated total cost of switching to a 

fully modulating burner. In this final 

rule analysis, DOE assumes that all 

models at EL 4 would utilize fully 

modulating burners. Hence, the MPCs at 

EL 4 are increased to reflect this change 

in design pathway, and this would in 

turn increase the incremental retail cost 

between EL 3 and EL 4. 

See chapter 5 of the final rule TSD for 

additional details. 

d. Shipping Costs and Manufacturer 

Selling Price 

As discussed in the July 2024 NODA, 

DOE similarly maintained the 

methodology for shipping costs from the 

July 2023 NOPR (see 88 FR 49058, 

49095–49096). DOE updated the cost 

per trailer using the most recent data 

available. 89 FR 59692. Because many 


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45U.S. Securities and Exchange Commission. 

Company Filings. Available at www.sec.gov/searchfilings (last accessed August 7, 2024). 

gas-fired instantaneous water heaters 

sold in the United States are 

manufactured overseas, these shipping 

costs include the cost of shipping 

products from overseas to the United 

States, and then from the coast to the 

middle of the country. 

A.O. Smith stated that DOE does not 

account for the increase in downstream 

shipping costs at EL 3 and EL 4 that 

would result from incorporating larger 

heat exchangers into consumer gas fired 

instantaneous water heaters. (A.O. 

Smith, No. 1440 at pp. 5–6) 

DOE agrees that larger heat 

exchangers would increase the product 

footprint. In some cases, this causes 

fewer units to fit in a container or 

trailer, thereby increasing the per-unit 

outbound shipping cost to 

manufacturers. To determine how many 

units would fit, DOE assumed standard 

trailer dimensions and a nearly full 

truckload configuration (see chapter 5 of 

the final rule TSD for details). In DOE’s 

shipping cost calculation, the maximum 

units that can fit is based not only on 

the size of each unit, but also the 

possible orientations that boxes can be 

loaded in with. Per DOE’s analysis, the 

same number of units could fit in one 

load whether the model is an EL 3 

design or a slightly larger EL 4 design. 

As a result, the shipping costs are 

estimated to be the same at these two 

efficiency levels. 

To account for manufacturers’ nonproduction costs and profit margin, DOE 

applies a multiplier (the manufacturer 

markup) to the MPC. The resulting 

manufacturer selling price (‘‘MSP’’) is 

the price at which the manufacturer 

distributes a unit into commerce. DOE 

developed an average manufacturer 

markup by examining the annual 

Securities and Exchange Commission 

(‘‘SEC’’) 10–K 45 reports filed by 

publicly traded manufacturers that 

produce gas-fired instantaneous water 

heaters, the manufacturer markups from 

the April 2010 Final Rule, and feedback 

from confidential manufacturer 

interviews. 75 FR 20112. See section 

IV.J.2.d of this document and chapter 12 

of the final rule TSD for additional 

detail on the manufacturer markup. 

e. Cost-Efficiency Results 

The results of the engineering analysis 

are reported as cost-efficiency data in 

the form of MPCs and shipping costs 

calculated for each efficiency level of 

each product class for which DOE is 

proposing amended UEF-based 

standards. As discussed previously, 

DOE determined these costs by 

developing BOMs based on a 

combination of physical and catalog 

teardowns and using information in the 

BOMs along with component and 

material price data to estimate MPCs. As 

discussed in section IV.C.1.c of this 

document, the very small and low draw 

patterns were not directly analyzed due 

to the low number of basic models 

identified in these draw patterns during 

the market and technology assessment. 

However, as shown in section IV.C.1.a 

of this document, higher efficiency 

levels of the very small and low draw 

pattern product classes continue to be 

assessed. Further evaluation of the 

economic justification of potential 

amended standards for gas-fired 

instantaneous water heaters (all models 

with Veff <2 gal and rated input >50,000 

Btu/h) is based on the understanding 

that the medium and high draw pattern 

results are representative of the overall 

market given the very low shipments of 

very small and low draw pattern 

models. The results of the engineering 

analysis, in 2023 dollars, are 

summarized in table IV.8. 

TABLE IV.8—ENGINEERING ANALYSIS RESULTS FOR GAS-FIRED INSTANTANEOUS: Veff <2 GAL, RATED INPUT >50,000 

Btu/h 

EL 

UEF 

MPC 

(2023$) 

MSP 

(2023$) 

Shipping 

(2023$) Very small Low 

Medium 

120,000 

Btu/h 

High 

199,000 

Btu/h 

0 (Baseline) ..... N/A N/A 0.81 0.81 Med: 310.51 High: 

327.89.

Med: 450.24 High: 

475.44.

Med: 4.52 High: 

7.63. 

1 ...................... N/A N/A 0.87 0.89 Med: 441.74 High: 

461.02.

Med: 640.52 High: 

668.48.

Med: 7.07 High: 

9.49. 

2 (JSR) ............ N/A N/A 0.91 0.93 Med: 445.63 High: 

466.00.

Med: 646.16 High: 

675.71.

Med: 10.17 High: 

11.45. 

3 (E *) .............. N/A N/A 0.92 0.95 Med: 451.39 High: 

473.22.

Med: 654.52 High: 

686.17.

Med: 10.17 High: 

11.45. 

4 (Max tech) .... N/A N/A 0.93 0.96 Med: 490.04 High: 

514.99.

Med: 710.56 High: 

746.74.

Med: 10.17 High: 

11.45. 

2. Products Without Current UEF-Based 

Standards 

In the December 2016 Conversion 

Factor Final Rule, DOE established that 

EF-based standards as established by 

EPCA are applicable to consumer water 

heaters but would not be enforced until 

conversion factors and converted 

standards are adopted. 81 FR 96204, 

96209–96211. To convert these EFbased standards to UEF-based 

standards, DOE first developed 

conversion factors that convert tested 

values measured under the DOE test 

procedure in effect prior to the July 

2014 TP Final Rule (which produces the 

EF metric) to values found under the 

current DOE test procedure (which 

produces the UEF metric). DOE then 

applied these conversion factors to 

representative baseline models and 

derived the UEF-based energy 

conservation standards from the 

resulting UEF values. 

For the July 2023 NOPR, DOE applied 

a similar methodology to translate from 

minimum efficiency levels denominated 

in EF to those in UEF for classes of 

covered consumer water heaters that do 

not yet have UEF-based standards. 88 

FR 49058, 49098. The translated 

standards for gas-fired instantaneous 

water heaters are shown in table IV.9. 

These efficiencies all correspond to noncondensing operation. 


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TABLE IV.9—TRANSLATED UEF-BASED ENERGY CONSERVATION STANDARDS FOR PRODUCT CLASSES WITHOUT

ESTABLISHED UEF-BASED STANDARDS

Product class Nominal input Effective 

storage volume Draw pattern Uniform energy factor 

Instantaneous Gas-fired Water Heater .... ≤50,000 Btu/h ............................. <2 gal ............... Very Small ........ 0.64 

Low ................... 0.64 

Medium ............. 0.64 

High .................. 0.64 

≤200,000 Btu/h ........................... ≥2 gal ................ Very Small ........ 0.2534–(0.0018 × Veff) 

Low ................... 0.5226–(0.0022 × Veff) 

Medium ............. 0.5919–(0.0020 × Veff) 

High .................. 0.6540–(0.0017 × Veff) 

In the July 2023 NOPR, DOE proposed 

to adopt these translated standards and 

reiterated that the stringency of the 

standards is not increasing as a result of 

the conversion. 88 FR 49058, 49098– 

49100. 

a. Crosswalk to Equivalent-Stringency 

UEF-Based Standards 

In the July 2023 NOPR, DOE 

requested feedback regarding the 

appropriateness of the proposed 

converted UEF-based standards and 

whether products on the market can 

meet or exceed the proposed levels. 88 

FR 49058, 49100. 

The Gas Association Commenters 

stated that DOE did not justify the 

proposed new standards for gas-fired 

instantaneous water heaters that are <2 

gallons and <50,000 Btu/h or greater 

than or equal to 2 gallons. In its 

comments, the Gas Association 

Commenters interpreted the economic 

analysis performed for gas-fired 

instantaneous water heaters that are <2 

gallons and >50,000 Btu/h as being 

treated as representative for all gas-fired 

instantaneous water heater standards 

being proposed in the July 2023 NOPR. 

These commenters noted that DOE 

tentatively concluded these product 

classes are different enough to warrant 

separate standards, but that there was 

no economic justification provided for 

the two product categories remaining at 

non-condensing efficiency levels. Citing 

the statutory requirement for any new or 

amended energy conservation standards 

to be technologically feasible and 

economically justified, the Gas 

Association Commenters recommended 

that DOE modify its approach. (Gas 

Association Commenters, No. 1181 at p. 

8) 

EPCA directed DOE to establish a 

uniform efficiency descriptor to be used 

to regulate all covered water heaters, 

with certain exceptions for water 

heaters used only in commercial 

applications. (42 U.S.C. 6295(e)(5)) 

Therefore, DOE has conducted this 

analysis in satisfaction of its statutory 

obligation to delineate standards for all 

consumer water heaters, including gasfired instantaneous water heaters, in 

terms of UEF. Because the statute 

requires that the UEF-based standards 

for these product classes reflect the 

same stringency as the statutory EFbased standards that are currently 

applicable—i.e., these are not standards 

that would require higher efficiency to 

comply—it is not necessary for DOE to 

conduct an assessment of energy savings 

or economic justification prior to 

proposing such standards. (42 U.S.C. 

6295(e)(5)(E)(iii) For example, the 

translated UEF standards can be met by 

non-condensing models and products 

with standing pilot lights as well. The 

Department believes that the Gas 

Association Commenters may have 

misinterpreted the analysis for product 

classes with current UEF-based 

standards as also applying to these 

product classes which have EF-based 

standards. To reiterate, these standards 

are not being established pursuant to 

EPCA provisions at 42 U.S.C. 

6295(o)(A), but instead in accordance 

with those at 42 U.S.C. 6295(e)(5). 

Additionally, the statutory EF-based 

standards are provided within EPCA 

and do not require separate justification 

to adopt these stringencies. 89 FR 

37778, 37845. 

b. Consideration of More Stringent 

Standards 

In the July 2023 NOPR, DOE also 

requested information and data 

regarding the UEF of products within 

these product classes if they are found 

to generally exceed the proposed levels. 

88 FR 49058, 49100. 

Some commenters identified a need to 

consider more stringent standards for 

gas-fired instantaneous water heaters 

with less than 50,000 Btu/h of input, 

discussed as follows. 

A.O. Smith indicated that 

simultaneous establishment of baseline 

UEF levels for converted product classes 

while increasing the standard levels for 

existing product classes creates a 

scenario where new products may 

emerge, and shipments may shift from 

product classes with more stringent 

standards to very similar products in 

new product classes with less stringent 

standards. (A.O. Smith, No. 1182 at p. 

14) A.O. Smith identified that product 

classes for <2 gallon and <50,000 Btu/ 

h gas-fired instantaneous water heaters 

and ≥2 gallon and ≤200,000 Btu/h gasfired instantaneous water heaters with 

non-condensing standard levels are 

likely to incentivize circumvention of 

the <2 gallon and >50,000 Btu/h 

condensing standards. (A.O. Smith, No. 

1182 at p. 14) 

Bosch noted that there are still 

pathways for non-condensing gas-fired 

instantaneous water heaters to stay in 

the market, which could be realized by 

creating model lines that are either 

below 50,000 Btu/h in input or above 2 

gallons in storage capacity. To remedy 

this, Bosch recommended DOE require 

condensing technology for all gas-fired 

instantaneous water heaters. (Bosch, No. 

1204 at pp. 2–3) 

By contrast, the CA IOUs stated that 

the proposed product sub-class with a 

rated volume of <2 gallons and an input 

rating of ≤50,000 Btu/h is appropriate 

for point-of-use applications and that 

this subclass will not account for a 

significant amount of gas fired 

instantaneous water heater shipments. 

(CA IOUs, No. 1442 at pp. 2–3) Rheem 

suggested that DOE consider increasing 

the standards for gas-fired instantaneous 

water heaters <2 gallons and less than 

or equal to 50,000 Btu/h of input to an 

efficiency that corresponds to removal 

of standing pilot lights, but not an 

efficiency that utilizes condensing 

technology. Rheem stated that gas-fired 

instantaneous water heaters under 

50,000 Btu/h exist and have residential 

applications (i.e., they are not 

exclusively marketed for recreational 

vehicles or as portable equipment). 

However, the commenter also wrote that 

these products are not a direct 

replacement for the condensing gasfired instantaneous water heaters that 


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would be required for input rates greater 

than 50,000 Btu/h, and thus generally 

supported the translated standards for 

these products. (Rheem, No. 1177 at p. 

12) 

DOE agrees that there may be a market 

for gas-fired instantaneous water heaters 

with less than 50,000 Btu/h of input 

based on the designs it has reviewed. 

Gas-fired instantaneous water heaters 

with less than 50,000 Btu/h of heat 

input are typically used in ‘‘point-ofuse’’ applications (e.g., affixed to a 

showerhead) because the heat input is 

generally not high enough to serve an 

entire house. Hence, DOE expects that 

shipments of these ‘‘point-of-use’’ 

tankless gas-fired instantaneous water 

heaters would not easily replace 

shipments of ‘‘whole-home’’ tankless 

gas-fired instantaneous water heaters 

with input rates higher than 50,000 Btu/ 

h. 

While DOE acknowledges that 

removing standing pilot lights would 

result in additional energy savings, DOE 

does not currently possess data 

supporting more stringent standards 

than those being established as part of 

this rulemaking. However, DOE may 

analyze the benefits and burdens of 

higher standards for these products at a 

later time. Further, after the compliance 

date of this final rule, the availability of 

UEF certification data for these products 

may inform a future analysis of more 

stringent standards in a future 

rulemaking. 

In addition to Bosch and A.O. Smith, 

several other commenters raised 

concerns regarding non-condensing 

standards for larger gas-fired 

instantaneous water heaters—those with 

2 or more gallons of storage volume. 

Rheem commented that gas-fired 

instantaneous water heaters greater than 

or equal to 2 gallons of rated storage 

volume do not currently exist on the 

market because there is no need for 

them. (Rheem, No. 1177 at p. 13) Rheem 

stated that the ≥2 gallons and ≤200,000 

Btu/h product category could be used to 

circumvent the condensing-level 

standards for <2 gallon and >50,000 

Btu/h gas-fired instantaneous water 

heaters and recommended aligning the 

standards to the condensing levels (e.g., 

change the intercepts in the standards 

equations for the >2 gallon classes to 

match the amended standards for the <2 

gallon classes). (Rheem, No. 1177 at p. 

13) Rheem reiterated these comments in 

response to the July 2024 NODA. 

(Rheem, No. 1436 at p. 3) 

In response to the July 2024 NODA, 

the CA IOUs stated that manufacturers 

could produce gas fired instantaneous 

water heaters with a rated volume of ≥2 

gallons and an input rating of ≤200,000 

Btu/h that do not meet condensing 

standards. The CA IOUs expressed 

concern that this would allow 

manufacturers to avoid meeting 

condensing standards for all consumer 

gas fired instantaneous water heater 

offerings. The CA IOUs expressed 

concern that, because of the low cost to 

manufacturers of increasing the rated 

volume of existing non-condensing gas 

fired instantaneous water heaters to 2 

gallons or higher, DOE’s proposal could 

allow non-condensing products to 

remain in the market at lower prices 

than condensing products. The CA IOUs 

urged DOE to modify its proposed 

subclass definitions if it can do so in a 

timely manner and to immediately 

begin a new rulemaking to address its 

concerns should modifying product subclasses present a significant delay to a 

final rule being issued for gas fired 

instantaneous water heaters (CA IOUs, 

No. 1442 at pp. 3–4). Specifically, the 

CA IOUs recommended that DOE 

expand the existing subclass to include 

all gas fired instantaneous water heaters 

with a volume less than 20 gallons and 

an input rating >50,000 Btu/h and 

≤200,000 Btu/h. (CA IOUs, No. 1442 at 

pp. 3–4) 

A.O. Smith claimed that, because 

some products ≥2 gallons and ≤200,000 

Btu/h are used only in commercial 

applications, condensing-level 

standards are justified for these 

products, citing the conclusions of 

DOE’s rulemaking for commercial water 

heaters. (A.O. Smith, No. 1440 at p. 4) 

A.O. Smith emphasized the importance 

of establishing condensing-level 

standards for all gas-fired instantaneous 

water heaters, noting that finalizing the 

proposed standard for this product class 

leaves open the opportunity for the 

entry of new products intended to 

circumvent both consumer condensing 

standards and commercial condensing 

standards effective in October 2026. 

(A.O. Smith, No. 1440 at p. 4) A.O. 

Smith stated that in this rulemaking, in 

contrast with the conversion factor 

rulemaking, DOE is evaluating whether 

more stringent standards for gas-fired 

instantaneous water heaters would be 

technologically feasible, economically 

justified, and result in significant energy 

savings and that in this context, DOE 

must consider the factors outlined in 

EPCA at 42 U.S.C. 6295(q) for 

establishing product classes and adjust 

the gas-instantaneous product classes 

accordingly. (A.O. Smith, No. 1440 at 

p.4) 

A.O. Smith recommended that DOE 

expand the analyzed product class from 

<2 gallons and >50,000 Btu/h to <5 

gallons and >50,000 Btu/h to ensure that 

condensing standards are not 

circumvented through minor design 

changes. (A.O. Smith, No. 1440 at p. 4) 

A.O. Smith claimed that a gas-fired 

instantaneous water heater with a 5- 

gallon storage volume would have 

negligible standby losses and a 

consistent UEF standard value could 

apply to the entire zero-to-five-gallon 

range. A.O. Smith noted that EPCA only 

established standby loss standards for 

commercial gas-fired instantaneous 

water heaters with a rated storage 

volume greater than 10 gallons, stating 

that this indicates that standby losses 

are not expected to be significant 

enough to warrant separate standards 

and separate product classes until 10 

gallons of storage volume for 

commercial gas-fired instantaneous 

water heaters. A.O. Smith stated that 

this suggests that DOE expanding the 

storage capacity range up to 5 gallons 

for the gas-fired instantaneous consumer 

water heater product class under 

consideration for amended standards is 

appropriate. (A.O. Smith, No. 1440 at 

pp. 4–5) 

In response to A.O. Smith, DOE notes 

that the most recent commercial water 

heaters rulemaking, which published in 

the Federal Register a final rule on 

October 6, 2023 (the ‘‘October 2023 

Commercial Water Heaters Final Rule’’), 

analyzed gas-fired instantaneous water 

heaters that are considered covered 

commercial equipment under EPCA. 88 

FR 69686, 69706. Specifically, these 

commercial gas-fired instantaneous 

water heaters are defined at 10 CFR 

431.102 as having a rated input above 

200,000 Btu/h. Id. While the October 

2023 Commercial Water Heaters Final 

Rule established condensing-level 

standards for commercial gas-fired 

instantaneous water heaters, the 

conclusions of that rulemaking would 

not necessarily apply to gas-fired 

instantaneous water heaters ≥2 gallons 

and ≤200,000 Btu/h because these are 

consumer water heaters and were not 

analyzed in that rulemaking. 

Further, DOE understands that the 

recommendations to expand the 

applicability of the condensing-level 

standards to products with 2 or more 

gallons of storage may be based on an 

assumption that such a stringency 

increase would have minimal impact to 

the market. However, contrary to the 

comments from Rheem, Bosch, and A.O. 

Smith, DOE has identified several 

consumer gas-fired instantaneous water 

heaters on the market with 2 or more 

gallons, as discussed in section IV.A.1 

of this document. Some of these models 

use non-condensing operation and 

would not comply with condensinglevel standards at efficiency level 2. 

DOE does not currently possess data 


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46For example, DOE reviewed the product 

dimensions of the HTP Crossover series, a product 

line of larger gas-fired instantaneous water heaters 

intended for residential wall-hung installations. 

Product dimensions can be found online at: 

www.htproducts.com/literature/mktlit-118.pdf. 

(Last accessed on August 28, 2024). 

47 DOE estimates that 6 percent of gas-fired 

instantaneous water heaters will be shipped to 

commercial applications in 2030. 

48BRG Building Solutions, The North American 

Heating & Cooling Product Markets (2023 Edition). 

Available at www.brgbuildingsolutions.com/reportsinsights (last accessed August 29, 2024). 

49Clear Seas Research, 2022 Mechanical 

System—Water Heater. Available at 

clearseasresearch.com/reports/industries/ 

mechanical-systems/ (last accessed August 29, 

2024). 

50Based on available data, DOE assumed that for 

replacement or new owners in residential 

applications consumer gas-fired instantaneous 

water heaters go through the wholesaler/contractor 

55 percent of the time, directly form the retailer 40 

percent of the time, and through the retailer/ 

contractor 5 percent of the time. 

51Based on available data, DOE assumed that 

consumer gas-fired instantaneous water heaters in 

mobile homes go through the wholesaler/contractor 

55 percent of the time, directly form the retailer 40 

percent of the time, and though the retailer/ 

contractor 5 percent of the time. The data indicate 

that gas-fired instantaneous water heaters are 

almost never sold directly through a mobile home 

retailer. 

52 DOE estimates that in the residential market 48 

percent of gas-fired instantaneous water heaters will 

be shipped to new construction applications in 

2030. 

53 DOE’s analysis indicates that many builders are 

large enough to have a master plumber and not hire 

a separate contractor, and assigned approximately 

half of water heater shipments to new construction 

to this channel. DOE estimated that in the new 

construction market, 90 percent of the residential 

(not including mobile homes) and 80 percent in 

commercial applications goes through a wholesaler 

to builders channel and the rest go through national 

account distribution channel. 

54Because the projected price of standardscompliant products is typically higher than the 

price of baseline products, using the same markup 

for the incremental cost and the baseline cost would 

result in higher per-unit operating profit. While 

such an outcome is possible, DOE maintains that in 

markets that are reasonably competitive it is 

unlikely that standards would lead to a sustainable 

increase in profitability in the long run. 

55U.S. Securities and Exchange Commission. 

Company Filings. Available at www.sec.gov/searchfilings (last accessed August 29, 2024). 

supporting more stringent standards for 

these products or how more stringent 

standards would affect the market share 

or consumers of these products. Lastly, 

DOE believes the size of larger, noncondensing gas-fired instantaneous 

water heaters may be a barrier for many 

consumers choosing between products 

with 2 or more gallons of storage and 

products with less than 2 gallons of 

storage. Many consumers who use gasfired instantaneous water heaters with 

less than 2 gallons of storage do so 

because of how little space these units 

take up. As of this final rule, all of the 

gas-fired instantaneous water heaters 

certified to DOE have rated storage 

volumes of either 0 or 1 gallon—hence, 

the term ‘‘tankless’’ is often used to 

describe these products. A 2-gallon gasfired instantaneous water heater would 

be much larger than a model with 0 or 

1 gallon of storage. DOE compared the 

sizes of large (i.e., stored volume ≥2 

gallons) gas-fired instantaneous water 

heaters to the average sizes determined 

in the engineering analysis for products 

less than 2 gallons. For instance, based 

on product literature published by one 

manufacturer of large gas-fired 

instantaneous water heaters, its 2.3- 

gallon model and 3.5-gallon model are 

over twice as deep and significantly 

taller compared to a typical model on 

the market today.46 Thus, it is unclear 

to what extent consumers would choose 

to install a gas-fired instantaneous water 

heater with stored volume ≥2 gallons 

over one with <2 gallons. 

In light of these considerations, DOE 

is maintaining the proposed separation 

of product classes for products without 

current UEF-based standards in this 

final rule as proposed in the July 2023 

NOPR. DOE will continue to monitor 

the market for these products and may 

address consider potential morestringent standards for larger gas-fired 

instantaneous water heaters in a future 

rulemaking. 

D. Markups Analysis 

The markups analysis develops 

appropriate markups (e.g., retailer 

markups, distributor markups, 

contractor markups) in the distribution 

chain and sales taxes to convert the 

MSP estimates derived in the 

engineering analysis to consumer prices, 

which are then used in the LCC and PBP 

analysis. At each step in the distribution 

channel, companies mark up the price 

of the product to cover business costs 

and profit margin. 

As part of the analysis, DOE identifies 

key market participants and distribution 

channels. For consumer gas-fired 

instantaneous water heaters, the main 

parties in the distribution chain are (1) 

manufacturers, (2) wholesalers or 

distributors, (3) retailers, (4) plumbing 

contractors, (5) builders, (6) 

manufactured home manufacturers, and 

(7) manufactured home dealers/retailers. 

See chapter 6 and appendix 6A of the 

final rule TSD for a more detailed 

discussion about parties in the 

distribution chain. 

For this final rule, DOE characterized 

how consumer gas-fired instantaneous 

water heater products pass from the 

manufacturer to residential and 

commercial consumers 47 by gathering 

data from several sources, including 

consultant reports (available in 

appendix 6A of the final rule TSD), the 

2023 BRG report,48 and the 2022 Clear 

Seas Research Water Heater contractor 

survey 49 to determine the distribution 

channels and fraction of shipments 

going through each distribution 

channel. The distribution channels for 

replacement or new owners of consumer 

water heaters in residential applications 

(not including mobile homes) are 

characterized as follows: 50

Manufacturer → Wholesaler → 

Plumbing Contractor → Consumer 

Manufacturer → Retailer → Consumer 

Manufacturer → Retailer → Plumbing 

Contractor → Consumer 

For mobile home replacement or new 

owner applications, the same 

distribution channels are applicable for 

consumer gas-fired instantaneous water 

heaters.51

For consumer gas-fired instantaneous 

water heaters in commercial 

applications, DOE considers an 

additional distribution channel for 

which the manufacturer sells the 

equipment to the wholesaler and then to 

the consumer through a national 

account in both replacement and new 

construction markets. 

The new construction distribution 

channel includes an additional link in 

the chain—the builder. The distribution 

channels for consumer gas-fired 

instantaneous water heaters in new 

construction 52 in residential 

applications (not including mobile 

homes) are characterized as follows: 53

Manufacturer → Wholesaler → 

Plumbing Contractor → Builder → 

Consumer 

Manufacturer → Wholesaler → 

Builder → Consumer 

Manufacturer → Wholesaler (National 

Account) → Consumer 

DOE developed baseline and 

incremental markups for each actor in 

the distribution chain. Baseline 

markups are applied to the price of 

products with baseline efficiency, while 

incremental markups are applied to the 

difference in price between baseline and 

higher-efficiency models (the 

incremental cost increase). The 

incremental markup is typically less 

than the baseline markup and is 

designed to maintain similar per-unit 

operating profit before and after new or 

amended standards.54

To estimate average baseline and 

incremental markups, DOE relied on 

several sources, including: (1) form 10– 

K 55 from U.S. Securities and Exchange 

Commission (‘‘SEC’’) for Home Depot, 

Lowe’s, Wal-Mart, and Costco (for 

retailers); (2) U.S. Census Bureau 2017 

Annual Retail Trade Report for 


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56U.S. Census Bureau, 2017 Annual Retail Trade 

Report, available at www.census.gov/programssurveys/arts.html (last accessed August 29, 2024). 

Note that the 2017 Annual Retail Trade Report was 

the latest version of the report that includes 

detailed operating expenses data at the time of the 

analysis. 

57U.S. Census Bureau, 2017 Economic Census 

Data. available at www.census.gov/programssurveys/economic-census.html (last accessed 

August 29, 2024). Note that the 2017 Economic 

Census Data is the latest version of this data. 

58U.S. Census Bureau, 2017 Annual Wholesale 

Trade Report. available at www.census.gov/ 

wholesale/index.html (last accessed August 29, 

2024). Note that the 2017 AWTR Census Data is the 

latest version of the report that includes detailed 

operating expenses data. 

59Air Conditioning Contractors of America 

(‘‘ACCA’’), Financial Analysis for the HVACR 

Contracting Industry (2005), available at 

www.acca.org/store#/storefront (last accessed 

August 29, 2024). Note that the 2005 Financial 

Analysis for the HVACR Contracting Industry is the 

latest version of the report and is only used to 

disaggregate the mechanical contractor markups 

into replacement and new construction markets. 

60Energy Information Administration (‘‘EIA’’), 

2015 Residential Energy Consumption Survey 

(‘‘RECS’’). Available at www.eia.gov/consumption/ 

residential/ (last accessed August 29, 2024). 

61Energy Information Administration (‘‘EIA’’), 

2020 Residential Energy Consumption Survey 

(‘‘RECS’’). Available at www.eia.gov/consumption/ 

residential/ (last accessed August 29, 2024). 

62According to published data and EIA website, 

RECS 2020 is based upon responses collected from 

in total 18,496 households which is three times 

greater than 5,686 respondents in RECS 2015. 

63U.S. Department of Energy: Energy Information 

Administration, Commercial Buildings Energy 

Consumption Survey (2018). Available at: 

www.eia.gov/consumption/commercial/data/2018/ 

index.php?view=microdata (last accessed August 

29, 2024). 

64U.S. Department of Energy’s Compliance 

Certification Database is available at 

regulations.doe.gov/certification-data (last accessed 

August 29, 2024). 

65Air Conditioning Heating and Refrigeration 

Institute. Consumer’s Directory of Certified 

Efficiency Ratings for Heating and Water Heating 

Equipment. December 1, 2023. (Available at 

www.ahridirectory.org) (last accessed August 29, 

2024). 

66AHRI. Confidential Instantaneous Gas-fired 

Water Heater Shipments Data from 2004–2007 to 

LBNL. December 1, 2023 

67BRG Building Solutions. The North American 

Heating & Cooling Product Markets (2023 Edition). 

2023. 

miscellaneous store retailers (NAICS 

453) (for online retailers); 56 (3) U.S. 

Census Bureau 2017 Economic Census 

data 57 on the residential and 

commercial building construction 

industry (for builder, plumbing 

contractor, mobile home manufacturer); 

and (4) the U.S. Census Bureau 2017 

Annual Wholesale Trade Report data 58

(for wholesalers). DOE assumes that the 

markups for national accounts is half of 

the value of wholesaler markups. In 

addition, DOE used the 2005 Air 

Conditioning Contractors of America’s 

(‘‘ACCA’’) Financial Analysis on the 

Heating, Ventilation, Air-Conditioning, 

and Refrigeration (‘‘HVACR’’) 

contracting industry 59 to disaggregate 

the mechanical contractor markups into 

replacement and new construction 

markets for consumer gas-fired 

instantaneous water heaters used in 

commercial applications. 

E. Energy Use Analysis 

The purpose of the energy use 

analysis is to determine the annual 

energy consumption of consumer gasfired instantaneous water heaters at 

different efficiencies in representative 

U.S. single-family homes, mobile 

homes, multi-family residences, and 

commercial buildings, and to assess the 

energy savings potential of increased 

consumer gas-fired instantaneous water 

heater efficiency. The energy use 

analysis estimates the range of energy 

use of consumer gas-fired instantaneous 

water heaters in the field (i.e., as they 

are actually used by consumers). The 

energy use analysis provides the basis 

for other analyses DOE performed, 

particularly assessments of the energy 

savings and the savings in consumer 

operating costs that could result from 

adoption of amended or new standards. 

DOE estimated the annual energy 

consumption of consumer gas-fired 

instantaneous water heaters at specific 

energy efficiency levels across a range of 

climate zones, building characteristics, 

and water heating applications. The 

annual energy consumption includes 

the natural gas, liquid petroleum gas 

(‘‘LPG’’), and electricity used by the 

consumer gas-fired instantaneous water 

heater. 

1. Building Sample 

To determine the field energy use of 

consumer water heaters used in homes, 

DOE established a sample of households 

using consumer water heaters from 

EIA’s 2015 Residential Energy 

Consumption Survey (‘‘RECS 2015’’) in 

the July 2023 NOPR, which was the 

most recent such survey that was then 

fully available.60 DOE selected the 

household sample based on the reported 

variables from RECS on water heating 

equipment type. The RECS data provide 

information on the vintage of the home, 

as well as water heating energy use in 

each household. These data reflect how 

water heaters are actually used by 

consumers. DOE used the household 

samples not only to determine water 

heater annual energy consumption, but 

also as the basis for conducting the LCC 

and PBP analyses. DOE projected 

household weights and household 

characteristics in 2030, the first year of 

compliance with any amended or new 

energy conservation standards for 

consumer water heaters. To characterize 

future new homes, DOE used a subset of 

homes in RECS that were built after 

2000. 

For this final rule, DOE incorporated 

RECS 2020 as the basis of the building 

sample development and updated the 

analyses accordingly.61 Incorporating 

RECS 2020 improves the 

representativeness of the residential 

building sample as RECS 2020 brings a 

threefold increase in sample size 

compared to RECS 2015.62 A larger 

sample size generally results in smaller 

standard errors, especially for estimates 

of smaller subpopulations. In this final 

rule, DOE maintains the same 

methodology in residential sample 

development as the July 2023 NOPR, 

using the updated RECS. 

To determine the field energy use of 

consumer water heaters used in 

commercial buildings, DOE established 

a sample of buildings using consumer 

water heaters from EIA’s 2018 

Commercial Building Energy 

Consumption Survey (‘‘CBECS 2018’’), 

which is the most recent such survey 

that is currently fully available.63 DOE 

has maintained its sample development 

methodology used in July 2023 NOPR 

for consumer gas-fired instantaneous 

water heaters used in commercial 

applications. 

AGA et al. supported DOE’s 

incorporation of EIA’s 2020 RECS data 

in the July 2024 NODA. (AGA et al., No. 

1439 at p. 10) 

2. Hot Water Use Determination 

Based on the reported water heating 

energy use from RECS and CBECS, DOE 

estimated the hot water use for each 

sampled household and building. Then, 

in order to disaggregate the selected 

sampled gas-fired instantaneous water 

heaters into draw patterns, DOE used 

model data from DOE’s public CCD 64

and AHRI certification directory 65

together with other publicly available 

data from manufacturers’ catalogs of 

consumer water heaters. DOE also used 

a combination of confidential data 

provided by AHRI from 2004–2007 66

and shipments data from BRG Building 

Solutions 2023 report from 2007 to 

2022.67

Responding to the July 2023 NOPR, 

AHRI recommended DOE explain its 

inputs in the energy use calculations. 

AHRI commented that DOE’s use of 

nesting of various assumptions for 

residential water heaters leads to 

unlikely results that DOE does not, or 

cannot, explain. AHRI raised concerns 

on two oddities in the energy use 

calculations for gas-fired instantaneous 

water heaters. First, the water 


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68See LCC analytical tool spreadsheet for gasfired instantaneous water heater final rule. 

consumption for residential use as 

computed for the median RECS building 

is 41 gallons per day and the 95th 

highest use (95th percentile) is 3.5 times 

as much (141 gallons per day) and the 

remaining 5 percent of RECS buildings 

use between 141 and 997 gallons per 

day, or up to 24 times as much water 

per day, an unlikely amount for a 

residential household. AHRI stated that 

this high usage rate for these 5 percent 

heavy users raises the average 

consumption to 61 gallons per day, or 

50 percent more than the typical or 

median user. AHRI commented that 

presence and magnitude of these outlier 

5 percent, heavy users raise serious 

questions about the accuracy and 

reliability of either (or both) the data 

that DOE used and/or the methodology 

it used to compute water consumption. 

Second, even assuming some market 

inefficiencies, AHRI claimed that there 

still should be a general trend towards 

RECS buildings with greater water use 

selecting more efficient water heaters 

absent standards. DOE contends that at 

least some purchasers make 

economically efficient choices. In that 

circumstance, the data should show a 

trend toward the highest-consuming 

RECS buildings appearing in the higher 

ELs absent standards. AHRI commented 

that this is not the case in the actual 

DOE data. Instead, if anything, the 

highest-consuming RECS buildings are 

assumed to purchase baseline water 

heaters. (AHRI, No. 1167 at p. 19) AHRI 

asked for an explanation of these outlier 

data points and asked how DOE 

validated its methodology to assure that 

these are accurate representations of real 

life. AHRI also asked why DOE has not 

accepted the suggestion by AHRI and 

others to use median, not the mean 

values for consumption and LCC 

savings to avoid the effects of these 

outliers and to alleviate, at least in part, 

the deficiencies of its base case 

efficiency assignment issue. (AHRI, No. 

1167 at p. 20) 

Gas Association Commenters argued 

that water consumption should be based 

on household size and that there are 

problems with water consumption 

calculations, particularly for gas-fired 

instantaneous water heaters. Gas 

Association Commenters argue that for 

gas-fired instantaneous water heaters, 

DOE models incorrect tankless water 

heater results (greater outliers than there 

are for storage unit equivalents) in 

regard to household size. Gas 

Association Commenters argue the 

model results in unrealistic outliers for 

smaller households reaching 

consumption levels equivalent to space 

heating. Gas Association Commenters 

argue that a potential reason for this 

failure is how the model calculates daily 

water usage. For example, Gas 

Association Commenters argued that in 

DOE’s model, some single person 

households use 200–350 gallons a day 

which is far from reasonable (4–7 baths 

of water a day every day of the year). 

Gas Association Commenters argued 

that Draw Pattern ID is based on 

randomly assigned distribution. Gas 

Association Commenters state that DOE 

assumes that households will always 

use more water if they use an 

instantaneous unit. Gas Association 

Commenters argue that while for small 

storage units, there is a 5 percent chance 

of a large draw pattern but there is a 75 

percent chance for instantaneous. Gas 

Association Commenters argued that if 

consumption behavior was more 

consistent between the gas storage water 

heaters and gas-fired instantaneous 

water heaters, LCC savings would be 

lower. Gas Association Commenters 

argues that a better solution would be to 

use the test procedure for water heaters 

as a basis for modeling energy usage 

rather than assuming draw rates based 

on the size of the original equipment in 

RECS. Gas Association Commenters 

suggested that alternately, gas-fired 

instantaneous water heaters could just 

have the same assumptions about water 

usage as their gas storage water heaters 

counterparts. (Gas Association 

Commenters, No. 1181 at pp. 25–31) 

Similarly, in response to the July 2024 

NODA, Rinnai stated that the energy use 

estimates in the energy conservation 

standard should use the same 

standardized draw patterns outlined in 

the UEF test method rather than relying 

on RECS, which the commenters 

characterized as unreliable. Rinnai 

recommended that the Department use 

the hot water draw patterns from the 

UEF test method as the basis for 

comparing efficiency proposals and 

reserve the RECS hot water 

consumption data for estimating 

national energy savings potential and 

other downstream impacts. (Rinnai, No. 

1443 at p. 20) 

In response, DOE notes that RECS and 

CBECS data provide the information on 

the household size and water heating 

energy use in buildings. RECS and 

CBECS are the most comprehensive, 

nationally-representative, and robust 

data source on actual household and 

commercial building energy 

consumption available to DOE. In 

general, DOE has found that the 

weighted average energy use for water 

heating correlates with the size of the 

household, i.e., the reported number of 

people in that household. Greater 

energy expenditure on water heating 

largely falls into the bins of households 

of larger sizes (4 people and above). The 

hot water use derived based on the 

water heating energy use follows similar 

pattern (see chapter 7 of the final rule 

TSD for the calculation of hot water 

use). In terms of AHRI and Gas 

Association Commenters’ concern over 

the heavy users of hot water in the 

sample, when reporting the distribution 

of the derived hot water use, DOE takes 

into account both consumer water 

heaters used in residential as well as 

commercial applications. In the final 

rule analysis, DOE estimated that close 

to 40 percent of the top 5 percent of 

water-consuming sample buildings/ 

households are commercial applications 

which generally have higher upper 

bound of hot water use. These outlier 

data points therefore represent either 

data directly reported from RECS or 

CBECS for larger households or 

commercial applications using 

consumer water heaters, both of which 

represent real-world usage. In addition, 

DOE evaluates each sampled building/ 

household individually by calculating 

its hot water use and the corresponding 

cost efficiency thereafter such that the 

average LCC savings as reported is a 

good representation of the aggregated 

national values. Nevertheless, the LCC 

spreadsheet includes a calculation of 

median LCC savings, as well as LCC 

savings at various percentiles. These 

results are publicly available. Even if 

DOE were to rely on the median LCC 

savings instead of the mean LCC 

savings, DOE’s conclusion of economic 

justification would remain the same.68

For this final rule, DOE incorporated 

the latest RECS 2020 data for its 

analyses. With the increased sample 

size and the most recent timeline of the 

fielding of the survey, RECS 2020 

provides a large sample pool with 

current national representation of 

housing characteristics and energy 

consumption. Specifically, for gas-fired 

instantaneous water heaters, which 

historically have had a lower market 

share relative to the gas storage type, 

RECS 2020 reports over 800 sample 

households utilizing a gas-fired 

instantaneous water heater. As 

discussed previously, the weighted 

average of the energy use on water 

heating and the derived hot water use 

generally correlates with the size of the 

household with deviations that 

represent the real world complexities of 

the use of a hot water heater in 

households of different types. With the 

update to RECS 2020, for example, the 


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estimate for the hot water use in a 

single-person household is now 

between 7 and 91 gallons for gas-fired 

instantaneous water heaters, with a 

weighted average of 32 gallons. The 

average hot water use across all 

household sizes is 73 gallons, relatively 

stable compared to 71 gallons DOE 

estimated with RECS 2015 in the July 

2023 NOPR. DOE continues to rely on 

RECS as the basis of its analyses for its 

incomparable scope of coverage on 

housing characteristics and energy 

consumption. RECS 2020 is a reflection 

of the real-world usage in the national 

water heater market. In terms of the 

assignment of draw pattern for gas-fired 

instantaneous water heaters, DOE 

derived the distribution of different 

draw patterns based on market research 

of the number of models in each bin that 

are available on the market. The 

breakdown can be found in chapter 7 of 

the final rule TSD. 

3. Energy Use Determination 

To calculate the energy use of 

consumer water heaters, DOE 

determined the energy consumption 

associated with water heating and any 

auxiliary electrical use. DOE calculated 

the energy use of water heaters using a 

simplified energy equation, the water 

heater analysis model (‘‘WHAM’’). 

WHAM accounts for a range of 

operating conditions and energy 

efficiency characteristics of water 

heaters. The current version of WHAM 

is most appropriate for calculating the 

energy use of electric resistance storage 

water heaters. To account for the 

characteristics of consumer gas-fired 

instantaneous water heaters, energy use 

must be calculated using modified 

versions of the WHAM equation. For 

gas-fired instantaneous water heaters, 

the water heater operating conditions 

are indicated by the daily hot water 

draw volume, inlet water temperature, 

and thermostat setting. To describe 

energy efficiency characteristics of 

water heaters, WHAM also uses 

parameters in the DOE test procedure 

including recovery efficiency (‘‘RE’’) 

and rated input power (‘‘PON’’). These 

modified versions are further discussed 

in chapter 7 and appendix 7B of the 

final rule TSD. 

The daily hot water draw volume is 

estimated based on the gas-fired 

instantaneous water heater energy use 

from RECS 2020 and CBECS 2018. The 

inlet water temperature is based on 

weather station temperature data and 

RECS 2020 ground water temperature 

data for each household. The consumer 

gas-fired instantaneous water heater 

thermostat setting is based on multiple 

sources including contractor survey data 

and field data. 

AGA et al. stated that electricity 

consumption should be slightly higher 

for all units installed in unconditioned 

spaces in the winter that are exposed to 

freezing temperatures because of freeze 

protection. (AGA et al., No. 1439 at p. 

7) Similarly, Rinnai noted that the 

absence of freeze protection in the 

model doesn’t adequately account for 

seasonal variation in electricity use and 

higher consumption for all units in 

unconditioned spaces during winter. 

(Rinnai, No. 1443 at p.18) In response, 

DOE acknowledges that freeze 

protection is an integrated feature in 

many tankless water heaters. A freeze 

protection electric heater will activate to 

protect the internal of the water heater 

from freezing when it reaches certain 

ambient temperatures. Power 

consumption varies slightly by models 

but generally is up to 200 Watts during 

freeze protection mode. DOE’s energy 

use analysis is aimed to evaluate the 

electricity and fuel consumption 

associated with water heating, where 

the electricity use covers the burner 

operating mode and standby mode, and 

then compare the energy consumed by 

models at various analyzed efficiency 

levels. Taking into consideration the 

electricity consumption associated with 

freeze protection mode not only will 

have trivial impact to the total annual 

electricity use results, given the 

negligible fraction of time the water 

heater being in such mode throughout 

the year, but also will be 

inconsequential to the electricity use 

differential between different efficiency 

levels. Therefore, for this final rule DOE 

maintained its energy use analysis 

method without taking into account 

electricity use from freeze protection 

operation. 

Gas Association Commenters 

commented that there is a bug in the 

LCC tool that causes it to use only a 

single year of weather data rather than 

10-year average, which they believe 

impacts gas-fired instantaneous water 

heater results. (Gas Association 

Commenters, No. 1181 at p. 34) In 

response, DOE notes that the analysis 

uses the NOAA’s 30 year average 

weather data for the outside air 

temperature. 

Chapter 7 of the final rule TSD 

provides details on DOE’s energy use 

analysis for consumer gas-fired 

instantaneous water heaters. 

F. Life-Cycle Cost and Payback Period 

Analysis 

DOE conducted LCC and PBP 

analyses to evaluate the economic 

impacts on individual consumers of 

potential energy conservation standards 

for consumer gas-fired instantaneous 

water heaters. The effect of new or 

amended energy conservation standards 

on individual consumers usually 

involves a reduction in operating cost 

and an increase in purchase cost. DOE 

used the following two metrics to 

measure consumer impacts: 

• The LCC is the total consumer 

expense of an appliance or product over 

the life of that product, consisting of 

total installed cost (manufacturer selling 

price, shipping costs, distribution chain 

markups, sales tax, and installation 

costs) plus operating costs (expenses for 

energy use, maintenance, and repair). 

To compute the operating costs, DOE 

discounts future operating costs to the 

time of purchase and sums them over 

the lifetime of the product. 

• The PBP is the estimated amount of 

time (in years) it takes consumers to 

recover the increased purchase cost 

(including installation) of a moreefficient product through lower 

operating costs. DOE calculates the PBP 

by dividing the change in purchase cost 

at higher efficiency levels by the change 

in annual operating cost for the year that 

amended or new standards are assumed 

to take effect. 

For any given efficiency level, DOE 

measures the change in LCC relative to 

the LCC in the no-new-standards case, 

which reflects the estimated efficiency 

distribution of consumer gas-fired 

instantaneous water heaters in the 

absence of new or amended energy 

conservation standards. In contrast, the 

PBP for a given efficiency level is 

measured relative to the baseline 

product. 

For each considered efficiency level, 

DOE calculated the LCC and PBP for a 

nationally representative set of housing 

units and commercial buildings. As 

stated previously, DOE developed 

household samples from the RECS 2020 

and CBECS 2018. For each sample 

household and commercial building, 

DOE determined the energy 

consumption for the consumer gas-fired 

instantaneous water heaters and the 

appropriate energy price. By developing 

a representative sample of households 

and commercial buildings, the analysis 

captured the variability in energy 

consumption and energy prices 

associated with the use of consumer gasfired instantaneous water heaters. 

Inputs to the LCC calculation include 

the installed cost to the consumer, 

operating expenses, the lifetime of the 

product, and a discount rate. Inputs to 

the calculation of total installed cost 

include the cost of the product—which 

includes MPCs, manufacturer markups, 

retailer and distributor markups, 


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69Crystal BallTM is commercially-available 

software tool to facilitate the creation of these types 

of models by generating probability distributions 

and summarizing results within Excel, available at 

www.oracle.com/technetwork/middleware/ 

crystalball/overview/index.html (last accessed 

August 29, 2024). 

shipping costs, and sales taxes—and 

installation costs. Inputs to the 

calculation of operating expenses 

include annual energy consumption, 

energy prices and price projections, 

repair and maintenance costs, product 

lifetimes, and discount rates. Inputs to 

the PBP calculation include the 

installed cost to the consumer and first 

year operating expenses. DOE created 

distributions of values for product 

lifetime, discount rates, and sales taxes, 

with probabilities attached to each 

value, to account for their uncertainty 

and variability. 

The computer model DOE uses to 

calculate the LCC relies on a Monte 

Carlo simulation to incorporate 

uncertainty and variability into the 

analysis. The Monte Carlo simulations 

sample input values from constrained 

probability distributions based on 

available data and consumer water 

heater user samples. For this 

rulemaking, the Monte Carlo approach 

is implemented in MS Excel together 

with the Crystal BallTM add-on.69 The 

model calculated the LCC for products 

at each efficiency level for 10,000 gasfired instantaneous water heater 

installations in housing and commercial 

building units per simulation run. The 

analytical results include a distribution 

of 10,000 data points showing the range 

of LCC savings for a given efficiency 

level relative to the no-new-standards 

case efficiency distribution (as shown in 

chapter 8 of the final rule TSD). In 

performing an iteration of the Monte 

Carlo simulation for a given consumer, 

product efficiency is chosen based on its 

probability. At the high end of the 

range, if the chosen product efficiency 

is greater than or equal to the efficiency 

of the standard level under 

consideration, the LCC calculation 

reveals that the hypothetical consumer 

represented by that data point is not 

impacted by the standard level because 

that consumer is already purchasing a 

more-efficient product. At the low end 

of the range, if the chosen product 

efficiency is less than the efficiency of 

the standard level under consideration, 

the LCC calculation reveals that the 

hypothetical consumer represented by 

that data point is impacted by the 

standard level. By accounting for 

consumers who are already projected to 

purchase more-efficient products, DOE 

avoids overstating the potential benefits 

from increasing product efficiency. 

DOE calculated the LCC and PBP for 

consumers of consumer gas-fired 

instantaneous water heaters as if each 

were to purchase a new product in the 

first year of required compliance with 

new or amended standards. New and 

amended standards apply to consumer 

water heaters manufactured 5 years after 

the date on which any new or amended 

standard is published. (42 U.S.C. 

6295(m)(4)(A)(ii)) Therefore, DOE used 

2030 as the first full year of compliance 

with any amended standards for 

consumer gas-fired instantaneous water 

heaters. 

Table IV.10 summarizes the approach 

and data DOE used to derive inputs to 

the LCC and PBP calculations. The 

subsections that follow provide further 

discussion. Details of the spreadsheet 

model, and of all the inputs to the LCC 

and PBP analyses, are contained in 

chapter 8 of the final rule TSD and its 

appendices. 

TABLE IV.10—SUMMARY OF INPUTS AND METHODS FOR THE LCC AND PBP ANALYSIS * 

Inputs Source/method 

Product Cost ................................... Derived by multiplying MPCs by manufacturer and distribution chain markups and sales tax, as appropriate. Used historical data to derive a price scaling index to project future product costs. 

Installation Costs ............................. Determined with labor and material cost data from RSMeans. 

Annual Energy Use ......................... Including fuel use and electricity use. 

Variability: Based on the RECS 2020 and CBECS 2018. 

Energy Prices .................................. Natural Gas: Based on EIA’s Natural Gas Navigator data for 2022. 

Electricity: Based on EIA’s Form 861 data for 2022. 

Propane: Based on EIA’s State Energy Data System (‘‘SEDS’’) for 2021. 

Variability: Regional energy prices determined for 50 states and District of Columbia for residential and 

commercial applications. 

Marginal prices used for natural gas and electricity prices. 

Energy Price Trends ....................... Based on AEO2023 price projections. 

Repair and Maintenance Costs ...... Based on RSMeans data and other sources. Assumed variation in cost by efficiency. 

Product Lifetime .............................. Based on shipments data, multi-year RECS, American Housing Survey, American Home Comfort Survey 

data. 

Discount Rates ................................ Residential: approach involves identifying all possible debt or asset classes that might be used to purchase 

the considered appliances, or might be affected indirectly. Primary data source was the Federal Reserve 

Board’s Survey of Consumer Finances. 

Commercial: Calculated as the weighted average cost of capital. Primary data source was Damodaran Online. 

Compliance Date ............................ 2030. 

* Not used for PBP calculation. References for the data sources mentioned in this table are provided in the sections following the table or in 

chapter 8 of the final rule TSD. 

1. Product Cost 

To calculate consumer product costs, 

DOE multiplied the total manufacturer 

price, which is MSPs developed in the 

engineering analysis plus shipping cost, 

by the markups described previously 

(along with sales taxes). DOE used 

different markups for baseline products 

and higher-efficiency products, because 

DOE applies an incremental markup to 

the increase in total manufacturer price 

associated with higher-efficiency 

products. 

