[Federal Register Volume 80, Number 23 (Wednesday, February 4, 2015)]
[Proposed Rules]
[Pages 6182-6233]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-01415]



[[Page 6181]]

Vol. 80

Wednesday,

No. 23

February 4, 2015

Part II





Department of Energy





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10 CFR Part 431





Energy Conservation Program for Certain Industrial Equipment: Energy 
Conservation Standards for Commercial Warm Air Furnaces; Proposed Rule

  Federal Register / Vol. 80, No. 23 / Wednesday, February 4, 2015 / 
Proposed Rules  

[[Page 6182]]


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DEPARTMENT OF ENERGY

10 CFR Part 431

[Docket Number EERE-2013-BT-STD-0021]
RIN 1904-AD11


Energy Conservation Program for Certain Industrial Equipment: 
Energy Conservation Standards for Commercial Warm Air Furnaces

AGENCY: Office of Energy Efficiency and Renewable Energy, Department of 
Energy.

ACTION: Notice of proposed rulemaking and public meeting.

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SUMMARY: The Energy Policy and Conservation Act of 1975 (EPCA), as 
amended, prescribes energy conservation standards for various consumer 
products and certain commercial and industrial equipment, including 
commercial warm air furnaces (CWAF). EPCA also requires that every six 
years, the U.S. Department of Energy (DOE) must consider amending its 
standards for specified types of commercial heating, air-conditioning, 
and water-heating equipment in order to determine whether more-
stringent, amended standards would be technologically feasible and 
economically justified, and would save a significant additional amount 
of energy. DOE has tentatively concluded that there is sufficient 
record evidence to support more-stringent standards, so DOE is 
proposing to amend the current energy conservation standards for CWAF. 
DOE also announces a public meeting to receive comment on these 
proposed standards and associated analyses and results.

DATES: Comments: DOE will accept comments, data, and information 
regarding this notice of proposed rulemaking (NOPR) before and after 
the public meeting, but no later than April 6, 2015. See section VII, 
``Public Participation,'' for details.
    Meeting: DOE will hold a public meeting on Monday, March 2, 2015, 
from 9:00 a.m. to 4:00 p.m., in Washington, DC. The meeting will also 
be broadcast as a webinar. See section VII, ``Public Participation,'' 
for webinar registration information, participant instructions, and 
information about the capabilities available to webinar participants.

ADDRESSES: The public meeting will be held at the U.S. Department of 
Energy, Forrestal Building, Room 8E-089, 1000 Independence Avenue SW., 
Washington, DC 20585. To attend, please notify Ms. Brenda Edwards at 
(202) 586-2945. For more information, refer to section VII, ``Public 
Participation,'' near the end of this notice.
    Instructions: Any comments submitted must identify the NOPR for 
Energy Conservation Standards for Commercial Warm Air Furnaces, and 
provide docket number EE-2013-BT-STD-00021 and/or regulatory 
information number (RIN) number 1904-AD11. Comments may be submitted 
using any of the following methods:
    1. Federal eRulemaking Portal: www.regulations.gov. Follow the 
instructions for submitting comments.
    2. Email: [email protected]. Include the docket 
number and/or RIN in the subject line of the message. Submit electronic 
comments in WordPerfect, Microsoft Word, PDF, or ASCII file format, and 
avoid the use of special characters or any form of encryption.
    3. Postal Mail: Ms. Brenda Edwards, U.S. Department of Energy, 
Building Technologies Office, Mailstop EE-2J, 1000 Independence Avenue 
SW., Washington, DC, 20585-0121. If possible, please submit all items 
on a compact disc (CD), in which case it is not necessary to include 
printed copies.
    4. Hand Delivery/Courier: Ms. Brenda Edwards, U.S. Department of 
Energy, Building Technologies Office, 950 L'Enfant Plaza SW., Suite 
600, Washington, DC, 20024. Telephone: (202) 586-2945. If possible, 
please submit all items on a CD, in which case it is not necessary to 
include printed copies.
    Written comments regarding the burden-hour estimates or other 
aspects of the collection-of-information requirements contained in this 
proposed rule may be submitted to Office of Energy Efficiency and 
Renewable Energy through the methods listed above and by email to 
[email protected].
    No telefacsimiles (faxes) will be accepted. For detailed 
instructions on submitting comments and additional information on the 
rulemaking process, see section VII of this document (Public 
Participation).
    Docket: The docket is available for review at www.regulations.gov. 
All documents in the docket are listed in the www.regulations.gov 
index. A link to the docket Web page can be found at: http://www1.eere.energy.gov/buildings/appliance_standards/rulemaking.aspx?ruleid=70. This Web page contains a link to the docket 
for this notice on the http://www.regulations.gov site. The 
www.regulations.gov Web page contains simple instructions on how to 
access all documents, including public comments, in the docket.
    For further information on how to submit a comment, review other 
public comments and the docket, or participate in the public meeting, 
contact Ms. Brenda Edwards at (202) 586-2945 or by email: 
[email protected].

FOR FURTHER INFORMATION CONTACT: Mr. John Cymbalsky, U.S. Department of 
Energy, Office of Energy Efficiency and Renewable Energy, Building 
Technologies, EE-5B, 1000 Independence Avenue SW., Washington, DC 
20585-0121. Telephone: (202) 286-1692. Email: 
[email protected].
    Mr. Eric Stas, U.S. Department of Energy, Office of the General 
Counsel, GC-71, 1000 Independence Avenue SW., Washington, DC 20585-
0121. Telephone: (202) 586-9507. Email: [email protected].

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Summary of the Proposed Rule
    A. Benefits and Costs to Commercial Consumers
    B. Impact on Manufacturers
    C. National Benefits
II. Introduction
    A. Authority
    B. Background
    1. Current Standards
    2. History of Standards Rulemaking for CWAF
III. General Discussion
    A. Compliance Date
    B. Technological Feasibility
    1. General
    2. Maximum Technologically Feasible Levels
    C. Energy Savings
    1. Determination of Savings
    2. Significance of Savings
    D. Economic Justification
    1. Specific Criteria
    a. Economic Impact on Manufacturers and Consumers
    b. Life-Cycle Costs
    c. Energy Savings
    d. Lessening of Utility or Performance of Equipment
    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. General
    2. Scope of Coverage and Equipment Classes
    3. Technology Options
    B. Screening Analysis
    C. Engineering Analysis
    1. Methodology
    2. Efficiency Levels
    a. Baseline Efficiency Levels
    b. Incremental and Max-Tech Efficiency Levels
    3. Equipment Testing and Reverse Engineering

[[Page 6183]]

    4. Cost Model
    5. Manufacturing Production Costs
    6. Manufacturer Markup
    7. Shipping Costs
    D. Markups Analysis
    E. Energy Use Analysis
    F. Life-Cycle Cost and Payback Period Analysis
    1. Inputs to Installed Cost
    2. Inputs to Operating Costs
    a. Energy Consumption
    b. Energy Prices
    c. Maintenance and Repair Costs
    d. Other Inputs
    G. Shipments Analysis
    H. National Impact Analysis
    I. Consumer Subgroup Analysis
    J. Manufacturer Impact Analysis
    1. Overview
    2. Government Regulatory Impact Model
    a. Government Regulatory Impact Model Key Inputs
    b. Government Regulatory Impact Model Scenarios
    c. Manufacturer Interviews
    K. Emissions Analysis
    L. Monetizing Carbon Dioxide and Other Emissions Impacts
    1. Social Cost of Carbon
    a. Monetizing Carbon Dioxide Emissions
    b. Development of Social Cost of Carbon Values
    c. Current Approach and Key Assumptions
    2. Valuation of Other Emissions Reductions
    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 Commercial Consumers
    a. Life-Cycle Cost and Payback Period
    b. Consumer Subgroup Analysis
    c. Rebuttable Presumption Payback
    2. Economic Impacts on Manufacturers
    a. Industry Cash-Flow Analysis Results
    b. Impacts on Direct Employment
    c. Impacts on Manufacturing Capacity
    d. Impacts on Subgroups of Manufacturers
    e. Cumulative Regulatory Burden
    3. National Impact Analysis
    a. Significance of Energy Savings
    b. Net Present Value of Commercial Consumer Costs and Benefits
    c. Indirect Impacts on Employment
    4. Impact on Utility or Performance of Equipment
    5. Impact of Any Lessening of Competition
    6. Need of the Nation to Conserve Energy
    7. Other Factors
    8. Summary of Other National Economic Impacts
    C. Proposed Standards
    1. Benefits and Burdens of Trial Standard Levels Considered for 
CWAF
    2. Summary of Benefits and Costs (Annualized) of the Proposed 
Standards
VI. Procedural Issues and Regulatory Review
    A. Review Under Executive Orders 12866 and 13563
    B. Review Under the Regulatory Flexibility Act
    C. Review Under the Paperwork Reduction Act of 1995
    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. Review Under the Information Quality Bulletin for Peer Review
VII. Public Participation
    A. Attendance at the Public Meeting
    B. Procedure for Submitting Requests to Speak and Prepared 
General Statements For Distribution
    C. Conduct of the Public Meeting
    D. Submission of Comments
    E. Issues on Which DOE Seeks Comment
VIII. Approval of the Office of the Secretary

I. Summary of the Proposed Rule

    Title III, Part C \1\ of the Energy Policy and Conservation Act of 
1975 (EPCA or the Act), Public Law 94-163 (42 U.S.C. 6311-6317, as 
codified), added by Public Law 95-619, Title IV, Sec.  441(a), 
established the Energy Conservation Program for Certain Industrial 
Equipment, which includes the commercial warm air furnaces that are the 
subject of this rulemaking. CWAF are a type of equipment also covered 
under the American Society of Heating, Refrigerating, and Air-
Conditioning Engineers (ASHRAE) Standard 90.1 (ASHRAE Standard 90.1), 
``Energy Standard for Buildings Except Low-Rise Residential 
Buildings.'' \2\ Pursuant to recent statutory amendments to EPCA, DOE 
must conduct an evaluation of its standards for CWAF every six years 
and publish either a notice of determination that such standards do not 
need to be amended or a notice of proposed rulemaking including 
proposed amended standards. (42 U.S.C. 6313(a)(6)(C)(i)) EPCA further 
requires that any new or amended energy conservation standard that DOE 
prescribes for covered equipment, such as CWAF, shall be designed to 
achieve the maximum improvement in energy efficiency that is 
technologically feasible and economically justified. (42 U.S.C. 
6313(a)(6)(A)(ii)(II)) Furthermore, the new or amended standard must 
result in a significant additional conservation of energy. Id. Under 
the applicable statutory provisions, DOE must determine that there is 
clear and convincing evidence supporting the adoption of more-stringent 
energy conservation standards than the ASHRAE level. Id. Once complete, 
this rulemaking will satisfy DOE's statutory obligation under 42 U.S.C. 
6313(a)(6)(C).
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    \1\ For editorial reasons, upon codification in the U.S. Code, 
Part C was re-designated Part A-1.
    \2\ ASHRAE Standard 90.1-2013 (i.e., the most recent version of 
ASHRAE Standard 90.1) did not amend the efficiency levels for CWAF. 
Thus, DOE was not triggered by the statutory provision for ASHRAE 
equipment. For more information on DOE's review of ASHRAE Standard 
90.1-2013, see: http://www1.eere.energy.gov/buildings/appliance_standards/rulemaking.aspx?ruleid=108.
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    In accordance with these and other statutory provisions discussed 
in this notice, DOE has examined all of the CWAF equipment classes and 
has tentatively concluded that there is clear and convincing evidence 
to support more-stringent standards for both gas-fired and oil-fired 
CWAF. Accordingly, DOE is proposing amended energy conservation 
standards for both gas-fired and oil-fired CWAF. The proposed 
standards, which prescribe the minimum allowable thermal efficiency 
(TE), are shown in Table I.1. These proposed standards, if adopted, 
would apply to all equipment listed in Table I.1 and manufactured in, 
or imported into, the United States on and after the date three years 
after the publication of the final rule for this rulemaking.

  Table I.1--Proposed Energy Conservation Standards for Commercial Warm
                              Air Furnaces
------------------------------------------------------------------------
                                        Input capacity *      Thermal
           Equipment class                  (Btu/h)        efficiency **
------------------------------------------------------------------------
Gas-Fired Furnaces...................    >=225,000 Btu/h             82%
Oil-Fired Furnaces...................    >=225,000 Btu/h             82%
------------------------------------------------------------------------
* In addition to being defined by input capacity, a CWAF is ``a self-
  contained oil- or gas-fired furnace designed to supply heated air
  through ducts to spaces that require it and includes combination warm
  air furnace/electric air conditioning units but does not include unit
  heaters and duct furnaces.'' CWAF coverage is further discussed in
  section IV.A.2, ``Scope of Coverage and Equipment Classes.''
** Thermal efficiency is at the maximum rated capacity (rated maximum
  input), and is determined using the DOE test procedure specified at 10
  CFR 431.76.


[[Page 6184]]

A. Benefits and Costs to Commercial Consumers

    Table I.2 presents DOE's evaluation of the economic impacts of the 
proposed energy conservation standards on commercial consumers of CWAF, 
as measured by the average life-cycle cost (LCC) savings and the median 
payback period (PBP). The average LCC savings are positive for both 
equipment classes, and the PBP is less than the average lifetime of the 
equipment, which is estimated to be 19 years for gas-fired CWAF and 26 
years for oil-fired CWAF.

     Table I.2--Impacts of Proposed Energy Conservation Standards on
          Commercial Consumers of Commercial Warm Air Furnaces
------------------------------------------------------------------------
                                            Average LCC
             Equipment class                  savings     Median payback
                                              (2013$)     period (years)
------------------------------------------------------------------------
Gas-Fired Furnaces......................             426             0.7
Oil-Fired Furnaces......................             164             2.8
------------------------------------------------------------------------

    DOE's analysis of the impacts of the proposed standards on 
consumers is described in section IV.F of this notice and in chapter 8 
of the NOPR TSD.

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 (2014 to 2047). Using a real discount rate of 8.9 
percent, DOE estimates that the INPV for manufacturers of CWAF is $74.7 
million in 2013$. Under the proposed standards, DOE expects that INPV 
may be reduced by approximately $43.3 to $11.1 million, which is -58.0 
percent to -14.9 percent.
    DOE's analysis of the impacts of the proposed standards on 
manufacturers is described in section IV.J of this notice.

C. National Benefits \3\
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    \3\ All monetary values in this NOPR are expressed in 2013 
dollars and are discounted to 2014.
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    DOE's analyses indicate that the proposed energy conservation 
standards for CWAF would save a significant amount of energy. The 
energy savings over the entire lifetime of CWAF equipment installed 
during the 30-year period that begins in the year of compliance with 
amended standards (2018-2047), relative to the base case without 
amended standards, amount to 0.52 quadrillion Btus (quads) of full-
fuel-cycle energy.\4\ This represents a savings of 1.0 percent relative 
to the energy use of this equipment in the base case.
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    \4\ These results include impacts on commercial consumers which 
accrue after 2048 from the products purchased in 2018-2047.
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    The cumulative net present value (NPV) of total consumer costs and 
savings of the proposed standards for CWAF ranges from $1.0 billion to 
$2.7 billion at 7-percent and 3-percent discount rates, respectively. 
This NPV expresses the estimated total value of future operating-cost 
savings minus the estimated increased product costs for CWAF purchased 
in 2018-2047.
    In addition, the proposed standards would have significant 
environmental benefits.\5\ The energy savings would result in 
cumulative emission reductions of 27.9 million metric tons (Mt) \6\ of 
carbon dioxide (CO2), 319.8 thousand tons of methane 
(CH4), 0.1 thousand tons of nitrous oxide (N2O), 
2.2 thousand tons of sulfur dioxide (SO2), 66.84 thousand 
tons of nitrogen oxides (NOX) and 0.003 tons of mercury 
(Hg). The cumulative reduction in CO2 emissions through 2030 
amounts to 4.4 Mt.
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    \5\ DOE calculated emissions reductions relative to the Annual 
Energy Outlook 2013 (AEO 2013) Reference case, which generally 
represents current legislation and environmental regulations for 
which implementing regulations were available as of December 31, 
2012.
    \6\ A metric ton is equivalent to 1.1 short tons. Results for 
emissions other than CO2 are presented in short tons.
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    The value of the CO2 reductions is calculated using a 
range of values per metric ton of CO2 (otherwise known as 
the Social Cost of Carbon, or SCC) developed by an interagency 
process.\7\ The derivation of the SCC values is discussed in section 
IV.L. Using discount rates appropriate for each set of SCC values, DOE 
estimates the present monetary value of the CO2 emissions 
reduction to be between $0.2 billion and $2.6 billion, with a value of 
$0.8 billion using the central SCC case represented by $40.5/t in 
2015.\8\ Additionally, DOE estimates the present monetary value of the 
NOX emissions reduction to be $34.2 million to $82.0 million 
at 7-percent and 3-percent discount rates, respectively.\9\
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    \7\ Technical Update of the Social Cost of Carbon for Regulatory 
Impact Analysis Under Executive Order 12866, Interagency Working 
Group on Social Cost of Carbon, United States Government (May 2013; 
revised November 2013) (Available at: http://www.whitehouse.gov/sites/default/files/omb/assets/inforeg/technical-update-social-cost-of-carbon-for-regulator-impact-analysis.pdf).
    \8\ The values only include CO2 emissions; 
CO2 equivalent emissions from other greenhouse gases are 
not included.
    \9\ DOE is investigating monetization of reductions in 
SO2 and Hg emissions.
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    Table I.3 summarizes the national economic costs and benefits 
expected to result from the proposed standards for CWAF.

 Table I.3--Summary of National Economic Benefits and Costs of Proposed
     Energy Conservation Standards for Commercial Warm Air Furnaces
------------------------------------------------------------------------
                                           Present value
                Category                   Billion 2013$   Discount rate
------------------------------------------------------------------------
                                Benefits
------------------------------------------------------------------------
Operating Cost Savings..................           1.052              7%
                                                   2.721               3
CO2 Reduction Monetized Value ($12.0/t             0.175               5
 case) **...............................
CO2 Reduction Monetized Value ($40.5/t             0.841               3
 case) **...............................
CO2 Reduction Monetized Value ($62.4/t             1.347             2.5
 case) **...............................

[[Page 6185]]

 
CO2 Reduction Monetized Value $119/t               2.606               3
 case) **...............................
NOX Reduction Monetized Value (at $2,684/          0.034               7
 ton) **................................
                                                   0.082               3
                                         -------------------------------
    Total Benefits [dagger].............           1.928               7
                                         -------------------------------
                                                   3.645               3
------------------------------------------------------------------------
                                  Costs
------------------------------------------------------------------------
Incremental Installed Costs.............           0.036               7
                                                   0.062               3
------------------------------------------------------------------------
                           Total Net Benefits
------------------------------------------------------------------------
Including Emissions Reduction Monetized            1.892               7
 Value [dagger].........................
                                                   3.582               3
------------------------------------------------------------------------
* This table presents the costs and benefits associated with CWAF
  shipped in 2018-2047. These results include impacts on commercial
  consumers which accrue after 2048 from the products purchased in 2018-
  2047. The results account for the incremental variable and fixed costs
  incurred by manufacturers due to the standard, some of which may be
  incurred in preparation for the rule.
** The interagency group selected four sets of SCC values for use in
  regulatory analyses. Three sets of values (represented by 2015 values
  of $12.0/t, $40.5/t, and $62.4/t, in 2013$) are based on the average
  SCC from the integrated assessment models, at discount rates of 2.5,
  3, and 5 percent. The fourth set (represented by 2015 value of $119/t
  in 2013$), which represents the 95th percentile SCC estimate across
  all three models at a 3-percent discount rate, is included to
  represent higher-than-expected impacts from temperature change further
  out in the tails of the SCC distribution. The values in parentheses
  represent the SCC in 2015. The SCC time series incorporate an
  escalation factor. The value for NOX represents the average of the low
  and high NOX values considered in DOE's analysis.
[dagger] Total Benefits for both the 3% and 7% cases are derived using
  the series corresponding to average SCC with 3-percent discount rate.

    The benefits and costs of these proposed standards, for products 
sold in 2018-2047, can also be expressed in terms of annualized values. 
The annualized monetary values are the sum of: (1) The annualized 
national economic value of the benefits from consumer operation of 
equipment that meets the proposed standards (consisting primarily of 
operating cost savings from using less energy, minus increases in 
equipment purchase price and installation costs, which is another way 
of representing commercial consumer NPV), and (2) the annualized 
monetary value of the benefits of CO2 and NOX 
emission reductions.\10\
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    \10\ DOE used a two-step calculation process to convert the 
time-series of costs and benefits into annualized values. First, DOE 
calculated a present value in 2013, the year used for discounting 
the NPV of total consumer costs and savings, for the time-series of 
costs and benefits using discount rates of three and seven percent 
for all costs and benefits except for the value of CO2 
reductions. For the latter, DOE used a range of discount rates, as 
shown in Table I.4. From the present value, DOE then calculated the 
fixed annual payment over a 30-year period (2018 through 2047) that 
yields the same present value. The fixed annual payment is the 
annualized value. Although DOE calculated annualized values, this 
does not imply that the time-series of cost and benefits from which 
the annualized values were determined is a steady stream of 
payments.
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    Although combining the values of operating savings and 
CO2 emission reductions provides a useful perspective, two 
issues should be considered. First, the national operating savings are 
domestic U.S. consumer monetary savings that occur as a result of 
market transactions, whereas the value of CO2 reductions is 
based on a global value. Second, the assessments of operating cost 
savings and CO2 savings are performed with different methods 
that use different time frames for analysis. The national operating 
cost savings is measured for the lifetime of CWAF shipped in 2018-2047. 
The SCC values, on the other hand, reflect the present value of some 
future climate-related impacts resulting from the emission of one ton 
of carbon dioxide in each year. Because CO2 emissions have a 
very long residence time in the atmosphere,\11\ the SCC values after 
2050 reflect future climate-related impacts resulting from the emission 
of CO2 that continue beyond 2100.
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    \11\ The atmospheric lifetime of CO2 is estimated of 
the order of 30-95 years. Jacobson, MZ (2005). ``Correction to 
``Control of fossil-fuel particulate black carbon and organic 
matter, possibly the most effective method of slowing global 
warming.'' '' J. Geophys. Res. 110. pp. D14105.
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    Estimates of annualized benefits and costs of the proposed 
standards are shown in Table I.4. The results under the primary 
estimate are as follows. Using a 7-percent discount rate for benefits 
and costs other than CO2 reduction, for which DOE used a 3-
percent discount rate along with the average SCC series that uses a 3-
percent discount rate, the estimated cost of the proposed CWAF 
standards is $3.51 million per year in increased equipment costs, while 
the estimated benefits are $104 million per year in reduced equipment 
operating costs, $47 million in CO2 reductions, and $3.38 
million in reduced NOX emissions. In this case, the net 
benefit would amount to $151 million per year. Using a 3-percent 
discount rate for all benefits and costs and the average SCC series, 
the estimated cost of the proposed CWAF standards is $3.48 million per 
year in increased equipment costs, while the estimated benefits are 
$152 million per year in reduced equipment operating costs, $47 million 
in CO2 reductions, and $4.57 million in reduced 
NOX emissions. In this case, the net benefit would amount to 
$200 million per year.

[[Page 6186]]



   Table I.4--Annualized Benefits and Costs of Proposed Energy Conservation Standards for Commercial Warm Air
                                                   Furnaces *
----------------------------------------------------------------------------------------------------------------
                                                                                Million 2013$/year
                                                                 -----------------------------------------------
                                              Discount rate           Primary
                                                                     estimate      Low estimate    High estimate
----------------------------------------------------------------------------------------------------------------
Benefits
----------------------------------------------------------------------------------------------------------------
Operating Cost Savings................  7%......................             104              98             111
                                        3%......................             152             143             163
CO2 Reduction Monetized Value ($12.0/t  5%......................              13              13              14
 case) **.
CO2 Reduction Monetized Value ($40.5/t  3%......................              47              45              48
 case) **.
CO2 Reduction Monetized Value ($62.4/t  2.5%....................              69              67              72
 case) **.
CO2 Reduction Monetized Value ($119/t   3%......................             145             140             150
 case) **.
NOX Reduction Monetized Value (at       7%......................            3.38            3.28            3.49
 $2,684/ton) **.
                                        3%......................            4.57            4.41            4.72
    Total Benefits [dagger]...........  7% plus CO2 range.......      120 to 253      114 to 242      128 to 264
                                        7%......................             154             147             163
                                        3% plus CO2 range.......      169 to 302      160 to 287      181 to 318
                                        3%......................             203             192             216
----------------------------------------------------------------------------------------------------------------
Costs
----------------------------------------------------------------------------------------------------------------
Incremental Equipment Costs...........  7%......................            3.51            3.48            3.67
                                        3%......................            3.48            3.41            3.68
----------------------------------------------------------------------------------------------------------------
Net Benefits
----------------------------------------------------------------------------------------------------------------
    Total [dagger]....................  7% plus CO2 range.......      117 to 249      111 to 238      124 to 261
                                        7%......................             151             143             159
                                        3% plus CO2 range.......      166 to 298      156 to 283      177 to 314
                                        3%......................             200             189             212
----------------------------------------------------------------------------------------------------------------
* This table presents the annualized costs and benefits associated with CWAF shipped in 2018-2047. These results
  include benefits to commercial consumers which accrue after 2048 from the products purchased in 2018-2047. The
  results account for the incremental variable and fixed costs incurred by manufacturers due to the standard,
  some of which may be incurred in preparation for the rule. The Primary, Low Benefits, and High Benefits
  Estimates utilize projections of energy prices from the AEO 2013 Reference case, Low Economic Growth case, and
  High Economic Growth case, respectively. Incremental equipment costs account for equipment price trends and
  include, beyond the reference scenario, a low price decline scenario used in the Low Benefits Estimate and a
  high price decline scenario used in the High Benefits Estimates.
** The interagency group selected four sets of SCC values for use in regulatory analyses. Three sets of values
  (represented by 2015 values of $12.0/t, $40.5/t, and $62.4/t, in 2013$) are based on the average SCC from the
  integrated assessment models, at discount rates of 2.5, 3, and 5 percent. The fourth set (represented by 2015
  value of $119/t, in 2013$), which represents the 95th percentile SCC estimate across all three models at a 3-
  percent discount rate, is included to represent higher-than-expected impacts from temperature change further
  out in the tails of the SCC distribution. The values in parentheses represent the SCC in 2015. The SCC time
  series incorporate an escalation factor. The value for NOX represents the average of the low and high values
  considered in DOE's analysis.
[dagger] Total Benefits for both the 3-percent and 7-percent cases are derived using the series corresponding to
  average SCC with a 3-percent discount rate. In the rows labeled ``7% plus CO2 range'' and ``3% plus CO2
  range,'' the operating cost and NOX benefits are calculated using the labeled discount rate, and those values
  are added to the full range of CO2 values.

    DOE's analysis of the national impacts of the proposed standards is 
described in sections IV.H, IV.K and IV.L of this notice.

D. Conclusion

    DOE has tentatively concluded that, based upon clear and convincing 
evidence, the proposed standards represent the maximum improvement in 
energy efficiency that is technologically feasible and economically 
justified, and would result in the significant conservation of energy. 
DOE further notes that equipment achieving these standard levels is 
already commercially available for the equipment classes covered by 
this proposal. Based on the analyses described above, DOE has 
tentatively concluded that the benefits of the proposed standards to 
the Nation (energy savings, positive NPV of commercial consumer 
benefits, commercial consumer LCC savings, and emission reductions) 
would outweigh the burdens (loss of INPV for manufacturers and LCC 
increases for some commercial consumers).
    DOE also considered more-stringent energy efficiency levels as 
trial standard levels, and is still considering them in this 
rulemaking. However, DOE has tentatively concluded that the potential 
burdens of the more-stringent energy efficiency levels would outweigh 
the projected benefits. Based on consideration of the public comments 
DOE receives in response to this notice and related information 
collected and analyzed during the course of this rulemaking effort, DOE 
may adopt energy efficiency levels presented in this notice that are 
either higher or lower than the proposed standards, or some combination 
of level(s) that incorporate the proposed standards in part.

II. Introduction

    The following section briefly discusses the statutory authority 
underlying this proposal, as well as some of the relevant historical 
background related to the energy conservation standards for CWAF.

A. Authority

    Title III, Part C \12\ of the Energy Policy and Conservation Act of 
1975 (EPCA or the Act), Public Law 94-163 (42 U.S.C. 6311-6317, as 
codified), added by Public Law 95-619, Title IV, Sec.  441(a), 
established the Energy Conservation Program for Certain Industrial 
Equipment, which includes provisions covering the CWAF equipment that 
is

[[Page 6187]]

the subject of this notice.\13\ In general, this program addresses the 
energy efficiency of certain types of commercial and industrial 
equipment. Relevant provisions of the Act specifically include 
definitions (42 U.S.C. 6311), energy conservation standards (42 U.S.C. 
6313), test procedures (42 U.S.C. 6314), labeling provisions (42 U.S.C. 
6315), and the authority to require information and reports from 
manufacturers (42 U.S.C. 6316).
---------------------------------------------------------------------------

    \12\ For editorial reasons, upon codification in the U.S. Code, 
Part C was re-designated Part A-1.
    \13\ All references to EPCA in this document refer to the 
statute as amended through the American Energy Manufacturing 
Technical Corrections Act of 2012, Pub. L. 112-210 (enacted Dec. 18, 
2012).
---------------------------------------------------------------------------

    The initial Federal energy conservation standards for CWAF were 
added to EPCA by the Energy Policy Act of 1992 (EPACT 1992), Public Law 
102-486. (42 U.S.C. 6313(a)(4)) These types of covered equipment have a 
rated capacity (rated maximum input \14\) greater than or equal to 
225,000 Btu/h, can be gas-fired or oil-fired, and are designed to heat 
commercial buildings. Id. Under the Act, DOE is obligated to review its 
energy conservation standards for certain commercial and industrial 
equipment (i.e., specified heating, air-conditioning, and water-heating 
equipment) whenever the American Society of Heating, Refrigerating, and 
Air-Conditioning Engineers (ASHRAE) updates the efficiency levels in 
ASHRAE Standard 90.1, Energy Standard for Buildings Except Low-Rise 
Residential Buildings. DOE must either adopt the levels contained in 
ASHRAE Standard 90.1 or adopt levels more stringent than the ASHRAE 
levels if there is clear and convincing evidence in support of doing 
so. (42 U.S.C. 6313(a)(6)(A)) Such review is to be conducted in 
accordance with the procedures established for ASHRAE equipment under 
42 U.S.C. 6313(a)(6). In addition, DOE must periodically review and 
consider amending the energy conservation standards for these specified 
types of covered commercial and industrial equipment and publish either 
a notice of proposed rulemaking with amended standards or a 
determination that the standards do not need to be amended. (42 U.S.C. 
6313(a)(6)(C)(i))
---------------------------------------------------------------------------

    \14\ Rated maximum input means the maximum gas-burning capacity 
of a commercial warm-air furnace in Btu per hour, as specified by 
the manufacturer.
---------------------------------------------------------------------------

    In amending EPCA, the American Energy Manufacturing Technical 
Corrections Act (AEMTCA), Public Law 112-210 (Dec. 18, 2012), in 
relevant part, modified the manner in which DOE must amend the energy 
efficiency standards for certain types of commercial and industrial 
equipment, adding a review requirement that is triggered when ASHRAE 
adopts a design requirement, even if the standard level remains 
unchanged. Id. AEMTCA also clarified that DOE's periodic review of 
ASHRAE equipment must occur ``[e]very six years.'' Id. AEMTCA further 
added to this process a requirement that DOE must initiate a rulemaking 
to consider amending the energy conservation standards for any covered 
equipment for which more than 6 years has elapsed since the issuance of 
the most recent final rule establishing or amending a standard for the 
product as of the date of AEMTCA's enactment (i.e., December 18, 2012), 
in which case DOE must publish either: (1) A notice of determination 
that the current standards do not need to be amended, or (2) a notice 
of proposed rulemaking containing proposed standards by December 31, 
2013. (42 U.S.C. 6313(a)(6)(C)(vi)) Because DOE has not issued a 
standard for commercial warm air furnaces in the past six years, the 
December 31, 2013 deadline for publication of the applicable rulemaking 
document applies.
    Pursuant to EPCA, DOE's energy conservation program for covered 
equipment consists essentially of four parts: (1) Testing; (2) 
labeling; (3) the establishment of Federal energy conservation 
standards; and (4) certification and enforcement procedures. 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 covered equipment. (42 U.S.C. 6314) 
Manufacturers of covered equipment must use the prescribed DOE test 
procedure as the basis for certifying to DOE that their equipment 
comply with the applicable energy conservation standards adopted under 
EPCA and when making representations to the public regarding the energy 
use or efficiency of such equipment. (42 U.S.C. 6314(d)) Similarly, DOE 
must use these test procedures to determine whether the equipment 
comply with standards adopted pursuant to EPCA. The DOE test procedures 
for CWAF currently appear at title 10 of the Code of Federal 
Regulations (CFR) part 431.76.
    When setting standards for the equipment addressed by the proposed 
rule, EPCA, as amended by AEMTCA, prescribes specific statutory 
criteria for DOE to consider. See generally 42 U.S.C. 6313(a)(6)(A)-
(C). As indicated above, any amended standard for covered equipment 
more stringent than the level contained in ASHRAE Standard 90.1 must be 
designed to achieve the maximum improvement in energy efficiency that 
is technologically feasible and economically justified. (42 U.S.C. 
6313(a)(6)(A)(ii)(II)) Furthermore, DOE may not adopt any standard that 
would not result in the significant additional conservation of energy. 
Id. In deciding whether a proposed standard is economically justified, 
DOE must determine whether the benefits of the standard exceed its 
burdens. DOE must make this determination after receiving comments on 
the proposed standard, and by considering, to the maximum extent 
practicable, the following seven statutory factors:

    1. The economic impact of the standard on manufacturers and 
consumers of 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 which are likely to result from 
the standard;
    3. The total projected amount of energy 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 conservation; and
    7. Other factors the Secretary of Energy considers relevant.

(42 U.S.C. 6313(a)(6)(B)(ii))

    EPCA, as codified, also contains what is known as an ``anti-
backsliding'' 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. 6313(a)(6)(B)(iii)(I)) 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 of 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. 6313(a)(6)(B)(iii)(II))
    Further, under EPCA's provisions for consumer products, there is a 
rebuttable presumption that a standard is economically justified if the 
Secretary finds that the additional cost to the customer of purchasing 
a product complying with an energy conservation standard level will be 
less than three times the value of the energy (and, as

[[Page 6188]]

applicable, water) 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)) For this rulemaking, DOE 
considered the criteria for rebuttable presumption as part of its 
analysis.
    Additionally, when a type or class of covered equipment has two or 
more subcategories, DOE often specifies more than one standard level. 
DOE generally will adopt a different standard level than that which 
applies generally to such type or class of products for any group of 
covered products that have 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 which justifies a higher or lower standard. In determining whether 
a performance-related feature justifies a different standard for a 
group of products, DOE generally considers such factors as the utility 
to the customer of the feature and other factors DOE deems appropriate. 
In a rule prescribing such a standard, DOE includes an explanation of 
the basis on which such higher or lower level was established. DOE 
considered these criteria for this rulemaking.
    Because ASHRAE did not update its efficiency levels for CWAF in any 
of its most recent updates to ASHRAE Standard 90.1 (e.g., ASHRAE 
Standard 90.1-2007, ASHRAE Standard 90.1-2010, ASHRAE Standard 90.1-
2013), DOE is analyzing amended standards consistent with the 
procedures defined under 42 U.S.C. 6313(a)(6)(C). Specifically, 
pursuant to 42 U.S.C. 6313(a)(6)(C)(i)(II), DOE must use the procedures 
established under subparagraph (B) when issuing a NOPR. As noted above, 
the statutory provision at 42 U.S.C. 6313(a)(6)(B)(ii), recently 
amended by AEMTCA, states that in deciding whether a standard is 
economically justified, DOE must determine, after receiving comments on 
the proposed standard, whether the benefits of the standard exceed its 
burdens by considering, to the maximum extent practicable, the seven 
factors, as stated above.
    After carefully reviewing all CWAF equipment classes, DOE has 
tentatively concluded that following this rulemaking process will 
provide ``clear and convincing evidence'' that the proposed standards 
for gas-fired and oil-fired CWAF which are more stringent than those 
set forth in ASHRAE Standard 90.1-2013, would result in significant 
additional conservation of energy and would be technologically feasible 
and economically justified, as mandated by 42 U.S.C. 6313(a)(6).

