[Federal Register Volume 82, Number 4 (Friday, January 6, 2017)]
[Rules and Regulations]
[Pages 1786-1858]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-29992]



[[Page 1785]]

Vol. 82

Friday,

No. 4

January 6, 2017

Part II





Department of Energy





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10 CFR Part 430





Energy Conservation Program: Energy Conservation Standards for 
Residential Central Air Conditioners and Heat Pumps; Final Rule

  Federal Register / Vol. 82 , No. 4 / Friday, January 6, 2017 / Rules 
and Regulations  

[[Page 1786]]


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DEPARTMENT OF ENERGY

10 CFR Part 430

[Docket Number EERE-2014-BT-STD-0048]
RIN 1904-AD37


Energy Conservation Program: Energy Conservation Standards for 
Residential Central Air Conditioners and Heat Pumps

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

ACTION: Direct final rule.

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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 
residential central air conditioners and heat pumps. EPCA also requires 
the U.S. Department of Energy (DOE) to periodically determine whether 
more-stringent, amended standards would be technologically feasible and 
economically justified, and would save a significant amount of energy. 
In this direct final rule, DOE adopts amended energy conservation 
standards for residential central air conditioners and heat pumps.

DATES: The effective date of this rule is May 8, 2017 unless adverse 
comment is received by April 26, 2017. If adverse comments are received 
that DOE determines may provide a reasonable basis for withdrawal of 
the direct final rule, a timely withdrawal of this rule will be 
published in the Federal Register. If no such adverse comments are 
received, compliance with the amended standards in this final rule will 
be required for central air conditioners and heat pumps as specified in 
this final rule starting on January 1, 2023.

ADDRESSES: The docket, which includes Federal Register notices, public 
meeting attendee lists and transcripts, comments, and other supporting 
documents/materials, is available for review at www.regulations.gov. 
All documents in the docket are listed in the www.regulations.gov 
index. However, some documents listed in the index, such as those 
containing information that is exempt from public disclosure, may not 
be publicly available.
    A link to the docket Web page for residential central air 
conditioners and heat pumps can be found at: www1.eere.energy.gov/buildings/appliance_standards/rulemaking.aspx/ruleid/72. The 
www.regulations.gov Web page contains instructions on how to access all 
documents, including public comments, in the docket.
    For further information on how to submit a comment or review other 
public comments and the docket, contact the Appliance and Equipment 
Standards staff at (202) 586-6636 or by email: 
[email protected].

FOR FURTHER INFORMATION CONTACT: Mr. Antonio Bouza, U.S. Department of 
Energy, Office of Energy Efficiency and Renewable Energy, Building 
Technologies Office, EE-5B, 1000 Independence Avenue SW., Washington, 
DC 20585-0121. Telephone: (202) 586-4563. Email: 
[email protected].
    Ms. Johanna Jochum, U.S. Department of Energy, Office of the 
General Counsel, GC-33, 1000 Independence Avenue SW., Washington, DC 
20585-0121. Telephone: (202) 287-6307. Email: 
[email protected].

SUPPLEMENTARY INFORMATION: 

Table of Contents

I. Synopsis of the Direct Final Rule
    A. Benefits and Costs to Consumers
    B. Impact on Manufacturers
    C. National Benefits and Costs
    D. Conclusion
II. Introduction
    A. Authority
    B. Background
    1. Current Standards
    2. History of the Current CAC/HP Rulemaking
    3. 2015-2016 ASRAC Working Group Recommended Standard Levels
III. General Discussion
    A. Regulatory Approach
    B. Compliance Dates
    C. Regional Standards
    D. Alternative Refrigerants
    E. Standby Mode and Off Mode
    F. Test Procedure
    G. Technological Feasibility
    1. General
    2. Maximum Technologically Feasible Levels
    H. Energy Savings
    1. Determination of Savings
    2. Significance of Savings
    I. Economic Justification
    1. Specific Criteria
    a. Economic Impact on Manufacturers and Consumers
    b. Savings in Operating Costs Compared To Increase in Price (LCC 
and PBP)
    c. Energy Savings
    d. Lessening of Utility or Performance of Products
    e. Impact of Any Lessening of Competition
    f. Need for National Energy Conservation
    g. Other Factors
    2. Rebuttable Presumption
IV. Methodology
    A. Market and Technology Assessment
    1. Definition and Scope of Coverage
    2. Product Classes
    3. Technology Options
    B. Screening Analysis
    C. Engineering Analysis
    1. Representative Capacities
    2. Efficiency Levels
    3. Manufacturer Production Costs
    4. Tabulated Results
    D. Markups Analysis
    E. Energy Use Analysis
    1. General Approach
    2. Split-System Central Air Conditioner: Blower-Coil to Coil-
Only Efficiency Adjustment
    3. Split-System Central Air Conditioner: Coil-Only Efficiency 
Adjustment
    4. Split-System Central Air Conditioner: Coil-Only Installations
    5. Fan Energy Use During Continuous Operation
    6. Other Issues
    F. Life-Cycle Cost and Payback Period Analysis
    1. Inputs to Installed Cost
    a. Equipment Cost
    b. Installation Cost
    2. Inputs to Operating Costs
    a. Energy Consumption
    b. Energy Prices
    c. Maintenance and Repair Costs
    d. Product Lifetime
    e. Discount Rates
    f. Product Efficiency in the No-New-Standards Case
    3. Inputs to Payback Period Analysis
    G. Shipments Analysis
    1. Model Structure
    2. Inputs and Method
    H. National Impact Analysis
    1. Efficiency Trends
    2. Product Cost Trend
    3. Accounting for Repaired Units
    4. National Energy Savings
    5. Net Present Value of Consumer Benefit
    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
    K. Emissions Analysis
    L. Monetizing Carbon Dioxide and Other Emissions Impacts
    1. Social Cost of Carbon
    2. Social Cost of Other Air Pollutants
    M. Utility Impact Analysis
    N. Employment Impact Analysis
V. Analytical Results and Conclusions
    A. Trial Standard Levels
    B. Economic Justification and Energy Savings
    1. Economic Impacts on Individual Consumers
    a. Life-Cycle Cost and Payback Period
    b. Consumer Subgroup Analysis
    c. Rebuttable Presumption Payback Period
    2. Economic Impacts on Manufacturers
    a. Industry Cash-Flow Analysis Results
    b. Direct Impacts on Employment
    c. Impacts on Manufacturing Capacity
    d. Impacts on Subgroups of Manufacturers
    e. Cumulative Regulatory Burden
    3. National Impact Analysis

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    a. Significance of Energy Savings
    b. Net Present Value of Consumer Costs and Benefits
    c. Indirect Impacts on Employment
    4. Impact on Product Utility or Performance
    5. Impact of Any Lessening of Competition
    6. Need of the Nation to Conserve Energy
    7. Other Factors
    8. Summary of National Economic Impacts
    C. Conclusion
    1. Benefits and Burdens of TSLs Considered for Central Air 
Conditioner and Heat Pump Standards
    2. Summary of Benefits and Costs (Annualized) of the Amended 
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
    M. Congressional Notification
VII. Approval of the Office of the Secretary

I. Synopsis of the Direct Final Rule

    Title III, Part B \1\ of the Energy Policy and Conservation Act of 
1975 (EPCA or the Act), Public Law 94-163 (42 U.S.C. 6291-6309, as 
codified), established the Energy Conservation Program for Consumer 
Products Other Than Automobiles.\2\ These products include central air 
conditioners (CACs) and heat pumps (HPs), the subject of this 
rulemaking. (42 U.S.C. 6292(a)(3))
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    \1\ For editorial reasons, upon codification in the U.S. Code, 
Part B was redesignated Part A.
    \2\ All references to EPCA in this document refer to the statute 
as amended through the Energy Efficiency Improvement Act of 2015 
(EEIA 2015), Public Law 114-11 (April 30, 2015).
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    Pursuant to EPCA, any new or amended energy conservation standard 
must be designed to achieve the maximum improvement in energy 
efficiency that is technologically feasible and economically justified. 
(42 U.S.C. 6295(o)(2)(A)) Furthermore, the new or amended standard must 
result in the significant conservation of energy. (42 U.S.C. 
6295(o)(3)(B)) The statute also provides that not later than six years 
after issuance of any final rule establishing or amending a standard, 
DOE must publish either a notice of determination that standards for 
the product do not need to be amended or a notice of proposed 
rulemaking including new proposed energy conservation standards 
(proceeding to a final rule, as appropriate). (42 U.S.C. 6295(m)(1)) 
Once complete, this rulemaking will satisfy these statutory 
requirements.
    In light of the above and under the authority provided by 42 U.S.C. 
6295(p)(4), DOE is issuing this direct final rule amending the energy 
conservation standards for residential central air conditioners and 
heat pumps. The amendments outlined in this document reflect the 
culmination of a DOE rulemaking that included the following notices and 
stakeholder comments thereon: November 2014 request for information 
(RFI) (79 FR 65603 (Nov. 5, 2014)); August 2015 notice of data 
availability (NODA) (80 FR 52206 (August 28, 2015)); and the 2015-2016 
Appliance Standards and Rulemaking Federal Advisory Committee (ASRAC) 
central air conditioners and heat pumps working group negotiations, 
hereinafter referred to as ``the Negotiations'' (80 FR 40938 (July 14, 
2015)). See section II.B.2 for a detailed history of the current 
rulemaking.
    The consensus reached by the CAC/HP ASRAC Working Group, 
hereinafter referred to as ``the CAC/HP Working Group,'' on amended 
energy conservation standards is outlined in the ASRAC Working Group 
Term Sheet, hereinafter referred to as ``the Term Sheet.'' (ASRAC 
Working Group Term Sheet, Docket No. EERE-2014-BT-STD-0048, No. 0076) 
After carefully considering the Term Sheet, DOE determined that the 
recommendations contained therein are compliant with 42 U.S.C. 6295(o), 
as required by 42 U.S.C. 6295(p)(4)(A)(i) for the issuance of a direct 
final rule. As required by 42 U.S.C. 6295(p)(4)(A)(i), DOE is 
simultaneously publishing a NOPR proposing that the identical standard 
levels contained in this direct final rule be adopted. Consistent with 
the statute, DOE is providing a 110-day public comment period on the 
direct final rule. (42 U.S.C. 6295(p)(4)(B)) If DOE determines that any 
comments received provide a reasonable basis for withdrawal of the 
direct final rule under 42 U.S.C. 6295(o), DOE will continue the 
rulemaking under the NOPR. (42 U.S.C. 6295(p)(4)(C)) See section II.A 
for more details on DOE's statutory authority.
    This direct final rule documents DOE's analyses to objectively and 
independently evaluate the energy savings potential, technological 
feasibility, and economic justification of the standard levels 
recommended in the Term Sheet, as per the requirements of 42 U.S.C. 
6295(o).
    DOE conducted separate test procedure rulemakings simultaneously 
with the energy conservation standard rulemaking to amend the DOE 
central air conditioners and heat pumps test procedure. The amended DOE 
CAC/HP test procedure and associated rulemakings are discussed in 
detail in section III.F. As per the request of the CAC/HP Working 
Group, the analyses documented in this direct final rule are based on 
the DOE test procedure at the time of the 2015-2016 Negotiations. 
Efficiency levels selected on the basis of these analyses were then 
translated to efficiency levels based on the amended test procedure. 
This methodology was first advocated by Carrier/United Technologies 
Corporation (UTC) and adopted by stakeholders during the Negotiations. 
(ASRAC Public Meeting, No. 87 at p. 48) This methodology is also 
reflected in the Term Sheet. Recommendation #8 of the Term Sheet 
includes standard levels based on the test procedure at the time of the 
2015-2016 Negotiations. (ASRAC Term Sheet, No. 76 at pp. 4-5) The 
standard levels established by this direct final rule are translated 
levels based on the test procedure established by the test procedure 
final rule issued by DOE on November 30, 2016, hereinafter referred to 
as the ``November 2016 test procedure final rule,'' (which is codified 
in 10 CFR part 430, subpart B, appendix M1).\3\ (Docket No. EERE-2016-
BT-TP-0029)
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    \3\ The test procedure final rule issued by DOE on November 30, 
2016 is accessible via the DOE Web site at: http://energy.gov/eere/buildings/downloads/issuance-2016-11-30-energy-conservation-program-test-procedures-central-air.
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    Ultimately, DOE found that the standard levels recommended in the 
Term Sheet would result in significant energy savings and are 
technologically feasible and economically justified. Table I-1 
documents the amended standards for central air conditioners and heat 
pumps based on the DOE test procedure at the time of the 2015-2016 
Negotiations. The amended standards correspond to the recommended trial 
standard level (TSL) (as described in section V.A) and are expressed in 
terms of Seasonal Energy Efficiency Ratio (SEER), Energy Efficiency 
Ratio (EER), and Heating Seasonal Performance Factor (HSPF). The 
amended standards are the same as those recommended by the Working 
Group. These amended standards apply to all central air conditioners 
and heat pumps listed in Table I-1 and manufactured in, or imported 
into, the United States starting on January 1, 2023. The amended

[[Page 1788]]

standards listed in the table below result in less energy consumption 
than the current standards, which remain in effect until January 1, 
2023.

 Table I-1--Amended Energy Conservation Standards for Residential Central Air Conditioners and Heat Pumps Based
              on the DOE Test Procedure at the Time of the 2015-2016 Negotiations (Recommended TSL)
----------------------------------------------------------------------------------------------------------------
                                                      National          Southeast *          Southwest **
                Product class                -------------------------------------------------------------------
                                                  SEER         HSPF         SEER         SEER           EER
----------------------------------------------------------------------------------------------------------------
Split-System Air Conditioners with a                   14  ...........           15           15     * * * 12.2/
 Certified Cooling Capacity <45,000 Btu/h...                                                                10.2
Split-System Air Conditioners with a                   14  ...........         14.5         14.5     * * * 11.7/
 Certified Cooling Capacity >=45,000 Btu/h..                                                                10.2
Split-System Heat Pumps.....................           15          8.8  ...........  ...........  ..............
Single-Package Air Conditioners [dagger]....           14  ...........  ...........  ...........            11.0
Single-Package Heat Pumps [dagger]..........           14          8.0  ...........  ...........  ..............
Space-Constrained Air Conditioners [dagger].           12  ...........  ...........  ...........  ..............
Space-Constrained Heat Pumps [dagger].......           12          7.4  ...........  ...........  ..............
Small-Duct High-Velocity Systems [dagger]...           12          7.2  ...........  ...........  ..............
----------------------------------------------------------------------------------------------------------------
* Southeast includes: The states of Alabama, Arkansas, Delaware, Florida, Georgia, Hawaii, Kentucky, Louisiana,
  Maryland, Mississippi, North Carolina, Oklahoma, Puerto Rico, South Carolina, Tennessee, Texas, Virginia, the
  District of Columbia, and the U.S. territories.
** Southwest includes the states of Arizona, California, Nevada, and New Mexico.
*** The 10.2 EER amended energy conservation standard applies to split-system air conditioners with a seasonal
  energy efficiency ratio greater than or equal to 16.
[dagger] The energy conservation standards for single-package, small-duct high-velocity and space-constrained
  product classes remain unchanged from current levels.

    DOE notes that the amended standard levels presented in Table I-1 
are in terms of the test procedure that was in place at the time of the 
CAC/HP Working Group Negotiations. That test procedure did not include 
the amendments adopted in the November 2016 TP final rule, which are 
outlined in section III.F. In section V.C, the amended standard levels 
are translated to and presented in terms of the test procedure 
established by the November 2016 test procedure final rule. 
Accordingly, the standard levels included in the regulatory text of 
this direct final rule are presented in terms of the test procedure 
established by the November 2016 test procedure final rule.
    DOE is not amending the off mode standards for central air 
conditioners and heat pumps at this time. The June 2011 direct final 
rule included the first standards for off mode electric power 
consumption, with a compliance date of January 1, 2015. 76 FR 37408 
(June 27, 2011); 10 CFR 430.32(c)(5). However, DOE subsequently issued 
an enforcement policy statement on July 8, 2014 regarding off mode 
standards for central air conditioners and heat pumps specifying that 
DOE would not assert its civil penalty authority for violation of the 
off mode standard until 180 days following publication of a final rule 
establishing a test method for measuring off mode electrical power 
consumption.\4\ DOE established this test method in a final rule 
published on June 8, 2016 (``June 2016 test procedure final rule''). 81 
FR 36992. As a result, the standards for off mode will be enforceable 
beginning on December 5, 2016. DOE finds it is not feasible to consider 
amending standards for which compliance has yet to begin.
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    \4\ Available at: http://energy.gov/sites/prod/files/2014/07/f17/EnforcementPolicyStatement-cacoffmode.pdf (Last accessed July 1, 
2016).
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A. Benefits and Costs to Consumers

    Table I-2 presents DOE's evaluation of the economic impacts of the 
energy conservation standards on consumers of central air conditioners 
and heat pumps, as measured by the average life-cycle cost (LCC) 
savings and the simple payback period (PBP).\5\ The average LCC savings 
are positive for all product classes. The PBP for each product class 
falls well below the average lifetime of the product, which is 
estimated to be 21 years for central air conditioners and 15 years for 
heat pumps (see section IV.G of this document).
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    \5\ The average LCC savings are measured relative to the 
estimated efficiency distribution in the no-new-standards case, 
which depicts the market in the compliance year in the absence of 
amended standards (see section IV.F.3.f). The simple PBP, which is 
designed to compare specific efficiency levels, is measured relative 
to the baseline model (see section IV.C.2).

Table I-2--Impacts of Amended Energy Conservation Standards on Consumers
of Residential Central Air Conditioners and Heat Pumps (Recommended TSL)
------------------------------------------------------------------------
                                      Average LCC       Simple payback
          Product class             savings (2015$)     period (years)
------------------------------------------------------------------------
Split-System Air Conditioners *.  N: $43............  N: 10.5.
                                  HD: $150..........  HD: 7.6.
                                  HH: $39...........  HH: 7.7.
Split-System Heat Pumps.........  $131..............  4.9.
Packaged Air Conditioners **....  N/A...............  N/A.
Packaged Heat Pumps **..........  N/A...............  N/A.
Space-Constrained Air             N/A...............  N/A.
 Conditioners **.
Small-Duct High-Velocity Air      N/A...............  N/A.
 Conditioners **.
------------------------------------------------------------------------
* N = Northern region; HD = Hot-dry region; HH = Hot-humid region.
** The standard levels for Packaged Air Conditioners, Packaged Heat
  Pumps, Space-Constrained Air Conditioners, and Small-Duct High-
  Velocity Air Conditioners are at the baseline level in the Recommended
  TSL, so there is no impact on consumers.


[[Page 1789]]

    DOE's analysis of the impacts of the amended standards on consumers 
is described in further detail in section IV.F of this document.

B. Impact on Manufacturers

    The industry net present value (INPV) is the sum of the discounted 
cash flows to the industry from the base year through the end of the 
30-year analysis period.\6\ Using a real discount rate of 11.0 
percent,\7\ DOE estimates that the INPV for manufacturers of 
residential central air conditioners and heat pumps is $4,496.1 million 
in 2015$. Under the amended standards, DOE expects the change in INPV 
to range from approximately -15.4 percent to -2.5 percent, which 
corresponds to approximately -$692.3 million to -$114.2 million (in 
2015$). In order to bring products into compliance with proposed 
standards, DOE expects the industry to incur $342.6 million in 
conversion costs.
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    \6\ In contrast to the NIA, which uses an end date of 2050 for 
TSLs 1, 3 and 4, and an end date of 2052 for TSL 2, the MIA 
maintains the same end date (2050) for all TSLs. This is done to 
enable clear comparison of INPV impacts across TSLs. See chapter 12 
of the direct final rule TSD for a more detailed discussion of this 
assumption.
    \7\ DOE estimated preliminary financial metrics, including the 
industry discount rate, based on publicly available financial 
information, including Securities and Exchange Commission (``SEC'') 
filings and S&P bond ratings. DOE presented the preliminary 
financial metrics to manufacturers in MIA interviews. DOE adjusted 
those values based on feedback from manufacturers. The complete set 
of financial metrics and more detail about the methodology can be 
found in chapter 12 of the final rule TSD. Additionally, DOE 
provides a sensitivity analysis based on an alternative discount 
rate in chapter 12 of the TSD. Using an 8% discount rate, the change 
in INPV ranges from -16.6 to -1.3 percent at the adopted level.
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    DOE's analysis of the impacts of the amended standards on 
manufacturers is described in further detail in sections IV.J and V.B.2 
of this direct final rule.

C. National Benefits and Costs \8\
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    \8\ All monetary values in this document are expressed in 2015 
dollars and, where appropriate, are discounted to 2016 unless 
explicitly stated otherwise.
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    DOE's analyses indicate that the energy conservation standards 
being adopted in this direct final rule for central air conditioners 
and heat pumps would save a significant amount of energy. Relative to 
the case without amended standards (referred to as the ``no-new-
standards case''), the lifetime energy savings for central air 
conditioners and heat pumps purchased in the 30-year period that begins 
in the anticipated first full year of compliance with the amended 
standards (2023-2052) amount to 3.2 quadrillion British thermal units 
(Btu), or ``quads.'' \9\ This represents a savings of 2.6 percent 
relative to the energy use of these products in the no-new-standards 
case.
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    \9\ The quantity refers to full-fuel-cycle (FFC) energy savings. 
FFC energy savings includes the energy consumed in extracting, 
processing, and transporting primary fuels (i.e., coal, natural gas, 
petroleum fuels), and, thus, presents a more complete picture of the 
impacts of energy efficiency standards. For more information on the 
FFC metric, see section IV.H.4.
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    The cumulative national net present value (NPV) of total consumer 
costs and savings for the amended standards for central air 
conditioners and heat pumps ranges from $2.5 billion (at a 7-percent 
discount rate) to $12.2 billion (at a 3-percent discount rate). This 
NPV expresses the estimated total value of future operating-cost 
savings minus the estimated increased product and installation costs 
for central air conditioners and heat pumps purchased in 2023-2052.
    In addition, the standards for central air conditioners and heat 
pumps that are being adopted in this direct final rule are expected to 
yield significant environmental benefits. DOE estimates the standards 
to result in cumulative emission reductions (over the same period as 
for energy savings) of 188.3 million metric tons (Mt) \10\ of carbon 
dioxide (CO2), 100.8 thousand tons of sulfur dioxide 
(SO2), 350.3 thousand tons of nitrogen oxides 
(NOX), 842.4 thousand tons of methane (CH4), 
2.114 thousand tons of nitrous oxide (N2O), and 0.372 tons 
of mercury (Hg).\11\ The cumulative reduction in CO2 
emissions through 2030 amounts to 13.3 Mt, which is equivalent to the 
emissions resulting from the annual electricity use of 1.2 million 
homes.
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    \10\ A metric ton is equivalent to 1.1 short tons. Results for 
emissions other than CO2 are presented in short tons.
    \11\ DOE calculated emissions reductions relative to the no-new-
standards case, which reflects key assumptions in the Annual Energy 
Outlook 2015 (AEO 2015) Reference case. AEO 2015 generally 
represents current legislation and environmental regulations for 
which implementing regulations were available as of October 31, 
2014.
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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 a recent Federal 
interagency process.\12\ The derivation of the SCC values is discussed 
in section IV.L. Using discount rates appropriate for each set of SCC 
values (see Table I.3), DOE estimates the present monetary value of the 
CO2 emissions reduction (not including 
CO2-equivalent emissions of other gases with global warming 
potential) is between $1.1 billion and $16.9 billion with a value of 
$5.5 billion using the central SCC case represented by $40.6/t in 2015. 
DOE also estimates the present monetary value of the NOX 
emissions reduction to be $0.2 billion at a 7-percent discount rate and 
$0.5 billion at a 3-percent discount rate.\13\ DOE is investigating 
appropriate valuation of the reduction in other emissions, and did not 
include any such values in this rulemaking.
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    \12\ United States Government-Interagency Working Group on 
Social Cost of Carbon, Technical Support Document: Technical Update 
of the Social Cost of Carbon for Regulatory Impact Analysis Under 
Executive Order 12866 (May 2013; Revised July 2015) (Available at: 
https://www.whitehouse.gov/sites/default/files/omb/inforeg/scc-tsd-final-july-2015.pdf).
    \13\ DOE estimated the monetized value of NOX 
emissions reductions using benefit-per-ton estimates from the 
Regulatory Impact Analysis for the Clean Power Plan Final Rule, 
published in August 2015 by EPA's Office of Air Quality Planning and 
Standards. (Available at: http://www.epa.gov/cleanpowerplan/clean-power-plan-final-rule-regulatory-impact-analysis.) See section 
IV.L.2 for further discussion. The U.S. Supreme Court has stayed the 
rule implementing the Clean Power Plan until the current litigation 
against it concludes. Chamber of Commerce, et al. v. EPA, et al., 
Order in Pending Case, 577 U.S. ___((2016). However, the benefit-
per-ton estimates established in the Regulatory Impact Analysis for 
the Clean Power Plan are based on scientific studies that remain 
valid irrespective of the legal status of the Clean Power Plan. DOE 
is primarily using a national benefit-per-ton estimate for 
NOX emitted from the Electricity Generating Unit sector 
based on an estimate of premature mortality derived from the ACS 
study (Krewski et al., 2009). If the benefit-per-ton estimates were 
based on the Six Cities study (Lepuele et al., 2011), the values 
would be nearly two-and-a-half times larger.
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    Table I-3 summarizes the economic benefits and costs expected to 
result from the amended energy conservation standards for central air 
conditioners and heat pumps.