Examination of historical price data 

for certain appliances and equipment 

that have been subject to energy 

conservation standards indicates that 

the assumption of constant real prices 

may, in many cases, overestimate longterm trends in appliance and equipment 

prices. Economic literature and 

historical data suggest that the real costs 

of these products may in fact trend 


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Federal Register / Vol. 89, No. 247 / Thursday, December 26, 2024 / Rules and Regulations 105225 

70 Desroches, L.-B., K. Garbesi, C. Kantner, R. Van 

Buskirk, and H.-C. Yang. Incorporating Experience 

Curves in Appliance Standards Analysis. Energy 

Policy. 2013. 52 pp. 402–416; Weiss, M., M. 

Junginger, M. K. Patel, and K. Blok. A Review of 

Experience Curve Analyses for Energy Demand 

Technologies. Technological Forecasting and Social 

Change. 2010. 77(3): pp. 411–428. 

71Series ID PCU 33522033522083; see 

www.bls.gov/ppi/. 

downward over time according to 

‘‘learning’’ or ‘‘experience’’ curves.70

In the experience curve method, the 

real cost of production is related to the 

cumulative production or ‘‘experience’’ 

with a manufactured product. This 

experience is usually measured in terms 

of cumulative production. As 

experience (production) accumulates, 

the cost of producing the next unit 

decreases. The percentage reduction in 

cost that occurs with each doubling of 

cumulative production is known as the 

learning rate. In typical experience 

curve formulations, the learning rate 

parameter is derived using two 

historical data series: cumulative 

production and price (or cost). DOE 

obtained historical PPI data for water 

heating equipment from 1967–1973 and 

1977–2022 for all other consumer water 

heaters from the U.S. Bureau of Labor 

Statistics’ (‘‘BLS’’).71 The PPI data 

reflect nominal prices, adjusted for 

product quality changes. An inflationadjusted (deflated) price index for 

heating equipment manufacturing was 

calculated by dividing the PPI series by 

the implicit price deflator for Gross 

Domestic Product Chained Price Index. 

From 1967 to 2002, the deflated price 

index for consumer gas-fired 

instantaneous water heaters was mostly 

decreasing, or staying flat. Since then, 

the index has risen, primarily due to 

rising prices of copper, aluminum, and 

steel products which are the major raw 

material used in water heating 

equipment. The rising prices for copper 

and steel products were attributed to a 

series of global events, from strong 

demand from China and other emerging 

economies to the recent severe delay in 

commodity shipping due to the COVID– 

19 pandemic. Given the slowdown in 

global economic activity in recent years 

and the lingering impact from the global 

pandemic, DOE believes that the extent 

to which the trends of the past five years 

will continue is very uncertain. DOE 

also assumes that any current supply 

chain constraints are short-lived and 

will not persist to the first year of 

compliance. Given the uncertainty 

regarding the magnitude and direction 

of potential future price trends, DOE 

decided to use constant prices as the 

default price assumption to project 

future consumer gas-fired instantaneous 

water heater prices. Thus, projected 

prices for the LCC and PBP analysis are 

equal to the 2023 values for each 

efficiency level in each product class. 

However, DOE performed a sensitivity 

analysis utilizing both a decreasing and 

an increasing price trend (see appendix 

8C). The relative comparison of 

potential standard levels remains the 

same regardless of which price trend is 

utilized and the conclusions of the 

analysis do not change. 

BWC requested that DOE detail its 

methods in utilizing price learning 

curves for condensing gas products, as 

was indicated in section IV(F)(1) of the 

July 2023 NOPR, so that stakeholders 

may review them. BWC suggested the 

additional components required to 

manufacture higher efficiency products 

required by this proposal, in addition to 

their more complex manufacturing 

processes, will continue to compel 

higher product costs than is currently 

expected of non-condensing gas water 

heaters common in the market today, 

economies of scale notwithstanding. 

(BWC No. 1164 at p. 17) The available 

data only allow estimation of price 

trends for water heaters as a group, not 

for different efficiency levels of water 

heaters. DOE agrees that the product 

costs of condensing gas products will 

continue to be higher than noncondensing gas water heaters. However, 

it is reasonable to expect that factors 

affecting water heaters as a whole, such 

as growing experience in production or 

changes in commodity prices, will affect 

all water heaters. Thus, for this final 

rule, DOE maintained that same 

methodology as the July 2023 NOPR and 

assumed the same price trend 

assumptions would apply to all gasfired instantaneous water heater 

efficiency levels. To assess the impact of 

alternative price learning assumptions, 

DOE analyzed scenarios using low- and 

high-price trends in the LCC. From this 

sensitivity analysis, DOE finds that LCC 

savings for alternative price trends are 

similar to the reference case results and 

DOE would arrive at the same policy 

conclusion. See appendix 8C for details. 

Responding to the July 2023 NOPR, 

Ecotemp stated that non-condensing 

tankless water heaters typically cost half 

the price of comparable condensing 

tankless water heaters. (Ecotemp, No. 

1092 at p. 1) Rinnai argued that the 

marginal price for non-condensing to 

condensing gas-fired instantaneous 

water heater prices are too low and 

should be $450 rather than the $310 

calculated by DOE. (Rinnai, No. 1186 at 

p. 24) Rinnai claimed DOE’s installed 

cost differential of $200 between noncondensing and condensing is too low 

and based on data collected from 

installers and distributors the value is 

closer to $665. (Rinnai, No. 1443 at p. 

19) 

To investigate stakeholder concerns, 

DOE reviewed present-day retail prices 

for non-condensing and condensing 

models for this final rule. Overall, DOE 

determined that comparable noncondensing and condensing gas-fired 

instantaneous water heater models can 

retail for similar prices, with 

condensing models priced 

competitively at 1.2–1.3 times the retail 

price of non-condensing models. In this 

final rule LCC analysis, DOE estimates 

average retail prices of gas-fired 

instantaneous water heaters at 

condensing efficiency levels are 1.30– 

1.42 times that of the baseline noncondensing gas-fired instantaneous 

water heater corresponding to 

incremental retail price of $294 to $414. 

DOE notes that gas-fired instantaneous 

water heaters are marked up differently 

per distribution channels, as discussed 

in section IV.D, and that the incremental 

in retail prices between any given 

condensing and non-condensing models 

can be higher or lower than the reported 

values above. DOE’s analysis calculated 

weighted averages taking into account 

both the markup associated with 

individual distribution channels and the 

probability of water heaters sold to 

customers through each channel. In 

response to Rinnai’s comment on 

installed cost, which is the sum of retail 

price and installation cost, DOE 

estimated that the differential between 

non-condensing and condensing slightly 

lowered to between $217 and $337. This 

is due to average installation cost for 

condensing gas-fired instantaneous 

water heaters being slightly lower than 

that for non-condensing baseline. See 

section IV.F.2 for more details in the 

calculation of installation cost. 

Rheem believes that incremental retail 

costs between step and fully modulating 

designs is about 50 percent too low. 

(Rheem, No. 1436 at p. 3; Rheem, No. 

1177 at p.12) 

In response, DOE revised the 

manufacturer production cost for EL 4 

for the final rule such that retail price 

estimates for max-tech designs, which 

incorporate fully modulating burners, 

have increased in this final rule 

analysis. The incremental retail price 

between step modulating burner and 

fully modulating burner gas-fired 

instantaneous water heaters, taking EL 2 

and EL 4 as an example, is $106, 

increasing from $56 (in 2022$) in the 

July 2024 NODA (see section IV.C.1.c 

for more details). 


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72RSMeans Company Inc., RSMeans Mechanical 

Cost Data. Kingston, MA (2023) (Available at: 

www.rsmeans.com/products/books/2022-cost-databooks) (Last accessed August 29, 2024). 

73RSMeans Company Inc., RSMeans Residential 

Repair & Remodeling Cost Data. Kingston, MA 

(2023) (Available at: www.rsmeans.com/products/ 

books/2022-cost-data-books) (Last accessed August 

29, 2024). 

74RSMeans Company Inc., RSMeans Plumbing 

Cost Data. Kingston, MA (2023) (Available at: 

www.rsmeans.com/products/books/2022-cost-databooks) (Last accessed August 29, 2024). 

75RSMeans Company Inc., RSMeans Electrical 

Cost Data. Kingston, MA (2023) (Available at: 

www.rsmeans.com/products/books/2022-cost-databooks) (Last accessed August 29, 2024). 

2. Installation Cost 

The installation cost is the cost to the 

consumer of installing the consumer 

gas-fired instantaneous water heater, in 

addition to the cost of the water heater 

itself. The cost of installation covers all 

labor, overhead, and material costs 

associated with the replacement of an 

existing water heater or the installation 

of a water heater in a new home, as well 

as delivery of the new water heater, 

removal of the existing water heater, 

and any applicable permit fees. Higherefficiency water heaters may require 

consumers to incur additional 

installation costs. 

DOE’s analysis of installation costs 

estimated specific installation costs for 

each sample household based on 

building characteristics given in RECS 

2020 and CBECS 2018. For this final 

rule, DOE used 2023 RSMeans data for 

the installation cost estimates, including 

labor costs.72 73 74 75 DOE’s analysis of 

installation costs accounted for regional 

differences in labor costs by aggregating 

city-level labor rates from RSMeans into 

50 U.S. States and the District of 

Columbia to match RECS 2020 data and 

CBECS 2018 data. 

AHRI stated that replacement costs 

are not uniform across the country and 

vary by regional labor rates, building 

codes, and availability of skilled 

installers. AHRI believes that this 

variability should be factored in each 

state when assessing economic impacts. 

(AHRI, No. 1437 at p. 3) In response, as 

stated above, DOE has accounted for the 

regional difference in labor rates by 

incorporating regional labor cost factors 

derived from RSMeans. DOE believes 

that, therefore, variability in state level 

labor costs is factored in in its analysis. 

a. Basic Installation Costs 

First, DOE estimated basic installation 

costs that are applicable to all consumer 

gas-fired instantaneous water heaters, in 

replacement, new owner, and new home 

or building installations. These costs 

include putting in place and setting up 

the consumer water heater, gas piping 

and/or electrical hookup, permits, water 

piping, removal of the existing 

consumer water heater, and removal or 

disposal fees. 

AGA et al. stated that DOE’s final 

Furnaces rule and pending Boilers rule 

show that market shares for condensing 

and non-condensing units vary 

significantly across different climates, 

which they believed is likely true for 

gas-fired instantaneous water heaters 

suggesting that different climates and 

household characteristics could heavily 

influence not only the type of products 

installed but also the required venting 

parts to ensure safe and effective 

operation. (AGA et al., No. 1439 at p. 7) 

In response to AGA et al.’s comment, it 

is true that space heating products 

typically have some regionalities, which 

is mainly driven by the varying heating 

needs across different climate zones. For 

water heating equipment like gas-fired 

instantaneous water heater, however, 

DOE has not found, nor have 

stakeholders pointed to, any data 

showing that there would be a similar 

level of impact of the climate on market 

adoption. In terms of the required 

venting parts, DOE calculated the costs 

for venting based on the vent material 

suggested by manufacturers and code. 

b. Venting Costs 

After accounting for the basic costs for 

removing the old water heater and 

setting up the new, DOE considered the 

installation costs associated with 

venting. Non-condensing gas-fired 

instantaneous water heaters are 

Category III appliances that operate 

under positive pressure. They require 

stainless steel vent material. Condensing 

gas-fired instantaneous water heaters are 

Category IV appliance that can be 

vented through a PVC, CPVC, or 

polypropylene vent material. In its 

analysis, DOE accounted for the cost for 

setting up the vent pipes, vent elbows, 

and terminations of the appropriate 

material and the air intake pipe for 

those that are direct vented (i.e. 

combustion air is brought in from 

outdoors). 

DOE received comments after the 

publication of July 2023 NOPR and July 

2024 NODA regarding the use of 

concentric vent, vent length, and 

outdoor installations. 

In response to July 2023 NOPR, 

Rinnai stated the Department’s 

estimated venting costs of $499 for noncondensing gas-fired instantaneous 

water heater and $263 for condensing 

gas-fired instantaneous water heater 

overstate the cost differential, if any 

even exists. (Rinnai, No. 1186 at p. 24) 

Rinnai stated that most non-condensing 

gas-fired instantaneous water heaters 

require 3′′ diameter venting and not 4′′ 

diameter venting as is used in the 

analysis, leading to 25 percent reduction 

in the cost of venting materials. Rinnai 

stated that more than 75 percent of noncondensing models do not use stainless 

steel venting and instead use concentric 

and aluminum venting. Rinnai stated 

that 20ft of venting and associated 

fittings used in the LCC analysis needs 

to be subjected to additional sensitivity 

analysis, including the variation in 

installed vent lengths, materials used, 

concentric versus single wall vents, and 

product installation location. Rinnai 

stated that tankless water heaters are 

installed typically on an outside wall, 

which would require far less than 20 

feet of venting, and for outdoor 

installations, no venting would be 

required. (Rinnai, No. 1186 at p. 24) 

In response to July 2024 NODA, 

Rinnai claimed that the analysis 

overlooks that gas-fired instantaneous 

water heater installation uses a different 

pipe installation from furnaces that is 

cheaper and significantly shorter than 

vertical venting. Rinnai stated that they 

account for half of sales for noncondensing gas-fired instantaneous 

water heater units and those units use 

aluminum/plastic concentric venting 

and have on average 1–2 feet of venting 

because they are mostly installed 

outside or on outside walls (e.g., 

garages). Rinnai claimed that DOE’s 

estimate for venting components is 

overestimated compared to costs found 

on retailer websites ($131 vs $85). 

(Rinnai, No. 1443 at pp. 14–15) BWC 

disagreed with DOE considering a 1 ft. 

minimum vent length as part of their 

analysis for this July 2024 NODA. They 

commented that while it may be true 

that some manufacturers of gas-fired 

instantaneous water heaters indicate 

this vent length is possible in their 

literature, according to their experience 

this is rarely. (BWC, No. 1441 at p. 3) 

Rinnai claimed DOE’s model makes 

unjustified assumptions on the gas-fired 

instantaneous water heater installation 

location. Rinnai claimed that the July 

2024 NODA only estimates 12 percent 

of gas-fired instantaneous water heaters 

installed outdoors which is much lower 

than the value inferred from RECS 2020 

which reports half of households install 

their water heater in an ‘‘outdoor closet, 

crawlspace, or outdoor’’. Rinnai stated 

their data indicate 23 percent of gasfired instantaneous water heaters are 

installed outdoors. Rinnai further stated 

that their data show that an additional 

55 percent of gas-fired instantaneous 

water heater installations are likely to be 

located close to outside walls in order 

to minimize venting. (Rinnai, No. 1443 

at p.18) 


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Rheem believed that only 20 percent 

of condensing units would be installed 

with concentric venting due to lower 

relative costs of plastic venting and 

wall/roof penetrations. Rheem estimated 

that up to 50 percent of non-condensing 

units are installed outdoors in new 

construction where non-condensing is 

more common. Rheem estimated that 

about 40 percent of outdoor installations 

use recess boxes or pipe covers (split 

evenly between the two). Rheem 

estimated that 7 percent of condensing 

units are installed outdoors and expects 

that number to rise if energy 

conservation standards are amended. 

(Rheem, No. 1436 at p. 2–3) 

A.O. Smith and BWC commented that 

they found DOE’s estimate of 50 percent 

of condensing gas-fired instantaneous 

water heaters using concentric vent to 

be high. BWC did not provide a 

percentage that they believe is 

reasonable. A.O. Smith commented that 

they would estimate only 20 percent of 

condensing gas-fired instantaneous 

water heaters use a concentric pipe. 

(A.O. Smith, No. 1440 at p. 6; BWC, No. 

1441 at p. 3) 

BWC stated that DOE underestimated 

the installed costs for gas-fired 

instantaneous water heaters in the July 

2024 NODA when assuming half of 

these products installed outdoors, in 

outdoor closets, or crawlspaces, would 

not require venting. BWC countered that 

the need for venting in these install 

locations is not uncommon, particularly 

in crawlspaces, which are often located 

within the building envelope. BWC 

added that some outdoor units require 

use of a special vent kit, or a box that 

would protect product controls from 

inclement weather, both of which 

would add to the installed cost of the 

product. (BWC, No. 1441 at p. 3) 

In response, for the July 2024 NODA, 

DOE made further improvements to its 

methodology used in the July 2023 

NOPR to account for the venting costs 

for gas-fired instantaneous water 

heaters. First, DOE took into account the 

use of a concentric pipe (a pipe used for 

both air intake and venting) for some 

installations in its analysis, which was 

not previously included in the NOPR 

analysis. There are two main vent 

configurations for gas-fired 

instantaneous water heaters—(1) single 

pipe for venting with room air intake or 

two pipes with one for outdoor air 

intake and one for venting; (2) 

concentric pipe for both air intake and 

venting. DOE estimated that 90 percent 

of the non-condensing and 50 percent of 

the condensing gas-fired instantaneous 

water heaters that would be direct 

vented would use concentric pipes for 

the benefit of only having to make one 

wall penetration. Among all 

installations, these updates result in 

approximately 22 percent of condensing 

gas-fired instantaneous water heaters 

and 41 percent of non-condensing gasfired instantaneous water heaters being 

installed with a concentric vent. In 

terms of its impact to the total 

installation costs, because a single 

concentric pipe is cheaper to install 

than two separate pipes (one for air 

intake and one for venting) this 

installation scenario reduced overall 

installation costs, particularly for noncondensing gas-fired instantaneous 

water heaters. Additionally, because 

metal venting for non-condensing water 

heaters is more expensive per foot than 

plastic venting for condensing water 

heaters, updates to the analysis that 

decrease the length of total venting 

required for some installations will 

lower the LCC savings when replacing 

a non-condensing gas-fired 

instantaneous water heater with a 

condensing gas-fired instantaneous 

water heater for these installations. For 

this final rule, DOE maintained the 

methodology used in July 2024 NODA. 

Second, DOE adjusted its 

methodology of estimating the 

minimum length of the vent run in the 

July 2024 NODA. In the July 2023 

NOPR, DOE calculated the minimum 

vent length based on housing 

configuration and installation location 

and estimated that the shortest route to 

vent a gas-fired instantaneous water 

heater is 3 ft. DOE conducted further 

research of product literature and 

concluded that for many installations a 

shorter vent run could be achieved, 

primarily by venting through a side 

wall. Therefore, DOE recalibrated its 

methodology and estimated that the 

minimum vent length can be as low as 

1 ft for a certain subset of installations. 

Lastly, in the July 2023 NOPR, DOE 

did not account for the outdoor 

installation of gas-fired tankless water 

heaters. In the July 2024 NODA, DOE 

utilized the location information from 

RECS 2020 and assumed that half of the 

residential households that report their 

water heaters being installed in an 

‘‘outdoor closet, crawlspace, or 

outdoor’’ would actually install the 

tankless water heater on the outside of 

a wall without venting. Therefore, DOE 

estimated that among the entire sample, 

about 12 percent of gas-fired 

instantaneous water heaters are 

installed outdoors. For the outdoor 

installations, DOE assumed no venting 

costs but a cost for an outdoor 

installation conversion kit or box 

needed to protect the water heater from 

weather impacts. As with lowering the 

minimum vent length above, this update 

to the analysis reduces LCC savings 

when replacing a non-condensing gasfired instantaneous water heater with a 

condensing gas-fired instantaneous 

water heater for these installations. 

Rinnai asserted that the vent cost 

distributions used in the July 2024 

NODA are skewed with the average vent 

cost for non-condensing units being 

higher than the average for condensing 

units. Additionally, Rinnai noted that 

for EL 0, the vent cost distribution has 

a border spread of higher costs relative 

to EL1–3 which have a gradual taper 

with more concentration in lower cost 

brackets. Rinnai claimed that, on 

average, the two types of venting 

installations are not significantly 

different, though noted that there is a 

small increase for non-condensing units 

due to the venting materials used. 

(Rinnai, No. 1443 at pp.15–16) Rinnai 

pointed to a particular simulation case 

in which the venting cost for EL 0 is 

$841 and the venting cost at higher ELs 

is $83 and noted that this variation is 

not supported by typical data and affect 

the accuracy of the July 2024 NODA’s 

economic assessments. (Rinnai, No. 

1443 at p. 16) 

In response, the difference between 

the venting costs for non-condensing 

and condensing gas-fired instantaneous 

water heaters depends largely on the 

vent configuration (type of vent pipe 

and vent length). As indicated by 

Rinnai, the non-condensing units 

generally have higher installation cost 

because of the more expensive vent 

material required. For this final rule, 

after accounting for concentric pipes, 

shorter vent lengths, and outdoor 

installations, as elaborated above, DOE 

noted a decrease in the differential in 

installation cost between noncondensing and condensing. The 

installation cost for non-condensing gasfired instantaneous water heaters is 7 

percent higher than the condensing, 

instead of 10 percent higher compared 

to the July 2023 NOPR. For this final 

rule analysis, DOE estimated an average 

installation cost of $1,102 for noncondensing units and $1,025 for 

condensing units. Further details 

regarding installation cost methodology 

can be found in chapter 8 and appendix 

8D of the final rule TSD. 

PHCC commented that DOE did not 

mention additional installation costs for 

vertical vents. PHCC commented that in 

most vertical instances, the installation 

will require walls to be opened for vent 

removal, new vents and supports 

installed, and the finished surfaces 

replaced and it appears that DOE did 

not consider these costs. (PHCC, No. 

1151 at p. 3) In response, DOE 

determined that for a fraction of 


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replacement installations of gas tankless 

water heater in an indoor closet, the 

household may opt to conceal the vent 

pipe that passes through the living 

space. For the length of the concealing 

needed, DOE determined that for most 

household configurations, when 

concealing is needed, typically the 

horizontal vent is more likely to pass 

through living space. Vertical run is 

more likely to be installed by the 

plumber where it is enclosed and 

outside of living space. 

In response to July 2024 NODA, AGA 

et al. and Rinnai claimed that DOE had 

applied the same installation cost and 

venting assumptions from gas furnaces 

to gas-fired instantaneous water heaters 

which led to overestimation of both 

labor hours and material costs. They 

noted that Category I furnaces operate 

under negative pressure and are mainly 

vented vertically with substantially 

longer venting systems, which does not 

reflect the typical venting of a gas-fired 

instantaneous water heater. (AGA et al., 

No. 1439 at pp. 3–5 and p. 6; Rinnai, 

No. 1443 at pp. 11–14) AGA et al. and 

Rinnai claimed that in the model 100 

percent of installations were assumed to 

use stainless steel parts with associated 

high labor costs due to the complexity 

of vertical installations and that the 

model failed to account for the fact that 

gas-fired instantaneous water heaters do 

not universally require such extensive 

venting solutions. They later 

acknowledged that DOE’s model had 

identified 86 percent of installations as 

horizontal but still believed that the 

percentage of vertical installations was 

overestimated. Additionally, they stated 

that the average horizontal system 

requires less than 7 feet of venting and 

follows a straightforward work plan like 

that of a condensing unit, and that 

DOE’s model applied the same labor 

costs to horizontal installations as it 

does to vertical, which resulted in an 

overestimation. Rinnai also echoed this 

comment. (AGA et al., No. 1439 at pp. 

3–5 and p. 6; Rinnai, No. 1143, at p. 13) 

AGA et al. claimed that while DOE’s 

model includes cost data for alternative 

materials like double-walled aluminum 

flex pipe, which is approximately half 

the cost of stainless steel, these 

alternatives were not applied in any of 

the 10,000 trials, which led to inflated 

installation cost estimates for gas-fired 

instantaneous water heaters. (AGA et 

al., No. 1439 at p. 4) Similarly, Rinnai 

commented that the July 2024 NODA 

model incorrectly assumed that 

stainless-steel pipes are used in all 

10,000 trials with the end result being 

venting costs are significantly 

overstated. Furthermore, both AGA et 

al. and Rinnai stated that an additional 

markup of 39 percent is applied to metal 

venting which further widens the gap in 

installation cost between EL 0 and 

higher efficiency levels. (AGA et al., No. 

1439 at p. 5; Rinnai, No. 1443 at pp. 14– 

15) 

In response, DOE believes that 

commenters have misinterpreted 

documentation in July 2023 NOPR TSD 

and the July 2024 NODA analytical tool. 

As discussed above, non-condensing 

gas-fired instantaneous water heaters are 

Category III appliance that operates 

under positive pressure requiring 

stainless steel vent material. Condensing 

gas-fired instantaneous water heaters are 

Category IV appliance that can be 

vented through a PVC, CPVC, or 

polypropylene vent material. DOE did 

not assume the same venting for gasfired instantaneous water heaters as for 

furnaces. DOE also did not assume 100 

percent of non-condensing gas-fired 

instantaneous water heater installations 

to be using stainless steel vent pipe. To 

further clarify, for the 41 percent of noncondensing gas-fired instantaneous 

water heater installations that are 

assumed to be using a concentric pipe, 

DOE applied the material cost estimated 

based on market research of aluminum/ 

PVC concentric pipe which is the most 

affordable option on the market. In its 

analytical tool, a conversion factor of 

1.33 was applied to convert the material 

price data for a regular 4’’ stainless steel 

vent to that of a concentric pipe for 

simplicity. Note that the conversion 

factor changed slightly from 1.39 in July 

2024 NODA because of the update from 

2022$ to 2023$. 

Rinnai claimed that in the July 2024 

NODA, DOE ignored the replacement 

market where consumers already using 

a non-condensing gas-fired 

instantaneous water heaters will have 

no venting cost with a like-for-like 

replacement. (Rinnai, No. 1443 at p.18) 

In response, DOE believes that it is 

unlikely for a new gas-fired 

instantaneous water heater to be 

compatible with the old vent of a unit 

being replaced, even if both water 

heaters fall under the same vent 

category. According to product 

literature, many models recommend 

installation with vent pipes from a 

suggested list of specific brands. Even if 

the new non-condensing water heater is 

from the same manufacturer, the model 

is not likely to be the same since the 

model nomenclature, specifications and 

designs change every several years and 

therefore such installation will likely 

require a new venting system. 

Therefore, DOE did not consider the 

case of reusing stainless steel vent. DOE 

notes that even if no venting cost was 

associated with a like-for-like 

replacement of non-condensing units, 

given the limited market share of noncondensing gas-fired instantaneous 

water heaters in no-new-standards case, 

this assumption will not impact the 

economic justification reflected in the 

positive LCC savings at the adopted 

TSL. 

c. Condensate Management Costs 

Besides the basic installation cost for 

removing the old water heater and 

setting up the new and the venting cost 

associated with setting up the flue vent 

and air intake pipework, DOE also 

considered specifically for condensing 

gas-fired instantaneous water heaters 

the cost of condensate management. In 

order to drain condensate properly, cost 

items can apply based on the specifics 

of the installation including condensate 

pipe, condensate pump, condensate 

neutralizer, and condensate drain. DOE 

additionally considered cases where a 

heat tape is applied and cases where an 

electric connection setup is needed. 

In response to the June 2023 NOPR, 

Rinnai stated that DOE excluded from 

its analysis of condensing gas-fired 

instantaneous water heaters many of the 

costs of condensate management 

including drains, pumps, neutralizers, 

and associated and recurring 

maintenance costs. (Rinnai, No. 1186 at 

pp. 24–25) In response to July 2024 

NODA, Rinnai further claimed that the 

analysis underestimates the cost of 

condensate management and states that 

DOE either omits typical costs needed 

for condensing installations or applies 

them to a relatively small proportion of 

condensing gas-fired instantaneous 

water heater installations. For example, 

Rinnai claimed that the July 2024 

NODA only applies a condensate 

neutralizer to 12.5 percent of 

installations rather than 25 percent of 

cases. Rinnai further requested DOE 

provide evidence that the default of 12.5 

percent represents a survey of 

installations and market conditions. 

(Rinnai, No. 1443 at p. 17) In response, 

as mentioned above, DOE took into 

account various cost items for 

condensate management. DOE assumed 

that some cost items would apply to 

only a certain fraction of installation. 

For example, DOE assumed that 

condensate pipe cost is needed for both 

replacement and new construction 

installations but then only 12.5 percent 

of replacement installations where the 

household does not have a central AC 

or heat pump would need to be applied 

the cost of a condensate pump. As 

Rinnai pointed out, DOE assumed that 

12.5 percent of all installations would 

be applied the cost of condensate 

neutralizer. DOE adopted this estimate 


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Federal Register / Vol. 89, No. 247 / Thursday, December 26, 2024 / Rules and Regulations 105229 

76U.S. Department of Energy—Energy 

Information Administration, Form EIA–861M 

(formerly EIA–826) detailed data (2022) (Available 

at: www.eia.gov/electricity/data/eia861m/) (Last 

accessed August 29, 2024). 77U.S. Department of Energy—Energy 

Information Administration, Natural Gas Navigator 

(2022) (Available at: www.eia.gov/naturalgas/ 

data.php) (Last accessed August 29, 2024). 

78U.S. Department of Energy—Energy 

Information Administration, State Energy Data 

System (‘‘SEDS’’) (2021) (Available at: www.eia.gov/ 

state/seds/) (Last accessed August 29, 2024). 79EIA. Annual Energy Outlook 2023 with 

Projections to 2050. Washington, DC. Available at 

www.eia.gov/forecasts/aeo/ (last accessed August 

29, 2024). 80Lavappa, Priya D. and J.D. Kneifel. Energy Price 

Indices and Discount Factors for Life-Cycle Cost 

Analysis—2022 Annual Supplement to NIST 

Handbook 135. National Institute of Standards and 

Technology (NIST). NISTIR 85–3273–37, available 

at www.nist.gov/publications/energy-price-indicesand-discount-factors-life-cycle-cost-analysis-2022- 

annual (last accessed August 29, 2024). 

based on its market and technology 

assessment, engineering analysis, and 

its expert consultant feedback. Rinnai 

however provided no basis to support 

doubling the installation of condensate 

neutralizers to 25% of all cases. Nor has 

DOE found any other market data to 

support an alternative estimate. For lack 

of further data and evidence, DOE 

maintained its assumption of 12.5 

percent of condensate neutralizer 

installations in this final rule. 

PHCC commented that DOE’s 

assumption that drains are required at 

or near water heaters is wrong as codes 

do not require it. They commented that 

changing to an appliance that produces 

condensate will require a pump or drain 

that is near the heater because that 

condensate cannot drain routinely 

across the floor as it can create slippery 

surfaces, and that an installed pipe to a 

remote drain can be a trip hazard. PHCC 

commented that the cost for adding a 

drain should be allocated against all 

replacement water heaters that will 

produce condensate. (PHCC, No. 1151 at 

p. 3) In response, DOE took into 

consideration the cost items of setting 

up a condensate pump and condensate 

drain in its analysis. Condensate pump 

is usually needed when the water heater 

is below the closest drain or when 

without an immediate drain the 

condensate need to be pumped to a 

remote drain. DOE assumed that for gasfired instantaneous water heaters, 

around 12.5 percent of the replacements 

will need to set up a new condensate 

pump when the households do not have 

installed central air conditioner or heat 

pump that may already be equipped 

with a condensate pump. Accordingly, 

DOE applied the cost of non-corrosive 

drain to those installations that require 

the setup of a condensate pump. On 

average, DOE estimated a cost of $36 for 

condensate management in total. 

Noritz commented that the ability to 

replace a water heater in an emergency 

is an important attribute of value to 

consumers, and changes in installation 

patterns raise costs and impose other 

time-related constraints such as 

changing venting patterns, carpentry to 

make changes to the house, and possible 

electrical work to complete installation. 

Noritz commented that a condensing 

gas-fired instantaneous water heater 

does provide the same utility to 

customers, but as noted in the NOPR 

there are significant installation changes 

which would require significant cost. 

(Noritz, No. 1202 at pp. 1–2) DOE agrees 

that in emergency replacement, like-forlike equipment provides the most 

convenience to the consumer. However, 

DOE estimates that the installation of 

condensing equipment, including the 

flue venting, the condensate pipe, and 

pump can be accomplished as part of an 

emergency replacement, meaning that 

for emergency replacements, noncondensing equipment do not 

necessarily bring significant additional 

value. 

3. Annual Energy Consumption 

For each sampled household and 

building, DOE determined the energy 

consumption for consumer gas-fired 

instantaneous water heaters at different 

efficiency levels using the approach 

described previously in section IV.E of 

this document. 

Higher-efficiency gas-fired 

instantaneous water heaters reduce the 

operating costs for a consumer, which 

can lead to greater use of the water 

heater. A direct rebound effect occurs 

when a product that is made more 

efficient is used more intensively, such 

that the expected energy savings from 

the efficiency improvement may not 

fully materialize. At the same time, 

consumers benefit from increased 

utilization of products due to rebound. 

Although some households may 

increase their water heater use in 

response to increased efficiency, DOE 

does not include the rebound effect in 

the LCC analysis because the increased 

utilization of the water heater provides 

value to the consumer, thus it is not 

simply an added cost. DOE does include 

rebound in the NIA for a conservative 

estimate of national energy savings and 

the corresponding impact to consumer 

NPV. See chapter 10 of the final rule 

TSD for more details. 

4. Energy Prices 

Because marginal energy price more 

accurately captures the incremental 

savings associated with a change in 

energy use from higher efficiency, it 

provides a better representation of 

incremental change in consumer costs 

than average electricity prices. 

Therefore, DOE applied average energy 

prices for the energy use of the product 

purchased in the no-new-standards 

case, and marginal energy prices for the 

incremental change in energy use 

associated with the other efficiency 

levels considered. 

DOE derived average monthly 

marginal residential and commercial 

electricity, natural gas, and LPG prices 

for each state using data from EIA.76 77 78

DOE calculated marginal monthly 

regional energy prices by: (1) first 

estimating an average annual price for 

each region; (2) multiplying by monthly 

energy price factors, and (3) multiplying 

by seasonal marginal price factors for 

electricity and natural gas. For the 

derivation of monthly price factors and 

marginal price factors, DOE used 

historical data from EIA from 2003 up 

to 2022 and from 2013 up to 2022, 

respectively. DOE adjusted energy 

prices to 2023$ using the Consumer 

Price Index. Further details may be 

found in chapter 8 of the final rule TSD. 

To estimate energy prices in future 

years, DOE multiplied the 2022 energy 

prices by the projection of annual 

average price changes for each of the 50 

U.S. states and District of Columbia 

from the reference case in AEO2023, 

which has an end year of 2050.79 To 

estimate price trends after 2050, DOE 

used the average annual growth rate in 

prices from 2046 to 2050 based on the 

methods used in the 2022 Life-Cycle 

Costing Manual for the Federal Energy 

Management Program (‘‘FEMP’’).80

Rinnai stated that the July 2024 

NODA improperly uses national 

averages in its state-level analysis and 

failed to account for regional differences 

in cost and utilization. Rinnai noted that 

there are significant regional and state 

differences that directly impact water 

heating demands, the efficiency and 

operational costs of water heating. 

Rinnai encouraged DOE to consider 

state-specific data in its distribution 

using discrete inputs to ensure results 

reflect diverse conditions across the 

U.S. (Rinnai, No. 1443 at p. 20) In 

response to Rinnai’s concern, DOE 

reiterates that, given that the hot water 

use was derived based on representative 

energy consumption data reported from 

RECS 2020, there is already embedded 

regionality accounted for in the results. 

For no-new-standards case efficiency 

distribution, for lack of more granular 

data, DOE did not derive a market share 

that varies by state. In terms of operating 

costs of water heating, as discussed 

above, DOE utilized state-level energy 

prices for calculating the operating 


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105230 Federal Register / Vol. 89, No. 247 / Thursday, December 26, 2024 / Rules and Regulations 

81RSMeans Company, Inc., RS Means Facilities 

Repair and Maintenance (2023), available at 

www.rsmeans.com/ (last accessed August 29, 2024). 

82Lutz, J., A. Hopkins, V. Letschert, V. Franco, 

and A. Sturges, Using national survey data to 

estimate lifetimes of residential appliances, 

HVAC&R Research (2011) 17(5): pp. 28 (Available 

at: www.tandfonline.com/doi/abs/10.1080/ 

10789669.2011.558166) (Last accessed August 29, 

2024). 

83U.S. Department of Energy: Energy Information 

Administration, Residential Energy Consumption 

Survey (‘‘RECS’’), Multiple Years (1990, 1993, 1997, 

2001, 2005, 2009, 2015, and 2020) (Available at: 

www.eia.gov/consumption/residential/) (Last 

accessed August 29, 2024). 

84U.S. Census Bureau: Housing and Household 

Economic Statistics Division, American Housing 

Survey, Multiple Years (1974, 1975, 1976, 1977, 

1978, 1979, 1980, 1981, 1983, 1985, 1987, 1989, 

1991, 1993, 1995, 1997, 1999, 2001, 2003, 2005, 

2007, 2009, 2011, 2013, 2015, 2017, 2019, and 2021) 

(Available at: www.census.gov/programs-surveys/ 

ahs/) (Last accessed August 29, 2024). 

85The implicit discount rate is inferred from a 

consumer purchase decision between two otherwise 

identical goods with different first cost and 

operating cost. It is the interest rate that equates the 

increment of first cost to the difference in net 

present value of lifetime operating cost, 

incorporating the influence of several factors: 

transaction costs; risk premiums and response to 

uncertainty; time preferences; interest rates at 

which a consumer is able to borrow or lend. The 

implicit discount rate is not appropriate for the LCC 

analysis because it reflects a range of factors that 

influence consumer purchase decisions, rather than 

the opportunity cost of the funds that are used in 

purchases. 

86The Federal Reserve Board, Survey of 

Consumer Finances (1995, 1998, 2001, 2004, 2007, 

2010, 2013, 2016, and 2019) (Available at: 

www.federalreserve.gov/econres/scfindex.htm) (last 

accessed August 29, 2024). The Federal Reserve 

Board is currently processing the 2022 Survey of 

Consumer Finances, which is expected to be fully 

available in late 2023. 

costs. See appendix 8E of the final rule 

TSD for more details. 

5. Maintenance and Repair Costs 

Repair costs are associated with 

repairing or replacing product 

components that have failed in an 

appliance; maintenance costs are 

associated with maintaining the 

operation of the product. DOE included 

additional maintenance and repair costs 

for higher efficiency consumer gas-fired 

instantaneous water heaters (including 

maintenance costs associated with 

condensate withdrawal and deliming of 

the heat exchanger and repair costs 

associated with burner and blower 

assembly) based on 2023 RSMeans 

data.81 DOE accounted for regional 

differences in labor costs by using 

RSMeans regional cost factors. 

Rinnai and AGA et al. claimed that 

the July 2024 NODA underestimated the 

maintenance cost associated with 

general condensate withdrawal for 

condensing gas-fired instantaneous 

water heater units. Rinnai claimed that 

a basic neutralizer refill can cost 

between $35–50 (instead of $20 as 

assumed in July 2024 NODA). Rinnai 

also requested clarification on the 

source of the $20 estimate. (Rinnai, No. 

1443 at p. 17; AGA et al., No. 1439 at 

p. 7) In response, DOE derived the 

material cost of $20 for condensate 

management maintenance based on its 

consultant report included in the 

appendix 8F of the final rule TSD. For 

this final rule, given that the market 

price can change between the time of 

the final rule analysis and that of the 

report, DOE reviewed the current 

market prices for refills of condensate 

neutralizer and decided that an average 

price of $41.17 would be more 

representative of the price paid by the 

consumers. DOE has updated the LCC 

analytical tool and the final rule TSD 

accordingly to reflect the market prices 

it reviewed and the updated cost 

assumption. 

6. Product Lifetime 

Product lifetime is the age at which an 

appliance is retired from service. DOE 

conducted an analysis of gas-fired 

instantaneous water heater lifetimes 

based on the methodology described in 

a journal paper.82 For this analysis, DOE 

relied on RECS 1990, 1993, 2001, 2005, 

2009, 2015, and 2020.83 DOE also used 

the U.S. Census’s biennial American 

Housing Survey (‘‘AHS’’), from 1974– 

2021, which surveys all housing, noting 

the presence of a range of appliances.84

DOE used the appliance age data from 

these surveys, as well as the historical 

water heater shipments, to generate an 

estimate of the survival function. The 

survival function provides a lifetime 

range from minimum to maximum, as 

well as an average lifetime. DOE 

estimates the average product lifetime to 

be around 20 years for instantaneous 

water heaters. 

Noritz disputed that condensing and 

non-condensing products have the same 

average lifespan based on their internal 

testing. Noritz argued that the less 

complex nature of the non-condensing 

product in their testing typically lasts 

between 10 and 20 percent longer than 

a similar condensing product. Noritz 

argued that the analysis conducted by 

DOE that proposes the average lifespan 

of the two products to be identical will 

impact the LCC and payback analysis. 

(Noritz, No. 1202 at p. 3). In response, 

DOE has not found any evidence in its 

research pointing to a significantly 

different lifespan for the two types of 

water heaters. As described in appendix 

8G of the final rule TSD, the data 

sources cited did not indicate any 

systematic decrease in lifetime for gasfired condensing products (additionally, 

a majority of gas-fired instantaneous 

water heaters in the market are 

condensing). For this final rule, DOE 

maintains its methodology of assuming 

the same lifetime for all gas-fired 

instantaneous water heaters. 

In order to evaluate the impact of the 

lifetime on the economic analysis 

results, for this final rule DOE 

conducted a sensitivity analysis, where 

two additional lifetime scenarios were 

evaluated. The sensitivity results do not 

change DOE’s conclusion of economic 

justification of the adopted standards 

(see appendix 8G of the final rule TSD 

for the comparison of results). 

7. Discount Rates 

In the calculation of LCC, DOE 

applies discount rates appropriate to 

households to estimate the present 

value of future operating cost savings. 

DOE estimated a distribution of 

discount rates for consumer gas-fired 

instantaneous water heaters based on 

the opportunity cost of consumer funds. 

DOE applies weighted average 

discount rates calculated from consumer 

debt and asset data, rather than marginal 

or implicit discount rates.85 The LCC 

analysis estimates net present value 

over the lifetime of the product, so the 

appropriate discount rate will reflect the 

general opportunity cost of household 

funds, taking this time scale into 

account. Given the long time horizon 

modeled in the LCC analysis, the 

application of a marginal interest rate 

associated with an initial source of 

funds is inaccurate. Regardless of the 

method of purchase, consumers are 

expected to continue to rebalance their 

debt and asset holdings over the LCC 

analysis period, based on the 

restrictions consumers face in their debt 

payment requirements and the relative 

size of the interest rates available on 

debts and assets. DOE estimates the 

aggregate impact of this rebalancing 

using the historical distribution of debts 

and assets. 

To establish residential discount rates 

for the LCC analysis, DOE identified all 

relevant household debt or asset classes 

in order to approximate a consumer’s 

opportunity cost of funds related to 

appliance energy cost savings. 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 

triennial Survey of Consumer 

Finances 86 (‘‘SCF’’) starting in 1995 and 

ending in 2019. Using the SCF and other 

sources, DOE 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. 


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Federal Register / Vol. 89, No. 247 / Thursday, December 26, 2024 / Rules and Regulations 105231 

87 Damodaran Online, Data Page: Costs of Capital 

by Industry Sector (2021) (Available at: 

pages.stern.nyu.edu/∼adamodar/) (Last accessed 

August 29, 2024). 88Fujita, S., Commercial, Industrial, and 

Institutional Discount Rate Estimation for Efficiency 

Standards Analysis: Sector-Level Data 1998–2018 

(Available at: ees.lbl.gov/publications/commercialindustrial-and) (Last accessed August 29, 2024). 89AHRI. Confidential Instantaneous Gas-fired 

Water Heater Shipments Data from 2004–2007 to 

LBNL. March 3, 2008. 

90ENERGY STAR. Unit Shipments data 2010– 

2021. multiple reports. (Available at: 

www.energystar.gov/partner_resources/products_

partner_resources/brand_owner_resources/unit_

shipment_data) (Last accessed August 29, 2024). 91BRG Building Solutions. The North American 

Heating & Cooling Product Markets (2023 Edition). 

2023. 92U.S. Department of Energy’s Compliance 

Certification Database is available at 

regulations.doe.gov/certification-data (last accessed 

August 29, 2024). 

93Air Conditioning Heating and Refrigeration 

Institute. Consumer’s Directory of Certified 

Efficiency Ratings for Heating and Water Heating 

Equipment. May 16, 2023. (Available at 

www.ahridirectory.org) (Last accessed August 29, 

2024). 

94 Decision Analysts, 2019 American Home 

Comfort Studies (Available at: 

www.decisionanalyst.com/syndicated/ 

homecomfort/) (Last accessed August 29, 2024). 

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 is 4.2 percent. 

See chapter 8 of the final rule TSD for 

further details on the development of 

consumer discount rates. 

To establish commercial discount 

rates for the small fraction of consumer 

gas-fired instantaneous water heaters 

installed in commercial buildings, DOE 

estimated the weighted-average cost of 

capital using data from Damodaran 

Online.87 The weighted-average cost of 

capital is commonly used to estimate 

the present value of cash flows to be 

derived from a typical company project 

or investment. Most companies use both 

debt and equity capital to fund 

investments, so their cost of capital is 

the weighted average of the cost to the 

firm of equity and debt financing. DOE 

estimated the cost of equity using the 

capital asset pricing model, which 

assumes that the cost of equity for a 

particular company is proportional to 

the systematic risk faced by that 

company. DOE’s commercial discount 

rate approach is based on the 

methodology described in a Lawrence 

Berkeley National Laboratory report, 

and the distribution varies by business 

activity.88 The average rate for 

consumer gas-fired instantaneous water 

heaters used in commercial applications 

in this final rule analysis, across all 

business activity, is 6.9 percent. 

See chapter 8 of this final rule TSD for 

further details on the development of 

consumer and commercial discount 

rates. 

8. Energy Efficiency Distribution in the 

No-New-Standards Case 

To accurately estimate the share of 

consumers that would be affected by a 

potential energy conservation standard 

at a particular efficiency level, DOE’s 

LCC analysis considered the projected 

distribution (market shares) of product 

efficiencies under the no-new-standards 

case (i.e., the case without amended or 

new energy conservation standards). 

This approach reflects the fact that some 

consumers may purchase products with 

efficiencies greater than the baseline 

levels. 

To estimate the energy efficiency 

distribution of consumer gas-fired 

instantaneous water heaters for 2030, 

DOE used available shipments data by 

efficiency including in previous AHRI 

submitted historical shipment data,89

ENERGY STAR unit shipments data,90

and data from a 2023 BRG Building 

Solutions report.91 To cover gaps in the 

available shipments data, DOE used 

DOE’s public CCD model database 92

and AHRI certification directory.93

The estimated market shares for the 

no-new-standards case for consumer 

gas-fired instantaneous water heaters are 

shown in table IV.11. See chapter 8 of 

the final rule TSD for further 

information on the derivation of the 

efficiency distributions. 

TABLE IV.11—NO-NEW-STANDARDS CASE ENERGY EFFICIENCY DISTRIBUTIONS IN 2030 FOR CONSUMER GAS-FIRED

INSTANTANEOUS WATER HEATERS

Efficiency level 

Draw pattern 

Low Medium High 

UEF * Market share 

(%) UEF * Market share (%) UEF * Market share (%) 

Gas-Fired Instantaneous Water Heaters, <2 gal and >50,000 Btu/h 

0 ............................................................... ........................ ........................ 0.81 30% 0.81 30% 

1 ............................................................... ........................ ........................ 0.87 8 0.89 8 

2 ............................................................... ........................ ........................ 0.91 48 0.93 47

3 ............................................................... ........................ ........................ 0.92 6 0.95 7 

4 ............................................................... ........................ ........................ 0.93 8 0.96 8 

* UEF at the representative rated capacity. 

The LCC Monte Carlo simulations 

draw from the efficiency distributions 

and assign an efficiency to the gas-fired 

instantaneous water heater purchased 

by each sample household in the nonew-standards case according to these 

distributions. 

Finally, DOE considered the 2019 

AHCS survey,94 which includes 

questions to recent purchasers of HVAC 

equipment regarding the perceived 

efficiency of their equipment (Standard, 

High, and Super High Efficiency), as 

well as questions related to various 

household and demographic 

characteristics. DOE did not find similar 

data for consumer water heaters, but 

believes that the HVAC data is relevant 

to other larger appliances such as 

consumer water heaters since they 

similarly represent large energy end 

uses. From these data, DOE found that 

households with larger square footage 

exhibited a higher fraction of High- or 

Super-High efficiency equipment 

installed. The fraction of respondents 

with ‘‘super high efficiency’’ equipment 

was larger by approximately 5 percent 

for larger households and 

correspondingly smaller for smaller 

households. DOE therefore used the 

AHCS data to adjust its water heater 

efficiency distributions as follows: (1) 

the market share of higher efficiency 

equipment for households under 1,500 

sq. ft. was decreased by 5 percentage 


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I I I 

I I I 
105232 Federal Register / Vol. 89, No. 247 / Thursday, December 26, 2024 / Rules and Regulations 

95Ward, D.O., Clark, C.D., Jensen, K.L., Yen, S.T., 

& Russell, C.S. (2011): ‘‘Factors influencing 

willingness-to pay for the ENERGY STAR® label,’’ 

Energy Policy, 39(3), 1450–1458. (Available at: 

www.sciencedirect.com/science/article/abs/pii/ 

S0301421510009171) (Last accessed January 5, 

2024). 

96Thaler, R.H., Sunstein, C.R., and Balz, J.P. 

(2014). ‘‘Choice Architecture’’ in The Behavioral 

Foundations of Public Policy, Eldar Shafir (ed). 97Thaler, R.H., and Bernartzi, S. (2004). ‘‘Save 

More Tomorrow: Using Behavioral Economics in 

Increase Employee Savings,’’ Journal of Political 

Economy 112(1), S164–S187. See also Klemick, H., 

et al. (2015) ‘‘Heavy-Duty Trucking and the Energy 

Efficiency Paradox: Evidence from Focus Groups 

and Interviews,’’ Transportation Research Part A: 

Policy & Practice, 77, 154–166. (providing evidence 

that loss aversion and other market failures can 

affect otherwise profit-maximizing firms). 

98Thaler, R.H., and Sunstein, C.R. (2008). Nudge: 

Improving Decisions on Health, Wealth, and 

Happiness. New Haven, CT: Yale University Press. 

99 Davis, L.W., and G.E. Metcalf (2016): ‘‘Does 

better information lead to better choices? Evidence 

from energy-efficiency labels,’’ Journal of the 

Association of Environmental and Resource 

Economists, 3(3), 589–625. (Available at: 

www.journals.uchicago.edu/doi/full/10.1086/ 

686252) (Last accessed January 5, 2024). 

points; and (2) the market share of 

condensing equipment for households 

above 2,500 sq. ft. was increased by 5 

percentage points. Other household and 

demographic characteristics in the 

survey did not exhibit any statistical 

correlations with efficiency. 

DOE acknowledges that economic 

factors may play a role when 

consumers, commercial building 

owners, or builders decide on what type 

of water heater to install. However, 

assignment of water heater efficiency for 

a given installation based solely on 

economic measures such as life-cycle 

cost or simple payback period does not 

fully and accurately reflect actual realworld installations. There are a number 

of market failures discussed in the 

economics literature that illustrate how 

purchasing decisions with respect to 

energy efficiency are unlikely to be 

perfectly correlated with energy use, as 

described below. While this literature is 

not specific to water heaters, DOE finds 

that the method of assignment simulates 

behavior in the water heater market, 

where market failures and other 

consumer preferences result in 

purchasing decisions not being perfectly 

aligned with economic interests, more 

realistically than relying only on 

apparent cost-effectiveness criteria 

derived from the limited information in 

CBECS or RECS. DOE further 

emphasizes that its approach does not 

assume that all purchasers of water 

heaters make economically irrational 

decisions (i.e., the lack of a correlation 

is not the same as a negative 

correlation). As part of the sample 

assignment, some homes or buildings 

with large hot water use will be 

assigned higher efficiency water heaters, 

and some homes or buildings with 

particularly low hot water use will be 

assigned baseline water heaters. By 

using this approach, DOE acknowledges 

the variety of market failures and other 

consumer behaviors present in the water 

heater market, and does not assume 

certain market conditions unsupported 

by the available evidence. 