B. Background

1. Current Standards
    As noted above, EPACT 1992 amended EPCA to set the current minimum 
energy conservation standards for CWAF. (42 U.S.C. 6313(a)(4)(A) and 
(B)) These standards apply to all CWAF manufactured on or after January 
1, 1994. The current standards are set forth in Table II.1.

                       Table II.1--Current Federal Energy Conservation Standards for CWAF
----------------------------------------------------------------------------------------------------------------
                                                                                      Thermal       Compliance
                        Equipment type                           Input capacity    efficiency *        date
----------------------------------------------------------------------------------------------------------------
Gas-Fired Furnaces...........................................    >=225,000 Btu/h             80%        1/1/1994
Oil-Fired Furnaces...........................................    >=225,000 Btu/h             81%        1/1/1994
----------------------------------------------------------------------------------------------------------------
* At the maximum rated capacity (rated maximum input).

2. History of Standards Rulemaking for CWAF
    On October 21, 2004, DOE published a final rule in the Federal 
Register which adopted definitions for ``commercial warm air furnace'' 
and ``thermal efficiency,'' promulgated test procedures for this 
equipment, and recodified the energy conservation standards so that the 
standards are located contiguous with the test procedures in the Code 
of Federal Regulations (CFR). 69 FR 61916, 61917, 61939-41. In the same 
final rule, DOE incorporated by reference (see 10 CFR 431.75) a number 
of industry test standards relevant to commercial warm air furnaces, 
including: (1) American National Standards Institute (ANSI) Standard 
Z21.47-1998, ``Gas-Fired Central Furnaces,'' for gas-fired CWAF; (2) 
Underwriters Laboratories (UL) Standard 727-1994, ``Standard for Safety 
Oil-Fired Central Furnaces,'' for oil-fired CWAF; (3) provisions from 
Hydronics Institute (HI) Standard BTS-2000, ``Method to Determine 
Efficiency of Commercial Space Heating Boilers,'' to calculate flue 
loss for oil-fired CWAF, and (4) provisions from the American Society 
of Heating, Refrigerating, and Air-conditioning Engineers (ASHRAE) 
Standard 103-1993, ``Method of Testing for Annual Fuel Utilization 
Efficiency of Residential Central Furnaces and Boilers,'' to determine 
the incremental efficiency of condensing furnaces under steady-state 
conditions. Id. at 61940. Then in a final rule published in the Federal 
Register on May 16, 2012, DOE updated the test procedures for 
commercial warm air furnaces to match the procedures specified in 
ASHRAE Standard 90.1-2010, which referenced ANSI Z21.47-2006, ``Gas-
Fired Central Furnaces,'' for gas-fired CWAF, and UL 727-2006, 
``Standard for Safety for Oil-Fired Central Furnaces,'' for oil-fired 
furnaces. 77 FR 28928, 28987-88.
    As noted previously, in accordance with the requirements of EPCA, 
as amended by AEMTCA, DOE must publish either: (1) A notice of 
determination that the current standards do not need to be amended, or 
(2) a notice of proposed rulemaking containing proposed standards for 
CWAF by December 31, 2013. (42 U.S.C. 6313(a)(6)(C)(i) and (vi)) 
Consequently, DOE initiated this rulemaking to determine whether to 
amend the current standards for CWAF.
    On May 2, 2013, DOE published a request for information (RFI) and 
notice of document availability for CWAF. 78 FR 25627. The notice 
solicited information from the public to help DOE determine whether 
more-stringent energy conservation standards for CWAF would result in a 
significant additional amount of energy savings and whether those 
standards would be technologically feasible and economically justified.
    DOE received a number of comments from interested parties in 
response to the RFI. These commenters are identified in Table II.2. DOE 
considered these comments in the preparation of the NOPR. Relevant 
comments, and DOE's responses, are provided in the appropriate sections 
of this notice.

[[Page 6189]]



  Table II.2--Interested Parties Providing Written Comments on the CWAF
                                   RFI
------------------------------------------------------------------------
              Name                  Abbreviation       Commenter type *
------------------------------------------------------------------------
Air-Conditioning, Heating and    AHRI..............  IR.
 Refrigeration Institute.
Appliance Standards Awareness    ASAP, ACEEE, NRDC   EA.
 Project, American Council for    (Joint Efficiency
 an Energy-Efficient Economy,     Advocates).
 Natural Resources Defense
 Council.
Lennox International Inc.......  Lennox............  M.
UTC Climate, Controls &          Carrier...........  M.
 Security.
Goodman Manufacturing Inc......  Goodman...........  M.
American Society of Heating,     ASHRAE............  IR.
 Refrigeration, and Air-
 Conditioning Engineers.
------------------------------------------------------------------------
* ``IR'': Industry Representative; ``M'': Manufacturer; ``EA'':
  Efficiency/Environmental Advocate.

III. General Discussion

A. Compliance Date

    As discussed in section II.A, DOE is analyzing amended standards 
pursuant to 42 U.S.C. 6313(a)(6)(C)(vi), which requires DOE to publish 
by December 31, 2013, either a notice of determination that standards 
for this type of equipment do not need to be amended or a notice of 
proposed rulemaking for any equipment for which more than 6 years has 
elapsed since the issuance of the most recent final rule. EPCA requires 
that an amended standard prescribed under 42 U.S.C. 6313(a)(6)(C) must 
apply to products manufactured after the date that is the later of: (1) 
The date 3 years after publication of the final rule establishing a new 
standard or (2) the date 6 years after the effective date of the 
current standard for a covered product. (42 U.S.C. 6313(a)(6)(C)(iv)) 
For CWAF, the date 3 years after the publication of the final rule 
would be later than the date 6 years after the effective date of the 
current standard. As a result, compliance with any amended energy 
conservation standards promulgated in the final rule would be required 
beginning on the date 3 years after the publication of the final rule.

B. Technological Feasibility

1. General
    In each energy conservation standards rulemaking, DOE conducts a 
screening analysis based on information gathered on all current 
technology options and prototype designs that could improve the 
efficiency of the products or equipment that are the subject of the 
rulemaking. As the first step in such an analysis, DOE develops a list 
of technology options for consideration in consultation with 
manufacturers, design engineers, and other interested parties. See 
chapter 3 of the NOPR TSD for a discussion of the list of technology 
options that were identified. DOE then determines which of those means 
for improving efficiency are technologically feasible. DOE considers 
technologies incorporated in commercially-available equipment or in 
working prototypes to be technologically feasible. 10 CFR part 430, 
subpart C, appendix A, section 4(a)(4)(i).
    After DOE has determined that particular technology options are 
technologically feasible, it further evaluates each technology option 
in light of the following additional screening criteria: (1) 
Practicability to manufacture, install, and service; (2) adverse 
impacts on equipment utility or availability; and (3) adverse impacts 
on health or safety. 10 CFR part 430, subpart C, appendix A, section 
4(a)(4)(ii)-(iv). Section IV.B of this notice discusses the results of 
the screening analysis for CWAF, particularly the designs DOE 
considered, those it screened out, and those that are the basis for the 
trial standard levels (TSLs) in this rulemaking. For further details on 
the screening analysis for this rulemaking, see chapter 4 of the NOPR 
Technical Support Document (TSD).
    Additionally, DOE notes that these screening criteria do not 
directly address the proprietary status of design options. DOE only 
considers efficiency levels achieved through the use of proprietary 
designs in the engineering analysis if they are not part of a unique 
path to achieve that efficiency level (i.e., if there are other non-
proprietary technologies capable of achieving the same efficiency). DOE 
believes the proposed standards for the equipment covered in this 
rulemaking would not mandate the use of any proprietary technologies, 
and that all manufacturers would be able to achieve the proposed levels 
through the use of non-proprietary designs. DOE seeks comment on this 
tentative conclusion and requests additional information regarding 
proprietary designs and patented technologies.
2. Maximum Technologically Feasible Levels
    When DOE proposes to adopt an amended standard for a type or class 
of covered equipment, it must determine the maximum improvement in 
energy efficiency or maximum reduction in energy use that is 
technologically feasible for such equipment. Accordingly, in the 
engineering analysis, DOE determined the maximum technologically 
feasible (``max-tech'') improvements in energy efficiency for CWAF, 
using the design parameters for the most efficient equipment available 
on the market or in working prototypes. (See chapter 5 of the NOPR 
TSD.) The max-tech levels that DOE determined for this rulemaking are 
described in section IV.C.2.b of this proposed rule.

C. Energy Savings

1. Determination of Savings
    For each TSL, DOE projected energy savings from the equipment that 
is the subject of this rulemaking purchased in the 30-year period that 
begins in the year of compliance with potential amended standards 
(2018-2047). The savings are measured over the entire lifetime of 
equipment purchased in the 30-year analysis period.\15\ DOE quantified 
the energy savings attributable to each TSL as the difference in energy 
consumption between each standards case and the base case. The base 
case represents a projection of energy consumption in the absence of 
amended mandatory efficiency standards, and it considers market forces 
and policies that affect demand for more-efficient products.
---------------------------------------------------------------------------

    \15\ In the past DOE presented energy savings results for only 
the 30-year period that begins in the year of compliance. In the 
calculation of economic impacts, however, DOE considered operating 
cost savings measured over the entire lifetime of products purchased 
in the 30-year period. DOE has chosen to modify its presentation of 
national energy savings to be consistent with the approach used for 
its national economic analysis.
---------------------------------------------------------------------------

    DOE used its national impact analysis (NIA) spreadsheet model to 
estimate energy savings from amended standards for the products that 
are the subject of this rulemaking. The NIA spreadsheet model 
(described in section IV.H of this notice) calculates energy savings in 
site energy, which is the energy directly

[[Page 6190]]

consumed by products at the locations where they are used. For CWAF, 
the energy savings are primarily in the form of natural gas, which is 
considered to be primary energy.\16\
---------------------------------------------------------------------------

    \16\ Primary energy consumption refers to the direct use at the 
source, or supply to users without transformation, of crude energy; 
that is, energy that has not been subjected to any conversion or 
transformation process.
---------------------------------------------------------------------------

    DOE has begun to also estimate full-fuel-cycle energy savings, as 
discussed in DOE's statement of policy and notice of policy amendment. 
76 FR 51281 (August 18, 2011), as amended at 77 FR 49701 (August 17, 
2012). The full-fuel-cycle (FFC) metric includes the energy consumed in 
extracting, processing, and transporting primary fuels (i.e., coal, 
natural gas, petroleum fuels), which collectively presents a more 
complete picture of the impacts of energy efficiency standards. DOE's 
approach is based on calculation of an FFC multiplier for each of the 
energy types used by covered products and equipment. For more 
information on FFC energy savings, see section IV.H.
    DOE reports both primary energy and FFC energy savings in section 
V.B.3.a of this NOPR.
2. Significance of Savings
    To adopt more-stringent standards for CWAF, DOE must determine that 
such action would result in significant additional conservation of 
energy. (42 U.S.C. 6313(a)(6)(A)(ii)(II)) Although the term 
``significant'' is not defined in the Act, the U.S. Court of Appeals, 
in Natural Resources Defense Council v. Herrington, 768 F.2d 1355, 1373 
(D.C. Cir. 1985), indicated that Congress intended ``significant'' 
energy savings in the context of EPCA to be savings that were not 
``genuinely trivial.'' DOE has tentatively concluded that the energy 
savings associated with the proposed standards--0.52 quads due to CWAFs 
shipped in 2018-2047--are significant.

D. Economic Justification

1. Specific Criteria
    As discussed above, EPCA provides seven factors to be evaluated in 
determining whether a potential more-stringent energy conservation 
standard for CWAF is economically justified. (42 U.S.C. 
6313(a)(6)(B)(ii)(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 a potential amended standard on 
manufacturers, DOE conducts a manufacturer impact analysis (MIA), as 
discussed in section IV.J. (42 U.S.C. 6313(a)(6)(B)(ii)(I)) DOE first 
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) Industry net present value 
(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 subgroups 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 life-cycle cost (LCC) and payback period (PBP) associated 
with new or amended standards. The LCC is discussed further in the 
following section. For consumers in the aggregate, DOE also calculates 
the national net present value of the economic impacts applicable to a 
particular rulemaking. DOE also evaluates the LCC impacts of potential 
standards on identifiable subgroups of consumers that may be affected 
disproportionately by a national standard.
b. Life-Cycle Costs
    EPCA requires DOE to consider the savings in operating costs 
throughout the estimated average life of the covered product compared 
to any increase in the price of the covered product that are likely to 
result from the imposition of the standard. (42 U.S.C. 
6313(a)(6)(B)(ii)(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 expense (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 consumer discount 
rates. 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. For the LCC 
analysis, DOE assumes that consumers will purchase the covered products 
in the first year of compliance with amended standards.
    The LCC savings and the PBP for the considered efficiency levels 
are calculated relative to a base case that reflects projected market 
trends in the absence of amended standards. DOE identifies the 
percentage of consumers estimated to receive LCC savings or experience 
an LCC increase, in addition to the average LCC savings associated with 
a particular standard level. DOE's LCC and PBP analysis is discussed in 
further detail in section IV.F.
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. 6313(a)(6)(B)(ii)(III)) As 
discussed in section IV.H, DOE uses the NIA spreadsheet to project 
national energy savings.
d. Lessening of Utility or Performance of Equipment
    In establishing classes of equipment, and in evaluating design 
options and the impact of potential standard levels, DOE must consider 
any lessening of the utility or performance of the considered products 
likely to result from the standard. (42 U.S.C. 6313(a)(6)(B)(ii)(IV)) 
Based on data available to DOE, the proposed standards would not reduce 
the utility or performance of the products 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 proposed standard. (42 U.S.C. 
6313(a)(6)(B)(ii)(V)) DOE will transmit a copy of the proposed rule to 
the Attorney General with a request that the Department of Justice 
(DOJ) provide its determination on this issue. DOE will publish and 
respond to the Attorney General's determination in the final rule.

[[Page 6191]]

f. Need for National Energy Conservation
    In evaluating the need for national energy conservation, DOE 
expects that the energy savings from the proposed standards are likely 
to provide improvements to the security and reliability of the nation's 
energy system. (42 U.S.C. 6313(a)(6)(B)(ii)(VI)) 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.
    The proposed standards also are likely to result in environmental 
benefits in the form of reduced emissions of air pollutants and 
greenhouse gases associated with energy production. DOE reports the 
emissions impacts from the proposed standards, and from each TSL it 
considered, in section IV.K of this notice. DOE also reports estimates 
of the economic value of some of the emissions reductions resulting 
from the considered TSLs, as discussed in section IV.L.
g. Other Factors
    EPCA allows the Secretary of Energy, in determining whether a 
standard is economically justified, to consider any other factors that 
the Secretary deems to be relevant. (42 U.S.C. 6313(a)(6)(B)(ii)(VII)) 
DOE did not consider other factors for this notice.
2. Rebuttable Presumption
    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 effects that 
proposed energy conservation standards would have on the payback period 
for consumers. These analyses include, but are not limited to, the 3-
year payback period 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. 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 proposed rule.

IV. Methodology and Discussion of Related Comments

    DOE used four analytical tools to estimate the impact of the 
proposed standards for CWAF. The first tool is the LCC spreadsheet, a 
spreadsheet that calculates LCCs and PBPs of potential new energy 
conservation standards, and the second tool, the LCC inputs 
spreadsheet, is a spreadsheet that provides detailed inputs to the LCC 
spreadsheet. The third tool, the NIA spreadsheet, is a spreadsheet that 
calculates national energy savings and net present value resulting from 
potential amended energy conservation standards. The fourth spreadsheet 
tool, the Government Regulatory Impact Model (GRIM), helped DOE to 
assess manufacturer impacts.
    Additionally, DOE used a variant of EIA's National Energy Modeling 
System (NEMS) for the utility and emissions analyses. NEMS is a public 
domain, multi-sectored, partial equilibrium model of the U.S. energy 
sector that EIA uses NEMS to prepare its Annual Energy Outlook (AEO), a 
widely known energy forecast for the United States.\17\
---------------------------------------------------------------------------

    \17\ For more information on NEMS, refer to the U.S. Department 
of Energy, Energy Information Administration documentation. A useful 
summary is National Energy Modeling System: An Overview 2003, DOE/
EIA-0581(2003) (March, 2003).
---------------------------------------------------------------------------

A. Market and Technology Assessment

1. General
    For the market and technology assessment for CWAF, DOE developed 
information that provided an overall picture of the market for the 
equipment concerned, including the purpose of the equipment, the 
industry structure, market characteristics, and the technologies used 
in the equipment. This activity included both quantitative and 
qualitative assessments, based primarily on publicly-available 
information. The subjects addressed in the market and technology 
assessment for this rulemaking include scope of coverage, equipment 
classes, types of equipment sold and offered for sale, manufacturers, 
and technology options that could improve the energy efficiency of the 
equipment under examination. The key findings of DOE's market and 
technology assessment are summarized below. For additional detail, see 
chapter 3 of the NOPR TSD.
2. Scope of Coverage and Equipment Classes
    The proposed energy conservation standards in the NOPR cover 
commercial warm air furnaces, as defined by EPCA and DOE. EPCA defines 
``warm air furnace'' as meaning ``a self-contained oil- or gas-fired 
furnace designed to supply heated air through ducts to spaces that 
require it and includes combination warm air furnace/electric air 
conditioning units but does not include unit heaters and duct 
furnaces.'' (42 U.S.C. 6311(11)(A)) DOE defines ``commercial warm air 
furnace'' as meaning ``a warm air furnace that is industrial equipment, 
and that has a capacity (rated maximum input) of 225,000 Btu per hour 
or more.'' 10 CFR 431.72. Accordingly, this rulemaking covers equipment 
in these categories having a rated capacity of 225,000 Btu/h or higher 
and that are designed to supply heated air in commercial buildings via 
ducts (excluding unit heaters and duct furnaces).
    When evaluating and establishing energy conservation standards, DOE 
divides covered equipment into equipment classes based on the type of 
energy used or by capacity or other performance-related features that 
would justify having a higher or lower standard from that which applies 
to other equipment classes. In determining whether a performance-
related feature would justify a different standard, DOE considers such 
factors as the utility to the consumer of the feature and other factors 
DOE determines are appropriate.
    The current equipment classes for CWAF were defined in the EPACT 
1992 amendments to EPCA, and divide this equipment into two classes 
based on fuel type (i.e., one for gas-fired units, and one for oil-
fired units). Table IV.1 shows the current equipment class structure 
for CWAF.

               Table IV.1--Current CWAF Equipment Classes
------------------------------------------------------------------------
                                                   Heating     Thermal
                    Fuel type                      capacity   efficiency
                                                   (Btu/h)       (%)
------------------------------------------------------------------------
Gas-fired.......................................  >=225,000           80
Oil-fired.......................................  >=225,000           81
------------------------------------------------------------------------

    In the May 2, 2013 RFI, DOE stated that it planned to use the 
existing CWAF equipment classes for its analysis of amended energy 
conservation standards. DOE requested feedback on the current equipment 
classes and sought information regarding other equipment classes it 
should consider for

[[Page 6192]]

inclusion in its analysis. 78 FR 25627, 25629-31.
    One particular issue on which DOE sought comment was the need for 
separate equipment classes for units designed to be installed indoors 
(i.e., ``non-weatherized'' units) and units designed to be installed 
outdoors (i.e., ``weatherized'' units). High efficiency, condensing 
CWAF produce acidic condensate during operation due to the cooling of 
flue gasses below their dew point. Condensate is more difficult to 
manage in weatherized CWAF than in non-weatherized CWAF, due to the 
risk of the condensate freezing after exiting the furnace. For gas-
fired models, which represent the large majority of CWAF on the market, 
most of the models on the market are weatherized units, and a small 
number are non-weatherized. For oil-fired units, which make up a very 
small percentage of the CWAF models on the market, all models that DOE 
identified during the market assessment are non-weatherized.
    In response to the RFI, Carrier supported the idea of separate 
product classes for weatherized and non-weatherized commercial warm air 
furnaces and stated that unit heaters and duct heaters could 
potentially fall into these two classifications. (Carrier, No. 2 at p. 
1) AHRI asserted that it believes that separate classes are needed for 
non-weatherized and weatherized CWAF due to issues related to 
condensate management, but noted that creating separate equipment 
classes would not lead to any significant energy savings because a 
majority of the commercial warm air furnace market consists of non-
condensing weatherized equipment. (AHRI, No. 7 at p. 4) Similarly, 
Goodman commented that there is a very small segment of the commercial 
warm air furnace market that consists of units installed indoors, which 
would indicate that the costs would far outweigh the benefits of having 
separate equipment classes (indoor/outdoor). (Goodman, No. 6 at p. 2)
    DOE considered these comments and has tentatively decided to 
continue the use of the existing equipment classes. DOE agrees with 
AHRI that differentiating between weatherized and non-weatherized CWAF 
for establishing product classes would provide little opportunity for 
additional energy savings or benefits as compared to the current 
equipment class structure. Therefore, DOE is not proposing to adopt 
separate equipment classes for weatherized and non-weatherized 
equipment. As to Carrier's assertion that unit heaters and duct heaters 
could fall into the classification of commercial warm air furnaces, DOE 
notes that the definition of ``warm air furnace'' in EPCA explicitly 
excludes such equipment as it defines a warm air furnace as: ``a self-
contained oil- or gas-fired furnace designed to supply heated air 
through ducts to spaces that require it and includes combination warm 
air furnace/electric air conditioning units but does not include unit 
heaters and duct furnaces.'' (42 U.S.C. 6311(11)(A))
    Another specific issue identified in the May 2, 2013 RFI was the 
potential gap in coverage of DOE's regulations for three-phase 
commercial furnaces with an input rating below 225,000 Btu/h. 78 FR 
25627, 25630-31. Current Federal energy conservation standards for CWAF 
only cover equipment with an input rating at or above 225,000 Btu/h, 
and Federal energy conservation standards for residential furnaces 
cover products with input ratings below 225,000 Btu/h, but only for 
single-phase products. Thus, there are no Federal standards for 
furnaces with an input rating below 225,000 Btu/h that use 3-phase 
electric power.
    Carrier stated that weatherized and non-weatherized product classes 
should be created to cover three-phase commercial warm air furnaces 
with input ratings below 225,000 Btu/h, and that DOE should adopt the 
current levels in ASHRAE Standard 90.1 for these products. However, 
Carrier stated that there would be limited energy savings for new 3-
phase, less than 225,000 Btu/h product classes because many of those 
products share designs with current covered products that already meet 
efficiency levels set forth in ASHRAE Standard 90.1. (Carrier, No. 2 at 
p. 2) Lennox supported regulation of three-phase commercial warm air 
furnaces with input ratings below 225,000 Btu/h, stating that closing 
this gap would prevent a manufacturer from entering the market with a 
cost advantage. (Lennox, No. 3 at p. 2) Conversely, AHRI stated that 
creating an equipment class for three-phase commercial warm air 
furnaces with an input rating below 225,000 Btu/h would not lead to any 
additional energy savings since they share the same design as their 
single-phase counterparts, and consequently have similar thermal 
efficiencies. (AHRI, No. 7 at p. 4) Goodman reiterated this point, 
stating that most manufacturers have the same basic design for single- 
and three-phase products and added that the efficiency of three-phase 
equipment with an input rating below 225,000 Btu/h generally meet the 
requirements of single-phase products. Therefore, Goodman argued that 
any additional regulations would be duplicative and burdensome. 
(Goodman, No. 6 at p. 3)
    Upon considering the comments in response to the RFI on the 
potential for a new equipment class for three-phase commercial warm air 
furnaces with an input capacity less than 225,000 Btu/h, DOE has 
tentatively decided not to extend coverage to this equipment at this 
time. DOE agrees with commenters who pointed out the limited potential 
for energy savings due to the fact that equipment with these 
characteristics already meets efficiency levels specified by ASHRAE 
Standard 90.1. In its review of the market, DOE did not identify any 
equipment not meeting or exceeding the ASHRAE Standard 90.1 levels, and 
thus, has tentatively concluded that a separate equipment class and 
standard for this equipment may be unnecessarily duplicative and 
provide little opportunity for energy savings. Further, three-phase 
commercial warm air furnaces with input ratings below 225,000 Btu/h 
typically achieve the same efficiency as their single-phase residential 
counterparts. Thus, the efficiency of this equipment could be expected 
to be consistent with residential furnace energy conservation 
standards.
    Lastly, in response to the RFI, several commenters suggested that 
DOE should adopt an upper limit to the input capacity of covered 
commercial warm air furnaces. Carrier recommended that DOE should 
consider an upper limit for weatherized furnaces corresponding to DOE's 
upper limit of 760,000 Btu/h of cooling capacity for commercial air 
conditioners, and noted that for 760,000 Btu/h air conditioners, the 
maximum heat input of equipment in their product offering is 1.2 
million Btu/h. (Carrier, No. 2 at p. 2) AHRI also recommended an upper 
limit on input capacity and suggested that the limit be 2,000,000 Btu/
h. According to AHRI, this is the maximum input capacity associated 
with a commercial warm air furnace that is paired with an air 
conditioner having a cooling capacity of 760,000 Btu/h. (AHRI, No. 7 at 
p. 5)
    DOE notes that neither the statute nor DOE's existing regulations 
for CWAF specify an upper limit to the input rating of covered 
equipment. Establishing an upper limit as suggested by interested 
parties would potentially remove coverage of models that would have 
otherwise been covered by DOE regulations. As such, DOE sees advantage 
to leaving the upper end of the range open, such that the standard can 
accommodate any very large CWAF which may come on the market in the 
future. Therefore, DOE has tentatively

[[Page 6193]]

decided not to establish an upper limit on the input capacity of 
covered CWAF.
    DOE requests comment on the proposed scope of coverage and 
equipment classes for this rulemaking.
3. Technology Options
    As part of the market and technology assessment, DOE uses 
information about existing and past technology options and prototype 
designs to help identify technologies that manufacturers could use to 
improve CWAF energy efficiency. Initially, these technologies encompass 
all those that DOE believes are technologically feasible. Chapter 3 of 
the NOPR TSD includes the detailed list and descriptions of all 
technology options identified for this equipment.
    In the May 2, 2013 RFI, DOE requested comment on technology options 
that could be used to improve the thermal efficiency of CWAF. 78 FR 
25627, 25631. The comments generally centered on how to improve the 
efficiency of non-condensing CWAF while still achieving efficiencies in 
the non-condensing range (i.e., less than 90 percent thermal 
efficiency), and on how to improve the efficiency of non-condensing 
CWAF by utilizing condensing operation (which would achieve a thermal 
efficiency greater than 90 percent).
    Carrier stated that raising the thermal efficiency from 80 to 82 
percent requires more heat transfer surface. (Carrier, No. 2 at p. 3) 
Lennox commented that all their warm air furnaces are rated at 80 
percent thermal efficiency and are constructed with induced draft 
combustion system with multiple burners firing into aluminized steel 
tubes. Lennox explained that these tubes are enhanced on the flue 
portion to improve heat transfer and balance flow between the parallel 
flow paths. Further, Lennox expounded that heat exchanger tubes are 
arranged below or beside the supply blower for optimal coverage of the 
tube surface area, and the tubes are sloped from the flue outlet back 
to the burner area to allow any condensate produced by the heat 
exchanger to drain out in order to prevent heat exchanger corrosion. 
Lennox stated that 82-percent thermal efficiency furnaces are similar 
to 80-percent furnaces except that more heat transfer surface is 
needed, and the amount of excess air required to support complete 
combustion has to be reduced, and the commenter asserted that the 
additional flue side pressure drop requires a more powerful combustion 
inducer (which would draw more electricity). Lennox stated that the 
lower excess air would reduce the ability for the furnace to operate 
without derating at high-altitude conditions, and expressed its belief 
that there would be a risk of corrosion and heat exchanger failure at 
82 percent for a very small benefit. (Lennox, No. 3 at p. 4)
    To reach 90 percent thermal efficiency, Carrier stated that a 
secondary heat exchanger is required along with a reliable condensate 
management system. Carrier described the challenges for achieving 
thermal efficiencies of greater than 82 percent, including dealing with 
condensate freezing and disposal of acidic condensate. (Carrier, No. 2 
at p. 2) AHRI stated that in order to increase the efficiency of a 
commercial gas warm air furnace to a condensing level, the heat 
exchanger surface area must be increased. AHRI further explained that 
handling acidic condensate would require condensate disposal lines, 
which cannot be drained on ground or on the roof. (AHRI, No. 7 at p. 3) 
Lennox commented that condensing furnaces would necessitate a secondary 
heat exchanger, which would require a much more expensive corrosion-
resistant material. Further, Lennox explained that combustion blowers 
with upgraded housing and stainless steel impellers to protect against 
corrosion would be required. Lennox reported that it participated in a 
1988 Gas Research Institute study on the feasibility of a 90+ percent 
gas furnace, where condensate was managed by draining it into the 
building; Lennox explained that incremental product costs were high due 
to use of a stainless steel secondary heat exchanger, a larger 
combustion inducer, piping, and thermostatically-controlled heat tape, 
and that the additional energy used to overcome the pressure drop 
offset the gas savings. Lennox added that a 90-percent-efficiency gas 
furnace would have even more barriers in horizontal applications (which 
make up approximately 15 to 20 percent of the market) because the 
condensate would have to be pumped into the building. (Lennox, No. 3 at 
p. 5) Goodman stated that while technology exists that allows 
condensing operation of commercial warm air furnaces, the application 
requirements are very onerous, costly, and potentially dangerous. 
Goodman further stated that many condensate lines today are exposed to 
extreme weather conditions and are apt to crack or fail at joints, and 
such a failure would then leak acidic condensate directly onto the 
building rooftop with a high risk of causing holes in the roof surface. 
(Goodman, No. 6 at p. 3)
    After considering the comments, discussing approaches for improving 
efficiency with manufacturers during interviews, and reviewing the 
market for CWAF, DOE primarily considered the following technology 
options for improving the rated thermal efficiency of CWAF in the 
development of this NOPR:

 Increased heat exchanger (HX) surface area \18\
---------------------------------------------------------------------------

    \18\ This design option includes a larger combustion inducer (to 
overcome the pressure drop of the increased HX area). The larger 
combustion inducer does not directly lead to a higher thermal 
efficiency, but would allow the implementation of other technologies 
(i.e., HX improvements) that would cause the furnace to operate more 
efficiently.
---------------------------------------------------------------------------

 Improved flue side HX enhancements (e.g., dimples, 
turbulators)
 Secondary HX (stainless steel) \19\

    \19\ This design option includes a larger combustion inducer 
fan, upgraded housing for combustion blowers, stainless steel 
impellers, condensate heater, and condensate drainage system that 
would be required for condensing operation. Although these design 
changes do not directly lead to a higher thermal efficiency, they 
allow the implementation of condensing operation, which causes the 
furnace to operate more efficiently.
---------------------------------------------------------------------------

    DOE notes that many commenters acknowledged that a secondary heat 
exchanger for condensing operation is a possible technology option for 
CWAF, but also that that technology has considerable issues to overcome 
when used in weatherized equipment. These issues relate specifically to 
the handling of acidic condensate produced by a condensing furnace in 
the secondary heat exchanger. Condensate must be drained from the 
furnace to prevent build-up in the secondary heat exchanger, and 
properly disposed of after exiting into the external environment. Some 
building codes limit the disposal of condensate into the municipal 
sewage system, so the condensate must be passed through a neutralizer 
to reduce its acidity to appropriate levels prior to disposal. In 
weatherized installations, it is more difficult to access the municipal 
sewage system than in non-weatherized installations. Condensate 
produced by a weatherized condensing furnace must flow naturally or be 
pumped through pipes to the nearest disposal drain, which may not be in 
close proximity to the furnace. In cold environments, there is a risk 
of the condensate freezing as it flows through these pipes, which can 
cause an eventual back-up of condensate into the heat exchanger, 
resulting in significant damage to the furnace.
    Despite these issues, DOE found in its review of the market that 
multiple manufacturers offer weatherized HVAC equipment with a 
condensing furnace heating section. DOE believes that this indicates 
that many of the issues explained by the commenters can be

[[Page 6194]]

overcome, and thus, DOE considered a secondary condensing heat 
exchanger as a technology option. As discussed in section IV.B and 
IV.C.2.b, this technology was ultimately passed through the screening 
analysis and considered in the engineering analysis. Regarding 
condensate disposal, DOE included the cost of a condensate disposal 
lines for all condensing installations. For more details, see section 
IV.F.1.
    DOE also identified the following technology options for improving 
the efficiency of CWAF, which were either removed from the analysis 
because they were screened out (see section IV.B) or because they did 
not improve the rated thermal efficiency as measured by the DOE test 
procedure.

 Pulse combustion
 Low NOX premix burners
 Low pressure, air-atomized burners
 Burner derating
 Two-stage or modulating burners

    DOE requests comment on the technologies identified in this 
rulemaking, as well as the technologies which were primarily considered 
as the methods for increasing thermal efficiency of commercial warm air 
furnaces.

B. Screening Analysis

    After DOE identified the technologies that might improve the energy 
efficiency of CWAF, DOE conducted a screening analysis. The purpose of 
the screening analysis is to determine which options to consider 
further and which to screen out. DOE consulted with industry, technical 
experts, and other interested parties in developing a list of design 
options. DOE then applied the following set of screening criteria to 
determine which design options are unsuitable for further consideration 
in the rulemaking:

     Technological Feasibility: DOE will consider only those 
technologies incorporated in commercial equipment or in working 
prototypes to be technologically feasible.
     Practicability to Manufacture, Install, and Service: If 
mass production of a technology in commercial equipment and reliable 
installation and servicing of the technology could be achieved on the 
scale necessary to serve the relevant market at the time of the 
effective date of the standard, then DOE will consider that technology 
practicable to manufacture, install, and service.
     Adverse Impacts on Equipment Utility or Equipment 
Availability: DOE will not further consider a technology if DOE 
determines it will have a significant adverse impact on the utility of 
the equipment to significant subgroups of customers. DOE will also not 
further consider a technology that will result in the unavailability of 
any covered equipment type with performance characteristics (including 
reliability), features, sizes, capacities, and volumes that are 
substantially the same as equipment generally available in the United 
States at the time.
     Adverse Impacts on Health or Safety: DOE will not further 
consider a technology if DOE determines that the technology will have 
significant adverse impacts on health or safety.

(10 CFR part 430, subpart C, appendix A, 4(a)(4) and 5(b))
    Additionally, DOE notes that these screening criteria do not 
directly address the propriety status of design options. DOE only 
considers efficiency levels achieved through the use of proprietary 
designs in the engineering analysis if they are not part of a unique 
path to achieve that efficiency level (i.e., if there are other non-
proprietary technologies capable of achieving the same efficiency). DOE 
believes the proposed standards for the CWAF equipment covered in this 
rulemaking would not mandate the use of any proprietary technologies, 
and that all manufacturers would be able to achieve the proposed levels 
through the use of non-proprietary designs. DOE seeks comment on this 
tentative conclusion and requests additional information regarding 
proprietary designs and patented technologies.
    Technologies that pass through the screening analysis are referred 
to as ``design options'' and are subsequently examined in the 
engineering analysis for consideration in DOE's downstream cost-benefit 
analysis. In view of the above factors, DOE screened out the following 
design options listed below in Table IV.2.