   Table I-3--Summary of Economic Benefits and Costs of Amended Energy
   Conservation Standards for Central Air Conditioners and Heat Pumps
                           (Recommended TSL) *
------------------------------------------------------------------------
                                      Present value
             Category                (billion 2015$)   Discount rate (%)
------------------------------------------------------------------------
                                Benefits
------------------------------------------------------------------------
Consumer Operating Cost Savings...                8.6                  7

[[Page 1790]]

 
                                                 24.4                  3
CO2 Reduction (using mean SCC at                  1.1                  5
 5% discount rate) **.............
CO2 Reduction (using mean SCC at                  5.5                  3
 3% discount rate) **.............
CO2 Reduction (using mean SCC at                  8.9                2.5
 2.5% discount rate) **...........
CO2 Reduction (using 95th-                       16.9                  3
 percentile SCC at 3% discount
 rate) **.........................
NOX Reduction [dagger]............                0.2                  7
                                                  0.5                  3
Total Benefits [dagger][dagger]...               14.3                  7
                                                 30.5                  3
------------------------------------------------------------------------
                                  Costs
------------------------------------------------------------------------
Consumer Incremental Installed                    6.1                  7
 Costs............................
                                                 12.3                  3
------------------------------------------------------------------------
                           Total Net Benefits
------------------------------------------------------------------------
Including CO2 and NOX Emissions                   8.2                  7
 Reduction Monetized Value
 [dagger][dagger].................
                                                 18.2                  3
------------------------------------------------------------------------
* This table presents the costs and benefits associated with central air
  conditioners and heat pumps shipped in 2023-2052. These results
  include benefits to consumers which accrue after 2052 from the
  products purchased in 2023-2052. The incremental installed costs
  include incremental equipment cost as well as installation costs. The
  CO2 reduction benefits are global benefits due to actions that occur
  nationally.
** 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 integrated assessment models, at discount rates of 5%, 3%,
  and 2.5%. For example, for 2015 emissions, these values are $12.4/t,
  $40.6/t, and $63.2/t, in 2015$, respectively. The fourth set ($118/t
  in 2015$ for 2015 emissions), which represents the 95th percentile of
  the SCC distribution calculated using a 3% discount rate, is included
  to represent higher-than-expected impacts from temperature change
  further out in the tails of the SCC distribution. The SCC values are
  emission year specific. See section IV.L.1 of this document for more
  details.
[dagger] DOE estimated the monetized value of NOX emissions reductions
  using benefit-per-ton estimates from the Regulatory Impact Analysis
  for the Clean Power Plan Final Rule, published in August 2015 by EPA's
  Office of Air Quality Planning and Standards. (Available at: http://www.epa.gov/cleanpowerplan/clean-power-plan-final-rule-regulatory-impact-analysis.) See section IV.L.2 for further discussion. DOE is
  primarily using a national benefit-per-ton estimate for NOX emitted
  from the Electricity Generating Unit sector based on an estimate of
  premature mortality derived from the ACS study (Krewski et al., 2009).
  If the benefit-per-ton estimates were based on the Six Cities study
  (Lepuele et al., 2011), the values would be nearly two-and-a-half
  times larger.
[dagger][dagger] Total Benefits for both the 3% and 7% cases are derived
  using the series corresponding to average SCC with a 3-percent
  discount rate ($40.6/t in 2015).

    The benefits and costs of the amended energy conservation 
standards, for central air conditioners and heat pumps sold in 2023-
2052, can also be expressed in terms of annualized values. The monetary 
values for the total annualized net benefits are the sum of: (1) The 
national economic value of the benefits in reduced operating costs, 
minus (2) the increases in product purchase and installation costs, 
plus (3) the value of the benefits of CO2 and NOX 
emission reductions, all annualized.\14\
---------------------------------------------------------------------------

    \14\ To convert the time-series of costs and benefits into 
annualized values, DOE calculated a present value in 2016, the year 
used for discounting the NPV of total consumer costs and savings. 
For the benefits, DOE calculated a present value associated with 
each year's shipments in the year in which the shipments occur 
(e.g., 2020 or 2030), and then discounted the present value from 
each year to 2016. The calculation uses discount rates of 3 and 7 
percent for all costs and benefits except for the value of 
CO2 reductions, for which DOE used case-specific discount 
rates, as shown in Table I-4. Using the present value, DOE then 
calculated the fixed annual payment over a 30-year period, starting 
in the compliance year, that yields the same present value.
---------------------------------------------------------------------------

    The national operating savings are domestic private U.S. consumer 
monetary savings that occur as a result of purchasing the covered 
products. The national operating cost savings is measured for the 
lifetime of central air conditioners and heat pumps shipped in 2023-
2052. The CO2 reduction is a benefit that accrues globally 
due to decreased domestic energy consumption that is expected to result 
from this rule. Because CO2 emissions have a very long 
residence time in the atmosphere, the SCC values in future years 
reflect future CO2-emissions impacts that continue well 
beyond 2100 through 2300.
    Estimates of annualized benefits and costs of the amended 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 ($40.6/t in 2015)),\15\ the estimated cost of the central air 
conditioners and heat pumps standards adopted in this rule is $741 
million per year in increased equipment costs, while the estimated 
benefits are $1,041 million per year in reduced equipment operating 
costs, $337 million per year in CO2 reductions, and $22 
million per year in reduced NOX emissions. In this case, the 
net benefit amounts to $659 million per year. Using a 3-percent 
discount rate for all benefits and costs and the average SCC series 
that uses a 3-percent discount rate ($40.6/t in 2015), the estimated 
cost of the central air conditioners and heat pumps standards being 
adopted in this rule is $747 million per year in increased equipment 
costs, while the estimated benefits are $1,488 million per year in 
reduced equipment operating costs, $337 million per year in 
CO2 reductions, and $32 million per year in reduced 
NOX emissions. In this case, the net benefit would amount to 
$1,110 million per year.
---------------------------------------------------------------------------

    \15\ DOE used a 3-percent discount rate because the SCC values 
for the series used in the calculation were derived using a 3-
percent discount rate (see section IV.L).

[[Page 1791]]



 Table I-4--Annualized Benefits and Costs of Amended Energy Conservation Standards for Central Air Conditioners
                                        and Heat Pumps (Recommended TSL)
----------------------------------------------------------------------------------------------------------------
                                                       Primary  estimate   Low-net-benefits    High-net-benefits
                                   Discount rate (%)           *              estimate *          estimate *
----------------------------------------------------------------------------------------------------------------
                                                     (million 2015$/year)
----------------------------------------------------------------------------------------------------------------
                                                    Benefits
----------------------------------------------------------------------------------------------------------------
Consumer Operating Cost Savings.  7.................  1,041.............  1,005.............  1,147.
                                  3.................  1,488.............  1,425.............  1,653.
CO2 Reduction (using mean SCC at  5.................  100...............  100...............  100.
 5% discount rate) **.
CO2 Reduction (using mean SCC at  3.................  337...............  337...............  337.
 3% discount rate) **.
CO2 Reduction (using mean SCC at  2.5...............  494...............  494...............  494.
 2.5% discount rate) **.
CO2 Reduction (using 95th-        3.................  1,027.............  1,027.............  1,027.
 percentile SCC at 3% discount
 rate ) **.
NOX Reduction [dagger]..........  7.................  22................  22................  49.
                                  3.................  32................  32................  73.
                                 -------------------------------------------------------------------------------
    Total Benefits                7 plus CO2 range..  1,163 to 2,090....  1,127 to 2,054....  1,296 to 2,223.
     [dagger][dagger].
                                  7.................  1,400.............  1,364.............  1,533.
                                  3 plus CO2 range..  1,620 to 2,547....  1,557 to 2,484....  1,826 to 2,753.
                                  3.................  1,857.............  1,794.............  2,063.
----------------------------------------------------------------------------------------------------------------
                                                      Costs
----------------------------------------------------------------------------------------------------------------
Consumer Incremental Installed    7.................  741...............  784...............  723.
 Costs.
                                  3.................  747...............  799...............  725.
----------------------------------------------------------------------------------------------------------------
                                                  Net Benefits
----------------------------------------------------------------------------------------------------------------
    Total [dagger][dagger]......  7 plus CO2 range..  422 to 1,349......  342 to 1,269......  573 to 1,500.
                                  7.................  659...............  580...............  810.
                                  3 plus CO2 range..  873 to 1,800......  757 to 1,684......  1,100 to 2,028.
                                  3.................  1,110.............  994...............  1,338.
----------------------------------------------------------------------------------------------------------------
* This table presents the annualized costs and benefits associated with central air conditioners and heat pumps
  shipped in 2023-2052. These results include benefits to consumers which accrue after 2052 from the products
  purchased in 2023-2052. The incremental installed costs include incremental equipment cost as well as
  installation costs. The CO2 reduction benefits are global benefits due to actions that occur nationally. The
  Primary, Low-Net-Benefits, and High-Net-Benefits Estimates utilize projections of energy prices from the AEO
  2015 Reference case, Low Economic Growth case, and High Economic Growth case, respectively. In addition,
  incremental product costs reflect a modest decline rate for projected product prices in the Primary Estimate,
  a constant rate in the Low-Net-Benefits Estimate, and a higher decline rate in the High-Net-Benefits Estimate.
  The methods used to derive projected price trends are explained in section IV.F.1. Note that the Benefits and
  Costs may not sum to the Net Benefits due to rounding.
** The CO2 reduction benefits are calculated using 4 different sets of SCC values. The first three use the
  average SCC calculated using 5%, 3%, and 2.5% discount rates, respectively. The fourth represents the 95th
  percentile of the SCC distribution calculated using a 3% discount rate. The SCC values are emission year
  specific. See section IV.L.1 for more details
[dagger] DOE estimated the monetized value of NOX emissions reductions using benefit-per-ton estimates from the
  Regulatory Impact Analysis for the Clean Power Plan Final Rule, published in August 2015 by EPA's Office of
  Air Quality Planning and Standards. (Available at: http://www.epa.gov/cleanpowerplan/clean-power-plan-final-rule-regulatory-impact-analysis.) See section IV.L.2 for further discussion. For the Primary Estimate and Low-
  Net-Benefits Estimate, DOE used a national benefit-per-ton estimate for NOX emitted from the Electric
  Generating Unit sector based on an estimate of premature mortality derived from the ACS study (Krewski et al.,
  2009). For the High-Net-Benefits Estimate, the benefit-per-ton estimates were based on the Six Cities study
  (Lepuele et al., 2011); these are nearly two-and-a-half times larger than those from the ACS study.
[dagger][dagger] Total Benefits for both the 3% and 7% cases are presented using only the 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 adopted standards is 
described in further detail in section IV.H of this direct final rule.

D. Conclusion

    DOE has determined that the statement containing recommendations 
with respect to energy conservation standards for central air 
conditioners and heat pumps was submitted jointly by interested persons 
that are fairly representative of relevant points of view, in 
accordance with 42 U.S.C. 6295(p)(4)(A). After considering the analysis 
and weighing the benefits and burdens, DOE has determined that the 
recommended standards are in accordance with 42 U.S.C. 6295(o), which 
contains the criteria for prescribing new or amended standards. 
Specifically, the Secretary has determined that the adoption of the 
recommended standards would result in the significant conservation of 
energy and is technologically feasible and economically justified. In 
determining whether the recommended standards are economically 
justified, the Secretary has determined that the benefits of the 
recommended standards exceed the burdens. Namely, the Secretary has 
concluded that the recommended standards, when considering the benefits 
of energy savings, positive NPV of consumer benefits, emission 
reductions, the estimated monetary value of the emissions reductions, 
and positive average LCC savings, would yield benefits outweighing the 
negative impacts on some consumers and on manufacturers, including the 
conversion

[[Page 1792]]

costs that could result in a reduction in INPV for manufacturers.
    Under the authority provided by 42 U.S.C. 6295(p)(4), DOE is 
issuing this direct final rule amending the energy conservation 
standards for residential central air conditioners and heat pumps. 
Consistent with this authority, DOE is also publishing elsewhere in 
this Federal Register a notice of proposed rulemaking proposing 
standards that are identical to those contained in this direct final 
rule. See 42 U.S.C. 6295(p)(4)(A)(i).

II. Introduction

    The following sections briefly discuss the statutory authority 
underlying this direct final rule, as well as the historical background 
related to the establishment of standards for residential central air 
conditioners and heat pumps.

A. Authority

    Title III, Part B of the Energy Policy and Conservation Act of 1975 
(EPCA or the Act), Public Law 94-163 (42 U.S.C. 6291-6309, as codified) 
established the Energy Conservation Program for Consumer Products Other 
Than Automobiles, a program covering most major household appliances 
(collectively referred to as ``covered products''), which includes the 
residential central air conditioners and heat pumps that are the 
subject of this rulemaking. (42 U.S.C. 6292(a)(3))
    Pursuant to EPCA, DOE's energy conservation program for covered 
products consists essentially of four parts: (1) Testing; (2) labeling; 
(3) the establishment of Federal energy conservation standards; and (4) 
certification and enforcement procedures. The Federal Trade Commission 
(FTC) is primarily responsible for labeling, and DOE implements the 
remainder of the program. Subject to certain criteria and conditions, 
DOE is required to develop test procedures to measure the energy 
efficiency, energy use, or estimated annual operating cost of each 
covered product prior to the adoption of a new or amended energy 
conservation standard. (42 U.S.C. 6295(o)(3)(A) and (r)) Manufacturers 
of covered products must use the prescribed DOE test procedure as the 
basis for certifying to DOE that their products comply with the 
applicable energy conservation standards adopted under EPCA and when 
making representations to the public regarding the energy use or 
efficiency of those products. (42 U.S.C. 6293(c) and 6295(s)) 
Similarly, DOE must use these test procedures to determine whether the 
products comply with standards adopted pursuant to EPCA. (42 U.S.C. 
6295(s)) The DOE test procedures for central air conditioners and heat 
pumps appear at title 10 of the Code of Federal Regulations (CFR) part 
430, subpart B, appendix M and M1.
    The National Appliance Energy Conservation Act of 1987 (NAECA; Pub. 
L. 100-12) included amendments to EPCA that established the original 
energy conservation standards for central air conditioners and heat 
pumps. (42 U.S.C. 6295(d)(1)-(2)) EPCA, as amended, also requires DOE 
to conduct two cycles of rulemakings to determine whether to amend the 
energy conservation standards for central air conditioners and heat 
pumps. (42 U.S.C. 6295(d)(3)) The first cycle culminated in a final 
rule published in the Federal Register on August 17, 2004 (the August 
2004 Rule), which prescribed energy conservation standards for central 
air conditioners and heat pumps manufactured or imported on and after 
January 23, 2006. 69 FR 50997. DOE completed the second of the two 
rulemaking cycles by issuing a direct final rule on June 6, 2011 (2011 
Direct Final Rule), which was published in the Federal Register on June 
27, 2011. 76 FR 37408. The 2011 Direct Final Rule (June 2011 DFR) 
amended standards for central air conditioners and heat pumps 
manufactured on or after January 1, 2015.
    EPCA requires DOE to periodically review its already established 
energy conservation standards for a covered product. Not later than six 
years after issuance of any final rule establishing or amending a 
standard, DOE must publish a notice of determination that standards for 
the product do not need to be amended, or a notice of proposed 
rulemaking including new proposed standards. (42 U.S.C. 6295(m)(1)) 
Pursuant to this requirement, the next review that DOE would need to 
conduct must occur no later than six years from the issuance of the 
2011 direct final rule. This direct final rule fulfills that 
requirement.
    DOE must follow specific statutory criteria for prescribing new or 
amended standards for covered products, including residential central 
air conditioners and heat pumps. Any new or amended standard for a 
covered product must be designed to achieve the maximum improvement in 
energy efficiency that is technologically feasible and economically 
justified. (42 U.S.C. 6295(o)(2)(A) and (3)(B)) Furthermore, DOE may 
not adopt any standard that would not result in the significant 
conservation of energy. (42 U.S.C. 6295(o)(3)) Moreover, DOE may not 
prescribe a standard: (1) For certain products, including residential 
central air conditioners and heat pumps, if no test procedure has been 
established for the product, or (2) if DOE determines by rule that the 
proposed standard is not technologically feasible or economically 
justified. (42 U.S.C. 6295(o)(3)(A)-(B)) In deciding whether a proposed 
standard is economically justified, after receiving comments on the 
proposed standard, DOE must determine whether the benefits of the 
standard exceed its burdens. (42 U.S.C. 6295(o)(2)(B)(i)) DOE must make 
this determination by, to the greatest extent practicable, considering 
the following seven factors:
    (1) The economic impact of the standard on manufacturers and 
consumers of the products subject to the standard;
    (2) The savings in operating costs throughout the estimated average 
life of the covered products in the type (or class) compared to any 
increase in the price, initial charges, or maintenance expenses for the 
covered products that are likely to result from the standard;
    (3) The total projected amount of energy (or as applicable, water) 
savings likely to result directly from the standard;
    (4) Any lessening of the utility or the performance of the covered 
products likely to result from the standard;
    (5) The impact of any lessening of competition, as determined in 
writing by the Attorney General, that is likely to result from the 
standard;
    (6) The need for national energy and water conservation; and
    (7) Other factors the Secretary of Energy (Secretary) considers 
relevant. (42 U.S.C. 6295(o)(2)(B)(i)(I)-(VII))
    DOE notes that the current energy conservation standards for 
central air conditioners and heat pumps (set forth at 10 CFR 430.32(c)) 
contain requirements for seasonal energy efficiency ratio (SEER), 
heating seasonal performance factor (HSPF), energy efficiency ratio 
(EER), and average off mode power consumption. Standards based upon the 
latter two metrics were newly adopted in the June 27, 2011 DFR for the 
reasons stated in that rulemaking. 76 FR 37408. As discussed below in 
section II.B.1 and section II.B.3, DOE has chosen to specify 
performance standards based on EER and SEER for only the southwest 
region of the country. Pursuant to its mandate under 42 U.S.C. 
6295(m)(1), this DOE rulemaking has considered amending the existing 
energy conservation standards for central air conditioners and heat 
pumps, and DOE is adopting the amended standards contained in this 
direct final rule.
    EPCA, as codified, also contains what is known as an ``anti-
backsliding''

[[Page 1793]]

provision, which prevents the Secretary from prescribing any amended 
standard that either increases the maximum allowable energy use or 
decreases the minimum required energy efficiency of a covered product. 
(42 U.S.C. 6295(o)(1)) Also, the Secretary may not prescribe an amended 
or new standard if interested persons have established by a 
preponderance of evidence that the standard is likely to result in the 
unavailability in the United States of any covered product type (or 
class) or performance characteristics (including reliability), 
features, sizes, capacities, and volumes that are substantially the 
same as those generally available in the United States. (42 U.S.C. 
6295(o)(4))
    Further, EPCA, as codified, establishes a rebuttable presumption 
that a standard is economically justified if the Secretary finds that 
the additional cost to the consumer of purchasing a product complying 
with an energy conservation standard level will be less than three 
times the value of the energy savings during the first year that the 
consumer will receive as a result of the standard, as calculated under 
the applicable test procedure. (42 U.S.C. 6295(o)(2)(B)(iii)) DOE 
generally considers these criteria as part of its analysis but 
consistently conducts a more thorough analysis of a given standard's 
projected impacts that extends beyond this presumption.
    Additionally, 42 U.S.C. 6295(q)(1) specifies requirements when 
promulgating an energy conservation standard for a covered product that 
has two or more subcategories. In this case, DOE must specify a 
different standard level for a type or class of covered product that 
has the same function or intended use, if DOE determines that products 
within such group: (A) consume a different kind of energy from that 
consumed by other covered products within such type (or class); or (B) 
have a capacity or other performance-related feature that other 
products within such type (or class) do not have and such feature 
justifies a higher or lower standard. (42 U.S.C. 6295(q)(1)) In 
determining whether a performance-related feature justifies a different 
standard for a group of products, DOE must consider such factors as the 
utility to the consumer of the feature and other factors DOE deems 
appropriate. Id. Any rule prescribing such a standard must include an 
explanation of the basis on which such higher or lower level was 
established. (42 U.S.C. 6295(q)(2))
    Under 42 U.S.C. 6295(o)(6), which was added to EPCA by section 
306(a) of the Energy Independence and Security Act of 2007 (EISA 2007; 
Public Law. 110-140), DOE may consider the establishment of regional 
standards for central air conditioners and heat pumps. Specifically, in 
addition to a base national standard for a product, DOE may for central 
air conditioners and heat pumps, establish one or two more-restrictive 
regional standards. (42 U.S.C. 6295(o)(6)(B)) The regions must include 
only contiguous States (with the exception of Alaska and Hawaii, which 
may be included in regions with which they are not contiguous), and 
each State may be placed in only one region (i.e., an entire State 
cannot simultaneously be placed in two regions, nor can it be divided 
between two regions). (42 U.S.C. 6295(o)(6)(C)) Further, DOE can 
establish the additional regional standards only: (1) Where doing so 
would produce significant energy savings in comparison to a single 
national standard, (2) if the regional standards are economically 
justified, and (3) after considering the impact of these standards on 
consumers, manufacturers, and other market participants, including 
product distributors, dealers, contractors, and installers. (42 U.S.C. 
6295(o)(6)(D))
    Federal energy conservation requirements generally supersede State 
laws or regulations concerning energy conservation testing, labeling, 
and standards. (42 U.S.C. 6297(a)-(c)) DOE may, however, grant waivers 
of Federal preemption for particular State laws or regulations, in 
accordance with the procedures and other provisions set forth under 42 
U.S.C. 6297(d).
    Pursuant to further amendments to EPCA contained in EISA 2007, Pub. 
L. 110-140, any final rule for new or amended energy conservation 
standards promulgated after July 1, 2010, is required to address 
standby mode and off mode energy use. (42 U.S.C. 6295(gg)(3)) 
Specifically, when DOE adopts a standard for a covered product after 
that date, it must, if justified by the criteria for adoption of 
standards under EPCA (42 U.S.C. 6295(o)), incorporate standby mode and 
off mode energy use into a single standard, or, if that is not 
feasible, adopt a separate standard for such energy use for that 
product. (42 U.S.C. 6295(gg)(3)(A)-(B)) The SEER and HSPF metrics for 
central air conditioners and heat pumps already account for standby 
mode energy use, and the current standards include limits on off mode 
energy use. Section III.E further discusses standby mode and off mode 
energy use.
    As mentioned previously, EISA 2007 amended EPCA, in relevant part, 
to grant DOE authority to issue a final rule (hereinafter referred to 
as a ``direct final rule'') establishing an energy conservation 
standard on receipt of a statement submitted jointly by interested 
persons that are fairly representative of relevant points of view 
(including representatives of manufacturers of covered products, 
States, and efficiency advocates), as determined by the Secretary, that 
contains recommendations with respect to an energy or water 
conservation standard that are in accordance with the provisions of 42 
U.S.C. 6295(o). (42 U.S.C. 6295(p)(4)) Pursuant to 42 U.S.C. 
6295(p)(4), the Secretary must also determine whether a jointly-
submitted recommendation for an energy or water conservation standard 
satisfies 42 U.S.C. 6295(o) or 42 U.S.C. 6313(a)(6)(B), as applicable.
    A notice of proposed rulemaking (NOPR) that proposes an identical 
energy efficiency standard must be published simultaneously with the 
direct final rule, and DOE must provide a public comment period of at 
least 110 days on this proposal. (42 U.S.C. 6295(p)(4)(A)-(B)) While 
DOE typically provides a comment period of 60 days on proposed 
standards, in this case, DOE provides a comment period of the same 
length as the comment period on the direct final rule--i.e. 110 days. 
Based on the comments received during this period, the direct final 
rule will either become effective, or DOE will withdraw it not later 
than 120 days after its issuance if (1) one or more adverse comments is 
received, and (2) DOE determines that those comments, when viewed in 
light of the rulemaking record related to the direct final rule, 
provide a reasonable basis for withdrawal of the direct final rule 
under 42 U.S.C. 6295(o) and for DOE to continue this rulemaking under 
the NOPR. (42 U.S.C. 6295(p)(4)(C)) Receipt of an alternative joint 
recommendation may also trigger a DOE withdrawal of the direct final 
rule in the same manner. Id.
    Typical of other rulemakings, it is the substance, rather than the 
quantity, of comments that will ultimately determine whether a direct 
final rule will be withdrawn. To this end, the substance of any adverse 
comment(s) received will be weighed against the anticipated benefits of 
the jointly-submitted recommendations and the likelihood that further 
consideration of the comment(s) would change the results of the 
rulemaking. DOE notes that, to the extent an adverse comment had been 
previously raised and addressed in the rulemaking proceeding, such a 
submission will not typically provide a basis for withdrawal of a 
direct final rule. Nevertheless, if the Secretary makes such a 
determination, DOE must withdraw the direct final rule

[[Page 1794]]

and proceed with the simultaneously-published NOPR. DOE must publish in 
the Federal Register the reason why the direct final rule was 
withdrawn. Id.