First, consumers are motivated by 

more than simple financial trade-offs. 

There are consumers who are willing to 

pay a premium for more energy-efficient 

products because they are 

environmentally conscious.95 There are 

also several behavioral factors that can 

influence the purchasing decisions of 

complicated multi-attribute products, 

such as water heaters. For example, 

consumers (or decision makers in an 

organization) are highly influenced by 

choice architecture, defined as the 

framing of the decision, the surrounding 

circumstances of the purchase, the 

alternatives available, and how they’re 

presented for any given choice 

scenario.96 The same consumer or 

decision maker may make different 

choices depending on the characteristics 

of the decision context (e.g., the timing 

of the purchase, competing demands for 

funds), which have nothing to do with 

the characteristics of the alternatives 

themselves or their prices. Consumers 

or decision makers also face a variety of 

other behavioral phenomena including 

loss aversion, sensitivity to information 

salience, and other forms of bounded 

rationality.97 R.H. Thaler, who won the 

Nobel Prize in Economics in 2017 for 

his contributions to behavioral 

economics, and Sunstein point out that 

these behavioral factors are strongest 

when the decisions are complex and 

infrequent, when feedback on the 

decision is muted and slow, and when 

there is a high degree of information 

asymmetry.98 These characteristics 

describe almost all purchasing 

situations of appliances and equipment, 

including water heaters. The installation 

of a new or replacement water heater is 

done infrequently, as evidenced by the 

mean lifetime for water heaters. 

Additionally, it would take at least one 

full water heating season for any 

impacts on operating costs to be fully 

apparent. Further, if the purchaser of 

the water heater is not the entity paying 

the energy costs (e.g., a building owner 

and tenant), there may be little to no 

feedback on the purchase. Additionally, 

there are systematic market failures that 

are likely to contribute further 

complexity to how products are chosen 

by consumers, as explained in the 

following paragraphs. 

The first of these market failures—the 

split-incentive or principal-agent 

problem—is likely to affect water 

heaters more than many other types of 

appliances. The principal-agent problem 

is a market failure that results when the 

consumer that purchases the equipment 

does not internalize all of the costs 

associated with operating the 

equipment. Instead, the user of the 

product, who has no control over the 

purchase decision, pays the operating 

costs. There is a high likelihood of split 

incentive problems in the case of rental 

properties where the landlord makes the 

choice of what water heater to install, 

whereas the renter is responsible for 

paying energy bills In the LCC sample, 

for gas-fired instantaneous water 

heaters, approximately 10 percent of 

households are renters. Given the 

greater market share of instantaneous 

water heaters in new construction 

compared to other water heater product 

classes, this fraction of renters is lower 

than the national average (which is 

approximately one third). For lowincome households (see section IV.I of 

this document and chapter 11 of the 

final rule TSD), however, the fraction of 

renters increases to 38 percent of 

households. The principle-agent 

problem can also impact homeowners. 

For example, in new construction, 

builders influence the type of water 

heater used in many homes but do not 

pay operating costs. Finally, contractors 

install a large share of water heaters in 

replacement situations, and they can 

exert a high degree of influence over the 

type of water heater purchased based on 

which products they are familiar with. 

In addition to the split-incentive 

problem, there are other market failures 

that are likely to affect the choice of 

water heater efficiency made by 

consumers. For example, emergency 

replacements of essential equipment 

such as water heaters are strongly biased 

toward like-for-like replacement (i.e., 

replacing the non-functioning 

equipment with a similar or identical 

product). Time is a constraining factor 

during emergency replacements and it 

may not be possible to consider the full 

range of available options on the market. 

The consideration of alternative product 

options is far more likely for planned 

replacements and installations in new 

construction. 

Additionally, Davis and Metcalf 99

conducted an experiment demonstrating 

that the nature of the information 

available to consumers from 

EnergyGuide labels posted on air 

conditioning equipment results in an 

inefficient allocation of energy 

efficiency across households with 


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to Environmental Certification and the Value of 

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SJ. (1993). ‘‘Barriers Within Firms to Energy 

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914. (explaining the connection between shorttermism and underinvestment in energy efficiency). 107 International Energy Agency (IEA). (2007). 

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(Available at: www.iea.org/reports/mind-the-gap) 

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under intrafirm bargaining,’’ The American 

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Continued 

different usage levels. Their findings 

indicate that households are likely to 

make decisions regarding the efficiency 

of the climate control equipment of their 

homes that do not result in the highest 

net present value for their specific usage 

pattern (i.e., their decision is based on 

imperfect information and, therefore, is 

not necessarily optimal). 

In part because of the way 

information is presented, and in part 

because of the way consumers process 

information, there is also a market 

failure consisting of a systematic bias in 

the perception of equipment energy 

usage, which can affect consumer 

choices. Attari, et al.100 show that 

consumers tend to underestimate the 

energy use of large energy-intensive 

appliances but tend to overestimate the 

energy use of small appliances. Water 

heaters are one of the largest energyconsuming end-uses in a home. 

Therefore, it is likely that consumers 

systematically underestimate the energy 

use associated with water heater, 

resulting in less cost-effective water 

heater purchases. 

These market failures may affect a 

sizeable share of the consumer 

population. A study by Houde 101

indicates that there is a significant 

subset of consumers that appear to 

purchase appliances without taking into 

account their energy efficiency and 

operating costs at all, though subsequent 

studies using alternative methodologies 

have highlighted other consumer groups 

who are to some extent responsive to 

local energy prices with their appliance 

purchases.102 The extent to which 

consumers are perceptive of energy 

prices and product efficiency when 

making appliance purchasing decisions 

is a topic of ongoing research. 

Although consumer gas-fired 

instantaneous water heaters are 

predominantly installed in the 

residential sector, some are also 

installed in commercial buildings (6 

percent of projected shipments; see 

chapter 9 of the final rule TSD). There 

are market failures relevant to consumer 

gas-fired instantaneous water heaters 

installed in commercial applications as 

well. It is often assumed that because 

commercial and industrial customers 

are businesses that have trained or 

experienced individuals making 

decisions regarding investments in costsaving measures, some of the commonly 

observed market failures present in the 

general population of residential 

customers should not be as prevalent in 

a commercial setting. However, there 

are many characteristics of 

organizational structure and historic 

circumstance in commercial settings 

that can lead to underinvestment in 

energy efficiency. 

First, a recognized problem in 

commercial settings is the principalagent problem, where the building 

owner (or building developer) selects 

the equipment and the tenant (or 

subsequent building owner) pays for 

energy costs.103 104 Indeed, more than a 

quarter of commercial buildings in the 

CBECS 2018 sample are occupied at 

least in part by a tenant, not the 

building owner (indicating that, in 

DOE’s experience, the building owner in 

some cases is not responsible for paying 

energy costs). Additionally, some 

commercial buildings have multiple 

tenants. There are other similar 

misaligned incentives embedded in the 

organizational structure within a given 

firm or business that can impact the 

choice of a water heater. For example, 

if one department or individual within 

an organization is responsible for capital 

expenditures (and therefore equipment 

selection) while a separate department 

or individual is responsible for paying 

the energy bills, a market failure similar 

to the principal-agent problem can 

result.105 Additionally, managers may 

have other responsibilities and often 

have other incentives besides operating 

cost minimization, such as satisfying 

shareholder expectations, which can 

sometimes be focused on short-term 

returns.106 Decision-making related to 

commercial buildings is highly complex 

and involves gathering information from 

and for a variety of different market 

actors. It is common to see conflicting 

goals across various actors within the 

same organization as well as 

information asymmetries between 

market actors in the energy efficiency 

context in commercial building 

construction.107

Second, the nature of the 

organizational structure and design can 

influence priorities for capital 

budgeting, resulting in choices that do 

not necessarily maximize 

profitability.108 Even factors as simple 

as unmotivated staff or lack of prioritysetting and/or a lack of a long-term 

energy strategy can have a sizable effect 

on the likelihood that an energy 

efficient investment will be 

undertaken.109 U.S. tax rules for 


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105234 Federal Register / Vol. 89, No. 247 / Thursday, December 26, 2024 / Rules and Regulations 

Spillovers from firm management practices to 

energy efficiency,’’ Journal of Environmental 

Economics and Management, 68(3), 463–479. 

110Lovins, A. (1992). Energy-Efficient Buildings: 

Institutional Barriers and Opportunities. (Available 

at: rmi.org/insight/energy-efficient-buildingsinstitutional-barriers-and-opportunities/) (Last 

accessed January 5, 2024). 

Fazzari, S.M., Hubbard, R.G., Petersen, B.C., 

Blinder, A.S., and Poterba, J.M. (1988). ‘‘Financing 

constraints and corporate investment,’’ Brookings 

Papers on Economic Activity, 1988(1), 141–206. 

Cummins, J.G., Hassett, K.A., Hubbard, R.G., Hall, 

R.E., and Caballero, R.J. (1994). ‘‘A reconsideration 

of investment behavior using tax reforms as natural 

experiments,’’ Brookings Papers on Economic 

Activity, 1994(2), 1–74. 

DeCanio, S.J., and Watkins, W.E. (1998). 

‘‘Investment in energy efficiency: do the 

characteristics of firms matter?’’ Review of 

Economics and Statistics, 80(1), 95–107. 

Hubbard R.G. and Kashyap A. (1992). ‘‘Internal 

Net Worth and the Investment Process: An 

Application to U.S. Agriculture,’’ Journal of 

Political Economy, 100, 506–534. 

112Mills, E., Kromer, S., Weiss, G., and Mathew, 

P.A. (2006). ‘‘From volatility to value: analysing and 

managing financial and performance risk in energy 

savings projects,’’ Energy Policy, 34(2), 188–199. 

Jollands, N., Waide, P., Ellis, M., Onoda, T., 

Laustsen, J., Tanaka, K., and Meier, A. (2010). ‘‘The 

25 IEA energy efficiency policy recommendations 

to the G8 Gleneagles Plan of Action,’’ Energy Policy, 

38(11), 6409–6418. 

113Reed, J.H., Johnson, K., Riggert, J., and Oh, 

A.D. (2004). ‘‘Who plays and who decides: The 

structure and operation of the commercial building 

market,’’ U.S. Department of Energy Office of 

Building Technology, State and Community 

Programs. (Available at: www1.eere.energy.gov/ 

buildings/publications/pdfs/commercial_initiative/ 

who_plays_who_decides.pdf) (Last accessed January 

5, 2024). 

114Cooremans, C. (2012). ‘‘Investment in energy 

efficiency: do the characteristics of investments 

matter?’’ Energy Efficiency, 5(4), 497–518. 

115Lovins 1992, op. cit. The Atmospheric Fund. 

(2017). Money on the table: Why investors miss out 

on the energy efficiency market. (Available at: 

taf.ca/publications/money-table-investors-energyefficiency-market/) (Last accessed January 5, 2024). 

116Blumstein, C. and Taylor, M. (2013). 

Rethinking the Energy-Efficiency Gap: Producers, 

Intermediaries, and Innovation. Energy Institute at 

Haas Working Paper 243. (Available at: 

haas.berkeley.edu/wp-content/uploads/WP243.pdf) 

(Last accessed January 5, 2024). 

117A hurdle rate is the minimum rate of return 

on a project or investment required by an 

organization or investor. It is determined by 

assessing capital costs, operating costs, and an 

estimate of risks and opportunities. 

118 DeCanio 1994, op. cit. 

119 DeCanio, S.J. (1998). ‘‘The Efficiency Paradox: 

Bureaucratic and Organizational Barriers to 

Profitable Energy-Saving Investments,’’ Energy 

Policy, 26(5), 441–454. 

120Andersen, S.T., and Newell, R.G. (2004). 

‘‘Information programs for technology adoption: the 

case of energy-efficiency audits,’’ Resource and 

Energy Economics, 26, 27–50. 121Prindle 2007, op. cit. Howarth, R.B., Haddad, 

B.M., and Paton, B. (2000). ‘‘The economics of 

energy efficiency: insights from voluntary 

participation programs,’’ Energy Policy, 28, 477– 

486. 

122 Klemick, H., Kopits, E., Wolverton, A. (2017). 

‘‘Potential Barriers to Improving Energy Efficiency 

in Commercial Buildings: The Case of Supermarket 

Refrigeration,’’ Journal of Benefit-Cost Analysis, 

8(1), 115–145. 

123de Almeida, E.L.F. (1998). ‘‘Energy efficiency 

and the limits of market forces: The example of the 

electric motor market in France’’, Energy Policy, 

26(8), 643–653. Xenergy, Inc. (1998). United States 

Industrial Electric Motor Systems Market 

Opportunity Assessment. (Available at: 

www.energy.gov/sites/default/files/2014/04/f15/ 

mtrmkt.pdf) (Last accessed January 5, 2024). 

commercial buildings may incentivize 

lower capital expenditures, since capital 

costs must be depreciated over many 

years, whereas operating costs can be 

fully deducted from taxable income or 

passed through directly to building 

tenants.110

Third, there are asymmetric 

information and other potential market 

failures in financial markets in general, 

which can affect decisions by firms with 

regard to their choice among alternative 

investment options, with energy 

efficiency being one such option.111

Asymmetric information in financial 

markets is particularly pronounced with 

regard to energy efficiency 

investments.112 There is a dearth of 

information about risk and volatility 

related to energy efficiency investments, 

and energy efficiency investment 

metrics may not be as visible to 

investment managers,113 which can bias 

firms towards more certain or familiar 

options. This market failure results not 

because the returns from energy 

efficiency as an investment are 

inherently riskier, but because 

information about the risk itself tends 

not to be available in the same way it 

is for other types of investment, like 

stocks or bonds. In some cases energy 

efficiency is not a formal investment 

category used by financial managers, 

and if there is a formal category for 

energy efficiency within the investment 

portfolio options assessed by financial 

managers, they are seen as weakly 

strategic and not seen as likely to 

increase competitive advantage.114 This 

information asymmetry extends to 

commercial investors, lenders, and realestate financing, which is biased against 

new and perhaps unfamiliar technology 

(even though it may be economically 

beneficial).115 Another market failure 

known as the first-mover disadvantage 

can exacerbate this bias against adopting 

new technologies, as the successful 

integration of new technology in a 

particular context by one actor generates 

information about cost-savings, and 

other actors in the market can then 

benefit from that information by 

following suit; yet because the first to 

adopt a new technology bears the risk 

but cannot keep to themselves all the 

informational benefits, firms may 

inefficiently underinvest in new 

technologies.116

In sum, the commercial and industrial 

sectors face many market failures that 

can result in an under-investment in 

energy efficiency. This means that 

discount rates implied by hurdle 

rates 117 and required payback periods 

of many firms are higher than the 

appropriate cost of capital for the 

investment.118 The preceding arguments 

for the existence of market failures in 

the commercial and industrial sectors 

are corroborated by empirical evidence. 

One study in particular showed 

evidence of substantial gains in energy 

efficiency that could have been 

achieved without negative 

repercussions on profitability, but the 

investments had not been undertaken by 

firms.119 The study found that multiple 

organizational and institutional factors 

caused firms to require shorter payback 

periods and higher returns than the cost 

of capital for alternative investments of 

similar risk Another study demonstrated 

similar results with firms requiring very 

short payback periods of 1–2 years in 

order to adopt energy-saving projects, 

implying hurdle rates of 50 to 100 

percent, despite the potential economic 

benefits.120 For small businesses, the 

payback periods for higher efficiency 

gas-fired instantaneous water heaters are 

typically 7 to 8 years on average, longer 

than the usual requirement of 1 to 2 

years, which ultimately discounts the 

significant long-term savings from these 

higher efficiency products. A number of 

other case studies similarly demonstrate 

the existence of market failures 

preventing the adoption of energyefficient technologies in a variety of 

commercial sectors around the world, 

including office buildings,121

supermarkets,122 and the electric motor 

market.123

The existence of market failures in the 

residential and commercial sectors is 

well supported by the economics 

literature and by a number of case 

studies. Although these studies are not 

specifically targeted to the water heater 

market, they cover decision-making 

generally and the impact of energy 

efficiency, operating costs, and future 

savings/expenditures on those 

decisions, all of which apply to the 

purchase of a consumer gas-fired 

instantaneous water heater. DOE is not 

aware of any market failure studies 

specifically and narrowly focused on 

gas-fired instantaneous water heaters 

and so relies on the available literature 

discussed above. If DOE developed an 

efficiency distribution that assigned 

water heater efficiency in the no-newstandards case solely according to 

energy use or economic considerations 

such as life-cycle cost or payback 

period, the resulting distribution of 

efficiencies within the building sample 


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would not reflect any of the market 

failures or behavioral factors above. 

DOE thus concludes such a distribution 

would not be representative of the water 

heater market. 

AGA et al. stated that DOE’s model 

makes several assumptions that 

significantly impact its outcomes. 

According to AGA et al., DOE does not 

account for regional variations when 

implementing a national market share 

for each product level, and bases 

installation on square footage rather 

than other household attributes such as 

the number of bathrooms, bedrooms, or 

inhabitants. (AGA et al., No. 1439 at p. 

7) 

Rinnai asserted that installations of 

condensing and non-condensing units 

vary regionally and DOE should account 

for this in the model instead of using 

national market share for each product 

level and assuming an increased 

likelihood a consumer purchases a more 

efficient option based on square footage. 

(Rinnai, No. 1443 at p.18) 

In response, DOE notes that the 

market share data for gas-fired 

instantaneous water heaters are not 

available at a regional or State level. 

Manufacturer and industry associations 

did not provide any regional or Statelevel shipments data by efficiency level 

to be incorporated into the analyses. 

There is similarly no data set DOE is 

aware of, nor that any stakeholder 

pointed to, that correlates gas-fired 

instantaneous water heater efficiency to 

household attributes or consumer 

demographics. DOE therefore used 

national-level data to estimate the 

market share by efficiency level for gasfired instantaneous water heaters. 

However, RECS 2020 is a nationally 

representative survey of energy 

consumption and incorporates regional 

variation with respect to household 

attributes, water heater usage, water 

inlet temperature, and energy 

consumption. Therefore, the LCC 

analysis does include regional variation 

with respect to housing characteristics, 

sample location, labor cost (and 

therefore installation cost), and 

estimates of water heating usage. The 

total costs are therefore not based solely 

on square footage, but rather on 

multiple household attributes. Square 

footage is used to adjust the national 

efficiency distribution based on the 

observed consumer behavior that larger 

homes are more likely to invest in more 

efficient water heating equipment, as 

discussed above. 

Rinnai objected to DOE’s use of the 

Monte Carlo method for estimating 

energy savings, which Rinnai argues 

overstates benefits by ignoring rational 

consumer choice. Rinnai further stated 

that this error is compounded by not 

analyzing product switching. (Rinnai, 

No. 1443 at pp. 22–23) 

In response, DOE notes that there are 

a multitude of market failures present in 

the water heater market that can 

influence the efficiency of water heater 

chosen by consumers in the absence of 

new standards, as discussed above. DOE 

is not ignoring rational consumer 

choice, rather the methodology 

acknowledges the range in consumer 

behavior present in the market, 

including those who make equipment 

choices that minimize their costs. Those 

consumers are indeed reflected in the 

analysis, along with other consumers 

who do not or cannot make choices that 

minimize their costs for a variety of 

reasons. With respect to switching to 

other types of water heaters, as 

discussed in greater detail in section 

IV.F.10 of this document, the LCC 

savings over a longer product lifetime, 

other attributes of instantaneous water 

heaters valued by consumers, logistical 

barriers to switching in some housing 

contexts, and marginal installed cost 

differences will minimize the incentives 

for consumers to switch to alternative 

water heater product classes rather than 

simply adopting a standards-compliant 

gas-fired instantaneous water heater. 

DOE therefore concludes that the 

likelihood of an adopted standard for 

gas-fired instantaneous water heaters 

driving any significant product class 

switching to be negligible. 

AGA et al. commented that DOE’s 

assignment methodology is 

unreasonable and simulates extreme 

and unreasonable purchasing behavior 

as well as skews the result of DOE’s 

analysis. They contended that economic 

considerations do influence purchasing 

behavior yet DOE’s assignment 

methodology assumes that economic 

considerations never matter. (AGA et 

al., No. 1439 at pp. 8–9) 

In response, DOE has never stated that 

economic considerations never matter. 

This is a mischaracterization of the 

analysis. DOE acknowledges the full 

range of consumer behaviors in the 

water heater market and the analysis is 

modeled to reflect this range. As 

discussed below, the model produces a 

variety of outcomes including a 

significant fraction of consumers who 

choose an efficiency level that 

minimizes their life-cycle costs in the 

absence of new standards. These are 

consumers that the commenter would 

characterize as ‘‘reasonable’’ and they 

are reflected in the total sample. 

However, DOE also acknowledges that 

other groups of consumers exist who 

face a variety of market failures, 

preventing from choosing an efficiency 

level that minimizes their life-cycle 

costs in the absence of new standards. 

DOE’s focus on a limited number of 

variables in projecting the efficiency 

assignment in the no-new-standards 

case reflects the limits that constrain 

consumer decision-making. A full lifecycle analysis requires a variety of 

inputs, such as product prices, product 

energy consumption, energy prices, 

maintenance and repair costs, product 

lifetime, and discount rates. All of these 

figures are—by their nature—forward 

looking, predictive, and, therefore, 

subject to uncertainty. To account for 

uncertainty and variability in specific 

inputs, such as equipment lifetime and 

discount rate, DOE uses a distribution of 

values, with probabilities attached to 

each value. 

In terms of how consumers make 

purchase decisions in the real world, a 

typical consumer has neither the 

expertise nor the time to review 

information about discount rates, 

projected price trends, or the host of 

other variables included in DOE’s own 

calculations. Instead, consumers 

generally rely on the appliances 

recommended by contractors, who 

typically prefer to install appliances that 

are in stock and with which they are 

familiar. That is particularly true in 

emergency replacement situations, such 

as when an appliance and a replacement 

must be obtained and installed quickly. 

Consumer decisions, therefore, do not 

necessarily involve an exhaustive 

review of all variables that may affect 

long-run costs, but instead primarily 

reflect the prevalence of existing units 

in the relevant market. 

There are many reasons to conclude 

that this imperfect decision-making 

environment leads consumers to 

purchase fewer condensing gas-fired 

instantaneous water heaters than would 

be economically justified. Studies show 

that consumers tend to undervalue 

energy efficiency and that a subset 

appear to purchase appliances without 

taking into account their energy 

efficiency and operating costs at all. 

The market failures that generally 

affect energy-related decisions are 

particularly pernicious in the context of 

consumer water heaters. As discussed 

elsewhere in this document, landlords, 

contractors, and developers often make 

the choice of what appliance to install 

but do not benefit from the lower 

operating costs associated with 

condensing units (or suffer from the 

higher utility bills associated with noncondensing units). 

As courts have found, EPCA itself 

recognizes that consumers do not 

invariably select appliances that are 

cost-justified in the long-term, but 


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instead, the statute reflects Congress’s 

‘‘concern[] over the tendency of 

consumers to reject efficiencyimproving appliances with long 

payback periods.’’ Natural Res. Def. 

Council, Inc. v. Herrington, 768 F.2d 

1355, 1405 (D.C. Cir. 1985). Indeed, 

‘‘[n]umerous witnesses [before 

Congress] . . . testified that the average 

consumer looks for a payback from 

higher purchase prices within 3 years.’’ 

Id. (quotation marks omitted). This 

propensity to focus on the short term is 

especially unfortunate here, where the 

benefits of condensing units extend for 

two decades or more. By authorizing 

DOE to amend efficiency standards, 

Congress acted in part to rectify this and 

other distortions in appliance markets. 

See id. (noting that ‘‘Congress viewed 

this consumer behavior as a kind of 

market failure’’). 

In promulgating EPCA (Pub. L. 94– 

163, 89 Stat. 871 (1975)), Congress itself 

expressed a view that markets are not 

perfect, enacting the statute to promote 

national ‘‘energy conservation,’’ 

including by improving the energy 

efficiency of certain ‘‘major appliances’’ 

and ‘‘consumer products.’’ (42 U.S.C. 

6201(4), (5)) Congress initially 

established a voluntary, market-based 

program for achieving that goal (see 

§ 325, 89 Stat. 923–26), but it soon 

amended EPCA to require mandatory 

energy conservation standards (see 

National Energy Conservation Policy 

Act, Pub. L. 95–619, tit. IV, pt. 2, § 422, 

92 Stat. 3206, 3259–62 (1978)), and 

Congress has continued to amend EPCA 

over time to revise those standards and 

to advance the goal of energy 

conservation. 

The use of the efficiency assignment 

methodology of the gas-fired 

instantaneous water heater efficiency in 

the no-new-standards case in the LCC 

model is a methodological approach 

that reflects the full range of consumer 

behaviors in this market, including 

consumers who make informed and 

beneficial cost-minimizing decisions 

and other consumers who, due to the 

market failures discussed, do not or 

cannot make such perfectly beneficial 

decisions. The methodology is further 

constrained by shipments data by 

efficiency level; it must produce an 

overall distribution that matches the 

available market data. For example, for 

the gas-fired instantaneous water heater 

consumer sample at the adopted 

standard level (EL 2), DOE’s 

methodology results in the following 

groups of consumers: 

(1) Consumers who, in the absence of 

standards, choose a lower efficiency 

product with a lower life-cycle cost 

based on their surveyed hot water usage. 

These consumers are making an optimal 

choice from the perspective of cost 

savings in the model in the no-newstandards case. These are consumers 

who are choosing a baseline noncondensing gas-fired instantaneous 

water heater (EL 0) or consumers 

choosing a condensing gas-fired 

instantaneous water heater with the 

lowest efficiency (EL 1). With amended 

standards, they are made to purchase a 

more efficient product at EL 2 and 

therefore experience a net cost in the 

standards case. (15 percent of the gasfired instantaneous water heater 

sample.) These consumers represent 

nearly half of all consumers choosing EL 

0 in the no-new-standards case, 

therefore the efficiency assignment 

model is already assigning minimumcost choices to this fraction of 

consumers in the no-new-standards 

case. 

(2) Consumers who, in the absence of 

standards, choose a higher efficiency 

product that also lowers their life-cycle 

cost compared to the baseline efficiency 

product. These are consumers who are 

choosing a condensing gas-fired 

instantaneous water heater with higher 

efficiency, including at the adopted 

standard level (EL 2, EL 3, and EL 4). 

These consumers are making a costminimizing choice in the model in the 

no-new-standards case. With amended 

standards, these consumers are not 

impacted because they are already 

purchasing a standards-compliant 

product. (34 percent of the gas-fired 

instantaneous water heater sample.) The 

efficiency assignment model is already 

assigning minimum-cost choices to this 

fraction of consumers in the no-newstandards case. 

(3) Consumers who, in the absence of 

standards, choose a lower efficiency 

product that does not minimize the lifecycle cost. These are consumers who are 

choosing a baseline non-condensing gasfired instantaneous water heater (EL 0) 

or consumers choosing a condensing 

gas-fired instantaneous water heater 

with the lowest efficiency (EL 1). The 

market failures discussed above apply to 

these consumers, preventing them from 

making the choice that minimizes their 

life-cycle costs in the no-new-standards 

case. With amended standards, they are 

made to purchase a more efficient 

product at EL 2 that ultimately results 

in a lower life-cycle cost. These 

consumers experience a net benefit as a 

result of the standard. (23 percent of the 

gas-fired instantaneous water heater 

sample) 

(4) Consumers who, in the absence of 

standards, choose a higher efficiency 

product that does not lower their lifecycle cost compare to the baseline or 

lower efficiency product. These are 

consumers who are choosing a 

condensing gas-fired instantaneous 

water heater with higher efficiency, 

including at the adopted standard level 

(EL 2, EL 3, and EL 4). Although these 

consumers are choosing a higher 

efficiency product in the no-newstandards case, they may have 

incomplete knowledge of the energy 

consumption of the equipment or may 

value environmental features such as 

efficiency more heavily, resulting in a 

choice of a higher efficiency product 

that does not lower life-cycle cost 

compared to a baseline or lower 

efficiency product. With amended 

standards, these consumers are not 

impacted because they are already 

purchasing a standards-compliant 

product. (29 percent of the gas-fired 

instantaneous water heater sample) 

DOE’s methodological approach is a 

proxy that ultimately reflects a diversity 

of scenarios for consumers and therefore 

the range of outcomes that will result 

from this diversity. The approach 

already reflects market share outcomes 

with some degree of market efficiency 

and optimal decision-making among 

some consumers, but the approach also 

acknowledges a number of factors that 

hinder perfect decision-making for 

others. Furthermore, the model 

produces an overall distribution of 

efficiency that matches the available 

shipments data. 

Although DOE’s efficiency assignment 

methodology does not explicitly model 

consumer decision making, nor does it 

take a stance on the rationality or 

irrationality of specific consumers, DOE 

believes that the approach would be 

consistent with a model in which some 

share of consumers make optimal costminimizing decisions, and some 

consumers—in the face of market 

failures—do not. The use of an 

assignment of gas-fired instantaneous 

water heater efficiency is a 

methodological approach that reflects 

the full range of consumer behaviors in 

this market, including consumers who 

make beneficial decisions that minimize 

their costs and consumers who, due to 

market failures, do not or cannot make 

such beneficial decisions, both of which 

occur in reality. Within those 

constraints, DOE then assigns product 

efficiencies to consumers in the LCC, 

consistent with the economics literature 

discussed above, to reflect neither 

purely rational nor purely irrational 

decision-making. 

DOE’s analytical approach reflects 

some degree of market efficiency. An 

alternative approach which assumes 

consumer behavior is based solely on 

cost outcomes, for example by ranking 


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124These sensitivity results can be found in the 

LCC Results spreadsheet, available at 

www.regulations.gov/docket/EERE-2017-BT-STD0019 (docket reference). 

LCCs and using those to assign 

efficiencies, is not evidenced by the 

scientific literature surveyed above or 

by any data submitted in the course of 

this rulemaking. This approach depends 

on the assumption, for example, that 

homeowners know—as a rule—the 

efficiency of their homes’ water heater 

and water heating energy use, such that 

they always make water heating 

investments accordingly. Similarly, this 

approach assumes that, faced with a 

water heater failure, homeowners will 

always select as a replacement the most 

economically beneficial available 

model. Given the work documenting 

market failures in the energy efficiency 

contexts described above, DOE believes 

that such assumptions would bias the 

outcome of the analysis to the least 

favorable results. DOE’s approach, by 

contrast, recognizes that assumptions 

like these hold for some consumers 

some of the time—but not all consumers 

and not at all times. 

As part of the assignment, some 

households or buildings with large 

water heating loads will be assigned 

higher-efficiency water heaters in the 

no-new-standards case, and some 

households or buildings with 

particularly low water heating loads 

will be assigned baseline water 

heaters—i.e., the lowest cost 

investments. 

Regarding the role of contractors, DOE 

notes that they can exert a high degree 

of influence over the type of water 

heater purchased. DOE acknowledges 

that they can serve as an information 

mediator. However, it is possible for a 

contractor to also influence the decision 

toward a familiar like-for-like 

replacement, for example, or perhaps 

the quickest replacement option 

available (e.g., based on equipment 

availability). Ultimately, there are 

multiple actors involved in the 

decision-making process which results 

in complex purchasing behavior. 

As DOE has noted, there is a complex 

set of behavioral factors, with 

sometimes opposing effects, affecting 

the water heater market. It is impractical 

to model every consumer decision 

incorporating all of these effects at this 

extreme level of granularity given the 

limited available data. Given these 

myriad factors, DOE estimates the 

resulting distribution of such a model 

would be very scattered with high 

variability. It is for this reason DOE 

utilizes a probability distribution (after 

accounting for market share constraints) 

to approximate these effects. This is the 

standard methodological approach used 

on all of DOE’s prior rules. The 

methodology is not an assertion of 

economic irrationality, but instead, it is 

a methodological approximation of 

complex consumer behavior. The 

analysis is neither necessarily biased 

toward high or low energy savings. The 

methodology does not preferentially 

assign lower-efficiency gas-fired 

instantaneous water heaters to 

households in the no-new-standards 

case where savings from the rule would 

be greatest, nor does it preferentially 

assign lower-efficiency gas-fired 

instantaneous water heaters to 

households in the no-new-standards 

case where savings from the rule would 

be smallest. However, it is worth noting 

that energy use could be improperly 

estimated if preferences for energy 

efficiency are correlated with demand 

for hot water. Some consumers were 

assigned the water heaters that they 

would have chosen if they had engaged 

in perfect economic thinking. Others 

were assigned less-efficient water 

heaters even where a more-efficient 

water heater would eventually result in 

life-cycle savings, simulating scenarios 

where, for example, various market 

failures prevent consumers from 

realizing those savings. Still others were 

assigned water heaters that were more 

efficient than one would expect simply 

from life-cycle costs analysis, reflecting, 

say, ‘‘green’’ behavior, whereby 

consumers ascribe independent value to 

minimizing harm to the environment. 

DOE cites the available economic 

literature of which it is aware on this 

subject, supporting the existence of the 

various market failures in other 

appliance markets which would give 

rise to such a distribution, and has 

requested more data or studies on this 

topic in the May 2020 RFI, March 2022 

preliminary analysis, and July 2023 

NOPR. DOE is not aware of any specific 

study regarding how consumer water 

heaters (and their efficiency) are 

purchased. 

DOE acknowledges that in the LCC, 

there are a handful of outcomes with 

large benefits as a consequence of the 

assignment methodology. Nevertheless, 

the median results (instead of the 

average results) from the LCC continue 

to show positive LCC savings at the 

adopted standard levels. However, for 

gas-fired instantaneous water heaters, 

DOE considered a sensitivity analysis 

that eliminated these outcomes with 

large benefits. Under certain 

combinations of parameters, particularly 

in new construction, the total installed 

cost of a condensing, higher efficiency 

gas-fired instantaneous water heater can 

be lower than a non-condensing 

baseline gas-fired instantaneous water 

heater (due to the differing vent lengths 

and material costs). With assignment 

methodology used by DOE (and the 

constraints of the market data by 

efficiency level), there are a handful of 

individual gas-fired instantaneous water 

heater LCC consumers assigned a 

baseline non-condensing gas-fired 

instantaneous water heater even though 

a higher efficiency product would cost 

less. This is a rare outcome and only 

occurs for approximately 2.5 percent of 

the sample. In the sensitivity analysis, 

DOE removed these outlier consumers 

from the analysis in case they may be 

overly biasing the overall results. This 

sensitivity scenario therefore eliminates 

any instance of a consumer assigned EL 

0 even though EL 2 would cost less to 

install. The resulting average LCC 

savings are reduced to $87 across the 

rest of the entire gas-fired instantaneous 

water heater consumer sample, with 15 

percent of consumers experiencing a net 

cost, 20 percent experiencing a net 

savings, and 65 percent of consumers 

not impacted by the rule. Although the 

average LCC savings are reduced in this 

sensitivity analysis, and slightly more 

consumers are negatively impacted by 

the adopted standards, the average (and 

median) LCC savings remain positive 

and there continue to be significant 

energy and environment savings. DOE 

continues to conclude that the adopted 

standard level for gas-fired 

instantaneous water heaters is 

economically justified even in this 

sensitivity analysis that eliminates 

outlier results.124

In summary, DOE’s efficiency 

assignment methodology produces 

overall results that are consistent with 

the observed distribution of efficiency 

across products as seen in the 

shipments data. The methodology also 

results in a share of consumers being 

assigned product efficiencies that 

minimize their life-cycle costs in the 

absence of standards. This represents 

consumers making informed decisions 

regarding the efficiency of their 

products, without amended standards. 

These consumers will be negatively 

impacted by the adopted standard levels 

and the analysis accounts for these 

impacts. However, the methodology also 

acknowledges that some consumers are 

unable to minimize the life-cycle costs 

of their products for a variety of reasons 

discussed in the economics literature 

(e.g., renters with no say in the products 

purchased for their household). Even for 

motivated and informed consumers, the 

information and data required to 

ultimately make the best product choice 

that minimizes life-cycle cost is 


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complex and time-consuming. As a 

result, there are a subset of consumers 

for whom adopting more stringent 

standard levels will result in life-cycle 

savings. DOE’s methodology reflects 

some degree of market efficiency in 

terms of consumer choice of product 

efficiency, but it also reflects a variety 

of observed effects that inhibit perfect 

market efficiency. This is representative 

of the water heater market. On the 

whole, when accounting for both 

consumers negatively impacted by, as 

well as those benefiting from, amended 

standards, DOE’s analysis demonstrates 

that there are economically justified 

savings. 

9. Payback Period Analysis 

The payback period is the amount of 

time (expressed in years) it takes the 

consumer to recover the additional 

installed cost of more-efficient products, 

compared to baseline products, through 

energy cost savings. Payback periods 

that exceed the life of the product mean 

that the increased total installed cost is 

not recovered in reduced operating 

expenses. 

The inputs to the PBP calculation for 

each efficiency level are the change in 

total installed cost of the product and 

the change in the first-year annual 

operating expenditures relative to the 

baseline. DOE refers to this as a ‘‘simple 

PBP’’ because it does not consider 

changes over time in operating cost 

savings. The PBP calculation uses the 

same inputs as the LCC analysis when 

deriving first-year operating costs. 

As noted previously, 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 first 

year’s energy savings resulting from the 

standard, as calculated under the 

applicable test procedure. (42 U.S.C. 

6295(o)(2)(B)(iii)) For each considered 

efficiency level, DOE determined the 

value of the first year’s energy savings 

by calculating the energy savings in 

accordance with the applicable DOE test 

procedure, and multiplying those 

savings by the average energy price 

projection for the year in which 

compliance with the amended standards 

would be required. 

10. Accounting for Product Switching 

For the preliminary analysis, DOE did 

not account for product switching under 

potential standards. For the July 2023 

NOPR and this final rule, DOE 

maintained the same approach and did 

not include any product switching with 

respect to gas-fired instantaneous water 

heaters in its analysis. DOE assumes 

that any product switching as a result of 

the adopted standards is likely to be 

minimal. 

As discussed in the specific examples 

in the following paragraphs and in 

section 9.4 of the final rule TSD, the 

costs to switch to another product class 

can be higher than simply purchasing a 

standards-compliant product in the 

same product class. When faced with 

the need to replace a gas-fired 

instantaneous water, a consumer can 

either install a standards-compliant 

product of the same product class as 

they originally had, or consider a switch 

to a standards-compliant product of an 

alternative product class. Similarly, 

when faced with the need to install a 

consumer water heater in new 

construction, the consumer can choose 

from available standards-compliant 

products across various product classes. 

As part of considering which water 

heater to purchase, consumers look at 

the first cost, the installation cost, 

expected energy savings, and the 

amenities provided by the water heaters 

such as the location within the 

residence and the amount of hot water 

the water heater could deliver. 

In consumer hot water heater 

replacement scenarios, shipments data 

demonstrate purchasers mostly replace 

their existing water heater with the 

same product class when purchase price 

is similar (see section 9.3.1 of chapter 9 

of the TSD for details). In the case of 

gas-fired instantaneous water heaters, 

other product classes often cost more to 

switch to and install than a standardscompliant gas-fired instantaneous water 

heater (as discussed below). Even if, for 

a given household, another product 

class costs less, DOE expects other 

factors (including logistical barriers, 

lower LCC savings, shorter product 

lifetimes, and other attributes 

consumers value in instantaneous water 

heaters) to limit product-switching. 

Because of the higher cost in some 

scenarios, consumer preferences, and 

other limitations on product-switching, 

DOE concludes it is extremely unlikely 

that consumers would choose to switch 

product classes specifically in response 

to these amended standards. In the 

absence of amended standards, some 

consumers choose to switch for reasons 

other than simply cost, and that is 

reflected in historical market trends that 

are incorporated into the analysis. 

However, for the purposes of the 

analysis, the issue is whether more 

consumers would switch due to the 

higher incremental costs of standardscompliant products. DOE concludes that 

this is very unlikely and therefore 

market trends will be unaffected. 

DOE compared the costs of a 

consumer switching from a baseline 

non-condensing gas-fired instantaneous 

water heater to three potential 

replacement options (standardscompliant gas-fired instantaneous water 

heater, baseline gas-fired storage water 

heater under the recently updated 

standard, and baseline electric storage 

water heater under the recently updated 

standard), in both residential new 

construction and replacement scenarios 

for existing households. In the new 

construction scenario, the analysis 

shows that average total installed costs 

are typically lowest for a standardscompliant gas-fired instantaneous water 

heater. In the replacement scenario, the 

factors considered in DOE’s analysis 

show that average total installed costs 

are lower in some cases and marginally 

higher in others. However, switching to 

an alternative option also involves 

several additional costs to accommodate 

the alternative water heater, including 

new venting, electrical upgrades, and 

potential relocation of the water heater. 

Accordingly, even if, for a given 

household, a potential replacement 

option other than a standards-compliant 

gas-fired instantaneous water heater is 

cheaper to install, DOE expects that 

other factors will limit consumer 

incentives for product switching: 

logistical barriers arising from different 

physical and space requirements as 

described below, the greater LCC 

savings of a gas-fired instantaneous 

water heater, the longer lifetime of a gasfired instantaneous water heater, and 

consumer preferences for instantaneous 

water heater attributes such as limitless 

hot water supply. DOE notes many 

consumers have already switched from 

a gas-fired storage to a gas-fired 

instantaneous water heater despite the 

high costs of doing so (to replace all the 

venting and potentially relocate the 

water heater), and does not expect this 

trend to reverse as a result of the 

amended standards. 

In the hypothetical case of a consumer 

switching from a gas-fired instantaneous 

water heater to an electric storage water 

heater when replacing a water heater in 

an existing household, there are likely 

additional installation costs necessary to 

add an electrical connection since this 

type of water heater typically requires 

high wattage. These are costs above and 

beyond the normal equipment and 

installation costs. In some cases, it may 

be possible to install a 120-volt heat 

pump storage water heater with 

minimal additional installation costs, 

particularly if there is a standard 

electrical outlet nearby already. In most 


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125For example, see: www.homeadvisor.com/ 

cost/electrical/upgrade-an-electrical-panel/ 

#upgrade (last accessed August 29, 2024). 

126These results are available in the May 2024 

final rule LCC Results spreadsheet (EERE–2017– 

BT–STD–0019–1424), where LCC results are 

available separately for replacements and new 

construction. Available at: www.regulations.gov/ 

document/EERE-2017-BT-STD-0019-1424 (last 

accessed: Aug. 29, 2024). 

127These results are available in the May 2024 

final rule LCC Results spreadsheet (EERE–2017– 

BT–STD–0019–1424), where LCC results are 

available separately for replacements and new 

construction. Available at: www.regulations.gov/ 

document/EERE-2017-BT-STD-0019-1424 (last 

accessed: Aug. 29, 2024). 

128As an example of such costs, table 8D.5.66 in 

the final rule TSD estimates permitting, removal, 

and disposal costs of $260. Section 8D.3.5.3 (3) of 

the May 2024 final rule TSD estimates that 

relocation costs in the case of electric storage water 

heaters could range up to $2,000. Relocating 

GSWHs would incur similar costs to accommodate 

all-new water and gas lines in a relocation. 

Available at: www.regulations.gov/document/EERE2017-BT-STD-0019-1416 (last accessed: Aug. 29, 

2024). 

cases, however, a standard 240-volt 

electrical storage water heater would be 

installed. To do so, the consumer would 

need to add a 240-volt circuit to either 

an existing electrical panel or upgrade 

the entire panel if there is insufficient 

room for the additional amperage. The 

installation of a new 240-volt circuit by 

a qualified electrician will be at least 

several hundred dollars. Panel upgrade 

costs are significant and can be 

approximately $750–$2,000 to upgrade 

to a 200-amp electrical panel.125 Older 

homes and homes with gas-fired space 

heating (e.g., homes with gas furnaces) 

are more likely to need an electrical 

panel upgrade in order to install an 

electric storage water heater, given the 

relatively modest electrical needs of the 

home at the time of construction. The 

average total installed cost of a 

replacement standards-compliant 

electric storage water heater is 

$1,913,126 therefore the average total 

costs to switch to an electric storage 

water heater, after accounting for 

electrical upgrade costs, easily exceed 

the average replacement cost of a 

standards-compliant gas-fired 

instantaneous water heater ($2,499). 

Given the significant additional 

installation costs for nearly all homes 

potentially switching to an electric 

water heater, DOE estimates that very 

few consumers would switch from gasfired instantaneous water heaters to 

electric water heaters as a result of an 

energy conservation standard, especially 

at the adopted standard at TSL 2. When 

including the above additional costs, the 

average total installed cost to switch to 

an electric water heater is higher than 

the standards-compliant gas-fired 

instantaneous water heater. 

Instantaneous water heaters also 

provide differing utility to consumers 

compared to storage water waters (e.g., 

limitless hot water) and thus these 

products are not perfect substitutes. 

Additionally, storage water heaters 

require more space than a gas-fired 

instantaneous water heater and may 

require relocating the water heater, 

incurring even greater costs. Switching 

from a gas-fired instantaneous water 

heater to an electrical water heater is 

especially unlikely in the case of an 

emergency replacement where time is a 

critical factor. When a water heater fails, 

consumers typically have limited time 

to make a decision on what new water 

heater to purchase and rely upon 

replacing the water heater with one that 

is similar to the one that failed. 

Consumers are unlikely to invest in 

switching fuels to a water heater that 

utilizes a different fuel source in the 

emergency replacement scenario. See 

section 9.4 of the final rule TSD for a 

summary comparison of costs. 

In the hypothetical case of a consumer 

switching from a gas-fired instantaneous 

water heater to a gas-fired storage water 

heater when replacing a water heater in 

an existing household, there are 

additional installation costs necessary 

as well. The vast majority of gas-fired 

storage water heaters (‘‘GSWHs’’) utilize 

non-condensing technology that utilizes 

Category I type B metal vent material, 

whereas gas-fired instantaneous water 

heaters require Category III or Category 

IV venting material, depending on the 

existing efficiency level. Regarding 

existing non-condensing gas-fired 

instantaneous water heaters, A.O. Smith 

and Rinnai noted that these utilize 

Category III venting (A.O. Smith, No. 

1182 at p. 15; Rinnai, No. 1443 at p. 12). 

Condensing gas-fired instantaneous 

water heaters require Category IV 

venting. Switching from a gas-fired 

instantaneous water heater to a baseline 

GSWH would therefore require 

replacing the venting regardless of the 

existing efficiency of the gas-fired 

instantaneous water heater. Replacing 

the venting system would result in 

significant additional installation costs 

if a consumer opted to switch to a 

GSWH. The most comparable cost for 

this scenario is the average cost to 

install a GSWH in new construction 

($2,095),127 which requires all-new 

venting, however this estimate does not 

include removal and disposal costs for 

the old equipment or potentially 

relocating the water heater. GSWHs and 

gas-fired instantaneous water heaters 

have very different physical dimensions 

and space requirements, with GSWHs 

being significantly larger water heaters. 

Switching from a gas-fired 

instantaneous water heater to a GSWH 

may not always be possible in the 

available space and may require even 

larger costs to accommodate a GSWH 

(e.g., relocating the water heater in the 

home). This may be particularly acute in 

smaller households where space is at a 

premium (e.g., townhomes). All of these 

additional costs can easily exceed many 

hundreds of dollars, if not higher, 

depending on need to relocate the water 

heater.128 Therefore, the total cost to 

switch to a GSWH can exceed the cost 

to simply replace with a standardscompliant gas-fired instantaneous water 

heater ($2,499). This situation is the 

same as exists today, prior to the 

amendment of standards for either gasfired instantaneous water heaters or for 

GSWHs. The cost differential is very 

similar between the two and the market 

share of instantaneous water heaters is 

growing relative to storage tank water 

heaters, not the reverse. See section 9.4 

of the final rule TSD for a summary 

comparison of costs. 

Furthermore, the average lifetime of a 

gas-fired instantaneous water heater is 

approximately 20 years, compared to 

approximately 14.5 years for GSWHs, 

which results in a total annualized cost 

of ownership for instantaneous water 

heaters that is even lower compared to 

GSWHs. Instantaneous water heaters 

also provide differing utility to 

consumers (e.g., limitless hot water) and 

thus these products are not perfect 

substitutes. These attributes are clearly 

valued by consumers, given the recent 

increasing market share of gas-fired 

instantaneous water heaters. Consumers 

that have already paid the costs to 

switch from an existing GSWH to a gasfired instantaneous water heater in the 

absence of any amended standard are 

highly unlikely to switch back to a 

GSWH due to amended standards and 

pay all of those extra costs again. 

As a result of all the cost and other 

considerations above, DOE estimates 

that it is highly unlikely that consumers 

would switch from gas-fired 

instantaneous water heaters to GSWHs 

when needing to replace their existing 

water heater, specifically as a result of 

the incremental costs of an energy 

conservation standard, particularly in 

the case of an emergency replacement. 

Even if some small subset of existing 

gas-fired instantaneous water heater 

consumers opt to switch to GSWHs 

instead of replacing their gas-fired 

instantaneous water heaters with a more 

efficient unit as a result of the adopted 

standards, despite the additional costs 

in doing so, those consumers would still 

need to switch to a more efficient 


ddrumheller on DSK120RN23PROD with RULES2
105240 Federal Register / Vol. 89, No. 247 / Thursday, December 26, 2024 / Rules and Regulations 

129These results are available in the May 2024 

final rule LCC Results spreadsheet (EERE–2017– 

BT–STD–0019–1424), where LCC results are 

available separately for replacements and new 

construction. The total installed costs for baseline 

models (reflecting the current minimally compliant 

models) are similarly less for gas-fired 

instantaneous water heaters compared to GSWHs. 

Available at: www.regulations.gov/document/EERE2017-BT-STD-0019-1424 (last accessed: Aug. 29, 

2024). 

130Separate LCC results for residential vs. 

commercial buildings and replacement installations 

vs. new construction are available in the LCC 

results spreadsheets. The May 2024 final rule LCC 

results spreadsheet is available at: 

www.regulations.gov/document/EERE-2017-BTSTD-0019-1424 (last accessed Sept. 17, 2024). 

GSWH at the newly adopted standard 

level. 89 FR 37778. While this would 

result in a marginal increase in energy 

consumption and life-cycle costs for 

these consumers, those increases are 

smaller than if the consumers switched 

to a previous baseline GSWH. 

Furthermore, these marginal increases 

would be outweighed by the energy 

savings and life cycle savings of the 

remaining consumers of gas-fired 

instantaneous water heaters. For 

example, even if 10 percent of gas-fired 

instantaneous water heater consumers 

elected to switch to GSWHs despite the 

costs, the percentage of consumers 

experiencing a net cost would increase 

by at most 10 percent and the average 

LCC savings for gas-fired instantaneous 

water heater consumers would still be 

positive, which would not change the 

conclusion of economic justification. It 

would likely take approximately half of 

the GIWH purchasers to choose a gas 

storage water heater instead of a GIWH 

in order for the economic justification to 

come into question, which is not a 

plausible scenario given the facts and 

analysis concerning the costs associated 

with switching as presented above. 

In new construction, the average total 

installed costs are different because new 

venting is always required if installed 

indoors, however the location of the 

water heater can be optimized to limit 

those venting costs for gas-fired 

instantaneous water heaters. Water 

heaters can also be installed outdoors in 

some cases. In today’s market, the total 

installed cost of a gas-fired 

instantaneous water heater in new 

construction is typically less than a 

GSWH, a factor in the increasing market 

share of gas-fired instantaneous water 

heaters seen in recent historical 

shipments (as described in section IV.G) 

and projected in the no-new-standards 

case. With newly adopted standards for 

both GSWHs and gas-fired 

instantaneous water heaters, the average 

total installed cost (including all 

venting) of a minimally standardscompliant GSWH in residential new 

construction is $2,095,129 which is 

similar to and slightly higher than a 

minimally compliant gas-fired 

instantaneous water heater in 

residential new construction at the 

amended standard level ($2,070). The 

adopted standard levels for both GSWHs 

and gas-fired instantaneous water 

heaters therefore preserve this market 

dynamic and gas-fired instantaneous 

water heaters will continue to have total 

installed costs that are similar to or 

lower on average in new construction 

compared to GSWHs. Furthermore, gasfired instantaneous water heaters have 

longer lifetimes (representing a more 

cost-effective investment) and 

additional features (such as a smaller 

footprint and endless hot water supply) 

that will continue to be attractive to 

some builders and consumers. As a 

result, DOE estimates that the existing 

trend of increasing gas-fired 

instantaneous water heater market share 

in new construction will continue. 