                 Table IV.2--Screened Technology Options
------------------------------------------------------------------------
           Technology option                 Reason for screening out
------------------------------------------------------------------------
Pulse Combustion.......................  Adverse impact on utility;
                                          potential for adverse impact
                                          on safety.
Low NOX Premix Burner..................  Technological feasibility.
Burner Derating........................  Adverse impact on utility.
Low Pressure, Air-Atomized Burner......  Technological Feasibility.
------------------------------------------------------------------------

    Based on the screening analysis, DOE identified the following seven 
design options for further consideration in the engineering analysis:

 Condensing secondary heat exchanger
 Increased heat exchanger surface area
 Incorporation of heat exchanger surface features (e.g., 
dimples)
 Use of heat exchanger baffles and turbulators
 Use of concentric venting of flue gases
 Improved combustion air flow (oil-fired)
 High-static oil burner

    A full description of each technology option is included in chapter 
3 of the TSD, and additional discussion of the screening analysis is 
included in chapter 4 of the TSD.

C. Engineering Analysis

    The engineering analysis establishes the relationship between an 
increase in energy efficiency of the equipment and the increase in 
manufacturer selling price (MSP) associated with that efficiency level. 
This relationship serves as the basis for the cost-benefit calculations 
for commercial consumers, manufacturers, and the Nation. In determining 
the cost-efficiency relationship, DOE estimates the increase in 
manufacturer cost associated with increasing the efficiency of 
equipment above the baseline up to the maximum technologically feasible 
(``max-tech'') efficiency level for each equipment class.
1. Methodology
    DOE typically structures its engineering analysis using one or more 
of three identified basic methods for generating manufacturing costs: 
(1) The design-option approach, which provides the incremental costs of 
adding individual technology options (from the market and technology 
assessment) that can be added alone or in combination to a baseline 
model in order to improve its efficiency (i.e., lower its energy use); 
(2) the efficiency-level approach, which provides the incremental costs 
of moving to higher energy efficiency levels, without regard to the 
particular design option(s) used to achieve such increases; and (3) the 
reverse-

[[Page 6195]]

engineering (or cost-assessment) approach, which provides ``bottom-up'' 
manufacturing cost assessments for achieving various levels of 
increased efficiency, based on teardown analyses (or physical 
teardowns) providing detailed data on costs for parts and material, 
labor, shipping/packaging, and investment for models that operate at 
particular efficiency levels. A supplementary method called a catalog 
teardown uses published manufacturer catalogs and supplementary 
component data to estimate the major physical differences between a 
piece of equipment that has been physically disassembled and another 
piece of similar equipment for which catalog data are available to 
determine the cost of the latter equipment.
    In the RFI, DOE stated that in order to create the cost-efficiency 
relationship for CWAF, it anticipated having to structure its 
engineering analysis using the reverse-engineering approach, 
potentially including physical and catalog teardowns. DOE requested 
comments on the approach outlined in the RFI and on the appropriate 
representative capacities for each equipment class. 78 FR 25627, 25631 
(May 2, 2013).
    In response to the RFI, Carrier stated that equipment is available 
for teardown analysis to develop a cost-efficiency relationship between 
80 percent and 82 percent, but noted that it may be difficult to draw 
clear conclusions from the data. However, Carrier added that it was 
unclear how to analyze a 90-percent efficiency level through a teardown 
analysis.
    For this NOPR, DOE conducted the engineering analysis using the 
reverse-engineering approach to estimate the costs of achieving various 
efficiency levels. DOE selected two gas-fired CWAF in the non-
condensing efficiency range for physical teardowns at an input rating 
of 250,000 Btu/h, which was considered to be the representative input 
rating for analysis. DOE also performed a physical teardown of an oil-
fired CWAF at 81-percent thermal efficiency at an input rating of 
400,000 Btu/h, which was subsequently scaled down via cost modeling 
techniques to represent a unit of the representative 250,000 Btu/h 
input rating. DOE seeks comment regarding the applicability of these 
teardown units to represent the range of potential input capacities on 
the market. Additional detail on the teardowns performed is provided in 
chapter 5, section 5.6.2, of the proposed rule TSD. In addition, DOE 
used catalog data and information from physical teardowns to virtually 
model a gas-fired unit at the max-tech 92-percent thermal efficiency 
level, as well as two oil-fired furances (at 82 percent and the max-
tech 92 percent thermal efficiency).
2. Efficiency Levels
a. Baseline Efficiency Levels
    The baseline model is used as a reference point for each equipment 
class in the engineering analysis and the life-cycle cost and payback-
period analyses, which provides a starting point for analyzing 
potential technologies that provide energy efficiency improvements. 
Generally, DOE considers ``baseline'' equipment to refer to a model or 
models having features and technologies that just meet, but do not 
exceed, the minimum energy conservation standard. In establishing the 
baseline efficiency level for this analysis, DOE used the existing 
minimum energy conservation standards for CWAF to identify baseline 
units. The baseline thermal efficiency levels for each equipment class 
are presented below in Table IV.3.

         Table IV.3--Baseline Thermal Efficiency Levels for CWAF
------------------------------------------------------------------------
                                                               Baseline
                      Equipment class                         efficiency
                                                              level (%)
------------------------------------------------------------------------
Gas-fired Commercial Warm Air Furnace......................           80
Oil-fired Commercial Warm Air Furnace......................           81
------------------------------------------------------------------------

b. Incremental and Max-Tech Efficiency Levels
    For each equipment class, DOE analyzes several efficiency levels 
and determines the incremental cost at each of these levels. For this 
NOPR, DOE developed efficiency levels based on a review of available 
equipment. DOE compiled a database of the CWAF market to determine what 
types of equipment are currently available to commercial consumers. At 
each representative capacity, DOE surveyed various manufacturers' 
equipment offerings to identify the commonly-available efficiency 
levels. By identifying the most prevalent energy efficiencies in the 
range of available equipment, DOE can establish a technology path that 
manufacturers would typically use to increase the thermal efficiency of 
a CWAF and corresponding efficiency levels along that technology path.
    DOE established incremental thermal efficiency levels for each 
equipment class. The incremental thermal efficiency levels are 
representative of efficiency levels along the technology paths that 
manufacturers of CWAF commonly use to maintain cost-effective designs 
while increasing the thermal efficiency. DOE reviewed AHRI's Directory 
of Certified Product Performance,\20\ manufacturer catalogs, and other 
publicly-available literature to determine which thermal efficiency 
levels are the most prevalent for each representative equipment class. 
For gas-fired CWAF, DOE chose two efficiency levels between the 
baseline and max-tech for analysis (see Table IV.4). For oil-fired 
CWAF, DOE chose one thermal efficiency level between the baseline and 
max-tech for analysis (see Table IV.5).
---------------------------------------------------------------------------

    \20\ For more information see: http://cafs.ahrinet.org/gama_cafs/sdpsearch/search.jsp?table=CFurnace.
---------------------------------------------------------------------------

    Carrier stated that in the current market, the max-tech efficiency 
level for gas-fired weatherized furnaces is 81-percent to 82-percent 
thermal efficiency, pointing out that no AHRI member makes a more 
efficient gas-fired furnace, and asserting that 90 percent is not 
currently feasible. (Carrier, No. 2 at p. 2) Lennox described how an 
82-percent gas-fired commercial furnace could be designed, but then 
expressed significant concerns about trying to develop furnaces at 82-
percent thermal efficiency. The commenter asserted that there would be 
an undue risk of corrosion and heat exchanger failure for a very small 
benefit in gas consumption at this efficiency level. Lennox also 
commented that the two gas-fired 90-percent thermal efficiency model 
lines available on the market currently are for makeup air 
applications,\21\ which is a niche market. (Lennox, No. 3 at pp. 4-5) 
AHRI stated that since January 1, 1994, the efficiency trends for gas-
fired commercial warm air furnaces have stayed near a thermal 
efficiency of 80 percent. As discussed previously in section IV.A.3, 
many of the commenters also noted concerns regarding issues with 
condensate management in weatherized furnaces with thermal efficiencies 
at or above 90 percent.
---------------------------------------------------------------------------

    \21\ Makeup air applications require fresh outdoor air that is 
brought into a building through the ventilation system, and do not 
allow air to be recirculated through the building.
---------------------------------------------------------------------------

    DOE considered these comments in conjunction with its review of the 
market. DOE found several manufacturers that offer gas-fired equipment 
at 81-percent thermal efficiency. In addition, although only one 
manufacturer has gas-fired equipment rated at 82-percent thermal 
efficiency, there is equipment available across a wide range of input 
capacities indicating that the entire product family would be capable 
of meeting 82-percent

[[Page 6196]]

thermal efficiency. DOE acknowledges the concerns raised regarding the 
near-condensing operation at 82-percent thermal efficiency, but 
believes that the presence of models across a broad range of input 
ratings demonstrates the feasibility of this efficiency level. Thus, 
DOE considered 81-percent and 82-percent as incrementally higher 
thermal efficiency levels for the gas-fired commercial furnace 
analysis. DOE also considered the max-tech level, which was identified 
as 92-percent thermal efficiency. The max-tech level is based on a 
dedicated outdoor air system with a condensing furnace section, which 
proves the technical feasibility of a weatherized condensing furnace. 
For oil-fired furnaces, which are typically installed indoors, DOE 
surveyed the market and found non-condensing equipment with thermal 
efficiencies in the range of 81 to 82 percent, as well as a condensing 
model with a thermal efficiency of 92 percent. Therefore, DOE analyzed 
those three levels in this NOPR analysis. The efficiency levels DOE 
considered for each equipment class during the NOPR analyses (including 
the baseline levels) are presented in Table IV.4 and Table IV.5.

            Table IV.4--Efficiency Levels for Gas-Fired CWAF
------------------------------------------------------------------------
                                                              Gas-fired
                      Efficiency level                         CWAF (%)
------------------------------------------------------------------------
EL0 (Baseline).............................................           80
EL1........................................................           81
EL2........................................................           82
Max-Tech...................................................           92
------------------------------------------------------------------------


            Table IV.5--Efficiency Levels for Oil-Fired CWAF
------------------------------------------------------------------------
                                                              Oil-fired
                      Efficiency level                         CWAF (%)
------------------------------------------------------------------------
EL0 (Baseline).............................................           81
EL1........................................................           82
Max-Tech...................................................           92
------------------------------------------------------------------------

    DOE requests comment on the efficiency levels analyzed for gas-
fired and oil-fired commercial warm air furnaces. In particular, DOE is 
interested in the feasibility of the max-tech efficiency levels, as 
well as the 82-percent thermal efficiency level for gas-fired 
commercial warm air furnaces.
3. Equipment Testing and Reverse Engineering
    As discussed above, for the engineering analysis, DOE analyzed a 
representative input capacity of 250,000 Btu/h for the gas-fired and 
oil-fired CWAF equipment classes to develop incremental cost-efficiency 
relationships. The models were selected to represent the efficiency 
levels available on the market, ranging from the baseline 80-percent 
thermal efficiency for gas-fired units, and baseline 81-percent thermal 
efficiency for oil-fired units, up to the max-tech 92-percent thermal 
efficiency for gas-fired units, and 92-percent thermal efficiency for 
oil-fired units. DOE based the selection of units for testing and 
reverse engineering on the efficiency data available in the AHRI 
certification database \22\ and the CEC equipment database.\23\ Details 
of the key features of the tested units are presented in chapter 5 of 
the NOPR TSD.
---------------------------------------------------------------------------

    \22\ Available at: https://www.ahridirectory.org/ahridirectory/pages/home.aspx.
    \23\ Available at: http://www.appliances.energy.ca.gov/Default.aspx.
---------------------------------------------------------------------------

    DOE conducted physical or virtual teardowns on each test unit to 
develop a manufacturing cost model and to evaluate key design features 
(e.g., heat exchangers, blower and inducer fans/fan motors, control 
strategies).
    For gas-fired commercial warm air furnaces, DOE performed two 
teardowns on weatherized furnaces at non-condensing efficiency levels. 
Prior to teardown, the units were tested by a third-party test lab and 
achieved a thermal efficiency of 82 percent. The units were from the 
same manufacturer and had nearly identical furnace sections with 
different air conditioner sections. DOE assumed that the repeatability 
of the test result on both units indicated that the furnace design that 
was torn down is representative of equipment that would achieve 82-
percent thermal efficiency. Using the cost-assessment methodology, DOE 
determined the cost of the furnace components through reverse-
engineering of the furnace section of the weatherized packaged units. 
Based on discussions with manufacturers, a review of product 
literature, and experience obtained from examining residential 
weatherized furnaces, DOE made assumptions regarding how the heat 
exchanger size would vary between units with 82-percent thermal 
efficiency and at the baseline (80-percent thermal efficiency) and the 
81-percent thermal efficiency intermediate level. At the 80-percent and 
81-percent thermal efficiency levels, DOE scaled down the size of the 
heat exchanger and related components (e.g., inducer fan, cabinet 
panels, insulation), as applicable, to generate an estimate of the cost 
to manufacture equipment at those levels. Thus, DOE obtained an 
estimate of the differential cost of manufacturing a commercial gas 
furnace section at the baseline (80-percent), 81-percent, and 82-
percent thermal efficiency. To develop an estimate of the cost of a 
max-tech unit at 92-percent thermal efficiency, DOE obtained a sample 
of commercial HVAC equipment that utilizes a condensing furnace section 
for analysis, and also used information gathered from a teardown of a 
condensing weatherized residential furnace. DOE examined the heat 
exchanger, inducer fan, condensate management system, and other aspects 
of the furnace section in the commercial equipment sample to develop a 
cost estimate to manufacture a condensing commercial furnace. DOE then 
used information from the residential condensing weatherized furnace 
teardown to refine estimates of the costs of the exhaust assembly, 
inducer fan assembly, and condensate management system to model the 
cost of a 92-percent efficient CWAF that is designed for implementation 
on a broad scale.
    For oil-fired commercial furnaces, DOE performed a teardown of a 
non-weatherized furnace at 81-percent thermal efficiency. DOE used this 
teardown, along with product literature, prior industry experience, 
manufacturer feedback, and analysis previously performed on residential 
furnaces to develop cost estimates at the 82-percent and 92-percent 
thermal efficiency levels.
    In a previous analysis of residential non-weatherized oil-fired 
furnaces, DOE developed an estimate of the cost-efficiency relationship 
across a range of efficiency levels. In examining product literature 
for commercial oil-fired furnaces, DOE found that commercial units are 
very similar to residential units, except with higher input ratings and 
overall larger size. Based on information obtained from the physical 
teardown of the 81-percent thermal efficiency oil furnace, in addition 
to the information gained from the residential furnace analysis and 
product literature, DOE was able to conduct a virtual teardown at the 
82-percent thermal efficiency level. Key to this model was the growth 
in heat exchanger size necessary for a 1-percent increase in thermal 
efficiency, which necessitates a larger cabinet to accommodate it. 
Sheet metal and other components sensitive to size changes were scaled 
in order to match the larger size of the unit, while components that 
are not sensitive to heat exchanger size changes remained unchanged.
    Similarly, DOE relied on the physical teardown at the 81-percent 
thermal efficiency level, as well as prior

[[Page 6197]]

comparisons of residential oil-fired furnaces at condensing and non-
condensing efficiency levels, to conduct a virtual teardown at the 92-
percent thermal efficiency level. At 92-percent thermal efficiency, a 
secondary condensing heat exchanger made from a high-grade stainless 
steel was added in order to withstand the formation of condensate from 
the flue gases coupled with increased heat extraction into the building 
airstream (and, thus, higher thermal efficiency). This additional heat 
exchanger was appropriately sized based on information gathered from 
the residential furnaces teardowns. To accommodate the secondary heat 
exchanger, the cabinet was increased in size, and all associated sheet 
metal, wiring, and other components sensitive to cabinet size changes 
were also scaled as a result. In addition, the size of the blower fan 
blade was increased appropriately to account for the additional airflow 
needed over the secondary heat exchanger (however, based on 
observations in product literature, the rated fan power was unchanged). 
The manufacturing costs obtained from these physical and virtual 
teardowns served as the basis for the cost-efficiency relationship for 
this equipment class. The teardown analyses are described in further 
detail in section 5.6 of the proposed rule TSD.
4. Cost Model
    DOE developed a manufacturing cost model to estimate the 
manufacturing production cost of CWAF. The cost model is a spreadsheet 
model that converts the materials and components in the bills of 
materials (BOMs) into dollar values based on the price of materials, 
average labor rates associated with fabrication and assembling, and the 
cost of overhead and depreciation, as determined based on manufacturer 
interviews and DOE expertise. To convert the information in the BOMs 
into dollar values, DOE collected information on labor rates, tooling 
costs, raw material prices, and other factors. For purchased parts, the 
cost model estimates the purchase price based on volume-variable price 
quotations and detailed discussions with manufacturers and component 
suppliers. For fabricated parts, the prices of raw metal materials 
(e.g., tube, sheet metal) are estimated on the basis of five-year 
averages. The cost of transforming the intermediate materials into 
finished parts is estimated based on current industry pricing. 
Additional details on the cost model are contained in chapter 5 of the 
NOPR TSD.
5. Manufacturing Production Costs
    Once the cost estimates for all the components in each teardown 
unit were finalized, DOE totaled the cost of materials, labor, and 
direct overhead used to manufacture each type of equipment in order to 
calculate the manufacturing production cost. The total cost of the 
equipment was broken down into two main costs: (1) The full 
manufacturing production cost, referred to as MPC; and (2) the non-
production cost, which includes selling, general, and administration 
(SG&A) costs; the cost of research and development; and interest from 
borrowing for operations or capital expenditures. DOE estimated the MPC 
at each efficiency level considered for each equipment class, from the 
baseline through the max-tech level. After incorporating all of the 
assumptions into the cost model, DOE calculated the percentages 
attributable to each element of total production costs (i.e., 
materials, labor, depreciation, and overhead). These percentages are 
used to validate the assumptions by comparing them to manufacturers' 
actual financial data published in annual reports, along with feedback 
obtained from manufacturers during interviews. DOE uses these 
production cost percentages in the MIA.
    Based on the analytical methodology discussed in the sections 
above, DOE developed the cost-efficiency results shown in Table IV.6 
for each thermal efficiency level analyzed. The results shown in Table 
IV.6 represent the incremental increase in manufacturing cost, relative 
to the baseline manufacturing cost, needed to produce equipment at each 
efficiency level above baseline. Details of the cost-efficiency 
analysis, including descriptions of the technologies DOE analyzed for 
each thermal efficiency level to develop incremental manufacturing 
costs, are presented in chapter 5 of the NOPR TSD. DOE seeks comment on 
the results of the engineering analysis at each efficiency level 
considered.

                             Table IV.6--Incremental Manufacturing Cost Increases *
----------------------------------------------------------------------------------------------------------------
                                                                                         EL2 (oil-    EL3 (gas-
                       Equipment type                             EL0          EL1       fired max-   fired max-
                                                               (baseline)                  tech)        tech)
----------------------------------------------------------------------------------------------------------------
Gas-fired CWAF..............................................  ...........           $5          $10         $613
Oil-fired CWAF..............................................  ...........           24          660  ...........
----------------------------------------------------------------------------------------------------------------
* DOE structures proposed standards in terms of TSLs and analyzed five TSLs for this NOPR. TSL 1 includes EL1
  for gas-fired CWAF and EL0 for oil-fired CWAF, TSL 2 includes EL1 for both equipment classes, TSL 3 includes
  EL2 for gas-fired CWAF and EL0 for oil-fired CWAF, TSL 4 includes EL2 for gas-fired CWAF and EL1 for oil-fired
  CWAF, and TSL 5 includes EL3 for gas-fired CWAF and EL2 for oil-fired CWAF. For more information on the TSL
  structure, see section V.A of this NOPR.

6. Manufacturer Markup
    To account for manufacturers' non-production costs and profit 
margin, DOE applies a non-production cost multiplier (the manufacturer 
markup) to the full MPC. The resulting manufacturer selling price (MSP) 
is the price at which the manufacturer can recover all production and 
non-production costs and earn a profit. To meet new or amended energy 
conservation standards, manufacturers often introduce design changes to 
their equipment lines that result in increased MPCs. Depending on the 
competitive pressures, some or all of the increased production costs 
may be passed from manufacturers to retailers and eventually to 
customers in the form of higher purchase prices. As production costs 
increase, manufacturers typically incur additional overhead. The MSP 
should be high enough to recover the full cost of the equipment (i.e., 
full production and non-production costs) and yield a profit. The 
manufacturer markup has an important bearing on profitability. A high 
markup under a standards scenario suggests manufacturers can readily 
pass along the increased variable costs and some of the capital and 
product conversion costs (the one-time expenditure) to customers. A low 
markup suggests that manufacturers will not be able to recover as much 
of the necessary investment in plant and equipment. DOE developed the 
manufacturer markup through an examination of corporate annual reports 
and Securities and Exchange Commission (SEC) 10-K

[[Page 6198]]

reports.\24\ Additional information is contained in chapter 5 of the 
TSD.
---------------------------------------------------------------------------

    \24\ U.S. Securities and Exchange Commission, Annual 10-K 
Reports (Various Years) (Available at: http://www.sec.gov/edgar/searchedgar/companysearch.html) (Last Accessed Dec. 13, 2013).
---------------------------------------------------------------------------

7. Shipping Costs
    Manufacturers of heating, ventilation, and air-conditioning (HVAC) 
equipment typically pay for shipping to the first step in the 
distribution chain. Freight is not a manufacturing cost, but because it 
is a substantial cost incurred by the manufacturer, DOE is accounting 
for shipping costs of CWAF separately from other non-production costs 
that comprise the manufacturer markup. To calculate the MSP for CWAF, 
DOE multiplied the MPC at each efficiency level by the manufacturer 
markup and added shipping costs for equipment at the given efficiency 
level. More specifically, DOE calculated shipping costs at each 
efficiency level based on the average outer dimensions of equipment at 
the given efficiency and assuming the use of a typical 53-foot 
straight-frame trailer with a storage volume of 4,240 cubic feet. Gas-
fired CWAF equipment is almost exclusively enclosed within a cabinet 
that also contains a commercial unitary air conditioner (CUAC). Thus, 
the CUAC components are significant factor in driving the overall 
cabinet dimensions. DOE found that the changes in CWAF component sizes 
necessary to achieve the 81 percent and 82 percent thermal efficiency 
levels are not large enough to add any size to the cabinet, which is 
driven primarily by the size of the CUAC components. The shipping costs 
calculated for each efficiency level are shown in Table IV.7. Due to 
the noted dependence on CUAC components of the overall shipping cost 
for gas-fired CWAF, DOE presents only the incremental cost change due 
to increased CWAF efficiency for that equipment. For oil-fired CWAF, 
DOE presents the full cost of shipping, since this equipment is not 
packaged with CUAC components, and thus, the shipping cost represents 
only the oil-fired CWAF. Chapter 5 of the NOPR TSD contains additional 
details about DOE's shipping cost assumptions and DOE's shipping cost 
estimates.

                Table IV.7--CWAF Shipping Cost Estimates
------------------------------------------------------------------------
                                         Thermal        Shipping costs *
       CWAF equipment class           efficiency (%)        (2013$)
------------------------------------------------------------------------
Gas-Fired CWAF....................                 80                 $0
                                                   81                  0
                                                   82                  0
                                                   92              39.64
Oil-Fired CWAF....................                 81              63.78
                                                   82              69.60
                                                   92              76.53
------------------------------------------------------------------------
* Because gas-fired CWAF are weatherized and are typically included in a
  cabinet with a commercial unitary air conditioner which affects the
  shipping cost, the shipping costs for gas-fired CWAF are shown in
  terms of the incremental increase from the baseline level. Since oil-
  fired CWAF are normally self-contained non-weatherized units, the
  shipping costs for oil-fired CWAF are representative of the entire
  cost to ship the unit.

D. Markups Analysis

    The markups analysis develops appropriate markups in the 
distribution chain to convert the estimates of manufacturer selling 
price derived in the engineering analysis to commercial consumer 
prices. (``Commercial consumer'' refers to purchasers of the equipment 
being regulated.) DOE develops baseline and incremental markups based 
on the equipment markups at each step in the distribution chain. The 
markups are multipliers that represent increases above equipment 
purchase costs for CWAF equipment. The incremental markup relates the 
change in the manufacturer sales price of higher-efficiency models (the 
incremental cost increase) to the change in the customer price.
    In the RFI, DOE characterized two distribution channels to describe 
how CWAF equipment passes from the manufacturer to the commercial 
consumer. 78 FR 25627, 25632 (May 2, 2013). The first distribution 
channel is characterized as follows:
Manufacturer >< Wholesaler 
>< Mechanical Contractor 
>< General Contractor 
>< Consumer
    In the second distribution channel, the manufacturer sells the 
equipment directly to the customer through a national account:
Manufacturer >< Consumer 
(National Account)
    Carrier stated that the distribution channels outlined in the RFI 
are relevant for commercial warm air furnaces. Carrier added that in 
addition to the two channels described, for very large air-cooled 
equipment, there is an additional channel that consists of factory 
employees selling direct to end customers/mechanical contractors. 
(Carrier, No. 2 at p. 3) Lennox stated that the first example of 
distribution channels provided by DOE (manufacturer to wholesaler to 
mechanical contractor to general contractor to customer) is a typical 
distribution approach. Lennox stated that the second example (where a 
manufacturer would sell directly to a customer) is not a typical 
distribution approach, but rather the distribution channel should 
include the contractor, who must set up and install the system at the 
building site. (Lennox, No. 3 at p. 6) Goodman stated that the 
distribution channels should not be significantly different from the 
analysis performed for the same products being considered for the 
cooling mode. (Goodman, No. 6 at p. 3)
    In response to these comments, DOE modified the second distribution 
channel to include a wholesaler who purchases the equipment and sells 
it to the customer. DOE's understanding of this channel is that the 
contractor who installs the system generally does not purchase and mark 
up the equipment. Rather, the building owner purchases the equipment 
and hires the contractor. Thus, for the purposes of DOE's analysis, it 
would not be appropriate to include the contractor in the distribution 
channel.
    DOE also sought input on the percentage of equipment being 
distributed through the various types of distribution channels. Carrier 
stated that approximately 70 percent of equipment flows through the 
first distribution

[[Page 6199]]

channel described in the RFI, with the remainder split among the other 
channels. (Carrier, No. 2 at p. 4) Lennox stated that the first 
distribution approach discussed is the typical approach to equipment 
sales, accounting for approximately 90-95 percent of sales. (Lennox, 
No. 3 at p. 6)
    DOE assumes that the above responses reflect each company's 
experience, rather than a characterization of the industry overall. For 
this NOPR, DOE estimated that the first distribution channel accounts 
for 83 percent of shipments, and the second distribution channel 
accounts for 17 percent.
    To develop markups for the parties involved in the distribution of 
the equipment, DOE utilized several sources, including: (1) The 
Heating, Air-Conditioning & Refrigeration Distributors International 
(HARDI) 2012 Profit Report \25\ to develop wholesaler markups; (2) the 
2005 Air Conditioning Contractors of America's (ACCA) financial 
analysis for the heating, ventilation, air-conditioning, and 
refrigeration (HVACR) contracting industry \26\ to develop mechanical 
contractor markups, and (3) U.S. Census Bureau's 2007 Economic Census 
data \27\ for the commercial and institutional building construction 
industry to develop general contractor markups. For mechanical 
contractors, DOE derived separate markups for small and large 
contractors.
---------------------------------------------------------------------------

    \25\ Heating, Air Conditioning & Refrigeration Distributors 
International 2012 Profit Report (Available at: http://www.hardinet.org/Profit-Report) (Last accessed April 10, 2013).
    \26\ Air Conditioning Contractors of America (ACCA), Financial 
Analysis for the HVACR Contracting Industry: 2005 (Available at: 
https://http://www.acca.org/store/product.php?pid=142) (Last 
accessed April 10, 2013).
    \27\ U.S. Census Bureau, 2007 Economic Census Data (2007) 
(Available at: http://www.census.gov/econ/) (Last accessed April 10, 
2013).
---------------------------------------------------------------------------

    In addition to the markups, DOE derived State and local taxes from 
data provided by the Sales Tax Clearinghouse.\28\ These data represent 
weighted average taxes that include county and city rates. DOE derived 
shipment-weighted average tax values for each CBECS region considered 
in the analysis.
---------------------------------------------------------------------------

    \28\ Sales Tax Clearinghouse Inc., State Sales Tax Rates Along 
with Combined Average City and County Rates, 2013 (Available at: 
http://thestc.com/STrates.stm) (Last accessed Sept. 11, 2013).
---------------------------------------------------------------------------

    Chapter 6 of the NOPR TSD provides further detail on the estimation 
of markups.

E. Energy Use Analysis

    The purpose of the energy use analysis is to assess the energy 
requirements of equipment at different efficiencies in several building 
types that utilize the equipment and to assess the energy savings 
potential of increased commercial warm air furnace efficiency. The 
annual energy consumption includes the natural gas and oil fuel types 
used for heating and the auxiliary electrical use associated with the 
furnace electrical components.
    DOE based the energy use analysis on Energy Information 
Administration's 2003 Commercial Building Energy Consumption Survey 
(CBECS) \29\ for the subset that uses the type of equipment covered by 
the standards. DOE utilized the building types defined in CBECS 
2003.\30\ Each building was assigned to a specific location, and the 
approach captured variability in heating loads due to factors such as 
building activity, schedule, occupancy, local weather, and shell 
characteristics. Energy use estimates from 2003 CBECS were adjusted for 
average weather conditions and for projected improvements to the 
building shell efficiency. DOE also accounted for the energy use of a 
small fraction of commercial warm air furnaces that are installed in 
residential housing using data from the 2009 Residential Energy 
Consumption Survey (RECS 2009).\31\
---------------------------------------------------------------------------

    \29\ Energy Information Administration (EIA), 2003 Commercial 
Building Energy Consumption Survey (Available at: http://www.eia.gov/consumption/commercial/) (Last accessed April 10, 2013). 
Note: CBECS 2012 is currently in development but was not available 
in time for this rulemaking.
    \30\ Definitions of CBECS building types can be found at: http://www.eia.gov/emeu/cbecs/building_types.html.
    \31\ EIA, 2009 Residential Energy Consumption Survey (Available 
at: http://www.eia.gov/consumption/residential/) (Last accessed 
April 10, 2013).
---------------------------------------------------------------------------

    To determine the energy consumption of commercial warm air 
furnaces, DOE is using a Thermal Efficiency (TE) rating, along with 
relevant characteristics for each sample building. DOE assumed that TE 
is proportional to annual heating energy consumption for any given set 
of operating conditions. To calculate commercial warm air furnace 
energy consumption at each considered efficiency level, DOE determined 
the equipment capacity and the heating load in each CBECS building.
    In the RFI, DOE requested comment on its planned method to 
determine the equipment load profiles. 78 FR 25627, 25632 (May 2, 
2013). Carrier stated that DOE should develop equipment load profiles 
using the 16 benchmark buildings from Pacific Northwest National 
Laboratories (PNNL) building models.\32\ (Carrier, No. 2 at p. 4)
---------------------------------------------------------------------------

    \32\ Deru, M., K. Field, D. Studer, K. Benne, B. Griffith, P. 
Torcellini, B. Liu, M. Halverson, D. Winiarski, M. Rosenberg, M. 
Yazdanian, J. Huang, and D. Crawley, U.S. Department of Energy 
Commercial Reference Building Models of the National Building Stock, 
2011 (Available at http://www.nrel.gov/docs/fy11osti/46861.pdf) 
(Last accessed December 6, 2013).
---------------------------------------------------------------------------

    In response, rather than developing detailed load profiles for 
various building types, DOE decided to use CBECS-reported heating 
energy use for each sample building. DOE assumed that the CBECS data 
are representative of the energy use measured in the field for the U.S. 
commercial building types. CBECS provides information about buildings 
with a wide range of energy use representing both high-energy-use and 
low-energy-use buildings. DOE has concluded that the selected approach 
better reflects the heating energy use of the commercial buildings 
stock in the U.S. in comparison to using a set of benchmark buildings.
    DOE's RFI also sought input from stakeholders on the current 
distribution of equipment efficiencies in the building population. 78 
FR 25627, 25632 (May 2, 2013). Carrier stated that the vast majority of 
equipment should be in the 80-percent to 82-percent efficiency range 
based on the ASHRAE 90.1 standard. (Carrier, No. 2 at p. 4) DOE's 
approach is consistent with Carrier's comment. It utilizes model 
efficiency information from the 2013 AHRI Certification Directory for 
Commercial Furnaces.\33\
---------------------------------------------------------------------------

    \33\ AHRI, 2013 AHRI Certification Directory for Commercial 
Furnaces (Available at: http://www.ahridirectory.org/ahridirectory/pages/home.aspx).
---------------------------------------------------------------------------

    In the RFI, DOE requested comment on how equipment energy use for a 
given heating load shape scales as a function of capacity (i.e., 
whether two commercial furnace units of a certain capacity use the same 
total heating energy as one commercial furnace unit of twice the 
capacity). 78 FR 25627, 25632 (May 2, 2013). Carrier stated that it 
would expect to see no measurable difference in energy use for a given 
load shape as a function of capacity. (Carrier, No. 2 at p. 4) DOE's 
approach reflects the statement made by Carrier.
    Lennox stated that in its experience, furnaces with higher thermal 
efficiency ratings may use less gas, but they may use more electricity, 
offsetting the potential benefits. (Lennox, No. 3 at p. 7) For 
condensing CWAF, DOE's analysis accounts for the increased blower fan 
electricity use in the field in both heating and cooling mode due to 
the presense of the secondary heat exchanger. The increased electricity 
use of condensing furnaces is expected to be small compared to the 
potential savings in fuel use. DOE also accounts for

[[Page 6200]]

condensate line freeze protection or a condensate pump for a fraction 
of installations. Condensing CWAF installed outdoors that are located 
in regions with an outdoor design temperature of <=32[emsp14][deg]F 
were assumed to require condensate freeze protection. This applies to 
roughly 90 percent of gas-fired CWAF. All oil-fired CWAFs are assumed 
to be installed indoors so condensate line freeze protection was 
assumed to not be needed.
    Carrier stated that increasing plug loads (e.g., computers and 
related equipment) and tighter buildings with higher insulation values 
will most likely continue to lower the change-over temperature from 
cooling to heating in commercial buildings. (Carrier, No. 2 at p. 6) 
Lennox stated that commercial buildings are being required to have 
higher insulation levels by ASHRAE Standard 90.1 in the future, which 
will reduce the building load and further reduce the potential energy 
savings for higher-efficiency furnaces. (Lennox, No. 3 at p. 7) DOE's 
analysis accounts for improvements in the building shell. The analysis 
uses the AEO 2013 building shell efficiency index for commercial 
buildings to account for these impacts. Although plug loads may 
increase, decreasing the heating load, the efficiency of the equipment 
is also likely to improve, which would increase the heating load, so 
the net effect is uncertain.
    In the RFI, DOE requested comment on the fraction of commercial 
warm air furnaces which are used in residential applications such as 
multi-family buildings. 78 FR 25627, 25632 (May 2, 2013). Carrier 
stated that the fraction of commercial furnaces applied in residential 
applications is negligible. (Carrier, No. 2 at p. 5) Based on RECS 2009 
data, DOE estimates that about two percent of commercial furnaces are 
used in residential applications.\34\
---------------------------------------------------------------------------