B. Background

1. Current Standards
    This section briefly summarizes the history leading up to and 
including the conception of the current standards for residential air 
conditioners and heat pumps. Congress initially prescribed statutory 
standard levels for residential central air conditioners and heat pumps 
through amendments to EPCA included in the National Appliance Energy 
Conservation Act of 1987 (NAECA), Public Law 100-12. (42 U.S.C. 
6295(d)(1)-(2)) DOE was required to subsequently conduct two rounds of 
rulemaking to consider amended standards for these products. (42 U.S.C. 
6295(d)(3)) The first cycle culminated in a final rule published in the 
Federal Register on August 17, 2004 (the August 2004 final rule). The 
August 2004 final rule prescribed energy conservation standards for 
central air conditioners and heat pumps manufactured or imported on and 
after January 23, 2006. 69 FR 50997.
    DOE completed the second of the two rulemaking cycles by publishing 
a direct final rule on June 27, 2011. 76 FR 37408. The June 2011 DFR 
combined the rulemakings for residential furnaces, central air 
conditioners, and heat pumps; divided the country into three regions 
for CAC/HP: Southeast ``hot humid'' region, southwest ``hot-dry'' 
region, and northern ``rest of country'' (national standard); and 
amended standards, including different standards for each region, for 
central air conditioners and heat pumps manufactured on or after 
January 1, 2015.
    On October 31, 2011, DOE published a notice of effective date and 
compliance dates for the direct final rule responding to comments it 
received. 76 FR 67037. Ultimately, DOE determined that the comments 
received in response to the direct final rule for amended energy 
conservation standards for residential central air conditioners and 
heat pumps did not provide a reasonable basis for withdrawal of the 
DFR. Id.
    The current standards, which differ by region, were published in 
the June 27, 2011 DFR. 76 FR 37408, 37546-47. These standards are 
codified in DOE's regulations in the Code of Federal Regulations (CFR) 
at 10 CFR 430.32(c)(2)-(5). The standards consist of a minimum SEER for 
each class of air conditioner and a minimum SEER and HSPF for each 
class of heat pump. 10 CFR 430.32(c)(2)-(3). In addition, the June 2011 
DFR also established regional standards on EER for the southwest region 
\16\ for split-system air conditioner and single-package air 
conditioner product classes. 10 CFR 430.32(c)(4). All covered central 
air conditioners and heat pumps were also required to meet standards 
for average off mode electrical power consumption. 10 CFR 430.32(c)(5). 
DOE's current regulatory requirements for central air conditioners and 
heat pumps are listed in Table II.1.
---------------------------------------------------------------------------

    \16\ The 2011 Direct Final Rule divides the United States into 
three different climate zones based on the number of heating degree 
days: Southeast region, southwest region, and the north (also 
referred to as ``rest of the country'') which represents the 
national standard.

 Table II-1--Energy Conservation Standards for Central Air Conditioners and Heat Pumps Manufactured On or After
                                            January 1, 2015 [dagger]
----------------------------------------------------------------------------------------------------------------
                                                                    Southeastern region      Southwestern region
           Product class             National standard  levels   [dagger][dagger] standard    [Dagger] standard
                                                                          levels                   levels
----------------------------------------------------------------------------------------------------------------
Split-system air conditioners.....  SEER = 13.................  SEER = 14.................  SEER = 14
                                                                                            EER = 12.2 (for
                                                                                             units with a rated
                                                                                             cooling capacity
                                                                                             less than 45,000
                                                                                             Btu/h)
                                                                                            EER = 11.7 (for
                                                                                             units with a rated
                                                                                             cooling capacity
                                                                                             equal to or greater
                                                                                             than 45,000 Btu/h)
                                   -----------------------------------------------------------------------------
Split-system heat pumps...........                                    SEER = 14
                                                                     HSPF = 8.2
                                   -----------------------------------------------------------------------------
Single-package air conditioners...  SEER = 14.................  SEER = 14.................  SEER = 14
                                                                                            EER = 11.0
                                   -----------------------------------------------------------------------------
Single-package heat pumps.........                                    SEER = 14
                                                                     HSPF = 8.0
Small-duct, high-velocity systems                                     SEER = 12
 [Dagger][Dagger].
                                                                     HSPF = 7.2
Space-constrained products--air                                       SEER = 12
 conditioners [Dagger][Dagger].
Space-constrained products--heat                                      SEER = 12
 pumps [Dagger][Dagger].
                                                                     HSPF = 7.4
----------------------------------------------------------------------------------------------------------------
[dagger] ``SEER'' is Seasonal Energy Efficiency Ratio; ``EER'' is Energy Efficiency Ratio; ``HSPF'' is Heating
  Seasonal Performance Factor; and ``Btu/h'' is British thermal units per hour.
[dagger][dagger] The Southeastern region for central air conditioners contains the following States: Alabama,,
  Arkansas, Delaware, Florida, Georgia, Hawaii, Kentucky, Louisiana, Maryland, Mississippi, North Carolina,
  Oklahoma, South Carolina, Tennessee, Texas, and Virginia, and the District of Columbia.
[Dagger] The Southwestern region for central air conditioners contains the States of Arizona, California,
  Nevada, and New Mexico.
[Dagger][Dagger] DOE did not amend energy conservation standards for these product classes.

    The June 2011 DFR also established off mode energy conservation 
standards for residential central air conditioners and heat pumps, as 
summarized in Table II.2 and described in section III.E.

[[Page 1795]]



   Table II-2--Off Mode Energy Conservation Standards for Central Air
 Conditioners and Heat Pumps Manufactured On or After January 1, 2015 *
------------------------------------------------------------------------
          Product class              Off mode standard levels [dagger]
------------------------------------------------------------------------
Split-system air conditioners....  PW,OFF = 30 watts.
Split-system heat pumps..........  PW,OFF = 33 watts.
Single-package air conditioners..  PW,OFF = 30 watts.
Single-package heat pumps........  PW,OFF = 33 watts.
Small-duct, high-velocity systems  PW,OFF = 30 watts.
Space-constrained air              PW,OFF = 30 watts.
 conditioners.
Space-constrained heat pumps.....  PW,OFF = 33 watts.
------------------------------------------------------------------------
* ``PW,OFF'' is off mode electrical power consumption for central air
  conditioners and heat pumps.
[dagger] DOE is not adopting a separate standby mode standard level for
  central air conditioners and heat pumps, because standby mode power
  consumption for these products is already regulated by SEER and HSPF.

2. History of the Current CAC/HP Rulemaking
    This section provides an overview of the history of the current 
central air conditioner and heat pump rulemaking following the June 
2011 DFR up to this direct final rule.
    Following DOE's adoption of the June 2011 DFR, the American Public 
Gas Association (APGA) filed a petition for review with the U.S. Court 
of Appeals for the District of Columbia Circuit, seeking to invalidate 
the June 2011 DFR as it pertained to non-weatherized gas furnaces 
(NWGFs) and mobile home gas furnaces (MHGFs). Petition for Review, 
American Public Gas Association, et al. v. Department of Energy, et 
al., No. 11-1485 (D.C. Cir. filed Dec. 23, 2011). APGA requested the 
court to vacate and remand the direct final rule for further notice and 
comment rulemaking, with its main arguments being that DOE 
inappropriately banned noncondensing furnaces in the northern region 
and adopted a standard that would cause significant fuel switching 
without economic justification.\17\
---------------------------------------------------------------------------

    \17\ Brief for Petitioner, American Public Gas Association, et 
al. v. Department of Energy, et al., No. 11-1485 (D.C. Cir. filed 
May 14, 2012). See also: http://www.achrnews.com/ext/resources/2013/06-2013/06-03-13/APGA-Petition-DC-Cir_11-1485.pdf.
---------------------------------------------------------------------------

    On April 24, 2014, the Court granted a motion that approved a 
settlement agreement reached between DOE, APGA, and the various 
intervenors.\18\ Under this settlement agreement, DOE agreed to a court 
vacatur and remand of the regional standards for non-weatherized 
natural gas and mobile home furnaces and to use best efforts to 
complete a new standards rulemaking for those products within two 
years. Accordingly, the Court's order vacated the June 2011 DFR in part 
(i.e., those portions relating to NWGFs and MHGFs) and remanded to the 
agency for further rulemaking. Notwithstanding this litigation, the 
regional standards for residential central air conditioners and heat 
pumps contained in the June 27, 2011 DFR went into effect as originally 
scheduled with a compliance date of January 1, 2015. Around this time, 
DOE also decided to initiate a negotiated rulemaking with stakeholders 
on regional standards enforcement for central air conditioners and heat 
pumps.
---------------------------------------------------------------------------

    \18\ See: http://www.acca.org/wp-content/uploads/2014/03/joint-motion-to-vacate-and-remand-2014-to-file.pdf.
---------------------------------------------------------------------------

    On August 26, 2014, DOE published a notice of open meetings for the 
central air conditioner and heat pump regional standards enforcement 
working group, which was tasked to discuss and reach consensus on a 
proposed rule \19\ for the enforcement of regional standards for split-
system and single-package air conditioners. 79 FR 50856. This working 
group was scheduled to periodically convene from August through October 
of 2014. DOE issued a final rule on central air conditioner and heat 
pump regional standards enforcement on July 14, 2016. 81 FR 45387.
---------------------------------------------------------------------------

    \19\ More details on the issues considered can be found in the 
docket: http://www.regulations.gov/#!documentDetail;D=EERE-2011-BT-
CE-0077-0070.
---------------------------------------------------------------------------

    According to the Energy Policy and Conservation Act's 6-year review 
requirement (42 U.S.C. 6295(m)(1)), DOE must publish a notice of 
proposed rulemaking to propose new standards for residential central 
air conditioner and heat pump products or a notice of determination 
that the existing standards do not need to be amended by June 6, 2017. 
On November 5, 2014, DOE initiated efforts pursuant to the 6-year 
lookback requirement by publishing a request for information (RFI) 
regarding central air conditioners and heat pumps to solicit comments 
on whether to amend the current energy conservation standards for 
residential central air conditioner and heat pump products. 79 FR 
65603. The November 2014 RFI also described the procedural and 
analytical approaches that DOE anticipated using in order to evaluate 
potential amended energy conservation standards for central air 
conditioners and heat pumps.
    On August 28, 2015, DOE published a notice of data availability 
(NODA) describing analysis to be used in support of the central air 
conditioners and heat pumps standards rulemaking. 80 FR 52206. The 
analysis for this notice provided the results of a series of DOE 
provisional analyses regarding potential energy savings and economic 
impacts of amending the central air conditioner and heat pump energy 
conservation standards. These analyses were conducted for the following 
categories: Engineering, consumer impacts, national impacts, and 
manufacturer impacts.
    In response to the November 2014 RFI, Lennox formally requested 
that DOE convene a negotiated rulemaking to address potential 
amendments to the current standards, which would help ensure that all 
stakeholders have input into the discussion, analysis, and outcome of 
the rulemaking. (Lennox, No. 22) Other key industry stakeholders made 
similar suggestions. (American Council for an Energy-Efficient Economy, 
No. 23; Air Conditioning Contractors of America, No. 25; Heating, Air 
Conditioning & Refrigeration Distributors International, No. 26) ASRAC 
carefully evaluated this request, and the Committee voted to charter a 
working group to support the negotiated rulemaking effort requested by 
these parties.
    Subsequently, DOE determined that the complexity of the CAC/HP 
rulemaking necessitated a combined effort to address these equipment 
types to ensure a comprehensive vetting of all issues and related 
analyses to support any final rule setting standards. To this end, DOE 
solicited the public for membership nominations to the CAC/HP Working 
Group that would be formed under the ASRAC charter by issuing a Notice 
of Intent to Establish the Central Air Conditioners and Heat Pumps 
Working Group To Negotiate a

[[Page 1796]]

Notice of Proposed Rulemaking for Energy Conservation Standards. 80 FR 
40938 (July 14, 2015). The CAC/HP Working Group was established under 
ASRAC in accordance with the Federal Advisory Committee Act (FACA) and 
the Negotiated Rulemaking Act--with the purpose of discussing and, if 
possible, reaching consensus on a set of energy conservation standards 
to propose/finalize for CACs and HPs. The CAC/HP Working Group was to 
consist of fairly representative parties having a defined stake in the 
outcome of the proposed standards, and would consult, as appropriate, 
with a range of experts on technical issues.
    DOE received 26 nominations for membership. Ultimately, the CAC/HP 
Working Group consisted of 15 members, including one member from ASRAC 
and one DOE representative.\20\ The CAC/HP Working Group met ten times 
(nine times in-person and once by teleconference). The meetings were 
held on August 26, 2015, September 10, 2015, September 28-29, 2015, 
October 13-14, 2015, October 26-27, 2015. November 18-19, 2015, 
December 1-2, 2015, December 16-17, 2015, January 11-12, 2016, and a 
webinar on January 19, 2016.
---------------------------------------------------------------------------

    \20\ The group members were Tony Bouza (U.S. Department of 
Energy), Marshall Hunt (Pacific Gas & Electric Company, San Diego 
Gas & Electric Company, Southern California Edison, and Southern 
California Gas Company), Andrew deLaski (Appliance Standards 
Awareness Project and ASRAC representative), Meg Waltner (Natural 
Resources Defense Council), John Hurst (Lennox), Karen Meyers (Rheem 
Manufacturing Company), Charles McCrudden (Air Conditioning 
Contractors of America), Harvey Sachs (American Council for an 
Energy Efficient Economy), Russell Tharp (Goodman Manufacturing), 
Karim Amrane (Air-Conditioning, Heating, and Refrigeration 
Institute), Don Brundage (Southern Company), Kristen Driskell 
(California Energy Commission), John Gibbons (United Technologies), 
Steve Porter (Johnstone Supply), and Jim Vershaw (Ingersoll Rand).
---------------------------------------------------------------------------

    During the CAC/HP Working Group discussions, participants discussed 
setting new standards for single-package air conditioners. 
Specifically, arguments were made against raising the standard level 
for single-package systems due to the unavailability of full product 
lines, which span the entire range of cooling capacities, with 
efficiencies that are only modestly greater (i.e., 15 SEER) than the 
current standard level (i.e., 14 SEER). (ASRAC Public Meeting, No. 80 
at pp. 75-6) After being informed that the national energy savings from 
a 15 SEER standard for single-package systems would be small (i.e., 
approximately 0.1 quads), the Working Group agreed not to recommend 
raising the standards for these product classes. (ASRAC Public Meeting, 
No. 80 at pp. 90-91). In addition, some parties wanted the Group to 
recommend a level for standards for split-system heat pumps that would 
encourage use of two-speed equipment (i.e., greater than 15 SEER), but 
the manufacturer representatives objected to this proposal due to two 
primary concerns: (1) Only a single compressor manufacturer supplies 
two-stage compressors, thereby creating the possibility of a limited or 
constrained supply of the most critical component of a two-speed system 
and (2) the likelihood, in replacement installations, that the 
utilization of existing thermostat control wiring could result in the 
use of only high-speed, thereby eliminating the efficiency gain 
resulting from low-speed operation during part-load conditions.
    The CAC/HP Working Group successfully reached consensus on 
recommended energy conservation standards, as well as test procedure 
amendments for CACs and HPs. On January 19, 2016, the CAC/HP Working 
Group submitted the Term Sheet to ASRAC outlining its recommendations, 
which ASRAC subsequently adopted.\21\
---------------------------------------------------------------------------

    \21\ Available at (copy and paste into browser): https://www.regulations.gov/document?D=EERE-2014-BT-STD-0048-0076.
---------------------------------------------------------------------------

3. 2015-2016 ASRAC CAC/HP Working Group Recommended Standard Levels
    This section summarizes the standard levels recommended in the Term 
Sheet submitted by the CAC/HP Working Group for CAC/HP standards and 
the subsequent procedural steps taken by DOE. Recommendation #8 of the 
Term Sheet recommends standard levels based on the test procedure at 
the time of the 2015-2016 Negotiations. (ASRAC Term Sheet, No. 76 at 
pp. 4-5) These recommended standard levels are presented in Table II-3. 
Note that the test procedure at the time of the 2015-2016 Negotiations 
did not include the amendments adopted in the November 2016 test 
procedure final rule, which are outlined in section III.F. 
Recommendation #9 tabulates the translated standard levels based on the 
amended test procedure (ASRAC Term Sheet, No. 76 at p. 5). Details of 
the other Term Sheet recommendations can be found in the Term Sheet 
posted in the docket.\22\
---------------------------------------------------------------------------

    \22\ Available at (copy and paste into browser): https://www.regulations.gov/document?D=EERE-2014-BT-STD-0048-0076.

 Table II-3--Recommended Amended Energy Conservation Standards for Residential Central Air Conditioners and Heat
          Pumps as Determined by the DOE Test Procedure at the Time of the 2015-2016 ASRAC Negotiations
                                                [Recommended TSL]
----------------------------------------------------------------------------------------------------------------
                                                         National          Southeast         Southwest **
                                                 ------------------------      *     ---------------------------
                  Product class                                          ------------
                                                     SEER        HSPF        SEER        SEER         EER ***
----------------------------------------------------------------------------------------------------------------
Split-System Air Conditioners with a Certified            14  ..........          15          15  **** 12.2/10.2
 Cooling Capacity <45,000 Btu/h.................
Split-System Air Conditioners with a Certified            14  ..........        14.5        14.5  **** 11.7/10.2
 Cooling Capacity >=45,000 Btu/h................
Split-System Heat Pumps.........................          15         8.8  ..........  ..........  ..............
Single-Package Air Conditioners and Heat Pumps..          14         8.0  ..........  ..........            11.0
----------------------------------------------------------------------------------------------------------------
* Southeast includes: The states of Alabama, Arkansas, Delaware, Florida, Georgia, Hawaii, Kentucky, Louisiana,
  Maryland, Mississippi, North Carolina, Oklahoma, Puerto Rico, South Carolina, Tennessee, Texas, Virginia, the
  District of Columbia, and the U.S. territories.
** Southwest includes the states of Arizona, California, Nevada, and New Mexico.
*** EER requirements only apply to air conditioners, not heat pumps within each product class.
**** The 10.2 EER amended energy conservation standard applies to split-system air conditioners with a seasonal
  energy efficiency ratio greater than or equal to 16.
Note: The energy conservation standards for small-duct high velocity and space-constrained remain unchanged from
  current levels.


[[Page 1797]]

    After carefully considering the consensus recommendations for 
amending the energy conservation standards for CACs and HPs submitted 
by the CAC/HP Working Group and adopted by ASRAC, DOE has determined 
that these recommendations are in accordance with the statutory 
requirements of 42 U.S.C. 6295(p)(4) for the issuance of a direct final 
rule.
    More specifically, these recommendations comprise a statement 
submitted by interested persons who are fairly representative of 
relevant points of view on this matter. In reaching this determination, 
DOE took into consideration the fact that the CAC/HP Working Group, in 
conjunction with ASRAC members who approved the recommendations, 
consisted of representatives of manufacturers of the covered equipment 
at issue, States, and efficiency advocates--all of which are groups 
specifically identified by Congress as relevant parties to any 
consensus recommendation. (42 U.S.C. 6295(p)(4)(A)) As delineated 
above, the Term Sheet was signed and submitted by a broad cross-section 
of interests, including the manufacturers who produce the subject 
products, trade associations representing these manufacturers and 
installation contractors, environmental and energy-efficiency advocacy 
organizations, and electric utility companies. Although States were not 
direct signatories to the Term Sheet, the ASRAC Committee approving the 
CAC/HP Working Group's recommendations included at least two members 
representing States--one representing the National Association of State 
Energy Officials (NASEO) and one representing the State of 
California.\23\ Moreover, DOE does not read the statute as requiring a 
statement submitted by all interested parties before the Department may 
proceed with issuance of a direct final rule. By explicit language of 
the statute, the Secretary has the discretion to determine when a joint 
recommendation for an energy or water conservation standard has met the 
requirement for representativeness (i.e., ``as determined by the 
Secretary''). Id.
---------------------------------------------------------------------------

    \23\ These individuals were Deborah E. Miller (NASEO) and David 
Hungerford (California Energy Commission).
---------------------------------------------------------------------------

    DOE also evaluated whether the recommendation satisfies 42 U.S.C. 
6295(o), as applicable. In making this determination, DOE conducted an 
analysis to evaluate whether the potential energy conservation 
standards under consideration achieve the maximum improvement in energy 
efficiency that is technologically feasible and economically justified 
and result in significant energy conservation. The evaluation is the 
same comprehensive approach that DOE typically conducts whenever it 
considers potential energy conservation standards for a given type of 
product or equipment.
    Upon review, the Secretary determined that the Term Sheet comports 
with the standard-setting criteria set forth under 42 U.S.C. 
6295(p)(4)(A). Accordingly, the consensus-recommended efficiency levels 
were included as the ``recommended TSL'' for CACs/HPs (see section V.A 
for description of all of the considered TSLs). The details regarding 
how the consensus-recommended TSLs comply with the standard-setting 
criteria are discussed and demonstrated in the relevant sections 
throughout this document.
    In sum, as the relevant criteria under 42 U.S.C. 6295(p)(4) have 
been satisfied, the Secretary has determined that it is appropriate to 
adopt the consensus-recommended amended energy conservation standards 
for CACs and HPs through this direct final rule. Also in accordance 
with the provisions described in section II.A, DOE is simultaneously 
publishing a NOPR proposing that the identical standard levels 
contained in this direct final rule be adopted.

III. General Discussion

    This section covers subjects that are not explicitly discussed in 
other sections but provide additional necessary context for 
understanding this direct final rule.