In existing installations of GSWHs, 

there are significant costs to switch from 

a GSWH to a gas-fired instantaneous 

water heater, since new venting is 

required. In today’s market, however, 

some consumers are electing to make 

that switch despite the extra costs, 

because instantaneous water heaters 

have certain attributes that consumers 

value (e.g., smaller footprint, endless 

supply of hot water). Even with the 

adopted standard for gas-fired 

instantaneous water heaters, the relative 

incremental cost will be similar because 

DOE also recently adopted a revised 

standard for GSWH in a May 2024 final 

rule, so costs for both product classes 

will increase. 89 FR 37778. For 

example, the average total installed cost 

of a pre-standard baseline GSWH in a 

residential replacement installation was 

estimated to be $1,376 in the May 2024 

final rule, whereas the average total 

installed cost of a baseline gas-fired 

instantaneous water heater in a 

residential replacement installation is 

estimated to be $2,282.130 Therefore, 

switching to baseline gas-fired 

instantaneous water heaters in existing 

GSWH installations in today’s market 

already represents a significant 

additional cost, estimated to be $906 on 

average, nearly twice the cost of simply 

replacing a GSWH with another GSWH. 

Despite this extra cost, the market share 

of gas-fired instantaneous water heaters 

in replacement installations is 

increasing. With newly adopted 

standards for both product classes, the 

average installed costs in residential 

replacement installations for minimally 

compliant products are estimated to be 

$1,523 and $2,499 for GSWHs and gasfired instantaneous water heaters, 

respectively, with a difference of $976. 

Therefore, there is still a significant 

additional cost to switch after the 

adoption of new standards, just as in 

today’s market. However, instantaneous 

water heaters will continue to have the 

same attributes and features that some 

consumers prefer and those consumers 

will continue to make the switch when 

replacing their existing storage water 

heaters, despite the costs of doing so. 

The adopted standard level for gas-fired 

instantaneous water heaters is unlikely 

to significantly disrupt this existing 

market dynamic because there was 

already a high cost to switch from 

existing GSWHs to gas-fired 

instantaneous water heaters. 

Even if a small subset of existing 

GSWH consumers, who would have 

switched to gas-fired instantaneous 

water heaters in the no-new-standards 

case, instead remain with GSWHs as a 

result of the adopted standards, the 

adopted rule for gas-fired instantaneous 

water heaters will still result in 

significant energy savings even though 

the overall energy savings might be 

incrementally lower than estimated in 

this final rule analysis. In this 

hypothetical scenario, even if the 

market growth of gas-fired 

instantaneous water heaters slows down 

and more consumers remain with 

GSWHs, there are still energy and LCC 

savings for gas-fired instantaneous water 

heaters, the rule as a whole saves a 

significant amount of energy, and 

therefore the conclusion of economic 

justification remains unchanged. 

DOE received comments from 

stakeholders who were concerned that, 

if DOE were to adopt more stringent 

standards for gas-fired instantaneous 

water heaters compared to the standards 

adopted for gas-fired storage water 

heaters, consumers would opt for gasfired storage water heaters instead of 

gas-fired instantaneous water heaters, 

which could have negative impacts to 

the outcome of this rulemaking. 

TPPF stated that consumers recognize 

the differences between condensing and 

non-condensing products, which leads 

consumers to purchase products at 

different price points. Because 

condensing products are more 

expensive, TPPF stated, consumers will 

instead opt for non-condensing gas-fired 

storage water heaters, and these 

economic tradeoffs illustrate that 

condensing and non-condensing water 

heaters are not interchangeable. (TPPF, 

No. 1153 at pp. 3–4) 

Rinnai stated their expectation that 

most would-be consumers of noncondensing tankless water heaters 

would instead purchase less efficient 


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Federal Register / Vol. 89, No. 247 / Thursday, December 26, 2024 / Rules and Regulations 105241 

gas-fired storage water heaters if the 

proposed standards are finalized. Rinnai 

asserted that, because DOE does not 

adequately account for such product 

switching, DOE’s analysis overstates 

LCC and energy savings for gas-fired 

instantaneous water heaters. Rinnai 

estimated that at least 80 percent of 

their current non-condensing gas-fired 

instantaneous water heater sales would 

switch to non-condensing gas-fired 

storage water heaters as a result of the 

proposed rule. Rinnai added that based 

on their calculations, if 31 percent of the 

market switched, there would be a net 

loss of 0.4 percent in energy savings and 

0.04 percent in emissions reductions as 

compared to the manufacturer’s analysis 

of a no-new-standards case scenario 

over the first 20 years the proposed rule 

goes into effect. (Rinnai, No. 1186 at pp. 

2–18) 

The Attorney General of GA 

commented that condensing and noncondensing gas-fired tankless water 

heaters are highly efficient and reduce 

standby heat loss as compared to 

traditional storage-type units. The 

Attorney General of GA commented that 

both types (condensing and noncondensing) of tankless water heaters 

require less energy and have higher 

lifespans than units with tanks, and 

both types currently satisfy DOE’s 

minimum efficiency requirement. 

(Attorney General of GA, No. 1026 at p. 

1) In response to the July 2024 NODA, 

Commenters from the U.S. House of 

Representatives claimed that the 

‘‘unique design’’ of non-condensing gasfired instantaneous water heaters yields 

a longer appliance life-cycle by heating 

water only on demand, limiting 

exposure to corrosive elements. (U.S. 

House of Representatives, No. 1445 at p. 

1) 

DOE agrees with the commenters that 

instantaneous water heaters are different 

from storage water heaters because they 

heat water on demand; however, this 

ability is not unique to non-condensing 

gas-fired products. ‘‘Tankless’’ models 

are instantaneous water heaters with 

very little storage volume. They are 

equipped with sensors that activate the 

heating process based on water flow to 

produce hot water on demand. Endless 

hot water is a feature that is valued by 

some consumers, as indicated by the 

recent increasing market share of gasfired instantaneous water heaters. 

Furthermore, DOE’s analysis shows that 

gas-fired instantaneous water heaters 

can have longer lifetimes than gas-fired 

storage water heaters. The estimated 

average lifetime for a gas-fired 

instantaneous water heater is about 20 

years, whereas gas-fired storage water 

heaters operate for about 14 to 15 years. 

This is one reason why there has been 

a historical trend of increasing 

shipments of gas-fired instantaneous 

water heaters—both non-condensing 

and condensing—and why it is 

reasonable to expect consumers to 

continue opting for gas-fired 

instantaneous water heaters in a 

scenario where standards are set at a 

condensing efficiency level. 

Rinnai noted that the efficiency levels 

for gas-fired instantaneous water heaters 

proposed in the July 2023 NOPR 

represent a much larger increase from 

existing standards than the proposed 

efficiency levels for gas-fired storage 

water heaters. (Rinnai, No. 1186 at pp. 

6–7) Commenters from the U.S. House 

of Representatives expressed concern 

that the efficiency level for the proposed 

standards for gas-fired storage water 

heaters are less stringent than the 

efficiency level proposed for gas 

tankless water heaters. Commenters 

from the U.S. House of Representatives 

asserted that this efficiency difference 

would restrict consumer choice and 

increase prices. (U.S. House of 

Representatives, No. 1025 at pp. 1–2) 

Commenters from the U.S. House of 

Representatives reiterated these 

concerns in response to the July 2024 

NODA, claiming that the proposed 

standards would eliminate noncondensing gas-fired instantaneous 

water heaters from the market. The U.S. 

House of Representatives stated that the 

proposed standards would leave 

condensing gas-fired instantaneous 

water heaters, which are significantly 

more expensive, and gas-fired storage 

water heaters, which have significantly 

higher emissions profiles, on the 

market. (U.S. House of Representatives, 

No. 1445 at p. 1) Commenters from the 

U.S. House of Representatives claimed 

that the proposed standards would harm 

consumers who rely on the size, cost, 

and flexibility of gas-fired instantaneous 

water heaters. (U.S. House of 

Representatives, No. 1445 at p. 1) 

CNGC urged DOE to reconsider the 

implications on both consumers and 

manufacturers, stating that if efficiency 

standards exceed 91 percent, it becomes 

technologically infeasible to produce 

non-condensing gas-fired tankless water 

heaters at their current affordable price, 

leaving consumers to choose lessefficient storage water heaters and 

undermine environmental goals. (CNGC, 

No. 648 at p. 1) CHPK and Huntsville 

Utilities also stated that the unattainable 

energy efficiency requirements for gasfired instantaneous water heaters 

utilizing non-condensing technology 

would discourage consumers from 

investing in tankless models, and 

instead they would purchase lessefficient water heaters. (CHPK, No. 1008 

at pp. 1–2; Huntsville Utilities, No. 1176 

at p. 1) The Attorney General of GA 

commented that the proposed standards 

are feasible only for condensing units 

and would make tankless water heaters 

unaffordable for many consumers. The 

Attorney General of GA added that the 

proposed rulemaking will effectively 

eliminate non-condensing gas-fired 

tankless water heaters and leave 

consumers with a choice between lessefficient storage water heaters, or more 

expensive condensing tankless water 

heaters, and suggested that if consumers 

are incentivized to purchase inefficient 

storage water heaters, the rule will 

violate DOE’s requirement that any new 

or amended standards must result in a 

significant conservation of energy. 

(Attorney General of GA, No. 1026 at 

pp. 1–2) 

DOE recognizes that total installed 

cost is a significant factor in consumer 

decision-making when purchasing a 

new water heater. In this final rule, DOE 

has incorporated specific feedback from 

stakeholders to improve its life-cycle 

cost analysis with respect to installation 

cost estimates. As discussed above, DOE 

concludes that, based on costs, 

consumers who already have gas-fired 

instantaneous water heaters would not 

switch to a gas-fired storage water heater 

when making a replacement. Secondly, 

in new construction, installing a gasfired instantaneous water heater is still 

less expensive on average than 

installing a gas-fired storage water 

heater with the adoption of amended 

standards. Thirdly, consumers 

switching from gas-fired storage water 

heaters to gas-fired instantaneous water 

heaters in the no-new-standards case 

will require a change to the venting 

configuration regardless of whether the 

gas-fired instantaneous water heater is 

non-condensing or condensing. The 

choice to switch from a storage water 

heater to an instantaneous water heater 

in the no-new-standards case is 

influenced by other factors beyond just 

cost. Based on its assessments of total 

installed costs in the life-cycle cost 

analysis, DOE has determined that it is 

unlikely for consumers to stop 

switching from gas-fired storage water 

heaters to gas-fired instantaneous water 

heaters only as a result of the adopted 

rule. Even if that premise was true, 

where a fraction of consumers in the 

amended standards case, as compared to 

the no-new-standards case, opted to stay 

with storage water heaters instead of 

switching to instantaneous water 

heaters, DOE would still find economic 

justification with the adopted rule. A 

majority of consumers would have to 


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forgo adopting instantaneous water 

heaters in the standards case for the rule 

to result in an increase in energy 

consumption, a scenario DOE has 

determined to not be remotely plausible 

given the discussion of total installed 

costs above. 

The Attorney General of TN 

commented that the proposed 

rulemaking does not consider the loss of 

consumer utility that could occur from 

the implementation of these standards, 

particularly consumers’ needs for 

different types of water heaters (i.e., 

condensing versus non-condensing) 

depending on the configuration of their 

home. The Attorney General of TN 

commented that by reducing market 

availability for non-condensing, gasfired, instantaneous water heaters in 

favor of less affordable electric-powered 

water heaters, the proposed rulemaking 

would lead consumers to purchase lessefficient non-condensing gas-storage 

water heaters. (Attorney General of TN, 

No. 1149 at p. 3) 

In the July 2023 NOPR, DOE 

explained why non-condensing versus 

condensing gas-fired appliances do not 

constitute a consumer utility for which 

the Department can justify separate 

standards. 88 FR 49058, 49079. This 

determination is discussed further in 

section IV.A.1 of this document. 

NPGA, APGA, AGA, and Rinnai 

stated that DOE misunderstands the 

consumer water heater market due to its 

claim that consumers do not make 

decisions based on rational economic 

terms, but conceded that many water 

heater decisions are made in 

emergencies where price and immediate 

availability are the strongest factors in 

decision-making. According to NPGA, 

APGA, AGA, and Rinnai, DOE rejects 

the idea that consumers would switch 

products across various product classes 

and does not evaluate associated market 

shifts, and by failing to understand that 

by limiting or eliminating the market for 

non-condensing instantaneous water 

heaters, consumers may choose to 

switch to a non-condensing gas-fired 

storage water heaters, resulting in a 

lower UEF and enhanced emissions 

from their water heater and has not 

accounted for installation costs of this 

potential product class switch. (NPGA, 

APGA, AGA, and Rinnai, No. 441 at p. 

3) 

In response, DOE notes that its 

assessment is based on the comparison 

of total installed costs needed to switch 

from product class to product class, as 

noted above. The total costs to switch 

product classes in response to an 

amended standard are higher than 

simply purchasing a compliant product 

in the same product class. Therefore, 

DOE estimates no switching in response 

to an amended standard as a result of 

incremental costs. DOE does not reject 

the idea that this may happen in the nonew-standards case for reasons other 

than just total cost. Indeed, the 

shipments projection accounts for 

recent market trends that show growing 

consumer demand for gas-fired 

instantaneous water heaters compared 

to GSWHs. Consumers are valuing 

instantaneous water heater features 

beyond just cost. DOE estimates that 

this trend will not substantively change 

in the standards case, given that cost 

comparison between GSWHs and gasfired instantaneous water heaters is 

similar, whether at baseline ELs or at 

the adopted ELs. 

Commenting on the July 2023 NOPR, 

Ecotemp commented that product 

switching, from tankless to tank water 

heaters is likely to happen as a result of 

this rule and DOE not modeling that 

possibility is missing a huge consumer 

base doing exactly that. (Ecotemp, No. 

1092 at p. 2) NMHC and NAA stated 

that DOE fails to properly evaluate the 

impacts of market unavailability that 

forces product switching with the 

example of the elimination of noncondensing tankless water heaters from 

the proposed standard potentially 

requiring a non-condensing gas storage 

water heater over a traditional 

replacement of non-condensing tankless 

water heaters, and the 25 percent drop 

in efficiency associated with these 

products. NMHC and NAA stated that 

this rule will result in greater use of 

electric water heaters in replacement of 

existing gas water heaters which will 

require more interconnectivity, changes 

to power systems, and upgrades to 

electrical infrastructure. (NMHC and 

NAA, No. 996 at p. 5) 

In response, DOE notes that existing 

market trends are incorporated into the 

shipments analysis and projection. To 

the extent that some product classes are 

becoming more prevalent in certain 

types of buildings, that is reflected in 

the no-new-standards case shipments 

projection. With respect to switching 

from a tankless to storage tank water 

heater, as summarized above, DOE 

determines that minimal switching 

would happen to either a gas-fired 

storage or electric storage water heater. 

As DOE has discussed above, the costs 

to switch product classes in response to 

amended standards are larger than 

simply purchasing standards-compliant 

products within the same product 

classes. Therefore, DOE estimates that 

no additional switching will occur 

beyond existing market trends. 

Atmos Energy argued that because the 

cost to fuel switch is high, DOE fails to 

‘‘acknowledge the equally prohibitive 

costs that will be associated with high 

efficiency gas appliances as a result of 

this proposal and the lack of gas-fired 

replacements in the market.’’ (Atmos 

Energy, No. 1183 at p. 6). Rinnai argued 

that DOE has failed to take into account 

substitution effects in replacement 

markets, especially in regards to noncondensing gas-fired instantaneous 

water heater. Rinnai argued that in 

particular the lack of consideration of 

non-condensing gas-fired instantaneous 

water heater to gas storage water heater 

(due to lack of condensing gas-fired 

instantaneous water heater option) is 

not being represented. (Rinnai, No. 1186 

at pp. 30–31) As discussed above, DOE 

estimates that switching away from gasfired instantaneous water heaters as a 

result of the rule is likely to be 

negligible, due to the high installation 

costs of such switching, (costs that are 

acknowledged to be high by Atmos 

Energy in their comment). DOE finds no 

evidence that there would be a lack of 

condensing gas-fired instantaneous 

water heater models available in the 

standards case for replacements. Many 

such models for gas-fired instantaneous 

water heaters are currently available on 

the market by multiple manufacturers. 

See chapter 8 and appendix 8D of the 

final rule TSD for detailed description 

of the installation costs. 

Rinnai stated that the July 2024 

NODA declares that no consumers 

would switch between product 

categories, including to gas storage 

water heaters, an assumption that 

Rinnai stated would contradict historic 

market data and evidence of consumer 

purchasing behavior. According to 

Rinnai, gas tankless water heaters are 

taking market share from gas tank sales, 

with GSWH sales declining at the same 

time gas-fired instantaneous water 

heater sales have increased. Rinnai 

speculated that this may be due to 

consumer purchasing decisions due to 

the increased cost to purchase and 

install gas-fired instantaneous water 

heater. Rinnai also note that by 

removing non-condensing gas-fired 

instantaneous water heater options, 

consumers may be less inclined to 

replace an existing GWSH with an even 

more expensive condensing gas-fired 

instantaneous water heater unit. Rinnai 

stated that DOE’s position that 

consumers purchasing gas tankless 

water heaters will never consider 

buying a gas tank in contrary to 

observable market behavior. (Rinnai, 

No. 1443, at p. 2 and pp. 5–8) 

In contrast, the Joint Advocates 

supported DOE’s conclusion that the 

proposed standards for gas-fired 

instantaneous water heaters would not 


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result in any significant product 

switching among consumers. The Joint 

Advocates commented that, contrary to 

one manufacturer’s assumption, such an 

outcome is highly unlikely for the 

following reasons: (1) gas-fired 

instantaneous water heaters are already 

significantly more expensive than gas 

storage water heaters and that the total 

installed cost of a gas-fired 

instantaneous water heater that just 

meets the current standard is 41 percent 

higher than that of a gas storage water 

heater; (2) the cost differential between 

gas storage and gas-fired instantaneous 

water heaters would remain essentially 

unchanged at the proposed standard 

level (i.e., the estimated total installed 

cost of gas-fired instantaneous water 

heaters would remain at 41 percent 

higher than gas storage water heaters); 

(3) consumers with an existing gas-fired 

instantaneous water heater would be 

unlikely to replace it with a gas storage 

water heater due to space and venting 

issues; and (4) DOE data show that 70 

percent of current gas-fired 

instantaneous water heater sales are 

already at condensing levels and more 

than 60 percent of current sales meet EL 

2. For these reasons, the Joint Advocates 

supported DOE’s determination that 

additional consumer product switching 

is unlikely as a result of amended 

standards for gas-fired instantaneous 

water heaters. (Joint Advocates, No. 

1444 at pp. 2–3) 

A.O. Smith agreed with DOE’s 

conclusion that condensing standards 

for gas-instantaneous water heaters 

would not shift shipments away from 

tankless products due to significant cost 

for changing venting system. The 

commenter also noted that 

approximately 65 percent of shipments 

are already condensing products and it 

suggests that consumers are already 

voluntarily opting for condensing 

tankless products despite their higher 

initial costs over non-condensing 

tankless products. (A.O. Smith, No. 

1440 at p. 6) 

In response, DOE acknowledges that 

historic and present-day market trends 

show an increasing demand for gas-fired 

instantaneous water heaters over 

GSWHs. This overall trend is 

incorporated into the shipments 

analysis and shipment projections, as 

discussed in section IV.G of this 

document. However, this market 

dynamic is occurring in the absence of 

any new energy conservation standard 

for gas-fired instantaneous water 

heaters. In new construction, 

instantaneous water heaters are 

becoming popular in large part because 

the total installed cost of a gas-fired 

instantaneous water heater is, on 

average, similar to or less than a GSWH, 

since new venting is required in either 

case and the venting length can be very 

short for gas-fired instantaneous water 

heaters. Even with the adopted standard 

level, gas-fired instantaneous water 

heaters will continue to be similar to or 

less expensive to install in new 

construction, on average, and therefore 

the standard is highly unlikely to cause 

significant product switching to 

GSWHs. Furthermore, instantaneous 

water heaters also provide differing 

utility to consumers (e.g., limitless hot 

water, smaller footprint) compared to 

storage water heaters. These attributes 

are clearly valued by consumers, given 

the recent increasing market share of 

gas-fired instantaneous water heaters. 

11. Analytical Results 

Rinnai stated that the Department has 

proposed new minimum efficiency 

standards for twelve separate categories 

of consumer gas-fired instantaneous 

water heaters but the Department 

provided only one life-cycle-cost 

analysis for them. (Rinnai, No. 1186 at 

p. 34) 

In response, DOE clarifies that for two 

types of gas-fired instantaneous water 

heaters (and each of their four their 

associated draw patterns), DOE is only 

updating the rating metric to the UEF 

descriptor and the adopted standards do 

not constitute an increase in stringency. 

This applies to 8 of the 12 categories the 

commenter identified. For gas-fired 

instantaneous water heaters with less 

than 2 gallons of effective storage 

volume and rated inputs greater than 

50,000 Btu/h, DOE conducted an 

analysis, as presented in this final rule, 

to determine whether amended UEF 

standards would be appropriate and 

justified. Two of the four draw patterns 

have no products and no market share 

in today’s market and thus there is no 

analysis to conduct. For the remaining 

two draw patterns (medium and high 

draw), they are fully analyzed as part of 

DOE’s rulemaking analysis and 

incorporated into the LCC consumer 

sample. DOE assigned a draw pattern to 

the sampled household or building 

based on the market split of two draw 

patterns. The analytical results are a 

weighted average representing the 

economic impact to the market as a 

whole combing the two draw patterns. 

Additionally, the published analytical 

results spreadsheet contains the 

breakdown of the results by draw 

patterns. 

Commenting on the July 2023 NOPR, 

Rinnai argued that the density 

distribution of its LCC analysis for gasfired instantaneous water heaters shows 

heavily skewed distributions which can 

be attributed to high impact outliers. 

Rinnai argued that because the mean is 

being used to determine feasibility, it 

moves the LCC results away from its 

central tendencies and typical savings/ 

costs for consumers. Rinnai argued that 

DOE should do a sensitivity analysis on 

gas-fired instantaneous water heater to 

defend the impact of the proposal. 

(Rinnai, No. 1186 at p. 21) Rinnai 

argued that small changes in estimates 

of installation costs or maintenance 

costs for condensing gas-fired 

instantaneous water heaters could result 

in negative average LCC savings. Rinnai 

argued this sensitivity warrants not 

enacting the standard for gas-fired 

instantaneous water heaters. (Rinnai, 

No. 1186 at p. 22) 

Rinnai noted that the LCC probability 

distribution contains a long tail with 

many consumers experiencing higher 

LCC values than the average value. 

Rinnai suggested that DOE should 

produce results using ‘‘different 

averaging’’ to better understand the 

impact of different data populations. 

Rinnai stated that DOE should consider 

the distribution in consumer trade-offs 

between upfront costs and long-term 

savings, as well as the overall costs that 

many consumers will face across 

different scenarios, to provide more 

accurate insights on consumer behavior, 

purchasing decisions, and impacts on 

cost savings and energy savings. 

(Rinnai, No. 1443 at pp. 20–21) In 

response, DOE clarifies that it uses 

probability distributions for a number of 

input variables that are reasonably 

expected to exhibit natural variation 

and diversity in practice (e.g., lifetime, 

repair cost, installation costs). These 

probability distributions are modeling 

diversity and are representative of the 

real world. In contrast, DOE addresses 

input uncertainty primarily with the use 

of sensitivity scenarios. To determine 

whether the conclusions of the analysis 

are robust, DOE performed several 

sensitivity scenarios with more extreme 

versions of these input variables (e.g., 

high/low economic growth and energy 

price scenarios, alternative price trend 

scenarios, alternative mean lifetime 

scenarios). The relative comparison of 

potential standard levels in the analysis 

remains the same throughout these 

sensitivity scenarios, confirming that 

the conclusion of economic justification 

is robust despite some input 

uncertainty. Furthermore, DOE provides 

a range of statistics in the LCC 

spreadsheet, including median values 

and values at various percentiles for 

many intermediate variables, as well as 

the full data output table for all 10,000 

samples. For example, the 25th and 75th 


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131This sensitivity result can be found in the LCC 

Results spreadsheet, available at XXXX. 

132 DOE uses data on manufacturer shipments as 

a proxy for national sales, as aggregate data on sales 

are lacking. In general, one would expect a close 

correspondence between shipments and sales. 

133The new owners primarily consist of 

households that add or switch to a different water 

heater option during a major remodel. Because DOE 

calculates new owners as the residual between its 

shipments model compared to historical shipments, 

new owners also include shipments that 

historically switch away from water heater product 

class to another. 

134AHRI. Confidential Instantaneous Gas-fired 

Water Heater Shipments Data from 2004–2007 to 

LBNL. March 3, 2008. 

135BRG Building Solutions. The North American 

Heating & Cooling Product Markets (2023 Edition). 

2023. 

136ENERGY STAR. Unit Shipments data 2010– 

2021. multiple reports. Available at 

www.energystar.gov/partner_resources/products_

partner_resources/brand_owner_resources/unit_

shipment_data (last accessed August 29, 2024). 

137U.S. Census. Characteristics of New Housing 

from 1999–2022. Available at www.census.gov/ 

construction/chars/ (last accessed August 29, 2024). 

138U.S. Census. Characteristics of New Housing 

(Multi-Family Units) from 1973–2022. Available at 

www.census.gov/construction/chars/mfu.html (last 

accessed August 29, 2024). 

139Home Innovation Research Labs (independent 

subsidiary of the National Association of Home 

Builders (‘‘NAHB’’). Annual Builder Practices 

Survey (2015–2019). Available at 

www.homeinnovation.com/trends_and_reports/ 

data/new_construction (last accessed August 29, 

2024). 

140Note that DOE does not project housing 

regionally. New housing is therefore assumed to 

grow in the same regional distribution as the 

current data would suggest. 

percentiles of average LCC savings for 

all ELs are available in the LCC 

spreadsheet. DOE also provides a 

distribution of impacts, including 

consumers with a net benefit, net cost, 

and not impacted by the rule in the LCC 

spreadsheet and in chapter 8 of the final 

rule TSD. 

DOE develops probabilities for as 

many inputs to the LCC analysis as 

possible, to reflect the distribution of 

impacts as comprehensively as possible. 

For example, DOE develops 

probabilities for building sampling, 

installation costs, lifetime, discount 

rate, and efficiency distribution, among 

other inputs. If there are insufficient 

data with respect to a specific input 

parameter to create a robust probability 

distribution, DOE will utilize a single 

input parameter. Such approach is 

neither arbitrary nor capricious; it is 

informed by the available data. 

The installation and maintenance cost 

estimates are the result of a significant 

research and cite multiple sources, as 

discussed at length in section IV.F.2 and 

appendix 8D of the final rule TSD. DOE 

has incorporated feedback from various 

stakeholders and revised those costs for 

this final rule. There is no basis to 

expect installation costs are under- or 

overestimated and therefore creating 

sensitivity scenarios based on 

hypothetical adjustments to those costs 

is unwarranted. 

As discussed in section IV.F.8, DOE 

also conducted a sensitivity analysis for 

gas-fired instantaneous water heaters in 

which certain positive outlier outcomes 

were replaced. While the average (and 

median) LCC savings are reduced in this 

sensitivity analysis, they are still 

positive.131

DOE provides stakeholders with the 

opportunity to provide accurate data to 

represent a breadth of operating 

conditions, prices, and use cases. In the 

absence of stakeholder provided 

information, DOE makes a good-faith 

effort to collect reliable data from 

various sources and summarize 

assumptions on the missing parameters. 

The Monte Carlo simulation and its 

large number of samples (10,000 for 

each product class) ensures that the 

results converge to a representative 

average. For some inputs whose 

uncertainty is not well characterized, 

such as future equipment prices or 

economic growth conditions, DOE 

performed a series of sensitivity 

analyses to ensure that the results of the 

analysis are not strongly dependent on 

those inputs and that the conclusions of 

the analysis remain the same. As a 

result, DOE’s conclusion of economic 

justification is robust to a broad range of 

sensitivity scenarios which capture the 

uncertainty inherent in economic 

projections. 

Rinnai claimed that the LCC savings 

at the EL 2 in the July 2024 NODA are 

minimal (approximately $5 a year), 

while imposing substantial costs on a 

large percentage of consumers. Rinnai 

claimed that the July 2024 NODA 

results are based on flawed and 

inaccurate data and assumptions and 

Rinnai’s analysis shows the LCC savings 

would be negative at the proposed EL if 

DOE adjusted venting installation costs. 

(Rinnai, No. 1443 at pp.10, 18–19 and 

25) In response, DOE has individually 

responded to Rinnai’s specific 

comments to the venting installation 

cost methodology in section IV.F.2. DOE 

reviewed the analytical method for this 

final rule and based on the results the 

LCC savings are still in support of the 

proposed efficiency level. 

G. Shipments Analysis 

DOE uses projections of annual 

product shipments to calculate the 

national impacts of potential amended 

or new energy conservation standards 

on energy use, NPV, and future 

manufacturer cash flows.132 The 

shipments model takes an accounting 

approach, tracking market shares of 

products and the vintage of units in the 

stock. Stock accounting uses product 

shipments as inputs to estimate the age 

distribution of in-service product stocks 

for all years. The age distribution of inservice product stocks is a key input to 

calculations of both the NES and NPV, 

because operating costs for any year 

depend on the age distribution of the 

stock. 

DOE developed shipment projections 

based on historical data and an analysis 

of key market drivers for each product. 

DOE estimated consumer gas-fired 

instantaneous water heater shipments 

by projecting shipments in three market 

segments: (1) replacement of existing 

consumer gas-fired instantaneous water 

heaters; (2) new housing; and (3) new 

owners in buildings that did not 

previously have a consumer gas-fired 

instantaneous water heater or existing 

gas-fired instantaneous water heater 

owners that are adding an additional 

consumer gas-fired instantaneous water 

heater.133

To project gas-fired instantaneous 

water heater replacement shipments, 

DOE developed retirement functions 

from gas-fired instantaneous water 

heater lifetime estimates and applied 

them to the existing products in the 

housing stock, which are tracked by 

vintage. DOE calculated replacement 

shipments using historical shipments 

and lifetime estimates. Annual 

historical shipments sources are: (1) 

AHRI data submittals; 134 (2) the BRG 

Building Solutions 2023 report; 135 (3) 

ENERGY STAR unit shipments data; 136

and (4) the 2010 Heating Products Final 

Rule. In addition, DOE adjusted 

replacement shipments by taking into 

account demolitions, using the 

estimated changes to the housing stock 

from AEO2023. 

To project shipments to the new 

housing market, DOE used the AEO2023 

housing starts and commercial building 

floor space projections to estimate 

future numbers of new homes and 

commercial building floor space. DOE 

then used data from U.S. Census 

Characteristics of New Housing,137 138

Home Innovation Research Labs Annual 

Builder Practices Survey,139 RECS 2020, 

AHS 2021, and CBECS 2018 to estimate 

new construction water heater 

saturations for consumer gas-fired 

instantaneous water heaters.140

DOE estimated shipments to the new 

owners’ market based on residual 

shipments from the calculated 

replacement and new construction 

shipments compared to historical 

shipments in the last 5 years (2018– 


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141 Decision Analysts, 2002, 2004, 2006, 2008, 

2010, 2013, 2016, 2019, and 2022 American Home 

Comfort Study. Available at 

www.decisionanalyst.com/syndicated/ 

homecomfort/ (last accessed August 29, 2024). 

142The NIA accounts for impacts in the United 

States and U.S. territories. 

2023 for this final rule). DOE compared 

this with data from the Decision 

Analysts’ 2002 to 2022 American Home 

Comfort Study 141 and 2023 BRG data, 

which showed similar historical 

fractions of new owners. DOE used the 

last 10 years (2013–2022) of modeled 

new owner data to project trend into 

future years from 2023–2059. If the 

resulting fraction of new owners is 

negative, DOE assumed that it was 

primarily due to equipment switching 

or non-replacement and added this 

number to replacements (thus reducing 

the replacements value). 

For the preliminary analysis and July 

2023 NOPR, assumptions regarding 

future policies encouraging 

electrification of households and 

electric water heating were speculative 

at that time, so such policies were not 

incorporated into the shipments 

projection. 

DOE acknowledges, however, that 

ongoing electrification policies at the 

Federal, State, and local levels are likely 

to encourage installation of electric 

water heaters in new homes and 

adoption of electric water heaters in 

homes that currently use gas-fired water 

heaters. For example, the Inflation 

Reduction Act includes incentives for 

heat pump water heaters and electrical 

panel upgrades. However, there are 

many uncertainties about the timing and 

impact of these policies that make it 

difficult to fully account for their likely 

impact on gas and electric water heater 

market shares in the time frame for this 

analysis (i.e., 2030 through 2059). 

Nonetheless, DOE’s shipments 

projections account for impacts that are 

most likely in the relevant time frame. 

The assumptions are described in 

chapter 9 and appendix 9A of the final 

rule TSD. The changes result in a 

decrease in gas-fired instantaneous 

water heater shipments in the no-newstandards case in 2030 compared to the 

preliminary analysis. DOE 

acknowledges that electrification 

policies may result in a larger decrease 

in shipments of gas-fired instantaneous 

water heaters than projected in this final 

rule, especially if stronger policies are 

adopted in coming years. However, this 

would occur in the no-new amended 

standards case and thus would only 

reduce the energy savings estimated in 

this adopted rule. For example, if 

incentives and rebates shifted 5 percent 

of shipments in the no-new amended 

standards case from gas-fired 

instantaneous water heaters to heat 

pump electric storage water heaters, 

then the energy savings estimated for 

gas-fired instantaneous water heaters in 

this adopted rule would decline by 

approximately 5 percent. The estimated 

consumer impacts are likely to be 

similar, however, except that the 

percentage of consumers with no impact 

at a given efficiency level would 

increase. DOE notes that the economic 

justification for the adopted rule would 

not change if DOE included the impact 

of incentives and rebates in the no-newstandards case, even if the absolute 

magnitude of the savings were to 

decline. 

DOE does not estimate that a 

significant market shift away from 

instantaneous water heaters would 

occur, given that the relative 

comparison of prices between gas-fired 

instantaneous and storage water heaters 

will remain similar. See section IV.F.10 

for a detailed discussion. 

1. Impact of Repair vs. Replace 

DOE estimated a fraction of consumer 

gas-fired instantaneous water heater 

replacement installations that choose to 

repair their equipment, rather than 

replace their equipment in the new 

standards case. The approach captures 

not only a decrease in consumer gasfired instantaneous water heater 

replacement shipments, but also the 

energy use from continuing to use the 

existing consumer gas-fired 

instantaneous water heater and the cost 

of the repair. DOE assumes that the 

demand for water heating is inelastic 

and, therefore, that no household or 

commercial building will forgo either 

repairing or replacing their equipment 

(either with a new consumer gas-fired 

instantaneous water heater or a suitable 

water heating alternative). 

For details on DOE’s shipments 

analysis and the repair option, see 

chapter 9 of the final rule TSD. 

H. National Impact Analysis 

The NIA assesses the national energy 

savings (‘‘NES’’) and the NPV from a 

national perspective of total consumer 

costs and savings that would be 

expected to result from new or amended 

standards at specific efficiency levels.142

(‘‘Consumer’’ in this context refers to 

consumers of the product being 

regulated.) DOE calculates the NES and 

NPV for the potential standard levels 

considered based on projections of 

annual product shipments, along with 

the annual energy consumption and 

total installed cost data from the energy 

use and LCC analyses. For the present 

analysis, DOE projected the energy 

savings, operating cost savings, product 

costs, and NPV of consumer benefits 

over the lifetime of consumer gas-fired 

instantaneous water heaters sold from 

2030 through 2059. 

DOE evaluates the impacts of new or 

amended standards by comparing a case 

without such standards with standardscase projections. The no-new-standards 

case characterizes energy use and 

consumer costs for each product class in 

the absence of new or amended energy 

conservation standards. For this 

projection, DOE considers historical 

trends in efficiency and various forces 

that are likely to affect the mix of 

efficiencies over time. DOE compares 

the no-new-standards case with 

projections characterizing the market for 

each product class if DOE adopted new 

or amended standards at specific energy 

efficiency levels (i.e., the TSLs or 

standards cases) for that class. For the 

standards cases, DOE considers how a 

given standard would likely affect the 

market shares of products with 

efficiencies greater than the standard. 

DOE uses a spreadsheet model to 

calculate the energy savings and the 

national consumer costs and savings 

from each TSL. Interested parties can 

review DOE’s analyses by changing 

various input quantities within the 

spreadsheet. The NIA spreadsheet 

model uses typical values (as opposed 

to probability distributions) as inputs. 

Table IV.12 summarizes the inputs 

and methods DOE used for the NIA 

analysis for the final rule. Discussion of 

these inputs and methods follows the 

table. See chapter 10 of the final rule 

TSD for further details. 

TABLE IV.12—SUMMARY OF INPUTS AND METHODS FOR THE NATIONAL IMPACT ANALYSIS

Inputs Method 

Shipments ....................................... Annual shipments from shipments model. 

Compliance Date of Standard ........ 2030. 


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143Steven Sorrell, et al., Empirical Estimates of 

the Direct Rebound Effect: A Review, 37 Energy 

Policy 1356–71 (2009). Available at 

www.sciencedirect.com/science/article/pii/ 

S0301421508007131 (last accessed August 29, 

2024). 144Steven Nadel, ‘‘The Rebound Effect: Large or 

Small?’’ ACEEE White Paper (August 2012). 

Available at www.aceee.org/files/pdf/white-paper/ 

rebound-large-and-small.pdf (last accessed August 

29, 2024). 145Brinda Thomas and Ines Azevedo, Estimating 

Direct and Indirect Rebound Effects for U.S. 

Households with Input–Output Analysis, Part 1: 

Theoretical Framework, 86 Ecological Econ. 199– 

201 (2013). Available at www.sciencedirect.com/ 

science/article/pii/S0921800912004764) (last 

accessed August 29, 2024). 146Lorna A. Greening, et al., Energy Efficiency 

and Consumption—The Rebound Effect—A Survey, 

28 Energy Policy 389–401 (2002). Available at 

www.sciencedirect.com/science/article/pii/ 

S0301421500000215 (last accessed August 29, 

2024). 

TABLE IV.12—SUMMARY OF INPUTS AND METHODS FOR THE NATIONAL IMPACT ANALYSIS—Continued 

Inputs Method 

Efficiency Trends ............................ No-new-standards case: Based on historical data. 

Standard cases: Roll-up in the compliance year and then DOE estimated growth in shipment-weighted efficiency in all the standards cases. 

Annual Energy Consumption per 

Unit.

Annual weighted-average values are a function of energy use at each TSL. 

Total Installed Cost per Unit ........... Annual weighted-average values are a function of cost at each TSL. 

Incorporates projection of future product prices based on historical data. 

Annual Energy Cost per Unit .......... Annual weighted-average values as a function of the annual energy consumption per unit and energy 

prices. 

Repair and Maintenance Cost per 

Unit.

Annual values do not change with efficiency level. 

Energy Price Trends ....................... AEO2023 projections (to 2050) and extrapolation thereafter. 

Energy Site-to-Primary and FFC 

Conversion.

A time-series conversion factor based on AEO2023. 

Discount Rate ................................. Three and seven percent. 

Present Year ................................... 2024. 

1. Product Efficiency Trends 

A key component of the NIA is the 

trend in energy efficiency projected for 

the no-new-standards case and each of 

the standards cases. Section IV.F.8 of 

this document describes how DOE 

developed an energy efficiency 

distribution for the no-new-standards 

case (which yields a shipment-weighted 

average efficiency) for the year of 

anticipated compliance with an 

amended standard. To project the trend 

in efficiency absent amended standards 

for consumer gas-fired instantaneous 

water heaters over the entire shipments 

projection period, DOE used available 

historical shipments data and 

manufacturer input. The approach is 

further described in chapter 10 of the 

final rule TSD. 

For the standards cases, DOE used a 

‘‘roll-up’’ scenario to establish the 

shipment-weighted efficiency for the 

year that standards are assumed to 

become effective (2030). In this 

scenario, the market shares of products 

in the no-new-standards case that do not 

meet the standard under consideration 

would ‘‘roll up’’ to meet the new 

standard level, and the market share of 

products above the standard would 

remain unchanged. 

To develop standards case efficiency 

trends after 2030, DOE used historical 

shipment data and current consumer 

gas-fired instantaneous water heater 

model availability by efficiency level 

(see chapter 8). DOE estimated growth 

in shipment-weighted efficiency by 

assuming that the implementation of 

ENERGY STAR’s performance criteria 

and other incentives would gradually 

increase the market shares of higher 

efficiency water heaters. Using 

historical BRG shipments data and 

ENERGY STAR criteria, DOE estimated 

the annual increase in market share for 

condensing units between 2015—2022 

and assumed the increasing trend would 

continue would continue over the 

shipments projection period. DOE notes 

that at present, most gas-fired 

instantaneous water heater models 

already achieve EL 2 or higher. 

2. National Energy Savings 

The national energy savings analysis 

involves a comparison of national 

energy consumption of the considered 

products between each potential 

standards case (‘‘TSL’’) and the case 

with no new or amended energy 

conservation standards. DOE calculated 

the national energy consumption by 

multiplying the number of units (stock) 

of each product (by vintage or age) by 

the unit energy consumption (also by 

vintage). DOE calculated annual NES 

based on the difference in national 

energy consumption for the no-newstandards case and for each higher 

efficiency standard case. DOE estimated 

energy consumption and savings based 

on site energy and converted the 

electricity consumption and savings to 

primary energy (i.e., the energy 

consumed by power plants to generate 

site electricity) using annual conversion 

factors derived from AEO2023. For 

natural gas, primary energy is the same 

as site energy. Cumulative energy 

savings are the sum of the NES for each 

year over the timeframe of the analysis. 

Use of higher-efficiency products is 

sometimes associated with a direct 

rebound effect, which refers to an 

increase in utilization of the product 

due to the increase in efficiency. DOE 

examined a 2009 review of empirical 

estimates of the rebound effect for 

various energy-using products.143 This 

review concluded that the econometric 

and quasi-experimental studies suggest 

a mean value for the direct rebound 

effect for household water heating of 

around 10 percent. DOE also examined 

a 2012 ACEEE paper 144 and a 2013 

paper by Thomas and Azevedo.145 Both 

of these publications examined the same 

studies that were reviewed by Sorrell, as 

well as Greening et al.,146 and identified 

methodological problems with some of 

the studies. The studies believed to be 

most reliable by Thomas and Azevedo 

show a direct rebound effect for water 

heating products in the 1-percent to 15- 

percent range, while Nadel concludes 

that a more likely range is 1 to 12 

percent, with rebound effects sometimes 

higher for low-income households that 

could not afford to adequately heat their 

homes prior to weatherization. DOE 

applied a rebound effect of 10 percent 

for consumer gas-fired instantaneous 

water heaters used in residential 

applications based on studies of other 

residential products and the value used 

for consumer water heaters in the 2010 

Final Rule for Heating Products, and 0 

percent for consumer water heaters in 

commercial applications, which also 

matches EIA’s National Energy 


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147See www.eia.gov/outlooks/aeo/nems/ 

documentation/ (last accessed August 29, 2024). 148 DOE. Energy Conservation Program for Certain 

Industrial Equipment: Energy Conservation 

Standards for Small, Large, and Very Large AirCooled Commercial Package Air Conditioning and 

Heating Equipment and Commercial Warm Air 

Furnaces; Direct final rule. 81 FR 2419 (Jan. 15, 

2016). Available at www.regulations.gov/document/ 

EERE-2013-BT-STD-0021-0055 (last accessed 

August 29, 2024). 

149 DOE. Energy Conservation Program: Energy 

Conservation Standards for Residential Boilers; 

Final rule. 81 FR 2319 (Jan. 15, 2016). Available at 

www.regulations.gov/document/EERE-2012-BTSTD-0047-0078 (last accessed August 29, 2024). 150 DOE. Energy Conservation Program: Energy 

Conservation Standards for Commercial Packaged 

Boilers; Final Rule. 85 FR 1592 (Jan. 10, 2020). 

Available at www.regulations.gov/document/EERE2013-BT-STD-0030-0099 (last accessed August 29, 

2024). 

151For more information on NEMS, refer to The 

National Energy Modeling System: An Overview 

2018, DOE/EIA–0581(2019), April 2019. Available 

at www.eia.gov/outlooks/aeo/nems/documentation/ 

(last accessed August 29, 2024). 

Modeling System (‘‘NEMS’’) for 

residential and commercial water 

heating and is consistent with other 

recent energy conservation standards 

rulemakings.147 148 149 150 The calculated 

NES at each efficiency level is therefore 

reduced by 10 percent in residential 

applications. DOE also included the 

rebound effect in the NPV analysis by 

accounting for the additional net benefit 

from increased consumer gas-fired 

instantaneous water heaters usage, as 

described in section IV.H.3 of this 

document. 

In 2011, 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 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 

(Aug. 18, 2011). After evaluating the 

approaches discussed in the August 18, 

2011 notice, DOE published a statement 

of amended policy in which DOE 

explained its determination that EIA’s 

National Energy Modeling System 

(‘‘NEMS’’) is the most appropriate tool 

for its FFC analysis and its intention to 

use NEMS for that purpose. 77 FR 49701 

(Aug. 17, 2012). NEMS is a public 

domain, multi-sector, partial 

equilibrium model of the U.S. energy 

sector 151 that EIA uses to prepare its 

Annual Energy Outlook. The FFC factors 

in corporate losses in production and 

delivery in the case of natural gas 

(including fugitive emissions) and 

additional energy used to produce and 

deliver the various fuels used by power 

plants. The approach used for deriving 

FFC measures of energy use and 

emissions is described in appendix 10B 

of the final rule TSD. 

Rinnai claimed that DOE has not 

adequately explained how national 

energy savings at the proposed level 

increased to 0.52 quads in the July 2024 

NODA from 0.4 quads in the NOPR. 

(Rinnai, No. 1443 at p. 8) 

For the July 2023 NOPR, DOE 

incorporated RECS 2015 as the basis of 

the building sample development and 

energy use determination, while for July 

2024 NODA, DOE incorporated RECS 

2020 as the basis of the building sample 

development and energy use 

determination and updated the analyses 

accordingly (see section IV.E of this 

document). The updated RECS includes 

a much larger sample size and higher 

water usage and energy consumption 

estimates on average for consumer gasfired instantaneous water heaters. Using 

RECS 2020 for the sample development 

and energy use determination therefore 

results in larger differences in annual 

energy consumption between higher 

efficiency levels and lower efficiency 

levels. Because the estimates of national 

energy savings are based on the 

differences in annual energy 

consumption between higher efficiency 

levels and lower efficiency levels, the 

estimated national primary energy 

savings increased from approximately 

0.45 quads to approximately 0.52 quads. 

Rinnai claims the national energy 

savings and associated emission 

reductions are overstated because DOE 

did not properly account for consumers 

switching to gas-fired storage water 

heaters as a response to the standard 

which would increase overall energy 

consumption of water heaters. Rinnai 

projects that an additional savings of 

0.61 quads and reductions of 39 million 

metric tons in CO2 emissions are 

possible if non-condensing gas-fired 

instantaneous water heaters are allowed 

to stay on the market. Rinnai requested 

DOE analyze product substitution and 

the impact of various scenarios on 

energy savings and emission reductions 

(Rinnai, No. 1443 at pp. 8–9, 26) Rinnai 

believes that would-be purchasers of 

non-condensing gas-fired instantaneous 

water heaters would likely purchase 

gas-fired storage water heaters rather 

than condensing gas-fired instantaneous 

water heaters. Rinnai states that if 30 

percent of would-be purchasers opted 

for gas-fired storage water heaters 

instead, there would be no energy 

savings by the standard. Rinnai believes 

that fewer people are purchasing gasfired instantaneous water heater in 2023 

due to inflation, implying that gas-fired 

instantaneous water heater purchasers 

are price-sensitive. (also Rinnai, No. 

1435, at p. 2, 4, 10–11, 14–15) 

DOE estimates that it is highly 

unlikely that consumers would switch 

from gas-fired instantaneous water 

heaters to gas-fired storage water heaters 

specifically as a result of the 

incremental costs of an energy 

conservation standard because the 

differential costs between the two 

products will remain similar (see 

section IV.F.10 for an expanded 

discussion). Therefore, product 

switching as a result of the proposed 

standards is likely to be negligible. 

DOE’s estimates of national energy 

savings and associated emission 

reductions appropriately reflect current 

data and market trends. Any potential 

energy savings that might occur from 

consumers switching from gas-fired 

storage water heaters to gas-fired 

instantaneous water heaters, in the 

absence of new standards, is already 

incorporated into the no-new-standards 

case. And because DOE estimates that 

switching is unlikely to be impacted as 

a result of amended standards, these 

potential energy savings are present in 

both the standards and no-newstandards cases. The commenter’s 

projection of additional energy savings 

and emissions reduction if noncondensing gas-fired instantaneous 

water heaters are allowed to stay on the 

market is a misunderstanding of DOE’s 

estimates of national energy savings and 

associated emission reductions. 

3. Net Present Value Analysis 

The inputs for determining the NPV 

of the total costs and benefits 

experienced by consumers are (1) total 

annual installed cost, (2) total annual 

operating costs (energy costs and repair 

and maintenance costs), and (3) a 

discount factor to calculate the present 

value of costs and savings. DOE 

calculates net savings each year as the 

difference between the no-newstandards case and each standards case 

in terms of total savings in operating 

costs versus total increases in installed 

costs. DOE calculates operating cost 

savings over the lifetime of each product 

shipped during the projection period. 

As discussed in section IV.F.1 of this 

document, DOE used constant prices as 

the default price assumption to project 

future consumer gas-fired instantaneous 

water heater prices. However, DOE also 

developed consumer gas-fired 

instantaneous water heater price trends 

based on historical PPI data. To evaluate 

the effect of uncertainty regarding the 

price trend estimates, DOE investigated 

the impact of different product price 

projections on the consumer NPV for 

the considered TSLs for consumer gasVerDate Sep<11>2014 20:37 Dec 23, 2024 Jkt 265001 PO 00000 Frm 00061 Fmt 4701 Sfmt 4700 E:\FR\FM\26DER2.SGM 26DER2

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152U.S. Office of Management and Budget. 

Circular A–4: Regulatory Analysis. Available at 

www.whitehouse.gov/omb/information-foragencies/circulars (last accessed Mar. 5, 2024). DOE 

used the prior version of Circular A–4 (September 

17, 2003) in accordance with the effective date of 

the November 9, 2023 version. Available at 

www.whitehouse.gov/wp-content/uploads/legacy_

drupal_files/omb/circulars/A4/a-4.pdf (last 

accessed August 29, 2024). 

153RECS 2020 includes a category for households 

that pay only some of the gas bill. For the lowincome consumer subgroup analysis, DOE assumes 

that these households pay 50 percent of the gas bill, 

and, therefore, would receive 50 percent of 

operating cost benefits of an amended energy 

conservation standard. 

fired instantaneous water heaters. In 

addition to the default constant price 

trend, DOE considered two product 

price sensitivity cases: (1) a price 

decline case and (2) price increase case 

based on PPI data. The derivation of 

these price trends and the results of 

these sensitivity cases are described in 

appendix 10C of the final rule TSD. 

The operating cost savings are energy 

cost savings, which are calculated using 

the estimated energy savings in each 

year and the projected price of the 

appropriate form of energy. To estimate 

energy prices in future years, DOE 

multiplied the average regional energy 

prices by the projection of annual 

national-average residential energy price 

changes in the Reference case from 

AEO2023, which has an end year of 

2050. To estimate price trends after 

2050, the 2046–2050 average was used 

for all years. As part of the NIA, DOE 

also analyzed scenarios that used inputs 

from variants of the AEO2023 Reference 

case that have lower and higher 

economic growth. Those cases have 

lower and higher energy price trends 

compared to the Reference case. NIA 

results based on these cases are 

presented in appendix 10C of the final 

rule TSD. 