    \34\ EIA, 2009 Residential Energy Consumption Survey (Available 
at: http://www.eia.gov/consumption/residential/) (Last accessed 
April 10, 2013).
---------------------------------------------------------------------------

F. Life-Cycle Cost and Payback Period Analysis

    The purpose of the LCC and PBP analysis is to analyze the effects 
of potential amended energy conservation standards on commercial 
consumers of commercial furnace equipment by determining how a 
potential amended standard would affect their operating expenses 
(usually decreased) and their total installed costs (usually 
increased).
    The LCC is the total consumer expense over the life of the 
equipment, consisting of equipment and installation costs plus 
operating costs over the lifetime of the equipment (expenses for energy 
use, maintenance, and repair). DOE discounts future operating costs to 
the time of purchase using commercial consumer discount rates. The PBP 
is the estimated amount of time (in years) it takes commercial 
consumers to recover the increased total installed cost (including 
equipment and installation costs) of a more-efficient type of equipment 
through lower operating costs. DOE calculates the PBP by dividing the 
change in total installed cost (normally higher) due to a new or 
amended energy conservation standard by the change in annual operating 
cost (normally lower) that results from that standard.
    For any given efficiency level, DOE measures the PBP and the change 
in LCC relative to an estimate of the base-case efficiency level. The 
base-case estimate reflects the market in the absence of amended energy 
conservation standards, including market trends for equipment that 
exceeds the current energy conservation standards.
    DOE analyzed the potential for variability and uncertainty by 
performing the LCC and PBP calculations on a nationally-representative 
sample of individual commercial buildings. More specifically, DOE 
utilized the sample of buildings developed for the energy use analysis. 
Within a given building, one or more commercial warm air furnace units 
may serve the building's space-conditioning needs, depending on the 
heating load requirements of the building. As a result, the Department 
also expressed the LCC and PBP results as the percentage of commercial 
warm air furnace customers experiencing economic impacts of different 
magnitudes. DOE modeled both the uncertainty and the variability in the 
inputs to the LCC and PBP analysis using Monte Carlo simulation and 
probability distributions. As a result, the LCC and PBP results are 
displayed as distributions of impacts compared to the base-case 
conditions.
    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 energy (and, as applicable, water) savings during the first year 
that the consumer will receive as a result of the standard, as 
calculated under the test procedure in place for that standard. For 
each considered efficiency level, DOE typically determines the value of 
the first year's energy savings by calculating the quantity of those 
savings in accordance with the applicable DOE test procedure,\35\ and 
multiplying that amount by the average energy price forecast for the 
year in which compliance with the amended standards would be required.
---------------------------------------------------------------------------

    \35\ The DOE test procedure for commercial warm air furnaces a 
10 CFR 431.76 does not specify a calculation method for determining 
energy use. For the rebuttable presumption PBP calculation, DOE used 
average energy use reported from CBECS 2003 for this equipment.
---------------------------------------------------------------------------

    DOE calculated the LCC and PBP for all commercial consumers of CWAF 
as if each were to purchase new equipment in the year that compliance 
with amended standards is required. EPCA directs DOE to publish a final 
rule amending the standard for the products covered by this NOPR not 
later than 2 years after a notice of proposed rulemaking is issued. (42 
U.S.C. 6313(a)(6)(C)(iii)) At the time of preparation of the NOPR 
analysis, the expected issuance date was early 2015, leading to an 
anticipated final rule publication in 2015. EPCA also states that 
amended standards prescribed under this subsection shall apply to 
products manufactured after a date that is the later of--(I) the date 
that is 3 years after publication of the final rule establishing a new 
standard; or (II) the date that is 6 years after the effective date of 
the current standard for a covered product. (42 U.S.C. 
6313(a)(6)(C)(iv)) The date under clause (I), currently projected to be 
2018, is later than the date under clause (II). Therefore, for purposes 
of its analysis, DOE used January 1, 2018 as the beginning of 
compliance with potential amended standards for CWAF.
    In the RFI, DOE requested comment from stakeholders on the overall 
method that it intended to use in conducting the LCC and PBP analysis 
for commercial warm air furnaces. 78 FR 25627, 25632 (May 2, 2013). 
Carrier stated that DOE should use the procedures as developed by the 
ASHRAE 90.1 committee and PNNL for evaluating changes to ASHRAE 
Standard 90.1, because this procedure has defined buildings that can be 
used for these products. Carrier added that ASHRAE also has a standard 
work procedure for economic analysis that is similar to the LCC 
analysis but uses the Scalar Ratio as defined by the ASHRAE 90.1 
committee with national average electric and gas rates. (Carrier, No. 2 
at p. 5)
    DOE reviewed the approach suggested by Carrier. It did not use this 
approach because, for the reasons explained in section IV.E, DOE is not 
estimating

[[Page 6201]]

energy use using whole building simulation, as do the procedures as 
developed by the ASHRAE 90.1 committee. Furthermore, DOE's methodology 
allows a better evaluation of variability and uncertainty in key 
variables, such as equipment lifetime and discount rates, that affect 
the LCC analysis. The method advocated by Carrier typically uses 
average values, which do not capture the range of equipment operation 
and user characteristics found in the field.
    Inputs to the LCC and PBP analysis are categorized as: (1) inputs 
for establishing the purchase expense, otherwise known as the total 
installed cost, and (2) inputs for calculating the operating expense. 
These key inputs are discussed in further detail immediately below.
1. Inputs to Installed Cost
    The primary inputs for establishing the total installed cost are 
the baseline commercial consumer equipment price, standard-level 
customer price increases, and installation costs. Baseline customer 
prices and standard-level customer price increases were determined by 
applying markups to manufacturer price estimates. The installation cost 
is added to the customer price to arrive at a total installed cost.
    DOE used the historic trend in the Producer Price Index (PPI) for 
``Warm air furnaces'' \36\ to estimate the change in price for 
commercial warm air furnaces between the present and 2018. The PPI for 
``Warm air furnaces'' shows a small rate of annual price decline. The 
price trend in this PPI series shows a small rate of annual price 
decline.
---------------------------------------------------------------------------

    \36\ PCU333415333415C: Warm air furnaces including duct 
furnaces, humidifiers and electric comfort heating (Available at: 
http://www.bls.gov/ppi/).
---------------------------------------------------------------------------

    In the RFI, DOE sought input on its planned approach and the data 
sources it intended to use to develop installation costs. 78 FR 25627, 
25633 (May 2, 2013). Carrier recommended that if RS Means Mechanical 
Cost Data are to be used to estimate installed cost, it should be based 
on unit rated cooling capacity for combined air conditioning and 
commercial furnace equipment.
    DOE developed installation costs for commercial warm air furnaces 
using the most recent RS Means Mechanical Cost Data.\37\ In estimating 
costs, DOE considered the heating and cooling capacity of the combined 
equipment.
---------------------------------------------------------------------------

    \37\ RS Means, 2013 Mechanical Cost Data (Available at: http://rsmeans.reedconstructiondata.com/60023.aspx) (Last accessed April 
10, 2013).
---------------------------------------------------------------------------

    Carrier stated that DOE must factor in additional cost for 
condensate drainage and treatment if the analysis includes furnaces at 
condensing efficiencies. (Carrier, No. 2 at p. 5) Goodman expects that 
application costs would be very significant for the application of 
condensing technologies, and, therefore, must be thoroughly and 
completely considered. (Goodman, No. 6 at p. 4)
    DOE accounted for additional installation costs for condensate 
removal, which includes condensate drainage, freeze protection, and 
treatment for furnaces with condensing designs. On average, the 
installation cost for condensate removal is $389 for gas-fired CWAF and 
$180 for oil-fired CWAF. The details about the condensate removal costs 
are provided in appendix 8-D of DOE's proposed rule TSD. DOE also 
accounted for meeting the venting requirements for oil-fired commercial 
warm air furnaces, as well as for the small fraction of gas commercial 
warm air furnaces installed indoors.

2. Inputs to Operating Costs

    The primary inputs for calculating the operating costs are 
equipment energy consumption, equipment efficiency, energy prices and 
forecasts, maintenance and repair costs, equipment lifetime, and 
discount rates.
a. Energy Consumption
    The equipment energy consumption is the site energy use associated 
with providing space-heating to the building. DOE utilized the 
methodology described in section IV.E to establish equipment energy 
use.
    Lennox cautioned DOE that, as it develops estimates for the 
operating costs of these systems, DOE should keep in mind that the 
systems are being applied in a commercial application where the 
overwhelming majority of the time the system is operating in cooling--
not heating--mode. Lennox gave the example that when the outside 
ambient temperature is 30[emsp14][deg]F, the system could be calling 
for cooling, based on the internal heat gains. (Lennox, No. 3 at p. 7) 
DOE's analysis accounts for the range of CWAF operating conditions with 
respect to heating and cooling mode.
b. Energy Prices
    In the RFI, DOE sought comment on its approach for developing 
energy prices. 78 FR 25627, 25633 (May 2, 2013). Carrier stated that 
DOE's tariff-based approach makes sense, and that the most recent price 
data available should be used. (Carrier, No. 2 at p. 5)
    For the NOPR, DOE determined gas, oil, and electricity prices based 
on recent or current tariffs from a representative sample of utilities, 
as well as historical State commercial energy price data from the 
Energy Information Administration (EIA). This approach calculates 
energy expenses based on actual energy prices that commercial consumers 
are paying in different geographical areas of the country. In addition 
to using tariffs, DOE used data provided in EIA's Form 861 data \38\ to 
calculate commercial electricity prices, EIA's Natural Gas Navigator 
\39\ to calculate commercial natural gas prices, and EIA's State Energy 
Data System (SEDS) \40\ to calculate LPG and fuel oil prices. Future 
energy prices were projected using trends from the EIA's 2013 Annual 
Energy Outlook (AEO 2013).\41\
---------------------------------------------------------------------------

    \38\ Energy Information Administration (EIA), Survey form EIA-
861--Annual Electric Power Industry Report (Available at: http://www.eia.gov/electricity/data/eia861/index.html) (Last accessed April 
15, 2013).
    \39\ Energy Information Administration (EIA), Natural Gas 
Navigator (Available at: http://tonto.eia.doe.gov/dnav/ng/ng_pri_sum_dcu_nus_m.htm) (Last accessed April 15, 2013).
    \40\ Energy Information Administration (EIA), State Energy Data 
System (SEDS) (Available at: http://www.eia.gov/state/seds/) (Last 
accessed April 15, 2013).
    \41\ Energy Information Administration (EIA), 2013 Annual Energy 
Outlook (AEO) Full Version (Available at: http://www.eia.gov/forecasts/aeo/) (Last accessed April 15, 2013).
---------------------------------------------------------------------------

c. Maintenance and Repair Costs
    Maintenance costs are expenses associated with ensuring continued 
operation of the covered equipment over time. In the RFI, DOE sought 
input on the approach and data sources it intended to use to develop 
maintenance costs. 78 FR 25627, 25633 (May 2, 2013). Carrier stated 
that RS Means might serve as a reasonable guide to assist in developing 
maintenance costs; however, assuming the issues associated with 
condensing furnace technology are overcome, it is reasonable to expect 
increased maintenance costs for these higher-efficiency furnaces. 
Carrier added that, based on experience with residential 80-percent 
versus 90-percent AFUE furnaces, it expects the maintenance costs for 
condensing furnace sections to be at least two to three times the 
maintenance costs for current non-condensing commercial warm air 
furnaces. (Carrier, No. 2 at p. 5)
    DOE developed maintenance costs for its analysis using the most 
recent RS Means Facilities Maintenance & Repair Cost Data.\42\ DOE 
included increased maintenance costs for condensing

[[Page 6202]]

equipment. For condensing gas-fired commercial warm air furnaces, DOE 
added labor and material costs to account for checking the condensate 
withdrawal system, including inspecting, cleaning, and flushing the 
condensate trap and drain tubes; inspecting the grounding and power 
connection of heat tape; checking condensate neutralizer; and checking 
condensate pump for corrosion and proper operation. For gas-fired CWAF, 
the annualized maintenance cost is $157 for 81- and 82-percent TE 
units, and $169 for 92 percent TE units. For oil-fired CWAF, the 
annualized maintenance cost is $289 for 82-percent TE units, and $317 
for 92 percent TE units.
---------------------------------------------------------------------------

    \42\ RS Means, 2013 Facilities Maintenance & Repair Cost Data 
(Available at: http://rsmeans.reedconstructiondata.com/60303.aspx) 
(Last accessed April 10, 2013).
---------------------------------------------------------------------------

    For condensing oil-fired commercial warm air furnaces, DOE added 
additional maintenance for installations in non-low-sulfur regions to 
account for extra cleaning of the heat exchanger for condensing 
designs, as well as checking of the condensate withdrawal system. DOE 
also considered the cases when the equipment is covered by service and/
or maintenance agreements.
    Repair costs are expenses associated with repairing or replacing 
components of the covered equipment that have failed. In the RFI, DOE 
sought comment as to whether repair costs vary as a function of 
equipment efficiency. 78 FR 25627, 25633 (May 2, 2013). Carrier stated 
that condensing furnace repair costs will be higher due to a number of 
factors including: (1) The presence of acidic condensate; (2) potential 
damage due to condensate expansion during freezing; (3) the presence of 
a secondary heat exchanger; and (4) the need to add a condensate pump 
for some applications. (Carrier, No. 2 at p. 6) Goodman stated that as 
a general rule, due to additional components and additional materials 
required to achieve higher efficiencies, as well as additional service 
time for analysis and actual repair time, repair costs will always be 
higher for higher-efficiency products. (Goodman, No. 6 at p. 4)
    DOE developed repair costs for its analysis using the most recent 
RS Means Facilities Maintenance & Repair Cost Data.\43\ It agrees with 
the comments and, therefore, included additional repair costs for 
higher efficiency levels (i.e., condensing furnaces). For gas-fired 
CWAF, the annualized repair cost is $0.57 for 81- and 82-percent TE 
units, and $1.31 for 92 percent TE units. For gas-fired CWAF, the 
annualized repair cost is $1.94 for 82-percent TE units, and $2.58 for 
92 percent TE units.
---------------------------------------------------------------------------

    \43\ RS Means, 2013 Mechanical Cost Data (Available at: http://rsmeans.reedconstructiondata.com/60023.aspx) (Last accessed April 
10, 2013).
---------------------------------------------------------------------------

    See chapter 8 of the NOPR TSD for more details on maintenance and 
repair costs.
d. Other Inputs
    Equipment lifetime is the age at which a unit of covered equipment 
is retired from service. The average equipment lifetime for commercial 
warm air furnaces is estimated by ASHRAE to be between 15 and 20 
years.\44\
---------------------------------------------------------------------------

    \44\ American Society of Heating, Refrigerating and Air-
Conditioning Engineers, Inc. (ASHRAE), ASHRAE Handbook of HVAC 
Systems and Equipment (2008) p. 32.8.
---------------------------------------------------------------------------

    In the RFI, DOE requested any equipment lifetime data and sought 
comment on its approach of using a Weibull probability distribution to 
characterize equipment lifetime. 78 FR 25627, 25633 (May 2, 2013). 
Carrier stated that a 15 to 20 year life expectancy for commercial warm 
air furnaces is reasonable. (Carrier, No. 2 at p. 6) Lennox stated that 
the Weibull analysis is the preferred method when evaluating product or 
component life. (Lennox, No. 3 at p. 7)
    For gas-fired commercial warm air furnaces, DOE used the lifetime 
Weibull probability distribution developed in the NOPR analysis for 
small, large, and very large air-cooled commercial package air 
conditioning and heating equipment,\45\ which results in a 19-year 
average lifetime. For oil-fired commercial warm air furnaces, DOE used 
a lifetime Weibull probability distribution based on a method described 
in an article in HVAC&R Research,\46\ which results in a 26-year 
average lifetime. DOE expects the lifetime of the equipment to not 
change due to any new energy efficiency standards.
---------------------------------------------------------------------------

    \45\ Technical Support Document for Small, Large, and Very Large 
Commercial Package Air Conditioners and Heat Pumps Notice of 
Proposed Rulemaking (Available at: http://www1.eere.energy.gov/buildings/appliance_standards/rulemaking.aspx/ruleid/59).
    \46\ Lutz, 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: http://www.tandfonline.com/doi/abs/10.1080/10789669.2011.558166).
---------------------------------------------------------------------------

    The discount rate is the rate at which future expenditures are 
discounted to establish their present value. DOE did not receive 
comments on discount rates. It derived a distribution of discount rates 
by estimating the cost of capital of companies that purchase commercial 
warm air furnace equipment.
    DOE measures LCC and PBP impacts of potential standard levels 
relative to a base case that reflects the likely distribution of 
efficiencies in the market in the absence of amended standards. In the 
RFI, DOE requested data on current efficiency market shares (of 
shipments) by equipment class, and also similar historic data. 78 FR 
25627, 25633 (May 2, 2013). Carrier stated that these data are not 
readily available for the industry as a whole. Carrier added that the 
vast majority of equipment should be in the 80-percent to 82-percent 
efficiency range based on the standard in place since 1989. (Carrier, 
No. 2 at p. 6)
    Since shipment-weighted efficiency data are not available, DOE 
developed current market-share efficiency (i.e., the current 
distribution of equipment shipments by efficiency) for the CWAF 
equipment classes for 2013 based on the number of models at different 
efficiency levels from AHRI's Certification Directory for Commercial 
Furnaces.\47\ These data show no market share for condensing CWAF.
---------------------------------------------------------------------------

    \47\ AHRI, 2013 AHRI Certification Directory for Commercial 
Furnaces (Available at: http://www.ahridirectory.org/ahridirectory/pages/home.aspx) (Last accessed Oct. 15, 2013).
---------------------------------------------------------------------------

    In the RFI, DOE also requested information on expected trends in 
efficiency for commercial warm air furnaces over the next five years. 
78 FR 25627, 25633 (May 2, 2013). Carrier added that while there will 
be continuing pressure on cooling efficiency, it expects that the 
resultant efficiency trend will be flat for commercial warm air 
furnaces combined in air conditioning equipment. (Carrier, No. 2 at p. 
6) Lennox stated that its weatherized commercial furnaces are at the 
80-percent thermal efficiency level and would be expected to remain 
there for the foreseeable future, as there is little market demand for 
higher-efficiency furnaces in the commercial sector. (Lennox, No. 3 at 
p. 7) DOE agrees with the comments with respect to non-condensing CWAF, 
and it assumed no change from the current distribution of equipment 
shipments by efficiency. For condensing gas-fired CWAF, however, DOE 
found that models are just now becoming available, so DOE estimated a 
market share of one percent by 2018.
    A rebound effect occurs when a piece of equipment that is made more 
efficient is used more intensively, such that the expected energy 
savings from the efficiency improvement may not fully materialize. In 
the RFI, DOE sought comments and data on any rebound effect that may be 
associated with more-efficient commercial warm air furnaces. 78 FR 
25627, 25633 (May 2, 2013). Carrier opined that any rebound effect 
associated with higher-efficiency

[[Page 6203]]

commercial equipment would be negligible for commercial buildings. 
(Carrier, No. 2 at p. 7)
    DOE found no evidence for a rebound effect associated with higher-
efficiency commercial furnaces. HVAC operation adjustment in commercial 
buildings is not driven by the occupants but primarily by building 
managers or owners. In such cases, the comfort conditions are already 
established in order to satisfy the occupants, and they are unlikely to 
change due to replacement with higher-efficiency equipment. CWAF 
installed in residential buildings are mainly in situations similar to 
commercial buildings, so DOE expects there would be negligible rebound 
effect.

G. Shipments Analysis

    DOE uses projections of product shipments for CWAF to calculate 
equipment stock over the course of the analysis period, which in turn 
is used to determine the impacts of amended standards on national 
energy savings, net present value, and future manufacturer cash flows. 
DOE develops shipment projections based on historical data and an 
analysis of key market drivers for each product. Historical shipments 
data are used to build up an equipment stock and also to calibrate the 
shipments model.
    Historical shipments data for commercial warm air furnace equipment 
are very limited. DOE used 1994 shipments data from AHRI (previously 
GAMA) that were presented in a report from PNNL,\48\ and the historical 
shipments of non-heat pump commercial unitary air conditioners 
(CUAC),\49\ which are usually packaged together with CWAF. The ratio of 
the shipments of non-heat pump CUAC equipment and the shipments of gas-
fired commercial warm air furnaces in 1994 was calculated.\50\ DOE 
believes that this ratio should be reasonably stable over time. 
Therefore, DOE determined the historical shipments of gas-fired CWAF by 
multiplying this ratio with the historical shipments of non-heat pump 
CUAC.
---------------------------------------------------------------------------

    \48\ Pacific Northwest National Laboratory (PNNL), Screening 
Analysis for EPACT-Covered Commercial HVAC and Water-Heating 
Equipment, April 2000. (Available at: http://www.pnl.gov/main/publications/external/technical_reports/PNNL-13232.pdf) (Last 
accessed April 10, 2013).
    \49\ Air-Conditioning and Refrigeration Institute, Commercial 
Unitary Air Conditioner and Heat Pump Unit Shipments for 1980-2001 
(Jan. 2005) (Prepared for Lawrence Berkeley National Laboratory).
    \50\ The fraction of non-heat pump CUAC equipment that is 
packaged with commercial furnaces is 80 percent.
---------------------------------------------------------------------------

    Shipments data for oil-fired CWAF is not publically available. DOE 
used the ratio of oil-fired versus gas-fired residential furnace 
shipments from AHRI \51\ and the historical shipments of gas-fired 
commercial furnaces to calculate the historical shipment of oil-fired 
commercial furnaces. DOE estimated that oil-fired CWAF account for 
about 1 percent of total CWAF shipments.
---------------------------------------------------------------------------

    \51\ Air-Conditioning Heating and Refrigeration Institute, 
Furnaces Historical Data (1994-2013). 2015. (Available at: http://www.ahrinet.org/site/497/Resources/Statistics/Historical-Data/Furnaces-Historical-Data). (Last accessed January 7, 2015).
---------------------------------------------------------------------------

    The CWAF shipments model considers two market segments: (1) new 
commercial buildings acquiring equipment; (2) existing buildings 
replacing old equipment.
    For new commercial buildings, DOE estimated shipments using 
forecasts of commercial building and residential housing construction 
and estimates of the saturation of CWAF equipment in new buildings. DOE 
determined new commercial building and residential housing construction 
starts by using recorded data through 2012 \52\ and projections from 
AEO 2013. DOE developed data on the historic saturation of CWAF 
equipment in new buildings using CBECS 2003 and RECS 2009. To estimate 
future saturations in new commercial buildings, DOE used the average 
saturations in buildings built in 1990-2003 (from CBECS 2003 data) that 
use each type of CWAF equipment. To estimate future saturations in 
residential housing, DOE used the average saturations in homes built in 
1990-2009 (from RECS 2009 data) that use each type of CWAF equipment.
---------------------------------------------------------------------------

    \52\ U.S. Department of Commerce--Bureau of the Census, New 
Privately Owned Housing Units Started: Annual Data 1959-2012 (2013) 
(Available at: http://www.census.gov/construction/mhs/mhsindex.html) 
(Last accessed March 15, 2013).
    U.S. Department of Commerce--Bureau of the Census, Placements of 
New Manufactured Homes by Region and Size of Home: 1980-2011 (2013) 
(Available at: http://www.census.gov/construction/mhs/pdf/placnsa_all.pdf) (Last accessed March 15, 2013).
---------------------------------------------------------------------------

    To estimate shipments to existing buildings replacing old 
equipment, DOE used a survival function to estimate the fraction of 
commercial warm air furnaces of a given age still in operation. When a 
furnace fails, it is removed from the stock or, as explained below, is 
repaired for extended use. The survival function uses the lifetime 
values from the LCC analysis and has the form of a cumulative Weibull 
distribution.
    For cases with potential CWAF standards, DOE considered whether the 
increase in price would cause some commercial consumers to choose to 
repair rather than replace their commercial furnace equipment. To 
determine whether a commercial consumer would choose to repair rather 
than replace their commercial warm air furnace equipment, the shipments 
model uses a relative price elasticity to account for the combined 
effects of changes in purchase price and annual operating cost on the 
purchase versus repair decision. Appendix 9-A of the NOPR TSD describes 
the method. DOE assumed that the consumers who repair their equipment 
rather than replace it would extend the life of the product by 6 years. 
When the extended repaired units fail after the 6-year period, they 
will be replaced with new ones.
    The details of the shipments analysis can be found in chapter 9 of 
the NOPR TSD.

H. National Impact Analysis

    The purpose of the national impact analysis (NIA) is to estimate 
aggregate impacts of potential energy conservation standards from a 
national perspective, rather than from the consumer perspective 
represented by the LCC and PBP analysis. Impacts that DOE reports 
include the national energy savings (NES) from potential standards and 
the net present value (NPV) (future amounts discounted to the present) 
of the total commercial consumer costs and savings that are expected to 
result from amended or new standards at specific efficiency levels.
    To make the analysis more accessible and transparent to all 
interested parties, DOE used a spreadsheet model to calculate the 
energy savings and the national commercial consumer costs and savings 
from each TSL.\53\ The NIA calculations are based on the annual energy 
consumption and total installed cost data from the energy use analysis 
and the LCC analysis. In the NIA, DOE forecasted the lifetime energy 
savings, energy cost savings, equipment costs, and NPV of commercial 
consumer benefits for each equipment class over the lifetime of 
equipment sold from 2018 through 2047.
---------------------------------------------------------------------------

    \53\ DOE's use of spreadsheet models provides interested parties 
with access to the models within a familiar context. In addition, 
the TSD and other documentation that DOE provides during the 
rulemaking help explain the models and how to use them, and 
interested parties can review DOE's analyses by changing various 
input quantities within the spreadsheet.
---------------------------------------------------------------------------

    To develop the NES, DOE calculates annual energy consumption for 
the base case and the standards cases. DOE calculates the annual energy 
consumption using per-unit annual energy use data multiplied by 
projected shipments. As explained in section IV.E,

[[Page 6204]]

DOE did not incorporate a rebound effect for CWAF.
    To develop the national NPV of consumer benefits from potential 
energy conservation standards, DOE calculates annual energy 
expenditures and annual equipment expenditures for the base case and 
the standards cases. DOE calculates annual energy expenditures from 
annual energy consumption by incorporating forecasted energy prices, 
using shipment projections and average energy efficiency projections. 
The per-unit energy savings were derived as described in section IV.E. 
To calculate future electricity prices, DOE applied the projected trend 
in national-average commercial electricity price from the AEO 2013 
Reference case (which extends to 2040) to the prices derived in the LCC 
and PBP analysis. DOE used the trend from 2030 to 2040 to extrapolate 
beyond 2040. DOE calculates annual equipment expenditures by 
multiplying the price per unit times the projected shipments.
    DOE used the historic trend in the Producer Price Index (PPI) for 
``Warm air furnaces'' \54\ to estimate the change in price for 
commercial warm air furnaces over the analysis period. The inflation-
adjusted PPI for ``Warm air furnaces'' from 1989 to 2006 shows a small 
rate of annual price decline. DOE also developed 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.
---------------------------------------------------------------------------

    \54\ PCU333415333415C: Warm air furnaces including duct 
furnaces, humidifiers and electric comfort heating (Available at: 
http://www.bls.gov/ppi/).
---------------------------------------------------------------------------

    The aggregate difference each year between energy bill savings and 
increased equipment expenditures is the net savings or net costs. In 
calculating the NPV, DOE multiplies the net savings in future years by 
a discount factor to determine their present value. DOE estimates the 
NPV using both a 3-percent and a 7-percent real discount rate, in 
accordance with guidance provided by the Office of Management and 
Budget (OMB) to Federal agencies on the development of regulatory 
analysis.\55\ 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.
---------------------------------------------------------------------------

    \55\ OMB Circular A-4, section E (Sept. 17, 2003) (Available at: 
http://www.whitehouse.gov/omb/circulars_a004_a-4).
---------------------------------------------------------------------------

    A key component of the NIA is the equipment energy efficiency 
forecasted over time for the base case and for each of the standards 
cases. In the RFI, DOE requested information on expected trends in 
efficiency of commercial warm air furnaces over the long run. 78 FR 
25627, 25634 (May 2, 2013). AHRI stated that since January 1, 1994, the 
efficiency trends for commercial warm air furnaces have stayed near a 
thermal efficiency of 80 percent. AHRI expects that the efficiency 
trends for these products will continue to remain flat over the long 
run. (AHRI, No. 7 at p. 6) DOE agrees with the comment, and it assumed 
no change in efficiency in the base case for non-condensing CWAF. For 
condensing gas-fired CWAF, however, it estimated that market interest 
in efficiency would lead to a modest growth in market share (from one 
percent in 2018 to five percent in 2047). In addition, for each 
standards case, DOE assumed no change in efficiency over time, given 
this long-term efficiency trend.
    To estimate the impact that amended energy conservation standards 
may have in the year compliance becomes required, DOE uses ``roll-up'' 
or ``shift'' scenarios in its standards rulemakings. Under the ``roll-
up'' scenario, DOE assumes equipment efficiencies in the base case that 
do not meet the new or amended standard level under consideration would 
``roll up'' to meet that standard level, and equipment shipments at 
efficiencies above the standard level under consideration would not be 
affected. Under the ``shift'' scenario, DOE retains the pattern of the 
base-case efficiency distribution but re-orients the distribution at 
and above the new or amended minimum energy conservation standard.
    In the RFI, DOE requested comment on whether it should pursue a 
roll-up or shift approach for potential commercial warm air furnace 
standards in the NIA. 78 FR 25627, 25634 (May 2, 2013). Lennox stated 
that given that virtually all commercial warm air furnaces are at or 
just above the current minimum efficiency requirement, the roll-up 
approach is the more appropriate choice. (Lennox, No. 3 at p. 8) DOE 
concurs with the comment, and it used the roll-up approach for the 
standards cases.
    Based on the user samples in the LCC and PBP analysis, DOE 
estimated that a small fraction of commercial warm air furnaces (1-3 
percent) is installed in residential buildings. The national energy 
savings in the standard cases includes the savings from both commercial 
and residential furnace users.
    DOE has historically presented NES in terms of primary energy 
savings. 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 full-fuel-cycle (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 (August 18, 2011). After evaluating 
the approaches discussed in the August 18, 2011 notice, DOE published a 
statement of amended policy in the Federal Register in which DOE 
explained its determination that NEMS is the most appropriate tool for 
its FFC analysis and its intention to use NEMS for that purpose. 77 FR 
49701 (August 17, 2012). The method used to derive the FFC measures is 
described in appendix 10-B of the NOPR TSD.

I. Consumer Subgroup Analysis

    In analyzing the potential impacts of new or amended standards on 
commercial consumers, DOE evaluates impacts on identifiable groups 
(i.e., subgroups) of consumers that may be disproportionately affected 
by a national standard. DOE believes that small businesses could be 
such a subgroup. Accordingly, for the NOPR, DOE evaluated impacts on a 
small business subgroup using the LCC and PBP spreadsheet model. To the 
extent possible, it utilized inputs appropriate for this subgroup. The 
commercial consumer subgroup analysis is discussed in detail in chapter 
11 of the NOPR TSD.

J. Manufacturer Impact Analysis

1. Overview
    DOE performed a manufacturer impact analysis (MIA) to estimate the 
financial impact of amended energy conservation standards on 
manufacturers of CWAF and to calculate the potential impact of such 
standards on employment and manufacturing capacity. The MIA has both 
quantitative and qualitative aspects. The quantitative part of the MIA 
primarily relies on the Government Regulatory Impact Model (GRIM), an 
industry cash-flow model with inputs specific to this rulemaking. The 
key GRIM inputs are data on the industry cost structure, equipment 
costs, shipments, and assumptions about markups and conversion 
expenditures. The key output is the industry net present value (INPV). 
Different sets of assumptions (markup scenarios) will produce different 
results. The qualitative part of the MIA addresses factors such as 
equipment characteristics, impacts on particular subgroups of firms, 
and important industry, market, and equipment trends.