A. Regulatory Approach

    When DOE initiated this rulemaking, DOE had intended to rate and 
certify split-system central air conditioners based on a blower-coil 
configuration. This approach was reflected in the August 2015 NODA TSD. 
However, in the June 2016 test procedure final rule, DOE adopted a 
different approach based on CAC/HP Working Group recommendations. 81 FR 
36992, 37001-03 (June 8, 2016). At its meeting on November 19, 2015, 
DOE presented two potential regulatory approaches, one based on both 
coil only and blower-coil configurations (approach 1, similar to the 
existing regulatory structure) and one based on blower-coil 
configurations (approach 2), both of which DOE regarded as feasible. 
During discussion, the CAC/HP Working Group generally supported 
approach 1 based on concerns with approach 2. Working Group members' 
primary concern with approach 2 is that the majority of sales are for 
coil-only installations, so blower-coil only ratings would not be 
representative of the majority of field installations, which could 
contribute to consumer confusion. (ASRAC Public Meeting, No. 85 at pp. 
6-42) \24\ The CAC/HP Working Group ultimately recommended that DOE 
adopt approach 1 and require rating and certifying split-system central 
air conditioners based on any configuration (i.e., coil-only or blower-
coil). The regulatory approach to split-system central air conditioners 
is identified as recommendation #7 in the CAC/HP Working Group Term 
Sheet. (ASRAC Term Sheet, No. 76 at p. 4) The June 2016 test procedure 
final rule includes a detailed discussion of these recommended changes 
and DOE's adoption of them. 81 FR 36992, 37001-37003 (June 8, 2016).
---------------------------------------------------------------------------

    \24\ For discussion supporting approach 1, or the approach not 
based solely on blower coil ratings, see for example, Karen Meyers, 
pp. 27-28; Rusty Tharp, p. 29; Jim Vershaw, p. 36.
---------------------------------------------------------------------------

    For the August 2015 NODA, DOE developed cost-efficiency 
relationships in the engineering analysis for blower coil systems. Then 
DOE established a correlation between blower coil system efficiency and 
coil-only efficiency based on ratings from the AHRI database. DOE used 
this correlation to calculate the cost-efficiency relationship for 
coil-only systems. Given the revised regulatory approach for this DFR, 
DOE analyzed coil-only cost-efficiency directly. Section IV.C describes 
in detail how DOE determined the cost-efficiency relationship for coil-
only systems in this DFR.

B. Compliance Dates

    EPCA prescribes a five-year period between the standard's 
publication date and the compliance date (42 U.S.C. 6295(m)(4)(A)(i)). 
The compliance date for the 2011 DFR is January 1, 2015. The statute 
further provides that no manufacturer shall be required to apply new 
standards to a product to which other new standards have been required 
during the prior six-year period (42 U.S.C. 6295(m)(4)(B)). Given these 
statutory provisions, the earliest date that DOE could require 
compliance with amended standards would be January 1, 2021 (i.e., six 
years after January 1, 2015, the compliance date of the standards 
adopted in the June 27, 2011 DFR). Thus, DOE contemplated a compliance 
date in 2021 in analyzing the impacts of the TSLs other than the 
Recommended TSL, which represents the recommended standards.
    For the Recommended TSL, the CAC/HP Working Group recommended a 
compliance date of January 1, 2023. While this implies a period between 
the

[[Page 1798]]

standards final rule's publication date and the compliance date that is 
longer than five years, DOE understands that EPCA provides some measure 
of discretion when adopting recommended standards submitted as part of 
a consensus agreement, provided that DOE determines that the 
recommended standards are otherwise in accordance with the required 
provisions. See 42 U.S.C. 6295(p)(4). DOE has made the determination 
that the rulemaking record in this case supports the adoption of the 
recommended compliance date.

C. Regional Standards

    As described previously, EISA 2007 amended EPCA to allow for the 
establishment of one or two more-restrictive regional standards in 
addition to the base national standard for residential central air 
conditioners and heat pumps. (42 U.S.C. 6295(o)(6)(B)) The regions must 
include only contiguous States (with the exception of Alaska and 
Hawaii, which can be included in regions with which they are not 
contiguous), and each State may be placed in only one region (i.e., a 
State cannot be divided among or otherwise included in two regions). 
(42 U.S.C. 6295(o)(6)(C))
    Further, EPCA mandates that a regional standard must produce 
significant energy savings in comparison to a single national standard, 
and provides that DOE must determine that the additional standards are 
economically justified and consider the impact of the additional 
regional standards on consumers, manufacturers, and other market 
participants, including product distributors, dealers, contractors, and 
installers. (42 U.S.C. 6295(o)(6)(D)) In the 2011 Direct Final Rule, 
DOE considered the above-delineated impacts of regional standards in 
addition to national standards for central air conditioners and heat 
pumps, and the analyses indicated that regional standards will provide 
additional positive impacts. See chapter 10 of the 2011 DFR TSD.\25\
---------------------------------------------------------------------------

    \25\ Reference to Technical Support Document for Residential 
Central Air Conditioners, Heat Pumps, and Furnaces, Chapter 10 
National and Regional Impact Analyses (copy and paste into browser): 
http://www.regulations.gov/#!documentDetail;D=EERE-2011-BT-STD-0011-
0012.
---------------------------------------------------------------------------

    Consistent with the consensus agreement \26\ submitted to DOE by a 
number of interested stakeholders on January 15, 2011, the 2011 Direct 
Final Rule established regional standards on EER for split-system and 
single-package air conditioners for the southwest region. Pursuant to 
42 U.S.C. 6295(o)(1) (i.e., the ``anti-backsliding clause''), DOE may 
not prescribe any amended standard which increases the maximum 
allowable energy use or decreases the minimum required energy 
efficiency of a covered product. As such, DOE intends to maintain the 
application of a regional standard requirement for the same product 
classes in the same regions. Accordingly, DOE has addressed the 
potential impacts from regional standards in the relevant analyses, 
including the mark-ups to determine product price, the LCC and payback 
period analysis, the national impact analysis (NIA), and the 
manufacturer impact analysis (MIA). DOE's approach for addressing 
regional standards is included in the methodology section corresponding 
to each individual analysis in section IV of this direct final rule.
---------------------------------------------------------------------------

    \26\ Reference to Joint Stakeholders Comments on Energy 
Conservation Standards for Residential Central Air Conditioners, 
Heat Pumps, and Residential Furnaces (copy and paste into browser): 
https://www.regulations.gov/document?D=EERE-2011-BT-STD-0011-0016.
---------------------------------------------------------------------------

D. Alternative Refrigerants

    Residential central air conditioners and heat pumps currently on 
the market primarily utilize R-410A as the refrigerant. R-410A is a 
mixture of hydrofluorocarbons (HFCs), specifically HFC-32 (R-32) and 
HFC-125 (R-125) with a 50 percent/50 percent mass ratio. Stakeholders 
have raised concern that the high global warming potential of HFCs has 
put pressure on the industry to phase out HFC-containing refrigerants 
in favor of alternatives with a lower global warming potential (GWP). 
In response to the November 2014 RFI, ACEEE recommended that DOE 
consider the potential impact of changes in refrigerants on the 
standards. (ACEEE, No. 21 at p.3) Lennox suggested that DOE consider 
equipment redesigns resulting from the transition to alternate 
refrigerants. (Lennox, No. 10 at p. 4) Southern Co. suggested that DOE 
also model efficiencies using low-Global Warming Potential (GWP) 
refrigerants. (Southern Co., No. 11 at p. 2) EIA strongly urged DOE to 
consider the use of low-GWP refrigerants and alternative refrigerants 
such as CO2, and indirect evaporative cooling technology. (EIA, No. 12 
at p. 1) Rheem suggested that DOE reevaluate the efficacy of design 
options with respect to the elimination of R410a. (Rheem, No. 17 at p. 
3).
    In response, DOE is aware that the U.S. Environmental Protection 
Agency (EPA) has proposed and finalized amendments to its lists of 
approved refrigerants under its significant new alternatives policy 
program \27\ (SNAP); however, these changes do not address central air 
conditioners and heat pumps.\28\ It would not be appropriate for DOE to 
speculate on the outcome of a rulemaking in progress or potential 
proposals that have not yet been issued. Therefore, DOE has not 
included possible outcomes of a potential EPA SNAP rulemaking affecting 
central air conditioners and heat pumps in the engineering or LCC 
analyses. This decision is consistent with past DOE practice, such as 
in the 2011 direct final rule for room air conditioners. 76 FR 22454 
(April 21, 2011). DOE is aware of stakeholder concerns that EPA may 
broaden the applications for which HFC refrigerants are phased out at 
some point in the future. DOE is confident that there will be an 
adequate supply of R-410A for compliance with the standards being 
adopted in this notice. However, consistent with Executive Order 13563, 
``Improving Regulation and Regulatory Review,'' DOE will prioritize its 
review of the potential effects of any future phase-out of HFCs (should 
there be one) on the efficiency standards related to this rulemaking. 
If a manufacturer believes that its design is subjected to undue 
hardship by regulations, the manufacturer may petition DOE's Office of 
Hearing and Appeals (OHA) for exception relief or exemption from the 
standard pursuant to OHA's authority under section 504 of the DOE 
Organization Act (42 U.S.C. 7194), as implemented at subpart B of 10 
CFR part 1003. OHA has the authority to grant such relief on a case-by-
case basis if it determines that a manufacturer has demonstrated that 
meeting the standard would cause hardship, inequity, or unfair 
distribution of burdens.
---------------------------------------------------------------------------

    \27\ EPA regulates refrigerants for air conditioning, 
refrigeration, and other end uses under the stratospheric ozone 
protection provisions under Section 612(c) the Clean Air Act (CAA). 
EPA's SNAP Program evaluates and regulates the availability of 
refrigerants for the U.S. market by identifying and publishing lists 
of acceptable and unacceptable refrigerant substitutes.
    \28\ EPA on July 9, 2014 proposed new alternative refrigerants 
for several applications, but not central air conditioners or heat 
pumps. 79 FR 38811. On February 27, 2015, EPA issued the final rule 
for this rulemaking, which was published in the Federal Register on 
April 10, 2015 (see http://www.epa.gov/ozone/snap/download/SAN_5745-SNAP_Low_GWP_Refrigerants_FRM_Signature_Version-signed-2-27-2015.pdf). 80 FR 19454. Also, on August 6, 2014, EPA proposed 
delisting refrigerants for several applications, but not central air 
conditioners or heat pumps. 79 FR 46126. On July 20, 2015, EPA 
published the final rule for this rulemaking, which went into effect 
on August 19, 2015. 80 FR 42870. Refer to the docket (copy and paste 
into browser): https://www.regulations.gov/docket?D=EPA-HQ-OAR-2014-0198.
---------------------------------------------------------------------------

    As such, DOE did not conduct additional analysis based on 
alternative

[[Page 1799]]

refrigerants to replace R-410A in this rulemaking.

E. Standby Mode and Off Mode

    As noted in section II.A of this document, any final rule for 
amended or new energy conservation standards for consumer products that 
is published on or after July 1, 2010 must address standby mode and off 
mode energy use. (42 U.S.C. 6295(gg))
    As set forth in 10 CFR 430.2, Standby mode means the condition in 
which an energy-using product--
    (1) Is connected to a main power source; and
    (2) Offers one or more of the following user-oriented or protective 
functions:
    (i) To facilitate the activation or deactivation of other functions 
(including active mode) by remote switch (including remote control), 
internal sensor, or timer; or
    (ii) Continuous functions, including information or status displays 
(including clocks) or sensor-based functions.
    For residential central air conditioners and heat pumps, the 
standby mode refers to the state when a system is connected to the 
power supply but the compressor and fans are not running (i.e., the 
system is not actively cooling or heating but it is primed to be 
activated by the thermostat). The SEER and HSPF metrics for cooling and 
heating already account for standby mode energy use. Specifically, the 
degradation coefficients used to adjust the steady-state efficiency 
levels to account for cyclic operation of the unit when calculating 
SEER or HSPF are based on electric energy measurements that include the 
energy use of the unit during the compressor-off cycles, and they 
include power input associated with all unit components, including the 
control system.
    As set forth in 10 CFR 430.2, off mode means the condition in which 
an energy using product is connected to a main power source, and is not 
providing any standby or active mode function. For central air 
conditioners and heat pumps, off mode generally occurs during all non-
cooling seasons for air conditioners, and during the ``shoulder 
seasons'' (i.e., fall and spring) for heat pumps when consumers neither 
heat nor cool their homes. Unlike standby mode, off mode energy use is 
not captured in the SEER and HSPF metrics. As such, the June 2011 
Direct Final Rule established off mode energy conservation standards 
for central air conditioners and heat pumps. In the technology 
assessment of the June 2011 Direct Final Rule, DOE considered five 
technologies associated with off mode for central air conditioners and 
heat pumps: (1) Toroidal transformers; (2) ECM control relays; (3) 
thermostatically-controlled crankcase heaters; (4) self-regulating 
crankcase heaters, and (5) compressor insulation covers. DOE continues 
to screen out the ECM control relay because DOE is not aware of any 
commercially-available systems that use this technology, and DOE is 
also not aware of any improvements to the technology that would address 
the associated reliability issues. DOE did, however, consider the 
remaining four technologies as design options for establishing the off 
mode energy conservation standards. The adopted standards were 
ultimately based upon this list of technologies. 76 FR 37408, 37447-
37450 (June 27, 2011).
    For the current direct final rule, DOE further researched the four 
technologies considered as design options in the June 2011 DFR. DOE was 
able to find thermostatically-controlled and self-regulating crankcase 
heaters in commercially-available central air conditioners and heat 
pumps. However, manufacturer specifications do not provide detailed 
wattage information for DOE to determine if these technologies could 
lower the off mode energy use for central air conditioners and heat 
pumps based on the existing off mode standards. Toroidal transformers 
may have higher efficiencies than conventional laminate transformers, 
but their savings potential is small compared to the precision of the 
test procedure as applied to baseline products. Crankcase heater 
wattage, rather than transformer loss, represents most of the measured 
off mode power input. DOE also believes that compressor covers can 
reduce heat loss and, therefore, reduce the off mode energy 
consumption. However, the existing off mode standards established by 
the June 2011 Direct Final Rule are already consistent with the energy 
use achievable using these technologies, and DOE does not have evidence 
to indicate that further energy savings based on these technologies are 
achievable.
    In addition to the four technologies considered in the June 2011 
Direct Final Rule, DOE identified another two technologies that could 
potentially reduce the off mode energy use for central air conditioners 
and heat pumps: (1) Hermetic crankcase heaters and (2) integral 
compressor motor heaters. However, DOE did not find any commercially-
available applications of these two technologies in central air 
conditioners and heat pumps and did not consider these technologies 
further. More details on these technologies can be found in chapter 3 
of the DFR TSD.
    As such, DOE concludes that amending the off mode energy 
conservation standards at this time is not justified. This review 
satisfies, for off mode energy conservation standards for CAC/HP 
products, the periodic review of energy conservation standards required 
by EPCA. (42 U.S.C. 6295(m)(1))

F. Test Procedure

    This section provides a brief overview of DOE's requirements with 
respect to test procedures as well as the history of the most recent 
central air conditioner and heat pump test procedure rulemakings and an 
overview of the significant changes adopted.
    EPCA sets forth generally applicable criteria and procedures for 
DOE's adoption and amendment of test procedures. (42 U.S.C. 6293) 
Manufacturers of covered products must use these test procedures to 
certify to DOE that their product complies with energy conservation 
standards and to quantify the efficiency of their product.
    DOE notes that Appendix A established procedures, interpretations, 
and policies to guide DOE in the consideration and promulgation of new 
or revised appliance efficiency standards under EPCA. (See section 1 of 
10 CFR of 430 subpart C, appendix A) These procedures are a general 
guide to the steps DOE typically follows in promulgating energy 
conservation standards. The guidance recognizes that DOE can and will, 
on occasion, deviate from the typical process. (See 10 CFR part 430, 
subpart C, appendix A, section 14(a)) In this particular instance, DOE 
deviated from its typical process by conducting a negotiated rulemaking 
process, per the request of multiple key stakeholders and as chartered 
by ASRAC. The CAC/HP Working Group met ten times (nine times in-person 
and once by teleconference) and successfully reached consensus on 
recommended amended energy conservation standards, as well as test 
procedure amendments for CACs and HPs. On January 19, 2016, the CAC/HP 
Working Group submitted the Term Sheet to ASRAC outlining its 
recommendations, which ASRAC subsequently adopted. As discussed in 
section II.B.3, the Term Sheet meets the criteria of a consensus 
recommendation, and DOE has determined that these recommendations are 
in accordance with the statutory requirements of 42 U.S.C. 6295(p)(4) 
for the issuance of a direct final rule. DOE ultimately adopted many of 
the test procedure provisions and recommended standard levels that the 
CAC/HP Working Group included in the Term Sheet, which

[[Page 1800]]

illustrates that DOE's deviations from the typical rulemaking process 
in this instance did not adversely impact the manufacturers' ability to 
understand and provide input to DOE's rulemaking process. The process 
that DOE used, in this case, was a more collaborative negotiated 
rulemaking effort resulting in an agreement on recommended standard 
levels, which DOE is fully implementing in this direct final rule.
    The most recent test procedure rulemaking included the following 
key rulemaking documents: The June 2016 test procedure final rule (81 
FR 36992), the August 2016 test procedure SNOPR (81 FR 58164), and the 
November 2016 test procedure final rule (Docket No. EERE-2016-BT-TP-
0029). This section does not address specific comments received on 
these test procedure documents, as those comments are addressed in the 
three notices listed. Rather, the main purpose of this section is to 
provide context for understanding the efficiency levels used in 
analyses for this direct final rule and the translated levels following 
the walkdown analysis. To reiterate, efficiency levels used throughout 
the analyses for this DFR are based on the test procedure in effect at 
the time of the CAC/HP Working Group negotiations, which did not 
include the changes outlined in this section. Standard levels set in 
this final rule have a compliance date simultaneous with the date that 
the test procedure as modified by the November 2016 test procedure 
final rule must be used to represent product efficiency. The 
translation of these standard levels based on the November 2016 test 
procedure final rule--which does include the changes outlined in this 
section--is presented in section V.C.1.
    DOE initiated a test procedure rulemaking for central air 
conditioners and heat pumps in advance of the June 2011 DFR, publishing 
a NOPR on June 2, 2010 (June 2010 test procedure NOPR). 75 FR 31224. In 
this NOPR, DOE proposed adding calculations for the determination of 
sensible heat ratio, incorporating of a method to evaluate off mode 
power consumption, and also adding parameters for establishing regional 
measures of energy efficiency. Id.
    DOE published a supplemental notice of proposed rulemaking (SNOPR) 
regarding the test procedure for central air conditioners and heat 
pumps on April 1, 2011. 76 FR 18105. In this SNOPR, DOE proposed to 
amend the testing requirements for off mode power consumption in 
response to the comments DOE received on the June 2010 test procedure 
NOPR. DOE also discussed issues related to low-voltage transformers 
used when testing coil-only units, and the use of a regional standard 
efficiency metric. Id.
    DOE received further comments regarding the off mode testing 
requirement for central air conditioners and heat pumps after the 
publication of the April 2011 test procedure SNOPR. In response to 
these comments, DOE published a second SNOPR on October 24, 2011. 76 FR 
65616. In the October 2011 test procedure SNOPR, DOE addressed comments 
only related to off mode testing for central air conditioners and heat 
pumps. Id.
    DOE received comments on the October 2011 test procedure SNOPR, as 
well as comments relevant to the test procedure in response to the 
November 2014 RFI. In response to these comments, DOE published a third 
SNOPR on November 9, 2015. 80 FR 69278. DOE proposed the following in 
the November 2015 test procedure SNOPR:
     A new basic model definition as it pertains to central air 
conditioners and heat pumps and revised rating requirements;
     Revised alternative efficiency determination methods;
     Termination of active waivers and interim waivers;
     Revised procedures to determine off mode power 
consumption;
     Changes to the test procedure that would improve test 
repeatability and reduce test burden;
     Clarifications to ambiguous sections of the test procedure 
intended also to improve test repeatability;
     Inclusion of, amendments to, and withdrawals of test 
procedure revisions proposed in published test procedure notices in the 
rulemaking effort leading to this SNOPR; and
     Changes to the test procedure that would improve field 
representativeness.
    Some of these proposals also included incorporation by reference of 
updated industry standards. Id.
    On June 8, 2016, DOE published a final rule with amendments to the 
test procedure that did not change the measured energy efficiency of 
central air conditioners and heat pumps when compared to the test 
procedure previously in effect. 81 FR 36992. Broadly, amendments 
included revisions to:
     Definitions, testing, rating, and compliance of basic 
models;
     Requirements for Alternative Efficiency Determination 
Methods (AEDMs);
     Procedures for specific products that had been granted 
test procedure waivers (e.g., multi-circuit products and triple-
capacity northern heat pumps);
     Test methods and calculations for off mode power; and
     Specific procedures concerning test repeatability and test 
burden, including for example, setting fan speeds, determining the 
maximum speed for variable-speed compressors, charging refrigerant 
lines, and determining the coefficient of cyclic degradation 
(CD), among others.
    In the June 2016 test procedure final rule, DOE did not finalize 
several proposals of the November 2015 SNOPR that were intended to 
improve field representativeness, opting instead to revise these 
proposals and obtain further stakeholder input on them. DOE did this by 
publishing a SNOPR on August 24, 2016, which proposed amendments to the 
test procedure established by the June 2016 test procedure final rule. 
81 FR 58164 DOE indicated that several of these amendments would change 
the measured energy efficiency of central air conditioners and heat 
pumps, while others would provide additional improvements for clarity 
and consistency. Amendments of the August 2016 SNOPR that would change 
measured efficiency were proposed for a new appendix M1 that would be 
required for representations coincident with the compliance date of the 
new efficiency standards These included proposals to:
     Increase minimum external static pressure requirements for 
most products, but limit the increase for certain products;
     For coil-only systems, introduce a new default fan power 
based on the new minimum external static pressure, and a unique, lower 
default fan power for manufactured home coil-only systems;
     Revise the heating load line slope factor and the heating 
load line zero-load temperature to better reflect field heating loads; 
and
     Revise certain aspects of the calculation procedures for 
calculating HSPF, including modified and clarified requirements 
regarding compressor speeds used for testing variable-speed heat pumps, 
and allowing use of a 5[emsp14][deg]F test as an option for variable-
speed heat pumps.
    Other proposed changes to improve clarity and consistency, which 
DOE proposed as amendments to the current appendix M, as well as in 
sections of 10 CFR part 429, were to take effect 30 days after 
publication of the final rule. These included:
     Additional changes to definitions and compliance 
requirements;
     Extending the requirements for no-match testing to other 
kinds of outdoor units that are predominantly installed as

[[Page 1801]]

replacements where the indoor unit is not replaced;
     Revision to the off-mode test procedure for systems with 
self-regulating crankcase heaters.
     A revised calculation for variable-speed heat pumps for 
calculating maximum speed performance below 17[emsp14][deg]F;
     A revised method for calculating EER and COP for all 
variable-speed units, when operating at an intermediate compressor 
speed;
     Modifications to the outdoor air enthalpy method;
     New restrictions on refrigerant pressure measurement 
system internal volume;
     A new limit on indoor coil surface area; and
     Clarifying amendments addressing break-in periods, multi-
split system part load requirements, and cased coil installation 
requirements.
    On November 30, 2016 DOE issued a test procedure final rule that 
adopted most of the amendments proposed in the August 2016 SNOPR, many 
of these with revisions addressing stakeholder comments. Changes in 
final implementation of the amendments as compared to the proposals of 
the August 2016 SNOPR included:
     No adoption of restrictions on indoor coil surface area;
     Delay in implementation of certain amendments, moving them 
to appendix M1, including the change to the off-mode test procedure and 
some of the provisions for testing of variable-speed heat pumps;
     Revisions to specific requirements for determining whether 
an outdoor unit must be tested using the no-match test procedure;
     For all secondary test methods (not just for the outdoor 
air enthalpy method as proposed), requiring a match to confirm primary 
capacity measurements only for certain tests, rather than for all 
tests;
     Modifications reducing the restrictions on refrigerant 
pressure system internal volumes;
     A change in the required external static pressure used for 
testing for one kind of product; and
     Extending optional use of a 5[emsp14][deg]F test to 
single- and two-speed heat pumps in addition to variable-speed.
    Note that, as discussed in section I, the analyses conducted to 
support this direct final rule were based on the test procedure at the 
time of the 2015-2016 ASRAC negotiations, per the request of the CAC/HP 
Working Group. Consequently, the efficiency ratings and levels 
referenced throughout this document are not impacted by the test 
procedure amendments described above for the November 2016 test 
procedure final rule. However, central air conditioners and heat pumps 
will be required to be certified to the efficiency levels selected in 
this direct final rule and based on the test procedure established by 
the November 2016 test procedure final rule. The selected efficiency 
levels--presented throughout this document in terms of the test 
procedure at the time of the 2015-2016 ASRAC negotiations--are 
translated to levels in terms of the November 2016 test procedure final 
rule following the walk down analysis in section V.C.1.