In considering the consumer welfare 

gained due to the direct rebound effect, 

DOE accounted for change in consumer 

surplus attributed to additional water 

heating from the purchase of a more 

efficient unit. Overall consumer welfare 

is generally understood to be enhanced 

from rebound. The net consumer impact 

of the rebound effect is included in the 

calculation of operating cost savings in 

the consumer NPV results. See 

appendix 10E of the final rule TSD for 

details on DOE’s treatment of the 

monetary valuation of the rebound 

effect. 

In calculating the NPV, DOE 

multiplies the net savings in future 

years by a discount factor to determine 

their present value. For this final rule, 

DOE estimated the NPV of consumer 

benefits using both a 3-percent and a 7- 

percent real discount rate. DOE uses 

these discount rates in accordance with 

guidance provided by the Office of 

Management and Budget (‘‘OMB’’) to 

Federal agencies on the development of 

regulatory analysis.152 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. The 7- 

percent real value is an estimate of the 

average before-tax rate of return to 

private capital in the U.S. economy. The 

3-percent real value represents the 

‘‘social rate of time preference,’’ which 

is the rate at which society discounts 

future consumption flows to their 

present value. 

I. Consumer Subgroup Analysis 

In analyzing the potential impact of 

new or amended energy conservation 

standards on consumers, DOE evaluates 

the impact on identifiable subgroups of 

consumers that may be 

disproportionately affected by a new or 

amended national standard. The 

purpose of a subgroup analysis is to 

determine the extent of any such 

disproportional impacts. DOE evaluates 

impacts on particular subgroups of 

consumers by analyzing the LCC 

impacts and PBP for those particular 

consumers from alternative standard 

levels. For this final rule, DOE analyzed 

the impacts of the considered standard 

levels on three subgroups: (1) lowincome households, (2) senior-only 

households, and (3) small businesses. 

The analysis used subsets of the RECS 

2020 sample composed of households 

and CBECS 2018 sample composed of 

commercial buildings that meet the 

criteria for the three subgroups. DOE 

used the LCC and PBP spreadsheet 

model to estimate the impacts of the 

considered efficiency levels on these 

subgroups. Chapter 11 of the final rule 

TSD describes the consumer subgroup 

analysis. 

1. Low-Income Households 

Low-income households, as defined 

by the poverty thresholds from the U.S. 

Bureau of the Census, are significantly 

more likely to be renters or live in 

subsidized housing units and less likely 

to be homeowners. DOE notes that in 

these cases, the landlord purchases the 

equipment and may pay the gas bill as 

well. RECS 2020 includes data on 

whether a household pays for the gas 

bill, allowing DOE to categorize 

households appropriately in the 

analysis.153 For this consumer subgroup 

analysis, DOE considers the impact on 

the low-income household narrowly, 

excluding any costs or benefits that are 

accrued by either a landlord or 

subsidized housing agency. This allows 

DOE to determine whether low-income 

households are disproportionately 

affected by an amended energy 

conservation standard in a more 

representative manner. By contrast, for 

the main LCC results for the whole 

consumer sample, all costs and benefits 

are accrued by the user of the product. 

DOE finds no evidence that 

significant rental cost increases would 

occur due to an amended standard. 

Rental prices are largely dictated by 

supply and demand of housing in 

individual locations, not the sum of 

equipment costs in those rentals, such 

that two similar rentals could have 

widely differing prices. Furthermore, a 

landlord would be responsible for 

replacing an end-of-life gas-fired 

instantaneous water heater in the nonew-standards case as well yet the rent 

is unlikely to increase simply because of 

this regular maintenance. The 

installation costs estimated in the LCC 

already include any potential 

replacement of venting for gas-fired 

instantaneous water heaters. Finally, 

even if a landlord were to fully pass on 

the incremental costs due to amended 

standards, those costs would 

presumably be spread out over a 

monthly rent spanning many years, 

possibly the lifetime of the water heater, 

resulting in relatively small monthly 

rent increases. It is for these reasons that 

the low-income subgroup analyzes 

impacts assuming renters do not bear 

installation and equipment costs. 

However, as described in section IV.F, 

for the overall LCC analysis, DOE makes 

the simplifying assumption that all 

installation and equipment costs are 

paid for by the consumer of the 

equipment, including renters. Therefore, 

the main LCC results do assume that 

landlords pass on all costs and yet the 

analysis still finds that the rule is 

economically justified. The main LCC 

and the consumer subgroup analysis are 

therefore two boundary conditions with 

respect to costs and benefits accrued by 

renters. 

The majority of low-income 

households that experience a net cost at 

higher efficiency levels are homeowner 

households, as opposed to renters. 

These households typically have lower 

hot water use. Unlike renters, 

homeowners would bear the full cost of 

installing a new water heater. For these 

households, a potential rebate program 

to reduce the total installed costs would 

be effective in lowering the percentage 

of low-income consumers with a net 

cost. DOE understands that the 

landscape of low-income consumers 

with a gas-fired instantaneous water 

heater may change before the 


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compliance date of amended energy 

conservation standards, if finalized. For 

example, point-of-sale rebate programs 

are being considered that may moderate 

the impact on low-income consumers to 

help offset the total installed cost of a 

higher efficiency gas-instantaneous 

water heater. Currently, DOE is aware 

that the Inflation Reduction Act will 

likely include incentives for certain 

water heaters, although the specific 

implementation details have yet to be 

finalized. Point-of-sale rebates or 

weatherization programs could also 

reduce the total number of low-income 

consumers that would be impacted 

because the household no longer has a 

water heater to upgrade. 

Responding to the July 2023 NOPR, 

Atmos Energy argued the elimination of 

non-condensing instantaneous water 

heaters will cause consumers to switch 

to less efficient options. Atmos Energy 

and ECSC argued that non-condensing 

instantaneous water heaters require less 

space and changing to a condensing 

alternative (or electric alternatives) will 

cost significantly more. Atmos Energy 

and ECSC argued that this elimination 

will impact low-income/multi-family/ 

small home consumers 

disproportionately. (Atmos Energy, No. 

1183 at pp. 2–3; ECSC, No. 1185 at pp. 

1–2) As DOE has discussed in section 

IV.F.10 of this document, it is very 

unlikely that consumers would switch 

from existing non-condensing 

instantaneous water heaters to storage 

water heaters in response to amended 

standards. The costs to do so would 

exceed the costs of simply installing a 

standards-compliant condensing 

instantaneous water heater. 

Furthermore, both a standardscompliant instantaneous water heater 

and a non-condensing instantaneous 

water heater require less space 

compared to a storage water heater. 

Additionally, DOE does not expect 

the existing market trends of consumers 

switching from storage to instantaneous 

water heaters (in the no-new-standards 

case) would be impacted by an amended 

standard, as any incremental cost for a 

condensing instantaneous water heater 

would be small compared to the overall 

costs to switch from a storage to an 

instantaneous water heater. 

Commenters from the U.S. House of 

Representatives stated that the proposed 

rulemaking imposes an unattainable 

standard for non-condensing, gas-fired 

tankless water heaters, and expressed 

concern that it would discourage 

budget-conscious consumers from 

investing in tankless models, negatively 

impacting Georgia manufacturing 

companies. (U.S. House of 

Representatives, No. 1205 at p. 1) 

Commenters from the U.S. House of 

Representatives reiterated these 

comments in response to the July 2024 

NODA. (U.S. House of Representatives, 

No. 1445 at p. 1) 

In response to the affordability 

concerns, DOE acknowledges that the 

average installed cost of gas-fired 

instantaneous water heaters at EL 2 is 

estimated to increase by $231 compared 

to current baseline efficiency levels. 

However, as discussed in chapter 11 of 

the TSD, low-income households make 

up only 3.2 percent of the market for 

gas-fired instantaneous water heaters, 

and of these approximately 38 percent 

are renters who would likely benefit 

from the increased efficiency through 

energy savings without bearing the full 

burden of installation costs. DOE 

estimates that at EL 2 low-income 

consumers of gas-fired instantaneous 

water heaters will experience on average 

lifecycle cost savings of $248, with only 

6.5 percent of low-income consumers 

experiencing a net cost. DOE 

acknowledges that a small proportion of 

low-income homeowners may 

experience higher installation costs for 

condensing gas-fired instantaneous 

water heaters. However, DOE estimates 

that the energy savings benefits across 

the low-income subgroup outweigh 

these costs. See section V.B.1.b for 

detailed results. 

2. Senior-Only Households 

Senior-only households are 

households with occupants who are all 

at least 65 years of age. RECS 2020 

includes information on the age range of 

household occupants, allowing for the 

identification of senior-only households 

from the sample Senior-only households 

comprised 23.5 percent of the country’s 

households. In estimating the LCC 

impacts to senior-only households, it is 

assumed that any residual value of a 

long-lived product is capitalized in the 

value of the home. 

3. Small Business Subgroup 

DOE identified small businesses in 

CBECS 2018 using threshold levels for 

maximum number of employees within 

each building principal building 

activity. 

GRA commented that the proposed 

standards will discourage restaurants 

from investing in tankless models and 

instead choose less efficient water 

heating solutions and add constraints 

for restaurant operating with limited 

space availability. GRA stated that many 

restaurants rely on gas-fired tankless 

water heaters due to their space saving 

attributes and the proposed standards 

would disproportionately limit the 

options of small businesses, resulting in 

higher costs and reduced efficiency. 

(GRA, No. 449 at p. 1) 

As DOE has discussed in section 

IV.F.10, it is very unlikely that 

businesses would switch from existing 

non-condensing instantaneous water 

heaters to storage water heaters in 

response to amended standards. The 

costs to do so would exceed the costs of 

simply installing a standards-compliant 

condensing instantaneous water heater. 

Additionally, DOE does not expect the 

existing market trends of businesses 

investing in or switching from storage to 

instantaneous water heaters (in the nonew-standards case) would be impacted 

by an amended standard, as any 

incremental cost for a condensing 

instantaneous water heater would be 

small compared to the overall costs to 

switch from a storage to an 

instantaneous water heater. If a business 

is considering investing in a tankless 

model, they are doing so for spacesaving or energy saving reasons that 

remain valid with a condensing tankless 

water heater. 

J. Manufacturer Impact Analysis 

1. Overview 

DOE performed an MIA to estimate 

the financial impacts of amended energy 

conservation standards on 

manufacturers of gas-fired instantaneous 

water heaters and to estimate the 

potential impacts of such standards on 

direct employment and manufacturing 

capacity. The MIA has both quantitative 

and qualitative aspects and includes 

analyses of projected industry cash 

flows, the INPV, investments in research 

and development (‘‘R&D’’) and 

manufacturing capital, and domestic 

manufacturing employment. 

Additionally, the MIA seeks to 

determine how amended energy 

conservation standards might affect 

manufacturing employment, capacity, 

and competition, as well as how 

standards contribute to overall 

regulatory burden. Finally, the MIA 

serves to identify any disproportionate 

impacts on manufacturer subgroups, 

including small business manufacturers. 

The quantitative part of the MIA 

primarily relies on the GRIM, an 

industry cash flow model with inputs 

specific to this rulemaking. The key 

GRIM inputs include data on the 

industry cost structure, unit production 

costs, product shipments, manufacturer 

markups, and investments in R&D and 

manufacturing capital required to 

produce compliant products. The key 

GRIM outputs are the INPV, which is 

the sum of industry annual cash flows 

over the analysis period, discounted 

using the industry-weighted average 


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105250 Federal Register / Vol. 89, No. 247 / Thursday, December 26, 2024 / Rules and Regulations 

154U.S. Securities and Exchange Commission. 

Company Filings. Available at www.sec.gov/searchfilings (last accessed August 29, 2024). 

155The U.S. Census Bureau. Quarterly Survey of 

Plant Capacity Utilization. (2007–2019). Available 

at www.census.gov/programs-surveys/qpc/data/ 

tables.html (last accessed August 29, 2024). 

156U.S. Census Bureau’s Annual Survey of 

Manufactures. (2021). Available at: 

www.census.gov/programs-surveys/asm/data/ 

tables.html (last accessed January 18, 2024). 

157The D&B Hoovers login is available at 

app.dnbhoovers.com (last accessed August 29, 

2024). 

cost of capital, and the impact to 

domestic manufacturing employment. 

The model uses standard accounting 

principles to estimate the impacts of 

more-stringent energy conservation 

standards on a given industry by 

comparing changes in INPV between a 

no-new-standards case and the various 

standards cases (i.e., ‘‘TSLs’’). To 

capture the uncertainty relating to 

manufacturer pricing strategies 

following amended standards, the GRIM 

estimates a range of possible impacts 

under different manufacturer markup 

scenarios. 

The qualitative part of the MIA 

addresses manufacturer characteristics 

and market trends. Specifically, the MIA 

considers such factors as a potential 

standard’s impact on manufacturing 

capacity, competition within the 

industry, the cumulative impact of other 

DOE and non-DOE regulations, and 

impacts on manufacturer subgroups. 

The complete MIA is outlined in 

chapter 12 of the final rule TSD. 

DOE conducted the MIA for this 

rulemaking in three phases. In Phase 1 

of the MIA, DOE prepared a profile of 

the gas-fired instantaneous water heater 

manufacturing industry based on the 

market and technology assessment, 

preliminary manufacturer interviews, 

and publicly-available information. This 

included a top-down analysis of gasfired instantaneous water heater 

manufacturers that DOE used to derive 

preliminary financial inputs for the 

GRIM (e.g., revenues; materials, labor, 

overhead, and depreciation expenses; 

selling, general, and administrative 

expenses (‘‘SG&A’’); and R&D expenses). 

DOE also used public sources of 

information to further calibrate its 

initial characterization of the gas-fired 

instantaneous water heater 

manufacturing industry, including 

company filings of form 10–K from the 

SEC,154 corporate annual reports, the 

U.S. Census Bureau’s Quarterly Survey 

of Plant Capacity Utilization,155 U.S. 

Census Bureau’s Annual Survey of 

Manufactures (‘‘ASM’’),156 and reports 

from D&B Hoovers.157

In Phase 2 of the MIA, DOE prepared 

a framework industry cash-flow analysis 

to quantify the potential impacts of 

amended energy conservation 

standards. The GRIM uses several 

factors to determine a series of annual 

cash flows starting with the 

announcement of the standard and 

extending over a 30-year period 

following the compliance date of the 

standard. These factors include annual 

expected revenues, costs of sales, SG&A 

and R&D expenses, taxes, and capital 

expenditures. In general, energy 

conservation standards can affect 

manufacturer cash flow in three distinct 

ways: (1) creating a need for increased 

investment, (2) raising production costs 

per unit, and (3) altering revenue due to 

higher per-unit prices and changes in 

sales volumes. 

In addition, during Phase 2, DOE 

developed interview guides to distribute 

to manufacturers of gas-fired 

instantaneous water heaters in order to 

develop other key GRIM inputs, 

including product and capital 

conversion costs, and to gather 

additional information on the 

anticipated effects of energy 

conservation standards on revenues, 

direct employment, capital assets, 

industry competitiveness, and subgroup 

impacts. 

In Phase 3 of the MIA, DOE 

conducted structured, detailed 

interviews with representative 

manufacturers. During these interviews, 

DOE discussed engineering, 

manufacturing, procurement, and 

financial topics to validate assumptions 

used in the GRIM and to identify key 

issues or concerns. As part of Phase 3, 

DOE also evaluated subgroups of 

manufacturers that may be 

disproportionately impacted by 

amended standards or that may not be 

accurately represented by the average 

cost assumptions used to develop the 

industry cash flow analysis. Such 

manufacturer subgroups may include 

small business manufacturers, lowvolume manufacturers, niche players, 

and/or manufacturers exhibiting a cost 

structure that largely differs from the 

industry average. DOE identified one 

subgroup for a separate impact analysis: 

small business manufacturers. The 

small business subgroup is discussed in 

section VI.B of this document, ‘‘Review 

under the Regulatory Flexibility Act’’ 

and in chapter 12 of the final rule TSD. 

2. Government Regulatory Impact Model 

and Key Inputs 

DOE uses the GRIM to quantify the 

changes in cash flow due to new or 

amended standards that result in a 

higher or lower industry value. The 

GRIM uses a standard, annual 

discounted cash-flow analysis that 

incorporates manufacturer costs, 

manufacturer 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 an amended energy 

conservation standard. The GRIM 

spreadsheet uses the inputs to arrive at 

a series of annual cash flows, beginning 

in 2024 (the base year of the analysis) 

and continuing to 2059. DOE calculated 

INPVs by summing the stream of annual 

discounted cash flows during this 

period. For manufacturers of gas-fired 

instantaneous water heaters, DOE used 

a real discount rate of 9.6 percent, 

which was derived from industry 

financials and then modified according 

to feedback received during 

manufacturer interviews. 

The GRIM calculates cash flows using 

standard accounting principles and 

compares changes in INPV between the 

no-new-standards case and each 

standards case. The difference in INPV 

between the no-new-standards case and 

a standards case represents the financial 

impact of the new or amended energy 

conservation standard on 

manufacturers. As discussed previously, 

DOE developed critical GRIM inputs 

using a number of sources, including 

publicly available data, results of the 

engineering analysis, results of the 

shipments analysis, and information 

gathered from industry stakeholders 

during the course of manufacturer 

interviews. The GRIM results are 

presented in section V.B.2 of this 

document. Additional details about the 

GRIM, the discount rate, and other 

financial parameters can be found in 

chapter 12 of the final rule TSD. 

a. Manufacturer Production Costs 

Manufacturing more efficient 

products is typically more expensive 

than manufacturing baseline products 

due to the use of more complex 

components, which are typically more 

costly than baseline components. The 

changes in the MPCs of covered 

products can affect the revenues, gross 

margins, and cash flow of the industry. 

As discussed in section IV.C.1 of this 

document, DOE conducted a market 

analysis of currently available models 

listed in DOE’s CCD to determine which 

efficiency levels were most 

representative of the current 

distribution of gas-fired instantaneous 

water heaters available on the market. 

DOE also completed physical teardowns 

of commercially available units to 

determine which design options 

manufacturers may use to achieve 

certain efficiency levels. In this final 

rule, DOE developed efficiency levels 


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Federal Register / Vol. 89, No. 247 / Thursday, December 26, 2024 / Rules and Regulations 105251 

158Rinnai’s public comment in response to the 

July 2023 NOPR (Rinnai No. 1186 at p. 23 and p. 

51, which corresponds to p. 13 of Attachment A) 

cited two different estimates: $15 million (p. 23) 

and a range of $3 and $9 million (p. 51). To avoid 

underestimating potential investments, DOE 

incorporated the higher estimate of $15 million 

provided by Rinnai. 

159The gross margin percentage of 31 percent is 

based on a manufacturer markup of 1.45. 

with a combination of the efficiencylevel and design-option approaches. 

DOE requested comments from 

stakeholders and conducted interviews 

with manufacturers in advance of the 

July 2023 NOPR concerning these initial 

efficiency levels, which have been 

updated based on the feedback DOE 

received. For a complete description of 

the MPCs, see section IV.C.1 of this 

document and chapter 5 of the final rule 

TSD. 

b. Shipments Projections 

The GRIM estimates manufacturer 

revenues based on total unit shipment 

projections and the distribution of those 

shipments by efficiency level. Changes 

in sales volumes and efficiency mix 

over time can significantly affect 

manufacturer finances. For this analysis, 

the GRIM uses the NIA’s annual 

shipment projections derived from the 

shipments analysis from 2024 (the base 

year) to 2059 (the end year of the 

analysis period). See section IV.G of this 

document and chapter 9 of the final rule 

TSD for additional details. 

c. Capital and Product Conversion Costs 

New or amended energy conservation 

standards could cause manufacturers to 

incur 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 each considered efficiency 

level for gas-fired instantaneous water 

heaters. For the MIA, DOE classified 

these conversion costs into two major 

groups: (1) capital conversion costs, and 

(2) product conversion costs. Capital 

conversion costs are 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. Product 

conversion costs are investments in 

research, development, testing, 

marketing, and other non-capitalized 

costs necessary to make product designs 

comply with new or amended energy 

conservation standards. 

In the July 2023 NOPR and the July 

2024 NODA, DOE relied on 

manufacturer feedback to evaluate the 

level of capital and product conversion 

costs that gas-fired instantaneous water 

heater manufacturers would likely incur 

to meet each analyzed efficiency level. 

88 FR 49058, 49127–49128; 89 FR 

59692, 59699–59700. During 

confidential interviews, DOE asked 

manufacturers to estimate the capital 

conversion costs (e.g., changes in 

production processes, equipment, and 

tooling), needed to meet the various 

efficiency levels. DOE also asked 

manufacturers to estimate the redesign 

effort and engineering resources 

required at various efficiency levels to 

quantify the product conversion costs. 

DOE then estimated industry-level 

conversion costs by scaling feedback 

from OEMs by the estimated number of 

manufacturers that would need to make 

these investments at each TSL. 

At lower TSLs, manufacturer feedback 

and a review of the market indicate that 

most manufacturers already have 

sufficient condensing production 

capacity and offer range of models that 

meet the required efficiency levels. 

Thus, DOE modeled low-levels of 

capital and product conversion costs for 

most manufacturers at TSL 1 and TSL 

2. As TSLs increase in stringency, DOE 

expects most manufacturers would need 

to add production capacity as fewer 

shipments currently meet the required 

levels and product designs increase in 

complexity. DOE also expects product 

conversion costs would increase at 

higher TSLs since fewer manufacturers 

currently offer fewer models that meet 

the efficiency levels required. For the 

July 2024 NODA, DOE refined its 

conversion cost estimates to reflect 

feedback submitted by Rinnai in 

response to the July 2023 NOPR. 

(Rinnai, No. 1186 at p. 23) DOE 

incorporated Rinnai’s estimate of $15 

million 158 required to retrofit its Griffin, 

GA factory to produce condensing gasfired instantaneous water heaters into 

its conversion cost estimates at TSL 1 

and modeled additional incremental 

investments to reach higher TSLs, 

consistent with manufacturer feedback 

from confidential interviews. DOE 

incorporated Rinnai’s estimate to 

convert its U.S. production facility in its 

analysis to avoid underestimating the 

potential investments required to meet 

potential amended standards. 

Alternatively, Rinnai could choose to 

maintain condensing capabilities in its 

existing facilities in Japan, in which 

case industry conversion costs would be 

lower. 

For this final rule, DOE updated its 

conversion cost estimates from 2022$ to 

2023$ but otherwise maintained its 

conversion cost methodology used in 

the July 2024 NODA. 

In general, DOE assumes all 

conversion-related investments occur 

between the year of publication of the 

final rule and the year by which 

manufacturers must comply with the 

amended standard. The conversion cost 

figures used in the GRIM can be found 

in section V.B.2 of this document. For 

additional information on the estimated 

capital and product conversion costs, 

see chapter 12 of the final rule TSD. 

d. Manufacturer Markup Scenarios 

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 manufacturer 

markups to the MPCs estimated in the 

engineering analysis for each efficiency 

level. Modifying these manufacturer 

markups in the standards case yields 

different sets of impacts on 

manufacturers. For the MIA, DOE 

modeled two standards-case 

manufacturer markup scenarios to 

represent uncertainty regarding the 

potential impacts on prices and 

profitability for manufacturers following 

the implementation of amended energy 

conservation standards: (1) a 

preservation of gross margin percentage 

scenario, and (2) a preservation of 

operating profit scenario. These 

scenarios lead to different manufacturer 

markup values that, when applied to the 

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’’ 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 within 

a product class. As MPCs increase with 

efficiency, this scenario implies that the 

per-unit dollar profit will increase. DOE 

estimated a gross margin percentage of 

31 percent for gas-fired instantaneous 

water heaters.159 Manufacturers tend to 

believe it is optimistic to assume that 

they would be able to maintain the same 

gross margin percentage as their 

production costs increase, particularly 

for minimally efficient products. 

Therefore, this scenario represents a 

high bound to industry profitability 

under an amended energy conservation 

standard. 

Under the preservation of operating 

profit scenario, DOE modeled a 

situation in which manufacturers are 

not able to increase per-unit operating 

profit in proportion to increases in 

MPCs. In the preservation of operating 


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105252 Federal Register / Vol. 89, No. 247 / Thursday, December 26, 2024 / Rules and Regulations 

160Rinnai’s submission (Rinnai No. 1186 at p. 23 

and p. 51, which corresponds to p. 13 of 

Attachment A) cited two different estimates: $15 

million (p. 23) and a range of $3 and $9 million (p. 

51). To avoid underestimating potential 

investments, DOE references the higher estimate 

provided by Rinnai. 

161Rinnai cites a total investment of $70 million 

in the Georgia facility in its public comment in 

response to the July 2023 NOPR (Rinnai, No. 1186 

at p. 23), stating the facility opened in 2022 (Id. at 

p. 1). Construction of the Georgia facility began in 

2020. Press Release available at: www.rinnai.us/ 

announcements/rinnai-america-breaks-ground-onnew-factory (last accessed August 6, 2024). 162Rinnai Corporation’s public financial 

statements are available at: www.rinnai.co.jp/en/ir/ 

(last accessed September 27, 2024). DOE converted 

these values from Japanese Yen to U.S. Dollars 

using the U.S. Department of the Treasury’s 

exchange rate as of June 30, 2024, available at: 

https://fiscaldata.treasury.gov/datasets/treasuryreporting-rates-exchange/treasury-reporting-ratesof-exchange (last accessed September 27, 2024). 

163Rinnai’s Medium-Term Business Plan 2021– 

2025 is available at: www.rinnai.co.jp/en/ir/ 

document/pdf/202103outlook.pdf. (p. 15) (last 

accessed August 6, 2024). 164Rinnai Corporation’s ‘‘Financial Results of 

Fiscal 2024, ended March 31, 2024 Reference Data’’ 

is available at: www.rinnai.co.jp/en/ir/document/ 

pdf/202403reference.pdf. (p. 4) (May 9, 2024) (Last 

accessed September 27, 2024). 

165Rinnai commented in response to the July 

2024 NODA ‘‘Since their introduction in 2004, gas 

tankless water heaters have grown to 10 percent of 

the water heater market in the U.S. and are 

projected to grow to 12 percent by 2027.’’ (See 

Rinnai, No. 1443 at p. 1) 

profit scenario, as the cost of production 

goes up under a standards case, 

manufacturers are generally required to 

reduce their manufacturer markups to a 

level that maintains base-case operating 

profit. DOE implemented this scenario 

in the GRIM by lowering the 

manufacturer markups at each TSL to 

yield approximately the same earnings 

before interest and taxes in the 

standards case as in the no-newstandards case in the year after the 

compliance date of the amended 

standards. The implicit assumption 

behind this scenario is that the industry 

can only maintain its operating profit in 

absolute dollars after the standard. 

A comparison of industry financial 

impacts under the two manufacturer 

markup scenarios is presented in 

section V.B.2.a of this document. 

3. Discussion of MIA Comments 

In response to the July 2023 NOPR, 

Rinnai stated that DOE’s review of 

manufacturer impacts did not account 

for the direct impact of the rulemaking 

on Rinnai’s manufacturing facility 

located in Griffin, Georgia, which is 

tooled and optimized for production of 

non-condensing gas-fired instantaneous 

water heaters. Rinnai commented that 

the Griffin facility cost $70 million to 

build. Rinnai estimates that should the 

Griffin plant close, it would lead to a 

loss of gross profit between $30 million 

to $36 million, annually, and a write-off 

of $2 million in capital expenditures 

that could not be repurposed. Rinnai 

asserted that it would require more than 

$15 million 160 to repurpose its Griffin 

facility to produce condensing gas-fired 

instantaneous water heaters, which may 

be cost prohibitive given current 

product capacity in Japan. Additionally, 

Rinnai asserted that it was not contacted 

by DOE as part of this rulemaking. 

Rinnai commented that the levels 

proposed in the July 2023 NOPR would 

make its new Griffin production facility 

largely obsolete and lead to eliminating 

122 jobs. (Rinnai No. 1186 at pp. 22–23) 

Rinnai noted that of its roughly 72 gasfired instantaneous models on the 

market, 32 meet the proposed 0.91 UEF 

standard for gas-fired instantaneous 

water heaters, meaning that more than 

half of its models would be eliminated 

from the market. (Rinnai, No. 1186 at 

pp. 4–5) 

In response to the July 2024 NODA, 

Rinnai questioned DOE’s assumption 

that it would convert its Griffin, Georgia 

manufacturing facility to produce 

condensing gas-fired instantaneous 

water heaters. Rinnai restated that it has 

overseas manufacturing capacity for 

condensing gas-fired instantaneous 

water heaters, and the need to expand 

that capacity would depend on an 

assessment of market demand. Rinnai 

commented that under a condensinglevel standard, it is not realistic to 

assume Rinnai would maintain current 

sales levels (i.e., prospective purchasers 

may choose condensing products from 

competitors rather than Rinnai). Rinnai 

requested that DOE publish a GRIM to 

support and substantiate its MIA. 

(Rinnai No. 1443 at pp. 21–22) 

The Governor of Georgia stated that 

the standards proposed in the July 2023 

NOPR could negatively impact the noncondensing gas-fired instantaneous 

water heater industry in the State of 

Georgia and could harm domestic 

manufacturing jobs. (Governor of 

Georgia, No. 1157 at pp. 1–3) The 

Attorney General of GA stated that the 

standards proposed in the July 2023 

NOPR, if adopted, would have a 

negative economic impact on the State 

of Georgia, which is host to a large new 

facility optimized for manufacturing 

non-condensing units. The Attorney 

General of GA added that the proposed 

rulemaking could eliminate 

manufacturing jobs in Georgia, 

particularly jobs held by female and 

minority workers. (Attorney General of 

GA, No. 1026 at pp. 1–2) Commenters 

from the U.S. House of Representatives 

added that the proposed rulemaking 

would have a negative economic impact 

on the State of Georgia, which is home 

to the largest domestic assembly facility 

for non-condensing gas-fired 

instantaneous water heaters. (U.S. 

House of Representatives, No. 1205 at p. 

1) Commenters from the U.S. House of 

Representatives reiterated this comment 

in response to the July 2024 NODA. 

(U.S. House of Representatives, No. 

1445 at p. 1) 

CNGC noted that investments made 

by Rinnai, a member of its coalition, 

would be put at risk if the standards 

were adopted as proposed in the July 

2023 NOPR. (CNGC No. 648 at p. 1) Gas 

Association Commenters further 

highlighted Rinnai’s concerns, citing 

Rinnai’s recently opened facility in 

Griffin, Georgia, which exclusively 

makes non-condensing gas-fired 

instantaneous water heaters, as 

potentially being off-shored. 

Regarding the potential impact to 

domestic production employment due 

to amended standards, DOE 

understands that Rinnai recently 

invested approximately $70 million to 

develop its new Georgia manufacturing 

facility dedicated to non-condensing 

gas-fired instantaneous water heaters.161

DOE acknowledges that converting the 

manufacturing facility to produce 

condensing gas-fired instantaneous 

water heaters is feasible but would 

require additional investment. 

Currently, Rinnai imports their 

condensing gas-fired instantaneous 

water heaters from Japan, while 

producing only the non-condensing 

models domestically. Rinnai’s decision 

of whether to repurpose its Georgia 

facility likely depends on a range of 

factors, such as its parent company’s 

(Rinnai Corporation) willingness to 

make further capital investments, the 

role of the U.S. water heater market in 

Rinnai Corporation’s overall business 

strategy, and U.S. demand for gas-fired 

instantaneous water heaters. A review of 

Rinnai Corporation’s public financial 

statements indicates that it has invested 

approximately $823 million in capital 

expenditures globally in fiscal year 2021 

through fiscal year 2024, projecting a 

further outlay of approximately $148 

million in capital expenditures globally 

in fiscal year 2025.162 Based on 

information detailed in Rinnai’s 

corporate annual report, Rinnai 

identifies the United States as a key 

foreign market for growth.163 In fiscal 

year 2024, U.S. water heater sales 

accounted for nearly 20 percent of 

Rinnai Corporation’s worldwide water 

heater sales.164 Consistent with 

historical trends and market data cited 

by stakeholders,165 DOE projects that 

the domestic gas-fired instantaneous 

water heater market will continue to 


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Federal Register / Vol. 89, No. 247 / Thursday, December 26, 2024 / Rules and Regulations 105253 

166 In 2023, DOE estimates that approximately 

0.41 million out of the 1.22 million gas-fired 

instantaneous water heater unit shipments are noncondensing. In response to the July 2023 NOPR, 

Rinnai commented that its domestic market share 

of non-condensing gas-fired instantaneous water 

heaters is 60 percent: (60% × 0.41 million) ÷ 1.22 

million = 20%. 

167Rinnai commented that it currently employes 

183 full-time employees and 49 temporary 

employees at its Griffin, Georgia plant. DOE’s 

shipments analysis indicates shipments of noncondensing gas-fired instantaneous water heaters in 

the no-new-standards case will increase by 

approximately 4 percent from 2024 to 2030 (the 

compliance year). (183 employees × 1.04) = 190 

employees. 

168Technical Support Document: Energy 

Efficiency Program For Commercial And Industrial 

Equipment: Microwave Ovens. Available at 

www.regulations.gov/document/EERE-2017-BTSTD-0023-0022. 

grow in the no-new-standards and 

standards cases. Furthermore, DOE 

expects that the portion of condensing 

gas-fired instantaneous water heater will 

increase. In 2024 (the reference year), 

DOE estimates that domestic gas-fired 

instantaneous water heater shipments 

totaled 1.26 million (representing 

approximately 12 percent of the overall 

domestic consumer water heater 

market), with condensing gas-fired 

instantaneous water heaters accounting 

for 67 percent of shipments. In 2030 (the 

compliance year), in the absence of the 

amended standards, DOE expects that 

shipments of gas-fired instantaneous 

water heaters would total 1.43 million 

(representing approximately 14 percent 

of the overall domestic consumer water 

heater market), with condensing gasfired instantaneous water heaters 

accounting for 70 percent of shipments. 

In 2030, with the amended standards in 

place (i.e., TSL 2), DOE expects that 

shipments of gas-fired instantaneous 

water heaters would still total 

approximately 1.43 million, with the 

share of condensing gas-fired 

instantaneous water heaters rising to 

100 percent. As discussed in section 

IV.F.10 of this document, DOE did not 

include any product switching with 

respect to gas-fired instantaneous water 

heaters in its analysis as DOE 

determined that any product switching 

as a result of the adopted standards is 

likely to be minimal. As discussed in 

section IV.G.1 of this document, DOE’s 

shipments analysis accounts for the 

fraction of consumers that would choose 

to repair their gas-fired instantaneous 

water heater rather than replace their 

gas-fired instantaneous water heater in 

the standards cases. 

DOE previously analyzed the 

potential changes in direct employment 

in the July 2023 NOPR. 88 FR 49058, 

49145–49147. For the July 2024 NODA, 

DOE revised its direct employment 

analysis to account for Rinnai’s new 

domestic production facility dedicated 

to manufacturing gas-fired 

instantaneous water heaters. 89 FR 

59692, 59697. (See Rinnai, No. 1186 at 

p. 1) DOE is not currently aware of other 

domestic production facilities of gasfired instantaneous water heaters. 

Therefore, in the July 2024 NODA, DOE 

estimated that approximately 20 percent 

of gas-fired instantaneous water heaters 

are currently produced in the United 

States. DOE derived this value by using 

its shipments analysis and market share 

feedback from Rinnai’s comments to the 

July 2023 NOPR.166 (Id.) DOE 

maintained the 20 percent estimate for 

this final rule analysis. For the July 2024 

NODA, DOE relied on the employment 

figures provided in Rinnai’s comments 

in response to the July 2023 NOPR to 

estimate the potential range of direct 

employment impacts in 2030 (the 

analyzed compliance year) at higher 

efficiency levels. In the July 2024 

NODA, DOE modeled the domestic 

employment impacts ranging from a 

reduction of 128 production workers to 

an increase of 75 production workers at 

TSL 1 through TSL 4 in 2030. Based on 

revised employment estimates provided 

by Rinnai in response to the July 2024 

NODA, DOE updated its estimate of 

domestic production workers from 128 

to 190 167 in 2030 but otherwise 

maintained its direct employment 

methodology. (Rinnai No. 1443 at p. 1) 

Therefore, for this final rule, DOE 

models a lower-bound decrease of 190 

domestic production workers and an 

upper-bound increase in domestic direct 

employment of 62 percent (an increase 

of approximately 117 production 

workers, for a total of 307 domestic 

production workers) at TSL 1 through 

TSL 4 in 2030. DOE notes that the direct 

employment analysis is intended to 

establish a realistic range of potential 

impacts to domestic employment under 

amended standards, given the best 

public information available at this 

time. As Rinnai noted in their comment, 

if Rinnai does not maintain current sales 

levels under a condensing-level 

standard, the change in employment 

may be lower than the maximum 

increase estimated. See section V.B.2.b 

of this document for additional details 

on the direct employment analysis. 

Regarding the potential investment 

required to convert Rinnai’s newly built 

domestic production facility, DOE 

incorporated Rinnai’s feedback 

provided in response to the July 2023 

NOPR into its conversion cost model for 

the July 2024 NODA and this final rule. 

Although DOE cannot be certain 

whether or not Rinnai would invest in 

repurposing its U.S. manufacturing 

facility, DOE incorporated Rinnai’s 

feedback into its industry conversion 

cost estimates to avoid underestimating 

the potential investments industry 

would incur as a result of amended 

standards. Should Rinnai choose to 

maintain condensing capabilities in its 

existing facilities in Japan, the industry 

conversion costs would be lower. DOE 

updated its conversion cost estimates 

from 2022$ to 2023$ for this final rule 

but otherwise maintained its 

methodology from the July 2024 NODA. 

See section IV.J.2.c and section V.B.2.a 

of this document and chapter 12 of the 

final rule TSD for additional 

information on conversion costs. 

Regarding Rinnai’s assertion that it 

was not contacted to provide feedback 

in advance of the July 2023 NOPR, DOE 

notes that manufacturer outreach and 

interviews are conducted by DOE’s 

contractors under nondisclosure 

agreements. As such, information 

surrounding manufacturer outreach and 

participation is kept as confidential by 

DOE’s contractors and cannot be 

disclosed. 

Regarding Rinnai’s request to review 

the GRIM, DOE notes that a copy of the 

GRIM developed for this final rule 

analysis is available for download at: 

www.regulations.gov/docket/EERE2017-BT-STD-0019/document. 

In response to the July 2023 NOPR, 

AHRI stated that it supported the 

inclusion of amortization of product 

conversion costs under standards into 

the projected MSP in a recent 

rulemaking for microwave ovens, and 

urges DOE to use this methodology in 

all rulemakings.168 AHRI further asked 

DOE to explain the justification for 

amortizing conversion costs in one 

instance but not in all. (AHRI, No. 1167 

at pp. 20–21) 

DOE models different manufacturer 

markup scenarios to assess the potential 

impacts on prices and profitability for 

manufacturers following the 

implementation of amended energy 

conservation standards. The analyzed 

scenarios lead to different manufacturer 

markup values that, when applied to the 

manufacturer production costs, result in 

varying revenue and cash flow impacts. 

These scenarios are meant to reflect the 

potential range of financial impacts for 

manufacturers of the specific covered 

product or equipment. The analyzed 

manufacturer markup scenarios vary by 

rulemaking because they are informed 

by manufacturer feedback and reflect 

the market for the specific product type. 

For the July 2023 NOPR and the July 

2024 NODA, DOE applied a 

preservation of gross margin percentage 


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169CARB has stated that it is committed to 

explore developing and proposing zero-emission 

GHG standards for new space and water heaters 

sold in California as part of the 2022 State Strategy 

for the State Implementation Plan adopted in 

September 2022. However, at the time of issuance, 

CARB has not adopted such standards for gas-fired 

instantaneous water heaters. Additional 

information is available at: https://ww2.arb.ca.gov/ 

our-work/programs/building-decarbonization/zeroemission-space-and-water-heater-standards/ 

meetings-workshops. (Last accessed Aug. 7, 2024). 

170Available at: www.baaqmd.gov/∼/media/ 

dotgov/files/rules/reg-9-rule-4-nitrogen-oxidesfrom-fan-type-residential-central-furnaces/2021- 

amendments/documents/20230315_rg0906- 

pdf.pdf?rev=436fcdb037324b0b8f0c981d869

e684d&sc_lang=en. (Last accessed Aug. 7, 2024). 

171Available at: www.aqmd.gov/docs/defaultsource/rule-book/recent-rules/r1146_2- 

060724.pdf?sfvrsn=8 (Last accessed Aug. 29, 2024). 

scenario to reflect an upper bound to 

industry profitability under amended 

standards and a preservation of 

operating profit scenario to reflect a 

lower bound of industry profitability 

under amended standards. 88 FR 49058, 

49128; 89 FR 59692, 59700. For gasfired instantaneous water heaters, 

manufacturing more efficient products 

is generally more expensive than 

manufacturing baseline or minimally 

efficient products, as reflected by the 

MPCs estimated in the engineering 

analysis (see section IV.C.1 of this 

document). Under the preservation of 

gross margin scenario for gas-fired 

instantaneous water heaters, 

incremental increases in MPCs at higher 

efficiency levels result in an increase in 

per-unit dollar profit per unit sold. As 

shown in table V.6, under the 

preservation of gross margin scenario, 

the standards case INPV increases 

relative to the no-new-standards case 

INPV at all analyzed TSLs, resulting in 

a positive change in INPV at TSL 1–TSL 

4. This implies that the increase in 

cashflow from the higher MSP 

outweighs the estimated conversion 

costs at each of the considered TSLs. In 

other words, under the preservation of 

gross margin scenario, the gas-fired 

instantaneous water heater industry 

more than recovers conversion costs 

incurred as a result of amended 

standards. The approach used in the 

microwave ovens rulemaking (i.e., a 

conversion cost recovery scenario) 

modeled a scenario in which 

manufacturers recover investments such 

that INPV in the standards cases are 

equal to the INPV in the no-newstandards case, resulting in no change in 

INPV at the considered TSLs. 88 FR 

39912, 39935. Thus, if DOE applied a 

conversion cost recovery scenario in 

this rulemaking, the potential change in 

INPV at each considered TSL would be 

within the range of estimated impacts 

resulting from the preservation of gross 

margin scenario and preservation of 

operating profit scenario. As such, DOE 

maintained the two standards-case 

manufacturer markup scenarios used in 

the July 2023 NOPR for this final rule 

as they most appropriately reflect the 

upper (least severe) and lower (more 

severe) impacts to manufacturer 

profitability under amended standards. 

In response to the July 2023 NOPR, 

AHRI submitted written comments 

regarding cumulative regulatory burden. 

AHRI urged DOE to consider the high 

volume of regulatory activity that 

directly affects manufacturers of 

consumer water heaters, including gasfired instantaneous water heaters, and 

expressed concern that DOE was 

rushing to publish recent rulemakings, 

risking significant revision that will 

prolong uncertainty, confuse 

consumers, and potentially undermine 

broader policy goals. AHRI cited 

standards and test procedure 

rulemakings for other covered products 

and equipment, as well as low and zero 

NOx actions by California Air Resources 

Board (‘‘CARB’’) and individual air 

quality management districts. (AHRI, 

No. 1167 at pp. 7–9) 

In response to the July 2023 NOPR, 

BWC commented that the impact of 

cumulative regulatory burden 

experienced by manufacturers is not 

limited to conversion costs, but also to 

the preparations manufacturers must 

undergo in order to respond to proposed 

rules. BWC further stated that DOE has 

promulgated several major rulemakings 

that will directly impact the products 

that BWC manufactures, in addition to 

actions undertaken by other 

governments and programs, and that the 

ability of manufacturers to draw on 

outside resources for assistance will be 

severely limited by the concurrent 

needs of many manufacturers across 

rulemakings, particularly in the case of 

third-party laboratories. BWC stated that 

due to the burden this rulemaking will 

place on third-party laboratories, as well 

as the general burden of multiple 

concurrent ongoing regulatory actions, 

BWC strongly disagreed with DOE’s 

decision not to consider test 

rulemakings as part of its analysis. 

(BWC, No. 1164 at pp. 24–26) BWC also 

stated that, due to concurrent regulatory 

actions regarding energy efficiency at 

both the State and Federal levels, it 

disagreed with DOE’s conclusion in 

section VI.B.5 of the July 2023 NOPR 

that there are no rules or regulations 

that duplicate, overlap, or conflict with 

this proposed rule and encouraged DOE 

to account for all of these issues, ideally 

allowing manufacturers more time to 

review and respond to DOE rulemakings 

when requested. (BWC, No. 1164 at p. 

24) 

With respect to comments regarding 

the regulatory burden, DOE recognizes 

that the gas-fired instantaneous water 

heater industry is subject to regulations 

from Federal, State, and local entities. 

DOE analyzes and considers the impact 

on manufacturers of multiple product/ 

equipment-specific Federal regulatory 

actions. Specifically, DOE analyzes 

cumulative regulatory burden pursuant 

to section 13(g) of appendix A. 10 CFR 

part 430, subpart C, appendix A, section 

13(g); 10 CFR 431.4. DOE notes that 

regulations that are not yet finalized are 

not considered as cumulative regulatory 

burden, as the timing, cost, and impacts 

of unfinalized rules are speculative. 

However, to aid stakeholders in 

identifying potential cumulative 

regulatory burden, DOE does list 

rulemakings that have proposed rules, 

which have tentative compliance dates, 

compliance levels, and compliance cost 

estimates. The results of this analysis 

can be found in section V.B.2.e of this 

document. 

Regarding AHRI’s comment about 

ultra-low NOx and zero NOx 

regulations, DOE notes that in its 

analysis of cumulative regulatory 

burden, DOE considers Federal, product 

specific regulations that have 

compliance dates within 3 years of one 

another. DOE is not aware of any 

Federal or State ultra-low NOx or zero 

NOx regulations specific to gas-fired 

instantaneous water heaters with 

compliance dates within the 7-year 

cumulative regulatory burden timeframe 

(2027–2033).169 DOE notes that certain 

localities (i.e., California Air Districts) 

have adopted regulations requiring 

ultra-low NOx consumer water heaters. 

DOE accounts for the portion of ultralow NOx shipments in its analysis. DOE 

notes that two California Air Districts— 

the Bay Area 170 and South Coast 171 Air 

Quality Management Districts have 

adopted amendments to eliminate NOx 

emissions from certain gas-fired 

instantaneous water heaters beginning 

in 2031 and 2026, respectively. There 

are currently no natural gas-fired 

instantaneous water heaters on the 

market that would meet the zero NOx 

standards, though manufacturers may 

choose to develop them. 

Regarding BWC’s request that DOE 

not discount the costs for stakeholders 

to review rulemakings, although DOE 

appreciates that monitoring and 

responding to rulemakings does impose 

costs for stakeholders, DOE believes that 

this is outside the scope of analysis for 

individual product rulemakings. 

Because EPCA requires DOE to establish 

and maintain the energy conservation 

program for consumer products and to 


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172Available at www.epa.gov/sites/production/ 

files/2021-04/documents/emission-factors_

apr2021.pdf (last accessed August 29, 2024). 

173U.S. Environmental Protection Agency. 

External Combustion Sources. In Compilation of Air 

Pollutant Emission Factors. AP–42. Fifth Edition. 

Volume I: Stationary Point and Area Sources. 

Chapter 1. Available at www.epa.gov/air-emissionsfactors-and-quantification/ap-42-compilation-airemissions-factors#Proposed/ (last accessed August 

29, 2024). 

174For further information, see the Assumptions 

to AEO2023 report that sets forth the major 

assumptions used to generate the projections in the 

Annual Energy Outlook. Available at www.eia.gov/ 

outlooks/aeo/assumptions/ (last accessed August 

29, 2024). 

periodically propose new and amended 

standards (or propose that standards for 

products do not need to be amended) 

and test procedures, DOE considers this 

rulemaking activity to be part of the 

analytical baseline (i.e., in the no-newstandards case and the standards case). 

That is, these activities (e.g., reviewing 

proposed rules or proposed 

determinations) would exist regardless 

of the regulatory option that DOE adopts 

through a rulemaking and would be 

independent from the conversion costs 

required to adapt product designs and 

manufacturing facilitates to meet an 

amended standard. 

In response to the July 2024 NODA, 

Rheem stated that they agreed with a 70 

percent market share estimate for 

condensing gas-fired instantaneous 

water heaters and gradual shift towards 

condensing models. Rheem indicated 

that most manufacturers already possess 

the design and manufacturing 

capabilities necessary to produce 

products across the full range of 

efficiencies. Rheem stated that while a 

condensing-level standard at EL 2 or EL 

3 would require manufactures to 

repurpose and retool assembly lines, a 

standard consistent with EL 2 (i.e., TSL 

2) would be less disruptive compared to 

higher efficiency levels, which would 

require a fully modulating burner design 

and higher investment. Rheem generally 

agreed with the conclusions of the 

manufacturer impact analysis but stated 

that they did not believe the additional 

energy savings at EL 3 compared to EL 

2 were great enough to justify the greater 

cost to manufacturers. (Rheem No. 1436 

at p. 3) 

Regarding the need for manufacturers 

to repurpose and retool assembly lines, 

DOE accounted for the capital and 

product conversion costs associated 

with increasing production of 

condensing gas-fired instantaneous 

water heaters in its analysis. Consistent 

with Rheem’s comment, DOE’s analysis 

estimates that conversion costs would 

be higher at EL 3 and EL 4 compared to 

EL 2. See section IV.J.2.c and section 

V.B.2.a of this document and chapter 12 

of the final rule TSD for additional 

information on conversion costs. In this 

final rule, DOE is adopting TSL 2. See 

section V.C of this document for a 

discussion of the benefits and burdens 

of the TSLs considered. 

The Joint Advocates commented that 

DOE’s analysis for the July 2024 NODA 

shows that the potential impacts on gasfired instantaneous water heater 

manufacturers at EL 2 and higher would 

be modest and that, specifically, the 

potential impact on INPV at EL 2 ranges 

from a loss of 2.7 percent to a gain of 

3.2 percent. (Joint Advocates, No. 1444 

at pp. 1–2) The Joint Advocates 

commented that the proposed standards 

for gas-fired instantaneous water heaters 

could increase U.S. manufacturing jobs 

because the labor content required to 

produce a condensing gas-fired 

instantaneous water heater is 

approximately 59 percent more than 

that required to produce a noncondensing gas-fired instantaneous 

water heater. (Joint Advocates, No. 1444 

at p. 2) 

Regarding the potential impacts on 

gas-fired instantaneous water heater 

manufacturers, for this final rule, the 

estimated change in INPV at TSL 2 

ranges from a loss of 2.8 percent to a 

gain of 3.4 percent. See section V.B.2.a 

of this document for additional 

information on the MIA results. 

Regarding the potential impacts to 

direct employment, for this final rule, 

DOE models a lower-bound decrease of 

190 production workers and an upperbound increase in domestic direct 

employment of 62 percent (an increase 

of approximately 117 production 

workers, for a total of 307 domestic 

production workers) at TSL 1 through 

TSL 4 in 2030. See section V.B.2.b of 

this document for additional 

information on DOE’s direct 

employment analysis. 

K. Emissions Analysis 

The emissions analysis consists of 

two components. The first component 

estimates the effect of potential energy 

conservation standards on power sector 

and site (where applicable) combustion 

emissions of CO2, NOX, SO2, and Hg. 

The second component estimates the 

impacts of potential standards on 

emissions of two additional greenhouse 

gases, CH4 and N2O, as well as the 

reductions in emissions of other gases 

due to ‘‘upstream’’ activities in the fuel 

production chain. These upstream 

activities comprise extraction, 

processing, and transporting fuels to the 

site of combustion. 