[[Page 6205]]

The complete MIA is outlined in chapter 12 of the NOPR TSD.
    DOE conducted the MIA for this rulemaking in three phases. In Phase 
1 of the MIA, DOE prepared a profile of the CWAF industry that includes 
a top-down manufacturer cost analysis that DOE used to derive 
preliminary financial inputs for the GRIM (e.g., sales, general, and 
administration (SG&A) expenses; research and development (R&D) 
expenses; and tax rates). DOE used public sources of information, 
including company Securities and Exchange Commission (SEC) 10-K 
filings, corporate annual reports, the U.S. Census Bureau's Economic 
Census,\56\ and Hoover's reports.\57\
---------------------------------------------------------------------------

    \56\ U.S. Census Bureau, Annual Survey of Manufacturers: General 
Statistics: Statistics for Industry Groups and Industries (Available 
at: http://factfinder2.census.gov/faces/nav/jsf/pages/searchresults.xhtml?refresh=t).
    \57\ Hoovers Inc., Company Profiles, Various Companies 
(Available at: http://www.hoovers.com). Last Accessed December 13, 
2013.
---------------------------------------------------------------------------

    In Phase 2 of the MIA, DOE prepared an industry cash-flow analysis 
to quantify the potential impacts of an amended energy conservation 
standard. In general, new or more-stringent energy conservation 
standards can affect manufacturer cash flow in three distinct ways: (1) 
Create a need for increased investment; (2) raise production costs per 
unit; and (3) alter revenue due to higher per-unit prices and possible 
changes in sales volumes.
    In Phase 3 of the MIA, DOE conducted structured, detailed 
interviews with a representative cross-section of 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. See section IV.J.2.c for a 
description of the key issues manufacturers raised during the 
interviews.
    Additionally, in Phase 3, DOE evaluated subgroups of manufacturers 
that may be disproportionately impacted by new standards or that may 
not be accurately represented by the average cost assumptions used to 
develop the industry cash-flow analysis. For example, small 
manufacturers, niche players, or manufacturers exhibiting a cost 
structure that largely differs from the industry average could be more 
negatively affected. DOE identified one subgroup (i.e., small 
manufacturers) for a separate impact analysis.
    DOE applied the small business size standards published by the 
Small Business Administration (SBA) to determine whether a company is 
considered a small business. 65 FR 30836, 30848 (May 15, 2000), as 
amended at 65 FR 53533, 53544 (Sept. 5, 2000) and codified at 13 CFR 
part 121. To be categorized as a small business under North American 
Industry Classification System (NAICS) code 333415, ``Air-Conditioning 
and Warm Air Heating Equipment and Commercial and Industrial 
Refrigeration Equipment Manufacturing,'' a CWAF manufacturer and its 
affiliates may employ a maximum of 750 employees. The 750-employee 
threshold includes all employees in a business's parent company and any 
other subsidiaries. Based on this classification, DOE identified two 
manufacturers that qualify as small businesses under the SBA 
definition. The CWAF small manufacturer subgroup is discussed in 
chapter 12 of the NOPR TSD and in sections V.B.2.d and VI.B of this 
notice.
2. Government Regulatory Impact Model
    DOE uses the GRIM to quantify the changes in cash flow due to new 
standards that result in a higher or lower industry value. The GRIM 
analysis uses a standard, annual, discounted cash-flow methodology that 
incorporates manufacturer costs, 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 2014 (the base year of the analysis) and continuing to 
2047. DOE calculated INPVs by summing the stream of annual discounted 
cash flows during this period. For CWAF manufacturers, DOE used a real 
discount rate of 8.9 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 a base case and each standards 
case. The difference in INPV between the base case and a standards case 
represents the financial impact of the amended energy conservation 
standard on manufacturers. As discussed previously, DOE collected this 
information on the critical GRIM inputs from a number of sources, 
including publicly-available data and interviews with a number of 
manufacturers (described in the next section). The GRIM results are 
shown in section V.B.2. Additional details about the GRIM, the discount 
rate, and other financial parameters can be found in chapter 12 of the 
NOPR TSD.
a. Government Regulatory Impact Model Key Inputs
Manufacturer Production Costs
    Manufacturing higher-efficiency equipment is typically more 
expensive than manufacturing baseline equipment due to the use of more 
complex components, which are typically more costly than baseline 
components. The changes in the manufacturer production cost (MPC) of 
the analyzed equipment can affect the revenues, gross margins, and cash 
flow of the industry, making these equipment cost data key GRIM inputs 
for DOE's analysis.
    In the MIA, DOE used the MPCs for each considered efficiency level 
calculated in the engineering analysis, as described in section IV.C 
and further detailed in chapter 5 of the NOPR TSD. In addition, DOE 
used information from its teardown analysis, described in chapter 5 of 
the TSD, to disaggregate the MPCs into material, labor, and overhead 
costs. To calculate the MPCs for equipment above the baseline, DOE 
added the incremental material, labor, and overhead costs from the 
engineering cost-efficiency curves to the baseline MPCs. These cost 
breakdowns and equipment markups were validated and revised based on 
manufacturer comments received during MIA interviews.
Shipments Forecasts
    The GRIM estimates manufacturer revenues based on total unit 
shipment forecasts and the distribution of these values by equipment 
class and 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 forecasts derived 
from the shipments analysis from 2014 (the base year) to 2047 (the end 
year of the analysis period). The NIA shipments forecasts are, in part, 
based on a roll-up scenario. The forecast assumes that product in the 
base case that does not meet the standard under consideration would 
``roll up'' to meet the new standard beginning in the compliance year 
of 2018. See section IV.G. above and chapter 9 of the NOPR TSD for 
additional details.
b. Government Regulatory Impact Model Scenarios
Markup Scenarios
    As discussed above, MSPs include direct manufacturing production 
costs (i.e., labor, materials, and overhead

[[Page 6206]]

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 non-production cost markups to the MPCs estimated in the 
engineering analysis for each equipment class and efficiency level. 
Modifying these markups in the standards case yields different sets of 
impacts on manufacturers. For the MIA, DOE modeled two standards-case 
markup scenarios to represent the 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 markup scenario; and (2) a 
preservation of per-unit operating profit markup scenario. These 
scenarios lead to different markups values that, when applied to the 
inputted 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'' markup 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 an equipment class. As production costs 
increase with efficiency, this scenario implies that the absolute 
dollar markup will increase as well. Based on publicly-available 
financial information for manufacturers of CWAF as well as comments 
from manufacturer interviews, DOE assumed the average non-production 
cost markup--which includes SG&A expenses, R&D expenses, interest, and 
profit--to be the following for each CWAF equipment class:

 Table IV.8--Manufacturer Markup for Baseline Equipment in the Base Case
------------------------------------------------------------------------
                           Equipment                             Markup
------------------------------------------------------------------------
Gas-fired Commercial Warm Air Furnaces >=225,000 Btu/h........      1.31
Oil-fired Commercial Warm Air Furnaces >=225,000 Btu/h........      1.28
------------------------------------------------------------------------

    Because this markup scenario assumes that manufacturers would be 
able to maintain their gross margin percentage markups as production 
costs increase in response to an amended energy conservation standard, 
it represents a high bound to industry profitability.
    In the preservation of operating profit scenario, manufacturer 
markups are set so that operating profit one year after the compliance 
date of the amended energy conservation standard is the same as in the 
base case. Under this scenario, as the costs of production increase 
under a standards case, manufacturers are generally required to reduce 
their markups to a level that maintains base-case operating profit. The 
implicit assumption behind this markup scenario is that the industry 
can only maintain its operating profit in absolute dollars after 
compliance with the new or amended standard is required. Therefore, 
operating margin in percentage terms is reduced between the base case 
and standards case. DOE adjusted (i.e., lowered) the manufacturer 
markups in the GRIM at each TSL to yield approximately the same 
earnings before interest and taxes in the standards case as in the base 
case. This markup scenario represents a low bound to industry 
profitability under an amended energy conservation standard.

   Table IV.9--Markups for Baseline Equipment at the Proposed Standard
                                 Levels
------------------------------------------------------------------------
                           Equipment                             Markup
------------------------------------------------------------------------
Gas-fired Commercial Warm Air Furnaces >=225,000 Btu/h........      1.30
Oil-fired Commercial Warm Air Furnaces >=225,000 Btu/h........      1.28
------------------------------------------------------------------------

Conversion Cost Scenarios
    An amended energy conservation standard would cause manufacturers 
to incur one-time conversion costs to bring their production facilities 
and equipment designs into compliance. DOE evaluated the level of 
conversion-related expenditures that would be needed to comply with 
each considered efficiency level in each equipment class. For the MIA, 
DOE classified these conversion costs into two major groups: (1) 
Product conversion costs; and (2) capital conversion costs. Product 
conversion costs are one-time investments in research, development, 
testing, marketing, and other non-capitalized costs necessary to make 
product designs comply with the amended energy conservation standard. 
Capital conversion costs are one-time investments in property, plant, 
and equipment necessary to adapt or change existing production 
facilities such that equipment with new, compliant designs can be 
fabricated and assembled.
    DOE based its estimates of the conversion costs for each efficiency 
level on information obtained from manufacturer interviews and the 
design pathways analyzed in the engineering analysis. Two methodologies 
were used to develop conversion cost estimates: (1) A Top-Down approach 
using feedback from manufacturer interviews to gather data on the level 
of costs expected at each efficiency level, and (2) a Bottom-Up 
approach using engineering analysis inputs derived from the equipment 
teardown analysis and engineering model described in chapter 5 of the 
TSD to evaluate the investment required to design, manufacturer, and 
release equipment that meets a higher energy conservation standard.
    For estimating capital conversion costs, the Top-Down approach took 
available feedback from manufacturers and market share weighted the 
responses to arrive at an approximation representative of the industry 
as a whole. Responses from manufacturers with the greatest market share 
were given the greatest weight, while responses from manufacturers with 
the lowest market share were given the lowest weight. The Bottom-Up 
approach took capital conversion costs from the engineering analysis on 
a per-manufacturer basis to develop an industry-wide cost estimate. 
This analysis included the expected equipment, tooling, conveyor, and 
plant costs associated with CWAF production, as estimated by DOE based 
on product tear-down and manufacturers' plant tours. The results of the 
two methodologies were integrated to create high and low capital 
conversion cost scenarios.
    Product conversion costs for CWAFs are primarily driven by re-
development and testing expenses. As the standard increases, increasing 
levels of re-development effort would be required to meet the 
efficiency requirements, as more equipment models would require 
redesign. Additionally, expected product conversion costs would ramp up 
significantly where DOE expects condensing technology to be necessary 
to meet a revised energy conservation standard.
    To estimate costs for product R&D, the Top-Down approach developed 
average costs per product platform based on feedback from 
manufacturers. Manufacturer feedback focused on the human capital 
investments, such as engineering and lab technician time necessary to 
update designs. In the Bottom-Up approach, DOE used vendor quotes, 
industry product information, and engineering cost model data to 
estimate the expenses associated with thermal efficiency testing, heat 
limit testing, product safety testing, reliability testing, and 
engineering effort. The results of the two methodologies were 
integrated to create high and low product conversion cost scenarios.

[[Page 6207]]

    In general, DOE assumes that 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.a of this notice. For additional information on the estimated 
product and capital conversion costs, see chapter 12 of the NOPR TSD.
    DOE requests comment on the product and capital conversion costs 
required to meet the range of energy conservation standard levels being 
considered by DOE.
c. Manufacturer Interviews
    DOE interviewed manufacturers representing over 80 percent of the 
domestic CWAF market by revenue in order to discuss the potential 
impacts of amended energy conservation standards on the industry. The 
information gathered during these interviews enabled DOE to tailor the 
GRIM to reflect the unique financial characteristics of the CWAF 
industry. In interviews, DOE asked manufacturers to describe their 
major concerns with the rulemaking involving CWAF equipment. This 
section (IV.J.2.c) highlights manufacturers' interview statements that 
helped shaped DOE's understanding of the potential impacts of an 
amended standard on the industry. Manufacturers raised a range of 
general issues to consider (but did not necessarily provide a specific 
recommendation), including condensate disposal concerns, increased 
operating risks for end-users, and a change in the repair rate of older 
units. Below, DOE summarizes these issues, which were informally raised 
in manufacturer interviews, in order to obtain public comment and 
related data.
Condensate Disposal
    The primary concern among the interview participants centered on 
condensate formation at efficiency levels above 81 to 82 percent. 
Nearly all interviewed CWAF manufacturers raised this issue as a 
serious problem for both the industry and customers in terms of cost 
and implementation. The major drawbacks mentioned relate to the 
management and disposal of acidic condensate created by high-efficiency 
furnaces. In most commercial rooftop units, condensate would need to be 
removed in electrically-heated piping or channeled directly into the 
building to avoid freezing. Manufacturers argued that such 
infrastructure would be required for condensing furnaces to safely 
dispose of the acidic runoff in both cold and warm climates. Solutions 
for condensate management systems would be a separate and additional 
cost to the consumer beyond the cost of the higher-efficiency furnace. 
Manufacturers stated that a simple, packaged solution for disposal of 
acidic condensate is not available and that the design of the 
condensate management system will be highly dependent on the design of 
the building, local building codes, waste water disposal requirements, 
and the expertise of the installer.
    DOE agrees with manufacturers that the formation and disposal of 
corrosive condensate is a concern for CWAF achieving efficiencies 
greater than 82-percent. DOE considered this factor in its engineering 
analysis and when developing the installation costs for the LCC 
analysis. See sections IV.C and IV.F of this NOPR for more information 
about how DOE addressed these concerns.
Increased Operating Risks for the End User
    Many interview participants expressed concerns about risk 
associated with installation and equipment for reliable management of 
caustic effluent from condensing CWAF. They believe there are risks in 
installation, as condensate management systems must often be installed 
around other rooftop equipment and contractor ability varies widely. 
They cited problems with power outages, which tend to happen during 
winter and can impair even well-designed effluent management systems. 
Manufacturers stated than any leak or failure of the condensate 
management system could result in costly roofing repairs for the end 
user. The interview participants were of the opinion that effluent 
management would be a significant expense for end-users and that the 
risk and cost of roof damage would outweigh any benefits of high-
efficiency condensing units.
    DOE acknowledges the potential issues that could be associated with 
an improperly installed condensing rooftop furnace, which could cause 
reliability issues for end-users of this equipment. DOE believes that 
the technical challenges of installing a condensing rooftop furnace can 
be overcome, and this has been demonstrated by the dedicated outdoor 
air systems that are currently on the market, which are installed on 
rooftops and have reliable condensate management systems. Nevertheless, 
DOE believes significant installer training and education would be 
required to ensure reliable installation of outdoor furnaces using 
condensing technology.
Repair and Replacement Rates
    During interviews, most manufacturers expressed concerns that an 
increase in energy conservation standards for CWAF may make customers 
more likely to repair an old unit rather than replace it. According to 
manufacturers, the main reason an amended standard may lead to a drop 
in shipments is the price sensitivity of end users. Manufacturers added 
that some customers would need to make significant alterations to the 
layout of rooftop equipment in order to accommodate larger CWAF units 
and condensate management systems. The higher total installed cost of 
more-efficient CWAF units and the possible risk of damage to existing 
roofing could deter customers from purchasing new units. The lower cost 
of fixing an old unit may become a more attractive option. Furthermore, 
manufacturers indicated that there could be a reduction in national 
energy savings from a higher standard due to an increased number of 
older, less-efficient units that are repaired rather than replaced with 
newer, more-efficient units. Manufacturers expressed concern over a 
potential contraction in the overall market size resulting from amended 
standards, because commercial consumers may decide to turn to other 
space-conditioning options entirely.
    DOE agrees with manufacturers that for certain equipment, such as 
CWAF, the higher total installed cost of more-efficient equipment may 
lead end-users to delay purchasing new equipment and to repair rather 
than to replace this equipment. DOE accounts for this effect at higher 
efficiency levels in the shipments analysis by examining the cost of 
higher-efficiency equipment as compared to the operating savings, and 
this is discussed further in chapter 9 of the TSD (shipments analysis).

K. Emissions Analysis

    In the emissions analysis, DOE estimates the reduction in power 
sector emissions of carbon dioxide (CO2), nitrogen oxides 
(NOX), sulfur dioxide (SO2), and mercury (Hg) 
from potential energy conservation standards for CWAF. In addition, DOE 
estimates emissions impacts in production activities (extracting, 
processing, and transporting fuels) that provide the energy inputs to 
power plants. These are referred to as ``upstream'' emissions. 
Together, these emissions account for the full-fuel-cycle (FFC). In 
accordance with DOE's FFC Statement of Policy (76 FR 51281 (Aug. 18, 
2011)), the FFC analysis includes impacts on emissions

[[Page 6208]]

of methane (CH4) and nitrous oxide (N2O), both of 
which are recognized as greenhouse gases.
    The proposed standards would reduce use of fuel at the site and 
slightly reduce electricity use, thereby reducing power sector 
emissions. However, the highest efficiency levels (i.e., the max-tech 
levels) considered for CWAF would increase the use of electricity by 
the furnace. For the considered TSLs, DOE estimated the change in power 
sector and upstream emissions of CO2, NOX, 
SO2, and mercury (Hg).\58\
---------------------------------------------------------------------------

    \58\ Note that in these cases the reduction in site emissions of 
CO2, NOX, and SO2 is larger than 
the increase in power sector emissions.
---------------------------------------------------------------------------

    DOE primarily conducted the emissions analysis using emissions 
factors for CO2 and most of the other gases derived from 
data in EIA's Annual Energy Outlook 2013 (AEO 2013). Combustion 
emissions of CH4 and N2O were estimated using 
emissions intensity factors published by the Environmental Protection 
Agency (EPA) through its GHG Emissions Factors Hub.\59\ Site emissions 
of CO2 and NOX were estimated using emissions 
intensity factors from an EPA publication.\60\ DOE developed separate 
emissions factors for power sector emissions and upstream emissions. 
The method that DOE used to derive emissions factors is described in 
chapter 13 of the NOPR TSD.
---------------------------------------------------------------------------

    \59\ See http://www.epa.gov/climateleadership/guidance/ghg-emissions.html.
    \60\ U.S. Environmental Protection Agency, Compilation of Air 
Pollutant Emission Factors, AP-42, Fifth Edition, Volume I: 
Stationary Point and Area Sources (1998) (Available at: http://www.epa.gov/ttn/chief/ap42/index.html).
---------------------------------------------------------------------------

    For CH4 and N2O, DOE calculated emissions 
reduction in tons and also in terms of units of carbon dioxide 
equivalent (CO2eq). Gases are converted to CO2eq 
by multiplying by the gas' global warming potential (GWP) over a 100-
year time horizon. Based on the Fourth Assessment Report of the 
Intergovernmental Panel on Climate Change,\61\ DOE used GWP values of 
25 for CH4 and 298 for N2O.
---------------------------------------------------------------------------

    \61\ Forster, P., V. Ramaswamy, P. Artaxo, T. Berntsen, R. 
Betts, D.W. Fahey, J. Haywood, J. Lean, DC Lowe, G. Myhre, J. 
Nganga, R. Prinn,G. Raga, M. Schulz and R. Van Dorland. 2007: 
Changes in Atmospheric Constituents and in Radiative Forcing. In 
Climate Change 2007: The Physical Science Basis. Contribution of 
Working Group I to the Fourth Assessment Report of the 
Intergovernmental Panel on Climate Change. S. Solomon, D. Qin, M. 
Manning, Z. Chen, M. Marquis, K.B. Averyt, M.Tignor and H.L. Miller, 
Editors. 2007. Cambridge University Press, Cambridge, United Kingdom 
and New York, NY, USA. p. 212.
---------------------------------------------------------------------------

    EIA prepares the Annual Energy Outlook using NEMS. Each annual 
version of NEMS incorporates the projected impacts of existing air 
quality regulations on emissions. AEO 2013 generally represents current 
legislation and environmental regulations, including recent government 
actions, for which implementing regulations were available as of 
December 31, 2012.
    Because the on-site operation of CWAF requires use of fossil fuels 
and results in emissions of CO2, NOX, and 
SO2 at the sites where these appliances are used, DOE also 
accounted for the reduction in these site emissions and the associated 
upstream emissions due to potential standards.
    SO2 emissions from affected electric generating units 
(EGUs) are subject to nationwide and regional emissions cap-and-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). SO2 emissions from 28 eastern 
States and DC were also limited under the Clean Air Interstate Rule 
(CAIR; 70 FR 25162 (May 12, 2005)), which created an allowance-based 
trading program that operates along with the Title IV program. CAIR was 
remanded to the U.S. Environmental Protection Agency (EPA) by the U.S. 
Court of Appeals for the District of Columbia Circuit, but it remained 
in effect.\62\ In 2011 EPA issued a replacement for CAIR, the Cross-
State Air Pollution Rule (CSAPR). 76 FR 48208 (August 8, 2011). On 
August 21, 2012, the DC Circuit issued a decision to vacate CSAPR.\63\ 
The court ordered EPA to continue administering CAIR. The emissions 
factors used for the NOPR, which are based on AEO 2013 assume that CAIR 
remains a binding regulation through 2040.\64\
---------------------------------------------------------------------------

    \62\ See North Carolina v. EPA, 550 F.3d 1176 (D.C. Cir. 2008); 
North Carolina v. EPA, 531 F.3d 896 (D.C. Cir. 2008).
    \63\ See EME Homer City Generation, LP v. EPA, 696 F.3d 7, 38 
(D.C. Cir. 2012).
    \64\ On April 29, 2014, the U.S. Supreme Court reversed the 
judgment of the DC Circuit and remanded the case for further 
proceedings consistent with the Supreme Court's opinion. The Supreme 
Court held in part that EPA's methodology for quantifying emissions 
that must be eliminated in certain states due to their impacts in 
other downwind states was based on a permissible, workable, and 
equitable interpretation of the Clean Air Act provision that 
provides statutory authority for CSAPR. See EPA v. EME Homer City 
Generation, No 12-1182, slip op. at 32 (U.S. April 29, 2014). 
Because DOE is using emissions factors based on AEO 2013 for NOPR, 
the analysis assumes that CAIR, not CSAPR, is the regulation in 
force. The difference between CAIR and CSAPR is not relevant for the 
purpose of DOE's analysis of SO2 emissions.
---------------------------------------------------------------------------

    The attainment of emissions caps is typically flexible among EGUs 
and is enforced through the use of emissions allowances and tradable 
permits. Under existing EPA regulations, 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 any regulated EGU. 
In past rulemakings, DOE recognized that there was uncertainty about 
the effects of efficiency standards on SO2 emissions covered 
by the existing cap-and-trade system, but it concluded that negligible 
reductions in power sector SO2 emissions would occur as a 
result of standards.
    Beginning in 2015, however, SO2 emissions will decline 
significantly as a result of the Mercury and Air Toxics Standards 
(MATS) for power plants. 77 FR 9304 (Feb. 16, 2012). In the final MATS 
rule, EPA established a standard for hydrogen chloride as a surrogate 
for acid gas hazardous air pollutants (HAP), and also established a 
standard for SO2 (a non-HAP acid gas) as an alternative 
equivalent surrogate standard for acid gas HAP. The same controls are 
used to reduce HAP and non-HAP acid gas; thus, SO2 emissions 
will be reduced as a result of the control technologies installed on 
coal-fired power plants to comply with the MATS requirements for acid 
gas. AEO 2013 assumes that, in order to continue operating, coal plants 
must have either flue gas desulfurization or dry sorbent injection 
systems installed by 2015. Both technologies, which are used to reduce 
acid gas emissions, also reduce SO2 emissions. Under the 
MATS, NEMS shows a reduction in SO2 emissions when 
electricity demand decreases (e.g., as a result of energy efficiency 
standards). Emissions will be far below the cap established by CAIR, so 
it is likely that excess SO2 emissions allowances resulting 
from the lower electricity demand would be needed or used to permit 
offsetting increases in SO2 emissions by any regulated EGU. 
Therefore, DOE believes that energy efficiency standards will reduce 
SO2 emissions in 2015 and beyond.
    CAIR established a cap on NOX emissions in 28 eastern 
States and the District of Columbia. Energy conservation standards are 
expected to have little effect on NOX emissions in those 
States covered by CAIR because excess NOX emissions 
allowances resulting from the lower electricity demand could be used to 
permit offsetting increases in NOX emissions. However, 
standards would be expected to reduce NOX emissions in the 
States not affected by the caps, so DOE estimated NOX 
emissions reductions from the standards considered in the NOPR for 
these States.
    The MATS limit mercury emissions from power plants, but they do not 
include emissions caps and, as such, DOE's energy conservation 
standards

[[Page 6209]]

would likely reduce Hg emissions. DOE estimated mercury emissions 
reduction using emissions factors based on AEO 2013, which incorporates 
the MATS.

L. Monetizing Carbon Dioxide and Other Emissions Impacts

    As part of the development of this proposed rule, DOE considered 
the estimated monetary benefits from the reduced emissions of 
CO2 and NOX that are expected to result from each 
of the TSLs considered. In order to make this calculation similar to 
the calculation of the NPV of consumer benefit, DOE considered the 
reduced emissions expected to result over the lifetime of equipment 
shipped in the forecast period for each TSL. This section summarizes 
the basis for the monetary values used for each of these emissions and 
presents the values considered in this rulemaking.
    For this NOPR, DOE is relying on a set of values for the social 
cost of carbon (SCC) that was developed by an interagency process. A 
summary of the basis for these values is provided below, and a more 
detailed description of the methodologies used is provided as an 
appendix to chapter 14 of the NOPR TSD.
1. Social Cost of Carbon
    The SCC is an estimate of the monetized damages associated with an 
incremental increase in carbon emissions in a given year. It is 
intended to include (but is not limited to) changes in net agricultural 
productivity, human health, property damages from increased flood risk, 
and the value of ecosystem services. Estimates of the SCC are provided 
in dollars per metric ton of carbon dioxide. A domestic SCC value is 
meant to reflect the value of damages in the United States resulting 
from a unit change in carbon dioxide emissions, while a global SCC 
value is meant to reflect the value of damages worldwide.
    Under section 1(b)(6) of Executive Order 12866, ``Regulatory 
Planning and Review,'' 58 FR 51735 (Oct. 4, 1993), agencies must, to 
the extent permitted by law, assess both the costs and the benefits of 
the intended regulation and, recognizing that some costs and benefits 
are difficult to quantify, propose or adopt a regulation only upon a 
reasoned determination that the benefits of the intended regulation 
justify its costs. The purpose of the SCC estimates presented here is 
to allow agencies to incorporate the monetized social benefits of 
reducing CO2 emissions into cost-benefit analyses of 
regulatory actions. The estimates are presented with an acknowledgement 
of the many uncertainties involved and with a clear understanding that 
they should be updated over time to reflect increasing knowledge of the 
science and economics of climate impacts.
    As part of the interagency process that developed the SCC 
estimates, technical experts from numerous agencies met on a regular 
basis to consider public comments, explore the technical literature in 
relevant fields, and discuss key model inputs and assumptions. The main 
objective of this process was to develop a range of SCC values using a 
defensible set of input assumptions grounded in the existing scientific 
and economic literatures. In this way, key uncertainties and model 
differences transparently and consistently inform the range of SCC 
estimates used in the rulemaking process.
a. Monetizing Carbon Dioxide Emissions
    When attempting to assess the incremental economic impacts of 
carbon dioxide emissions, the analyst faces a number of challenges. A 
recent report from the National Research Council points out that any 
assessment will suffer from uncertainty, speculation, and lack of 
information about: (1) Future emissions of greenhouse gases; (2) the 
effects of past and future emissions on the climate system; (3) the 
impact of changes in climate on the physical and biological 
environment; and (4) the translation of these environmental impacts 
into economic damages. As a result, any effort to quantify and monetize 
the harms associated with climate change will raise questions of 
science, economics, and ethics and should be viewed as provisional.
    Despite the limits of both quantification and monetization, SCC 
estimates can be useful in estimating the social benefits of reducing 
carbon dioxide emissions. The agency can estimate the benefits from 
reduced emissions in any future year by multiplying the change in 
emissions in that year by the SCC value appropriate for that year. The 
net present value of the benefits can then be calculated by multiplying 
the future benefits by an appropriate discount factor and summing 
across all affected years.
    It is important to emphasize that the interagency process is 
committed to updating these estimates as the science and economic 
understanding of climate change and its impacts on society improves 
over time. In the meantime, the interagency group will continue to 
explore the issues raised by this analysis and consider public comments 
as part of the ongoing interagency process.
b. Development of Social Cost of Carbon Values
    In 2009, an interagency process was initiated to offer a 
preliminary assessment of how best to quantify the benefits from 
reducing carbon dioxide emissions. To ensure consistency in how 
benefits are evaluated across agencies, the Administration sought to 
develop a transparent and defensible method, specifically designed for 
the rulemaking process, to quantify avoided climate change damages from 
reduced CO2 emissions. The interagency group did not 
undertake any original analysis. Instead, it combined SCC estimates 
from the existing literature to use as interim values until a more 
comprehensive analysis could be conducted. The outcome of the 
preliminary assessment by the interagency group was a set of five 
interim values: global SCC estimates for 2007 (in 2006$) of $55, $33, 
$19, $10, and $5 per metric ton of CO2. These interim values 
represented the first sustained interagency effort within the U.S. 
government to develop an SCC for use in regulatory analysis. The 
results of this preliminary effort were presented in several proposed 
and final rules.
c. Current Approach and Key Assumptions
    After the release of the interim values, the interagency group 
reconvened on a regular basis to generate improved SCC estimates. 
Specifically, the group considered public comments and further explored 
the technical literature in relevant fields. The interagency group 
relied on three integrated assessment models commonly used to estimate 
the SCC: the FUND, DICE, and PAGE models. These models are frequently 
cited in the peer-reviewed literature and were used in the last 
assessment of the Intergovernmental Panel on Climate Change. Each model 
was given equal weight in the SCC values that were developed.
    Each model takes a slightly different approach to model how changes 
in emissions result in changes in economic damages. A key objective of 
the interagency process was to enable a consistent exploration of the 
three models while respecting the different approaches to quantifying 
damages taken by the key modelers in the field. An extensive review of 
the literature was conducted to select three sets of input parameters 
for these models: climate sensitivity, socio-economic and emissions 
trajectories, and discount rates. A probability distribution for 
climate sensitivity was specified as an input into all three models. In 
addition,

[[Page 6210]]

the interagency group used a range of scenarios for the socio-economic 
parameters and a range of values for the discount rate. All other model 
features were left unchanged, relying on the model developers' best 
estimates and judgments.
    In 2010, the interagency group selected four sets of SCC values for 
use in regulatory analyses.\65\ Three sets of values are based on the 
average SCC from three integrated assessment models, at discount rates 
of 2.5 percent, 3 percent, and 5 percent. The fourth set, which 
represents the 95th-percentile SCC estimate across all three models at 
a 3-percent discount rate, is included to represent higher-than-
expected impacts from climate change further out in the tails of the 
SCC distribution. The values grow in real terms over time. 
Additionally, the interagency group determined that a range of values 
from 7 percent to 23 percent should be used to adjust the global SCC to 
calculate domestic effects, although preference is given to 
consideration of the global benefits of reducing CO2 
emissions. Table IV.10 presents the values in the 2010 interagency 
group report,\66\ which is reproduced in appendix 14-A of the NOPR TSD.
---------------------------------------------------------------------------

    \65\ Social Cost of Carbon for Regulatory Impact Analysis Under 
Executive Order 12866, Interagency Working Group on Social Cost of 
Carbon, United States Government (February 2010) (Available at: 
http://www.whitehouse.gov/sites/default/files/omb/inforeg/for-agencies/Social-Cost-of-Carbon-for-RIA.pdf).
    \66\ Id.

                     Table IV.10--Annual SCC Values From 2010 Interagency Report, 2010-2050
                                      [In 2007 dollars per metric ton CO2]
----------------------------------------------------------------------------------------------------------------
                                                                          Discount rate %
                                                 ---------------------------------------------------------------
                                                         5               3              2.5              3
                      Year                       ---------------------------------------------------------------
                                                                                                       95th
                                                      Average         Average         Average       Percentile
----------------------------------------------------------------------------------------------------------------
2010............................................             4.7            21.4            35.1            64.9
2015............................................             5.7            23.8            38.4            72.8
2020............................................             6.8            26.3            41.7            80.7
2025............................................             8.2            29.6            45.9            90.4
2030............................................             9.7            32.8            50.0           100.0
2035............................................            11.2            36.0            54.2           109.7
2040............................................            12.7            39.2            58.4           119.3
2045............................................            14.2            42.1            61.7           127.8
2050............................................            15.7            44.9            65.0           136.2
----------------------------------------------------------------------------------------------------------------

    The SCC values used for this NOPR were generated using the most 
recent versions of the three integrated assessment models that have 
been published in the peer-reviewed literature.\67\ Table IV.11 shows 
the updated sets of SCC estimates from the 2013 interagency update in 
five-year increments from 2010 to 2050. Appendix 14-B of the NOPR TSD 
provides the full set of values. The central value that emerges is the 
average SCC across models at 3-percent discount rate. However, for 
purposes of capturing the uncertainties involved in regulatory impact 
analysis, the interagency group emphasizes the importance of including 
all four sets of SCC values.
---------------------------------------------------------------------------

    \67\ Technical Update of the Social Cost of Carbon for 
Regulatory Impact Analysis Under Executive Order 12866, Interagency 
Working Group on Social Cost of Carbon, United States Government 
(May 2013; revised November 2013) (Available at: http://www.whitehouse.gov/sites/default/files/omb/assets/inforeg/technical-update-social-cost-of-carbon-for-regulator-impact-analysis.pdf).

                     Table IV.11--Annual SCC Values From 2013 Interagency Update, 2010-2050
                                      [in 2007 dollars per metric ton CO2]
----------------------------------------------------------------------------------------------------------------
                                                                          Discount rate %
                                                 ---------------------------------------------------------------
                                                         5               3              2.5              3
                      Year                       ---------------------------------------------------------------
                                                                                                       95th
                                                      Average         Average         Average       Percentile
----------------------------------------------------------------------------------------------------------------
2010............................................              11              32              51              89
2015............................................              11              37              57             109
2020............................................              12              43              64             128
2025............................................              14              47              69             143
2030............................................              16              52              75             159
2035............................................              19              56              80             175
2040............................................              21              61              86             191
2045............................................              24              66              92             206
2050............................................              26              71              97             220
----------------------------------------------------------------------------------------------------------------

    It is important to recognize that a number of key uncertainties 
remain, and that current SCC estimates should be treated as provisional 
and revisable since they will evolve with improved scientific and 
economic understanding. The interagency group also recognizes that the 
existing models are imperfect and incomplete. The National Research 
Council report mentioned above points out that there is tension between 
the goal of producing quantified estimates of the economic damages from 
an incremental ton of carbon and the limits of existing efforts to 
model these effects. There are a number of analytical challenges that 
are being addressed by the research community, including

[[Page 6211]]

research programs housed in many of the Federal agencies participating 
in the interagency process to estimate the SCC. The interagency group 
intends to periodically review and reconsider those estimates to 
reflect increasing knowledge of the science and economics of climate 
impacts, as well as improvements in modeling.
    In summary, in considering the potential global benefits resulting 
from reduced CO2 emissions, DOE used the values from the 
2013 interagency report, adjusted to 2013$ using the Gross Domestic 
Product price deflator. For each of the four SCC cases specified, the 
values used for emissions in 2015 were $12.0, $40.5, $62.4, and $119 
per metric ton avoided (values expressed in 2013$). For the years after 
2050, DOE applied the average annual growth rate of the SCC estimates 
in 2040-2050 associated with each of the four sets of values.\68\
---------------------------------------------------------------------------

    \68\ The post-2050 annual growth rates for the four SCC cases 
are 2.6%, 1.6%, 1.3%, and 1.5%.
---------------------------------------------------------------------------

    DOE multiplied the CO2 emissions reduction estimated for 
each year by the SCC value for that year in each of the four cases. To 
calculate a present value of the stream of monetary values, DOE 
discounted the values in each of the four cases using the specific 
discount rate that had been used to obtain the SCC values in each case.
2. Valuation of Other Emissions Reductions
    As noted above, DOE has taken into account how amended energy 
conservation standards would reduce site NOX emissions 
nationwide and increase power sector NOX emissions in those 
22 States not affected by the CAIR. DOE estimated the monetized value 
of net NOX emissions reductions resulting from each of the 
TSLs considered for this NOPR based on estimates found in the relevant 
scientific literature. Estimates of monetary value for reducing 
NOX from stationary sources range from $476 to $4,893 per 
ton in 2013$.\69\ DOE calculated monetary benefits using a medium value 
for NOX emissions of $2,684 per short ton (in 2013$), and 
NOX real discount rates of 3 percent and 7 percent.
---------------------------------------------------------------------------

    \69\ U.S. Office of Management and Budget, Office of Information 
and Regulatory Affairs, 2006 Report to Congress on the Costs and 
Benefits of Federal Regulations and Unfunded Mandates on State, 
Local, and Tribal Entities, Washington, DC.
---------------------------------------------------------------------------

    DOE is evaluating appropriate monetization of avoided 
SO2 and Hg emissions in energy conservation standards 
rulemakings. It has not included monetization in the current analysis.

M. Utility Impact Analysis

    The utility impact analysis estimates several effects on the 
electricity generation industry that would result from the adoption of 
amended energy conservation standards. In the utility impact analysis, 
DOE analyzes the changes in installed electricity capacity and 
generation that would result for each trial standard level. The utility 
impact analysis used a variant of NEMS. The analysis consists of a 
comparison between model results for the most recent AEO Reference Case 
and for cases in which energy use is decremented to reflect the impact 
of potential standards. The energy savings inputs associated with each 
TSL come from the NIA. Chapter 15 of the NOPR TSD describes the utility 
impact analysis in further detail.

N. Employment Impact Analysis

    Employment impacts from new or amended energy conservation 
standards include direct and indirect impacts. Direct employment 
impacts are any changes in the number of employees of manufacturers of 
the equipment 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 equipment. Indirect 
employment impacts from standards consist of the jobs created or 
eliminated in the national economy, other than in the manufacturing 
sector being regulated, due to: (1) Reduced spending by end users on 
energy; (2) reduced spending on new energy supply by the utility 
industry; (3) increased consumer spending on the purchase of new 
equipment; 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.\70\ There are many reasons for these differences, including 
wage differences and the fact that the utility sector is more capital-
intensive 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 sectors of the economy, the general 
effect of efficiency standards is to shift economic activity from a 
less labor-intensive sector (i.e., the utility sector) to more labor-
intensive sectors (e.g., the retail and service sectors). Thus, based 
on the BLS data alone, DOE believes net national employment may 
increase because of shifts in economic activity resulting from amended 
standards for CWAF.
---------------------------------------------------------------------------

    \70\ See Bureau of Economic Analysis, ``Regional Multipliers: A 
Handbook for the Regional Input-Output Modeling System (RIMS II),'' 
U.S. Department of Commerce (1992).
---------------------------------------------------------------------------

    For the amended standard levels considered in the NOPR, DOE 
estimated indirect national employment impacts using an input/output 
model of the U.S. economy called Impact of Sector Energy Technologies, 
Version 3.1.1 (ImSET).\71\ ImSET is a special-purpose version of the 
``U.S. Benchmark National Input-Output'' (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 the 187 sectors. ImSET's national economic I-O 
structure is based on a 2002 U.S. benchmark table, specially aggregated 
to the 187 sectors most relevant to industrial, commercial, and 
residential building energy use. DOE notes that ImSET is not a general 
equilibrium forecasting model, and understands the 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 the NOPR, DOE used ImSET only 
to estimate short-term (through 2023) employment impacts.
---------------------------------------------------------------------------

    \71\ M.J. Scott, O.V. Livingston, P.J. Balducci, J.M. Roop, and 
R.W. Schultz, ImSET 3.1: Impact of Sector Energy Technologies, PNNL-
18412, Pacific Northwest National Laboratory (2009) (Available at: 
www.pnl.gov/main/publications/external/technical_reports/PNNL-18412.pdf).
---------------------------------------------------------------------------

    For more details on the employment impact analysis, see chapter 16 
of the NOPR TSD.