G. 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 direct final rule Technical Support Document (``TSD'') 
for a discussion of the list of technology options that DOE 
identified.) DOE then determines which of those efficiency-improving 
options are technologically feasible. DOE considers technologies 
incorporated in commercially-available products or in working 
prototypes to be technologically feasible. 10 CFR part 430, subpart C, 
appendix A, section 4(a)(4)(i).
    Once 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 product 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). Additionally, it is DOE policy not to include in its 
analysis any proprietary technology that is a unique pathway to 
achieving a certain efficiency level. Section IV.B of this direct final 
rule discusses the results of the screening analysis for residential 
central air conditioners and heat pumps, 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 this 
direct final rule's TSD.
    DOE notes that these screening criteria do not directly address the 
proprietary status of design options. As noted previously, DOE only 
considers efficiency levels achieved with 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 amended standards for the products covered in this 
rulemaking would not mandate the use of any proprietary technologies, 
and that all manufacturers would be able to achieve the amended levels 
through the use of non-proprietary designs. The efficiency levels 
considered in the analysis are all represented by commercially-
available technologies that are available to all manufacturers.
2. Maximum Technologically Feasible Levels
    When DOE proposes to adopt an amended standard for a type or class 
of covered product, it must determine the maximum improvement in energy 
efficiency or maximum reduction in energy use that is technologically 
feasible for such a product. (42 U.S.C. 6295(p)(1)) Accordingly, in the 
engineering analysis, DOE determined the maximum technologically 
feasible (``max-tech'') improvements in energy efficiency for central 
air conditioners and heat pumps, using the design parameters for the 
most-efficient products available on the market or in working 
prototypes (see chapter 5 of the direct final rule TSD). The max-tech 
levels considered for the analysis represent commercially-available 
products. For most of the product classes, these max-tech products are 
listed in the AHRI Directory.\29\ For the SDHV and space-constrained 
air conditioner classes, the max-tech levels are as reported in 
manufacturers' product literature.
---------------------------------------------------------------------------

    \29\ AHRI is the trade association representing manufacturers of 
heating, ventilation, air conditioning and refrigeration (HVACR) and 
water heating equipment within the global industry. Products of 
different manufacturers are certified to AHRI and listed in the AHRI 
Directory at: https://www.ahridirectory.org/ahridirectory/pages/home.aspx. directory:https://www.ahridirectory.org/ahridirectory/pages/home.aspx.
---------------------------------------------------------------------------

    The max-tech levels that DOE determined for this rulemaking are 
presented in Table III-1. Note that these max-tech levels are in terms 
of the efficiency metrics measured consistent with the test procedure 
at the time of the 2015-2016 ASRAC negotiations.

[[Page 1802]]

The max-tech levels themselves are discussed in more detail in section 
IV.C of this direct final rule and in chapter 5 of the accompanying 
TSD.

 Table III-1--Max-Tech SEER and Corresponding EER and HSPF Levels Considered in the Central Air Conditioner and
                                               Heat Pump Analyses
----------------------------------------------------------------------------------------------------------------
                                                                                  Max-tech efficiency levels
                Product class                     Representative cooling     -----------------------------------
                                                      capacity (tons)              SEER *            HSPF *
----------------------------------------------------------------------------------------------------------------
Split-Systems
    Air Conditioners **.....................  2.............................              21.0               N/A
                                              3.............................              21.0
                                              5.............................              20.0
    Heat Pumps..............................  2.............................              19.0               9.9
                                              3.............................              19.0               9.9
                                              5.............................              17.5               9.4
Single-Package Systems
    Air Conditioners........................  All...........................              17.5               N/A
    Heat Pumps..............................  All...........................              15.0               8.2
Small-Duct High-Velocity Air Conditioners...  All...........................              14.0               N/A
Space-Constrained Air Conditioners..........  All...........................              14.0               N/A
----------------------------------------------------------------------------------------------------------------
* SEER and HSPF listed in the table are as measured using the test procedure proposed in the November 9, 2015 TP
  SNOPR. 80 FR 69278 EER is also measured by the test procedure, but as discussed in section IV.C.2, DOE did not
  analyze EER-based efficiency levels for this direct final rule.
** Max-Tech SEER levels are based on a blower-coil configuration.

H. Energy Savings

1. Determination of Savings
    For each TSL, DOE projected energy savings from the application of 
the TSL to the central air conditioners and heat pumps that are the 
subject of this rulemaking purchased in the 30-year period that begins 
in the year of expected compliance with amended standards (2021-2050 or 
2023-2052).\30\ The savings are measured over the entire lifetime of 
central air conditioner and heat pump products purchased in the 30-year 
analysis period. DOE quantified the energy savings attributable to each 
TSL as the difference in energy consumption between each standards case 
and the no-new-standards case. The latter case represents a projection 
of energy consumption in the absence of amended energy conservation 
standards, and it considers market forces and policies that may affect 
future demand for more-efficient products.
---------------------------------------------------------------------------

    \30\ DOE also presents a sensitivity analysis that considers 
impacts for products shipped in a 9-year period.
---------------------------------------------------------------------------

    DOE used its national impact analysis (NIA) spreadsheet model to 
estimate national energy savings (NES) from potential amended standards 
for central air conditioners and heat pumps. The NIA spreadsheet model 
(described in section IV.H of this direct final rule and chapter 10 of 
the TSD) calculates energy savings in terms of site energy, which is 
the energy directly consumed by products at the locations where they 
are used. For electricity, DOE calculates national energy savings on an 
annual basis in terms of primary (source) energy savings, which is the 
savings in the energy that is used to generate and transmit electricity 
to the site. To calculate primary energy savings from site electricity 
savings, DOE derives annual conversion factors from data provided in 
the Energy Information Administration's (EIA) most recent Annual Energy 
Outlook (AEO). For natural gas, the primary energy savings are 
considered to be equal to the site energy savings.
    DOE also calculates NES in terms of full-fuel-cycle (FFC) energy 
savings. As discussed in DOE's statement of policy, the FCC metric 
includes the energy consumed in extracting, processing, and 
transporting primary fuels (i.e., coal, natural gas, petroleum fuels), 
and, thus, presents a more complete picture of the impacts of energy 
conservation standards. 76 FR 51282 (August 18, 2011), as amended at 77 
FR 49701 (August 17, 2012). DOE's approach is based on the calculation 
of an FFC multiplier for each of the energy types used by covered 
products or equipment. For more information on FFC energy savings, see 
section IV.H.4.
2. Significance of Savings
    To adopt any new or amended standards for a covered product, DOE 
must determine that such action would result in ``significant'' energy 
savings. (42 U.S.C. 6295(o)(3)(B)) Although the term ``significant'' is 
not defined in the Act, the U.S. Court of Appeals for the District of 
Columbia Circuit, in Natural Resources Defense Council v. Herrington, 
768 F.2d 1355, 1373 (D.C. Cir. 1985), opined that Congress intended 
``significant'' energy savings in the context of EPCA to be savings 
that are not ``genuinely trivial.'' The energy savings for all of the 
TSLs considered in this rulemaking, including the amended standards 
(presented in section V.B.3), are nontrivial, and, therefore, DOE 
considers them ``significant'' within the meaning of section 325 of 
EPCA.

I. Economic Justification

1. Specific Criteria
    As discussed in section II.B., EPCA provides seven factors to be 
evaluated in determining whether a potential energy conservation 
standard is economically justified. (42 U.S.C. 6295(o)(2)(B)(i)(I)-
(VII)) The following sections discuss how DOE has addressed each of 
those seven factors in this rulemaking.
a. Economic Impact on Manufacturers and Consumers
    In quantifying the impacts of a potential amended standard on 
manufacturers, DOE conducts a manufacturer impact analysis (MIA), as 
discussed in section IV.J, using 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

[[Page 1803]]

and income; and (4) other measures of impact, as appropriate. Second, 
DOE analyzes and reports the impacts on different types of 
manufacturers, including impacts on small manufacturers. Third, DOE 
considers the impact of standards on domestic manufacturer employment 
and manufacturing capacity, as well as the potential for standards to 
result in plant closures and loss of capital investment. Finally, DOE 
takes into account cumulative impacts of various DOE regulations and 
other regulatory requirements on manufacturers.
    For individual consumers, measures of economic impact include the 
changes in LCC and payback period (PBP) associated with new or amended 
standards. These measures are discussed further in the following 
section. For consumers in the aggregate, DOE also calculates the 
national net present value of the consumer costs and benefits expected 
to result from particular standards. DOE also evaluates the LCC impacts 
of potential standards on identifiable subgroups of consumers that may 
be affected disproportionately by a national standard.
b. Savings in Operating Costs Compared To Increase in Price (LCC and 
PBP)
    EPCA requires DOE to consider the savings in operating costs 
throughout the estimated average life of the covered product in the 
type (or class) compared to any increase in the price of, or in the 
initial charges for, or maintenance expenses of, the covered product 
that are likely to result from a standard. (42 U.S.C. 
6295(o)(2)(B)(i)(II)) DOE conducts this comparison in its LCC and PBP 
analyses.
    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 its LCC and PBP 
analysis, DOE assumes that consumers will purchase the covered products 
in the first year of compliance with amended standards.
    The PBP is the estimated amount of time (in years) it takes 
consumers to recover the increased purchase cost (including 
installation) of a more-efficient product through lower operating 
costs. DOE calculates the PBP by dividing the change in purchase cost 
due to a more-stringent standard by the change in annual operating cost 
for the year that standards are assumed to take effect.
    For its LCC and PBP analysis, DOE assumes that consumers will 
purchase the covered products in the first year of compliance with 
amended standards. The LCC savings for the considered efficiency levels 
are calculated relative to a case that reflects projected market trends 
in the absence of amended standards.
    DOE's LCC and PBP analyses are 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. 6295(o)(2)(B)(i)(III)) As 
discussed in section IV.H, DOE uses the NIA spreadsheet to project 
national energy savings.
d. Lessening of Utility or Performance of Products
    In establishing product classes and in evaluating design options 
and the impact of potential standard levels, DOE evaluates potential 
standards that would not lessen the utility or performance of the 
considered products. (42 U.S.C. 6295(o)(2)(B)(i)(IV)) Based on data 
available to DOE, the standards considered in this document 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. 
6295(o)(2)(B)(i)(V)) It also directs the Attorney General to determine 
the impact, if any, of any lessening of competition likely to result 
from a proposed standard and to transmit such determination to the 
Secretary within 60 days of the publication of a proposed rule, 
together with an analysis of the nature and extent of the impact. (42 
U.S.C. 6295(o)(2)(B)(ii)) DOE will transmit a copy of this direct final 
rule to the Attorney General with a request that the Department of 
Justice (DOJ) provide its determination on this issue. DOE will 
consider DOJ's comments on the rule in determining whether to proceed 
with the direct final rule. DOE will also publish and respond to the 
DOJ's comments in the Federal Register in a separate notice.
f. Need for National Energy Conservation
    DOE also considers the need for national energy conservation in 
determining whether a new or amended standard is economically 
justified. (42 U.S.C. 6295(o)(2)(B)(i)(VI)) The energy savings from the 
amended standards are likely to provide improvements to the security 
and reliability of the nation's energy system. Reductions in the demand 
for electricity also may result in reduced costs for maintaining the 
reliability of the nation's electricity system. DOE conducts a utility 
impact analysis to estimate how standards may affect the Nation's 
needed power generation capacity, as discussed in section IV.M.
    The amended standards also are likely to result in environmental 
benefits in the form of reduced emissions of air pollutants and 
greenhouse gases (GHGs) associated with energy production and use. DOE 
conducts an emissions analysis to estimate how the amended standards 
may affect these emissions, as discussed in section IV.K the emissions 
impacts are reported in section V.5 of this document. DOE also 
estimates the economic value of 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 an 
energy conservation standard is economically justified, to consider any 
other factors that the Secretary deems to be relevant. (42 U.S.C. 
6295(o)(2)(B)(i)(VII)) To the extent interested parties submit any 
relevant information regarding economic justification that does not fit 
into the other categories described above, DOE could consider such 
information under ``other factors.''
    In developing the direct final rule, DOE has also considered the 
submission of the jointly-submitted Term Sheet from the CAC/HP Working 
Group, as approved by ASRAC. In DOE's view, the Term Sheet sets forth a 
statement by interested persons that are fairly representative of 
relevant points of view (including representatives of manufacturers of 
covered equipment, States, and efficiency advocates) and contains 
recommendations with respect to energy conservation standards that are 
in accordance with 42 U.S.C. 6295(o), as required by EPCA's direct

[[Page 1804]]

final rule provision. See 42 U.S.C. 6295(p)(4). DOE has encouraged the 
submission of agreements such as the one developed and submitted by the 
CAC/HP Working Group as a way to bring diverse stakeholders together, 
to develop an independent and probative analysis useful in DOE standard 
setting, and to expedite the rulemaking process. DOE also believes that 
standard levels recommended in the Term Sheet may increase the 
likelihood for regulatory compliance, while decreasing the risk of 
litigation.
2. Rebuttable Presumption
    As set forth in 42 U.S.C. 6295(o)(2)(B)(iii), EPCA creates a 
rebuttable presumption that an energy conservation standard is 
economically justified if the additional cost to the consumer of a 
product that meets the standard is less than three times the value of 
the first full 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 potential 
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, as required under 42 U.S.C. 6295(o)(2)(B)(i). The 
results of this analysis serve as the basis for DOE's evaluation of the 
economic justification for a potential standard level (thereby 
supporting or rebutting the results of any preliminary determination of 
economic justification). The rebuttable presumption payback calculation 
is discussed in section IV.F.3 of this document.

IV. Methodology

    This section addresses the analyses DOE has performed for this 
rulemaking with regard to residential central air conditioners and heat 
pumps. Each subsection will address a component of DOE's analyses.
    DOE used several analytical tools to estimate the impact of the 
amended standards. The first tool is a spreadsheet that calculates the 
LCC and PBP of amended energy conservation standards. The national 
impacts analysis (NIA) requires a second spreadsheet set that provides 
shipments forecasts and calculates national energy savings and net 
present value resulting from amended energy conservation standards. DOE 
used the third spreadsheet tool, the Government Regulatory Impact Model 
(GRIM), to assess manufacturer impacts of amended standards. These 
three spreadsheet tools are available on the DOE Web site.\31\ 
Additionally, DOE used output from the latest version of EIA's Annual 
Energy Outlook (AEO) for the emissions and utility impact analyses.\32\
---------------------------------------------------------------------------

    \31\ See: http://www1.eere.energy.gov/buildings/appliance_standards/rulemaking.aspx?ruleid=104.
    \32\ All three spreadsheet tools are available online at the 
rulemaking portion of DOE's Web site: http://www1.eere.energy.gov/buildings/appliance_standards/product.aspx/productid/72.
---------------------------------------------------------------------------

A. Market and Technology Assessment

    In conducting a market and technology assessment, DOE develops 
information that provides an overall picture of the market for covered 
products. This overall picture includes the purpose of the products, 
the industry structure, manufacturers, market characteristics, and 
technologies used. DOE uses both quantitative and qualitative 
assessments, based primarily on publicly-available information. The 
market and technology assessment for this residential central air 
conditioning and heat pump rulemaking covers issues that include: (1) A 
determination of the scope of the rulemaking and product classes; (2) 
manufacturers and industry structure; (3) quantities and types of 
products sold and offered for sale; (4) retail market trends; (5) 
regulatory and non-regulatory programs; and (6) technologies or design 
options that could improve the energy efficiency of the product(s) 
under examination. The key findings of DOE's market assessment are 
summarized below. For additional detail, see chapter 3 of the DFR TSD.
1. Definition and Scope of Coverage
    A residential central air conditioner or heat pump is an important 
component of a home's central heating and cooling system, providing 
cooled and/or heated air to the conditioned space, often through 
ductwork. Split-system air conditioners are comprised of an indoor 
unit, which contains the indoor coil and may contain the indoor fan 
(blower); and an outdoor unit, which contains the compressor, outdoor 
coil, and outdoor fan. The indoor unit either includes its own blower 
(``blower-coil unit'') or uses the furnace fan (``coil-only unit'') to 
circulate air over the indoor coil, transferring heat between the 
circulating air and the refrigerant. The cooled (or heated) air is then 
distributed via ductwork to the conditioned space. The compressor 
raises the refrigerant pressure, which raises its saturation 
temperature so that it is warm enough to transfer heat either to the 
ambient air (for cooling mode) or the indoor air (for heat-pump mode). 
Single-package systems contain all of these components in a single-
package. A residential central heat pump utilizes the same components 
as a central air conditioner, but also includes a reversing valve and 
other components that allow it to reverse the functions of the indoor 
and outdoor coils, thus operating in heat pump mode.
    EPCA defines a central air conditioner as a product, other than a 
packaged terminal air conditioner,\33\ which is powered by single phase 
electric current, air cooled, rated below 65,000 Btu per hour, not 
contained within the same cabinet as a furnace, the rated capacity of 
which is above 225,000 Btu per hour, and is a heat pump or a cooling 
only unit. (42 U.S.C. 6291(21)) DOE has incorporated this definition in 
its regulations at 10 CFR 430.2.
---------------------------------------------------------------------------

    \33\ ``Packaged terminal air conditioner'' is defined in 10 CFR 
430.2 as ``a wall sleeve and a separate unencased combination of 
heating and cooling assemblies specified by the builder and intended 
for mounting through the wall. It includes a prime source of 
refrigeration, separable outdoor louvers, forced ventilation, and 
heating availability energy.''
---------------------------------------------------------------------------

    EPCA defines a ``heat pump'' as a product, other than a packaged 
terminal heat pump,\34\ which consists of one or more assemblies, 
powered by single phase electric current, rated below 65,000 Btu per 
hour, utilizing an indoor conditioning coil, compressor, and 
refrigerant-to-outdoor air heat exchanger to provide air heating, and 
may also provide air cooling, dehumidifying, humidifying circulating, 
and air cleaning. (42 U.S.C. 6291(24)) DOE has incorporated this 
definition into its regulations at 10 CFR 430.2. These products, also 
known as unitary air conditioners, do not include room air 
conditioners.\35\
---------------------------------------------------------------------------

    \34\ ``Packaged terminal heat pump'' is defined in 10 CFR 430.2 
as ``a packaged terminal air conditioner that utilizes reverse cycle 
refrigeration as its prime heat source and should have supplementary 
heating availability by builder's choice of energy.''
    \35\ ``Room air conditioner'' is defined in 10 CFR 430.2 as ``a 
consumer product, other than a `packaged terminal air conditioner,' 
which is powered by a single phase electric current which is an 
encased assembly designed as a unit for mounting in a window or 
through the wall for the purpose of providing delivery of 
conditioned air to an enclosed space. It includes a prime source of 
refrigeration and may include a means for ventilating and heating.''
---------------------------------------------------------------------------

    In this DFR, DOE is amending energy conservation standards for the 
products covered by DOE's current standards for central air 
conditioners and heat pumps, specified at 10 CFR 430.32(c)(2), which 
DOE adopted in the June 2011 DFR.

[[Page 1805]]

These products consist of: (1) Split-system air conditioners; (2) 
split-system heat pumps; (3) single package air conditioners; and (4) 
single package heat pumps.
    DOE's current standards for central air conditioners are expressed 
as the minimum seasonal energy efficiency ratio (SEER), the minimum 
heating seasonal performance factor (HSPF) for heat pumps, and the 
maximum off-mode power (PW, OFF). SEER is a seasonal 
efficiency metric that accounts for electricity consumption in active 
cooling and standby operating modes during the cooling season, while 
HSPF is a seasonal efficiency metric that accounts for active heating 
and standby operating modes for heat pumps during the heating season. 
For the Southwest region of the United States, (four states including 
Arizona, California, Nevada, and New Mexico) DOE's current standards 
also include additional requirements for energy efficiency ratio (EER) 
for both central air conditioners and heat pumps. 10 CFR 430.32(c).
2. Product Classes
    When evaluating and establishing energy conservation standards, DOE 
divides covered products into product classes by the type of energy 
used, by capacity, or by another performance-related feature that 
justifies a different standard. In making a determination whether a 
performance-related feature justifies a different standard, DOE must 
consider factors such as the utility to the consumer of the feature. 
(42 U.S.C. 6295(q)). DOE has divided residential central air 
conditioners and heat pumps into seven product classes: \36\

    \36\ These product classes were last examined by the June 2011 
DFR. 76 FR 37408, 37446 (June 27, 2011), prior to this current round 
of rulemaking.
---------------------------------------------------------------------------

 Split-system air conditioners
 Split-system heat pumps
 Single-package air conditioners
 Single-package heat pumps
 Small-duct high-velocity systems
 Space-constrained air conditioners
 Space-constrained heat pumps
    In the November 2014 RFI, DOE requested feedback on whether it 
should consider any changes the existing product classes for central 
air conditioners and heat pumps. 79 FR 65603, 65605 (Nov. 5, 2014). In 
response, AHRI and Southern Co. commented that they supported retaining 
the listed product classes used in the previous rulemaking (i.e., the 
June 2011 Final Rule). (AHRI, No. 13 at p. 3; Southern Co., No. 11 at 
p. 2) NEEA and NPCC suggested that DOE consider the possibility of a 
separate product class for variable capacity systems, given their 
potential increased cost effectiveness relative to fixed capacity 
systems. (NEEA & NPCC, No. 19 at p. 3) Rheem recommended that a product 
class be added for combined appliances which contribute to heat 
recovery for water heating. (Rheem, No. 17 at p. 2).
    For this rulemaking, DOE has retained the product classes 
associated with the 2011 DFR that were listed in the November 2014 RFI. 
In response to NEEA & NPCC, DOE sees no need for the suggested change 
because variable capacity products have no difficulty meeting the 
current standards--or the standards set in this notice. In response to 
Rheem's comment, DOE has not found evidence that the capability for 
heat recovery for water heating reduces a product's ability to meet a 
given efficiency level, and Rheem's comment did not indicate that this 
is the case, nor did it explain why such product might have a different 
efficiency level when tested according to the DOE test procedure for 
central air conditioners and heat pumps (which does not include 
transfer of heat to water). Hence, DOE believes that the threshold for 
setting separate product classes for these products under EPCA is not 
met. 42 U.S.C. 4295(q)(B)
3. Technology Options
    As part of the market and technology assessment performed for the 
November 2014 RFI and for this DFR, DOE developed a comprehensive list 
of technologies to improve the energy efficiency of central air 
conditioners and heat pumps. Chapter 3 of the DFR TSD contains a 
detailed description of each technology that DOE identified.
    DOE received comments on the technology options proposed in the 
November 2014 RFI. ACEEE requested that DOE consider the addition of 
multi-stage systems to the list of design options. (ACEEE, No. 21 at 
p.3) Southern Co. also commented that it supported design options 
associated with variable speed operation because of humidity control 
considerations. (Southern Co., No. 19 at p. 2) NEEA and NPCC, as well 
as PG&E, suggested that DOE add a design options for the reduction of 
off and standby-mode energy use and for control systems. (NEEA & NPCC, 
No. 19 at p. 10; PG&E, No. 15 at p. 2) Rheem proposed that DOE add 
combined appliance technology to the list of design options. (Rheem, 
No. 17 at p. 3) On the other hand, AHRI commented that DOE should 
consider only design options that DOE included for central air 
conditioners in the June 2011 DFR. (AHRI, No. 13 at p. 3). ACEEE also 
suggested that DOE conduct a systematic evaluation of the energy 
savings potential of products used in the Southeast and Southwest, 
particularly the benefits of enhanced latent heat work to condition the 
air. (ACEEE, No. 21 at p. 3)
    In response to the comments made by ACEEE and Southern Co., DOE has 
included both two-stage and variable speed compressors as design 
options. Regarding the addition of design options for reducing off and 
standby-mode energy use, DOE conducted a market and technology 
assessment (as described in section IV.A.3) and has found that the 
design options used in the June 2011 DFR are the same ones that are 
viable today. Additionally, DOE refers to discussions during the CAC/HP 
CAC/HP Working Group Negotiations, in which no objections were raised 
by stakeholders to the proposed design option list. (ASRAC Public 
Meeting, No. 88 at p. 188) Further discussion regarding the viability 
of the technology options is provided in chapter 4 of the TSD. 
Regarding the NEEA and NPPC comment regarding controls, there are many 
ways that controls might be employed to improve rated efficiency, but 
NEEA and NPPC's comment does not specify, nor could DOE infer from the 
comment, what type of control design option should be considered. DOE 
notes that it considered a comprehensive scope of technologies in its 
market and tech assessment, and is confident that its engineering 
analysis accounts for these controls. In response to Rheem, EPCA 
defines ``central air conditioner'' as a product that is air-cooled. 
(42 U.S.C. 6291(21)(B)) In contrast, combination appliances reject heat 
to water. Hence, water-heating operation of such appliances is not 
covered by DOE's regulations for central air conditioners and heat 
pumps. In response to ACEEE's comment about creating a design option 
for higher or lower latent capacity, any differential benefit for 
systems designed for a different latent capacity or different return 
air humidity would also not be captured in DOE's current or amended 
test procedures, and hence was not considered as part of the analysis 
to establish amended efficiency levels. Finally, in response to all of 
the comments suggesting specific design options, DOE conducted an 
efficiency-level-based engineering analysis based on existing product 
designs. While DOE has assembled a specific list of design options that 
reflect known design differences among these existing products, there 
are other design differences that affect the rated efficiencies used in 
the analysis that

[[Page 1806]]

represent design options, the use of which is probable but not certain. 
Some of these would likely be classified as ``controls'' design 
options, which would address the NEEA & NPPC comment.
    These comments, as well as others, were addressed during the CAC/HP 
Working Group Negotiations. Based on the RFI comments and the 2015-2016 
CAC/HP Working Group discussions, DOE constructed a list of technology 
options for consideration in the analysis for this direct final rule. 
Table IV-1 compiles this list.