The analysis of electric power sector 

emissions of CO2, NOX, SO2, and Hg 

uses emissions intended to represent the 

marginal impacts of the change in 

electricity consumption associated with 

amended or new standards. The 

methodology is based on results 

published for the AEO, including a set 

of side cases that implement a variety of 

efficiency-related policies. The 

methodology is described in appendix 

13A in the final rule TSD. The analysis 

presented in this final rule uses 

projections from AEO2023. Power sector 

emissions of CH4 and N2O from fuel 

combustion are estimated using 

Emission Factors for Greenhouse Gas 

Inventories published by the EPA.172

The on-site operation of consumer 

gas-fired instantaneous water heaters 

involves combustion of fossil fuels and 

results in emissions of CO2, NOX, SO2,

CH4, and N2O where these products are 

used. Site emissions of these gases were 

estimated using Emission Factors for 

Greenhouse Gas Inventories and, for 

NOX and SO2, emissions intensity 

factors from an EPA publication.173

FFC upstream emissions, which 

include emissions from fuel combustion 

during extraction, processing, and 

transportation of fuels, and ‘‘fugitive’’ 

emissions (direct leakage to the 

atmosphere) of CH4 and CO2, are 

estimated based on the methodology 

described in chapter 15 of the final rule 

TSD. 

The emissions intensity factors are 

expressed in terms of physical units per 

MWh or MMBtu of site energy savings. 

For power sector emissions, specific 

emissions intensity factors are 

calculated by sector and end use. Total 

emissions reductions are estimated 

using the energy savings calculated in 

the national impact analysis. 

1. Air Quality Regulations Incorporated 

in DOE’s Analysis 

DOE’s no-new-standards case for the 

electric power sector reflects the AEO, 

which incorporates the projected 

impacts of existing air quality 

regulations on emissions. AEO2023 

reflects, to the extent possible, laws and 

regulations adopted through midNovember 2022, including the 

emissions control programs discussed in 

the following paragraphs the emissions 

control programs discussed in the 

following paragraphs, and the Inflation 

Reduction Act.174

SO2 emissions from affected electric 

generating units (‘‘EGUs’’) are subject to 

nationwide and regional emissions capand-trade programs. Title IV of the 

Clean Air Act sets an annual emissions 

cap on SO2 for affected EGUs in the 48 

contiguous States and the District of 

Columbia (‘‘DC’’). (42 U.S.C. 7651 et 


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175CSAPR requires States to address annual 

emissions of SO2 and NOX, precursors to the 

formation of fine particulate matter (‘‘PM2.5’’) 

pollution, in order to address the interstate 

transport of pollution with respect to the 1997 and 

2006 PM2.5 National Ambient Air Quality Standards 

(‘‘NAAQS’’). CSAPR also requires certain States to 

address the ozone season (May-Sept.) emissions of 

NOX, a precursor to the formation of ozone 

pollution, in order to address the interstate 

transport of ozone pollution with respect to the 

1997 ozone NAAQS. 76 FR 48208 (Aug. 8, 2011). 

EPA subsequently issued a supplemental rule that 

included an additional five States in the CSAPR 

ozone season program; 76 FR 80760 (Dec. 27, 2011) 

(Supplemental Rule), and EPA issued the CSAPR 

Update for the 2008 ozone NAAQS. 81 FR 74504 

(Oct. 26, 2016). 

176 In order to continue operating, coal power 

plants must have either flue gas desulfurization or 

dry sorbent injection systems installed. Both 

technologies, which are used to reduce acid gas 

emissions, also reduce SO2 emissions. 

177https://www.epa.gov/system/files/documents/ 

2023-12/eo12866_oil-and-gas-nsps-eg-climatereview-2060-av16-final-rule-20231130.pdf; https://

www.epa.gov/system/files/documents/2023-12/epa_

scghg_2023_report_final.pdf (last accessed July 3, 

2024). 

178https://www.epa.gov/system/files/documents/ 

2023-12/epa_scghg_2023_report_final.pdf (last 

accessed July 3, 2024). 

seq.) SO2 emissions from numerous 

States in the eastern half of the United 

States are also limited under the CrossState Air Pollution Rule (‘‘CSAPR’’). 76 

FR 48208 (Aug. 8, 2011). CSAPR 

requires these States to reduce certain 

emissions, including annual SO2

emissions, and went into effect as of 

January 1, 2015.175 The AEO 

incorporates implementation of CSAPR, 

including the update to the CSAPR 

ozone season program emission budgets 

and target dates issued in 2016. 81 FR 

74504 (Oct. 26, 2016). Compliance with 

CSAPR is flexible among EGUs and is 

enforced through the use of tradable 

emissions allowances. Under existing 

EPA regulations, for states subject to 

SO2 emissions limits under CSAPR, any 

excess SO2 emissions allowances 

resulting from the lower electricity 

demand caused by the adoption of an 

efficiency standard could be used to 

permit offsetting increases in SO2

emissions by another regulated EGU. 

However, beginning in 2016, SO2

emissions began to fall as a result of the 

Mercury and Air Toxics Standards 

(‘‘MATS’’) for power plants.176 77 FR 

9304 (Feb. 16, 2012). The final rule 

establishes power plant emission 

standards for mercury, acid gases, and 

non-mercury metallic toxic pollutants. 

Because of the emissions reductions 

under the MATS, it is unlikely that 

excess SO2 emissions allowances 

resulting from the lower electricity 

demand would be needed or used to 

permit offsetting increases in SO2

emissions by another regulated EGU. 

Therefore, energy conservation 

standards that decrease electricity 

generation will generally reduce SO2

emissions. DOE estimated SO2

emissions reduction using emissions 

factors based on AEO2023. 

CSAPR also established limits on NOX

emissions for numerous States in the 

eastern half of the United States. Energy 

conservation standards would have 

little effect on NOX emissions in those 

States covered by CSAPR emissions 

limits if excess NOX emissions 

allowances resulting from the lower 

electricity demand could be used to 

permit offsetting increases in NOX

emissions from other EGUs. In such 

case, NOx emissions would remain near 

the limit even if electricity generation 

goes down. Depending on the 

configuration of the power sector in the 

different regions and the need for 

allowances, however, NOX emissions 

might not remain at the limit in the case 

of lower electricity demand. That would 

mean that standards might reduce NOx 

emissions in covered States. Despite this 

possibility, DOE has chosen to be 

conservative in its analysis and has 

maintained the assumption that 

standards will not reduce NOX

emissions in States covered by CSAPR. 

Standards would be expected to reduce 

NOX emissions in the States not covered 

by CSAPR. DOE used AEO2023 data to 

derive NOX emissions factors for the 

group of States not covered by CSAPR. 

The MATS limit mercury emissions 

from power plants, but they do not 

include emissions caps and, as such, 

DOE’s energy conservation standards 

would be expected to slightly reduce Hg 

emissions. DOE estimated mercury 

emissions reduction using emissions 

factors based on AEO2023, which 

incorporates the MATS. 

L. Monetizing Emissions Impacts 

As part of the development of this 

final rule, for the purpose of complying 

with the requirements of Executive 

Order 12866, DOE considered the 

estimated monetary benefits from the 

reduced emissions of CO2, CH4, N2O, 

NOX, and SO2 that are expected to result 

from each of the TSLs considered. In 

order to make this calculation analogous 

to the calculation of the NPV of 

consumer benefit, DOE considered the 

reduced emissions expected to result 

over the lifetime of products shipped 

during the projection period for each 

TSL. This section summarizes the basis 

for the values used for monetizing the 

emissions benefits and presents the 

values considered in this final rule. 

1. Monetization of Greenhouse Gas 

Emissions 

To monetize the benefits of reducing 

GHG emissions, the July 2023 NOPR 

used the interim social cost of 

greenhouse gases (‘‘SC–GHG’’) estimates 

presented in the Technical Support 

Document: Social Cost of Carbon, 

Methane, and Nitrous Oxide Interim 

Estimates Under Executive Order 13990 

published in February 2021 by the 

Interagency Working Group on the SC– 

GHG (‘‘IWG’’) (‘‘2021 Interim SC–GHG 

estimates’’). As a member of the IWG 

involved in the development of the 

February 2021 SC–GHG TSD, DOE 

agreed that the 2021 interim SC–GHG 

estimates represented the most 

appropriate estimate of the SC–GHG 

until revised estimates were developed 

reflecting the latest, peer-reviewed 

science. See 87 FR 78382, 78406–78408 

for discussion of the development and 

details of the 2021 interim SC–GHG 

estimates. The IWG has continued 

working on updating the interim 

estimates, but has not published final 

estimates. 

Accordingly, in the regulatory 

analysis of its December 2023 Final 

Rule, ‘‘Standards of Performance for 

New, Reconstructed, and Modified 

Sources and Emissions Guidelines for 

Existing Sources: Oil and Natural Gas 

Sector Climate Review,’’ the EPA 

estimated climate benefits using a new, 

updated set of SC–GHG estimates 

(‘‘2023 SC–GHG estimates’’). EPA 

documented the methodology 

underlying the new estimates in the RIA 

for the December 2023 Final Rule and 

in greater detail in a technical report 

entitled ‘‘Report on the Social Cost of 

Greenhouse Gases: Estimates 

Incorporating Recent Scientific 

Advances’’ that was presented as 

Supplementary Material to the RIA.177

The 2023 SC–GHG estimates 

incorporate recent research addressing 

recommendations of the Natural 

Academies of Science, Engineering, and 

Medicine (National Academies), 

responses to public comments on an 

earlier sensitivity analysis using draft 

SC–GHG estimates included in EPA’s 

December 2022 proposal in the oil and 

natural gas sector standards of 

performance rulemaking, and comments 

from a 2023 external peer review of the 

accompanying technical report.178

On December 22, 2023, the IWG 

issued a memorandum directing that 

when agencies ‘‘consider applying the 

SC–GHG in various contexts . . . 

agencies should use their professional 

judgment to determine which estimates 

of the SC–GHG reflect the best available 

evidence, are most appropriate for 

particular analytical contexts, and best 

facilitate sound decision-making’’ 


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179https://www.whitehouse.gov/wp-content/ 

uploads/2023/12/IWG-Memo-12.22.23.pdf (last 

accessed July 3, 2024). 

180 Valuing Climate Damages: Updating 

Estimation of the Social Cost of Carbon Dioxide | 

The National Academies Press. (available at: 

nap.nationalacademies.org/catalog/24651/valuingclimate-damages-updating-estimation-of-the-socialcost-of) (last accessed July 3, 2024). 

consistent with OMB Circular A–4 and 

applicable law.179

DOE has been extensively involved in 

the IWG process and related work on 

the SC–GHGs for over a decade. This 

involvement includes DOE’s role as the 

federal technical monitor for the 

seminal 2017 report on the SC–GHG 

issued by the National Academies, 

which provided extensive 

recommendations on how to strengthen 

and update the SC–GHG estimates.180

DOE has also participated in the IWG’s 

work since 2021. DOE technical experts 

involved in this work reviewed the 2023 

SC–GHG methodology and report in 

light of the National Academies’ 

recommendations and DOE’s 

understanding of the state of the 

science. 

Based on this review, in the July 2024 

NODA, DOE proposed for public 

comment its preliminary determination 

that the updated 2023 SC–GHG 

estimates, including the approach to 

discounting, represent a significant 

improvement in estimating the SC–GHG 

through incorporating the most recent 

advancements in the scientific literature 

and by addressing recommendations on 

prior methodologies. That NODA 

presented climate benefits using both 

the 2023 SC–GHG values and the 2021 

interim SC–GHG estimates. 89 FR 

59693, 59700. In this final rule, DOE has 

not made a final decision regarding that 

preliminary assessment or adoption of 

the updated 2023 SC–GHG estimates, as 

such a decision is not necessary for 

purposes of this rule. DOE will continue 

to decide, for each particular analytical 

context, whether to rely on, present for 

presentation purposes, or use in some 

other way, the updated 2023 SC–GHG 

values, the 2021 interim SC–GHG 

estimates, or both. In this final rule, 

DOE is presenting estimates using both 

the updated 2023 SC–GHG values and 

the 2021 interim SC–GHG estimates, as 

DOE believes itis appropriate to give the 

public more complete information 

regarding the benefits of this rule. DOE 

notes, however, that the adopted 

standards would be economically 

justified using either set of SC–GHG 

values, and even without inclusion of 

the estimated monetized benefits of 

reduced GHG emissions. In future 

rulemakings, DOE will continue to 

evaluate the applicability in context and 

use our professional judgment to apply 

the SC–GHG estimates that are most 

appropriate to use at that time. 

The 2023 EPA technical report 

presents SC–GHG values for emissions 

years through 2080; therefore, DOE did 

not monetize the climate benefits of 

GHG emissions reductions occurring 

after 2080 when using the 2023 

estimates for the SC–GHG. DOE expects 

additional climate impacts to accrue 

from GHG emissions changes post 2080, 

but due to a lack of readily available 

SC–GHG estimates for emissions years 

beyond 2080 and the relatively small 

emission effects expected from those 

years, DOE has not monetized these 

additional impacts in this analysis. 

Similarly, the interim 2021 interim SC– 

GHG estimates include values through 

2070. DOE expects additional climate 

benefits to accrue for products still 

operating after 2070, but a lack of 

available SC–GHG estimates published 

by the IWG for emissions years beyond 

2070 prevents DOE from monetizing 

these potential benefits in this analysis. 

The overall climate benefits are 

generally greater when using the higher, 

updated 2023 SC–GHG estimates, 

compared to the climate benefits using 

the older 2021 interim SC–GHG 

estimates, which were used in the July 

2023 NOPR. The net benefits of the rule 

are positive, however, under either SC– 

GHG calculation methodology; in fact, 

the net benefits of the rule are positive 

without including any monetized 

climate benefits at all. The adopted 

standards would be economically 

justified even without inclusion of the 

estimated monetized benefits of reduced 

GHG emissions using either 

methodology, therefore the conclusions 

of the analysis (as presented in section 

V.C of this document) are not dependent 

on which set of estimates of the SC– 

GHG are used in the analysis or on the 

use of the SC–GHG at all. The adopted 

standard level would remain the same 

under either SC–GHG calculation 

methodology (or without using the SC– 

GHG at all). 

DOE received several comments 

regarding its preliminary determination 

on the use of the 2023 SC–GHG 

methodologies in the July 2024 NODA. 

As noted above, DOE is not making a 

final determination regarding which of 

the two sets of SC–GHG is most 

appropriate to apply here or across all 

DOE analyses. Accordingly, DOE is not 

addressing in this rule comments 

regarding such a final determination. 

Because DOE is presenting results using 

both sets of estimates, however, to the 

extent that commenters raised concerns 

about any reference to the 2023 SC– 

GHG methodologies, DOE is responding 

to that limited set of comments here. 

AHRI disagreed with DOE’s use of 

2023 SC–GHG estimates in its analysis 

to justify proposed energy conservation 

standards. AHRI stated that adoption of 

2023 SC–GHG methodologies 

introduces complexity, uncertainty, and 

traceability issues. AHRI recommended 

that DOE provide guidance on how 2023 

SC–GHG methodologies were applied 

and offer comparison to the analysis 

performed in the July 2023 NOPR 

(AHRI, No. 1437 p. 3). 

Rinnai disagreed with DOE’s 

preliminary decision to adopt 2023 SC– 

GHG methodologies, which they claim 

introduce challenges regarding the 

traceability of the data, the complexity 

and uncertainty of the new estimates, 

validation of the long-term costs and 

benefits of GHG emissions and the 

ability to compare the July 2024 NODA 

and July 2023 NOPR results. Rinnai 

further states that if the DOE updates 

the SC–GHG methodology, the update 

should be performed for all water heater 

product classes to reflect a fair 

comparison. (Rinnai, No. 1443 at p. 10) 

In response, DOE reiterates that it 

would promulgate the same standards 

in this final rule even in the absence of 

the benefits of the GHG reductions 

achieved by the rule because the 

adopted standards for gas-fired 

instantaneous water heaters are 

economically justified even without 

including such benefits. DOE would 

also promulgate the same standards in 

this final rule using either the 2021 

interim SC–GHG estimates or the 2023 

SC–GHG estimates. In this rule, DOE is 

presenting SC–GHG results using both 

the interim 2021 SC–GHG estimates and 

the updated 2023 SC–GHG estimates. 

In the July 2024 NODA, DOE 

preliminarily agreed with EPA’s 

assessment that the updates 

implemented in the 2023 SC–GHG 

estimates reflect the best available 

science and address recommendations 

from the National Academies. DOE 

acknowledges commenters’ concerns 

regarding uncertainty of the new 

estimates, but notes that the 2021 

interim SC–GHG estimates are also 

uncertain and that uncertainty is 

inherent in all complex cost estimates 

that quantify physical impacts and 

translate them into dollar values. 

DOE further notes that EPA accounted 

for uncertainty in various aspects of the 

2023 SC–GHG estimates in each of the 

modules and comprehensively 

discussed these sources of uncertainty 

in the Final SC–GHG Report and 

supporting literature. (See, e.g., EPA 

Report at p. 77; EPA RTC A–1–7). 

According to EPA, the updated 


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105258 Federal Register / Vol. 89, No. 247 / Thursday, December 26, 2024 / Rules and Regulations 

181See EPA, Revised 2023 and Later Model Year 

Light-Duty Vehicle GHG Emissions Standards: 

Regulatory Impact Analysis, Washington, DC, 

December 2021. Available at nepis.epa.gov/Exe/ 

ZyPDF.cgi?Dockey=P1013ORN.pdf (last accessed 

Dec. 03, 2024). 

approaches taken in the methodology 

behind the 2023 SC–GHG estimates 

were specifically chosen because they 

allow for a more explicit representation 

of uncertainty. Moreover, the treatment 

of uncertainty was a key focus of the 

peer review process. Several peer 

reviewers commended EPA on its 

comprehensive approach to 

incorporating uncertainty (EPA Peer 

Review Summary Report, pgs. 26, 31, 

33, etc.). and EPA responded to peer 

review comments on remaining 

questions about uncertainty by 

expanding and clarifying the discussion 

around uncertainty in each module 

(throughout section 2) and added 

appendix A.8 and table A.8.1 to further 

account for uncertainty. 

Because, in this rule, DOE is 

presenting both the interim 2021 SC– 

GHG estimates and the 2023 SC–GHG 

estimates, the comment contending that 

the updated 2023 SC–GHG estimates are 

less traceable or less transparent than 

the 2021 interim SC–GHG estimates are 

no longer relevant. Insofar as this 

comment objects to DOE even referring 

to the 2023 SC–GHG methodologies and 

using them for presentation purposes, 

however, we note that EPA developed 

these estimates through a process that 

included an initial draft with sensitivity 

analyses, independent peer review, 

responses to peer review and comments, 

available documentation associated 

with the underlying inputs and a public 

docket that includes all the studies and 

reports cited in the analysis. (See e.g., 

EPA’s ‘‘Report on the Social Cost of 

Greenhouse Gases: Estimates 

Incorporating Recent Scientific 

Advances’’ | US EPA; EPA RTC A–7–4). 

Because, in this rule, DOE is 

presenting both the interim 2021 SC– 

GHG estimates and the 2023 SC–GHG 

estimates, the comments that adding an 

additional, updated estimate of the SC– 

GHG benefits impairs the public or the 

industry’s ability to compare the July 

2024 NODA and July 2023 NOPR results 

with the final rule are not relevant. 

Finally, the commenter asserted that 

DOE should update the SC–GHG values 

for all water heater product classes to 

reflect a fair comparison. As stated 

above, because DOE is presenting both 

the interim 2021 SC–GHG estimates and 

the 2023 SC–GHG estimates for this 

rule, this comment is not relevant. 

BWC stated that the 2023 SC–GHG 

estimates are a significant step forward 

in quantifying the social cost of 

greenhouse gases. BWC further 

commented that given the permanence 

of any minimum energy conservation 

standards that are established by DOE 

under EPCA, it is essential that the 

Department first finalize a robust, 

consistent, and objective approach 

towards accurately calculating SC–GHG 

before allowing this metric to 

economically justify more stringent 

standards that would otherwise not 

yield a positive net present value. BWC 

also questioned the consistency of the 

methodologies going forward and the 

extent that peer experts were able to 

review and participate in the process. 

(BWC, No. 1441 at p. 3–4) 

DOE appreciates commenter’s 

statement that the 2023 SC–GHG 

estimates are an important step forward 

in the monetization of greenhouse gas 

emissions. 

With respect to the commenter’s 

concerns about peer review, DOE notes 

again that the 2023 SC–GHG estimates 

were subjected to independent peer 

review in line with EPA’s Peer Review 

Handbook 4th Edition, 2015. This 

process was conducted by an 

independent contractor and involved 

two separate comment periods for 

outside experts. EPA reported that the 

peer reviewers commended the agency 

on its development of this update and 

labeled it a much-needed improvement 

in estimating the SC–GHG. (EPA Report 

at p. 3; EPA RTC A–7–11). 

Regarding the commenter’s concerns 

about the consistency of the 

methodologies going forward (BWC, No. 

1441 at p. 3–4), DOE reiterates that it is 

presenting climate benefits using both 

sets of SC–GHG estimates and that, in 

future rulemakings, DOE will continue 

to evaluate the applicability in context 

and use its professional judgment to 

apply the SC–GHG estimates that are 

most appropriate to use at that time. 

Finally, DOE reiterates that it would 

promulgate the same standards in this 

final rule even in the absence of the 

benefits of the GHG reductions achieved 

by the rule. DOE would also promulgate 

the same standards in this final rule, 

using either the 2021 interim SC–GHG 

estimates, rather than the 2023 SC–GHG 

estimates. Thus, DOE did not, in fact, 

rely on either the 2023 SC–GHG 

estimates or the 2021 interim SC–GHG 

estimates ‘‘to economically justify more 

stringent standards that would 

otherwise not yield a positive net 

present value,’’ as the commenter 

suggests because the adopted standards 

for gas-fired instantaneous water heaters 

are economically justified even without 

including such benefits. 

DOE’s derivations of the SC–CO2, SC– 

N2O, and SC–CH4 values used for this 

final rule are discussed in the following 

sections, and the results of DOE’s 

analyses estimating the benefits of the 

reductions in emissions of these GHGs 

are presented in section V.B.6 of this 

document. 

a. Social Cost of Carbon 

The SC–CO2 values used for this final 

rule are presented using two sets of SC– 

GHG estimates. One set is the 2023 SC– 

GHG estimates published by the EPA, 

which are shown in table IV.13 in 5-year 

increments from 2020 to 2050. The set 

of annual values that DOE used is 

presented in appendix 14A of the final 

rule TSD. These estimates include 

values out to 2080. DOE expects 

additional climate benefits to accrue for 

products still operating after 2080, but 

a lack of available SC–CO2 estimates for 

emissions years beyond 2080 prevents 

DOE from monetizing these potential 

benefits in this analysis. 

TABLE IV.13—ANNUAL SC–CO2 VALUES BASED ON 2023 SC–GHG ESTIMATES, 2020–2050 

[2020$ per Metric Ton CO2] 

Emissions year 

Near-term Ramsey 

discount rate 

2.5% 2.0% 1.5% 

2020 ........................ 117 193 337 

2025 ........................ 130 212 360 

2030 ........................ 144 230 384 

2035 ........................ 158 248 408 

2040 ........................ 173 267 431 

2045 ........................ 189 287 456 

2050 ........................ 205 308 482 

DOE also presents results using 

interim SC–CO2 values based on the 

values developed for the February 2021 

SC–GHG TSD, which are shown in table 

IV.14 in 5-year increments from 2020 to 

2050. The set of annual values that DOE 

used, which was adapted from estimates 

published by EPA in 2021,181 is 

presented in appendix 14A of the final 

rule TSD. These estimates are based on 

methods, assumptions, and parameters 

identical to the estimates published by 

the IWG (which were based on EPA 

modeling), and include values for 2051 

to 2070. 


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Federal Register / Vol. 89, No. 247 / Thursday, December 26, 2024 / Rules and Regulations 105259 

TABLE IV.14—ANNUAL SC–CO2 VALUES BASED ON 2021 INTERIM SC–GHG ESTIMATES, 2020–2050 

[2020$ per Metric Ton CO2] 

Year 

Discount rate and statistic 

5% 

average 

3% 

average 

2.5% 

average 

3% 

95th percentile 

2020 ................................................................................................................. 14 51 76 152 

2025 ................................................................................................................. 17 56 83 169 

2030 ................................................................................................................. 19 62 89 187 

2035 ................................................................................................................. 22 67 96 206 

2040 ................................................................................................................. 25 73 103 225 

2045 ................................................................................................................. 28 79 110 242 

2050 ................................................................................................................. 32 85 116 260 

DOE multiplied the CO2 emissions 

reduction estimated for each year by the 

SC–CO2 value for that year in all of the 

cases. DOE adjusted the values to 2023$ 

using the implicit price deflator for 

gross domestic product (‘‘GDP’’) from 

the Bureau of Economic Analysis. To 

calculate a present value of the stream 

of monetary values, DOE discounted the 

values in all of the cases using the 

specific discount rate that had been 

used to obtain the SC–CO2 values in 

each case. 

b. Social Cost of Methane and Nitrous 

Oxide 

The SC–CH4 and SC–N2O values used 

for this final rule are presented using 

two sets of SC–GHG estimates. One set 

is the 2023SC–GHG estimates published 

by the EPA. table IV.15 shows the 

updated sets of SC–CH4 and SC–N2O 

estimates in 5-year increments from 

2020 to 2050. The full set of annual 

values used is presented in appendix 

14A of the final rule TSD. These 

estimates include values out to 2080. 

TABLE IV.15—ANNUAL SC–CH4 AND SC–N2O VALUES BASED ON 2023 SC–GHG ESTIMATES, 2020–2050 

[2020$ per Metric Ton] 

Emissions year 

SC–CH4 SC–N2O 

Near-term Ramsey discount rate Near-term Ramsey discount rate 

2.5% 2.0% 1.5% 2.5% 2.0% 1.5% 

2020 ......................................................... 1,257 1,648 2,305 35,232 54,139 87,284 

2025 ......................................................... 1,590 2,025 2,737 39,972 60,267 95,210 

2030 ......................................................... 1,924 2,403 3,169 44,712 66,395 103,137 

2035 ......................................................... 2,313 2,842 3,673 49,617 72,644 111,085 

2040 ......................................................... 2,702 3,280 4,177 54,521 78,894 119,032 

2045 ......................................................... 3,124 3,756 4,718 60,078 85,945 127,916 

2050 ......................................................... 3,547 4,231 5,260 65,635 92,996 136,799 

DOE also presents results using 

interim SC–CH4 and SC–N2O values 

based on the values developed for the 

February 2021 SC–GHG TSD. Table 

IV.16 shows the updated sets of SC–CH4

and SC–N2O estimates from the latest 

interagency update in 5-year increments 

from 2020 to 2050. The full set of 

annual unrounded values used in the 

calculations is presented in appendix 

14A of the final rule TSD. These 

estimates include values out to 2070. 

TABLE IV.16—ANNUAL SC–CH4 AND SC–N2O VALUES BASED ON 2021 INTERIM SC–GHG ESTIMATES, 2020–2050 

[2020$ per Metric Ton] 

Year 

SC–CH4 SC–N2O 

Discount rate and statistic Discount rate and statistic 

5% 

average 

3% 

average 

2.5% 

average 

3% 

95th percentile 

5% 

average 

3% 

average 

2.5% 

average 

3% 

95th percentile 

2020 .................................. 670 1,500 2,000 3,900 5,800 18,000 27,000 48,000 

2025 .................................. 800 1,700 2,200 4,500 6,800 21,000 30,000 54,000 

2030 .................................. 940 2,000 2,500 5,200 7,800 23,000 33,000 60,000 

2035 .................................. 1,100 2,200 2,800 6,000 9,000 25,000 36,000 67,000 

2040 .................................. 1,300 2,500 3,100 6,700 10,000 28,000 39,000 74,000 

2045 .................................. 1,500 2,800 3,500 7,500 12,000 30,000 42,000 81,000 

2050 .................................. 1,700 3,100 3,800 8,200 13,000 33,000 45,000 88,000 

DOE multiplied the CH4 and N2O 

emissions reduction estimated for each 

year by the SC–CH4 and SC–N2O 

estimates for that year in each of the 

cases. DOE adjusted the values to 2023$ 

using the implicit price deflator for GDP 

from the Bureau of Economic Analysis. 

To calculate a present value of the 

stream of monetary values, DOE 

discounted the values in each of the 

cases using the specific discount rate 


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105260 Federal Register / Vol. 89, No. 247 / Thursday, December 26, 2024 / Rules and Regulations 

182U.S. Environmental Protection Agency. 

Estimating the Benefit per Ton of Reducing DirectlyEmitted PM2.5, PM2.5 Precursors and Ozone 

Precursors from 21 Sectors. Available at 

www.epa.gov/benmap/estimating-benefit-tonreducing-directly-emitted-pm25-pm25-precursorsand-ozone-precursors (last accessed August 29, 

2024. 

183 ‘‘Area sources’’ represents all emission sources 

for which states do not have exact (point) locations 

in their emissions inventories. Because exact 

locations would tend to be associated with larger 

sources, ‘‘area sources’’ would be fairly 

representative of small dispersed sources like 

homes and businesses. 

184 ‘‘Area sources’’ are a category in the 2018 

document from EPA but are not used in the 2021 

document cited above. See: www.epa.gov/sites/ 

default/files/2018-02/documents/ 

sourceapportionmentbpttsd_2018.pdf. 

185See U.S. Bureau of Labor Statistics. Industry 

Output and Employment. Available at: 

www.bls.gov/emp/data/industry-out-and-emp.htm 

(last accessed August 19, 2024). 

186See U.S. Department of Commerce–Bureau of 

Economic Analysis. Regional Input-Output 

Modeling System (RIMS II) User’s Guide. Available 

at: www.bea.gov/resources/methodologies/RIMSIIuser-guide (last accessed Jan. 18, 2024). 

that had been used to obtain the SC–CH4

and SC–N2O estimates in each case. 

2. Monetization of Other Emissions 

Impacts 

For the final rule, DOE estimated the 

monetized value of NOX and SO2

emissions reductions from electricity 

generation using benefit-per-ton 

estimates for that sector from the EPA’s 

Benefits Mapping and Analysis 

Program.182 Table 5 of the EPA TSD 

provides a summary of the health 

impact endpoints quantified in the 

analysis. DOE used EPA’s values for 

PM2.5-related benefits associated with 

NOX and SO2 and for ozone-related 

benefits associated with NOX for 2025, 

2030, 2035, and 2040, calculated with 

discount rates of 3 percent and 7 

percent. DOE used linear interpolation 

to define values for the years not given 

in the 2025 to 2040 period; for years 

beyond 2040, the values are held 

constant (rather than extrapolated) to be 

conservative. DOE combined the EPA 

regional benefit-per-ton estimates with 

regional information on electricity 

consumption and emissions from 

AEO2023 to define weighted-average 

national values for NOX and SO2 (see 

appendix 14B of the final rule TSD). 

DOE also estimated the monetized 

value of NOX and SO2 emissions 

reductions from site use of natural gas 

in consumer gas-fired instantaneous 

water heaters using benefit per ton 

estimates from the EPA’s Benefits 

Mapping and Analysis Program. 

Although none of the sectors covered by 

EPA refers specifically to residential 

and commercial buildings, the sector 

called ‘‘area sources’’ would be a 

reasonable proxy for residential and 

commercial buildings.183 The EPA 

document provides high and low 

estimates for 2025 and 2030 at 3- and 7- 

percent discount rates.184 DOE used the 

same linear interpolation and 

extrapolation as it did with the values 

for electricity generation. 

DOE multiplied the site emissions 

reduction (in tons) in each year by the 

associated $/ton values, and then 

discounted each series using discount 

rates of 3 percent and 7 percent as 

appropriate. 

M. Utility Impact Analysis 

The utility impact analysis estimates 

the changes in installed electrical 

capacity and generation projected to 

result for each considered TSL. The 

analysis is based on published output 

from the NEMS associated with 

AEO2023. NEMS produces the AEO 

Reference case, as well as a number of 

side cases that estimate the economywide impacts of changes to energy 

supply and demand. For the current 

analysis, impacts are quantified by 

comparing the levels of electricity sector 

generation, installed capacity, fuel 

consumption and emissions in the 

AEO2023 Reference case and various 

side cases. Details of the methodology 

are provided in the appendices to 

chapter 15 of the final rule TSD. 

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 

potential new or amended energy 

conservation standards. The utility 

analysis also estimates the impact on 

gas utilities in terms of projected 

changes in natural gas deliveries to 

consumers for each TSL. 

BWC expressed concerns that DOE 

overestimated the impact of this metric 

in the analysis presented in the July 

2024 NODA pointing to table III.9, 

which demonstrates electric utility 

impact results indicating a substantial 

decrease in electric load for both 

installed capacity, as well as electric 

generation. BWC contended that since 

gas-fired instantaneous water heaters 

utilize very little electric energy, they 

question how adopting more stringent 

energy conservation standards for these 

products could impact electric load 

demand to such a significant extent. 

(BWC, No. 1441 at p. 4) 

In response, DOE notes that the 

changes listed in table III.9 of the July 

2024 NODA in installed capacity and 

generation are significantly smaller than 

total US electric capacity which is over 

a million Megawatts. Additionally, DOE 

notes that results for EL 1 through 3 

results in an increase in installed 

capacity as denoted by parentheses. 

N. Employment Impact Analysis 

DOE considers employment impacts 

in the domestic economy as one factor 

in selecting a standard. Employment 

impacts from new or amended energy 

conservation standards include both 

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 net jobs created or 

eliminated in the national economy, 

other than in the manufacturing sector 

being regulated, caused by (1) reduced 

spending by consumers on energy, (2) 

reduced spending on new energy supply 

by the utility industry, (3) increased 

consumer spending on the products to 

which the new standards apply and 

other goods and services, 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 

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.185 Bureau of Economic 

Analysis input-output multipliers also 

show a lower labor intensity per million 

dollars of activity for utilities as 

compared to other industries.186 There 

are many reasons for these differences, 

including wage differences and the fact 

that the utility sector is more capitalintensive 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 


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Federal Register / Vol. 89, No. 247 / Thursday, December 26, 2024 / Rules and Regulations 105261 

187Livingston, O.V., S.R. Bender, M.J. Scott, and 

R.W. Schultz. ImSET 4.0: Impact of Sector Energy 

Technologies Model Description and User’s Guide. 2015. Pacific Northwest National Laboratory: 

Richland, WA. PNNL–24563. 

sectors of the economy, the general 

effect of efficiency standards is to shift 

economic activity from a less laborintensive sector (i.e., the utility sector) 

to more labor-intensive sectors (e.g., the 

retail and service sectors). Thus, these 

data suggest that net national 

employment may increase due to shifts 

in economic activity resulting from 

energy conservation standards. 

DOE estimated indirect national 

employment impacts for the standard 

levels considered in this final rule using 

an input/output model of the U.S. 

economy called Impact of Sector Energy 

Technologies version 4 (‘‘ImSET’’).187

ImSET is a special-purpose version of 

the ‘‘U.S. Benchmark National InputOutput’’ (‘‘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 

187 sectors most relevant to industrial, 

commercial, and residential building 

energy use. 

DOE notes that ImSET is not a general 

equilibrium forecasting model, and that 

there are 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 this rule. 

Therefore, DOE used ImSET only to 

generate results for near-term 

timeframes (2030–2034), where these 

uncertainties are reduced. For more 

details on the employment impact 

analysis, see chapter 16 of the final rule 

TSD. 

V. Analytical Results and Conclusions 

The following section addresses the 

results from DOE’s analyses with 

respect to the considered energy 

conservation standards for consumer 

gas-fired instantaneous water heaters. It 

addresses the TSLs examined by DOE, 

the projected impacts of each of these 

levels if adopted as energy conservation 

standards for consumer gas-fired 

instantaneous water heaters, and the 

standards levels that DOE is adopting in 

this final rule. Additional details 

regarding DOE’s analyses are contained 

in the final rule TSD supporting this 

document. 

A. Trial Standard Levels 

In general, DOE typically evaluates 

potential new or amended standards for 

products and equipment by grouping 

individual efficiency levels for each 

class into TSLs. Use of TSLs allows DOE 

to identify and consider manufacturer 

cost interactions between the product 

classes, to the extent that there are such 

interactions, and price elasticity of 

consumer purchasing decisions that 

may change when different standard 

levels are set. 

In the analysis conducted for this 

final rule, DOE analyzed the benefits 

and burdens of four TSLs for consumer 

gas-fired instantaneous water heaters. 

These TSLs are equivalent to each of the 

ELs analyzed by DOE with results 

presented in this document. TSL 1 

represents a transition from noncondensing to condensing technology 

(i.e., through the addition of a secondary 

condensing heat exchanger). TSL 2 

represents an intermediate condensing 

efficiency which can be achieved using 

larger heat exchangers. TSL 3 represents 

a further improvement by the use of a 

heat exchanger with even more surface 

area, such as a flat-plate heat exchanger 

design, and is the efficiency level 

required to meet the EPA’s ENERGY 

STAR specification criteria. Finally, 

TSL 4 represents the max-tech 

efficiency, which may be achieved by 

use of fully modulating burners and 

further improvements to the heat 

exchanger. DOE presents the results for 

the TSLs in this document, while the 

results for all efficiency levels that DOE 

analyzed are in the final rule TSD. Table 

V.1 presents the TSLs and the 

corresponding efficiency levels that 

DOE has identified for potential 

amended energy conservation standards 

for consumer gas-fired instantaneous 

water heaters. 

TABLE V.1—TRIAL STANDARD LEVELS FOR CONSUMER GAS-FIRED INSTANTANEOUS WATER HEATERS

Product class 

Trial standard level 

1 2 3 4 

Efficiency level 

Gas-fired Instantaneous Water Heaters (Veff <2 gal, Rated Input >50,000 

Btu/h) ............................................................................................................ 1 2 3 4 

B. Economic Justification and Energy 

Savings 

1. Economic Impacts on Individual 

Consumers 

DOE analyzed the economic impacts 

on consumer gas-fired instantaneous 

water heaters consumers by looking at 

the effects that potential amended 

standards at each TSL would have on 

the LCC and PBP. DOE also examined 

the impacts of potential standards on 

selected consumer subgroups. These 

analyses are discussed in the following 

sections. 

a. Life-Cycle Cost and Payback Period 

In general, higher-efficiency products 

affect consumers in two ways: (1) 

purchase price increases, and (2) annual 

operating costs 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 use, energy 

prices, energy price trends, repair costs, 

and maintenance costs). The LCC 

calculation also uses product lifetime 

and a discount rate. Chapter 8 of the 

final rule TSD provides detailed 

information on the LCC and PBP 

analyses. 

Table V.2 and table V.3 show the LCC 

and PBP results for the TSLs 

considered. In the first table, the simple 

payback is measured relative to the 

baseline product. In the second table, 

the impacts are measured relative to the 

efficiency distribution in the no-newstandards case in the compliance year 

(see section IV.F.8 of this document). 

Because some consumers purchase 

products with higher efficiency in the 

no-new-standards case, the average 

savings are less than the difference 

between the average LCC of the baseline 

product and the average LCC at each 

TSL. The savings refer only to 

consumers who are affected by a 


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105262 Federal Register / Vol. 89, No. 247 / Thursday, December 26, 2024 / Rules and Regulations 

standard at a given TSL. Those who 

already purchase a product with 

efficiency at or above a given TSL are 

not affected. Consumers for whom the 

LCC increases at a given TSL experience 

a net cost. 

TABLE V.2—AVERAGE LCC AND PBP RESULTS FOR GAS-FIRED INSTANTANEOUS WATER HEATERS

[Veff <2 gal, rated input >50,000 Btu/h] 

Efficiency level 

Average costs 

2023$ Simple 

payback 

(years) 

Average 

lifetime 

(years) Installed cost First year’s 

operating cost 

Lifetime 

operating cost LCC 

0 ............................................................... 2,087 303 4,571 6,659 ........................ 20.0 

1 ............................................................... 2,304 285 4,339 6,644 12.6 20.0 

2 ............................................................... 2,318 277 4,210 6,528 8.9 20.0 

3 ............................................................... 2,334 273 4,154 6,487 8.3 20.0 

4 ............................................................... 2,424 270 4,107 6,531 10.3 20.0 

Note: The results for each TSL are calculated assuming that all consumers use products at that efficiency level. The PBP is measured relative 

to the baseline product. 

TABLE V.3—AVERAGE LCC SAVINGS RELATIVE TO THE NO-NEW-STANDARDS CASE FOR GAS-FIRED INSTANTANEOUS

WATER HEATERS

[Veff <2 gal, rated input >50,000 Btu/h] 

Trial standard level Efficiency level 

Life-cycle cost savings 

Average LCC 

savings * 

(2023) 

Percent of 

consumers 

that 

experience net 

cost 

1 ................................................................................................................. 1 ....................................................... (1) 17.5 

2 ................................................................................................................. 2 ....................................................... 112 15.2 

3 ................................................................................................................. 3 ....................................................... 90 25.0 

4 ................................................................................................................. 4 ....................................................... 39 56.2 

* The savings represent the average LCC for affected consumers. 

Parentheses indicate negative (-) values. 

b. Consumer Subgroup Analysis 

In the consumer subgroup analysis, 

DOE estimated the impact of the 

considered TSLs on low-income 

households, senior-only households, 

and small businesses. Table V.4 

compares the average LCC savings and 

PBP at each efficiency level for the 

consumer subgroups with similar 

metrics for the entire consumer sample 

for consumer gas-fired instantaneous 

water heaters. In most cases, the average 

LCC savings and PBP for low-income 

households and senior-only households 

at the considered efficiency levels are 

not substantially different from the 

average for all households. Chapter 11 

of the final rule TSD presents the 

complete LCC and PBP results for the 

subgroups. 

TABLE V.4—COMPARISON OF LCC SAVINGS AND PBP FOR CONSUMER SUBGROUPS AND ALL HOUSEHOLDS; GAS-FIRED

INSTANTANEOUS WATER HEATERS

[Veff <2 gal, rated input >50,000 Btu/h] 

TSL Low-income 

households 

Senior-only 

households 

Small 

businesses All households 

Average LCC Savings (2023$) 

1 ....................................................................................................................... 141 (38) (158) (1) 

2 ....................................................................................................................... 248 80 (51) 112 

3 ....................................................................................................................... 152 75 10 90 

4 ....................................................................................................................... 123 18 (44) 39 

Simple Payback Period (years) 

1 ....................................................................................................................... 9.9 13.5 10.2 12.6 

2 ....................................................................................................................... 7.1 9.6 7.2 8.9 

3 ....................................................................................................................... 6.6 8.9 6.6 8.3 

4 ....................................................................................................................... 7.9 10.9 7.8 10.3 

Consumers with Net Cost (%) 

1 ....................................................................................................................... 8.2 20.0 24.5 17.5 

2 ....................................................................................................................... 6.5 16.6 25.7 15.2 


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Federal Register / Vol. 89, No. 247 / Thursday, December 26, 2024 / Rules and Regulations 105263 

188The gross margin percentage of 31 percent is 

based on a manufacturer markup of 1.45. 

TABLE V.4—COMPARISON OF LCC SAVINGS AND PBP FOR CONSUMER SUBGROUPS AND ALL HOUSEHOLDS; GAS-FIRED

INSTANTANEOUS WATER HEATERS—Continued 

[Veff <2 gal, rated input >50,000 Btu/h] 

TSL Low-income 

households 

Senior-only 

households 

Small 

businesses All households 

3 ....................................................................................................................... 11.0 26.4 43.1 25.0 

4 ....................................................................................................................... 31.8 57.5 67.0 56.2 

Consumers with Net Benefit (%) 

1 ....................................................................................................................... 17.1 8.9 7.1 12.5 

2 ....................................................................................................................... 26.2 21.4 17.1 22.5 

3 ....................................................................................................................... 67.0 57.5 44.9 59.9 

4 ....................................................................................................................... 55.0 33.7 27.6 35.6 

Note: Numbers in parentheses indicate a negative number. 

c. Rebuttable Presumption Payback 

As discussed in section III.F.2 of this 

document, 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. In calculating a rebuttable 

presumption payback period for each of 

the considered TSLs, DOE used discrete 

values, and, as required by EPCA, based 

the energy use calculation on the DOE 

test procedures for consumer gas-fired 

instantaneous water heaters. In contrast, 

the PBPs presented in section V.B.1.a of 

this document use averages that were 

calculated using distributions that 

reflect the range of energy use in the 

field. 

Table V.5 presents the rebuttablepresumption payback periods for the 

considered TSLs for consumer gas-fired 

instantaneous water heaters. While DOE 

examined the rebuttable-presumption 

criterion, it considered whether the 

standard levels considered for this rule 

are economically justified through a 

more detailed analysis of the economic 

impacts of those levels, pursuant to 42 

U.S.C. 6295(o)(2)(B)(i), that considers 

the full range of impacts to the 

consumer, manufacturer, Nation, and 

environment. 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—REBUTTABLE-PRESUMPTION PAYBACK PERIODS

TSL 1 2 3 4 

(years) 

Gas-fired Instantaneous Water Heaters .......................................................... 11.0 7.9 7.4 9.2 

2. Economic Impacts on Manufacturers 

DOE performed an MIA to estimate 

the impact of amended energy 

conservation standards on 

manufacturers of gas-fired instantaneous 

water heaters. The next section 

describes the expected impacts on 

manufacturers at each considered TSL. 

Chapter 12 of the final rule TSD 

explains the analysis in further detail. 

a. Industry Cash Flow Analysis Results 

In this section, DOE provides GRIM 

results from the analysis, which 

examines changes in the industry that 

would result from a standard. The 

following tables summarize the 

estimated financial impacts (represented 

by changes in INPV) of potential 

amended energy conservation standards 

on manufacturers of gas-fired 

instantaneous water heaters, as well as 

the conversion costs that DOE estimates 

manufacturers of gas-fired instantaneous 

water heaters would incur at each TSL. 

As discussed in section IV.J.2.d of this 

document, DOE modeled two scenarios 

to evaluate a range of cash flow impacts 

on the gas-fired instantaneous water 

heater industry: (1) the preservation of 

gross margin percentage scenario and (2) 

the preservation of operating profit 

scenario. Under the preservation of 

gross margin percentage scenario, DOE 

applied a single uniform ‘‘gross margin 

percentage’’ across all efficiency levels. 

As MPCs increase with efficiency, this 

scenario implies that the per-unit dollar 

profit would also increase. DOE 

assumed a ‘‘gross margin percentage’’ of 

31 percent for gas-fired instantaneous 

water heaters.188 This gross margin 

percentage (and the corresponding 

manufacturer markup) is the same as the 

one that DOE used in the engineering 

analysis and the no-new-standards case 

of the GRIM. Because this scenario 

assumes that a manufacturer’s absolute 

dollar markup would increase as MPCs 

increase in the standards cases, it 

represents the upper bound to industry 

profitability under potential amended 

energy conservation standards. 

The preservation of operating profit 

scenario reflects manufacturers’ 

concerns about their inability to 

maintain margins as MPCs increase to 

reach more-stringent efficiency levels. 

In this scenario, while manufacturers 

make the necessary investments 

required to convert their facilities to 

produce compliant products, operating 

profit does not change in absolute 

dollars and decreases as a percentage of 

revenue. 

Each of the modeled manufacturer 

markup scenarios results in a unique set 

of cash flows and corresponding 

industry values at each TSL. In the 

following discussion, the INPV results 

refer to the difference in industry value 

between the no-new-standards case and 

each standards case resulting from the 

sum of discounted cash flows from 2024 

through 2059. To provide perspective 

on the short-run cash flow impact, DOE 


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includes in the discussion of results a 

comparison of free cash flow between 

the no-new-standards case and the 

standards case at each TSL in the year 

before amended standards are required. 

TABLE V.6—MANUFACTURER IMPACT ANALYSIS FOR GAS-FIRED INSTANTANEOUS WATER HEATERS UNDER THE

PRESERVATION OF GROSS MARGIN SCENARIO

Units 

No-newstandards 

case 

Trial standard level * 

1 2 3 4 

INPV .................................... 2023$ millions .................... 1,193.9 1,234.0 1,234.4 1,217.6 1,275.2 

Change in INPV .................. 2023$ millions .................... ........................ 40.1 40.5 23.7 81.2 

% ........................................ ........................ 3.4 3.4 2.0 6.8 

Free Cash Flow (2029) ....... 2023$ millions .................... 91.7 84.6 82.9 65.2 65.2 

Change in Free Cash Flow 

(2029).

2023$ millions .................... ........................ (7.1) (8.8) (26.5) (26.5) 

% ........................................ ........................ (7.8) (9.6) (28.9) (28.9) 

Product Conversion Costs .. 2023$ millions .................... ........................ 2.5 3.7 4.8 4.8 

Capital Conversion Costs ... 2023$ millions .................... ........................ 13.9 16.7 55.3 55.3 

Total Investment Required **.2023$ millions .................... ........................ 16.5 20.4 60.1 60.1 

* Numbers in parentheses indicate a negative number. 

** Numbers may not sum exactly due to rounding. 

TABLE V.7—MANUFACTURER IMPACT ANALYSIS FOR GAS-FIRED INSTANTANEOUS WATER HEATERS UNDER THE

PRESERVATION OF OPERATING PROFIT SCENARIO

Units 

No-newstandards 

case 

Trial standard level * 

1 2 2 4 

INPV .................................... 2023$ millions .................... 1,193.9 1,171.1 1,160.2 1,132.1 1,119.5 

Change in INPV .................. 2023$ millions .................... ........................ (22.9) (33.7) (61.8) (74.5) 

% ........................................ ........................ (1.9) (2.8) (5.2) (6.2) 

Free Cash Flow (2029) ....... 2023$ millions .................... 91.7 84.6 82.9 65.2 65.2 

Change in Free Cash Flow 

(2029).

2023$ millions .................... ........................ (7.1) (8.8) (26.5) (26.5) 

% ......................................... ............................................. (7.8) (9.6) (28.9) (28.9) 

Product Conversion Costs .. 2023$ millions .................... ........................ 2.5 3.7 4.8 4.8 

Capital Conversion Costs ... 2023$ millions .................... ........................ 13.9 16.7 55.3 55.3 

Total Investment Required **.2023$ millions .................... ........................ 16.5 20.4 60.1 60.1 

* Numbers in parentheses indicate a negative number. 

** Numbers may not sum exactly due to rounding. 

At TSL 1, DOE estimates that impacts 

on INPV would range from ¥$22.9 

million to $40.1 million, or a change in 

INPV of –1.9 percent to 3.4 percent. At 

TSL 1, industry free cash flow is $84.6 

million, which is a decrease of $7.1 

million, or a drop of 7.8 percent, 

compared to the no-new-standards case 

value of $91.7 million in 2029, the year 

leading up to the standards year. 

Approximately 70 percent of gas-fired 

instantaneous water heater shipments 

are expected to meet TSL 1 by the 

analyzed 2030 compliance date in the 

no-new-standards case. 

TSL 1 would set the energy 

conservation standard for gas-fired 

instantaneous water heaters at EL 1. 

Compared to the non-condensing design 

considered at baseline, the design 

options analyzed at TSL 1 includes a 

tube design condensing heat exchanger. 

Out of the 12 gas-fired instantaneous 

water heater OEMs identified, 11 offer 

models that meet TSL 1. These 11 

manufacturers currently offer 84 unique 

basic models, accounting for 61 percent 

of model listings, that meet this TSL. 

Based on feedback from manufacturer 

interviews and a review of the market, 

DOE does not expect that most 

manufacturers would need to add 

production capacity or incur significant 

capital conversion costs to meet this 

level. However, in response to the July 

2023 NOPR, one manufacturer 

commented that its U.S. production 

facility is currently optimized to 

produce non-condensing models. 

Converting this U.S. production facility 

to produce condensing gas-fired 

instantaneous water heaters would 

require significant investment. To avoid 

underestimating the potential 

investments required to meet levels that 

may necessitate condensing technology 

(i.e., TSL 1 through TSL 4), DOE 

incorporated the expected investments 

required to convert its U.S. production 

facility to accommodate production of 

condensing gas-fired instantaneous 

water heaters. DOE does not expect that 

there would be notable product 

conversion costs at this TSL since most 

manufacturers offer a range of models 

that already meet this level. DOE 

estimates that industry would incur 

approximately $13.9 million in capital 

conversion costs and $2.5 million in 

product conversions at TSL 1. Industry 

conversion costs total $16.5 million. 