V. Analytical Results and Conclusions

    The following section addresses the results from DOE's analyses 
with respect to potential amended energy conservation standards for 
CWAF in this rulemaking. It addresses the trial

[[Page 6212]]

standard levels (TSLs) examined by DOE, the projected impacts of each 
of these levels if adopted as energy conservation standards for CWAF, 
and the proposed standard levels that DOE sets forth in the NOPR. 
Additional details regarding DOE's analyses are contained in the TSD 
supporting this notice.

A. Trial Standard Levels

    At the NOPR stage, DOE develops TSLs for consideration. TSLs are 
formed by grouping different efficiency levels, which are potential 
standard levels for each equipment class. DOE analyzed the benefits and 
burdens of the TSLs developed for this proposed rule. Table V.1 
presents the TSLs analyzed and the corresponding efficiency level for 
each CWAF equipment class. TSL 5 represents the max-tech efficiency 
levels, which use condensing technology. For non-condensing efficiency 
levels, DOE considered all gas-fired and oil-fired efficiency level 
combinations as part of the TSL structure.

                  Table V.1--Summary of Trial Standard Levels for Commercial Warm Air Furnaces
----------------------------------------------------------------------------------------------------------------
                Equipment class                     TSL 1        TSL 2        TSL 3        TSL 4        TSL 5
----------------------------------------------------------------------------------------------------------------
                                                                     Thermal efficiency (TE)
                                                ==============
Gas-fired Furnaces.............................          81%          81%          82%          82%          92%
Oil-fired Furnaces.............................          81%          82%          81%          82%          92%
----------------------------------------------------------------------------------------------------------------

B. Economic Justification and Energy Savings

    As discussed in section II.A, EPCA provides seven factors to be 
evaluated in determining whether a more-stringent standard for CWAF is 
economically justified. (42 U.S.C. 6313(a)(6)(B)(ii)) The following 
sections generally discuss how DOE is addressing each of those factors 
in this rulemaking.
1. Economic Impacts on Individual Commercial Consumers
    DOE analyzed the economic impacts on CWAF consumers by looking at 
the effects standards would have on the LCC and PBP. DOE also examined 
the impacts of potential standards on commercial consumer subgroups. 
These analyses are discussed below.
a. Life-Cycle Cost and Payback Period
    To evaluate the net economic impact of potential amended energy 
conservation standards on commercial consumers of CWAF, DOE conducted 
LCC and PBP analyses for each TSL. In general, higher-efficiency 
equipment would affect customers in two ways: (1) Annual operating 
expense would decrease, and (2) purchase price would increase. Inputs 
used for calculating the LCC and PBP include total installed costs 
(i.e., equipment price plus installation costs), operating costs (i.e., 
annual energy savings, energy prices, energy price trends, repair 
costs, and maintenance costs), equipment lifetime, and discount rates.
    The key outputs of the LCC analysis are a mean LCC savings (or 
cost) and a median PBP relative to the base case for each equipment 
class, as well as the percentage of consumers for which the LCC under 
an amended standard would decrease (net benefit), increase (net cost), 
or exhibit no change (no impact) relative to the base-case equipment 
forecast. No impacts occur when the base-case efficiency equals or 
exceeds the efficiency at a given TSL.
    DOE also performed a PBP analysis as part of the consumer impact 
analysis. The PBP is the number of years it would take for the consumer 
of this commercial equipment to recover the increased costs of higher-
efficiency equipment as a result of energy savings based on the 
operating cost savings. The PBP is an economic benefit-cost measure 
that uses benefits and costs without discounting. Chapter 8 of the NOPR 
TSD provides detailed information on the LCC and PBP analyses.
    Table V.2 and Table V.3 show the key LCC and PBP results for each 
equipment class.

                        Table V.2--Summary Life-Cycle Cost and Payback Period Results for Gas-Fired Commercial Warm Air Furnaces
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                          Life-cycle cost 2013$                        Life-cycle cost savings
                                                 -------------------------------------------------------------------------------------------    Median
                                       Thermal                                                            % of Customers that experience       payback
        Trial standard level          efficiency     Total      Discounted                 Average   ---------------------------------------    period
                                                   installed    operating       LCC        savings                                  Net         years
                                                      cost         cost                     2013$*      Net cost    No impact     benefit
--------------------------------------------------------------------------------------------------------------------------------------------------------
Baseline...........................          80%       $2,262      $26,623      $28,885           NA           0%         100%           0%           NA
1, 2...............................          81%        2,271       26,343       28,613         $186           1%          33%          66%          0.6
3, 4...............................          82%        2,280       26,069       28,349         $426           2%          10%          88%          0.7
5..................................          92%        3,848       23,898       27,746       $1,025          48%           1%          51%         12.2
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Rounding may cause some items to not total 100 percent.


[[Page 6213]]


                        Table V.3--Summary Life-Cycle Cost and Payback Period Results for Oil-Fired Commercial Warm Air Furnaces
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                          Life-cycle cost 2013$                        Life-cycle cost savings
                                                 -------------------------------------------------------------------------------------------    Median
                                       Thermal                                                            % of Customers that experience       payback
        Trial standard level          efficiency     Total      Discounted                 Average   ---------------------------------------    period
                                                   installed    operating       LCC        savings                                  Net         years
                                                      cost         cost                     2013$*      Net cost    No impact     benefit
--------------------------------------------------------------------------------------------------------------------------------------------------------
Baseline, 1, 3.....................          81%       $6,504      $67,313      $73,817           NA           0%         100%           0%           NA
2, 4...............................          82%        6,556       73,310       73,310         $164           8%          69%          23%          2.8
5..................................          92%        8,008       62,187       70,195       $3,278          47%           0%          53%          7.5
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Rounding may cause some items to not total 100 percent.

b. Consumer Subgroup Analysis
    In the consumer subgroup analysis, DOE estimated the impacts of the 
considered TSLs on small business consumers. The LCC savings and 
payback periods for small business consumers are shown in Table V.4. 
Chapter 11 of the NOPR TSD presents detailed results of the commercial 
consumer subgroup analysis.

    Table V.4--Summary Consumer Subgroup (Small Business Consumers) Results for Commercial Warm Air Furnaces
----------------------------------------------------------------------------------------------------------------
                                                                      Gas-fired                 Oil-fired
                                                             ---------------------------------------------------
                    Trial standard level                        Average                   Average
                                                                  LCC       Median PBP      LCC       Median PBP
                                                                savings*                  savings*
----------------------------------------------------------------------------------------------------------------
1...........................................................         $158          0.6           NA           NA
2...........................................................          158          0.6         $132          2.3
3...........................................................          365          0.7           NA           NA
4...........................................................          365          0.7         $132          2.3
5...........................................................          708         12.6       $2,454          8.8
----------------------------------------------------------------------------------------------------------------
* LCC savings are net savings (i.e., savings over the life time net of any costs incurred).

c. Rebuttable Presumption Payback
    As discussed in section III.C.2, EPCA establishes a rebuttable 
presumption that an energy conservation standard is economically 
justified if the increased purchase cost for equipment that meets the 
standard is less than three times the value of the first-year energy 
savings resulting from the standard. DOE calculated a rebuttable-
presumption PBP for each TSL to determine whether DOE could presume 
that a standard at that level is economically justified.
    DOE based the calculations on average usage profiles. As a result, 
DOE calculated a single rebuttable-presumption payback value, and not a 
distribution of PBPs, for each TSL. Table V.5 shows the rebuttable-
presumption PBPs for the considered TSLs. The rebuttable presumption is 
fulfilled in those cases where the PBP is three years or less. However, 
DOE routinely conducts an economic analysis that considers the full 
range of impacts to the customer, manufacturer, Nation, and 
environment, as required by EPCA. 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 three-year PBP analysis). Section V.C addresses how DOE 
considered the range of impacts to select these proposed standards.

           Table V.5--Rebuttable-Presumption Payback Periods (Years) for Commercial Warm Air Furnaces*
----------------------------------------------------------------------------------------------------------------
                                                                       Trial standard level
                Equipment class                 ----------------------------------------------------------------
                                                      1            2            3            4            5
----------------------------------------------------------------------------------------------------------------
Gas-fired......................................         0.02         0.02         0.02         0.02         0.44
Oil-fired......................................  ...........         0.14  ...........         0.14         0.63
----------------------------------------------------------------------------------------------------------------
* The rebuttable PBP is based on DOE's test procedure and uses single-point values, while the LCC analysis
  presented in Table V.2 and Table V.3 reflects energy use under actual field conditions and uses a distribution
  of values.

2. Economic Impacts on Manufacturers
    As noted above, DOE performed an MIA to estimate the impact of 
amended energy conservation standards on manufacturers of CWAF. The 
following section describes the expected impacts on manufacturers at 
each considered TSL. Chapter 12 of the NOPR TSD explains the analysis 
in further detail.
a. Industry Cash-Flow Analysis Results
    Table V.6. and Table V.7 depict the estimated financial impacts 
(represented by changes in INPV) of amended energy standards on 
manufacturers of CWAF, as well as the conversion costs that DOE expects 
manufacturers would incur for all equipment classes at each TSL. To 
evaluate the range of cash flow impacts on the CWAF industry associated 
with

[[Page 6214]]

potential amended energy conservation standards, DOE modeled two 
different mark-up scenarios and two different conversion cost 
scenarios, as described in section IV.J.b (Government Regulatory Impact 
Model Scenarios). The combination of markup scenarios and conversion 
costs scenarios results in 4 sets of results: (1) Preservation of Gross 
Margin Percentage and Low Conversion Costs scenario, (2) Preservation 
of Gross Margin Percentage and High Conversion Costs scenario, (3) 
Preservation of Operating Profit and Low Conversion Costs scenario, (4) 
Preservation of Operating Profit and High Conversion Costs scenario. 
Each of the modeled scenarios results in a unique set of cash flows and 
corresponding industry values at each TSL. DOE presents the highest and 
lowest INPV results from the combined scenarios to portray the range of 
potential impacts on the industry. The low end of the range of impacts 
is the Preservation of Gross Margin Percentage and Low Conversion Costs 
scenario. The high end of the range of impacts is the Preservation of 
Operating Profit and High Conversion Costs scenario.
    In the following discussion, the INPV results refer to the 
difference in industry value between the base case and each standards 
case that results from the sum of discounted cash flows from the base 
year 2014 through 2047, the end of the analysis period. To provide 
perspective on the short-run cash flow impact, DOE includes in the 
discussion of the results below a comparison of free cash flow between 
the base case and the standards case at each TSL in the year before new 
standards would take effect. This figure provides an understanding of 
the magnitude of the required conversion costs relative to the cash 
flow generated by the industry in the base case.
    The set of results below shows potential INPV impacts for CWAF 
manufacturers; Table V.6. reflects the lower bound of impacts, and 
Table V.7 represents the upper bound.

            Table V.6--Manufacturer Impact Analysis for CWAF--Preservation of Gross Margin Percentage/Low Conversion Cost Scenario Scenario*
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                               Trial standard level
                                                                  Units      Base case  ----------------------------------------------------------------
                                                                                              1            2            3            4            5
--------------------------------------------------------------------------------------------------------------------------------------------------------
INPV.........................................................      2013$ M        74.67         67.9         67.5         64.0         63.5         89.4
Change in INPV...............................................      2013$ M  ...........        (6.7)        (7.2)       (10.7)       (11.1)         14.8
                                                                         %  ...........          -9%         -10%         -14%         -15%         -20%
Product Conversion Costs.....................................      2013$ M  ...........         11.1         11.5         18.0         18.4         28.2
Capital Conversion Costs.....................................      2013$ M  ...........          0.6          0.9          1.2          1.5         61.3
Total Conversion Costs.......................................      2013$ M  ...........         11.7         12.4         19.2         19.9         89.4
Free Cash Flow...............................................      2013$ M          6.3          2.4          2.2        (0.1)        (0.3)       (31.3)
Change in Free Cash Flow.....................................      2013$ M  ...........          3.9          4.1          6.4          6.7         37.6
                                                                  % Change  ...........         61.4         65.6        101.4        105.5        596.0
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Parentheses indicate negative values.


      Table V.7--Manufacturer Impact Analysis for CWAF--Preservation of Operating Profit Scenario/High Conversion Costs Scenario: Changes Scenario*
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                               Trial standard level
                                                                  Units      Base case  ----------------------------------------------------------------
                                                                                              1            2            3            4            5
--------------------------------------------------------------------------------------------------------------------------------------------------------
INPV.........................................................      2013$ M        74.67         64.2         60.1         36.7         31.4       (23.7)
Change in INPV...............................................      2013$ M  ...........       (10.5)       (14.5)       (38.0)       (43.3)       (98.3)
                                                                         %  ...........          14%          19%          51%          58%         132%
Product Conversion Costs.....................................      2013$ M  ...........         11.3         17.2         48.8         54.7         81.0
Capital Conversion Costs.....................................      2013$ M  ...........          4.4          5.0          4.5          5.0         71.5
Total Conversion Costs.......................................      2013$ M  ...........         15.7         22.2         53.2         59.7        152.5
Free Cash Flow...............................................      2013$ M          6.3          0.7        (1.5)       (14.8)       (17.7)       (59.2)
Change in....................................................      2013$ M  ...........          5.7          7.8         21.1         24.0         65.5
Free Cash Flow...............................................
                                                                  % Change  ...........         89.6        124.3        334.7        380.4       1038.6
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Parentheses indicate negative values.

    As noted in section IV.J.a (Government Regulatory Impact Model Key 
Inputs), the MIA uses the Engineering Analysis's manufacturer 
production costs and the Shipments Analysis's sales forecasts as 
inputs. Two key trends in these inputs help drive the MIA results. 
First, the increase in efficiency at TSLs below max-tech can be 
accomplished with very little incremental production cost. This is 
highlighted in Table IV.6. At levels below TSL 5, gas-fired equipment 
MPCs increase by 4% at most and oil-fired MPC increase by 1% at most. 
Furthermore, at levels below TSL 5, total industry shipments over the 
analysis period remain the same across TSLs. Since DOE's analysis 
indicates there are no significant changes to variable production costs 
and no significant changes in total shipments below max-tech, 
manufacturer markups are also unlikely to vary significantly at those 
TSLs and have limited impact on the change in industry value between 
the base case and standards cases.
    However, anticipated conversion costs provided by manufacturers in 
interviews were quite high relative to industry value. As a result, 
conversion costs would have a significant impact on industry value. In 
particular, product conversion costs and time requirements were a 
concern for the industry. Manufacturer input during interviews 
indicated higher product conversion costs than initially expected by 
DOE. As a result, the Department modeled a sensitivity related to 
conversion costs. DOE applied two different

[[Page 6215]]

methodologies to estimate conversion costs. A Top-Down methodology 
relied on manufacturer feedback, AHRI listing data, and market share 
estimates. A Bottom-Up methodology was also used to estimate industry 
conversion costs, under which DOE relied on test lab pricing quotes, 
industry product literature, and the engineering cost model data to 
estimate the expenses associated with thermal efficiency testing, heat 
limit testing, product safety testing, reliability testing, and 
engineering effort. DOE assumed these items comprised the bulk of 
product conversion costs.
    In its analysis, DOE ran 4 scenarios based on combinations from 2 
markup scenarios and 2 conversion cost scenarios. The results presented 
below represent the upper-bound and lower-bound of results from those 
scenarios.
    TSL 1 represents EL 1 (81 percent) for gas-fired CWAF and baseline 
(81 percent) for oil-fired CWAF. At this level, DOE estimates 54% of 
the industry platforms would require redesign at a total industry 
conversion cost of $11.7 million to $15.7 million. DOE estimates 
impacts on INPV for CWAF manufacturers to range from a change in INPV 
of -14.0 percent to -9.0 percent, or $10.5 million to -$6.7 million. At 
this potential standard level, industry free cash flow is estimated to 
decrease by as much as 89.6 percent to -$0.7 million, compared to the 
base-case value of $6.3 million in 2017, the year before the compliance 
date (2018).
    TSL 2 represents EL 1 (81 percent for gas-fired and 82 percent for 
oil-fired) across all equipment classes. At this level, DOE estimates 
60% of the industry platforms would require redesign at a total 
industry conversion cost of $12.4 million to $22.2 million. DOE 
estimates impacts on INPV for CWAF manufacturers to range from a change 
in INPV of -19.5 percent to -9.6 percent, or a change of -$14.5 million 
to -$7.2 million. At this potential standard level, industry free cash 
flow is estimated to decrease by as much as 124.3 percent to -$1.5 
million, compared to the base-case value of $6.3 million in the year 
before the compliance date (2018).
    TSL 3 represents EL 2 (82 percent) for gas-fired CWAF and baseline 
(81 percent) for oil-fired CWAF. At this level, DOE estimates 77% of 
the industry platforms would require redesign at a total industry 
conversion cost of $19.2 million to $53.2 million DOE estimates impacts 
on INPV for CWAF manufacturers to range from a change in INPV of -50.8 
percent to -14.3 percent, or -$38.0 million to -$10.7 million. At this 
potential standard level, industry free cash flow is estimated to 
decrease by as much as 334.7 percent to -$14.8 million, compared to the 
base-case value of $6.3 million in the year before the compliance date 
(2018).
    TSL 4 represents EL 2 (82 percent) for gas-fired CWAF and EL 1 (82 
percent) for oil-fired CWAF. At this level, DOE estimates 83% of the 
industry platforms would require redesign at a total industry 
conversion cost of $19.9 million to $59.7 million. DOE estimates 
impacts on INPV for CWAF manufacturers to range from a change in INPV 
of -58.0 percent to -14.9 percent, or -$43.3 million to -$11.1 million. 
At this potential standard level, industry free cash flow is estimated 
to decrease by as much as 380.4 percent to -$17.7 million, compared to 
the base-case value of $6.3 million in the year before the compliance 
date (2018)
    TSL 5 represents max-tech across all equipment classes (i.e., EL 3 
(92 percent) for gas-fired CWAF and EL 2 (92 percent) for oil-fired 
CWAF). At this level, DOE estimates 92% of the industry platforms would 
require redesign at a total industry conversion cost of $89.4 million 
to $152.5 million. Conversion costs more than double from TSL 4 to TSL 
5. The vast majority of the industry does not offer condensing 
commercial furnaces today and would need to develop condensing 
technology for commercial applications. Implementing a condensing 
commercial furnace would likely have design implication for the cooling 
side of the HVAC product and for the chassis that houses both the 
cooling and heating components. DOE estimates impacts on INPV for CWAF 
manufacturers to range from a change in INPV of -131.7 percent to 19.8 
percent, or -$98.3 million to $14.8 million. The loss of more than 100% 
of INPV reflects the fact that conversion expenses extend beyond the 
commercial furnace and affect commercial air conditioners and heat 
pumps, which tend to be the more expensive and complex component of 
commercial HVAC products. At this potential standard level, industry 
free cash flow is estimated to decrease by as much as 1,038.6 percent 
to -$59.2 million relative to the base-case value of $6.3 million in 
the year before the compliance date (2018).
b. Impacts on Direct Employment
    To quantitatively assess the potential impacts of amended energy 
conservation standards on direct employment in the CWAF industry, DOE 
used the GRIM to estimate the domestic labor expenditures and number of 
employees in the base case and at each TSL from 2014 through 2047. DOE 
used statistical data from the U.S. Census Bureau's 2011 Annual Survey 
of Manufacturers (ASM),\72\ the results of the engineering analysis, 
and interviews with manufacturers to determine the inputs necessary to 
calculate industry-wide labor expenditures and domestic employment 
levels. Labor expenditures related to manufacturing of the product are 
a function of the labor intensity of the product, the sales volume, and 
an assumption that wages remain fixed in real terms over time. The 
total labor expenditures in each year are calculated by multiplying the 
MPCs by the labor percentage of MPCs. DOE estimates that 99 percent of 
CWAF units are produced domestically.
---------------------------------------------------------------------------

    \72\ ``Annual Survey of Manufactures (ASM),'' U.S. Census Bureau 
(2011) (Available at: http://www.census.gov/manufacturing/asm/).
---------------------------------------------------------------------------

    The total labor expenditures in the GRIM were then converted to 
domestic production employment levels by dividing production labor 
expenditures by the annual payment per production worker (production 
worker hours times the labor rate found in the U.S. Census Bureau's 
2011 ASM). The estimates of production workers in this section cover 
workers, including line-supervisors who are directly involved in 
fabricating and assembling a product within the manufacturing facility. 
Workers performing services that are closely associated with production 
operations, such as materials handling tasks using forklifts, are also 
included as production labor. DOE's estimates only account for 
production workers who manufacture the specific products covered by 
this rulemaking. The total direct employment impacts calculated in the 
GRIM are the changes in the number of production workers resulting from 
the amended energy conservation standards for CWAF, as compared to the 
base case. In general, more-efficient equipment is larger, more 
complex, and more labor-intensive to build. Per unit labor requirements 
and production time requirements increase with a higher energy 
conservation standard. As a result, the total labor calculations 
described in this paragraph are considered an upper bound to direct 
employment forecasts.
    Using the GRIM, DOE estimates that in the absence of amended energy 
conservation standards, there would be 235 domestic production workers 
for CWAF equipment. DOE estimates that 99 percent of CWAF units sold in 
the United States are manufactured domestically. The employment impact 
estimates in Table V.8 below show a

[[Page 6216]]

range of potential production employment levels that could exist 
following the compliance date of amended energy conservation standards. 
These direct employment impacts shown are independent of the employment 
impacts to the broader U.S. economy, which are documented in the 
section IV.N (Employment Impact Analysis) and chapter 13 of the NOPR 
TSD.

                    Table V.8--Range of Potential Changes in CWAF Production Workers in 2018
----------------------------------------------------------------------------------------------------------------
                                                                       Trial standard level
                                                ----------------------------------------------------------------
                                                      1            2            3            4            5
----------------------------------------------------------------------------------------------------------------
Total Number of Domestic Production Workers in    235 to 190   235 to 189   235 to 142   235 to 141   521 to 136
 2018 (no production location change)..........
Change from Base Case Estimate of 235 Domestic     0 to (45)    0 to (46)    0 to (93)    0 to (94)  286 to (99)
 Production Workers in 2018....................
----------------------------------------------------------------------------------------------------------------

    The upper bound of the range assumes that manufacturers would 
continue to produce the same scope of covered equipment within the 
United States, and assumes that domestic production would not shift to 
countries with lower labor costs. At TSL 1 through 4, the upper bound 
shows no change in employment from the baseline due to a constant level 
of production labor expenditure. The major costs and changes for 
increasing product efficiency at lower levels would be for capital, not 
labor. On the other hand, the max-tech level at TSL 5 would require 
significant increases in both capital and labor expenditure due to 
increased complexity and size of condensing furnaces.
    The lower bound assumes that as the standard increases, 
manufacturers choose to retire sub-standard product lines rather than 
invest in manufacturing facility conversions and product redesigns. DOE 
assumes manufacturers take the lowest investment option and do not 
relocate any production facilities to lower-cost countries. In this 
scenario, there is a loss of employment because manufacturers 
consolidate and operate fewer production lines. Since this is intended 
to be a worst-case scenario for employment, there is no consideration 
given to the fact that there may be employment growth in higher-
efficiency lines.
c. Impacts on Manufacturing Capacity
    According to the certain CWAF manufacturers interviewed, amended 
energy conservation standards could lead to decreased production 
capacity. Most manufacturers indicated there would be little to no 
production capacity decrease at 81-percent and 82-percent efficiency 
levels, but at 91-percent and 92-percent levels, there would be 
significant capacity shortfall. This feedback is consistent with the 
engineering analysis, which found there would be sufficient capacity at 
current levels to meet slightly higher efficiency standards, but that 
significant investment would be required to support production of 
higher-efficiency, condensing furnace standards.
d. Impacts on Subgroups of Manufacturers
    Small manufacturers, niche equipment manufacturers, and 
manufacturers exhibiting a cost structure substantially different from 
the industry average could be affected disproportionately. For CWAF, 
DOE identified and evaluated the impact of amended energy conservation 
standards on one subgroup: small manufacturers. The Small Business 
Administration (SBA) defines a ``small business'' as having 750 
employees or less for NAICS 333415, ``Air-Conditioning and Warm Air 
Heating Equipment and Commercial and Industrial Refrigeration Equipment 
Manufacturing.'' Based on this definition, DOE identified 2 
manufacturers in the CWAF industry that are small businesses.
    As discussed in section IV.J, using average cost assumptions to 
develop an industry cash-flow estimate is inadequate to assess 
differential impacts among manufacturer subgroups. Therefore, for a 
more detailed discussion of DOE's assessment of the impacts on the 
small manufacturer subgroup, see the regulatory flexibility analysis in 
section VI.B of this notice and chapter 12 of the NOPR TSD. DOE 
requests stakeholder input on the number of small business CWAF 
manufacturers and the potential for disproportionate impacts to those 
small manufacturers.
e. Cumulative Regulatory Burden
    While any one regulation may not impose a significant burden on 
manufacturers, the combined effects of recent or impending regulations 
may have serious consequences for some manufacturers, groups of 
manufacturers, or an entire industry. Assessing the impact of a single 
regulation may overlook this cumulative regulatory burden. In addition 
to energy conservation standards, other regulations can significantly 
affect manufacturers' financial operations. 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 looks at other 
regulations that could affect CWAF manufacturers that will take effect 
approximately three years before or after the 2018 compliance date of 
amended energy conservation standards for these products. In 
interviews, manufacturers cited Federal regulations on equipment other 
than CWAF that contribute to their cumulative regulatory burden. The 
compliance years and expected industry conversion costs of relevant 
amended energy conservation standards are indicated in Table V.9 below.

[[Page 6217]]



 Table V.9--Compliance Dates and Expected Conversion Expenses of Federal
       Energy Conservation Standards Affecting CWAF Manufacturers
------------------------------------------------------------------------
                                                             Estimated
                                            Approximate   total industry
  Federal energy conservation standards     compliance      conversion
                                               date           expense
------------------------------------------------------------------------
2007 Residential Furnaces & Boilers *--             2015            $88M
 72 FR 65136 (Nov. 19, 2007)............                         (2006$)
2011 Residential Furnaces **--76 FR                 2015           $2.5M
 37408 (June 27, 2011); 76 FR 67037                              (2009$)
 (Oct. 31, 2011)........................
2011 Residential Central Air                        2015          $26.0M
 Conditioners and Heat Pumps **--76 FR                           (2009$)
 37408 (June 27, 2011); 76 FR 67037
 (Oct. 31, 2011)........................
2010 Gas Fired and Electric Storage                 2015          $95.4M
 Water Heaters--75 FR 20112 (April 16,                           (2009$)
 2010)..................................
2014 Walk-in Coolers and Freezers--79 FR            2017          $35.2M
 32049 (June 3, 2014)...................                         (2012$)
Commercial Packaged Air-Conditioning and            2018         $226.4M
 Heating Equipment [dagger]--79 FR 58948                         (2013$)
 (September 30, 2014)...................
Commercial and Industrial Fans and                  2018             TBD
 Blowers [dagger]--2014 Furnace Fans--79            2019          $40.6M
 FR 37937 (July 3, 2014)................                         (2013$)
Packaged Terminal Air Conditioners and              2019           $7.6M
 Heat Pumps [dagger]--79 FR 55538                                (2013$)
 (September 16, 2014)...................
Single Package Vertical Units [dagger]--            2019          $16.1M
 79 FR 78614 (December 30, 2014)........                         (2013$)
Residential Boilers [dagger]............            2019             TBD
Commercial Boilers [dagger].............            2019             TBD
------------------------------------------------------------------------
* Conversion expenses for manufacturers of oil-fired furnaces and for
  manufacturers of gas-fired and oil-fired boilers associated with the
  November 2007 final rule for residential furnaces and boilers are
  excluded from this figure. With regard to oil-fired furnaces, the 2011
  direct final rule for residential furnaces sets a higher standard and
  earlier compliance date for oil-fired furnaces than the 2007 final
  rule. As a result, manufacturers will be required to design to the
  2011 direct final rule standard. The conversion costs associated with
  the 2011 direct final rule are listed separately in this table. With
  regard to gas-fired and oil-fired boilers, EISA 2007 legislated higher
  standards and earlier compliance dates for residential boilers than
  were in the November 2007 final rule. As a result, gas-fired and oil-
  fired boiler manufacturers were required to design to the EISA 2007
  standard beginning in 2012.
** Estimated industry conversion expense and approximate compliance date
  reflect a court-ordered May 1, 2013 stay of the residential non-
  weatherized and mobile home gas furnaces standards set in the 2011
  Energy Conservation Standards for Residential Furnaces and Residential
  Central Air Conditioners and Heat Pumps.
[dagger] The final rule for this energy conservation standard has not
  been published. For energy conservation standards which have published
  a NOPR, DOE lists the compliance date and conversion costs for the
  proposed standard level. However, standard level and analytic results
  are not finalized until the publication of the final rule. For energy
  conservation standards which have not yet reached the NOPR publication
  phase of the rulemaking, information is not yet available.

    In addition to Federal energy conservation standards, DOE 
identified other Federal regulatory burdens that would affect 
manufacturers of CWAF:
EPA Phase-out of Hydrochlorofluorocarbons (HCFCs)
    The U.S. is obligated under the Montreal Protocol to limit 
production and consumption of HCFCs through incremental reductions, 
culminating in a complete phase-out of HCFCs by 2030.\73\ On December 
15, 2009, the U.S. Environmental Protection Agency (EPA) published a 
final rule commonly referred to as the ``2010 HCFC Allocation Rule,'' 
which allocates production and consumption allowances for HCFC-22 for 
each year between 2010 and 2014. 74 FR 66412. On January 4, 2012, EPA 
published the ``2012 HCFC Allocation Proposed Rule,'' which proposes to 
lift the regulatory ban on the production and consumption of HCFC-22 
(following a court decision \74\ in August 2010 to vacate a portion of 
the ``2010 HCFC Allocation Rule'') by establishing company-by-company 
HCFC-22 baselines and allocating allowances for 2012-2014. 77 FR 237.
---------------------------------------------------------------------------

    \73\ ``Montreal Protocol,'' United Nations Environment 
Programme, Web. 26 (August 2010) (Available at: http://ozone.unep.org/new_site/en/montreal_protocol.php) (Last accessed 12/
13/13).
    \74\ See Arkema v. EPA, 618 F.3d 1 (D.C. Cir. 2010).
---------------------------------------------------------------------------

    HCFC-22, which is also known as R-22, is a popular refrigerant that 
is commonly used in air-conditioning products. Many manufacturers of 
CWAF also manufacture air-conditioning products, and would be impacted 
by the HCFC phase-out. Manufacturers of CWAF that make air-conditioning 
equipment must comply with the allowances established by the allocation 
rule, thereby facing a cumulative regulatory burden.
    DOE requests comment on the cumulative regulatory burden that may 
be imposed on industry by regulations that go into effect in the 3 
years before and the 3 years after the proposed CWAF standards year of 
2018.
3. National Impact Analysis
a. Significance of Energy Savings
    For each TSL, DOE projected energy savings for CWAF purchased in 
the 30-year period that begins in the year of anticipated compliance 
with amended standards (2018-2047). The savings are measured over the 
entire lifetime of equipment purchased in the 30-year period. DOE 
quantified the energy savings attributable to each TSL as the 
difference in energy consumption between each standards case and the 
base case. Table V.10 presents the estimated primary energy savings for 
each considered TSL, and Table V.11 presents the estimated FFC energy 
savings for each TSL. The approach for estimating national energy 
savings is further described in section IV.H.

[[Page 6218]]



Table V.10--Cumulative National Primary Energy Savings for Commercial Warm Air Furnace Trial Standard Levels for
                                            Units Sold in 2018-2047 *
----------------------------------------------------------------------------------------------------------------
                                                                       Trial standard level
                Equipment class                 ----------------------------------------------------------------
                                                      1            2            3            4            5
----------------------------------------------------------------------------------------------------------------
                                                                              quads
----------------------------------------------------------------------------------------------------------------
Gas-fired Furnaces.............................        0.203        0.203        0.471        0.471        3.040
Oil-fired Furnaces.............................        0.000        0.001        0.000        0.001        0.031
                                                ----------------------------------------------------------------
    Total All Classes..........................        0.203        0.204        0.471        0.472        3.071
----------------------------------------------------------------------------------------------------------------
* Note: Components may not sum due to rounding.


  Table V.11--Cumulative National Full-Fuel-Cycle Energy Savings for Commercial Warm Air Furnace Trial Standard
                                      Levels for Units Sold in 2018-2047 *
----------------------------------------------------------------------------------------------------------------
                                                                       Trial standard level
                Equipment class                 ----------------------------------------------------------------
                                                      1            2            3            4            5
----------------------------------------------------------------------------------------------------------------
                                                                              quads
----------------------------------------------------------------------------------------------------------------
Gas-fired Furnaces.............................        0.222        0.222        0.516        0.516        3.338
Oil-fired Furnaces.............................        0.000        0.001        0.000        0.001        0.036
                                                ----------------------------------------------------------------
    Total All Classes..........................        0.222        0.223        0.516        0.517        3.374
----------------------------------------------------------------------------------------------------------------
* Note: Components may not sum due to rounding.

    Circular A-4 \75\ 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 nine, rather than 30, years of equipment 
shipments. The choice of a nine-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.\76\ 
The review timeframe established in EPCA is generally not synchronized 
with the equipment lifetime, equipment manufacturing cycles, or other 
factors specific to CWAF. Thus, this information is presented for 
informational purposes only and is not indicative of any change in 
DOE's analytical methodology. The NES results based on a nine-year 
analytical period are presented in Table V.12. The impacts are counted 
over the lifetime of CWAF purchased in 2018-2026.
---------------------------------------------------------------------------

    \75\ OMB, Circular A-4: Regulatory Analysis (Sept. 17, 2003).
    \76\ EPCA requires DOE to review its energy conservation 
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. 6313(a)(6)(C)(iv)) 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 consumer products, the compliance period is 5 
years rather than 3 years.

Table V.12--Cumulative National Primary Energy Savings for Commercial Warm Air Furnace Trial Standard Levels for
                                             Units Sold in 2018-2026
----------------------------------------------------------------------------------------------------------------
                                                                       Trial standard level
                Equipment class                 ----------------------------------------------------------------
                                                      1            2            3            4            5
----------------------------------------------------------------------------------------------------------------
                                                                              quads
----------------------------------------------------------------------------------------------------------------
Gas-fired Furnaces.............................        0.059        0.059        0.136        0.136        0.937
Oil-fired Furnaces.............................        0.000        0.000        0.000        0.000        0.013
                                                ----------------------------------------------------------------
    Total All Classes..........................        0.059        0.059        0.136        0.137        0.950
----------------------------------------------------------------------------------------------------------------

b. Net Present Value of Commercial Consumer Costs and Benefits
    DOE estimated the cumulative NPV of the total costs and savings for 
commercial consumers that would result from the TSLs considered for 
CWAF. In accordance with OMB's guidelines on regulatory analysis,\77\ 
DOE calculated the NPV using both a 7-percent and a 3-percent real 
discount rate. The 7-percent rate is an estimate of the average before-
tax rate of return on private capital in the U.S. economy, and reflects 
the returns on real estate and small business capital as well as 
corporate capital. This discount rate approximates the opportunity cost 
of capital in the private sector (OMB analysis has found the average 
rate of return on capital to be near this rate).