                      Table IV-1 Technology Options
------------------------------------------------------------------------
                 Component                           Technology
------------------------------------------------------------------------
Compressor................................  Higher-EER compressor.
                                            Two-stage compressor.
                                            Variable speed compressor.
Heat exchanger............................  Larger heat exchanger.
Fan Motor.................................  Constant torque permanent-
                                             magnet motor.
                                            Constant air flow permanent-
                                             magnet motor.
Fan.......................................  Higher-efficiency fan
                                             blades, fan wheels, and fan
                                             configurations.
Expansion valve...........................  Thermostatic expansion
                                             valve.
                                            Electronic expansion valve.
Controls..................................  Heat pump defrost controls.
------------------------------------------------------------------------

    DOE expanded the ``higher efficiency compressor'' technology option 
to indicate that, in addition to consideration of compressors with 
higher energy efficiency ratio (EER, the compressor capacity divided by 
its power input at the compressor rating condition expressed in Btu/h-
W), manufacturers can also consider use of two-capacity or variable-
speed compressors. DOE limited the specific technology options for heat 
exchangers to only larger-size heat exchangers because most heat 
exchanger technology (e.g. round-tube/flat fin, microchannel, etc.) can 
be used either in baseline or higher-efficiency products. The list 
includes the two general types of higher-efficiency fan motors used in 
products. For fans, the revised list more generally indicates that 
efficiency improvements can be associated with the fan blades of 
outdoor fans, the fan wheels of indoor fans, and the general fan 
configuration, including all details of design that affect efficiency 
(e.g. overall size, inlet and outlet flow transitions, clearance gaps 
between rotating and stationary components, etc.) The revised list 
includes two specific examples of higher-efficiency expansion valves. 
The list does not separately include inverter technology, which would 
be captured as part of the variable-speed compressor and/or the 
constant-air-flow permanent magnet motor technology options.

B. Screening Analysis

    After identifying potential technology options for improving the 
efficiency of residential central air conditioners and heat pumps, DOE 
performed the screening analysis (see section IV.B of this direct final 
rule or chapter 4 of the DFR TSD) on these technologies to determine 
which could be considered further in the analysis and which should be 
eliminated. DOE uses the following four screening criteria to determine 
which technology options are suitable for further consideration in an 
energy conservation standards rulemaking:
    1. Technological feasibility. Technologies that are neither 
incorporated in commercial products nor in working prototypes will not 
be considered further.
    2. Practicability to manufacture, install, and service. If DOE 
determines that mass production, reliable installation, and servicing 
of a technology in commercial products could not be achieved on the 
scale necessary to serve the relevant market at the time of the 
compliance date of the standard, then that technology will not be 
considered further.
    3. Impacts on product utility or product availability. If DOE 
determines that a technology would have significant adverse impact on 
the utility of the product to significant subgroups of consumers or 
would result in the unavailability of any covered product type with 
performance characteristics (including reliability), features, sizes, 
capacities, and volumes that are substantially the same as products 
generally available in the United States at the time, then that 
technology will not be considered further.
    4. Adverse impacts on health or safety. If DOE determines that a 
technology would have significant adverse impacts on health or safety, 
then that technology will not be considered further. (10 CFR part 430, 
subpart C, appendix A, 4(a)(4) and 5(b))
    If DOE determines that a technology, or a combination of 
technologies, fails to meet one or more of the above four criteria, it 
will be excluded from further consideration in the engineering 
analysis. DOE found that all of the identified technologies listed in 
Table IV-1 met all four screening criteria and consequently, are 
suitable for further examination in DOE's analysis. For off-mode 
technologies, DOE determined that there is no commercial application 
for the hermetic crankcase heater and the integral compressor motor 
heater in central air conditioners and heat pumps. Therefore, DOE 
screened out these two technologies. For additional details, please see 
chapter 4 of the direct final rule TSD.

C. Engineering Analysis

    The engineering analysis establishes a relationship between energy 
efficiency and manufacturing production cost (MPC) for units that will 
be impacted by amended energy conservation standards. This relationship 
serves as the basis of cost-benefit analyses for individual consumers, 
manufacturers, and the Nation.
    DOE began the engineering analysis by identifying energy efficiency 
levels to analyze. The current energy conservation standard served as 
the baseline efficiency level from which DOE analyzed possible energy 
efficiency improvements. In addition to the baseline, DOE identified 
higher efficiency levels that correspond to higher-efficiency products 
available on the market, including the most efficient, or max-tech, 
products. Using a variety of data sources, DOE estimated market-
weighted MPCs at the baseline efficiency level and the market-weighted 
incremental MPC increases required to achieve each higher efficiency 
level, for each product class. Following the quantification of MPCs, 
DOE estimated the additional costs to residential consumers from 
markups by the manufacturers, distributors, and contractors. This 
information was then used in the downstream analyses to examine the 
costs and benefits associated with increased equipment efficiency.
    For the August 2015 NODA, DOE used a top-down analysis approach in 
which an exponential curve-fit was applied to a database of MPC vs. 
efficiency values to generate a cost-efficiency relationship for each 
representative capacity in each product class. 80 FR 52206 (Aug. 28, 
2015). DOE did not receive comments on the NODA specifically regarding 
the NODA engineering analysis methodologies and results. During the 
CAC/HP Working Group meetings, however, DOE's engineering analysis was 
discussed in detail. ASRAC Working Group members expressed concern that 
the approach used in the August 2015 NODA did not reflect critical 
aspects of the relationship between MPC and efficiency. Ingersoll Rand 
and Southern Company requested to see efficiency levels differentiated 
by single speed and two-speed products. (ASRAC Public Meeting, No. 40 
at p. 232, 248)

[[Page 1807]]

Manufacturers generally agreed that certain efficiency levels could 
only be achieved by switching from single speed to two-stage compressor 
designs, which represented a considerable increase in MPC. The 
manufacturers believed this design path would result in a step function 
in the cost-efficiency relationship from the perspective of a given 
manufacturer, which was not reflected in the relationships used by DOE 
in the August 2015 NODA. (ASRAC Public Meeting, No. 40 at p. 248) AHRI 
presented its own cost-efficiency data to illustrate this step function 
at the October 14th CAC/HP Working Group meeting. AHRI's cost-
efficiency data showed a $280 increase in manufacturing costs at 16 
SEER associated with switching from a single speed to two-speed design 
for a three-ton system. AHRI was unable to share specific details about 
its methodology or the components included in the $280 cost difference 
because of confidentiality concerns. (ASRAC Public Meeting, No. 89 at 
p. 210)
    In response, DOE agrees that switching from a single speed to two-
speed design could result in a considerable increase in manufacturer 
production cost. DOE also understands that not all manufacturers choose 
to make this switch at the same point in the efficiency range. For 
example, one manufacturer may be able to achieve 15 SEER with a single 
speed design and need to switch to a two-stage design to achieve above 
15 SEER, while other manufacturers may only be able to achieve 14.5 
SEER with a single speed design, which would require them to switch to 
a two-stage design. DOE's NODA cost-efficiency relationships reflect 
the industry and therefore, represent multiple manufacturers. Step 
functions in single manufacturer's cost-efficiency relationship 
occurring at different points in the range of efficiency resulted in 
the smoother, continuous industry cost-efficiency curves that DOE used 
in the NODA. For these reasons, DOE does not believe its NODA cost-
efficiency relationships are inappropriate, but does recognize that 
they may not perfectly represent the increase in cost associated with 
switching from single speed to two-stage designs in the range of 
efficiency in which manufacturers are making these design changes. In 
response to the CAC/HP working group discussions, DOE revised its 
engineering analysis to better reflect the impacts on manufacturer 
production cost of switching from a single speed to a two-stage design, 
which is reflected in this direct final rule. DOE's revised direct 
final rule engineering analysis is described in more detail in the 
subsequent paragraphs of this section.
    Today's direct final rule engineering analysis is different from 
the August 2015 NODA analysis in five main ways. First, DOE analyzed 
single speed and two-stage split systems separately (i.e., DOE 
developed MPC values at each efficiency level analyzed for single speed 
and two-stage systems independently). Once combined, this approach 
resulted in single cost-efficiency relationships that reflected the MPC 
step associated with switching from a single speed to two-stage design. 
The second key difference was that DOE analyzed individual manufacturer 
cost-efficiency relationships independently, then used marketshare 
information to generate a single marketshare-weighted cost-efficiency 
relationship. This approach better represented the effect of these 
cost-efficiency relationships on the total market and better accounted 
for differences between manufacturers in the design paths they use to 
achieve higher efficiency.
    Third, DOE based the manufacturer-specific cost-efficiency 
relationships used in this direct final rule analysis on the least-cost 
units offered at each efficiency level, as opposed to all units offered 
at each efficiency level. DOE believes this approach results in cost-
efficiency relationships that better reflect the design decisions 
manufacturers will make in response to new standards. The fourth key 
difference was that DOE analyzed coil-only and blower-coil systems 
separately for this direct final rule. This approach is aligned with 
the certification requirements finalized in the June 2016 CAC TP final 
rule, which require compliance for all indoor/outdoor unit combinations 
and also require certification of at least one coil-only combination 
for all single speed and two-stage outdoor units. 81 FR 36992 (June 8, 
2016).
    The final critical difference was that this engineering analysis 
was conducted based on efficiencies as measured according to the test 
procedure in place at the time of the CAC/HP Working Group meetings, 
the October 2007 CAC TP final rule. 72 FR 59906 (Oct. 22, 2007). 
Following downstream analyses, DOE translated the chosen efficiency 
levels to minimum standards based on measurement according to the 
November 2016 test procedure final rule, which is summarized in section 
III.F. DOE notes that the August 2015 NODA \37\ efficiency levels were 
presented in terms of efficiency per test procedure amendments being 
proposed at the time of the August 2015 NODA analysis (i.e. using the 
October 2011 test procedure SNOPR (see section III.F)). 76 FR 65616 
(October 24, 2011).
---------------------------------------------------------------------------

    \37\ More specifically, refer to Chapter 5 of the NODA Technical 
Support Document (copy and paste link into browser): https://www.regulations.gov/document?D=EERE-2014-BT-STD-0048-0029.
---------------------------------------------------------------------------

    For a more detailed description of the methodology used to 
determine the efficiency levels and manufacturer production costs as 
well as the key similarities and differences from the August 2015 NODA, 
please refer to Chapter 5 of the DFR TSD.
1. Segmentation of Covered Products
    For the purpose of the engineering analysis, DOE further divided 
product classes into many segments to capture important differences in 
the cost-efficiency relationships. As a primary example, DOE recognizes 
that the cost-efficiency relationship between central air conditioners 
and heat pumps varies by capacity. For this direct final rule analysis, 
DOE performed separate analyses for two-ton, three-ton and five-ton 
split system air conditioners and heat pumps in order to characterize 
the efficiency levels at different representative capacities. For 
single-package air conditioner and heat pump product classes, DOE 
developed a cost-efficiency relationship based on three-ton capacity 
units. For space-constrained and small-duct high-velocity (SDHV) air 
conditioners, DOE used systems in the two to two-and-a-half-ton 
capacity range.
    As described in the introduction to this section, DOE further 
segmented each split-system air conditioner representative capacity 
into blower coil and coil-only systems. All split-system product 
classes were further divided into single speed and two-stage outdoor 
units.
    Within each single-package representative capacity, DOE segmented 
products according to two heat exchanger types--all-aluminum with 
microchannel or tube-and-fin geometries or copper-tube aluminum fin 
heat exchangers. This followed the approach DOE had previously taken in 
the August 2015 NODA. 80 FR 52206. DOE has found that the reduced cost 
of aluminum per pound results in significantly different cost-
efficiency relationships between products employing the two different 
heat exchanger types.
2. Determination of Efficiency Levels
    This section describes the RFI comments received with regard to and 
the ultimate methodology adopted for

[[Page 1808]]

determining energy efficiency levels within each product class. The 
levels are tabulated along with the MPC results in section IV.C.4.
    In response to the November 2014 RFI, ACEEE suggested that DOE 
consider technologically feasible and economically justifiable 
efficiency levels based on capacity. (ACEEE, No. 21 at p. 3) DOE has 
considered variation of efficiency level with capacity in its analysis 
for split systems, and has adopted some variation of standard levels 
with capacity, as recommended by the CAC/HP Working Group.
    AHRI suggested DOE consider the impacts of the final rule for 
residential furnace fans on the baseline and max-tech levels for each 
product class. (AHRI, No. 13 at pp. 3-4) In response, DOE notes that it 
has developed default fan power levels for testing of coil-only 
systems, which reflect the improved efficiency of the furnaces likely 
to be used with the air conditioners considered in the analysis--the 
November 2016 test procedure final rule discusses this topic in greater 
detail. (November 2016 Test Procedure Final Rule, pp. 104, 105). These 
default fan power levels account for higher efficiency fan motors and 
increased external static pressure, and thus are higher than the 
previous default fan power used for testing of coil-only systems.
    NEEA & NPCC agreed with the proposed baseline and max-tech levels. 
They did, however, urge DOE to consider ``high-tech'' design options 
for small duct high velocity (SDHV) systems. (NEEA & NPCC, No. 19 at p. 
3) In response, DOE did evaluate ``high-tech'' design options for SDHV 
systems, but did not find increased efficiency levels for such systems 
to be cost-effective, based on review of efficiency levels attained by 
existing products.
    Rheem commented that max-tech efficiency levels proposed for all 
product classes in the November 2014 RFI could not be economically 
justified within any climate zone in the US. Rheem also questioned the 
max-tech efficiency differential between split system CAC/HPs, SDHVs, 
and space constrained AC/HPs. (Rheem, No. 17 at p. 4) In response, DOE 
notes that its economic analysis is consistent with Rheem's assertion 
that max-tech efficiency levels are not economically justified, and has 
not set standard levels at max-tech efficiency. DOE notes that the max-
tech efficiency differentials as reported in the RFI have been adjusted 
in this DFR analysis based on more a thorough review of available 
products.
    PG&E recommended that DOE account for larger evaporator coil areas 
when evaluating max tech levels for small duct high velocity systems 
and space-constrained systems due to the special constraints and 
limited heat transfer associated with lower volumetric flow rates. 
(PG&E, No. 15 at p. 2). In response, DOE notes that its efficiency-
level-based engineering analysis was based on existing product designs. 
DOE found that for the higher-efficiency products of these classes, 
evaporator coil areas were larger. However, as discussed, this analysis 
did not show that increasing the efficiency level of these products was 
cost-effective.
    First, DOE characterized the baseline efficiency levels. Generally, 
the baseline unit in each product class: (1) Represents the basic 
characteristics of equipment in that class; (2) just meets the current 
Federal energy conservation standards, if any; and (3) provides basic 
consumer utility. For the covered product classes analyzed in this 
direct final rule, the baseline efficiency levels are represented by 
the standards that were set in the June 2011 Direct Final Rule and 
codified at 10 CFR 430.32(c). 76 FR 37408 (June 27, 2011). The baseline 
efficiency levels are reference points for each product class, against 
which changes in product cost and energy use resulting from potential 
amended energy conservation standards are compared.
    Next, DOE established intermediate efficiency levels at 0.5 SEER 
increments increasing from each baseline efficiency level. DOE did not 
analyze intermediate efficiency levels for which there are few products 
available on the market. DOE also determined the maximum improvement in 
energy efficiency that is technologically feasible (max-tech) for 
central air conditioners and heat pumps, as required under 42 U.S.C. 
6295(p)(1). DOE selected max-tech efficiency levels for most of the 
product classes equal to the highest efficiency levels reported in the 
AHRI Directory of Certified Product Performance. For space-constrained 
air conditioners, DOE selected the max-tech efficiency level based on 
the efficiency reported in product literature. The resulting efficiency 
levels for all product classes considered are tabulated with MPCs in 
section IV.C.4IV.C.4.
    As discussed in section II.A, DOE also uses EER to characterize 
CAC/HP efficiency. During the CAC/HP Working Group meetings, some 
parties suggested dropping EER as a metric all together. These parties 
argued that the proposed SEER value would be high enough to ensure that 
the EER level would be at or above the current standard. They also 
stated that EER requirements are an additional burden and could 
discourage two-stage and variable speed product designs for which SEER 
and EER values have a higher divergence than single speed designs. 
Other parties were firm about keeping EER because it would mitigate 
peak load issues and improve the health of the utility grid. They added 
that EER can be a better descriptor than SEER for energy use in certain 
regions, such as the Southwest. (ASRAC Public Meeting, No. 81 at pp. 
10-73; ASRAC Public Meeting, No. 82 at pp. 10-93; ASRAC Public Meeting, 
No. 83 at pp. 11, 22, 36, 39-42)
    Eventually, the CAC/HP Working Group decided to retain the current 
minimum EER requirements for split-system air conditioners and single-
package air conditioners in the Southwest region with a SEER less than 
15.2 and a relaxed EER requirement for split-system air conditioners 
and single-package air conditioners in the Southwest region with a SEER 
greater than 15.2. (ASRAC Term Sheet, No. 76 at p. 4, Recommendation 
#8) The CAC/HP Working Group's decision was based on negotiation rather 
than any analysis to quantify the impacts of increasing EER along with 
SEER and/or HSPF or the lower EER level for systems with SEER of 16 or 
higher. Maintaining an EER requirement in the Southwest region aligns 
with the position of EER advocates, while not increasing the EER 
requirement and relaxing it for higher SEER products addresses the 
concerns of the parties that recommended eliminating the EER 
requirement. DOE did not explicitly analyze the impact of increasing 
EER on total installed cost, energy consumption, or life-cycle cost for 
this direct final rule. Consequently, DOE did not define EER-based 
efficiency levels.
    To set the heating mode efficiency levels for residential heat 
pumps, DOE developed correlations for split-system and single-package 
heat pumps relating HSPF to SEER based on ratings in the AHRI Directory 
of Certified Product Performance. Using the correlations, DOE assigned 
an HSPF value to each SEER-based efficiency level. For split-system 
products, DOE based the correlations on pairings of outdoor units with 
indoor units designated in the AHRI Directory as the highest sales 
volume indoor units. DOE also conducted the split-system analysis for 
units with two-ton, three-ton and five-ton capacities. The analysis 
showed that the relationship between SEER and HSPF does not differ 
significantly across these capacities. Hence, DOE did not differentiate 
HSPF standards by capacity in this direct final rule. For single-
package units, DOE used all the rated two-ton units to develop the

[[Page 1809]]

SEER-HSPF correlations. The development of these correlations is 
described in more detail in Chapter 5 of the TSD.
    During the 2015 CAC/HP Negotiations, the CAC/HP Working Group 
recommended HSPF standards for both split-system and single package 
heat pumps--8.8 and 8.0 HSPF, respectively. (ASRAC Term Sheet, Docket 
No. EERE-2014-BT-STD-0048, No. 0076). For split-system heat pumps, the 
recommendation was higher than the 8.5 HSPF value determined at 15 SEER 
by DOE's HSPF/SEER correlation. DOE reviewed available data from the 
BOMs and specification sheets used for its analysis to assess whether 
this HSPF differential would impact costs. In this review, DOE looked 
beyond the least-cost units used for its primary analysis, evaluating 
costs for 15 SEER split-system heat pumps with HSPF between 8.3 and 
9.0. The MPCs calculated for 15 SEER systems within this HSPF range 
show that the cost differential for the HSPF increase from 8.5 to 8.8 
is negligible. Hence, DOE did not in its analysis make an adjustment in 
its MPCs to reflect this HSPF differential. For single-package heat 
pumps, the selected standard level, 8.0 HSPF, was only slightly higher 
than the correlated value, 7.9 HSPF. As for split systems, DOE did not 
make an adjustment in its MPC to reflect this differential. Section 
IV.E provides details on how DOE used HSPF levels to analyze the energy 
use of heat pumps.
3. Estimation of Manufacturer Production Costs
    For this DFR analysis, DOE determined a marketshare-weighted MPC at 
each efficiency level for each representative capacity of each product 
class and, as described previously in section IV.C.1, separately for 
split-system air conditioner blower coil and coil-only units as well as 
single speed and two-stage systems.
    To calculate MPCs, DOE first compiled a database of split-system 
air conditioner and heat pump indoor and outdoor units, single-package 
air-conditioners and heat pumps, space-constrained air conditioners, 
and SDHV air conditioners from a variety of manufacturers. For each 
product class and representative capacity, the database included 
indoor, outdoor and packaged units from multiple manufacturers that 
represented a majority of the market and that spanned the range of 
available efficiencies, to the best extent possible. For split systems, 
DOE analyzed all possible matches of indoor and outdoor units in its 
database that are listed in the AHRI Directory of Certified 
Performance. As such, DOE believes the database of units and systems to 
be representative of the market.
    DOE then performed either a physical teardown or a catalog teardown 
on each unit in the database. A physical teardown involves reverse-
engineering the unit in a laboratory. A catalog teardown involves 
analyzing manufacturer specification sheets and supplementary component 
data relative to data collected through a similar physical teardown or 
other catalog teardown to determine the major physical differences 
between a product that has been physically disassembled and another 
similar product for which catalog data are available. The objective of 
both approaches is to build a ``bottom-up'' manufacturing cost 
assessment based on a detailed bill of materials.
    From the teardowns, DOE generated a bill of materials (BOM) for 
each unit in the database. The BOM lists all required components and 
manufacturing steps to describe the product manufacturing in detail. 
DOE then used the BOM data as inputs to develop a cost model that 
calculates the MPC for each unit based on its detailed BOM. For split-
system air conditioners and heat pumps, DOE generated split-system MPCs 
by adding the MPC of indoor and outdoor units for matches listed in the 
AHRI Directory.
    DOE then used the cost model outputs to generate marketshare-
weighted cost-efficiency relationships for each representative capacity 
of each product class. The resulting cost-efficiency relationships were 
used in the downstream analyses and are presented in section IV.C.4.
    For product classes other than split-systems--single-package, 
space-constrained, and small-duct high-velocity--the methodology for 
calculating MPCs at each efficiency level matched the methodology used 
in the August 2015 NODA analysis with updated material prices and based 
on efficiency levels defined by the DOE test procedure at the time of 
the CAC/HP Working Group Meetings. The results are also tabulated in 
section IV.C.4.
4. Tabulated Results
    DOE's market-weighted cost-efficiency relationships for central air 
conditioners and heat pumps are shown in Table IV.3 through Table 
IV.15. DOE used these results as inputs for the LCC and payback period 
analyses.