At TSL 1, the shipment-weighted 

average MPC for gas-fired instantaneous 

water heaters increases by 9.4 percent 

relative to the no-new-standards case 

shipment-weighted average MPC for 

gas-fired instantaneous water heaters in 

2030. In the preservation of gross 

margin percentage scenario, the increase 


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Federal Register / Vol. 89, No. 247 / Thursday, December 26, 2024 / Rules and Regulations 105265 

in cashflow from the higher MSP 

outweighs the $16.5 million in 

conversion costs, causing a positive 

change in INPV at TSL 1 under this 

scenario. 

Under the preservation of operating 

profit scenario, manufacturers earn the 

same per-unit operating profit as would 

be earned in the no-new-standards case, 

but manufacturers do not earn 

additional profit from their investments. 

In this scenario, the manufacturer 

markup decreases in 2030. This 

reduction in the manufacturer markup 

and the $16.5 million in conversion 

costs incurred by manufacturers cause a 

slightly negative change in INPV at TSL 

1 under the preservation of operating 

profit scenario. See section IV.J.2.d of 

this document for a discussion of the 

manufacturer markup scenarios. 

At TSL 2, DOE estimates that impacts 

on INPV would range from ¥$33.7 

million to $40.5 million, or a change in 

INPV of –2.8 percent to 3.4 percent. At 

TSL 2, industry free cash flow is $82.9 

million, which is a decrease of $8.8 

million, or a drop of 9.6 percent 

compared to the no-new-standards case 

value of $91.7 million in 2029, the year 

leading up to the standards year. 

Approximately 62 percent of gas-fired 

instantaneous water heater shipments 

are expected to meet TSL 2 by the 

analyzed 2030 compliance date in the 

no-new-standards case. 

TSL 2 would set the energy 

conservation standard for gas-fired 

instantaneous water heaters at EL 2. The 

design options analyzed at TSL 2 

include increasing the tube design 

condensing heat exchanger area relative 

to TSL 1. Of the 12 gas-fired 

instantaneous water heater OEMs, 10 

manufacturers offer models that meet 

TSL 2. These 10 OEMs currently offer 

71 unique basic models, accounting for 

51 percent of model listings, that meet 

this TSL. As with TSL 1, DOE does not 

expect that most manufacturers would 

need to add production capacity (or 

incur notable capital conversion costs) 

to meet this level. However, the larger 

condensing heat exchanger that 

manufacturers may implement to meet 

TSL 2 could necessitate some capital 

investments to optimize production 

lines. Similar to TSL 1, DOE does not 

expect that there would be significant 

product conversion costs at this level 

since most manufacturers already offer 

a range of models that meet TSL 2. DOE 

estimates that industry would incur 

approximately $16.7 million in capital 

conversion costs and $3.7 million in 

product conversions at TSL 2. Industry 

conversion costs total $20.4 million. 

At TSL 2, the shipment-weighted 

average MPC for gas-fired instantaneous 

water heaters increases by 9.8 percent 

relative to the no-new-standards case 

shipment-weighted average MPC for 

gas-fired instantaneous water heaters in 

2030. In the preservation of gross 

margin percentage scenario, the increase 

in cashflow from the higher MSP 

outweighs the $20.4 million in 

conversion costs, causing a positive 

change in INPV at TSL 2 under this 

scenario. 

Under the preservation of operating 

profit scenario, manufacturers earn the 

same per-unit operating profit as would 

be earned in the no-new-standards, but 

manufacturers do not earn additional 

profit from their investments. In this 

scenario, the manufacturer markup 

decreases in 2030. This reduction in the 

manufacturer markup and the $20.4 

million in conversion costs incurred by 

manufacturers cause a slightly negative 

change in INPV at TSL 2 under the 

preservation of operating profit 

scenario. 

At TSL 3, DOE estimates that impacts 

on INPV would range from ¥$61.8 

million to $23.7 million, or a change in 

INPV of –5.2 percent to 2.0 percent. At 

TSL 3, industry free cash flow is $65.2 

million, which is a decrease of $26.5 

million, or a drop of 28.9 percent, 

compared to the no-new-standards case 

value of $91.7 million in 2029, the year 

leading up to the standards year. 

Approximately 16 percent of gas-fired 

instantaneous water heater shipments 

are expected to meet TSL 3 by the 

analyzed 2030 compliance date in the 

no-new-standards case. 

TSL 3 would set the energy 

conservation standard for gas-fired 

instantaneous water heaters at EL 3. The 

design options analyzed at TSL 3 

include a more efficient heat exchanger 

design (i.e., replacing a tube condensing 

heat exchanger with a flat plate 

condensing heat exchanger) and 

increasing the condensing heat 

exchanger area relative to TSL 2. Of the 

12 gas-fired instantaneous water heater 

OEMs, 10 manufacturers offer models 

that meet TSL 3. These 10 

manufacturers currently offer 48 unique 

basic models, accounting for 34 percent 

of model listings, that meet this TSL. 

Based on feedback from manufacturer 

interviews and public comments, DOE 

understands that implementing the 

larger, improved condensing heat 

exchanger technology would increase 

the complexity of the manufacturing 

process compared to the tube design 

condensing heat exchanger technology 

analyzed at TSL 1 and TSL 2. 

At this level, most manufacturers 

would need to add additional assembly 

lines to meet demand, which would 

require a large capital investment. The 

investment required to add production 

capacity would vary by manufacturer as 

it depends on floor space availability in 

and around existing manufacturing 

plants. Compared to TSL 1 and TSL 2, 

manufacturers offer fewer models that 

meet the required efficiency levels. 

Manufacturers without any models that 

meet TSL 3 would need to develop new 

gas-fired instantaneous water heater 

products with more complex, efficient 

condensing heat exchanger designs. 

Manufacturers with gas-fired 

instantaneous water heaters that meet 

TSL 3 may need to allocate technical 

resources to provide a full range of 

product offerings since most 

manufacturers currently only offer a 

handful of models that meet TSL 3. DOE 

estimates that manufacturers would 

incur approximately $55.3 million in 

capital conversion costs and $4.8 

million in product conversions at TSL 3. 

Industry conversion costs total $60.1 

million. 

At TSL 3, the shipment-weighted 

average MPC for gas-fired instantaneous 

water heaters increases by 11.2 percent 

relative to the no-new-standards case 

shipment-weighted average MPC for 

gas-fired instantaneous water heaters in 

2030. In the preservation of gross 

margin percentage scenario, the increase 

in cashflow from the higher MSP 

outweighs the $60.1 million in 

conversion costs, causing a slightly 

positive change in INPV at TSL 3 under 

this scenario. 

Under the preservation of operating 

profit scenario, manufacturers earn the 

same per-unit operating profit as would 

be earned in the no-new-standards case, 

but manufacturers do not earn 

additional profit from their investments. 

In this scenario, the manufacturer 

markup decreases in 2030. This 

reduction in the manufacturer markup 

and the $60.1 million in conversion 

costs incurred by manufacturers cause a 

negative change in INPV at TSL 3 under 

the preservation of operating profit 

scenario. 

At TSL 4, DOE estimates that impacts 

on INPV would range from ¥$74.5 

million to ¥$81.2 million, or a change 

in INPV of ¥6.2 percent to 6.8 percent. 

At TSL 4, industry free cash flow is 

$65.2 million, which is a decrease of 

$26.5 million, or a drop of 28.9 percent, 

compared to the no-new-standards case 

value of $91.7 million in 2029, the year 

leading up to the standards year. 

Approximately 8 percent of gas-fired 

instantaneous water heater shipments 

are expected to meet TSL 4 by the 

analyzed 2030 compliance date in the 

no-new-standards case. 

TSL 4 would set the energy 

conservation standard for gas-fired 


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105266 Federal Register / Vol. 89, No. 247 / Thursday, December 26, 2024 / Rules and Regulations 

189 In 2023, DOE estimates that approximately 

0.41 million out of the 1.22 million gas-fired 

instantaneous water heater unit shipments are noncondensing. In response to the July 2023 NOPR, 

Rinnai commented that its domestic market share 

of non-condensing gas-fired instantaneous water 

heaters is 60 percent: (60% × 0.41 million) ÷ 1.22 

million = 20%. 

190Rinnai commented that it currently employes 

183 full-time employees and 49 temporary 

employees at its Griffin, Georgia plant. DOE’s 

shipments analysis indicates shipments of noncondensing gas-fired instantaneous water heaters in 

the no-new-standards case will increase by 

approximately 4 percent from 2024 to 2030 (the 

compliance year). 

191 In support of the May 2024 Final Rule, DOE 

estimated that the total domestic direct employment 

for gas-fired storage, oil-fired storage, and electric 

storage water heaters would be 4,110 in 2030 in the 

no-new-standards case, representing 3,669 

production workers and 441 non-production 

workers. 89 FR 37778, 37900–37901. See the May 

2024 Final Rule GRIM available for download at: 

www.regulations.gov/document/EERE-2017-BTSTD-0019-1422. (3,669 + 190 = 3,859 domestic 

production workers in 2030, absent standards). 

instantaneous water heaters at EL 4 (i.e., 

max-tech). The design options analyzed 

at TSL 4 include replacing the stepmodulating burner with a fully 

modulating burner and increasing the 

condensing heat exchanger area relative 

to TSL 3. Of the 12 gas-fired 

instantaneous water heaters, five 

manufacturers offer models that meet 

this TSL. These five manufacturers 

currently offer 19 unique basic models, 

accounting for 14 percent of model 

listings, that meet this TSL. As with TSL 

3, DOE understands that implementing 

the larger, improved condensing heat 

exchanger design would add a 

significant amount of complexity to the 

manufacturing process compared to the 

tube design condensing heat exchanger 

technology at TSL 1 and TSL 2. As such, 

DOE expects similar capital conversion 

costs at TSL 3 and TSL 4. At max-tech, 

fewer manufacturers offer fewer models 

that meet the required efficiencies 

compared to TSL 3. DOE estimates that 

manufacturers would incur 

approximately $55.3 million in capital 

conversion costs and $4.8 million in 

product conversions at TSL 4. Industry 

conversion costs total $60.1 million. 

At TSL 4, the shipment-weighted 

average MPC for gas-fired instantaneous 

water heaters increases by 20.1 percent 

relative to the no-new-standards case 

shipment-weighted average MPC for 

gas-fired instantaneous water heaters in 

2030. The increase in cashflow from the 

higher MSP outweighs the $60.1 million 

in conversion costs, causing a positive 

change in INPV at TSL 4 under this 

scenario. 

Under the preservation of operating 

profit scenario, manufacturers earn the 

same per-unit operating profit as would 

be earned in the no-new-standards, but 

manufacturers do not earn additional 

profit from their investments. In this 

scenario, the manufacturer markup 

decreases in 2030. This reduction in the 

manufacturer markup and the $60.1 

million in conversion costs incurred by 

manufacturers cause a negative change 

in INPV at TSL 4 under the preservation 

of operating profit scenario. 

b. Direct Impacts on Employment 

To quantitatively assess the potential 

impacts of amended energy 

conservation standards on direct 

employment in the gas-fired 

instantaneous water heater industry, 

DOE used feedback from stakeholder 

comments, the engineering analysis, and 

shipments analysis to estimate the 

domestic labor expenditures and 

number of direct employees in the nonew-standards case and in each of the 

standards cases during the analysis 

period. 

In the July 2023 NOPR, DOE 

estimated that approximately 70 percent 

of consumer water heaters subject to the 

proposed amended standards were 

produced domestically. Of that 70 

percent, DOE estimated that all gas-fired 

instantaneous water heaters, which 

currently account for 12 percent of the 

overall consumer water heater market, 

were produced outside of the United 

States. For the July 2024 NODA, DOE 

revised its direct employment analysis 

to account for Rinnai’s new domestic 

production facility dedicated to 

manufacturing non-condensing gas-fired 

instantaneous water heaters. In the July 

2024 NODA, DOE estimated that 

approximately 20 percent of gas-fired 

instantaneous water heaters were 

produced domestically. DOE derived 

this value by using its shipments 

analysis and public market share 

feedback.189 (Rinnai No. 1186 at p. 1) 

DOE maintained the 20 percent estimate 

from the July 2024 NODA for this final 

rule. 

In addition to Rinnai’s market share 

feedback, DOE relied on the 

employment figures provided in 

Rinnai’s comments in response to the 

July 2023 NOPR to estimate the 

potential range of direct employment 

impacts in 2030 (the analyzed 

compliance year) in the July 2024 

NODA. Rinnai’s comments indicated 

that there were 122 domestic production 

workers dedicated to manufacturing 

non-condensing gas-fired instantaneous 

water heaters in 2023. (Rinnai No. 1186 

at p. 1) Using results of the shipments 

analysis, DOE projected that there 

would be approximately 128 domestic 

production workers in 2030 (the 

analyzed compliance year) in the nonew-standards case. 

To establish a conservative lower 

bound, DOE assumed domestic 

manufacturers would shift production 

to foreign countries at efficiency levels 

that would likely necessitate 

condensing technology. The upper 

bound domestic direct employment 

estimate corresponds to a potential 

increase in the number of domestic 

workers that would result from 

amended energy conservation standards 

if manufacturers continue to produce 

the same scope of covered products 

within the United States after 

compliance takes effect (i.e., 20 percent 

of gas-fired instantaneous water heater 

shipments continue to be manufactured 

domestically). Results of DOE’s 

engineering and product teardown 

analyses indicate that additional labor is 

required (on a per-unit basis) to produce 

a condensing gas-fired instantaneous 

water heater compared to a noncondensing gas-fired instantaneous 

water heater. As such, DOE modeled an 

increase in domestic direct employment 

in the upper bound scenario. 

For this final rule, DOE updated its 

estimate of domestic production 

workers of gas-fired instantaneous water 

heaters from 128 to 190 190 in 2030 

based on stakeholder comments in 

response to the July 2024 NODA but 

otherwise maintained its direct 

employment methodology. (Rinnai No. 

1443 at p. 1) DOE estimates that in the 

absence of new or amended energy 

conservation standards for consumer 

water heaters there would be 3,859 

domestic production employees for the 

overall consumer water heater market in 

2030.191

For the conservative lower bound of 

direct employment impacts for this final 

rule, DOE models a decrease of 

domestic direct employment of 190 

production workers at TSL 1 through 

TSL 4 in 2030. This lower bound 

reflects the scenario where Rinnai 

chooses to continue to source 

condensing gas-fired instantaneous 

water heaters from Japan. In response to 

the July 2023 NOPR and July 2024 

NODA, Rinnai commented that due to 

the large upfront investment required to 

repurpose its Georgia facility to 

accommodate production of condensing 

gas-fired instantaneous water heaters 

and its current production capacity of 

condensing gas-fired instantaneous 

water heaters in Japan, it is possible that 

manufacturing could shift overseas. 

(Rinnai No. 1186 at p. 23; Rinnai No. 

1443 at pp. 21–22) 

For the upper bound of direct 

employment impacts, using a shipmentweighted average, DOE estimates that 

the labor content required to produce a 


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Federal Register / Vol. 89, No. 247 / Thursday, December 26, 2024 / Rules and Regulations 105267 

condensing gas-fired instantaneous 

water heater is approximately 62 

percent more than the labor content 

required to produce a non-condensing 

gas-fired instantaneous water heater. 

See chapter 12 of the final rule TSD for 

the estimated labor content by efficiency 

level. Therefore, DOE models an upperbound increase in domestic direct 

employment of 62 percent (an increase 

of approximately 117 production 

workers, for a total of 307 domestic 

production workers) at TSL 1 through 

TSL 4 in 2030. 

Additional details on the analysis of 

direct employment, as well as the 

estimated labor content for each 

efficiency level, can be found in chapter 

12 of the final rule TSD. Additionally, 

the employment impacts discussed in 

this section are independent of the 

employment impacts from the broader 

U.S. economy, which are documented 

in chapter 16 of the final rule TSD. 

c. Impacts on Manufacturing Capacity 

Nearly all gas-fired instantaneous 

water heater OEMs currently offer 

condensing gas-fired instantaneous 

water heater models. Of the 12 

manufacturers identified, 11 

manufacturers already offer a range of 

condensing gas-fired instantaneous 

water heater models that meet TSL 1. 

DOE estimates that condensing gas-fired 

instantaneous water heaters account for 

67 percent of current shipments. For a 

condensing-level standard, most 

manufacturers would have to repurpose 

and retool assembly lines to produce 

only condensing models since the 

manufacturing processes (e.g., 

production of secondary heat 

exchangers) differ between condensing 

and non-condensing gas-fired 

instantaneous water heater models. 

Manufacturer feedback indicates that 

most manufacturers could meet TSL 1 

and TSL 2 without adding new 

production lines. However, at TSL 3 and 

TSL 4, DOE expects most manufacturers 

would have to add production lines due 

to increased complexity and 

incorporation of a larger, more efficient 

heat exchanger design. Additionally, 

while most shipments already meet TSL 

2, fewer shipments meet TSL 3 or TSL 

4. Currently, 60 percent of shipments 

meet TSL 2 whereas 15 percent and 8 

percent of shipments meet TSL 3 and 

TSL 4, respectively. However, at TSL 2 

(the adopted level), DOE expects that 

manufacturers would be able to add 

capacity and adjust product designs in 

the five-year period between the 

announcement year of the amended 

standard and the compliance year of the 

amended standard. 

d. Impacts on Subgroups of 

Manufacturers 

As discussed in section IV.J of this 

document, using average cost 

assumptions to develop an industry 

cash flow estimate may not be adequate 

for assessing differential impacts among 

manufacturer subgroups. Small 

manufacturers, niche manufacturers, 

and manufacturers exhibiting a cost 

structure substantially different from the 

industry average could be affected 

disproportionately. DOE used the 

results of the industry characterization 

to group manufacturers exhibiting 

similar characteristics. Consequently, 

DOE identified small business 

manufacturers as a subgroup for a 

separate impact analysis. 

For the small business subgroup 

analysis, DOE applied the small 

business size standards published by 

the U.S. Small Business Administration 

(‘‘SBA’’) to determine whether a 

company is considered a small business. 

The size standards are codified at 13 

CFR part 121. To be categorized as a 

small business under North American 

Industry Classification System 

(‘‘NAICS’’) code 335220, ‘‘Major 

Household Appliance Manufacturing,’’ 

a gas-fired instantaneous water heater 

manufacturer and its affiliates may 

employ a maximum of 1,500 employees. 

The 1,500-employee threshold includes 

all employees in a business’s parent 

company and any other subsidiaries. 

Based on this classification, DOE did 

not identify any manufacturers that 

qualify as a domestic small business. 

The small business subgroup analysis 

is discussed in more detail in chapter 12 

of the final rule TSD. DOE examines the 

potential impacts of this final rule on 

small business manufacturers in section 

VI.B of this document. 

e. Cumulative Regulatory Burden 

One aspect of assessing manufacturer 

burden involves looking at the 

cumulative impact of multiple DOE 

standards and the regulatory actions of 

other Federal agencies and States that 

affect the manufacturers of a covered 

product or equipment. While any one 

regulation may not impose a significant 

burden on manufacturers, the combined 

effects of several existing or impending 

regulations may have serious 

consequences for some manufacturers, 

groups of manufacturers, or an entire 

industry. Multiple regulations affecting 

the same manufacturer can strain profits 

and 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 examined Federal, 

product-specific regulations that could 

affect gas-fired instantaneous water 

heater manufacturers and that take 

effect approximately 3 years before or 

after the estimated compliance date 

(2027 to 2033). This information is 

presented in table V.8. 

TABLE V.8—COMPLIANCE DATES AND EXPECTED CONVERSION EXPENSES OF FEDERAL ENERGY CONSERVATION

STANDARDS AFFECTING GAS-FIRED INSTANTANEOUS WATER HEATER ORIGINAL EQUIPMENT MANUFACTURERS

Federal Energy Conservation Standard Number of 

OEMs * 

Number of 

OEMs 

affected by 

today’s rule ** 

Approx. 

standards 

compliance 

year 

Industry 

conversion 

costs 

($ millions) 

Industry 

conversion costs/ 

equipment 

revenue *** 

Consumer Pool Heaters 88 FR 34624 

(May 30, 2023) ................................... 20 3 2028 48.4 (2021$) 1.5 

Consumer Boilers † 88 FR 55128 (August 14, 2023) .................................... 24 8 2030 98.0 (2022$) 3.6 

Commercial Refrigerators, RefrigeratorFreezers, and Freezers † 88 FR 

70196 (October 10, 2023) .................. 83 1 2028 226.4 (2022$) 1.6 

Dehumidifiers † 88 FR 76510 (November 6, 2023) ........................................ 20 1 2028 6.9 (2022$) 0.4 

Consumer Furnaces 88 FR 87502 (December 18, 2023) ............................... 14 3 2029 162.0 (2022$) 1.8 


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105268 Federal Register / Vol. 89, No. 247 / Thursday, December 26, 2024 / Rules and Regulations 

TABLE V.8—COMPLIANCE DATES AND EXPECTED CONVERSION EXPENSES OF FEDERAL ENERGY CONSERVATION STANDARDS AFFECTING GAS-FIRED INSTANTANEOUS WATER HEATER ORIGINAL EQUIPMENT MANUFACTURERS—Continued 

Federal Energy Conservation Standard Number of 

OEMs * 

Number of 

OEMs 

affected by 

today’s rule ** 

Approx. 

standards 

compliance 

year 

Industry 

conversion 

costs 

($ millions) 

Industry 

conversion costs/ 

equipment revenue *** 

Refrigerators, Refrigerator-Freezers, 

and Freezers 89 FR 3026 (January 

17, 2024) ............................................ 63 2 ‡ 2029 and 2030 830.3 (2022$) 1.3 

Consumer Conventional Cooking Products 89 FR 11434 (February 14, 

2024) .................................................. 35 1 2028 66.7 (2022$) 0.3 

Consumer Clothes Dryers 89 FR 18164 

(March 12, 2024) ................................ 19 2 2028 180.7 (2022$) 1.4 

Residential Clothes Washers 89 FR 

19026 (March 15, 2024) ..................... 22 2 2028 320.0 (2022$) 1.8 

Dishwashers 89 FR 31398 (April 24, 

2024) .................................................. 21 2 2027 126.9 (2022$) 2.1 

Consumer Water Heaters 89 FR 37778 

(May 6, 2024) ..................................... 16 4 2029 239.8 (2022$) 1.9 

Miscellaneous Refrigeration Products 

89 FR 38762 (May 7, 2024) ............... 49 1 2029 130.7 (2022$) 2.9 

Air-Cooled Unitary Air Conditioners and 

Heat Pumps 89 FR 44052 (May 20, 

2024) .................................................. 9 1 2029 288.0 (2022$) 2.1 

Walk-in Coolers and Freezers †† .......... 87 1 2028 91.5 (2023$) 0.6 

* This column presents the total number of OEMs identified in the energy conservation standard rule that is contributing to cumulative regulatory burden. 

** This column presents the number of OEMs producing gas-fired instantaneous water heaters that are also listed as OEMs in the identified 

energy conservation standard that is contributing to cumulative regulatory burden. 

*** This column presents industry conversion costs as a percentage of product revenue during the conversion period. Industry conversion costs 

are the upfront investments manufacturers must make to sell compliant products/equipment. The revenue used for this calculation is the revenue 

from just the covered product/equipment associated with each row. The conversion period is the timeframe over which conversion costs are 

made and lasts from the publication year of the final rule to the compliance year of the energy conservation standard. The conversion period 

typically ranges from 3 to 5 years, depending on the rulemaking. 

† These rulemakings are at the NOPR stage, and all values are subject to change until finalized through publication of a final rule. 

‡ For the refrigerators, refrigerator-freezers, and freezers energy conservation standards direct final rule, the compliance year (2029 or 2030) 

varies by product class. 

†† At the time of issuance of the final rule, the WICFs final rule has been issued and is pending publication in the FEDERAL REGISTER. Once 

published, the final rule pertaining to WICFs will be available at: www.regulations.gov/docket/EERE-2017-BT-STD-0009. 

3. National Impact Analysis 

This section presents DOE’s estimates 

of the NES and the NPV of consumer 

benefits that would result from each of 

the TSLs considered as potential 

amended standards. 

a. National Energy Savings 

To estimate the energy savings 

attributable to potential amended 

standards for consumer gas-fired 

instantaneous water heaters, DOE 

compared their energy consumption 

under the no-new-standards case to 

their anticipated energy consumption 

under each TSL. The savings are 

measured over the entire lifetime of 

products purchased during the 30-year 

period that begins in the year of 

anticipated compliance with amended 

standards (2030–2059). Table V.9 

presents DOE’s projections of the NES 

for each TSL considered for consumer 

gas-fired instantaneous water heaters. 

The savings were calculated using the 

approach described in section IV.H.2 of 

this document. 

TABLE V.9—CUMULATIVE NATIONAL ENERGY SAVINGS FOR CONSUMER GAS-FIRED INSTANTANEOUS WATER HEATERS; 30 

YEARS OF SHIPMENTS

[2030–2059] 

Trial standard level 

1 2 3 4 

quads 

Primary Energy 

Gas-fired Instantaneous Water Heaters .......................................................... 0.32 0.52 0.76 0.97 

FFC Energy 

Gas-fired Instantaneous Water Heaters .......................................................... 0.35 0.58 0.85 1.07 


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192U.S. Office of Management and Budget. 

Circular A–4: Regulatory Analysis. Available at: 

www.whitehouse.gov/omb/information-foragencies/circulars (last accessed August 29, 2024). 

DOE used the prior version of Circular A–4 

(September 17, 2003) in accordance with the 

effective date of the November 9, 2023 version. 

Available at: www.whitehouse.gov/wp-content/ 

uploads/legacy_drupal_files/omb/circulars/A4/a4.pdf (last accessed August 29, 2024). 

193EPCA 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. (42 U.S.C. 6295(m)) 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 products, the compliance 

period is 5 years rather than 3 years. 

OMB Circular A–4 192 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 years, 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.193 The review 

timeframe established in EPCA is 

generally not synchronized with the 

product lifetime, product manufacturing 

cycles, or other factors specific to 

consumer gas-fired instantaneous water 

heaters. Thus, such results are presented 

for informational purposes only and are 

not indicative of any change in DOE’s 

analytical methodology. The NES 

sensitivity analysis results based on a 9- 

year analytical period are presented in 

table V.10. The impacts are counted 

over the lifetime of consumer gas-fired 

instantaneous water heaters purchased 

during the period 2030–2038. 

TABLE V.10—CUMULATIVE NATIONAL ENERGY SAVINGS FOR CONSUMER GAS-FIRED INSTANTANEOUS WATER HEATERS; 9 

YEARS OF SHIPMENTS

[2030–2038] 

Trial standard level 

1 2 3 4 

quads 

Primary Energy 

Gas-fired Instantaneous Water Heaters .......................................................... 0.10 0.16 0.21 0.27 

FFC Energy 

Gas-fired Instantaneous Water Heaters .......................................................... 0.11 0.17 0.24 0.30 

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 

TSLs considered for consumer gas-fired 

instantaneous water heaters. In 

accordance with OMB Circular A–4, 

DOE calculated NPV using both a 7- 

percent and a 3-percent real discount 

rate. Table V.11 shows the consumer 

NPV results with impacts counted over 

the lifetime of products purchased 

during the period 2030–2059. 

TABLE V.11—CUMULATIVE NET PRESENT VALUE OF CONSUMER BENEFITS FOR CONSUMER GAS-FIRED INSTANTANEOUS

WATER HEATERS; 30 YEARS OF SHIPMENTS

[2030–2059] 

Discount rate 

Trial standard level 

1 2 3 4 

billion 2023$ 

3 percent discount rate 

Gas-fired Instantaneous Water Heaters .......................................................... 1.26 3.06 4.89 4.50 

7 percent discount rate 

Gas-fired Instantaneous Water Heaters .......................................................... 0.24 0.87 1.45 0.98 

The NPV results based on the 

aforementioned 9-year analytical period 

are presented in table V.12. The impacts 

are counted over the lifetime of 

products purchased during the period 

2030–2038. 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. 


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105270 Federal Register / Vol. 89, No. 247 / Thursday, December 26, 2024 / Rules and Regulations 

TABLE V.12—CUMULATIVE NET PRESENT VALUE OF CONSUMER BENEFITS FOR CONSUMER GAS-FIRED INSTANTANEOUS

WATER HEATERS; 9 YEARS OF SHIPMENTS

[2030–2038] 

Discount rate 

Trial standard level 

1 2 3 4 

billion 2023$ 

3 percent discount rate 

Gas-fired Instantaneous Water Heaters .......................................................... 0.44 1.09 1.66 1.50 

7 percent discount rate 

Gas-fired Instantaneous Water Heaters .......................................................... 0.10 0.41 0.66 0.43 

The previous results reflect the use of 

a default trend to estimate the change in 

price for consumer gas-fired 

instantaneous water heaters over the 

analysis period (see section IV.F.1 of 

this document). DOE also conducted a 

sensitivity analysis that considered one 

scenario with a lower rate of price 

decline than the reference case and one 

scenario with a higher rate of price 

decline than the reference case. The 

results of these alternative cases are 

presented in appendix 10C of the final 

rule TSD. In the high-price-decline case, 

the NPV of consumer benefits is higher 

than in the default case. In the lowprice-decline case, the NPV of consumer 

benefits is lower than in the default 

case. 

c. Indirect Impacts on Employment 

DOE estimates that amended energy 

conservation standards for consumer 

gas-fired instantaneous water heaters 

will reduce energy expenditures for 

consumers of those products, with the 

resulting net savings being redirected to 

other forms of economic activity. These 

expected shifts in spending and 

economic activity could affect the 

demand for labor. As described in 

section IV.N of this document, DOE 

used an input/output model of the U.S. 

economy to estimate indirect 

employment impacts of the TSLs that 

DOE considered. There are uncertainties 

involved in projecting employment 

impacts, especially changes in the later 

years of the analysis. Therefore, DOE 

generated results for near-term 

timeframes (2030–2034), where these 

uncertainties are reduced. 

The results suggest that the adopted 

standards are likely to 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 final 

rule TSD presents detailed results 

regarding anticipated indirect 

employment impacts. 

4. Impact on Utility or Performance of 

Products 

As discussed in section III.F.1.d of 

this document, DOE has concluded that 

the standards adopted in this final rule 

will not lessen the utility or 

performance of the gas-fired 

instantaneous water heaters under 

consideration in this rulemaking. 

Manufacturers of these products 

currently offer units that meet or exceed 

the adopted standards. 

5. Impact of Any Lessening of 

Competition 

DOE considered any lessening of 

competition that would be likely to 

result from new or amended standards. 

As discussed in section III.F.1.e of this 

document, EPCA directs the Attorney 

General of the United States (‘‘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 in writing 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. To assist the 

Attorney General in making this 

determination, DOE provided the 

Department of Justice (‘‘DOJ’’) with 

copies of the NOPR and the TSD for 

review. In its assessment letter 

responding to DOE, DOJ concluded that 

the proposed energy conservation 

standards for gas-fired instantaneous 

water heaters are unlikely to 

substantially lessen competition. DOE is 

publishing the Attorney General’s 

assessment at the end of this final rule. 

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. Chapter 15 in the final rule 

TSD presents the estimated impacts on 

electricity-generating capacity, relative 

to the no-new-standards case, for the 

TSLs that DOE considered in this 

rulemaking. 

Energy conservation resulting from 

potential energy conservation standards 

for gas-fired instantaneous water heaters 

is expected to yield environmental 

benefits in the form of reduced 

emissions of certain air pollutants and 

GHG. Table V.13 provides DOE’s 

estimate of cumulative emissions 

reductions expected to result from the 

TSLs considered in this rulemaking. In 

the case of mercury, negative values 

(denoted in parenthesis) indicate a 

slight increase in emissions due to 

slightly higher electricity use at those 

TSLs. The emissions were calculated 

using the multipliers discussed in 

section IV.K of this document. DOE 

reports annual emissions reductions for 

each TSL in chapter 13 of the final rule 

TSD. 


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Federal Register / Vol. 89, No. 247 / Thursday, December 26, 2024 / Rules and Regulations 105271 

TABLE V.13—CUMULATIVE EMISSIONS REDUCTION FOR GAS-FFIRED INSTANTANEOUS WATER HEATERS SHIPPED DURING

THE PERIOD 2030–2059 

Trial standard level 

1 2 3 4 

Electric Power Sector and Site Emissions 

CO2 (million metric tons) ................................................................................. 17 28 40 47 

CH4 (thousand tons) ........................................................................................ 0.3 0.6 0.8 1.1 

N2O (thousand tons) ........................................................................................ 0.03 0.06 0.08 0.11 

SO2 (thousand tons) ........................................................................................ 0.04 0.10 0.17 0.75 

NOX (thousand tons) ....................................................................................... 15 25 35 41 

Hg (tons) .......................................................................................................... (0.0004) (0.0004) (0.0003) 0.0035 

Upstream Emissions 

CO2 (million metric tons) ................................................................................. 2 4 6 7 

CH4 (thousand tons) ........................................................................................ 244 397 575 669 

N2O (thousand tons) ........................................................................................ 0.00 0.01 0.01 0.01 

SO2 (thousand tons) ........................................................................................ 0.01 0.02 0.03 0.04 

NOX (thousand tons) ....................................................................................... 38 62 89 104 

Hg (tons) .......................................................................................................... (0.0000) (0.0000) (0.0000) 0.0000 

Total FFC Emissions 

CO2 (million metric tons) ................................................................................. 19 32 46 54 

CH4 (thousand tons) ........................................................................................ 244 398 576 671 

N2O (thousand tons) ........................................................................................ 0.04 0.06 0.09 0.12 

SO2 (thousand tons) ........................................................................................ 0.05 0.12 0.20 0.79 

NOX (thousand tons) ....................................................................................... 53 86 125 145 

Hg (tons) .......................................................................................................... (0.0004) (0.0004) (0.0003) 0.0035 

Note: Totals may not equal sums due to rounding. Negative values refer to an increase in emissions. 

As part of the analysis for this rule, 

DOE estimated monetary benefits likely 

to result from the reduced emissions of 

CO2 that DOE estimated for each of the 

considered TSLs for gas-fired 

instantaneous water heaters. Section 

IV.L of this document discusses the 

estimated SC–CO2 values that DOE 

used. Table V.14 and table V.15 present 

the value of CO2 emissions reduction at 

each TSL for each of the SC–CO2 cases. 

The time-series of annual values is 

presented for the selected TSL in 

chapter 14 of the final rule TSD. 

TABLE V.14—PRESENT VALUE OF CO2 EMISSIONS REDUCTION FOR GAS-FIRED INSTANTANEOUS WATER HEATERS

SHIPPED DURING THE PERIOD 2030–2059 

[2023 estimates of SC–GHG] 

TSL 

Near-term Ramsey discount rate 

2.5% 2.0% 1.5% 

(billion 2023$) 

1 ................................................................................................................................................... 2.2 3.8 6.8 

2 ................................................................................................................................................... 3.5 6.1 11.0 

3 ................................................................................................................................................... 5.1 8.8 15.9 

4 ................................................................................................................................................... 6.0 10.3 18.7 

TABLE V.15—PRESENT VALUE OF CO2 EMISSIONS REDUCTION FOR GAS-FIRED INSTANTANEOUS WATER HEATERS

SHIPPED DURING THE PERIOD 2030–2059 

[2021 interim SC–GHG estimates] 

TSL 

SC–CO2 Case 

Discount rate and statistics 

5% 

Average 

3% 

Average 

2.5% 

Average 

3% 

95th percentile 

(billion 2023$) 

1 ....................................................................................................................... 0.2 0.7 1.1 2.2 

2 ....................................................................................................................... 0.3 1.2 1.8 3.5 

3 ....................................................................................................................... 0.4 1.7 2.6 5.1 


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105272 Federal Register / Vol. 89, No. 247 / Thursday, December 26, 2024 / Rules and Regulations 

TABLE V.15—PRESENT VALUE OF CO2 EMISSIONS REDUCTION FOR GAS-FIRED INSTANTANEOUS WATER HEATERS

SHIPPED DURING THE PERIOD 2030–2059—Continued 

[2021 interim SC–GHG estimates] 

TSL 

SC–CO2 Case 

Discount rate and statistics 

5% 

Average 

3% 

Average 

2.5% 

Average 

3% 

95th percentile 

(billion 2023$) 

4 ....................................................................................................................... 0.4 2.0 3.1 5.9 

As discussed in section IV.L.2, DOE 

estimated the climate benefits likely to 

result from the reduced emissions of 

methane and N2O that DOE estimated 

for each of the considered TSLs for gasfired instantaneous water heaters. Table 

V.16 and table V.17 present the value of 

the CH4 emissions reduction at each 

TSL, and table V.18 and table V.19 

present the value of the N2O emissions 

reduction at each TSL. The time-series 

of annual values is presented for the 

selected TSL in chapter 14 of the final 

rule TSD. 

TABLE V.16—PRESENT VALUE OF METHANE EMISSIONS REDUCTION FOR GAS-FIRED INSTANTANEOUS WATER HEATERS

SHIPPED DURING THE PERIOD 2030–2059 

[2023 estimates of SC–GHG] 

TSL 

Near-term Ramsey discount rate 

2.5% 2.0% 1.5% 

(billion 2023$) 

1 ................................................................................................................................................... 0.4 0.6 0.9 

2 ................................................................................................................................................... 0.7 1.0 1.4 

3 ................................................................................................................................................... 1.0 1.4 2.0 

4 ................................................................................................................................................... 1.2 1.6 2.4 

TABLE V.17—PRESENT VALUE OF METHANE EMISSIONS REDUCTION FOR GAS-FIRED INSTANTANEOUS WATER HEATERS

SHIPPED DURING THE PERIOD 2030–2059 

[2021 Interim SC–GHG estimates] 

TSL 

SC–CH4 Case 

Discount rate and statistics 

5% 

Average 

3% 

Average 

2.5% 

Average 

3% 

95th percentile 

(billion 2023$) 

1 ....................................................................................................................... 0.1 0.3 0.4 0.8 

2 ....................................................................................................................... 0.2 0.5 0.7 1.3 

3 ....................................................................................................................... 0.2 0.7 1.0 1.8 

4 ....................................................................................................................... 0.3 0.8 1.1 2.1 

TABLE V.18—PRESENT VALUE OF NITROUS OXIDE EMISSIONS REDUCTION FOR GAS-FIRED INSTANTANEOUS WATER

HEATERS SHIPPED DURING THE PERIOD 2030–2059 

[2023 estimates of SC–GHG] 

TSL 

Near-term Ramsey discount rate 

2.5% 2.0% 1.5% 

(billion 2023$) 

1 ................................................................................................................................................... 0.001 0.002 0.003 

2 ................................................................................................................................................... 0.002 0.003 0.006 

3 ................................................................................................................................................... 0.003 0.005 0.008 

4 ................................................................................................................................................... 0.004 0.006 0.011 


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Federal Register / Vol. 89, No. 247 / Thursday, December 26, 2024 / Rules and Regulations 105273 

TABLE V.19—PRESENT VALUE OF NITROUS OXIDE EMISSIONS REDUCTION FOR GAS-FIRED INSTANTANEOUS WATER

HEATERS SHIPPED DURING THE PERIOD 2030–2059 

[2021 Interim SC–GHG estimates] 

TSL 

SC–N2O Case 

Discount rate and statistics 

5% 

Average 

3% 

Average 

2.5% 

Average 

3% 

95th percentile 

(billion 2023$) 

1 ....................................................................................................................... 0.0001 0.0005 0.0008 0.0014 

2 ....................................................................................................................... 0.0002 0.0008 0.0013 0.0022 

3 ....................................................................................................................... 0.0003 0.0012 0.0019 0.0032 

4 ....................................................................................................................... 0.0004 0.0016 0.0025 0.0043 

DOE is well aware that scientific and 

economic knowledge about the 

contribution of CO2 and other GHG 

emissions to changes in the future 

global climate and the potential 

resulting damages to the global and U.S. 

economy continues to evolve rapidly. 

DOE, together with other Federal 

agencies, will continue to review 

methodologies for estimating the 

monetary value of reductions in CO2

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. DOE notes, 

however, that the adopted standards 

would be economically justified even 

without inclusion of monetized benefits 

of reduced GHG emissions. 

DOE also estimated the monetary 

value of the economic benefits 

associated with NOX and SO2 emissions 

reductions anticipated to result from the 

considered TSLs for gas-fired 

instantaneous water heaters. The dollarper-ton values that DOE used are 

discussed in section IV.L of this 

document. Table V.20 presents the 

present value for NOX emissions 

reduction for each TSL calculated using 

7-percent and 3-percent discount rates, 

and table V.21 presents similar results 

for SO2 emissions reductions. The 

results in these tables reflect application 

of EPA’s low dollar-per-ton values, 

which DOE used to be conservative. The 

time-series of annual values is presented 

for the selected TSL in chapter 14 of the 

final rule TSD. 

TABLE V.20—PRESENT VALUE OF NOX EMISSIONS REDUCTION FOR GAS-FIRED INSTANTANEOUS WATER HEATERS

SHIPPED DURING THE PERIOD 2030–2059 

TSL 7% Discount 

rate 

3% Discount 

rate 

(million 2023$) 

1 ............................................................................................................................................................................... 554 1,650 

2 ............................................................................................................................................................................... 892 2,675 

3 ............................................................................................................................................................................... 1,260 3,830 

4 ............................................................................................................................................................................... 1,468 4,481 

TABLE V.21—PRESENT VALUE OF SO2 EMISSIONS REDUCTION FOR GAS-FIRED INSTANTANEOUS WATER HEATERS

SHIPPED DURING THE PERIOD 2030–2059 

EL 7% Discount 

rate 

3% Discount 

rate 

(million 2023$) 

1 ............................................................................................................................................................................... 0.04 0.22 

2 ............................................................................................................................................................................... 0.9 2.9 

3 ............................................................................................................................................................................... 1.9 5.9 

4 ............................................................................................................................................................................... 12.9 39.1 

Not all the public health and 

environmental benefits from the 

reduction of GHG, NOx, and SO2 are 

captured in the values above, and 

additional unquantified benefits from 

the reductions of those pollutants as 

well as from the reduction of direct PM 

and other co-pollutants may be 

significant. DOE has not included 

monetary impact of the change in Hg 

emissions because the change is very 

small. 

7. Other Factors 

The Secretary, 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)(VII)) No other 

factors were considered in this analysis. 

8. Summary of Economic Impacts 

Table V.22 and table V.23 present the 

NPV values that result from adding the 

estimates of the economic benefits 

resulting from reduced GHG and NOX

and SO2 emissions to the NPV of 

consumer benefits calculated for each 

TSL considered in this rulemaking. The 

consumer benefits are domestic U.S. 


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105274 Federal Register / Vol. 89, No. 247 / Thursday, December 26, 2024 / Rules and Regulations 

monetary savings that occur as a result 

of purchasing the covered products and 

are measured for the lifetime of 

products shipped during the period 

2030–2059. The climate benefits 

associated with reduced GHG emissions 

resulting from the adopted standards are 

global benefits, and are also calculated 

based on the lifetime of gas-fired 

instantaneous water heaters shipped 

during the period 2030–2059. 

TABLE V.22—CONSUMER NPV COMBINED WITH PRESENT VALUE OF CLIMATE BENEFITS AND HEALTH BENEFITS

[2023 SC–GHG estimates] 

Category of climate benefits TSL 1 TSL 2 TSL 3 TSL 4 

Using 3% Discount Rate for Consumer NPV and Health Benefits (billion 2023$) 

2.5% Near-term Ramsey DR ........................................................................... 5.5 10.0 14.8 16.2 

2.0% Near-term Ramsey DR ........................................................................... 7.3 12.8 18.9 21.0 

1.5% Near-term Ramsey DR ........................................................................... 10.6 18.2 26.7 30.1 

Using 7% Discount Rate for Consumer NPV and Health Benefits (billion 2023$) 

2.5% Near-term Ramsey DR ........................................................................... 3.4 6.0 8.8 9.6 

2.0% Near-term Ramsey DR ........................................................................... 5.1 8.9 12.9 14.4 

1.5% Near-term Ramsey DR ........................................................................... 8.4 14.2 20.7 23.5 

TABLE V.23—CONSUMER NPV COMBINED WITH PRESENT VALUE OF CLIMATE BENEFITS AND HEALTH BENEFITS

[2021 Interim SC–GHG estimates] 

Category of climate benefits TSL 1 TSL 2 TSL 3 TSL 4 

Using 3% Discount Rate for Consumer NPV and Health Benefits (billion 2023$) 

5% Average SC–GHG case ............................................................................ 3.2 6.2 9.3 9.7 

3% Average SC–GHG case ............................................................................ 3.9 7.4 11.1 11.8 

2.5% Average SC–GHG case ......................................................................... 4.5 8.3 12.3 13.3 

3% 95th percentile SC–GHG case .................................................................. 5.9 10.6 15.6 17.1 

Using 7% Discount Rate for Consumer NPV and Health Benefits (billion 2023$) 

5% Average SC–GHG case ............................................................................ 1.1 2.2 3.3 3.2 

3% Average SC–GHG case ............................................................................ 1.8 3.4 5.1 5.2 

2.5% Average SC–GHG case ......................................................................... 2.4 4.3 6.3 6.7 

3% 95th percentile SC–GHG case .................................................................. 3.8 6.6 9.6 10.5 

C. Conclusion 

When considering new or amended 

energy conservation standards, the 

standards that DOE adopts for any type 

(or class) of covered product must be 

designed to achieve the maximum 

improvement in energy efficiency that 

the Secretary determines is 

technologically feasible and 

economically justified. (42 U.S.C. 

6295(o)(2)(A)) 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)). 

For this final rule, DOE considered 

the impacts of amended standards for 

gas-fired instantaneous water heaters at 

each TSL, beginning with the maximum 

technologically feasible level, to 

determine whether that level was 

economically justified. Where the maxtech level was not justified, DOE then 

considered the next most efficient level 

and undertook the same evaluation until 

it reached the highest efficiency level 

that is both technologically feasible and 

economically justified and saves a 

significant amount of energy. 

To aid the reader as DOE discusses 

the benefits and/or burdens of each TSL, 

tables in this section present a summary 

of the results of DOE’s quantitative 

analysis for each TSL. 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 and impacts on employment. 

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, 

between renters and owners, or builders 

and purchasers). Having less than 

perfect foresight and a high degree of 

uncertainty about the future, consumers 

may trade off these types of investments 

at a higher than expected rate between 

current consumption and uncertain 

future energy cost savings. 

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 


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Federal Register / Vol. 89, No. 247 / Thursday, December 26, 2024 / Rules and Regulations 105275 

194P.C. Reiss and M.W. White. Household 

Electricity Demand, Revisited. Review of Economic 

Studies. 2005. 72(3): pp. 853–883. doi: 10.1111/ 

0034–6527.00354. 

195Sanstad, A. H. Notes on the Economics of 

Household Energy Consumption and Technology 

Choice. 2010. Lawrence Berkeley National 

Laboratory. Available at: www1.eere.energy.gov/ 

buildings/appliance_standards/pdfs/consumer_ee_

theory.pdf (last accessed September 12, 2024). 

consumers forgo the purchase of a 

product in the standards case, this 

decreases sales for product 

manufacturers, and the impact on 

manufacturers attributed to lost revenue 

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 shipments 

and changes in the volume of product 

purchases in chapter 9 of the final rule 

TSD. However, DOE’s current analysis 

does not explicitly control for 

heterogeneity in consumer preferences, 

preferences across subcategories of 

products or specific features, or 

consumer price sensitivity variation 

according to household income.194

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 energy 

conservation standards, and potential 

enhancements to the methodology by 

which these impacts are defined and 

estimated in the regulatory process.195

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 in 

future rulemakings. General 

considerations for consumer welfare 

and preferences as well as the special 

cases of complementary goods are areas 

DOE plans to explore in a forthcoming 

RFI related to the agency’s updates to its 

overall analytic framework. 

1. Benefits and Burdens of TSLs 

Considered for Gas-fired Instantaneous 

Water Heater Standards 

Table V.24 and table V.25 summarize 

the quantitative impacts estimated for 

each TSL for gas-fired instantaneous 

water heaters with effective storage 

volumes less than 2 gallons and with 

rated inputs greater than or equal to 

50,000 Btu/h. The national impacts are 

measured over the lifetime of gas-fired 

instantaneous water heaters purchased 

during the 30-year period that begins in 

the anticipated year of compliance with 

amended standards (2030–2059). The 

energy savings, emissions reductions, 

and value of emissions reductions refer 

to full-fuel-cycle results. DOE is 

presenting monetized benefits of GHG 

emissions reductions in accordance 

with the applicable Executive Orders, 

and DOE would reach the same 

conclusion presented in this final rule 

in the absence of the estimated benefits 

from reductions in GHG emissions, 

including the estimates published by 

EPA in December 2023 or the Interim 

Estimates presented by the Interagency 

Working Group in 2021. The efficiency 

levels contained in each TSL are 

described in section V.A of this 

document. 

TABLE V.24—SUMMARY OF ANALYTICAL RESULTS FOR GAS-FIRED INSTANTANEOUS WATER HEATERS TSLS: NATIONAL

IMPACTS

Category TSL 1 TSL 2 TSL 3 TSL 4 

Cumulative FFC National Energy Savings 

Quads .............................................................................................................. 0.35 0.58 0.85 1.07 

Cumulative FFC Emissions Reductions 

CO2 (million metric tons) ................................................................................. 19 32 46 54 

CH4 (thousand tons) ........................................................................................ 244 398 576 671 

N2O (thousand tons) ........................................................................................ 0.04 0.06 0.09 0.12 

SO2 (thousand tons) ........................................................................................ 0.05 0.12 0.20 0.79 

NOX (thousand tons) ....................................................................................... 53 86 125 145 

Hg (tons) .......................................................................................................... (0.0004) (0.0004) (0.0003) 0.0035 

Present Value of Benefits and Costs (3% discount rate, billion 2023$) 

Consumer Operating Cost Savings ................................................................. 2.6 4.5 6.7 8.6 

Climate Benefits * (2023 SC–GHG estimates) ................................................ 4.4 7.1 10.2 12.0 

Climate Benefits * (2021 interim SC–GHG estimates) .................................... 1.0 1.7 2.4 2.8 

Health Benefits ** ............................................................................................. 1.6 2.7 3.8 4.5 

Total Benefits † (2023 SC–GHG estimates) ............................................. 8.6 14.3 20.8 25.1 

Total Benefits † (2021 interim SC–GHG estimates) ................................. 5.3 8.9 12.9 15.9 

Consumer Incremental Product Costs ‡ .......................................................... 1.4 1.5 1.8 4.1 

Consumer Net Benefits ................................................................................... 1.3 3.1 4.9 4.5 

Total Net Benefits † (2023 SC–GHG estimates) ...................................... 7.3 12.8 18.9 21.0 

Total Net Benefits † (2021 interim SC–GHG estimates) .......................... 3.9 7.4 11.1 11.8 

Present Value of Benefits and Costs (7% discount rate, billion 2023$) 

Consumer Operating Cost Savings ................................................................. 1.0 1.7 2.4 3.1 

Climate Benefits * (2023 SC–GHG estimates) ................................................ 4.4 7.1 10.2 12.0 

Climate Benefits * (2021 interim SC–GHG estimates) .................................... 1.0 1.7 2.4 2.8 

Health Benefits ** ............................................................................................. 0.6 0.9 1.3 1.5 


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TABLE V.24—SUMMARY OF ANALYTICAL RESULTS FOR GAS-FIRED INSTANTANEOUS WATER HEATERS TSLS: NATIONAL

IMPACTS—Continued 

Category TSL 1 TSL 2 TSL 3 TSL 4 

Total Benefits † (2023 SC–GHG estimates) ............................................. 5.9 9.6 13.9 16.5 

Total Benefits † (2021 interim SC–GHG estimates) ................................. 2.5 4.2 6.0 7.3 

Consumer Incremental Product Costs ‡ .......................................................... 0.7 0.8 1.0 2.1 

Consumer Net Benefits ................................................................................... 0.2 0.9 1.5 1.0 

Total Net Benefits † (2023 SC–GHG estimates) ...................................... 5.1 8.9 12.9 14.4 

Total Net Benefits † (2021 interim SC–GHG estimates) .......................... 1.8 3.4 5.1 5.2 

Note: This table presents the costs and benefits associated with gas-fired instantaneous water heaters shipped during the period 2030–2059. 