[[Page 6219]]

The 3-percent rate reflects the potential effects of standards on 
private consumption (e.g., through higher prices for equipment and 
reduced purchases of energy). This rate represents the rate at which 
society discounts future consumption flows to their present value. It 
can be approximated by the real rate of return on long-term government 
debt (i.e., yield on United States Treasury notes), which has averaged 
about 3 percent for the past 30 years.
---------------------------------------------------------------------------

    \77\ OMB Circular A-4, section E (Sept. 17, 2003) (Available at: 
http://www.whitehouse.gov/omb/circulars_a004_a-4).
---------------------------------------------------------------------------

    Table V.13 shows the commercial consumer NPV results for each TSL 
considered for CWAF. In each case, the impacts cover the lifetime of 
equipment purchased in 2018-2047.

  Table V.13--Cumulative Net Present Value of Consumer Benefits for Commercial Warm Air Furnace Trial Standard
                                       Levels for Units Sold in 2018-2047
----------------------------------------------------------------------------------------------------------------
                                                 Discount                   Trial standard level
                Equipment class                    rate   ------------------------------------------------------
                                                (percent)      1          2          3          4          5
----------------------------------------------------------------------------------------------------------------
                                                .........                      billion 2013$
                                               -----------------------------------------------------------------
Gas-fired Furnaces............................                1.1391     1.1391     2.6432     2.6432    10.0083
Oil-fired Furnaces............................          3     0.0000     0.0157     0.0000     0.0157     0.3756
                                               -----------------------------------------------------------------
    Total All Classes *.......................                1.1391     1.1548     2.6432     2.6589    10.3839
Gas-fired Furnaces............................                0.4361     0.4361     1.0111     1.0111     2.7799
Oil-fired Furnaces............................          7     0.0000     0.0057     0.0000     0.0057     0.1220
                                               -----------------------------------------------------------------
    Total All Classes *.......................                0.4361     0.4417     1.0111     1.0168     2.9019
----------------------------------------------------------------------------------------------------------------
* Note: Components may not sum due to rounding.

    The NPV results based on the aforementioned nine-year analytical 
period are presented in Table V.14. The impacts are counted over the 
lifetime of equipment purchased in 2018-2026. As mentioned previously, 
this information is presented for informational purposes only and is 
not indicative of any change in DOE's analytical methodology or 
decision criteria.

  Table V.14--Cumulative Net Present Value of Consumer Benefits for Commercial Warm Air Furnace Trial Standard
                                       Levels for Units Sold in 2018-2026
----------------------------------------------------------------------------------------------------------------
                                                 Discount                   Trial standard level
                Equipment class                    rate   ------------------------------------------------------
                                                (percent)      1          2          3          4          5
----------------------------------------------------------------------------------------------------------------
                                                .........                      billion 2013$
                                               -----------------------------------------------------------------
Gas-fired Furnaces............................                 0.366      0.366      0.849      0.849      2.978
Oil-fired Furnaces............................          3      0.000      0.007      0.000      0.007      0.177
                                               -----------------------------------------------------------------
    Total All Classes.........................                 0.366      0.373      0.849      0.856      3.156
Gas-fired Furnaces............................                 0.199      0.199      0.461      0.461      1.139
Oil-fired Furnaces............................          7      0.000      0.003      0.000      0.003      0.073
                                               -----------------------------------------------------------------
    Total All Classes.........................                 0.199      0.202      0.461      0.464      1.212
----------------------------------------------------------------------------------------------------------------

    The above results reflect the use of the historic trend in the 
inflation-adjusted PPI for ``Warm air furnaces'' to estimate the change 
in price for CWAF over the analysis period (see section IV.H). The 
trend shows a small rate of annual price decline. DOE also developed 
sensitivity analyses using two price trends that have rates of price 
decline that are less than and greater than the Reference trend. The 
results of these alternative cases are presented in appendix 10-C of 
the NOPR TSD.
c. Indirect Impacts on Employment
    DOE expects that amended energy conservation standards for CWAF 
would reduce energy costs for equipment owners, with the resulting net 
savings being redirected to other forms of economic activity. Those 
shifts in spending and economic activity could affect the demand for 
labor. As described in section IV.N, DOE used an input/output model of 
the U.S. economy to estimate indirect employment impacts of the TSLs 
that DOE considered in this rulemaking. DOE understands that there are 
uncertainties involved in projecting employment impacts, especially 
changes in the later years of the analysis. Therefore, DOE generated 
results for near-term time frames (2018-2023), where these 
uncertainties are reduced.
    The results suggest that the proposed standards would be 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 NOPR TSD presents detailed 
results regarding indirect employment impacts.
4. Impact on Utility or Performance of Equipment
    DOE has tentatively concluded that the amended standards it is 
proposing in the NOPR would not lessen the utility or performance of 
CWAF.
5. Impact of Any Lessening of Competition
    DOE considers any lessening of competition that is likely to result 
from new or amended standards. The Attorney General determines the

[[Page 6220]]

impact, if any, of any lessening of competition likely to result from a 
proposed standard, and transmits such determination in writing to the 
Secretary, together with an analysis of the nature and extent of such 
impact.
    To assist the Attorney General in making such determination, DOE 
has provided DOJ with copies of this NOPR and the TSD for review. DOE 
will consider DOJ's comments on the proposed rule in preparing the 
final rule, and DOE will publish and respond to DOJ's comments in that 
document.
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. Energy savings from 
amended standards for the CWAF equipment classes covered in today's 
NOPR could also produce environmental benefits in the form of reduced 
emissions of air pollutants and greenhouse gases associated with 
electricity production. Table V.15 provides DOE's estimate of 
cumulative emissions reductions projected to result from the TSLs 
considered in this rulemaking. This table includes both site and 
upstream emissions. DOE reports annual emissions reductions for each 
TSL in chapter 13 of the NOPR TSD.

   Table V.15--Cumulative Emissions Reduction Estimated for Commercial Warm Air Furnace Trial Standard Levels
----------------------------------------------------------------------------------------------------------------
                                                                       Trial standard level
----------------------------------------------------------------------------------------------------------------
                                                      1            2            3            4            5
----------------------------------------------------------------------------------------------------------------
                                        Site and Power Sector Emissions*
----------------------------------------------------------------------------------------------------------------
CO2 (million metric tons)......................         10.7         10.8         24.8         24.9        162.8
SO2 (thousand tons)............................          0.9          0.9          2.2          2.2          4.6
NOX (thousand tons)............................          9.2          9.3         21.3         21.4        141.9
Hg (tons)......................................        0.001        0.001        0.003        0.003        0.005
CH4 (thousand tons)............................          0.3          0.3          0.6          0.6          3.7
N2O (thousand tons)............................        0.033        0.035        0.077        0.079        0.435
----------------------------------------------------------------------------------------------------------------
                                               Upstream Emissions
----------------------------------------------------------------------------------------------------------------
CO2 (million metric tons)......................          1.3          1.3          3.0          3.0         19.8
SO2 (thousand tons)............................          0.0          0.0          0.0          0.0          0.2
NOX (thousand tons)............................         19.5         19.6         45.3         45.4        302.3
Hg (tons)......................................        0.000        0.000        0.000        0.000        0.000
CH4 (thousand tons)............................        137.4        137.5        319.0        319.2       2107.1
N2O (thousand tons)............................        0.002        0.003        0.006        0.006        0.038
----------------------------------------------------------------------------------------------------------------
                                                 Total Emissions
----------------------------------------------------------------------------------------------------------------
CO2 (million metric tons)......................         12.0         12.1         27.8         27.9        182.5
SO2 (thousand tons)............................          0.9          1.0          2.2          2.2          4.8
NOX (thousand tons)............................         28.7         28.9         66.6         66.8        444.1
Hg (tons)......................................        0.001        0.001        0.003        0.003        0.005
CH4 (thousand tons)............................        137.6        137.8        319.7        319.8       2110.8
N2O (thousand tons)............................        0.036        0.038        0.083        0.085        0.472
CH4 (million tons CO2eq) **....................          3.4          3.4          8.0          8.0         52.8
N2O (thousand tons CO2eq) **...................         10.6         11.2         24.7         25.2        140.7
----------------------------------------------------------------------------------------------------------------
* Primarily site emissions. Values include the increase in power sector emissions from higher electricity use at
  TSL 5.
** CO2eq is the quantity of CO2 that would have the same global warming potential (GWP).

    As part of the analysis for this proposed rule, DOE estimated 
monetary benefits likely to result from the reduced emissions of 
CO2 and NOX that DOE estimated for each of the 
TSLs considered for CWAF. As discussed in section IV.L, DOE used the 
most recent values for the SCC developed by an interagency process. The 
four sets of SCC values for CO2 emissions reductions in 2015 
resulting from that process (expressed in 2013$) are represented by 
$12.0/metric ton (the average value from a distribution that uses a 5-
percent discount rate), $40.5/metric ton (the average value from a 
distribution that uses a 3-percent discount rate), $62.4/metric ton 
(the average value from a distribution that uses a 2.5-percent discount 
rate), and $119/metric ton (the 95th-percentile value from a 
distribution that uses a 3-percent discount rate). The values for later 
years are higher due to increasing damages (emissions-related costs) as 
the projected magnitude of climate change increases.
    Table V.16 presents the global value of CO2 emissions 
reductions at each TSL. For each of the four cases, DOE calculated a 
present value of the stream of annual values using the same discount 
rate as was used in the studies upon which the dollar-per-ton values 
are based. DOE calculated domestic values as a range from 7 percent to 
23 percent of the global values, and these results are presented in 
chapter 14 of the NOPR TSD.

[[Page 6221]]



            Table V.16--Estimates of Global Present Value of CO2 Emissions Reduction Under Commercial Warm Air Furnace Trial Standard Levels
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                  SCC case *
                                                     ---------------------------------------------------------------------------------------------------
                         TSL                             5% Discount rate,        3% Discount rate,       2.5% Discount rate,     3% Discount rate, 95th
                                                              average                  average                  average                 percentile
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                 Million 2013$
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                           Site and Power Sector Emissions **
--------------------------------------------------------------------------------------------------------------------------------------------------------
1...................................................                     67.3                      323                      517                    1,000
2...................................................                     67.7                      325                      520                    1,007
3...................................................                      156                      750                    1,200                    2,322
4...................................................                      157                      752                    1,204                    2,329
5...................................................                    1,032                    4,932                    7,890                   15,271
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                   Upstream Emissions
--------------------------------------------------------------------------------------------------------------------------------------------------------
1...................................................                     7.99                     38.4                     61.4                      119
2...................................................                     8.06                     38.7                     62.0                      120
3...................................................                     18.6                     89.1                      143                      276
4...................................................                     18.6                     89.4                      143                      277
5...................................................                      125                      598                      957                    1,852
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                     Total Emissions
--------------------------------------------------------------------------------------------------------------------------------------------------------
1...................................................                     75.2                      361                      578                    1,119
2...................................................                     75.8                      364                      582                    1,127
3...................................................                      175                      839                    1,343                    2,598
4...................................................                      175                      841                    1,347                    2,606
5...................................................                    1,157                    5,530                    8,847                   17,123
--------------------------------------------------------------------------------------------------------------------------------------------------------
* For each of the four cases, the corresponding SCC value for emissions in 2015 is $12.0, $40.5, $62.4, and $119 per metric ton (2013$).
** Includes the increase in power sector emissions from higher electricity use at TSL 5.

    DOE is well aware that scientific and economic knowledge about the 
contribution of CO2 and other greenhouse gas (GHG) emissions 
to changes in the future global climate and the potential resulting 
damages to the world economy continues to evolve rapidly. Thus, any 
value placed on reducing CO2 emissions in this rulemaking is 
subject to change. DOE, together with other Federal agencies, will 
continue to review various 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. However, consistent with DOE's 
legal obligations, and taking into account the uncertainty involved 
with this particular issue, DOE has included in this proposed rule the 
most recent values and analyses resulting from the interagency process.
    DOE also estimated the cumulative monetary value of the economic 
benefits associated with NOX emissions reductions 
anticipated to result from amended standards for the CWAF equipment 
that is the subject of this notice. The dollar-per-ton values that DOE 
used are discussed in section IV.L. Table V.17 presents the cumulative 
present values for NOX emissions reductions for each TSL 
calculated using the average dollar-per-ton values and seven-percent 
and three-percent discount rates.

    Table V.17--Estimates of Present Value of NOX Emissions Reduction Under Commercial Warm Air Furnace Trial
                                                 Standard Levels
----------------------------------------------------------------------------------------------------------------
                              TSL                                   3% Discount rate         7% Discount rate
----------------------------------------------------------------------------------------------------------------
                                                                                  Million 2013$
----------------------------------------------------------------------------------------------------------------
                                        Site and Power Sector Emissions *
----------------------------------------------------------------------------------------------------------------
1.............................................................                     11.3                     4.72
2.............................................................                     11.4                     4.76
3.............................................................                     26.2                     11.0
4.............................................................                     26.3                     11.0
5.............................................................                      176                     74.9
----------------------------------------------------------------------------------------------------------------
                                               Upstream Emissions
----------------------------------------------------------------------------------------------------------------
1.............................................................                     23.9                     9.98
2.............................................................                     24.1                     10.0
3.............................................................                     55.5                     23.2
4.............................................................                     55.7                     23.2

[[Page 6222]]

 
5.............................................................                      375                      159
----------------------------------------------------------------------------------------------------------------
                                                 Total Emissions
----------------------------------------------------------------------------------------------------------------
1.............................................................                     35.2                     14.7
2.............................................................                     35.4                     14.8
3.............................................................                     81.7                     34.1
4.............................................................                     82.0                     34.2
5.............................................................                      551                      234
----------------------------------------------------------------------------------------------------------------
* Includes the increase in power sector emissions from higher electricity use at TSL 5.

7. Other Factors
    The Secretary of Energy, in determining whether a standard is 
economically justified, may consider any other factors that the 
Secretary deems to be relevant. (42 U.S.C. 6313(a)(6)(B)(ii)(VII)) No 
other factors were considered in this analysis.
8. Summary of Other National Economic Impacts
    The NPV of the monetized benefits associated with emissions 
reductions can be viewed as a complement to the NPV of the commercial 
consumer savings calculated for each TSL considered in this rulemaking. 
Table V.18. presents the NPV values that result from adding the 
estimates of the potential economic benefits resulting from reduced 
CO2 and NOX emissions in each of four valuation 
scenarios to the NPV of commercial consumer savings calculated for each 
TSL considered in this rulemaking, at both a seven-percent and three-
percent discount rate. The CO2 values used in the columns of 
each table correspond to the four sets of SCC values discussed above.

  Table V.18--CWAF TSLs: Net Present Value of Consumer Savings Combined With Present Value of Monetized Benefits From CO2 and NOX Emissions Reductions
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                 Consumer NPV at 3% discount rate added with:
                                                     ---------------------------------------------------------------------------------------------------
                         TSL                           SCC Case $12.0/metric    SCC Case $40.5/metric    SCC Case $62.4/metric     SCC Case $119/metric
                                                        ton CO2 * and medium     ton CO2 * and medium     ton CO2 * and medium     ton CO2 * and medium
                                                           value for NOX            value for NOX            value for NOX            value for NOX
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                 Billion 2013$
--------------------------------------------------------------------------------------------------------------------------------------------------------
1...................................................                      1.2                      1.5                      1.8                      2.3
2...................................................                      1.3                      1.6                      1.8                      2.3
3...................................................                      2.9                      3.6                      4.1                      5.3
4...................................................                      2.9                      3.6                      4.1                      5.3
5...................................................                     12.1                     16.5                     19.8                     28.1
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                 Consumer NPV at 7% discount rate added with:
                                                     ---------------------------------------------------------------------------------------------------
                         TSL                           SCC Case $12.0/metric    SCC Case $40.5/metric    SCC Case $62.4/metric     SCC Case $119/metric
                                                             ton CO2 *                ton CO2 *                ton CO2 *                ton CO2 *
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                 Billion 2013$
--------------------------------------------------------------------------------------------------------------------------------------------------------
1...................................................                      0.5                      0.8                      1.0                      1.5
2...................................................                      0.5                      0.8                      1.0                      1.6
3...................................................                      1.2                      1.9                      2.4                      3.6
4...................................................                      1.2                      1.9                      2.4                      3.7
5...................................................                      4.3                      8.7                     12.0                     20.3
--------------------------------------------------------------------------------------------------------------------------------------------------------
* These label values represent the global SCC in 2015, in 2013$. For NOX emissions, each case uses the medium value, which corresponds to $2,684 per
  ton.

    Although adding the value of consumer savings to the values of 
emission reductions provides a valuable perspective, two issues should 
be considered. First, the national operating cost savings are domestic 
U.S. consumer monetary savings that occur as a result of market 
transactions, while the value of CO2 reductions is based on 
a global value. Second, the assessments of operating cost savings and 
the SCC are performed with different methods that use different time 
frames for analysis. The national operating cost savings is measured 
for the lifetime of equipment shipped in 2018-2047. The SCC values, on 
the other hand, reflect the present value of future climate-related 
impacts resulting from the emission of one metric ton of CO2 
in each year. These impacts continue well beyond 2100.

C. Proposed Standards

    To adopt national standards more stringent than the current 
standards for CWAF, DOE must determine that such action would result in 
significant additional conservation of energy and is technologically 
feasible and

[[Page 6223]]

economically justified. (42 U.S.C. 6313(a)(6)(A)(ii)) As discussed 
previously, EPCA provides seven factors to be evaluated in determining 
whether a more-stringent standard for CWAF is economically justified. 
(42 U.S.C. 6313(a)(6)(B)(ii)(I)-(VII))
    For this NOPR, DOE considered the impacts of amended standards for 
CWAF at each TSL, beginning with the maximum technologically feasible 
level, to determine whether that level was economically justified. 
Where the max-tech 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 additional 
amount of energy.
    To aid the reader in understanding the benefits and/or burdens of 
each TSL, tables in this section summarize the quantitative analytical 
results for each TSL, based on the assumptions and methodology 
discussed herein. The efficiency levels contained in each TSL are 
described in section V.A. 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 
subgroups of consumer who may be disproportionately affected by a 
national standard (see section V.B.1.b), and impacts on employment. DOE 
discusses the impacts on direct employment in CWAF manufacturing in 
section V.B.2.b, and discusses the indirect employment impacts in 
section V.B.3.c.
1. Benefits and Burdens of Trial Standard Levels Considered for CWAF
    Table V.19 and Table V.20 summarize the quantitative impacts 
estimated for each TSL for CWAF. The national impacts are measured over 
the lifetime of CWAF purchased in the 30-year period that begins in the 
year of compliance with amended standards (2018-2047). The energy 
savings, emissions reductions, and value of emissions reductions refer 
to full-fuel-cycle results.

          Table V.19--Summary of Analytical Results for Commercial Warm Air Furnaces: National Impacts
----------------------------------------------------------------------------------------------------------------
            Category                   TSL 1           TSL 2           TSL 3           TSL 4           TSL 5
----------------------------------------------------------------------------------------------------------------
                                       National FFC Energy Savings (quads)
----------------------------------------------------------------------------------------------------------------
                                            0.22            0.22            0.52            0.52            3.37
----------------------------------------------------------------------------------------------------------------
                                    NPV of Consumer Benefits (2013$ billion)
----------------------------------------------------------------------------------------------------------------
3% discount rate................             1.1             1.2             2.6             2.7            10.4
7% discount rate................             0.4             0.4             1.0             1.0             2.9
----------------------------------------------------------------------------------------------------------------
                             Cumulative Emissions Reduction (Total FFC Emissions) *
----------------------------------------------------------------------------------------------------------------
CO2 (million metric tons).......            12.0            12.1            27.8            27.9           182.5
SO2 (thousand tons).............             0.9             1.0             2.2             2.2             4.8
NOX (thousand tons).............            28.7            28.9            66.6            66.8           444.1
Hg (tons).......................           0.001           0.001           0.003           0.003           0.005
CH4 (thousand tons).............           137.6           137.8           319.7           319.8          2110.8
N2O (thousand tons).............            0.04            0.04            0.08            0.08            0.47
CH4 (million tons CO2eq**)......             3.4             3.4             8.0             8.0            52.8
N2O (thousand tons CO2eq**).....            10.6            11.2            24.7            25.2           140.7
----------------------------------------------------------------------------------------------------------------
                               Value of Emissions Reduction (Total FFC Emissions)
----------------------------------------------------------------------------------------------------------------
CO2 (2013$ billion) [dagger]....      0.1 to 1.1      0.1 to 1.1      0.2 to 2.6      0.2 to 2.6     1.2 to 17.1
NOX-3% discount rate (2013$                 35.2            35.4            81.7            82.0           550.9
 million).......................
NOX-7% discount rate (2013$                 14.7            14.8            34.1            34.2           234.3
 million).......................
----------------------------------------------------------------------------------------------------------------
* Includes the increase in power sector emissions from higher electricity use at TSL 5.
** CO2eq is the quantity of CO2 that would have the same global warming potential (GWP).
[dagger] Range of the economic value of CO2 reductions is based on estimates of the global benefit of reduced
  CO2 emissions.


 Table V.20--Summary of Analytical Results for Commercial Warm Air Furnaces: Manufacturer and Consumer Impacts*
----------------------------------------------------------------------------------------------------------------
            Category                   TSL 1           TSL 2           TSL 3           TSL 4           TSL 5
----------------------------------------------------------------------------------------------------------------
                                              Manufacturer Impacts
----------------------------------------------------------------------------------------------------------------
Industry NPV (2013$ million)....    64.2 to 67.9    60.1 to 67.5    36.7 to 64.0    31.4 to 63.5  (23.7) to 89.4
Change in Industry NPV (%)             (14.0) to       (19.5) to       (50.8) to       (58.0) to      (131.7) to
 [dagger].......................           (9.0)           (9.6)          (14.3)          (14.9)            19.8
                                                                                                  [dagger][dagge
                                                                                                              r]
----------------------------------------------------------------------------------------------------------------
                                  Commercial Consumer Mean LCC Savings (2013$)
----------------------------------------------------------------------------------------------------------------
Gas-fired Furnaces..............            $186            $186            $426            $426          $1,025
Oil-fired Furnaces..............              NA            $164              NA            $164          $3,278
----------------------------------------------------------------------------------------------------------------
                                     Commercial Consumer Median PBP (years)
----------------------------------------------------------------------------------------------------------------
Gas-fired Furnaces..............             0.6             0.6             0.7             0.7            12.2
Oil-fired Furnaces..............              NA             2.8              NA             2.8             7.5
----------------------------------------------------------------------------------------------------------------
                                 Distribution of Commercial Consumer LCC Impacts
----------------------------------------------------------------------------------------------------------------
                                              Gas-fired Furnaces **
----------------------------------------------------------------------------------------------------------------
Customers with Net Cost (%).....              1%              1%              2%              2%             48%

[[Page 6224]]

 
Customers with Net Benefit (%)..             66%             66%             88%             88%             51%
Customers with No Impact (%)....             33%             33%             10%             10%              1%
----------------------------------------------------------------------------------------------------------------
                                              Oil-fired Furnaces **
----------------------------------------------------------------------------------------------------------------
Customers with Net Cost (%).....              0%              8%              0%              8%             47%
Customers with Net Benefit (%)..              0%             23%              0%             23%             53%
Customers with No Impact (%)....            100%             69%            100%             69%              0%
----------------------------------------------------------------------------------------------------------------
* Weighted by shares of each equipment class in total projected shipments in 2018.
** Rounding may cause some items to not total 100 percent.
[dagger] Parentheses indicate negative values.
[dagger][dagger] At max tech, the standard will likely require commercial furnace manufacturers to make design
  changes to the cooling components of commercial HVAC products and to the chassis that houses the heating and
  cooling components. Since these cooling system changes are triggered by the CWAF standard, they are taken into
  account in the MIA's estimate of conversion costs. The additional expense of updating the commercial cooling
  product contributes to an INPV loss that is greater than 100%.

    First, DOE considered TSL 5, the most efficient level (max-tech), 
which would save an estimated total of 3.37 quads of energy, an amount 
DOE considers significant. TSL 5 has an estimated NPV of commercial 
consumer benefit of $2.9 billion using a 7-percent discount rate, and 
$10.4 billion using a 3-percent discount rate.
    The cumulative emissions reductions at TSL 5 are 182.5 million 
metric tons of CO2, 444.12 thousand tons of NOX, 
4.80 thousand tons of SO2, and 0.005 tons of Hg. The 
estimated monetary value of the CO2 emissions reductions at 
TSL 5 ranges from $1.2 billion to $17.1 billion.
    At TSL 5, the average LCC savings are $1025.2 for gas-fired CWAF 
and $3278.3 for oil-fired CWAF. The median PBP is 12.2 years for gas-
fired CWAF and 7.5 years for oil-fired CWAF. The share of commercial 
consumers experiencing a net LCC benefit is 51 percent for gas-fired 
CWAF and 53 percent for oil-fired CWAF.
    At TSL 5, the projected change in INPV ranges from a decrease of 
$98.3 million to an increase of $14.8 million, depending on the 
manufacturer markup scenario. If the larger decrease is realized, TSL 5 
could result in a net loss of 131.7 percent in INPV to manufacturers of 
covered CWAF.
    Accordingly, the Secretary tentatively concludes that, at TSL 5 for 
CWAF, the benefits of energy savings, positive NPV of total commercial 
consumer benefits, commercial consumer LCC savings, emission 
reductions, and the estimated monetary value of the emissions 
reductions would be outweighed by the very large reduction in industry 
value at TSL 5, as well as the potential for loss of domestic 
manufacturing. Consequently, DOE has concluded that TSL 5 is not 
economically justified.
    Next, DOE considered TSL 4, which would save an estimated total of 
0.52 quads of energy, an amount DOE considers significant. TSL 4 has an 
estimated NPV of commercial consumer benefit of $1.0 billion using a 7-
percent discount rate, and $2.7 billion using a 3-percent discount 
rate.
    The cumulative emissions reductions at TSL 4 are 27.9 million 
metric tons of CO2, 66.84 thousand tons of NOX, 
2.21 thousand tons of SO2, and 0.003 tons of Hg. The 
estimated monetary value of the CO2 emissions reductions at 
TSL 4 ranges from $0.2 billion to $2.6 billion.
    At TSL 4, the average LCC savings are $425.9 for gas-fired CWAF and 
$163.9 for oil-fired CWAF. The median PBP is 0.7 years for gas-fired 
CWAF and 2.8 years for oil-fired CWAF. The share of commercial 
consumers experiencing a net LCC benefit is 88 percent for gas-fired 
CWAF and 23 percent for oil-fired CWAF.
    At TSL 4, projected change in INPV ranges from a decrease of $43.3 
million to a decrease of $11.1 million. If the larger decrease is 
realized, TSL 4 could result in a net loss of 58 percent in INPV to 
manufacturers of covered CWAF.
    After considering the analysis and weighing the benefits and the 
burdens, DOE has tentatively concluded that at TSL 4 for CWAFs, the 
benefits of energy savings, positive NPV of commercial consumer 
benefit, positive impacts on consumers (as indicated by positive 
average LCC savings, favorable PBPs, and the large percentage of 
commercial consumers who would experience LCC benefits), emission 
reductions, and the estimated monetary value of the emissions 
reductions would outweigh the potential reductions in INPV for 
manufacturers. The Secretary of Energy has concluded that TSL 4 would 
save a significant additional amount of energy, is technologically 
feasible and economically justified, and is supported by clear and 
convincing evidence.
    Based on the above considerations, DOE today proposes to adopt the 
energy conservation standards for CWAFs at TSL 4. Table V.21 presents 
the proposed energy conservation standards for CWAFs.

 Table V.21--Proposed Energy Conservation Standards for Commercial Warm
                              Air Furnaces
------------------------------------------------------------------------
                                          Input capacity      Thermal
             Equipment type                   (Btu/h)       efficiency
------------------------------------------------------------------------
Gas-fired Furnaces......................       >=225,000             82%
Oil-fired Furnaces......................       >=225,000             82%
------------------------------------------------------------------------

2. Summary of Benefits and Costs (Annualized) of the Proposed Standards
    The benefits and costs of the proposed standards can also be 
expressed in terms of annualized values. The annualized monetary values 
are the sum of: (1) The annualized national economic value (expressed 
in 2013$) of the benefits from operation of equipment that meets the 
proposed standards (consisting primarily of operating cost savings from 
using less energy, minus increases in equipment purchase costs, which 
is another way of representing consumer NPV), and (2) the annualized 
monetary value of the benefits of emission reductions, including 
CO2 emission reductions.\78\ The value of CO2

[[Page 6225]]

reductions, otherwise known as the Social Cost of Carbon (SCC), is 
calculated using a range of values per metric ton of CO2 
developed by a recent interagency process.
---------------------------------------------------------------------------

    \78\ DOE used a two-step calculation process to convert the 
time-series of costs and benefits into annualized values. First, DOE 
calculated a present value in 2013, the year used for discounting 
the NPV of total customer costs and savings, for the time-series of 
costs and benefits using discount rates of three and seven percent 
for all costs and benefits except for the value of CO2 
reductions. For the latter, DOE used a range of discount rates. From 
the present value, DOE then calculated the fixed annual payment over 
a 30-year period (2018 through 2047) that yields the same present 
value. The fixed annual payment is the annualized value. Although 
DOE calculated annualized values, this does not imply that the time-
series of cost and benefits from which the annualized values were 
determined is a steady stream of payments.
---------------------------------------------------------------------------

    Although combining the values of operating savings and 
CO2 emission reductions provides a useful perspective, two 
issues should be considered. First, the national operating savings are 
domestic U.S. consumer monetary savings that occur as a result of 
market transactions, while the value of CO2 reductions is 
based on a global value. Second, the assessments of operating cost 
savings and CO2 savings are performed with different methods 
that use different time frames for analysis. The national operating 
cost savings is measured for the lifetime of CWAF shipped in 2018 -
2047. The SCC values, on the other hand, reflect the present value of 
some future climate-related impacts resulting from the emission of one 
metric ton of carbon dioxide in each year. These impacts continue well 
beyond 2100.
    Estimates of annualized benefits and costs of the proposed 
standards for CWAF are shown in Table V.22. The results under the 
primary estimate are as follows. Using a 7-percent discount rate for 
benefits and costs other than CO2 reduction, for which DOE 
used a 3-percent discount rate along with the average SCC series that 
uses a 3-percent discount rate, the estimated cost of the proposed CWAF 
standards is $3.51 million per year in increased equipment costs, while 
the estimated benefits are $104 million per year in reduced equipment 
operating costs, $47 million in CO2 reductions, and $3.38 
million in reduced NOX emissions. In this case, the net 
benefit would amount to $151 million per year. Using a 3-percent 
discount rate for all benefits and costs and the average SCC series, 
the estimated cost of the proposed CWAF standards is $3.48 million per 
year in increased equipment costs, while the estimated benefits are 
$152 million per year in reduced equipment operating costs, $47 million 
in CO2 reductions, and $4.57 million in reduced 
NOX emissions. In this case, the net benefit would amount to 
$200 million per year.

    Table V.22--Annualized Benefits and Costs of Proposed Standards (TSL 4) for Commercial Warm Air Furnaces*
----------------------------------------------------------------------------------------------------------------
                                                                           Million 2013 $/year
                                    Discount rate      ---------------------------------------------------------
                                                          Primary estimate      Low estimate      High estimate
----------------------------------------------------------------------------------------------------------------
                                                    Benefits
----------------------------------------------------------------------------------------------------------------
Operating Cost Savings......                       7%                   104                98               111
                                                   3%                   152               143               163
CO2 Reduction Monetized                            5%                    13                13                14
 Value ($12.0/t case)**.....
CO2 Reduction Monetized                            3%                    47                45                48
 Value ($40.5/t case)**.....
CO2 Reduction Monetized                          2.5%                    69                67                72
 Value ($62.4/t case)**.....
CO2 Reduction Monetized                            3%                   145               140               150
 Value ($119/t case)**......
NOX Reduction Monetized                            7%                  3.38              3.28              3.49
 Value (at $2,684/ton)**....
                                                   3%                  4.57              4.41              4.72
    Total Benefits[dagger]..                 7% plus CO2 range   120 to 253        114 to 242        128 to 264
                                                   7%                   154               147               163
                                             3% plus CO2 range   169 to 302        160 to 287        181 to 318
                                                   3%                   203               192               216
----------------------------------------------------------------------------------------------------------------
                                                      Costs
----------------------------------------------------------------------------------------------------------------
Incremental Equipment Costs.                       7%                  3.51              3.48              3.67
                                                   3%                  3.48              3.41              3.68
----------------------------------------------------------------------------------------------------------------
                                               Net Benefits/Costs
----------------------------------------------------------------------------------------------------------------
    Total[dagger]...........                 7% plus CO2 range   117 to 249        111 to 238        124 to 261
                                                   7%                   151               143               159
                                             3% plus CO2 range   166 to 298        156 to 283        177 to 314
                                                   3%                   200               189               212
----------------------------------------------------------------------------------------------------------------
* This table presents the annualized costs and benefits associated with CWAF shipped in 2018-2047. These results
  include benefits to commercial consumers which accrue after 2048 from the equipment purchased in 2018-2047.
  The results account for the incremental variable and fixed costs incurred by manufacturers due to the
  standard, some of which may be incurred in preparation for the rule. The Primary, Low Benefits, and High
  Benefits Estimates utilize projections of energy prices from the AEO2013 Reference case, Low Economic Growth
  case, and High Economic Growth case, respectively. Incremental equipment costs account for equipment price
  trends and include, beyond the reference scenario, a low price decline scenario used in the Low Benefits
  Estimate and a high price decline scenario used in the High Benefits Estimates.
** The interagency group selected four sets of SCC values for use in regulatory analyses. Three sets of values
  are based on the average SCC from the three integrated assessment models, at discount rates of 2.5, 3, and 5
  percent. The fourth set, which represents the 95th percentile SCC estimate across all three models at a 3-
  percent discount rate, is included to represent higher-than-expected impacts from temperature change further
  out in the tails of the SCC distribution. The values in parentheses represent the SCC in 2015. The SCC time
  series incorporate an escalation factor. The value for NOX is the average of the low and high values used in
  DOE's analysis.
[dagger] Total benefits for both the 3-percent and 7-percent cases are derived using the series corresponding to
  average SCC with 3-percent discount rate. In the rows labeled ``7% plus CO2 range'' and ``3% plus CO2 range,''
  the operating cost and NOX benefits are calculated using the labeled discount rate, and those values are added
  to the full range of CO2 values.


[[Page 6226]]

VI. Procedural Issues and Regulatory Review

A. Review Under Executive Orders 12866 and 13563

    Section 1(b)(1) of Executive Order 12866, ``Regulatory Planning and 
Review,'' 58 FR 51735 (Oct. 4, 1993), requires each agency to identify 
the problem that it intends to address, including, where applicable, 
the failures of private markets or public institutions that warrant new 
agency action, as well as to assess the significance of that problem. 
The problems that the proposed standards address are as follows:

    (1) Insufficient information and the high costs of gathering and 
analyzing relevant information leads some consumers to miss 
opportunities to make cost-effective investments in energy 
efficiency.
    (2) In some cases the benefits of more efficient equipment are 
not realized due to misaligned incentives between purchasers and 
users. An example of such a case is when the equipment purchase 
decision is made by a building contractor or building owner who does 
not pay the energy costs of operating the equipment.
    (3) There are external benefits resulting from improved energy 
efficiency of CWAF that are not captured by the users of such 
equipment. These benefits include externalities related to public 
health, environmental protection and national security that are not 
reflected in energy prices, such as reduced emissions of air 
pollutants and greenhouse gases that impact human health and global 
warming.