  Table IV-2--Manufacturer Production Costs for Two-Ton Split-System AC
                           Blower Coil ($2015)
------------------------------------------------------------------------
            Efficiency level                   SEER             MPC
------------------------------------------------------------------------
0-Baseline..............................            13.0            $690
1.......................................            13.5             695
2.......................................            14.0             714
3.......................................            14.5             726
4.......................................            15.0             744
5.......................................            15.5             762
6.......................................            16.0             797
7.......................................            16.5             863
8.......................................            17.0           1,144
9.......................................            17.5           1,171
10*.....................................            18.0           1,178
11......................................            19.0           1,314
12......................................            20.0           1,362
13......................................            21.0           1,362
------------------------------------------------------------------------
* Efficiency level at which designs are assumed to switch from single
  speed compressors to two-stage compressors for the remaining higher
  efficiency levels.


[[Page 1810]]


 Table IV-3--Manufacturer Production Costs for Three-Ton Split-System AC
                               Blower Coil
                                 [$2015]
------------------------------------------------------------------------
            Efficiency level                   SEER             MPC
------------------------------------------------------------------------
0--Baseline.............................            13.0            $788
1.......................................            13.5             815
2.......................................            14.0             822
3.......................................            14.5             855
4.......................................            15.0             887
5.......................................            15.5             925
6.......................................            16.0             927
7.......................................            16.5           1,048
8.......................................            17.0           1,310
9.......................................            17.5           1,356
10 *....................................            18.0           1,335
11......................................            19.0           1,360
12......................................            20.0           1,360
13......................................            21.0           1,608
------------------------------------------------------------------------
* Efficiency level at which designs are assumed to switch from single
  speed compressors to two-stage compressors for the remaining higher
  efficiency levels.


 Table IV-4--Manufacturer Production Costs for Five-Ton Split-System AC
                               Blower Coil
                                 [$2015]
------------------------------------------------------------------------
            Efficiency level                   SEER             MPC
------------------------------------------------------------------------
0--Baseline.............................            13.0          $1,063
1.......................................            13.5           1,115
2.......................................            14.0           1,119
3.......................................            14.5           1,168
4.......................................            15.0           1,296
5.......................................            15.5           1,296
6.......................................            16.0           1,365
7 *.....................................            16.5           1,459
8.......................................            17.0           1,459
9.......................................            17.5           1,581
10......................................            18.0           1,631
11......................................            19.0           1,744
12......................................            20.0           1,879
------------------------------------------------------------------------
* Efficiency level at which designs are assumed to switch from single
  speed compressors to two-stage compressors for the remaining higher
  efficiency levels.


  Table IV-5--Manufacturer Production Costs for Two-Ton Split-System AC
                                Coil-Only
                                 [$2015]
------------------------------------------------------------------------
            Efficiency level                   SEER             MPC
------------------------------------------------------------------------
0--Baseline.............................            13.0            $581
1.......................................            13.5             598
2.......................................            14.0             606
3.......................................            14.5             628
4.......................................            15.0             676
5.......................................            15.5             798
6.......................................            16.0             916
7 *.....................................            16.5           1,149
8.......................................            17.0           1,153
------------------------------------------------------------------------
* Efficiency level at which designs are assumed to switch from single
  speed compressors to two-stage compressors for the remaining higher
  efficiency levels.


 Table IV-6--Manufacturer Production Costs for Three-Ton Split-System AC
                                Coil-Only
                                 [$2015]
------------------------------------------------------------------------
            Efficiency level                   SEER             MPC
------------------------------------------------------------------------
0--Baseline.............................            13.0            $665
1.......................................            13.5             698
2.......................................            14.0             706
3.......................................            14.5             749
4.......................................            15.0             883
5 *.....................................            15.5           1,048
6.......................................            16.0           1,145

[[Page 1811]]

 
7.......................................            16.5           1,155
------------------------------------------------------------------------
* Efficiency level at which designs are assumed to switch from single
  speed compressors to two-stage compressors for the remaining higher
  efficiency levels.


 Table IV-7--Manufacturer Production Costs for Five-Ton Split-System AC
                                Coil-Only
                                 [$2015]
------------------------------------------------------------------------
            Efficiency level                   SEER             MPC
------------------------------------------------------------------------
0--Baseline.............................            13.0            $908
1.......................................            13.5             943
2.......................................            14.0           1,087
3.......................................            14.5           1,173
4.......................................            15.0           1,234
5.......................................            15.5           1,287
6 *.....................................            16.0           1,352
7.......................................            16.5           1,423
------------------------------------------------------------------------
* Efficiency level at which designs are assumed to switch from single
  speed compressors to two-stage compressors for the remaining higher
  efficiency levels.


  Table IV-8--Manufacturer Production Costs for Two-Ton Split-System HP
                                 [$2015]
------------------------------------------------------------------------
            Efficiency level                   SEER             MPC
------------------------------------------------------------------------
0--Baseline.............................            14.0            $881
1.......................................            14.5             900
2.......................................            15.0             936
3.......................................            15.5             991
4.......................................            16.0           1,010
5.......................................            16.5           1,152
6.......................................            17.0           1,303
7.......................................            17.5           1,311
8 *.....................................            18.0           1,353
9.......................................            18.5           1,353
10......................................            19.0           1,418
------------------------------------------------------------------------
* Efficiency level at which designs are assumed to switch from single
  speed compressors to two-stage compressors for the remaining higher
  efficiency levels.


 Table IV-9--Manufacturer Production Costs for Three-Ton Split-System HP
                                 [$2015]
------------------------------------------------------------------------
            Efficiency level                   SEER             MPC
------------------------------------------------------------------------
0--Baseline.............................            14.0            $973
1.......................................            14.5             990
2.......................................            15.0           1,031
3.......................................            15.5           1,132
4.......................................            16.0           1,137
5.......................................            16.5           1,379
6 *.....................................            17.0           1,421
7.......................................            17.5           1,438
8.......................................            18.0           1,459
9.......................................            18.5           1,520
10......................................            19.0           1,541
------------------------------------------------------------------------
* Efficiency level at which designs are assumed to switch from single
  speed compressors to two-stage compressors for the remaining higher
  efficiency levels.


 Table IV-10--Manufacturer Production Costs for Five-Ton Split-System HP
                                 [$2015]
------------------------------------------------------------------------
            Efficiency level                   SEER             MPC
------------------------------------------------------------------------
0--Baseline.............................            14.0          $1,256
1.......................................            14.5           1,324
2.......................................            15.0           1,359

[[Page 1812]]

 
3 *.....................................            15.5           1,543
4.......................................            16.0           1,626
5.......................................            16.5           1,743
6.......................................            17.0           1,883
7.......................................            17.5           2,064
------------------------------------------------------------------------
* Efficiency level at which designs are assumed to switch from single
  speed compressors to two-stage compressors for the remaining higher
  efficiency levels.


 Table IV-11--Manufacturer Production Costs for Three-Ton Single-Package
                                   AC
                                 [$2015]
------------------------------------------------------------------------
            Efficiency level                   SEER             MPC
------------------------------------------------------------------------
0--Baseline.............................            14.0          $1,050
1.......................................            14.5           1,088
2.......................................            15.0           1,128
3.......................................            15.5           1,169
4.......................................            16.0           1,212
5.......................................            17.0           1,302
6.......................................            17.5           1,350
------------------------------------------------------------------------


 Table IV-12--Manufacturer Production Costs for Three-Ton Single-Package
                                   HP
                                 [$2015]
------------------------------------------------------------------------
            Efficiency level                   SEER             MPC
------------------------------------------------------------------------
0--Baseline.............................            14.0          $1,188
1.......................................            14.5           1,233
2.......................................            15.0           1,279
------------------------------------------------------------------------


    Table IV-13--Manufacturer Production Costs for Space-Constrained
                                 [$2015]
------------------------------------------------------------------------
            Efficiency level                   SEER             MPC
------------------------------------------------------------------------
0--Baseline.............................            12.0          $1,240
1.......................................            12.5           1,276
2.......................................            13.0           1,313
3.......................................            13.5           1,351
4.......................................            14.0           1,390
------------------------------------------------------------------------


           Table IV-14--Manufacturer Production Costs for SDHV
                                 [$2015]
------------------------------------------------------------------------
            Efficiency level                   SEER             MPC
------------------------------------------------------------------------
0--Baseline.............................            12.0          $1,334
1.......................................            12.5           1,442
2.......................................            13.0           1,558
3.......................................            13.5           1,683
4.......................................            14.0           1,819
------------------------------------------------------------------------

    DOE calculated the manufacturer selling price (MSP) for central air 
conditioners and heat pumps by multiplying the MPC at each efficiency 
level (determined from the cost model) by the manufacturer markup (to 
account for non-production costs and profit) and adding the product 
shipping costs at the given efficiency level. The MSP is the price at 
which the manufacturer can recover all production and non-production 
costs and earn a profit.
    DOE estimated the manufacturer markup based on publicly available 
financial information for manufacturers of residential central air 
conditioners and heat pumps as well as comments from manufacturer 
interviews. DOE assumed the average manufacturer markup--which includes 
SG&A expenses, R&D expenses, interest expenses, and profit--to be 1.34 
for split-system air conditioners, 1.35 for split-system heat pumps, 
and 1.32 for single-package air conditioners and single-package heat 
pumps. Further details on manufacturer markups can be found in section 
IV.J and in chapter 12 of the direct final rule TSD.

[[Page 1813]]

    Manufacturers of HVAC products typically pay for the freight 
(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 accounts for shipping costs separately from other 
non-production costs that comprise the manufacturer markup. DOE 
calculated shipping costs at each efficiency level based on a typical 
53-foot straight-frame trailer with a storage volume of roughly 4,000 
cubic feet. See chapter 5 of the direct final rule TSD for more details 
about the methodology DOE used to determine the shipping costs.

D. Markups Analysis

    DOE uses distribution channel markups and sales taxes (where 
appropriate) to convert the manufacturer selling cost estimates from 
the engineering analysis to consumer prices, which are then used in the 
LCC, PBP, and the manufacturer impact analyses. The markups are 
multipliers that are applied to the purchase cost at each stage in the 
distribution channel.

    DOE characterized two distribution channels to describe how central 
air conditioners and heat pumps pass from manufacturers to residential 
consumers: replacement market and new construction. The replacement 
market channel is characterized as follows:

    Manufacturer [rarr] Wholesaler [rarr] Mechanical contractor [rarr] 
Consumer

    The new construction distribution channel is characterized as 
follows:

    Manufacturer [rarr] Wholesaler [rarr] Mechanical contractor [rarr] 
General contractor [rarr] Consumer

    To develop markups for the parties involved in the distribution of 
the product, DOE utilized several sources, including: (1) The Heating, 
Air-Conditioning & Refrigeration Distributors International (HARDI) 
2013 Profit Report \38\ (to develop wholesaler markups); (2) the Air 
Conditioning Contractors of America's (ACCA) 2005 financial analysis on 
the heating, ventilation, air-conditioning, and refrigeration (HVACR) 
contracting industry \39\ (to develop mechanical contractor markups); 
and (3) U.S. Census Bureau 2007 Economic Census data \40\ on the 
residential and commercial building construction industry (to develop 
general contractor markups).
---------------------------------------------------------------------------

    \38\ Heating, Air Conditioning & Refrigeration Distributors 
International 2013 Profit Report, available at http://www.hardinet.org/Profit-Report (last accessed Aug. 19, 2014).
    \39\ Air Conditioning Contractors of America (ACCA), Financial 
Analysis for the HVACR Contracting Industry (2005), available at 
http://www.acca.org/store/ (last accessed Aug. 19, 2014).
    \40\ U.S. Census Bureau, 2007 Economic Census Data, available 
at: http://www.census.gov/econ/ (last accessed April 10, 2014).
---------------------------------------------------------------------------

    For wholesalers and contractors, DOE developed baseline and 
incremental markups based on the product markups at each step in the 
distribution chain. The baseline markup relates the change in the 
manufacturer selling price of baseline models to the change in the 
consumer purchase price. The incremental markup relates the change in 
the manufacturer selling price of higher-efficiency models (the 
incremental cost increase) to the change in the consumer purchase 
price.
    In addition to the markups, DOE derived state and local taxes from 
data provided by the Sales Tax Clearinghouse.\41\ These data represent 
weighted average taxes that include county and city rates. DOE derived 
shipment-weighted average tax values for each region considered in the 
analysis.
---------------------------------------------------------------------------

    \41\ Sales Tax Clearinghouse Inc., State Sales Tax Rates Along 
with Combined Average City and County Rates (2014) available at 
http://thestc.com/STrates.stm (last accessed January, 2014).
---------------------------------------------------------------------------

    Chapter 6 of the direct final rule 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 residential central air conditioners and heat pumps at 
different efficiencies in representative U.S. single-family homes and 
multi-family residences, and to assess the energy savings potential of 
increased product efficiency.
    DOE estimated the annual energy consumption of central air 
conditioners and heat pumps at specified energy efficiency levels 
across a range of climate zones, building characteristics, and cooling 
applications. DOE's analysis estimated the energy use of central air 
conditioners and heat pumps in the field (i.e., as they are actually 
used by consumers). In contrast to the DOE test procedure, which 
provides standardized results that can serve as the basis for comparing 
the performance of different appliances used under the same conditions, 
the energy use analysis seeks to capture the range of operating 
conditions for central air conditioners and heat pumps.
    In its analysis of the recommended TSL, DOE applied a higher HSPF 
value to split-system heat pumps than indicated by the SEER and HSPF 
correlations discussed in section IV.C.2. The higher value, 8.8 HSPF, 
was recommended by the CAC/HP Working Group. At Efficiency Level 2, the 
recommended TSL for split-system heat pumps, the HSPF should be 8.5 
rather than the recommended value of 8.8. Since increasing the HSPF 
increases the heating efficiency of the equipment, additional energy 
savings are realized.
    As also noted in section IV.C.2, DOE did not analyze EER-based 
efficiency levels in the engineering analysis. DOE also did not analyze 
the impact of EER on energy consumption or on life-cycle cost.
    In the November 2014 RFI, DOE requested comment on whether it 
should analyze the use of central air conditioners and heat pumps in 
commercial buildings in the residential central air conditioning 
rulemaking. AHRI and Southern Co. commented that they did not recommend 
considering commercially-used equipment because central air 
conditioners are not utilized significantly in commercial buildings. 
(AHRI, No. 13 at p. 4; Southern Co., No. 11 at p. 2) Rheem stated that 
commercial applications of residential equipment are less than 5 
percent of the market, which would not be a significant enough 
percentage of the market to warrant special consideration of the 
application in the analysis for this rulemaking. (Rheem, No. 17 at p. 
6)
    As presented to the CAC/HP Working Group, DOE did not consider 
commercial-sector applications of residential central air conditioners 
and heat pumps because these represent a very small share of the 
overall market.\42\ (ASRAC Public Meeting, No. 89 at pp. 7-14)
---------------------------------------------------------------------------

    \42\ EIA's Commercial Building Energy Consumption Surveys from 
1992, 1995, 1999, and 2003 indicate that the fraction of commercial 
buildings with a residential central air conditioner or heat pump 
unit ranges from 1.2 to 2.1 percent.
---------------------------------------------------------------------------

1. General Approach
    To determine the field energy use of residential central air 
conditioners and heat pumps used in homes, DOE used a subset of 7,283 
households using a central air conditioner or heat pump from the Energy 
Information Administration's (EIA) 2009 Residential Energy Consumption 
Survey (RECS 2009).\43\ These households represent 60 percent of the 
weighted households in the U.S. The 153 RECS households that also had a 
room air conditioner, representing two percent of all weighted 
households with a central air conditioner, were not included. The RECS 
data provide information on the age of the home, the number of square

[[Page 1814]]

feet that are cooled, the age of its cooling equipment, and the 2009 
cooling and heating energy use for each household. DOE used the 
household samples not only to determine annual central air conditioner 
or heat pump energy consumption, but also as the basis for conducting 
the LCC and PBP analysis. DOE projected household weights, building 
characteristics (such as thermal shell efficiency and square footage), 
and cooling degree days (CDD) in 2021, the first full year of 
compliance with any amended energy conservation standards for central 
air conditioners and heat pumps. To characterize new homes in 2021, DOE 
used a subset of homes that were built after 1994; these new homes 
represent 23 percent of the homes with central air conditioners, and 45 
percent of the homes with heat pumps.
---------------------------------------------------------------------------

    \43\ U.S. Department of Energy: Energy Information 
Administration, Residential Energy Consumption Survey: 2009 RECS 
Survey Data (2013), available at: http://www.eia.gov/consumption/residential/data/2009/ (last accessed July 6, 2016).
---------------------------------------------------------------------------

    RECS does not provide information on the type of central air 
conditioner or heat pump, its capacity, or the number of units 
installed (in particularly hot or humid locations more than one central 
air conditioner/heat pump unit may be installed in a home). DOE 
assigned the number and capacity of central air conditioner/heat pump 
unit(s) based on the assumption of one ton of cooling capacity 
installed per 500 square feet of cooled floor space. For homes with 
more than one story and an estimated cooling capacity of between 3 and 
5 tons, DOE assigned a 2-ton and a 3-ton unit, under the assumption 
that home owners installed a second unit to provide separate 
thermostatic control for each floor. For households with estimated 
cooling capacity between 5 and 8 tons, DOE assigned a 3-ton and a 5-ton 
unit, regardless of the number of stories. These assumptions resulted 
in a distribution of national central air conditioner/heat pump by 
capacity very similar to that of AHRI shipment data from 2007 to 2013 
(30 percent 2-ton, 39 percent 3-ton, and 32 percent 5-ton). DOE's 
assignment method resulted in just over one-quarter of households 
having at least two central air conditioner/heat pump units installed, 
with one RECS household (representing 33,000 national households) 
assigned five 5-ton units.
    For single-package central air conditioners and heat pumps, DOE 
only used RECS households with 3-ton and 5-ton units because single-
package equipment is concentrated in these sizes. To analyze space-
constrained central air conditioners, DOE only used RECS multi-family 
households with air conditioning because this equipment is targeted for 
multi-family applications. To analyze small-duct high-velocity air 
conditioners, DOE only used RECS single-family detached homes sized 
with cooling requirements of 3-tons because this equipment is targeted 
for single-family residences with moderate cooling requirements.
    To estimate the annual energy consumption of central air 
conditioners and heat pumps meeting the considered efficiency levels, 
DOE first estimated the SEER of the existing equipment based on its age 
and the average SEER of new central air conditioner/heat pump shipments 
by year from AHRI data. For heat pumps, the HSPF of the existing 
equipment was based on the SEER-HSPF correlation developed in the 
Engineering Analysis and described in section IV.C.2.
    For each sampled household, DOE adjusted the energy use estimated 
for 2009 to ``normal'' weather by using ten-year CDD and HDD data for 
each geographical region.\44\ As 2009 was a relatively cool year, these 
adjustments increased CDD on average by eleven percent and decreased 
HDD on average by five percent. DOE also accounted for the change in 
climate based on Annual Energy Outlook 2015 (AEO 2015) projections of 
CDD.\45\ This adjustment results in the national average building 
cooling load increasing nine percent and the national average building 
heating decreasing five percent from 2014 to 2021.
---------------------------------------------------------------------------

    \44\ National Oceanic and Atmospheric Administration, NNDC 
Climate Data Online (2014), available at http://www7.ncdc.noaa.gov/CDO/CDODivisionalSelect.jsp (last accessed July 29, 2014).
    \45\ U.S. Department of Energy, Energy Information 
Administration, Annual Energy Outlook 2015, available at http://www.eia.gov/forecasts/aeo/. Projections of degree days are informed 
by a 30-year linear trend of each state's degree days, which are 
then population-weighted to the Census division level. In this way, 
the projection accounts for projected population migrations across 
the nation and continues any realized historical changes in degree 
days at the state level. The LCC and PBP analysis uses the climate 
projected for 2021 for all TSLs.
---------------------------------------------------------------------------

    DOE accounted for change in building shell characteristics and 
building size (square footage) between 2009 and 2021 by applying 
separate building shell indexes for existing and new homes in the 
National Energy Modeling System (NEMS) associated with AEO 2015. The 
indexes consider projected improvements in building thermal efficiency 
due to improvement in home insulation and other thermal efficiency 
practices, as well as projected increases in square footage of new 
homes. Application of the index results in three percent lower building 
cooling load for all homes, but one percent higher building cooling 
load for new homes, between 2009 and 2021.
    For each sample housing unit, DOE estimated the cooling load, and 
heating load for heat pumps, in 2021 by multiplying the estimated 
cooling and heating energy use in 2021 by the SEER and HSPF of the 
existing central air conditioner or heat pump. The 2021 cooling and 
heating loads are then used to estimate the energy use from replacing 
the existing equipment with new central air conditioner or heat pump 
units conforming to higher efficiency levels.
    Chapter 7 of the direct final rule TSD provides further detail on 
the general approach to the energy use analysis.
2. Split-System Central Air Conditioner: Blower-Coil to Coil-Only 
Efficiency Adjustment
    As discussed in section III.A, DOE had intended to rate and certify 
split-system central air conditioners based on a blower-coil 
configuration. However, the CAC/HP Working Group recommended that DOE 
adopt an approach, similar to the current one, of rating and certifying 
split-system central air conditioners based on any configuration (i.e., 
coil-only or blower-coil). (ASRAC Term Sheet, No. 76 at p. 4) As a 
result, the energy use analysis no longer had to address the field 
installation of split-system blower coil central air conditioners as 
coil-only units. In its analysis, DOE analyzed coil-only and blower 
coil split-system central air conditioners independently.
3. Split-System Central Air Conditioner: Coil-Only Efficiency 
Adjustment
    Coil-only central air conditioner installations consist of the 
condensing unit and an evaporative coil. For rating purposes, a default 
fan power consumption is applied to determine the SEER. In the June 8, 
2016 test procedure final rule, DOE designated the default fan power 
for the rating of coil-only central air conditioner split-systems to be 
365 Watts per CFM, which is equivalent to a furnace fan using a 
permanent split capacitor (PSC) motor. Because the energy use analysis 
had to account for the actual furnace fan in the existing house to 
properly represent the rated SEER of the coil-only central air 
conditioner installation, DOE developed ``factory-to-field'' adjustment 
factors to convert the coil-only rated SEER to a coil-only ``field 
SEER''.
    To develop such factors, DOE used a furnace fan-motor mix of 77-
percent PSC, 9-percent constant torque brushless permanent magnet (CT-
BPM), and 15-percent constant speed brushless permanent magnet (CS-
BPM). The above furnace fan mix is based on data developed for DOE's 
furnace fan

[[Page 1815]]

standards rulemaking, and characterizes furnace fan types in the 
housing stock in 2021 (the expected first full year of compliance with 
any amended central air conditioner efficiency standards). 79 FR 38129 
(July 3, 2014). This furnace fan mix was used in the energy use 
analysis to specify the furnace fan types in the housing stock that use 
both a central air conditioner and a furnace to space-condition the 
home. The furnace fan mix was characterized as a custom probability 
distribution and each of the furnace fan types was probabilistically 
assigned to RECS households that utilized a central air conditioner and 
furnace.
    After the assignment of the furnace fan type to the RECS household, 
the ``factory-to-field'' adjustment factor was applied to convert the 
rated SEER to a ``field SEER.'' The ``factory-to-field'' adjustment 
factors were developed as a function of the coil-only rated SEER; the 
central air conditioner cooling capacity; and the type of furnace fan 
in the existing household. For example, in the case of a 3-ton coil-
only central air conditioner unit with a rated SEER of 15 utilizing a 
PSC indoor blower-motor, if the unit was installed as a coil-only unit 
into a household with a CT-BPM furnace fan, then the ``factory-to-
field'' adjustment factor accounted for the reduction in fan power 
associated with utilizing a CT-BPM indoor blower-motor instead of a PSC 
furnace fan.
    Table IV-15 shows the ``factory-to-field'' adjustment factors for 
converting coil-only rated SEER to a coil-only ``field SEER.'' Appendix 
7E of the direct final rule TSD provides details on exactly how the 
``factory-to-field'' adjustment factors were determined.