These results include benefits to consumers which accrue after 2059 from the products shipped during the period 2030–2059. Parentheses indicate negative (-) values. 

* Climate benefits are calculated using different estimates of the SC–CO2, SC–CH4 and SC–N2O. Climate benefits are estimated using two 

separate sets of estimates of the social cost for each greenhouse gas, an updated set published in 2023 by the Environmental Protection Agency (EPA) (‘‘2023 SC–GHG’’) and the interim set of estimates used in the NOPR which were published in 2021 by the Interagency Working Group 

on the SC–GHG (IWG) (‘‘2021 Interim SC–GHG’’) (see section IV.L of this document). For presentational purposes of this table, the climate benefits associated with the average SC–GHG at a 2-percent near-term Ramsey discount rate are shown for the 2023 SC–GHG estimates, and the 

climate benefits associated with the average SC–GHG at a 3 percent discount rate are shown for the 2021 interim SC–GHG estimates. 

** Health benefits are calculated using benefit-per-ton values for NOX and SO2. DOE is currently only monetizing (for NOX and SO2) PM2.5 precursor health benefits and (for NOX) ozone precursor health benefits, but will continue to assess the ability to monetize other effects such as 

health benefits from reductions in direct PM2.5 emissions. Table 5 of the EPA’s Estimating the Benefit per Ton of Reducing PM2.5 Precursors 

from 21 Sectors TSD provides a summary of the health impact endpoints quantified in the analysis. See section IV.L of this document for more 

details. 

† Total and net benefits include consumer, climate, and health benefits. For presentation purposes, total and net benefits for both the 3-percent 

and 7-percent cases are presented using the average SC–GHG with 2-percent near-term Ramsey discount rate for the 2023 estimate and the 

average SC–GHG with 3-percent discount rate for the 2021 interim SC–GHG estimate. 

‡ Costs include incremental equipment costs as well as installation costs. 

TABLE V.25—SUMMARY OF ANALYTICAL RESULTS FOR GAS-FIRED INSTANTANEOUS WATER HEATER TSLS: 

MANUFACTURER AND CONSUMER IMPACTS

Category TSL 1 TSL 2 TSL 3 TSL 4 

Manufacturer Impacts 

Industry NPV (million 2023$) (No-new-standards case INPV = 1,193.9) .......................... 1,171.1 to 1,234.0 1,160.2 to 1,234.4 1,132.1 to 1,217.6 1,119.5 to 1,275.2 

Industry NPV (% change) ................................ (1.9) to 3.4 (2.8) to 3.4 (5.2) to 2.0 (6.2) to 6.8 

Consumer Average LCC Savings (2023$) 

Gas-fired Instantaneous Water Heater ............ (1) 112 90 39 

Consumer Simple PBP (years) 

Gas-fired Instantaneous Water Heater ............ 12.6 8.9 8.3 10.3 

Percent of Consumers that Experience a Net Cost 

Gas-fired Instantaneous Water Heater ............ 17.5 15.2 25.0 56.2 

Parentheses indicate negative (-) values. 

DOE first considered TSL 4, which 

represents the max-tech efficiency level 

analyzed for gas-fired instantaneous 

water heaters with current UEF-based 

standards. At TSL 4, the design option 

pathway includes the use of highefficiency flat-plate condensing heat 

exchangers and fully modulating 

burners. TSL 4 would require extensive 

changes to the way manufacturers 

currently produce gas-fired 

instantaneous water heaters. At TSL 4, 

approximately 8 percent of shipments 

are expected to meet the required 

efficiency levels by 2030 in the no-newstandards case; therefore, a significant 

ramp-up in manufacturing capacity 

would be needed to support the market 

transition. 

TSL 4 would save an estimated 1.07 

quads of energy, an amount DOE 

considers significant. Under TSL 4, the 

NPV of consumer benefit would be 

$0.98 billion using a discount rate of 7 

percent, and $4.50 billion using a 

discount rate of 3 percent. 

The cumulative emissions reductions 

at TSL 4 are 54 Mt of CO2, 671 thousand 

tons of CH4, 0.12 thousand tons of N2O, 

145 thousand tons of NOX, 0.79 

thousand tons of SO2, and 0.0035 tons 

of Hg. The estimated monetary value of 

the climate benefits from reduced GHG 

emissions at TSL 4 is $12.0 billion 

(associated with the average SC–GHG at 

a 2-percent near Ramsey discount rate 

using the 2023 SC–GHG estimates) or 

$2.8 billion (associated with the average 

SC–GHG at a 3-percent discount rate 

using the 2021 interim SC–GHG 

estimates). The estimated monetary 

value of the health benefits from 

reduced SO2 and NOX emissions at TSL 

4 is $1.5 billion using a 7-percent 

discount rate and $4.5 billion using a 3- 

percent discount rate. 

Using a 7-percent discount rate for 

consumer benefits and costs, health 

benefits from reduced SO2 and NOX

emissions, and the 2-percent near-term 

Ramsey discount rate case or the 3- 


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percent discount rate case for climate 

benefits from reduced GHG emissions, 

the estimated total NPV at TSL 4 is 

$14.4 billion (using the 2023 SC–GHG 

estimates) or $5.2 billion (using the 

2021 interim SC–GHG estimates). Using 

a 3-percent discount rate for consumer 

benefits and costs and health benefits 

from reduced NOX and SO2 emissions, 

and the 2-percent near-term Ramsey 

discount rate case or the 3-percent 

discount rate case for climate benefits 

from reduced GHG emissions, the 

estimated total NPV at TSL 4 is $21.0 

billion (using the 2023 SC–GHG 

estimates) or $11.8 billion (using the 

2021 interim SC–GHG estimates). The 

estimated total NPV is provided for 

additional information, however DOE 

primarily relies upon the NPV of 

consumer benefits when determining 

whether a proposed standard level is 

economically justified. 

At TSL 4, consumers will experience 

an average LCC savings of $39, which 

includes the cost of purchasing and 

installing a more expensive model with 

fully modulating burner technology. 

The fraction of consumers experiencing 

a net LCC cost is 56.2 percent. 

At TSL 4, the projected change in 

INPV ranges from a decrease of $74.5 

million to an increase of $81.2 million, 

which corresponds to a decrease of 6.2 

percent and an increase of 6.8 percent, 

respectively. The range of impacts is 

driven primarily by the ability of 

manufacturers to recover their 

investments. DOE estimates that 

industry would need to invest $60.1 

million to comply with standards set at 

TSL 4. At this level, given the greater 

complexity and assembly time of maxtech models, most manufacturers would 

need to add production lines to meet 

demand, which would require large 

capital investments and updates to the 

factory floor. The investment required to 

add production capacity would vary by 

manufacturer as it depends on floor 

space availability in and around existing 

manufacturing plants. Manufacturers 

would also need to upgrade their 

facilities to accommodate the 

production of models with large, highefficiency condensing heat exchangers 

and fully modulating burners. DOE 

understands that implementing larger, 

improved condensing heat exchanger 

designs would add a significant amount 

of complexity to the manufacturing 

process. Feedback from confidential 

interviews and public comments 

indicate that it would require notable 

investment to incorporate fully 

modulating burners into their gas-fired 

instantaneous water heater designs. Of 

the 12 gas-fired instantaneous water 

heater OEMs, five OEMs offer 19 models 

that meet TSL 4 (which represents 

approximately 14 percent of gas-fired 

instantaneous water heater basic model 

listings). 

The Secretary concludes that at TSL 

4 for gas-fired instantaneous water 

heaters, the benefits of energy savings, 

positive NPV of consumer benefits, 

emissions reductions, and estimated 

monetary value of the emissions 

reductions would be outweighed by 

economic impacts to manufacturers 

(driven by the ramp-up in scale and 

offerings needed to support max-tech 

efficiencies), and a majority of 

consumers would experience a net cost 

(56.2 percent). At TSL 4, most 

manufacturers would need to add 

production lines to meet demand, 

which would require large capital 

expenditures. DOE projects that only 8 

percent of shipments would meet TSL 4 

efficiencies by 2030 in the no-newstandards case. Consequently, the 

Secretary has concluded that TSL 4 is 

not economically justified. 

DOE then considered TSL 3, which 

represents the next highest efficiency 

level analyzed for gas-fired 

instantaneous water heaters with 

current UEF-based standards and 

represents efficiencies that can meet the 

current ENERGY STAR specification. At 

TSL 3, the design option pathway 

includes the use of high-efficiency flatplate condensing heat exchangers. TSL 

3 may also require changes to the way 

manufacturers currently produce gasfired instantaneous water heaters since 

many designs on the market today use 

tube heat exchangers. At TSL 3, 

approximately 16 percent of shipments 

are expected to meet the required 

efficiency levels by 2030 in the no-newstandards case. 

TSL 3 would save an estimated 0.85 

quads of energy, an amount DOE 

considers significant. Under TSL 3, the 

NPV of consumer benefit would be 

$1.45 billion using a discount rate of 7 

percent, and $4.89 billion using a 

discount rate of 3 percent. 

The cumulative emissions reductions 

at TSL 3 are 46 Mt of CO2, 576 thousand 

tons of CH4, 0.09 thousand tons of N2O, 

125 thousand tons of NOX, 0.20 

thousand tons of SO2, and an increase 

of 0.0003 tons of Hg. The estimated 

monetary value of the climate benefits 

from reduced GHG emissions at TSL 3 

is $10.2 billion (associated with the 

average SC–GHG at a 2-percent nearterm Ramsey discount rate using the 

2023 SC–GHG estimates) or $2.4 billion 

(associated with the average SC–GHG at 

a 3-percent discount rate using the 2021 

interim SC–GHG estimates). The 

estimated monetary value of the health 

benefits from reduced SO2 and NOX

emissions at TSL 3 is $1.3 billion using 

a 7-percent discount rate and $3.8 

billion using a 3-percent discount rate. 

Using a 7-percent discount rate for 

consumer benefits and costs, health 

benefits from reduced SO2 and NOX

emissions, and the 2-percent near-term 

Ramsey discount rate case or the 3- 

percent discount rate case for climate 

benefits from reduced GHG emissions, 

the estimated total NPV at TSL 3 is 

$12.9 billion (using the 2023 SC–GHG 

estimates) or $5.1 billion (using the 

2021 interim SC–GHG estimates). Using 

a 3-percent discount rate for consumer 

benefits and costs and health benefits 

from reduced NOX and SO2 emissions, 

and the 2-percent near-term Ramsey 

discount rate case or the 3-percent 

discount rate case for climate benefits 

from reduced GHG emissions, the 

estimated total NPV at TSL 3 is $18.9 

billion (using the 2023 SC–GHG 

estimates) or $11.1 billion (using the 

2021 interim SC–GHG estimates). The 

estimated total NPV is provided for 

additional information, however DOE 

primarily relies upon the NPV of 

consumer benefits when determining 

whether a proposed standard level is 

economically justified. 

At TSL 3, consumers will experience 

an average LCC savings of $90, which 

includes the cost of purchasing and 

installing a more expensive condensing 

model. The fraction of consumers 

experiencing a net LCC cost is 25.0 

percent. 

At TSL 3, the projected change in 

INPV ranges from a decrease of $61.8 

million to an increase of $23.7 million, 

which corresponds to a decrease of 5.2 

percent and an increase of 2.0 percent, 

respectively. As with TSL 4, the range 

of impacts is driven primarily by the 

ability of manufacturers to recover their 

investments. DOE estimates that 

industry must invest $60.1 million to 

comply with standards set at TSL 3. At 

this level, DOE expects manufacturers 

would implement the same highefficiency heat exchanger design as at 

max-tech and increase the condensing 

heat exchanger area relative to lower 

efficiency levels but not to the extent as 

required at max-tech. Given the greater 

complexity and assembly time of highefficiency models, most manufacturers 

would need to add production lines to 

meet demand, which would require 

capital investments and potential 

updates to the factory floor. The 

investment required to add production 

capacity would vary by manufacturer as 

it depends on floor space availability in 

and around existing manufacturing 

plants. Manufacturers would also need 

to upgrade their facilities to 

accommodate the production of models 


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with high-efficiency condensing heat 

exchangers. Additionally, while TSL 3 

is technologically feasible using 

traditional step-modulating burner 

designs, DOE received information from 

several manufacturers indicating that, at 

this efficiency level, some 

manufacturers may opt to redesign their 

models to take advantage of alternative 

burner configurations (e.g., down-firing) 

or even fully-modulating designs— 

designs which may provide a benefit of 

better condensate management at such a 

high efficiency. 

The Secretary concludes that at TSL 

3 for gas-fired instantaneous water 

heaters, the benefits of energy savings, 

positive NPV of consumer benefits, 

emissions reductions, and estimated 

monetary value of the emissions 

reductions would be outweighed by 

economic impacts to manufacturers 

(driven by the potential conversion 

costs for production equipment and 

tooling, as well as the ramp-up in 

production necessary for all model lines 

to meet this efficiency). At TSL 3, most 

manufacturers would need to add 

production lines to meet demand. 

Consequently, the Secretary has 

concluded that TSL 3 is not 

economically justified. 

DOE then considered TSL 2, which 

represents the next highest efficiency 

level analyzed for gas-fired 

instantaneous water heaters with 

current UEF-based standards. TSL 2 also 

aligns with the Joint Stakeholder 

Recommendation efficiency level. At 

TSL 2, the design option pathway 

includes the use of condensing heat 

exchangers. At TSL 2, approximately 62 

percent of shipments are expected to 

meet the required efficiency levels by 

2030 in the no-new-standards case, 

which is a significant increase from TSL 

3 and TSL 4. 

TSL 2 would save an estimated 0.58 

quads of energy, an amount DOE 

considers significant. Under TSL 2, the 

NPV of consumer benefit would be 

$0.87 billion using a discount rate of 7 

percent, and $3.06 billion using a 

discount rate of 3 percent. 

The cumulative emissions reductions 

at TSL 2 are 32 Mt of CO2, 398 thousand 

tons of CH4, 0.06 thousand tons of N2O, 

86 thousand tons of NOX, 0.12 thousand 

tons of SO2, and an increase of 0.0004 

tons of Hg. The estimated monetary 

value of the climate benefits from 

reduced GHG emissions at TSL 2 is $7.1 

billion (associated with the average SC– 

GHG at a 2-percent near-term Ramsey 

discount rate using the 2023 SC–GHG 

estimates) or $1.7 billion (associated 

with the average SC–GHG at a 3-percent 

discount rate using the 2021 interim 

SC–GHG estimates). The estimated 

monetary value of the health benefits 

from reduced SO2 and NOX emissions at 

TSL 3 is $0.9 billion using a 7-percent 

discount rate and $2.7 billion using a 3- 

percent discount rate. 

Using a 7-percent discount rate for 

consumer benefits and costs, health 

benefits from reduced SO2 and NOX

emissions, and the 2-percent near-term 

Ramsey discount rate case or the 3- 

percent discount rate case for climate 

benefits from reduced GHG emissions, 

the estimated total NPV at TSL 2 is $8.9 

billion (using the 2023 SC–GHG 

estimates) or $3.4 billion (using the 

2021 interim SC–GHG estimates). Using 

a 3-percent discount rate for consumer 

benefits and costs and health benefits 

from reduced NOX and SO2 emissions, 

and the 2-percent near-term Ramsey 

discount rate case or the 3-percent 

discount rate case for climate benefits 

from reduced GHG emissions, the 

estimated total NPV at TSL 2 is $12.8 

billion (using the 2023 SC–GHG 

estimates) or $7.4 billion (using the 

2021 interim SC–GHG estimates). The 

estimated total NPV is provided for 

additional information, however DOE 

primarily relies upon the NPV of 

consumer benefits when determining 

whether a proposed standard level is 

economically justified. 

At TSL 2, consumers will experience 

an average LCC savings of $112 which 

includes the cost of purchasing and 

installing a more expensive condensing 

model. The fraction of consumers 

experiencing a net LCC cost is 15.2 

percent. 

At TSL 2, the projected change in 

INPV ranges from a decrease of $33.7 

million to an increase of $40.5 million, 

which corresponds to a decrease of 2.8 

percent and an increase of 3.4 percent, 

respectively. DOE estimates that 

industry must invest $20.4 million to 

comply with standards set at TSL 2. 

At higher TSLs, the primary driver of 

high conversion costs is the required 

capital investment to meet market 

demand for high-efficiency condensing 

gas-fired instantaneous water heaters. 

However, at TSL 2, industry has 

extensive experience producing gasfired instantaneous water heater models 

that meet this level, and, furthermore, 

this TSL was strongly supported by a 

coalition of industry stakeholders, 

including manufacturers. DOE believes 

that having major manufacturers and the 

industry trade association sign on to the 

Joint Stakeholder Recommendation is a 

testament to industry’s ability to ramp 

up capacity to produce volumes 

necessary to support a transition to 

condensing efficiencies at TSL 2. Based 

on manufacturer feedback, DOE does 

not expect that most manufacturers 

would need to add production lines at 

this level. All 12 gas-fired instantaneous 

water heater OEMs currently 

manufacture condensing gas-fired 

instantaneous water heater models. Of 

these 12 OEMs, 10 OEMs currently 

manufacture condensing gas-fired 

instantaneous water heater models that 

meet this level. Collectively, these 10 

OEMs offer 71 unique basic models that 

meet TSL 2 (which represent 

approximately 51 percent of gas-fired 

instantaneous water heater basic model 

listings). Furthermore, these 10 OEMs 

account for the majority of gas-fired 

instantaneous water heater sales, 

representing over 95 percent of industry 

shipments. 

After considering the analysis and 

weighing the benefits and burdens, the 

Secretary has concluded that standards 

set at TSL 2 for gas-fired instantaneous 

water heaters would be economically 

justified. At this TSL, the average LCC 

savings for consumers are expected to 

be positive. The FFC national energy 

savings are significant and the NPV of 

consumer benefits is positive using both 

a 3-percent and 7-percent discount rate. 

These national benefits vastly outweigh 

the costs. The standard levels at TSL 2 

are economically justified even without 

weighing the estimated monetary value 

of emissions reductions. When those 

emissions reductions are included— 

representing $7.1 billion in climate 

benefits (associated with the average 

SC–GHG at a 2-percent near-term 

Ramsey discount rate using the 2023 

SC–GHG estimates) or $1.7 billion in 

climate benefits (associated with the 

average SC–GHG at a 3-percent discount 

rate using the 2021 interim SC–GHG 

estimate), and $0.9 billion (using a 7- 

percent discount rate) or $2.7 billion 

(using a 3-percent discount rate) in 

health benefits—the rationale becomes 

stronger still. In addition, DOE 

considered that TSL 2 is representative 

of the Joint Stakeholder 

Recommendation. More specifically, 

DOE believes the Joint Stakeholder 

agreement from a cross-section group of 

stakeholders provides DOE with a good 

indication of stakeholder views on this 

rulemaking and some assurance that 

industry can transition to these levels. 

And, as indicated by DOE’s analysis, the 

market will see significant benefits at 

this efficiency level. 

Accordingly, the Secretary has 

concluded that TSL 2 would offer the 

maximum improvement in efficiency 

that is technologically feasible and 

economically justified, and would result 

in significant conservation of energy. 

Lastly, TSL 2 represents the 

recommended standard levels submitted 

by Joint Stakeholders to DOE, providing 


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Federal Register / Vol. 89, No. 247 / Thursday, December 26, 2024 / Rules and Regulations 105279 

further support for standard levels set at 

TSL 2, a factor the Secretary considers 

significant. 

As stated, DOE conducts the walkdown analysis to determine the TSL that 

represents the maximum improvement 

in energy efficiency that is 

technologically feasible and 

economically justified as required under 

EPCA. The walk-down is not a 

comparative analysis, as a comparative 

analysis would result in the 

maximization of net benefits instead of 

energy savings that are technologically 

feasible and economically justified, 

which would be contrary to the statute. 

86 FR 70892, 70908. Although DOE has 

not conducted a comparative analysis to 

select the amended energy conservation 

standards, DOE notes that at higher 

TSLs, larger fractions of consumers 

experience increased costs greater than 

operating savings, and manufacturer 

investments to meet consumer demand 

would be significantly higher. 

Therefore, based on the above 

considerations, DOE adopts the 

conservation standards for consumer 

water heaters at TSL 2 for those product 

classes where there are existing 

applicable UEF standards. For the 

remaining product classes, DOE adopts 

converted standards in the UEF metric 

based on the amended appendix E test 

procedure. The amended energy 

conservation standards for gas-fired 

instantaneous water heaters, which are 

expressed as UEF, are shown in table 

V.26. 

TABLE V.26—AMENDED ENERGY CONSERVATION STANDARDS FOR GAS-FIRED INSTANTANEOUS WATER HEATERS

Product class Effective storage volume 

(Veff) * and input rating Draw pattern UEF * 

Gas-fired Instantaneous Water 

Heater.

<2 gal and ≤50,000 Btu/h ............. Very Small ....................................

Low ...............................................

0.64. 

0.64. 

Medium ......................................... 0.64. 

High .............................................. 0.64. 

<2 gal and >50,000 Btu/h ............. Very Small .................................... 0.89. 

Low ............................................... 0.91. 

Medium ......................................... 0.91. 

High .............................................. 0.93. 

≥2 gal and ≤200,000 Btu/h ........... Very Small .................................... 0.2534–(0.0018 × Veff). 

Low ............................................... 0.5226–(0.0022 × Veff). 

Medium ......................................... 0.5919–(0.0020 × Veff). 

High .............................................. 0.6540–(0.0017 × Veff). 

* Veff is the Effective Storage Volume (in gallons), as determined pursuant to 10 CFR 429.17. 

2. Annualized Benefits and Costs of the 

Adopted Standards 

The benefits and costs of the adopted 

standards can also be expressed in terms 

of annualized values. The annualized 

net benefit is: (1) the annualized 

national economic value (expressed in 

2023$) of the benefits from operating 

products that meet the adopted 

standards (consisting primarily of 

operating cost savings from using less 

energy), minus increases in product 

purchase costs; and (2) the annualized 

monetary value of the climate and 

health benefits. 

Table V.27 shows the annualized 

values for gas-fired instantaneous water 

heaters analyzed under TSL 2, 

expressed in 2023$. The results under 

the primary estimate are as follows. 

Using a 7-percent discount rate for 

consumer benefits and costs and health 

benefits from reduced NOX and SO2

emissions, and a 2-percent near-term 

Ramsey discount rate case or the 3- 

percent discount rate case for climate 

benefits from reduced GHG emissions, 

the estimated cost of the adopted 

standards for gas-fired instantaneous 

water heaters is $88 million per year in 

increased equipment installed costs, 

while the estimated annual benefits are 

$187 million from reduced equipment 

operating costs, $349 million in climate 

benefits (using the 2023 SC–GHG 

estimates) or $98 million in climate 

benefits (using the 2021 interim SC– 

GHG estimates), and $101 million in 

health benefits. In this case, the net 

benefit amounts to $549 million per 

year (using the 2023 SC–GHG estimates) 

or $297 million per year (using the 2021 

interim SC–GHG estimates). 

Using a 3-percent discount rate for 

consumer benefits and costs and health 

benefits from reduced NOX and SO2

emissions, and the 2-percent near-term 

Ramsey discount rate case or the 3- 

percent discount rate case for climate 

benefits from reduced GHG emissions, 

the estimated cost of the adopted 

standards for gas-fired instantaneous 

water heaters is $87 million per year in 

increased equipment costs, while the 

estimated annual benefits are $268 

million in reduced operating costs, $349 

million in climate benefits (using the 

2023 SC–GHG estimates) or $98 million 

in climate benefits (using the 2021 

interim SC–GHG estimates), and $158 

million in health benefits. In this case, 

the net benefit amounts to $689 million 

per year (using the 2023 SC–GHG 

estimates) or $437 million per year 

(using the 2021 interim SC–GHG 

estimates). 


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TABLE V.27—ANNUALIZED BENEFITS AND COSTS OF THE ADOPTED ENERGY CONSERVATION STANDARDS FOR GAS-FIRED

INSTANTANEOUS WATER HEATERS AT TSL 2 SHIPPED DURING THE PERIOD 2030–2059 

[Veff <2 gal, rated input >50,000 Btu/h] 

Million 2023$/year 

Primary 

estimate 

Low-netbenefits 

estimate 

High-netbenefits 

estimate 

3% discount rate 

Consumer Operating Cost Savings ............................................................................................. 268 249 288 

Climate Benefits * (2023 SC–GHG estimates) ............................................................................ 349 344 355 

Climate Benefits * (2021 interim SC–GHG estimates) ................................................................ 98 96 100 

Health Benefits ** ......................................................................................................................... 158 156 161 

Total Benefits † (2023 SC–GHG estimates) ................................................................................ 776 749 804 

Total Benefits † (2021 interim SC–GHG estimates) .................................................................... 525 502 548 

Consumer Incremental Product Costs ‡ ...................................................................................... 87 86 89 

Net Benefits † (2023 SC–GHG estimates) .................................................................................. 689 663 715 

Net Benefits † (2021 interim SC–GHG estimates) ...................................................................... 437 416 459 

Change in Producer Cashflow (INPV) ‡‡ .................................................................................... (3)–4 (3)–4 (3)–4 

7% discount rate 

Consumer Operating Cost Savings ............................................................................................. 187 174 200 

Climate Benefits * (2023 SC–GHG estimates) ............................................................................ 349 344 355 

Climate Benefits * (2021 interim SC–GHG estimates) ................................................................ 98 96 100 

Health Benefits ** ......................................................................................................................... 101 99 102 

Total Benefits † (2023 SC–GHG estimates) ................................................................................ 637 616 658 

Total Benefits † (2021 interim SC–GHG estimates) .................................................................... 386 369 402 

Consumer Incremental Product Costs ‡ ...................................................................................... 88 87 90 

Net Benefits † (2023 SC–GHG estimates) .................................................................................. 549 530 568 

Net Benefits † (2021 interim SC–GHG estimates) ...................................................................... 297 283 312 

Change in Producer Cashflow (INPV) ‡‡ .................................................................................... (3)–4 (3)–4 (3)–4 

Note: These results include consumer, climate, and health benefits that accrue after 2059 from the products shipped during the period 2030– 

2059. The Primary, Low Net Benefits, and High Net Benefits Estimates utilize projections of energy prices from the AEO2023 Reference case, 

Low Economic Growth case, and High Economic Growth case, respectively. In addition, incremental equipment costs reflect a medium decline 

rate in the Primary Estimate, a low decline rate in the Low Net Benefits Estimate, and a high decline rate in the High Net Benefits Estimate. The 

methods used to derive projected price trends are explained in sections IV.F.1 and IV.H.3 of this document. Note that the Benefits and Costs 

may not sum to the Net Benefits due to rounding. 

* Climate benefits are calculated using different estimates of the global SC–GHG (see section IV.L of this document). Climate benefits are estimated using two separate sets of estimates of the social cost for each greenhouse gas, an updated set published in 2023 by the Environmental 

Protection Agency (EPA) (‘‘2023 SC–GHG’’) and the interim set of estimates used in the NOPR which were published in 2021 by the Interagency 

Working Group on the SC–GHG (IWG) (‘‘2021 Interim SC–GHG’’) (see section IV.L of this document). For presentational purposes of this table, 

the climate benefits associated with the average SC–GHG at a 2 percent near-term Ramsey discount rate are shown for the 2023 SC–GHG estimates, and the climate benefits associated with the average SC–GHG at a 3 percent discount rate are shown for the 2021 interim SC–GHG estimates. 

** Health benefits are calculated using benefit-per-ton values for NOX and SO2. DOE is currently only monetizing (for SO2 and NOX) PM2.5 precursor health benefits and (for NOX) ozone precursor health benefits, but will continue to assess the ability to monetize other effects such as 

health benefits from reductions in direct PM2.5 emissions. Table 5 of the EPA’s Estimating the Benefit per Ton of Reducing PM2.5 Precursors 

from 21 Sectors TSD provides a summary of the health impact endpoints quantified in the analysis. See section IV.L of this document for more 

details. 

† Total benefits for both the 3-percent and 7-percent cases are presented using the average SC–GHG with 2-percent near-term Ramsey discount rate for the 2023 estimate and the average SC–GHG with 3-percent discount rate for the 2021 interim SC–GHG estimate. 

‡ Costs include incremental equipment costs as well as installation costs. 

‡‡ Operating Cost Savings are calculated based on the life-cycle costs analysis and national impact analysis as discussed in detail below. See 

sections IV.F and IV.H of this document. DOE’s national impacts analysis includes all impacts (both costs and benefits) along the distribution 

chain beginning with the increased costs to the manufacturer to manufacture the product and ending with the increase in price experienced by 

the consumer. DOE also separately conducts a detailed analysis on the impacts on manufacturers (i.e., MIA). See section IV.J of this document. 

In the detailed MIA, DOE models manufacturers’ pricing decisions based on assumptions regarding investments, conversion costs, cashflow, and 

margins. The MIA produces a range of impacts, which is the rule’s expected impact on the INPV. The change in INPV is the present value of all 

changes in industry cash flow, including changes in production costs, capital expenditures, and manufacturer profit margins. The annualized 

change in INPV is calculated using the industry weighted average cost of capital value of 9.6 percent that is estimated in the MIA (see chapter 

12 of the final rule TSD for a complete description of the industry weighted average cost of capital). For gas-fired instantaneous water heaters, 

the annualized change in INPV ranges from ¥$3 million to $4 million. DOE accounts for that range of likely impacts in analyzing whether a TSL 

is economically justified. See section V.C of this document. DOE is presenting the range of impacts to the INPV under two manufacturer markup 

scenarios: the Preservation of Gross Margin scenario, which is the manufacturer markup scenario used in the calculation of Consumer Operating 

Cost Savings in this table; and the Preservation of Operating Profit scenario, where DOE assumed manufacturers would not be able to increase 

per-unit operating profit in proportion to increases in manufacturer production costs. DOE includes the range of estimated annualized change in 

INPV in the above table, drawing on the MIA explained further in section IV.J of this document to provide additional context for assessing the estimated impacts of this final rule to society, including potential changes in production and consumption, which is consistent with OMB’s Circular 

A–4 and E.O. 12866. If DOE were to include the INPV into the annualized net benefit calculation (2023 SC–GHG estimates) for this final rule, 

the annualized net benefits would range from $686 million to $693 million at 3-percent discount rate and would range from $546 million to $553 

million at 7-percent discount rate. Parentheses indicate negative ( ) values. 


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196U.S. Department of Energy’s Compliance 

Certification Database is available at 

regulations.doe.gov/certification-data (last accessed 

July 19, 2024). 

197Air-Conditioning, Heating and Refrigeration 

Institute’s Directory of Certified Product 

Performance is available at https://

Continued 

3. Compliance Dates 

As discussed in section II.A of this 

document, DOE is conducting this 

rulemaking in satisfaction of the 

lookback review provisions and the UEF 

metric provisions in EPCA. See 42 

U.S.C. 6295(m) and 6295(e)(5), 

respectively. Per EPCA, an amendment 

of standards prescribed under 42 U.S.C. 

6295(m) is applicable to water heaters 

manufactured after the date that is 5 

years after the publication of a final rule 

amending standards. (42 U.S.C. 

6295(m)(4)(A)(ii)) Hence, the 

compliance date for amended standards 

pertaining to gas-fired instantaneous 

water heaters is 5 years from the 

publication of this final rule. 

VI. Procedural Issues and Regulatory 

Review 

A. Review Under Executive Orders 

12866, 13563, and 14094 

Executive Order (‘‘E.O.’’) 12866, 

‘‘Regulatory Planning and Review,’’ as 

supplemented and reaffirmed by E.O. 

13563, ‘‘Improving Regulation and 

Regulatory Review,’’ 76 FR 3821 (Jan. 

21, 2011) and amended by E.O. 14094, 

‘‘Modernizing Regulatory Review,’’ 88 

FR 21879 (April 11, 2023), requires 

agencies, to the extent permitted by law, 

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 E.O. 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 

(‘‘OIRA’’) in the Office of Management 

and Budget 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, this final regulatory action is 

consistent with these principles. 

Section 6(a) of E.O. 12866 also 

requires agencies to submit ‘‘significant 

regulatory actions’’ to OIRA for review. 

OIRA has determined that this final 

regulatory action constitutes a 

‘‘significant regulatory action’’ within 

the scope of section 3(f)(1) of E.O. 

12866, as amended by E.O. 14094. 

Accordingly, pursuant to section 

6(a)(3)(C) of E.O. 12866, DOE has 

provided to OIRA an assessment, 

including the underlying analysis, of 

benefits and costs anticipated from the 

final regulatory action, together with, to 

the extent feasible, a quantification of 

those costs; and an assessment, 

including the underlying analysis, of 

costs and benefits of potentially 

effective and reasonably feasible 

alternatives to the planned regulation, 

and an explanation why the planned 

regulatory action is preferable to the 

identified potential alternatives. These 

assessments are summarized in this 

preamble and further detail can be 

found in the technical support 

document for this rulemaking. 

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’’) and a final regulatory 

flexibility analysis (‘‘FRFA’’) 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 E.O. 13272, 

‘‘Proper Consideration of Small Entities 

in Agency Rulemaking,’’ 67 FR 53461 

(Aug. 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 website (www.energy.gov/gc/ 

office-general-counsel). 

DOE reviewed this final rule under 

the provisions of the Regulatory 

Flexibility Act and the procedures and 

policies published on February 19, 

2003. DOE certifies that this final rule 

would not have a significant economic 

impact on a substantial number of small 

entities. As such, DOE has not prepared 

a FRFA for the products that are the 

subject of this rulemaking. The factual 

basis of this certification is set forth in 

the following paragraphs. 

For manufacturers of gas-fired 

instantaneous water heaters, the 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. 

(See 13 CFR part 121.) The size 

standards are listed by North American 

Industry Classification System 

(‘‘NAICS’’) code and industry 

description and are available at 

www.sba.gov/document/support-tablesize-standards. Manufacturing of gasfired instantaneous water heaters is 

classified under NAICS 335220, ‘‘Major 

Household Appliance Manufacturing.’’ 

The SBA sets a threshold of 1,500 

employees or fewer for an entity to be 

considered as a small business for this 

category. For manufacturers of gas-fired 

instantaneous water heaters, the 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. 

(See 13 CFR part 121.) The size 

standards are listed by North American 

Industry Classification System 

(‘‘NAICS’’) code and industry 

description and are available at 

www.sba.gov/document/support-tablesize-standards. Manufacturing of gasfired instantaneous water heaters is 

classified under NAICS 335220, ‘‘Major 

Household Appliance Manufacturing.’’ 

The SBA sets a threshold of 1,500 

employees or fewer for an entity to be 

considered as a small business for this 

category. 

To estimate the number of companies 

that could be small business 

manufacturers of gas-fired instantaneous 

water heaters, DOE conducted a market 

survey using public information and 

subscription-based company reports to 

identify potential small business 

manufacturers. DOE reviewed DOE’s 

Compliance Certification Database,196

Air-Conditioning, Heating, and 

Refrigeration Institute’s Directory of 

Certified Product Performance,197


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ahridirectory.org/search/searchhome?

Returnurl=%2f (last accessed July 23, 2024). 

198California Energy Commission’s Modernized 

Appliance Efficiency Database System is available 

at cacertappliances.energy.ca.gov/Pages/Search/ 

AdvancedSearch.aspx (last accessed July 19, 2024). 

199ENERGY STAR Product Finder is available at 

www.energystar.gov/productfinder (last accessed 

July 22, 2024). 

200 ImportYeti, LLC. ImportYeti is available at: 

www.importyeti.com/ (Last accessed July 30, 2024). 

201The Dun & Bradstreet subscription login is 

available at app.dnbhoovers.com (last accessed July 

30, 2024). 

California Energy Commission’s 

Modernized Appliance Efficiency 

Database System,198 the ENERGY STAR 

Product Finder dataset,199 and 

individual company websites, to create 

a list of companies that manufacture, 

produce, or import the products covered 

by this rulemaking. DOE then consulted 

publicly available data, such as 

manufacturer websites, manufacturer 

specifications and product literature, 

import/export logs (e.g., bills of lading 

from ImportYeti 200), and basic model 

numbers, to identify original equipment 

manufacturers (‘‘OEMs’’) of covered gasfired instantaneous water heaters. DOE 

relied on public information and market 

research tools (e.g., reports from D&B 

Hoovers 201) to determine company 

structure, location, headcount, and 

annual revenue. DOE screened out 

companies that do not manufacture the 

equipment covered by this rulemaking, 

do not meet the SBA’s definition of a 

‘‘small business,’’ or are foreign-owned 

and operated. 

DOE identified 12 OEMs of gas-fired 

instantaneous water heaters subject to 

more stringent standards. Of these 12 

OEMs, DOE did not identify any 

domestic OEMs that meet SBA’s 

definition of a ‘‘small business.’’ Given 

the lack of small, domestic OEMs with 

a direct compliance burden, DOE 

concludes that this final rule would not 

have ‘‘a significant impact on a 

substantial number of small entities.’’ 

DOE has transmitted the certification 

and supporting statement of factual 

basis to the Chief Counsel for Advocacy 

of the SBA for review under 5 U.S.C. 

605(b). 

In response to the July 2023 NOPR, 

the Gas Association Commenters and 

NPGA, APGA, AGA, and Rinnai 

submitted comments noting that DOE 

identified only two small businesses, 

neither of which produce gas-fired 

water heaters. As a result, these 

commenters stated that DOE has no data 

on small businesses that produce gasfired water heaters relative to redesign 

costs, product availability, or whether 

the proposed efficiency levels could 

cause small businesses to exit the 

market. (Gas Association Commenters 

No. 1181, pp. 38–39; NPGA, APGA, 

AGA, and Rinnai, No. 441 at p. 5) 

NPGA, APGA, AGA, and Rinnai 

asserted that the July 2023 NOPR fails 

to comply with Executive Order 13272, 

‘‘Proper Consideration of Small Entities 

in Agency Rulemaking,’’ and must be 

addressed. (NPGA, APGA, AGA, and 

Rinnai, No. 441 at p. 5) 

For the IRFA conducted in support of 

the July 2023 NOPR, which proposed 

standards for covered consumer water 

heaters, DOE identified one small 

domestic OEM of oil-fired storage water 

heaters and one small domestic OEM of 

electric storage water heaters. For this 

certification, DOE refreshed its product 

database to include up-to-date 

information on gas-fired instantaneous 

water heaters marketed for the United 

States. Based on its comprehensive 

review of the gas-fired instantaneous 

water heater market, DOE maintains its 

finding from the IRFA that there are no 

small, domestic OEMs that manufacture 

gas-fired instantaneous water heaters. 

As such, DOE does not expect that the 

standards adopted in this final rule 

would directly impact small businesses 

that manufacture gas-fired 

instantaneous water heaters. 

DOE did not receive written 

comments in response to the July 2024 

NODA that specifically addressed the 

potential impacts on small businesses. 

C. Review Under the Paperwork 

Reduction Act 

Manufacturers of gas-fired 

instantaneous water heaters must certify 

to DOE that their products comply with 

any applicable energy conservation 

standards. In certifying compliance, 

manufacturers must test their products 

according to the DOE test procedures for 

gas-fired instantaneous water heaters, 

including any amendments adopted for 

those test procedures. DOE has 

established regulations for the 

certification and recordkeeping 

requirements for all covered consumer 

products and commercial equipment, 

including gas-fired instantaneous water 

heaters. (See generally 10 CFR part 429). 

The collection-of-information 

requirement for the certification and 

recordkeeping is subject to review and 

approval by OMB under the Paperwork 

Reduction Act (‘‘PRA’’). This 

requirement has been approved by OMB 

under OMB control number 1910–1400. 

Public reporting burden for the 

certification is estimated to average 35 

hours per response, including the time 

for reviewing instructions, searching 

existing data sources, gathering and 

maintaining the data needed, and 

completing and reviewing the collection 

of information. 

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 of 1969 

(‘‘NEPA’’), DOE has analyzed this rule 

in accordance with NEPA and DOE’s 

NEPA implementing regulations (10 

CFR part 1021). DOE has determined 

that this rule qualifies for categorical 

exclusion under 10 CFR part 1021, 

subpart D, appendix B5.1 because it is 

a rulemaking that establishes energy 

conservation standards for consumer 

products or industrial equipment, none 

of the exceptions identified in B5.1(b) 

apply, no extraordinary circumstances 

exist that require further environmental 

analysis, and it meets the requirements 

for application of a categorical 

exclusion. See 10 CFR 1021.410. 

Therefore, DOE has determined that 

promulgation of this rule is not a major 

Federal action significantly affecting the 

quality of the human environment 

within the meaning of NEPA, and does 

not require an environmental 

assessment or an environmental impact 

statement. 

E. Review Under Executive Order 13132 

E.O. 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 rule and 

has 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 


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Federal Register / Vol. 89, No. 247 / Thursday, December 26, 2024 / Rules and Regulations 105283 

prescribes Federal preemption of State 

regulations as to energy conservation for 

the products that are the subject of this 

final 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 E.O. 

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 (February 7, 

1996). Regarding the review required by 

section 3(a), section 3(b) of E.O. 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 E.O. 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 final 

rule meets the relevant standards of E.O. 

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 

regulatory action likely to 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)) 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 

‘‘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 

www.energy.gov/sites/prod/files/gcprod/ 

documents/umra_97.pdf. 

DOE has concluded that this final rule 

may require expenditures of $100 

million or more in any one year by the 

private sector. Such expenditures may 

include: (1) investment in research and 

development and in capital 

expenditures by gas-fired instantaneous 

water heater 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 gas-fired instantaneous 

water heaters, 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 final 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 preamble 

section of this document and the TSD 

for this final rule respond to those 

requirements. 

Under section 205 of UMRA, DOE 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 rule 

unless DOE publishes an explanation 

for doing otherwise, or the selection of 

such an alternative is inconsistent with 

law. As required by 42 U.S.C. 6295(m), 

this final rule establishes amended 

energy conservation standards for gasfired instantaneous water heaters that 

are designed to achieve the maximum 

improvement in energy efficiency that 

DOE has determined to be both 

technologically feasible and 

economically justified, as required by 

sections 6295(o)(2)(A) and 6295(o)(3)(B). 

A full discussion of the alternatives 

considered by DOE is presented in 

chapter 17 of the TSD for this final 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 

proposed rule or policy that may affect 

family well-being. When developing a 

Family Policymaking Assessment, 

agencies must assess whether: (1) the 

action strengthens or erodes the stability 

or safety of the family and, particularly, 

the marital commitment; (2) the action 

strengthens or erodes the authority and 

rights of parents in the education, 

nurture, and supervision of their 

children; (3) the action helps the family 

perform its functions, or substitutes 

governmental activity for the function; 

(4) the action increases or decreases 

disposable income or poverty of families 

and children; (5) the proposed benefits 

of the action justify the financial impact 

on the family; (6) the action may be 

carried out by State or local government 

or by the family; and whether (7) the 

action establishes an implicit or explicit 

policy concerning the relationship 

between the behavior and personal 

responsibility of youth, and the norms 

of society. In evaluating the above 

factors, DOE has concluded that it is not 

necessary to prepare a Family 

Policymaking Assessment as none of the 

above factors are implicated. Further, 

this proposed determination would not 

have any financial impact on families 

nor any impact on the autonomy or 

integrity of the family as an institution. 

DOE has considered how the benefits 

of this final rule compare to the possible 

financial impact on a family (the only 

factor listed that is relevant to this 

proposed rule). As part of its rulemaking 

process, DOE must determine whether 

the energy conservation standards 

enacted in this final rule are 

economically justified. As discussed in 

section V.C.1 of this document, DOE has 

determined that the standards enacted 

in this final rule are economically 

justified because the benefits to 

consumers would far outweigh the costs 

to manufacturers. Families will also see 

LCC savings as a result of this final rule. 

Moreover, as discussed further in 

section V.B.1 of this document, DOE has 

determined that for low-income 

households, average LCC savings and 


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105284 Federal Register / Vol. 89, No. 247 / Thursday, December 26, 2024 / Rules and Regulations 

202The 2007 ‘‘Energy Conservation Standards 

Rulemaking Peer Review Report’’ is available at: 

energy.gov/eere/buildings/downloads/energyconservation-standards-rulemaking-peer-reviewreport-0 (last accessed August 29, 2024). 

203The report is available at: 

www.nationalacademies.org/our-work/review-ofmethods-for-setting-building-and-equipmentperformance-standards. 

PBP at the considered efficiency levels 

are improved (i.e., higher LCC savings 

and lower PBP) as compared to the 

average for all households. Further, the 

standards will also result in climate and 

health benefits for families. 

I. Review Under Executive Order 12630 

Pursuant to E.O. 12630, 

‘‘Governmental Actions and Interference 

with Constitutionally Protected Property 

Rights,’’ 53 FR 8859 (March 18, 1988), 

DOE has determined that this 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 (February 22, 2002), and 

DOE’s guidelines were published at 67 

FR 62446 (Oct. 7, 2002). Pursuant to 

OMB Memorandum M–19–15, 

Improving Implementation of the 

Information Quality Act (April 24, 

2019), DOE published updated 

guidelines which are available at 

www.energy.gov/sites/prod/files/2019/ 

12/f70/DOE%20Final%20Updated%20

IQA%20Guidelines%20

Dec%202019.pdf. DOE has reviewed 

this final rule 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 

E.O. 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 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 is likely to have a 

significant adverse effect on the supply, 

distribution, or use of energy; or (2) is 

designated by the Administrator of 

OIRA as a significant energy action. For 

any 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 concluded that this 

regulatory action, which sets forth 

amended energy conservation standards 

for gas-fired instantaneous water 

heaters, is not a significant energy 

action because the 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 final 

rule. 

L. Information Quality 

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.’’ 70 FR 2664, 2667. 

In response to OMB’s Bulletin, DOE 

conducted formal peer reviews of the 

energy conservation standards 

development process and the analyses 

that are typically used and prepared a 

report describing that peer review.202

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. Because 

available data, models, and 

technological understanding have 

changed since 2007, DOE has engaged 

with the National Academy of Sciences 

to review DOE’s analytical 

methodologies to ascertain whether 

modifications are needed to improve 

DOE’s analyses. DOE is in the process 

of evaluating the resulting report.203

M. Congressional Notification 

As required by 5 U.S.C. 801, DOE will 

report to Congress on the promulgation 

of this rule prior to its effective date. 

The report will state that the Office of 

Information and Regulatory Affairs has 

determined that the rule meets the 

criteria set forth in 5 U.S.C. 804(2). 

VII. Approval of the Office of the 

Secretary 

The Secretary of Energy has approved 

publication of this final rule. 

List of Subjects in 10 CFR Part 430 

Administrative practice and 

procedure, Confidential business 

information, Energy conservation, 

Household appliances, Imports, 

Intergovernmental relations, Reporting 

and recordkeeping requirements, and 

Small businesses. 

Signing Authority 

This document of the Department of 

Energy was signed on December 16, 

2024, by Jeffrey Marootian, Principal 

Deputy Assistant Secretary for Energy 

Efficiency and Renewable Energy, 

pursuant to delegated authority from the 

Secretary of Energy. That document 

with the original signature and date is 

maintained by DOE. For administrative 

purposes only, and in compliance with 

requirements of the Office of the Federal 

Register, the undersigned DOE Federal 

Register Liaison Officer has been 

authorized to sign and submit the 

document in electronic format for 

publication, as an official document of 

the Department of Energy. This 

administrative process in no way alters 

the legal effect of this document upon 

publication in the Federal Register. 

Signed in Washington, DC, on December 

16, 2024. 

Treena V. Garrett, 

Federal Register Liaison Officer, U.S. 

Department of Energy. 

For the reasons set forth in the 

preamble, DOE amends part 430 of 

chapter II, subchapter D, of title 10 of 

the Code of Federal Regulations, as set 

forth below: 


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Federal Register / Vol. 89, No. 247 / Thursday, December 26, 2024 / Rules and Regulations 105285 

PART 430—ENERGY CONSERVATION 

PROGRAM FOR CONSUMER 

PRODUCTS 

■ 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. 

■ 2. Amend § 430.32 by revising 

paragraph (d)(3) and adding paragraph 

(d)(4) to read as follows: 

§ 430.32 Energy and water conservation 

standards and their compliance dates. 

* * * * * 

(d) * * * 

(3) The uniform energy factor of water 

heaters manufactured on or after 

December 26, 2029 shall not be less than 

the following: 

TABLE 15 TO PARAGRAPH (d)(3) 

Product class Effective storage volume (Veff) * 

and input rating Draw pattern UEF * 

Gas-fired Instantaneous Water 

Heater.

<2 gallons (‘‘gal’’) and ≤50,000 

Btu/h.

Very Small ....................................

Low ...............................................

0.64. 

0.64. 

Medium ......................................... 0.64. 

High .............................................. 0.64. 

<2 gal and >50,000 Btu/h ............. Very Small ....................................

Low ...............................................

0.89. 

0.91. 

Medium ......................................... 0.91. 

High .............................................. 0.93. 

≥2 gal and ≤200,000 Btu/h ........... Very Small ....................................

Low ...............................................

0.2534¥(0.0018 × Veff). 

0.5226¥(0.0022 × Veff). 

Medium ......................................... 0.5919¥(0.0020 × Veff). 

High .............................................. 0.6540¥(0.0017 × Veff). 

* Veff is the Effective Storage Volume (in gallons), as determined pursuant to § 429.17 of this chapter. 

(4) The provisions of paragraph (d) of 

this section are separate and severable 

from one another. Should a court of 

competent jurisdiction hold any 

provision(s) of paragraph (d) of this 

section to be stayed or invalid, such 

action shall not affect any other 

provision of paragraph (d) of this 

section. 

* * * * * 

Note: The following letter will not appear 

in the Code of Federal Regulations. 

October 12, 2023 

U.S. Department of Justice: Antitrust 

Division, Ami Grace-Tardy, Assistant 

General Counsel for Legislation, 

Regulation and Energy Efficiency, 

U.S. Department of Energy, 

Washington, DC 20585, Re: Energy 

Conservation Standards for Consumer 

Water Heaters DOE Docket No. EERE– 

2017–BT–STD–0019 

Dear Assistant General Counsel GraceTardy: 

I am responding to your August 23, 

2023 letter seeking the views of the 

Attorney General about the potential 

impact on competition of proposed 

energy conservation standards for 

consumer water heaters. 

Your request was submitted under 

section 325(o)(2)(B)(i)(V) of the Energy 

Policy and Conservation Act, as 

amended (ECPA), 42 U.S.C. 

6295(o)(2)(B)(i)(V), which requires the 

Attorney General to determine the 

impact of any lessening of competition 

that is likely to result from the 

imposition of proposed energy 

conservation standards. The Attorney 

General’s responsibility for responding 

to requests from other departments 

about the effect of a program on 

competition has been delegated to the 

Assistant Attorney General for the 

Antitrust Division in 28 CFR 0.40(g). 

The Assistant Attorney General for the 

Antitrust Division has authorized me, as 

the Policy Director for the Antitrust 

Division, to provide the Antitrust 

Division’s views regarding the potential 

impact on competition of proposed 

energy conservation standards on his 

behalf. 

In conducting its analysis, the 

Antitrust Division examines whether a 

proposed standard may lessen 

competition, for example, by 

substantially limiting consumer choice, 

by placing certain manufacturers at an 

unjustified competitive disadvantage, or 

by inducing avoidable inefficiencies in 

production or distribution of particular 

products. A lessening of competition 

could result in higher prices to 

manufacturers and consumers. 

We have reviewed the proposed 

standards contained in the notice of 

proposed rulemaking (‘‘NOPR’’) (88 FR 

49058, July 28, 2023) and the related 

Technical Support Document. We have 

also reviewed public comments and 

information provided by industry 

participants and have reviewed the 

transcript and information presented at 

the Webinar of the Public Meeting held 

on September 13, 2023. Based on this 

review, we do not have an evidentiary 

basis to conclude that the proposed 

energy conservation standards for 

consumer water heaters are likely to 

substantially lessen competition. 

Sincerely, 

David G.B. Lawrence, 

Policy Director. 

[FR Doc. 2024–30369 Filed 12–23–24; 8:45 am] 

BILLING CODE 6450–01–P 


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