    In addition, DOE has determined that this regulatory action is an 
``economically significant regulatory action'' under section 3(f)(1) of 
Executive Order 12866. Accordingly, section 6(a)(3) of the Executive 
Order requires that DOE prepare a regulatory impact analysis (RIA) on 
the rule being proposed and that the Office of Information and 
Regulatory Affairs (OIRA) in the Office of Management and Budget (OMB) 
review the rule. DOE presented to OIRA for review the draft rule and 
other documents prepared for this rulemaking, including the RIA, and 
has included these documents in the rulemaking record. The assessments 
prepared pursuant to Executive Order 12866 can be found in the 
technical support document for this rulemaking.
    DOE has also reviewed this proposed regulation pursuant to 
Executive Order 13563, issued on January 18, 2011. 76 FR 3281 (Jan. 21, 
2011). Executive Order 13563 is supplemental to and explicitly 
reaffirms the principles, structures, and definitions governing 
regulatory review established in Executive Order 12866. To the extent 
permitted by law, agencies are required by Executive Order 13563 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 Executive Order 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 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, 
DOE believes that today's NOPR is consistent with these principles, 
including the requirement that, to the extent permitted by law, 
benefits justify costs and that net benefits are maximized.

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) 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 Executive Order 13272, ``Proper Consideration of Small 
Entities in Agency Rulemaking,'' 67 FR 53461 (August 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 Web site (http://energy.gov/gc/office-general-counsel). DOE 
has prepared the following IRFA for the products that are the subject 
of this rulemaking.
    For manufacturers of CWAF, the Small Business Administration (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. 65 FR 30836, 
30848 (May 15, 2000), as amended at 65 FR 53533, 53544 (Sept. 5, 2000) 
and codified at 13 CFR part 121. The size standards are listed by North 
American Industry Classification System (NAICS) code and industry 
description and are available at http://www.sba.gov/category/navigation-structure/contracting/contracting-officials/small-business-size-standards. Manufacturing of CWAF is classified under NAICS 333415, 
``Air-Conditioning and Warm Air Heating Equipment and Commercial and 
Industrial Refrigeration Equipment Manufacturing.'' The SBA sets a 
threshold of 750 employees or less for an entity to be considered as a 
small business for this category.
1. Description and Estimated Number of Small Entities Regulated
    DOE reviewed the proposed energy conservation standards for CWAF 
considered in this notice of proposed rulemaking under the provisions 
of the Regulatory Flexibility Act and the procedures and policies 
published on February 19, 2003. 68 FR 7990. To better assess the 
potential impacts of this rulemaking on small entities, DOE conducted a 
more focused inquiry of the companies that could be small business 
manufacturers of equipment covered by this rulemaking. DOE conducted a 
market survey using available public information to identify potential 
small manufacturers. DOE's research involved industry trade association 
membership directories (including AHRI \79\), individual company Web 
sites, and market research tools (e.g., Hoovers reports \80\) to create 
a list of companies that manufacture or sell the CWAF equipment covered 
by this rulemaking. DOE also asked industry representatives if they 
were aware of any other small

[[Page 6227]]

manufacturers during manufacturer interviews. DOE reviewed publicly-
available data and contacted companies on its list, as necessary, to 
determine whether they met the SBA's definition of a small business 
manufacturer of covered CWAF equipment. DOE screened out companies that 
do not offer equipment covered by this rulemaking, do not meet the 
definition of a ``small business,'' or are foreign-owned and operated. 
DOE was able to identify two manufacturers that meet the SBA's 
definition of a ``small business'' out of the 13 companies that 
manufacture products covered by this rulemaking.
---------------------------------------------------------------------------

    \79\ Based on listings in the AHRI directory accessed on August 
2, 2013 (Available at: https://www.ahridirectory.org/ahridirectory/pages/home.aspx).
    \80\ Hoovers [verbarlm] Company Information [verbarlm] Industry 
Information [verbarlm] Lists, D&B (2013) (Available at: http://www.hoovers.com/) (Last accessed April 3, 2013).
---------------------------------------------------------------------------

    Before issuing this NOPR, DOE attempted to contact all the small 
business manufacturers of CWAF it had identified. None of the small 
businesses consented to formal interviews. DOE also attempted to obtain 
information about small business impacts while interviewing large 
manufacturers.
2. Description and Estimate of Compliance Requirements
    DOE identified one small gas-fired CWAF manufacturer and one small 
oil-fired CWAF manufacturer. The small gas-fired CWAF manufacturer 
accounts for 17 of the 250 \81\ gas-fired CWAF listings in the AHRI 
Directory, or approximately 7 percent of the listings. This small 
manufacturer offers product exclusively at 80-percent TE, and at the 
proposed level of TSL 4, would need to update its equipment offerings 
to meet a standard of 82-percent TE. However, this position is not 
unique. There are also some large gas-fired CWAF manufacturers would 
that would need to update all equipment offerings to meet the proposed 
standard. From a design perspective, DOE believes that most gas-fired 
equipment lines on the market today can be upgraded to achieve the 
proposed standard with increases in heat exchange surface area. 
However, based on feedback used in the Top-Down conversion costs 
analysis (see chapter 12 of the NOPR TSD), industry average conversion 
costs could reach $4.4 million per gas-fired CWAF manufacturer.
---------------------------------------------------------------------------

    \81\ The AHRI directory lists approximately 1,000 units. Many of 
these units are from the same model line, share the same chassis, 
and have the same level of performance, but have different heating 
capacities or installed product options. DOE consolidated the AHRI 
listing of CWAF such that all units from the same model line and 
chassis are listed together as a single unit.

  Table VI.1--Average Conversion Cost per Gas-Fired CWAF Manufacturer*
------------------------------------------------------------------------
                                                 Bottom-up     Top-down
                                                   model        model
                                                (million $)  (million $)
------------------------------------------------------------------------
TSL 1.........................................          1.0          1.3
TSL 2.........................................          1.0          1.3
TSL 3.........................................          1.6          4.4
TSL 4.........................................          1.6          4.4
TSL 5.........................................          7.2         11.3
------------------------------------------------------------------------
* Additional information about industry conversion costs and the two
  estimation models can be found in section IV.J.2.B of this Notice.

    Because this is a relatively low sales volume market, and because 
the industry as a whole generally produces equipment at the baseline, 
DOE believes the average impacts will be similar for large and small 
business manufacturers. DOE was unable to identify any publicly 
available information that would lead to a conclusion that small 
manufacturers are differentially impacted, and as noted above, requests 
to conduct interviews with small business manufacturers were declined. 
Therefore, DOE assumed that small business manufacturers would face 
similar conversion costs as larger businesses. However, the small gas-
fired CWAF manufacturer may need to allocate a greater portion of 
technical resources or may need to access outside capital to support 
the transition to the proposed standard.
    The small oil-fired CWAF manufacturer accounts for 11 of the 16 
oil-fired CWAF listings in the AHRI Directory. The small oil-fired 
furnace manufacturer produces some of the most efficient products on 
the market at 82-percent TE. It would be unlikely to be at a 
technological disadvantage relative to its competitors at the proposed 
TSL. It is possible the small manufacturer would have a competitive 
advantage, given its technological lead and experience in the niche 
market of high-efficiency commercial oil-fired warm air furnaces.

  Table VI.2--Average Conversion Cost per Oil-Fired CWAF Manufacturer*
------------------------------------------------------------------------
                                                 Bottom-up     Top-down
                                                   model        model
                                                (million $)  (million $)
------------------------------------------------------------------------
TSL 1.........................................          0.0          0.0
TSL 2.........................................          0.2          2.2
TSL 3.........................................          0.0          0.0
TSL 4.........................................          0.2          2.2
TSL 5.........................................          0.9          5.5
------------------------------------------------------------------------
* Additional information about industry conversion costs and the two
  estimation models can be found in section IV.J.2.B of this Notice.

    An amended energy conservation standard is likely to necessitate 
conversion investment by all manufacturers to bring products into 
compliance. Manufacturers may choose to access outside capital to help 
fund the upfront, one-time costs to bring products into compliance. 
Small manufacturers may have greater difficulty securing outside 
capital \82\ and, as a result, may face higher costs of capital than 
large competitors.
---------------------------------------------------------------------------

    \82\ Simon, Ruth, and Angus Loten. ``Small-Business Lending Is 
Slow to Recover.'' Wall Street Journal, August 14, 2014. Accessed 
August 2014. http://online.wsj.com/articles/small-business-lending-is-slow-to-recover-1408329562.
---------------------------------------------------------------------------

    As noted above, none of the small businesses consented to formal 
interviews, so information regarding the impacts of this proposed 
standard for small business manufacturers is limited. DOE seeks further 
information and data regarding the sales volume and annual revenues for 
small businesses so the agency can be better informed concerning the 
potential impacts to small business manufacturers of the proposed 
energy conservation standards, and would consider any such additional 
information when formulating and selecting TSLs for the final rule.
3. Duplication, Overlap, and Conflict With Other Rules and Regulations
    DOE is not aware of any rules or regulations that duplicate, 
overlap, or conflict with the proposed rule.
4. Significant Alternatives to the Rule
    The discussion above analyzes impacts on small businesses that 
would result from DOE's proposed rule. In addition to the other TSLs 
being considered, the proposed rulemaking TSD includes a regulatory 
impact analysis (RIA). For CWAF, the RIA discusses the following policy 
alternatives: (1) No change in standard; (2) consumer rebates; (3) 
consumer tax credits; (4) manufacturer tax credits; (5) voluntary 
energy efficiency targets; and (6) bulk government purchases. While 
these alternatives may mitigate to some varying extent the economic 
impacts on small entities compared to the standards, DOE did not 
consider the alternatives further because they are either not feasible 
to implement without authority and funding from Congress, or are 
expected to result in energy savings that are significantly smaller 
than those that would be expected to result from adoption of the 
proposed standard levels. In reviewing alternatives that would reduce 
burden on small business manufacturers, DOE analyzed a case in which 
the voluntary programs targeted

[[Page 6228]]

efficiencies corresponding to TSL 4. DOE also examined standards at 
lower efficiency levels, TSL 3, TSL 2 and TSL 1. (See section V.C of 
this NOPR for a description of benefits and burdens at each TSL and 
discussion of DOE's TSL selection process.)
    TSL 3 achieves a slightly lower level of energy savings as TSL 4; 
and it would not significantly reduce burden on small business 
manufacturers. TSL 3 would reduce the required efficiency of oil-fired 
CWAF as compared to TSL 4, while leaving the standard for gas-fired 
CWAF the same. Thus, there would be no reduction of burden for the 
small business manufacturer of gas-fired CWAF. TSL 3 would marginally 
reduce the burden for the small business manufacturer of oil-fired 
CWAF, but as noted previously the majority of the small oil-fired 
furnace manufacturer's products already meet TSL 4. The small oil-fired 
manufacturer may have a competitive advantage at TSL 4, given its 
technological lead and experience in the niche market of high-
efficiency commercial oil-fired warm air furnaces. TSL 2 and TSL 1 both 
achieve savings that would be less than half of that achieved by TSL 4. 
Voluntary programs at these levels achieve only a fraction of the 
savings achieved by standards and would provide even lower savings 
benefits. To achieve substantial reductions in small business impacts 
would force the standard down to TSL 2 levels, at the expense of 
substantial energy savings and NPV benefits, which would be 
inconsistent with DOE's statutory mandate to maximize the improvement 
in energy efficiency that the Secretary determines is technologically 
feasible and economically justified. DOE believes that establishing 
standards at TSL 4 provides the optimum balance between energy savings 
benefits and impacts on small businesses. DOE notes that it did not 
consider an alternative compliance date for the entire industry 
affected by this rulemaking. DOE is constrained by the three-year lead 
time required by statute (42 U.S.C. 6313(a)(6)(D)). However, certain 
compliance date alternatives may be available to individual 
manufacturers, as discussed below. Accordingly, DOE is declining to 
adopt any of these alternatives and is proposing the standards set 
forth in this rulemaking. (See chapter 17 of the NOPR TSD for further 
detail on the policy alternatives DOE considered.) The TSD considers 
regulatory alternatives that would potentially reduce the burden on the 
industry as a whole, including small businesses and the agency requests 
comment on this issue.
    Additional compliance flexibilities may be available through other 
means. For example, individual manufacturers may petition for a waiver 
of the applicable test procedure. (See 10 CFR 431.401.) Further, EPCA 
provides that a manufacturer whose annual gross revenue from all of its 
operations does not exceed $8,000,000 may apply for an exemption from 
all or part of an energy conservation standard for a period not longer 
than 24 months after the effective date of a final rule establishing 
the standard. Additionally, Section 504 of the Department of Energy 
Organization Act, 42 U.S.C. 7194, provides authority for the Secretary 
to adjust a rule issued under EPCA in order to prevent ``special 
hardship, inequity, or unfair distribution of burdens'' that may be 
imposed on that manufacturer as a result of such rule. Manufacturers 
should refer to 10 CFR part 430, subpart E, and part 1003 for 
additional details.

C. Review Under the Paperwork Reduction Act of 1995

    Manufacturers of CWAF must certify to DOE that their equipment 
complies with any applicable energy conservation standards. In 
certifying compliance, manufacturers must test their equipment 
according to the applicable DOE test procedures for CWAF, including any 
amendments adopted for those test procedures on the date that 
compliance is required. DOE has established regulations for the 
certification and recordkeeping requirements for all covered consumer 
products and commercial equipment, including CWAF. 76 FR 12422 (March 
7, 2011). 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 20 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 (NEPA) of 1969, 
DOE has determined that the proposed rule fits within the category of 
actions included in Categorical Exclusion (CX) B5.1 and otherwise meets 
the requirements for application of a CX. See 10 CFR part 1021, App. B, 
B5.1(b); 1021.410(b) and Appendix B, B(1)-(5). The proposed rule fits 
within the category of actions under CX B5.1 because it is a rulemaking 
that establishes energy conservation standards for consumer products or 
industrial equipment, and for which none of the exceptions identified 
in CX B5.1(b) apply. Therefore, DOE has made a CX determination for 
this rulemaking, and DOE does not need to prepare an Environmental 
Assessment or Environmental Impact Statement for this proposed rule. 
DOE's CX determination for this proposed rule is available at http://cxnepa.energy.gov/.

E. Review Under Executive Order 13132

    Executive Order 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 
proposed rule and has tentatively 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 prescribes Federal preemption of State regulations as to 
energy conservation for the products that are the subject of the 
proposed 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) No

[[Page 6229]]

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 Executive Order 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; and (3) 
provide a clear legal standard for affected conduct rather than a 
general standard; and (4) promote simplification and burden reduction. 
61 FR 4729 (Feb. 7, 1996). Regarding the review required by section 
3(a), section 3(b) of Executive Order 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 
Executive Order 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 proposed rule meets the 
relevant standards of Executive Order 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. Pub. L. 104-4, sec. 201 (codified at 2 U.S.C. 1531). 
For a proposed 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)) The 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 proposed ``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 
http://energy.gov/gc/office-general-counsel.
    Although today's proposed rule, which proposes amended energy 
conservation standards for CWAF, does not contain a Federal 
intergovernmental mandate, it may require annual expenditures of $100 
million or more by the private sector. Specifically, the proposed rule 
would likely result in a final rule that could require expenditures of 
$100 million or more. Such expenditures may include: (1) investment in 
research and development and in capital expenditures by CWAF 
manufacturers in the years between the final rule and the compliance 
date for the amended standards, and (2) incremental additional 
expenditures by commercial consumers to purchase higher-efficiency 
CWAF, 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 proposed 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 
SUPPLEMENTARY INFORMATION section of the NOPR and the ``Regulatory 
Impact Analysis'' section of the TSD for this proposed rule respond to 
those requirements.
    Under section 205 of UMRA, the Department 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 proposed 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. 6313(a), 
this proposed rule would establish amended energy conservation 
standards for CWAF that are designed to achieve the maximum improvement 
in energy efficiency that DOE has determined to be both technologically 
feasible and economically justified. A full discussion of the 
alternatives considered by DOE is presented in the ``Regulatory Impact 
Analysis'' section of the TSD for today's proposed 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 rule that may affect family well-being. 
This rule would not have any impact on the autonomy or integrity of the 
family as an institution. Accordingly, DOE has concluded that it is not 
necessary to prepare a Family Policymaking Assessment.

I. Review Under Executive Order 12630

    Pursuant to Executive Order 12630, ``Governmental Actions and 
Interference with Constitutionally Protected Property Rights,'' 53 FR 
8859 (March 15, 1988), DOE has determined that this proposed 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 
(Feb. 22, 2002), and DOE's guidelines were published at 67 FR 62446 
(Oct. 7, 2002). DOE has reviewed the NOPR 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

    Executive Order 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 proposed significant 
energy action. A ``significant energy action'' is defined as any action 
by an agency that promulgates or is expected to lead to

[[Page 6230]]

promulgation of a final rule, and that: (1) is a significant regulatory 
action under Executive Order 12866, or any successor order; and (2) is 
likely to have a significant adverse effect on the supply, 
distribution, or use of energy, or (3) is designated by the 
Administrator of OIRA as a significant energy action. For any proposed 
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 tentatively concluded that today's regulatory action, which 
sets forth proposed energy conservation standards for CWAF, is not a 
significant energy action because the proposed 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 the proposed rule.

L. Review Under the Information Quality Bulletin for Peer Review

    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.'' Id. at 2667.
    In response to OMB's Bulletin, DOE conducted formal in-progress 
peer reviews of the energy conservation standards development process 
and analyses and has prepared a Peer Review Report pertaining to the 
energy conservation standards rulemaking analyses. 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. The ``Energy Conservation Standards 
Rulemaking Peer Review Report'' dated February 2007 has been 
disseminated and is available at the following Web site: 
www1.eere.energy.gov/buildings/appliance_standards/peer_review.html.

VII. Public Participation

A. Attendance at the Public Meeting

    The time, date, and location of the public meeting are listed in 
the DATES and ADDRESSES sections at the beginning of this notice. If 
you plan to attend the public meeting, please notify Ms. Brenda Edwards 
at (202) 586-2945 or [email protected].
    All participants will undergo security processing upon building 
entry. Any participant with a laptop computer or similar device (e.g., 
tablets), must undergo additional screening. Note that any foreign 
national who requests to participate in the public meeting is subject 
to advance security screening prior to the date of the public meeting, 
and such persons should contact Ms. Brenda Edwards as soon as possible 
at (202) 586-2945 to commence the necessary procedures.
    Due to the REAL ID Act implemented by the Department of Homeland 
Security (DHS), there have been recent changes regarding identification 
(ID) requirements for individuals wishing to enter Federal buildings 
from specific States and U.S. territories. As a result, driver's 
licenses from the following States or territory will not be accepted 
for building entry, and instead, one of the alternate forms of ID 
listed below will be required.
    DHS has determined that regular driver's licenses (and ID cards) 
from the following jurisdictions are not acceptable for entry into DOE 
facilities: Alaska, American Samoa, Arizona, Louisiana, Maine, 
Massachusetts, Minnesota, New York, Oklahoma, and Washington.
    Acceptable alternate forms of Photo-ID include: U.S. Passport or 
Passport Card; an Enhanced Driver's License or Enhanced ID-Card issued 
by the States of Minnesota, New York or Washington (Enhanced licenses 
issued by these States are clearly marked Enhanced or Enhanced Driver's 
License); a military ID or other Federal government-issued Photo-ID 
card.
    In addition, you can attend the public meeting via webinar. Webinar 
registration information, participant instructions, and information 
about the capabilities available to webinar participants will be 
published on DOE's Web site at: http://www1.eere.energy.gov/buildings/appliance_standards/rulemaking.aspx/ruleid/70. Participants are 
responsible for ensuring their systems are compatible with the webinar 
software.

B. Procedure for Submitting Requests To Speak and Prepared General 
Statements for Distribution

    Any person who has an interest in the topics addressed in this 
notice, or who is representative of a group or class of persons that 
has an interest in these issues, may request an opportunity to make an 
oral presentation at the public meeting. Such persons may hand-deliver 
requests to speak to the address shown in the ADDRESSES section at the 
beginning of this notice between 9:00 a.m. and 4:00 p.m., Monday 
through Friday, except Federal holidays. Requests may also be sent by 
mail or email to: Ms. Brenda Edwards, U.S. Department of Energy, 
Building Technologies Program, Mailstop EE-2J, 1000 Independence Avenue 
SW., Washington, DC 20585-0121, or [email protected]. Persons 
who wish to speak should include with their request a computer diskette 
or CD-ROM in WordPerfect, Microsoft Word, PDF, or text (ASCII) file 
format that briefly describes the nature of their interest in this 
rulemaking and the topics they wish to discuss. Such persons should 
also provide a daytime telephone number where they can be reached.
    DOE requests persons scheduled to make an oral presentation to 
submit an advance copy of their statements at least one week before the 
public meeting. DOE may permit persons who cannot supply an advance 
copy of their statement to participate, if those persons have made 
advance alternative arrangements with the Building Technologies 
Program. As necessary, requests to give an oral presentation should ask 
for such alternative arrangements. DOE prefers to receive requests and 
advance copies via email. Any person who has plans to present a 
prepared general statement may request that copies of his or her 
statement be made available at the public meeting.

C. Conduct of the Public Meeting

    DOE will designate a DOE official to preside at the public meeting 
and may also use a professional facilitator to aid discussion. The 
meeting will not be a judicial or evidentiary-type public hearing, but 
DOE will conduct it in accordance with section 336 of EPCA (42 U.S.C. 
6306). A court reporter will be present to record the proceedings and

[[Page 6231]]

prepare a transcript. DOE reserves the right to schedule the order of 
presentations and to establish the procedures governing the conduct of 
the public meeting. There shall not be discussion of proprietary 
information, costs or prices, market share, or other commercial matters 
regulated by U.S. anti-trust laws. After the public meeting, interested 
parties may submit further comments on the proceedings, as well as on 
any aspect of the rulemaking, until the end of the comment period.
    The public meeting will be conducted in an informal, conference 
style. DOE will present summaries of comments received before the 
public meeting, allow time for prepared general statements by 
participants, and encourage all interested parties to share their views 
on issues affecting this rulemaking. Each participant will be allowed 
to make a general statement (within time limits determined by DOE), 
before the discussion of specific topics. DOE will allow, as time 
permits, other participants to comment briefly on any general 
statements.
    At the end of all prepared statements on a topic, DOE will permit 
participants to clarify their statements briefly and comment on 
statements made by others. Participants should be prepared to answer 
questions by DOE and by other participants concerning these issues. DOE 
representatives may also ask questions of participants concerning other 
matters relevant to this rulemaking. The official conducting the public 
meeting will accept additional comments or questions from those 
attending, as time permits. The presiding official will announce any 
further procedural rules or modification of the above procedures that 
may be needed for the proper conduct of the public meeting.
    A transcript of the public meeting will be included in the docket, 
which can be viewed as described in the Docket section at the beginning 
of this notice and will be accessible on the DOE Web site. In addition, 
any person may buy a copy of the transcript from the transcribing 
reporter.

D. Submission of Comments

    DOE will accept comments, data, and information regarding this 
proposed rule before or after the public meeting, but no later than the 
date provided in the DATES section at the beginning of this proposed 
rule. Interested parties may submit comments, data, and other 
information using any of the methods described in the ADDRESSES section 
at the beginning of this notice.
    Submitting comments via www.regulations.gov. The 
www.regulations.gov Web page will require you to provide your name and 
contact information. Your contact information will be viewable to DOE 
Building Technologies staff only. Your contact information will not be 
publicly viewable except for your first and last names, organization 
name (if any), and submitter representative name (if any). If your 
comment is not processed properly because of technical difficulties, 
DOE will use this information to contact you. If DOE cannot read your 
comment due to technical difficulties and cannot contact you for 
clarification, DOE may not be able to consider your comment.
    However, your contact information will be publicly viewable if you 
include it in the comment itself or in any documents attached to your 
comment. Any information that you do not want to be publicly viewable 
should not be included in your comment, nor in any document attached to 
your comment. Otherwise, persons viewing comments will see only first 
and last names, organization names, correspondence containing comments, 
and any documents submitted with the comments.
    Do not submit to www.regulations.gov information for which 
disclosure is restricted by statute, such as trade secrets and 
commercial or financial information (hereinafter referred to as 
Confidential Business Information (CBI)). Comments submitted through 
http://www.regulations.gov cannot be claimed as CBI. Comments received 
through the Web site will waive any CBI claims for the information 
submitted. For information on submitting CBI, see the Confidential 
Business Information section below.
    DOE processes submissions made through www.regulations.gov before 
posting. Normally, comments will be posted within a few days of being 
submitted. However, if large volumes of comments are being processed 
simultaneously, your comment may not be viewable for up to several 
weeks. Please keep the comment tracking number that www.regulations.gov 
provides after you have successfully uploaded your comment.
    Submitting comments via email, hand delivery/courier, or mail. 
Comments and documents submitted via email, hand delivery, or mail also 
will be posted to www.regulations.gov. If you do not want your personal 
contact information to be publicly viewable, do not include it in your 
comment or any accompanying documents. Instead, provide your contact 
information in a cover letter. Include your first and last names, email 
address, telephone number, and optional mailing address. The cover 
letter will not be publicly viewable as long as it does not include any 
comments
    Include contact information each time you submit comments, data, 
documents, and other information to DOE. If you submit via mail or hand 
delivery/courier, please provide all items on a CD, if feasible, in 
which case it is not necessary to submit printed copies. No facsimiles 
(faxes) will be accepted.
    Comments, data, and other information submitted to DOE 
electronically should be provided in PDF (preferred), Microsoft Word or 
Excel, WordPerfect, or text (ASCII) file format. Provide documents that 
are not secured, that are written in English, and that are free of any 
defects or viruses. Documents should not contain special characters or 
any form of encryption and, if possible, they should carry the 
electronic signature of the author.
    Campaign form letters. Please submit campaign form letters by the 
originating organization in batches of between 50 to 500 form letters 
per PDF or as one form letter with a list of supporters' names compiled 
into one or more PDFs. This reduces comment processing and posting 
time.
    Confidential Business Information. Pursuant to 10 CFR 1004.11, any 
person submitting information that he or she believes to be 
confidential and exempt by law from public disclosure should submit via 
email, postal mail, or hand delivery/courier two well-marked copies: 
one copy of the document marked ``confidential'' including all the 
information believed to be confidential, and one copy of the document 
marked ``non-confidential'' with the information believed to be 
confidential deleted. Submit these documents via email or on a CD, if 
feasible. DOE will make its own determination about the confidential 
status of the information and treat it according to its determination.
    Factors of interest to DOE when evaluating requests to treat 
submitted information as confidential include: (1) A description of the 
items; (2) whether and why such items are customarily treated as 
confidential within the industry; (3) whether the information is 
generally known by or available from other sources; (4) whether the 
information has previously been made available to others without 
obligation concerning its confidentiality; (5) an explanation of the 
competitive injury to the submitting person which would result from 
public disclosure; (6) when such information might lose its 
confidential character due to the passage of time; and (7) why 
disclosure

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of the information would be contrary to the public interest.
    It is DOE's policy that all comments may be included in the public 
docket, without change and as received, including any personal 
information provided in the comments (except information deemed to be 
exempt from public disclosure).

E. Issues on Which DOE Seeks Comment

    Although DOE welcomes comments on any aspect of this proposal, DOE 
is particularly interested in receiving comments and views of 
interested parties concerning the following issues:
    1. The use of proprietary designs and patented technologies in 
CWAF, and whether all manufacturers would be able to achieve the 
proposed levels through the use of non-proprietary designs. (See 
section III.B.1 and chapter 3 of the NOPR TSD.)
    2. The proposed scope of coverage and equipment classes for this 
rulemaking. In particular DOE seeks comment on whether there is a 
need for separate equipment classes for units designed to be 
installed indoors (i.e., ``non-weatherized'' units) and units 
designed to be installed outdoors (i.e., ``weatherized'' units) due 
to the potential need to manage acidic condensate and the potential 
for condensate freezing after exiting the furnace. (See section 
IV.A.2 and chapter 3 of the NOPR TSD.)
    3. The technologies identified in this rulemaking, as well as 
the technologies which were primarily considered as the methods for 
increasing thermal efficiency of commercial warm air furnaces. (See 
section IV.A.3 and chapters 3 and 4 of the NOPR TSD.)
    4. The potential for lessening of product utility for CWAF 
meeting the proposed standards and whether the proposed standards 
would likely result in the unavailability in the United States of 
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 . (See section II.A and chapter 3 of the NOPR TSD.)
    5. The efficiency levels analyzed for gas-fired and oil-fired 
commercial warm air furnaces. In particular, DOE is interested in 
the feasibility of the max-tech efficiency levels, as well as the 
ability of non-condensing technologies to meet the 82 percent 
thermal efficiency level for gas-fired commercial furnaces. DOE also 
seeks comment on whether an 82 percent thermal efficiency standard 
would shift production to condensing technology if manufacturers, 
for example, would need to design their equipment to a level 
slightly higher than the DOE standard due to the margin of error 
associated with the test methodology. In addition, DOE is interested 
in whether the accuracy of the results from the test method would 
support measuring thermal efficiencies to the tenth decimal place 
such that DOE could consider 81.5 percent or some other fraction as 
a potential standard level as opposed to rounding the standard to 
the nearest whole number. (See section IV.C.2.b and chapter 5 of the 
NOPR TSD.)
    6. The applicability of the teardown units at 250,000 Btu/h and 
400,000 Btu/h input capacities to represent the range of potential 
input capacities on the market. (See section IV.C.1 and chapter 5 of 
the NOPR TSD.)
    7. The incremental manufacturing costs above the baseline cost 
at the efficiency levels considered in the engineering analysis, 
which DOE estimates to be $10 for gas-fired CWAFs and $24 for oil-
fired CWAFs at the proposed standard level. (See section IV.C.5 and 
chapter 5 of the NOPR TSD.)
    8. The approach used to estimate the trend for future CWAF 
consumer prices. (See section IV.F.1 and chapter 8 of the NOPR TSD.)
    9. The approach of using CBECS and RECS data for determining the 
energy consumption of CWAF in residential and commercial buildings. 
(See section IV.E and chapter 7 of the NOPR TSD.)
    10. The analytical methodology to estimate the annual energy use 
for CWAF. (See section IV.E and chapter 7 of the NOPR TSD.)
    11. The approach and data sources used for assessing changes in 
installation costs for more-efficient CWAF. (See section IV.F.1 and 
chapter 8 of the NOPR TSD.)
    12. The methodology and data sources used for assessing changes 
in maintenance and repair costs for more-efficient CWAF. (See 
section IV.F.2.c and chapter 8 of the NOPR TSD.)
    13. The approach used to determine the lifetimes for CWAF and 
whether the lifetimes assumed in the analysis are reflective of CWAF 
equipment covered by this rule. In addition, the agency is seeking 
comment on whether the energy efficiency standards would be expected 
to affect the lifetime of the products covered by the proposed 
standards. (See section IV.F.2.d and chapter 8 of the NOPR TSD.)
    14. The potential for a rebound effect associated with higher 
efficiency standards for the covered furnaces in both commercial and 
residential installations. (See section IV.F.2.d and chapter 8 of 
the NOPR TSD.)
    15. The appropriate base case distribution of energy 
efficiencies for CWAF in 2018 (compliance year of the standard) in 
the absence of amended energy conservation standards. (See section 
IV.F.2.d and chapter 8 of the NOPR TSD.)
    16. DOE's methodology and data sources used for projecting the 
future shipments of CWAF in the absence of amended energy 
conservation standards. Specifically, DOE is interested in the 
historical data from the past 10 years for CWAF. (See section 
IV.F.2.d and chapter 9 of the NOPR TSD.)
    17. The potential impacts of amended standards on product 
shipments, including impacts related to equipment switching. (See 
section IV.F.2.d and chapter 9 of the NOPR TSD.)
    18. The methodology used to determine long-term changes in CWAF 
energy efficiency independent of amending energy conservation 
standards. (See section IV.H and chapter 10 of the NOPR TSD.)
    19. Consumer subgroups that should be considered in this 
rulemaking. (See section IV.I and chapter 11 of the NOPR TSD.)
    20. The approach for conducting the emissions analysis for CWAF. 
(See section IV.K and chapter 13 of the NOPR TSD.)
    21. DOE's approach for estimating monetary benefits associated 
with emissions reductions, including the SCC values used. (See 
section IV.L and chapter 14 of the NOPR TSD.)
    22. Impacts on small business manufacturers from the proposed 
standard. In particular, DOE seeks further information and data 
regarding the sales volume and annual revenues for small businesses 
so the agency can be better informed concerning the potential 
impacts to small business manufacturers of the proposed energy 
conservation standards, and would consider any such additional 
information when formulating and selecting TSLs for the final rule 
and whether any feasible compliance flexibilities that the agency 
may consider. (See section VI.B and chapter 12 of the NOPR TSD.)

VIII. Approval of the Office of the Secretary

    The Secretary of Energy has approved publication of this notice of 
proposed rulemaking.

List of Subjects in 10 CFR Part 431

    Administrative practice and procedure, Confidential business 
information, Energy conservation, Reporting and recordkeeping 
requirements.

    Issued in Washington, DC, on January 16, 2015.
Michael Carr,
Principal Deputy Assistant Secretary, Energy Efficiency and Renewable 
Energy.

    For the reasons set forth in the preamble, DOE proposes to amend 
part 431 of Chapter II, Subchapter D, of Title 10 of the Code of 
Federal Regulations, as set forth below:

PART 431--ENERGY EFFICIENCY PROGRAM FOR CERTAIN COMMERCIAL AND 
INDUSTRIAL EQUIPMENT

0
1. The authority citation for part 431 continues to read as follows:

    Authority:  42 U.S.C. 6291-6317.

0
2. Section 431.77 is revised to read as follows:


Sec.  431.77  Energy conservation standards and their effective dates.

    (a) Gas-fired Commercial Warm Air Furnaces. Each gas-fired 
commercial warm air furnace must meet the following energy efficiency 
standard levels:
    (1) For gas-fired commercial warm air furnaces manufactured on and 
after January 1, 1994, and before [date 3 years after publication of 
the energy conservation standards final rule], the

[[Page 6233]]

thermal efficiency at the maximum rated capacity (rated maximum input) 
must be not less than 80 percent; and
    (2) For gas-fired commercial warm air furnaces manufactured on and 
after [date 3 years after publication of the energy conservation 
standards final rule], the thermal efficiency at the maximum rated 
capacity (rated maximum input) must be not less than 82 percent.
    (b) Oil-fired Commercial Warm Air Furnaces. Each oil-fired 
commercial warm air furnace must meet the following energy efficiency 
standard levels:
    (1) For oil-fired commercial warm air furnaces manufactured on and 
after January 1, 1994, and before [date 3 years after publication of 
the energy conservation standards final rule], the thermal efficiency 
at the maximum rated capacity (rated maximum input) must be not less 
than 81 percent; and
    (2) For oil-fired commercial warm air furnaces manufactured on and 
after [date 3 years after publication of the energy conservation 
standards final rule], the thermal efficiency at the maximum rated 
capacity (rated maximum input) must be not less than 82 percent.

[FR Doc. 2015-01415 Filed 2-3-15; 8:45 am]
BILLING CODE 6450-01-P