        Table IV-15--``Factory-to-Field'' Adjustment Factors to Convert Coil-Only Central Air Conditioner Rated SEER to Coil-Only ``Field SEER''
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                        Capacity of central air conditioner and the furnace fan type in the existing household
                                             -----------------------------------------------------------------------------------------------------------
            Coil-only rated SEER                             2-ton                               3-ton                               5-ton
                                             -----------------------------------------------------------------------------------------------------------
                                                PSC (%)   CT-BPM (%)  CS-BPM (%)    PSC (%)   CT-BPM (%)  CS-BPM (%)    PSC (%)   CT-BPM (%)  CS-BPM (%)
--------------------------------------------------------------------------------------------------------------------------------------------------------
13.0........................................         0.0         6.9         7.3         0.0         3.5         4.8         0.0         1.8         5.0
13.5........................................         0.0         7.1         7.5         0.0         3.7         5.0         0.0         1.8         5.2
14.0........................................         0.0         7.3         7.8         0.0         3.8         5.2         0.0         1.9         5.3
14.5........................................         0.0         7.6         8.0         0.0         3.9         5.3         0.0         1.9         5.5
15.0........................................         0.0         7.8         8.3         0.0         4.0         5.5         0.0         2.0         5.7
15.5........................................         0.0         8.0         8.5         0.0         4.1         5.6         0.0         2.1         5.8
16.0........................................         0.0         8.3         8.8         0.0         4.2         5.8         0.0         2.1         6.0
16.5........................................         0.0         8.7         9.3         0.0         4.5         6.1         0.0         2.2         6.3
17.0........................................         0.0         9.0         9.5         0.0         4.6         6.3         0.0         2.3         6.5
18.0........................................         0.0         9.2         9.8         0.0         4.7         6.4         0.0         2.3         6.7
--------------------------------------------------------------------------------------------------------------------------------------------------------

4. Split-System Central Air Conditioner: Coil-Only Installations
    In the August 2015 NODA, the analysis assumed that coil-only 
installations would consist of a new condensing unit and a new 
evaporative coil utilizing the blower of the furnace. Data presented to 
the CAC/HP Working Group by AHRI showed that there are far more 
shipments of condensing units than evaporative coils, indicating that 
new condensing units are not always paired with a new evaporative coil, 
and instead some installations use the existing evaporative coil. The 
AHRI data suggested that approximately 25 percent of installations use 
the existing evaporative coil. (ASRAC Public Meeting, No. 88 at pp. 
175-214)
    In the analysis for this DFR, DOE assumed that 25 percent of coil-
only installations use the existing evaporative coil. Based on a 
characterization of the stock of evaporative coils, DOE assumed that 25 
percent of the existing evaporative coils are from a system rated at 10 
SEER (the efficiency standard effective in 1992) and 75 percent are 
from a system rated at 13 SEER (the efficiency standard effective in 
2006). The analysis paired a new condensing unit at each considered 
efficiency level with an evaporative coil at either 10 or 13 SEER, so 
the system efficiency is less than would be the case with a new 
evaporative coil. DOE used an equipment simulation model, the DOE/Oak 
Ridge National Laboratory (ORNL) Heat Pump Design Model, Mark VI 
version,\46\ along with a manufacturer's central air conditioner system 
specifications, to estimate the resulting system efficiency. Appendix 
7G of the DFR TSD provides details of the analysis, which were also 
presented to the CAC/HP Working Group. (ASRAC Public Meeting, No. 84 at 
pp. 59-61) Because 25 percent of coil-only installations use the 
existing (lower-efficiency) evaporative coil, the overall average 
energy use of split-system central air conditioners is higher in the 
DFR analysis than in the August 2015 NODA. (ASRAC Public Meeting, No. 
88 at pp. 175-214)
---------------------------------------------------------------------------

    \46\ DOE/ORNL Heat Pump Design Model, Mark VI Version. http://
web.ornl.gov/~wlj/hpdm/MarkVI.shtml.
---------------------------------------------------------------------------

5. Fan Energy Use During Continuous Operation
    The SEER and HSPF efficiency metrics account for fan energy use to 
provide space cooling and space heating, respectively. These metrics do 
not account for fan energy use in continuous operation.\47\ As noted 
above in section IV.E.3, DOE published a final rule that established 
energy conservation standards for residential furnace fans. Products 
addressed in the final rule include furnace fans used in weatherized 
and non-weatherized gas furnaces, oil furnaces, electric furnaces, and 
modular blowers, which included capturing the energy use of these 
products in continuous operation. The rule does not cover furnace fans 
used in blower-coil indoor units of split-system central air 
conditioners and heat pumps of any type.\48\ As noted above in section 
IV.E.3, coil-only split-system air conditioners are coupled with non-
weatherized furnaces and, as a result, the continuous operation of the 
fan was already accounted for in the furnace fan final rule. The 
continuous operation of the fan for single-package air

[[Page 1816]]

conditioners was also already accounted for in the furnace fan final 
rule as these products are sold within a single package that includes a 
weatherized furnace. Therefore, DOE needed to account for fan energy 
use in continuous operation for the following product classes: Split-
system central air conditioner product class in a blower coil 
configuration, split-system heat pumps, single-package heat pumps, and 
small duct high velocity air conditioners.
---------------------------------------------------------------------------

    \47\ Continuous operation is used in homes that require 
mechanical ventilation because are infiltration is very low.
    \48\ Reference to Technical Support Document for Residential 
Furnace Fans Energy Conservation Standard, Chapter 3 Market and 
Technology Assessment: http://www.regulations.gov/#!documentDetail;D=EERE-2010-BT-STD-0011-0111.
---------------------------------------------------------------------------

    To accomplish the accounting of continuous fan operation, DOE 
relied on inputs from the rulemaking for furnace fans. Specifically, 
DOE used the wattage reduction from certain fan technologies, the hours 
of operation in continuous mode for households that use that mode, and 
the fraction of households that require such continuous operation.\49\ 
The engineering analysis specifies the fan technologies that are 
associated with specific SEER and HSPF efficiency levels, allowing for 
calculation of the fan energy savings in continuous operation at each 
level for split-system and package heat pumps and split-system central 
air conditioners in a blower coil configuration. Further details are 
given in chapter 7 of the DFR TSD.
---------------------------------------------------------------------------

    \49\ Technical Support Document: Energy Efficiency Program for 
Consumer Products and Commercial and Industrial Equipment: 
Residential Furnace Fans. U.S. Department of Energy. Washington DC. 
June 2014. Chapter 7. https://www.regulations.gov/#!documentDetail;D=EERE-2010-BT-STD-0011-0111.
---------------------------------------------------------------------------

6. Other Issues
    Higher-efficiency central air conditioners and heat pumps can 
reduce the operating costs for a consumer, which DOE understands could 
lead to greater use of the product. A direct 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 this DFR analysis, DOE 
examined a 2009 review of empirical estimates of the rebound effect for 
various energy-using products.\50\ However, the review contained 
relatively few estimates of the direct rebound effect for household 
cooling. The two studies discussed in the review were old studies (from 
1978 and 1981), conducted during a period of rising energy prices and 
using small sample sizes. One shows a short-run rebound effect of 4 
percent,\51\ while the other reported a wide range of 1-26 percent.\52\ 
In the NOPR for residential furnaces, DOE chose to use a rebound effect 
of 15 percent, which is roughly in the center of the range reported for 
household cooling. 80 FR 13120, 13148 (May 12, 2015). For consistency, 
DOE used a rebound effect of 15 percent for central air conditioner and 
heat pump when counting energy savings in the NIA.
---------------------------------------------------------------------------

    \50\ S. Sorrell, J. Dimitropoulos, and M. Sommerville, 2009. 
Empirical Estimates of the Direct Rebound Effect: A Review. 37 
Energy Policy 1356-71.
    \51\ Hausman, J.A., 1979. Individual discount rates and the 
purchase and utilization of energy-using durables. Bell Journal of 
Economics 10(1), 33-54.
    \52\ Dubin, J.A., Miedema, A.K., Chandran, R.V., 1986. Price 
effects of energy-efficient technologies--a study of residential 
demand for heating and cooling. Rand Journal of Economics 17(3), 
310-25.
---------------------------------------------------------------------------

    In its comments on the November 2014 RFI, NEEA and NPCC stated that 
DOE's proposed test procedure change for variable-speed units may have 
a significant impact on energy savings. (NEEA & NPCC, No. 19 at p. 10) 
As discussed in section III.F, DOE is amending the testing requirement 
for systems with a variable speed compressor. As noted in section 
III.F, however, the analyses conducted to support this direct final 
rule were based on the test procedure at the time of the CAC/HP Working 
Group negotiations, per the request of the CAC/HP Working Group.
    Commenting on the RFI, AHRI urged DOE to evaluate the impact of 
changes in SEER and EER on cooling energy savings once the 2011 DFR 
standards are effective (in 2015). AHRI stated that DOE cannot 
determine whether additional improvements will save energy without 
evaluating whether the standards that have been adopted have actually 
resulted in the energy savings predicted in the 2011 DFR analysis. 
According to AHRI, if those savings are not in fact realized, DOE 
cannot have a basis for concluding that further changes will result in 
additional significant energy savings. (AHRI, No. 13 at p. 4)
    In response, DOE expects that manufacturers will comply with the 
2011 DFR standards and that the units sold at the rated SEER and EER 
levels will generally perform as expected. DOE's estimation of the 
energy use of standards-compliant units in representative use in U.S. 
homes was extensively reviewed in the 2011 DFR rulemaking, and it is 
reasonable to expect that the efficiency improvements required by the 
2011 DFR will yield energy savings roughly in accord with DOE's 
projections.

F. Life-Cycle Cost and Payback Period Analysis

    In determining whether an energy efficiency standard is 
economically justified, DOE considers the economic impact of potential 
standards on consumers. The effect of new or amended standards on 
individual consumers usually includes a reduction in operating cost and 
an increase in purchase cost. DOE used the following two metrics to 
measure consumer impacts:
     LCC (life-cycle cost) is the total consumer cost of an 
appliance or product, generally over the life of the appliance or 
product, including purchase and operating costs. The latter costs 
consist of maintenance, repair, and energy costs. Future operating 
costs are discounted to the time of purchase and summed over the 
lifetime of the appliance or product.
     PBP (payback period) measures the amount of time it takes 
consumers to recover the assumed higher purchase price of a more 
energy-efficient product through reduced operating costs.
    For any given efficiency level, DOE measures the change in LCC 
relative to the efficiency levels estimated for the no-standards case, 
which 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 net effect of potential amended central air 
conditioner and heat pump standards on consumers by calculating the LCC 
savings and PBP for each household by efficiency level. Inputs to the 
LCC calculation include the installed cost to the consumer (purchase 
price, including sales tax where appropriate, plus installation cost), 
operating costs (energy expenses, repair costs, and maintenance costs), 
the lifetime of the product, and a discount rate. Inputs to the payback 
period calculation include the installed cost to the consumer and 
first-year operating costs.
    DOE performed the LCC and PBP analyses using a spreadsheet model 
combined with Crystal Ball \53\ to account for uncertainty and 
variability among the input variables. Each Monte Carlo simulation 
consists of 10,000 LCC and PBP calculations using input values that are 
either sampled from probability

[[Page 1817]]

distributions and household samples or characterized with single point 
values. The analytical results include a distribution of 10,000 data 
points showing the range of LCC savings for a given efficiency level 
relative to the no-standards case efficiency distribution. In 
performing an iteration of the Monte Carlo simulation for a given 
consumer, product efficiency is chosen based on its probability. If the 
chosen product efficiency is greater than or equal to the efficiency of 
the standard level under consideration, the LCC and PBP calculation 
reveals that a consumer is not impacted by the standard level. By 
accounting for consumers who already purchase more-efficient products, 
DOE avoids overstating the potential benefits from increasing product 
efficiency.
---------------------------------------------------------------------------

    \53\ Crystal Ball is a commercial software program developed by 
Oracle and used to conduct stochastic analysis using Monte Carlo 
simulation. A Monte Carlo simulation uses random sampling over many 
iterations of the simulation to obtain a probability distribution of 
results. Certain key inputs to the analysis are defined as 
probability distributions rather than single-point values.
---------------------------------------------------------------------------

    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. (42 
U.S.C. 6295(o)(B)(ii)) For each considered efficiency level, DOE 
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, and multiplying that amount by the average energy price 
forecast for the year in which compliance with the amended standards 
would be required.
    As discussed in section IV.E, DOE developed nationally-
representative household samples from 2009 RECS. For each sampled 
building, DOE determined the energy consumption of the central air 
conditioner or heat pump and the appropriate energy prices in the area 
where the building is located.
    DOE calculated the LCC and PBP for all central air conditioner or 
heat pump consumers as if the consumers were to purchase the product in 
the year that compliance with amended standards is required. Because 
the analysis was conducted when 2021 was the expected first year of 
compliance, it used that year for all the considered TSLs, including 
the Recommended TSL.
    At the October 14, 2015 CAC/HP Working Group meeting, AHRI 
presented an LCC sensitivity analysis demonstrating the impact of 
several inputs, including manufacturer production costs, distribution 
channel markups, consumer discount rates, and expected time of 
ownership, on the LCC savings of more-efficient split system CACs and 
HPs. AHRI's analysis demonstrated that the LCC savings are highly 
sensitive to the above inputs. (ASRAC Public Meeting, No. 89 at pp. 
225-239). Although AHRI did question the above inputs that DOE used in 
the LCC analysis, the purpose of their analysis was to demonstrate that 
the LCC savings were highly sensitive to changes in the inputs. As a 
result of AHRI's analysis, DOE requested feedback and made revisions to 
the above inputs based on member recommendations during subsequent CAC/
HP Working Group meetings. The inputs to the LCC analysis which were 
the focus of AHRI's sensitivity analysis are described in sections 
above (manufacturer production costs and markups) or below (discount 
rates and product lifetime). In the case of the manufacturer production 
costs, DOE details how stakeholder recommendations were considered in 
the development of the costs. As a result of the Working Group's 
efforts to provide meaningful input and insights for all of the input 
into the LCC analysis, DOE believes the LCC results presented in 
section V.B.1 accurately represent the consumer impacts of the amended 
standards for CACs and HPs.
1. Inputs to Installed Cost
    The primary inputs for establishing the total installed cost are 
the baseline consumer product price, standard-level consumer price 
increases, and installation costs (labor and material cost). Baseline 
consumer prices and standard-level consumer price increases were 
determined by applying markups to manufacturer selling price estimates, 
including sales tax where appropriate. The installation cost is added 
to the consumer price to produce a total installed cost.
a. Equipment Cost
    The manufacturer selling price estimated in the engineering 
analysis refers to the current price. Economic literature and 
historical data suggest that the real prices of many products may trend 
downward over time according to ``learning'' or ``experience'' curves. 
Experience curve analysis focuses on entire industries and aggregates 
over many causal factors that may not be well characterized.\54\ For 
example, experience curve analysis implicitly includes factors such as 
efficiencies in labor, capital investment, automation, materials 
prices, distribution, and economies of scale at an industry-wide level. 
An experience curve relates the product price to the cumulative 
production of the product. Using a given set of historical data, DOE 
derived an experience rate that expresses the percentage reduction in 
price for each doubling of cumulative production.
---------------------------------------------------------------------------

    \54\ Margaret Taylor & K. Sydny Fujita, Accounting for 
Technological Change in Regulatory Impact Analyses: The Learning 
Curve Technique. (Lawrence Berkeley Nat'l Lab., 2013) available at: 
http://eetd.lbl.gov/publications/accounting-for-technological-change-0.
---------------------------------------------------------------------------

    For the default price trend for residential central air conditioner 
and heat pump, DOE derived an experience rate based on an analysis of 
long-term historical data. As a proxy for manufacturer price, DOE used 
Producer Price Index (PPI) data for unitary air conditioners from the 
Bureau of Labor Statistics for 1978 through 2013.\55\ An inflation-
adjusted PPI was calculated using the GDP chained price deflators for 
the same years. To calculate an experience rate, DOE performed a least-
squares power-law fit on the inflation-adjusted PPI versus cumulative 
shipments of residential central air conditioners and heat pumps, based 
on a corresponding series for historic shipments of these products (see 
section IV.G of this direct final rule for discussion of shipments 
data). A detailed discussion of DOE's derivation of the experience rate 
is provided in appendix 8-C of the direct final rule TSD.
---------------------------------------------------------------------------

    \55\ U.S. Department of Labor, Bureau of Labor Statistics, 
Produce Price Indices Series ID PCU333415333415E, available at 
http://www.bls.gov/ppi/ (last accessed July 28, 2014).
---------------------------------------------------------------------------

    DOE then derived a price factor index, with the price in 2013 equal 
to 1, to forecast prices in the compliance year for the LCC and PBP 
analysis, and, for the NIA, for each subsequent year in the 30-year 
shipments period. The index value in each year is a function of the 
experience rate and the cumulative production through that year. To 
derive the latter, DOE combined the historical shipments data with 
projected shipments from the NIA (see section IV.H of this notice).
    As discussed, DOE determined the type, capacity and number of 
central air conditioner/heat pump units for each RECS household in 
order to assign the correct equipment price. For packaged systems, DOE 
only developed manufacturer costs for 3-ton systems, so it used these 
costs for all packaged systems to arrive at equipment prices.
    As discussed, the energy use analysis had to address the field 
installation of coil-only installations use the existing evaporative 
coil. For these installations, the equipment price was based solely on 
the condensing unit.

[[Page 1818]]

b. Installation Cost
    Installation cost includes labor, overhead, and any miscellaneous 
materials and parts needed to install the equipment.
    DOE developed installation labor costs for different central air 
conditioner and heat pump capacities from RSMeans Facilities 
Maintenance & Repair Cost Data 2015. Based on input from the CAC/HP 
Working Group, two further actions were taken: The hourly wages were 
updated and overhead and profit were included using the information 
from RS Means. (ASRAC Public Meeting, No. 84 at pp. 76-80)
    Commenting on the November 2014 RFI, AHRI stated that installation 
costs are generally scalable with equipment size and weight. (AHRI, No. 
13 at p. 4) Southern Co. stated that installation cost scales with 
weight. (Southern Co., No. 11 at p. 2) In contrast, Rheem does not 
believe that installation costs scale with equipment weight. According 
to Rheem, DOE should analyze the installation costs as increasing with 
efficiency due to duct modifications that are required for larger 
indoor coils. (Rheem, No. 17 at p. 6)
    DOE initially determined that the change in weight from the minimum 
efficiency unit to maximum efficiency unit is not large enough to 
require an increase in the number of people in the crew to move and 
position the unit--two people are sufficient.\56\ The labor hours also 
do not change with the physical size of the unit. Regarding the need 
for duct modification, air flow volume does not change with efficiency, 
so duct size does not need to change for the same tonnage unit even if 
the indoor coil size is bigger. Based on the foregoing, the 
installation cost was initially estimated to remain the same across the 
considered efficiency levels. Based on input from the CAC/HP Working 
Group, however, DOE revised the installation cost for replacement 
installations to account for the installation of/thermostat wire as 
well as the increased thermostat costs for 2-speed compressors and 
indoor fan ECMs. (ASRAC Public Meeting, No. 84 at pp. 76-80) These cost 
adders were generally applied to units with energy efficiencies at 
about 16 SEER.
---------------------------------------------------------------------------

    \56\ For example, a 5 ton air conditioner outdoor unit weight 
changes from 190 lb to 290 lb when efficiency changes from 13 SEER 
to 18 SEER (data from manufacturer published data).
---------------------------------------------------------------------------

    The CAC/HP Working Group requested that ACCA conduct a survey of 
its members to provide insight regarding the degree to which 
installation costs are higher for more-efficient equipment. ACAA 
conducted a survey and presented it to the CAC/HP Working Group. Based 
on the survey, ACCA concluded that DOE was not fully covering 
installation costs, including the costs of changing wiring and 
thermostats, checking ducting, and start-up costs to commission a 
higher efficiency product. (ASRAC Public Meeting, No. 85 at pp. 43-79) 
In response, DOE notes that the number of survey respondents was small 
(44 out of approximately 4,000 member contractors). Therefore, DOE 
chose to retain its estimates of installation costs.
    Commenting on the November 2014 RFI, AHRI suggested that DOE 
include costs incurred by contractors and consumers associated with 
installation limitations such as local fire code access restrictions 
and indoor space constraints. (AHRI, No. 13 at p. 4) In response, DOE 
notes that it currently has space-constrained central air conditioner 
and space-constrained heat pump product classes specifically for 
products that may have installation limitations due to space 
constraints. Therefore, contractor and consumer costs due to space 
constraints were not considered for the other non-space-constrained 
product classes.
2. Inputs to Operating Costs
a. Energy Consumption
    For each sample household, DOE determined the energy consumption 
for a central air conditioner or heat pump at different efficiency 
levels using the approach described above in section IV.E.
    As discussed in section IV.E, DOE is taking into account the 
rebound effect associated with more-efficient residential central air 
conditioner and heat pump. The take-back in energy consumption 
associated with the rebound effect provides consumers with increased 
value (e.g., enhanced comfort associated with a cooler or warmer indoor 
environment). The increased comfort has a cost that is equal to the 
monetary value of the higher energy use. DOE could reduce the energy 
cost savings to account for the rebound effect, but then it would have 
to add the value of increased comfort in order to conduct a proper 
economic analysis. The approach that DOE uses--not reducing the energy 
cost savings to account for the rebound effect and not adding the value 
of increased comfort--assumes that the value of increased comfort is 
equal to the monetary value of the higher energy use. Although DOE 
cannot measure the actual value of increased comfort to the consumers, 
the monetary value of the higher energy use represents a lower bound 
for this quantity.
b. Energy Prices
    DOE used marginal and average prices which vary by season, region 
and household consumption level. DOE estimated these prices using data 
published with the Edison Electric Institute (EEI) Typical Bills and 
Average Rates reports for summer and winter 2014.\57\ Each report 
provides, for most of the major investor-owned utilities (IOUs) in the 
country, the total bill assuming household consumption levels of 500, 
750 and 1,000 kWh for the billing period. DOE defined an average price 
as the ratio of the total bill to the electricity consumption, and a 
marginal price as the ratio of the change in the bill to the change in 
energy consumption.
---------------------------------------------------------------------------

    \57\ Edison Electric Institute. Typical Bills and Average Rates 
Report. Winter 2014 published April 2014, Summer 2014 published 
October 2014. See http://www.eei.org/resourcesandmedia/products/Pages/Products.aspx.
---------------------------------------------------------------------------

    Regional weighted-average values for each type of price were 
calculated for the nine census divisions and four large States (CA, FL, 
NY and TX). Each EEI utility in a region was assigned a weight based on 
the number of residential consumers it serves. Consumer counts were 
taken from the most recent EIA Form 861 data.\58\ DOE adjusted these 
regional weighted-average prices to account for systematic differences 
between IOUs and publicly-owned utilities (POUs), as the latter are not 
included in the EEI data set. For each region, DOE estimated a 
correction factor based on the ratio of the average electricity price 
for IOUs to the average price charged by POUs (calculated using EIA 
Form 861 data), and the percentage of consumers served by POUs.
---------------------------------------------------------------------------

    \58\ See http://www.eia.gov/electricity/data/eia861/.
---------------------------------------------------------------------------

    DOE assigned seasonal average and marginal prices to each household 
in the LCC sample based on its location and its baseline monthly 
electricity consumption for an average summer or winter month. For a 
detailed discussion of the development of seasonal average and marginal 
energy prices, see appendix 8-F of the direct final rule TSD.
    To estimate future prices, DOE used the projected annual changes in 
average residential electricity prices in the Reference case projection 
in AEO 2015.\59\ The AEO price trends do not distinguish between 
marginal and average prices. DOE reviewed the EEI data for the years 
2007 to 2014 and

[[Page 1819]]

determined that there is no systematic difference in the trends for 
marginal vs. average prices in the data, so DOE used the same AEO 2015 
trend for both.
---------------------------------------------------------------------------

    \59\ U.S. Department of Energy, Energy Information 
Administration, op.cit.
---------------------------------------------------------------------------

c. Maintenance and Repair Costs
    Maintenance costs are associated with maintaining the proper 
operation of the equipment, whereas repair costs are associated with 
repairing or replacing components that have failed.
    The maintenance cost for an air conditioner or heat pump unit 
includes a preventative annual check done by HVAC professionals, and 
preventative maintenance performed by home owners such as filter 
changes.
    Commenting on the November 2014 RFI, Rheem stated that more 
efficient products do not require additional maintenance. (Rheem, No. 
17 at p. 7) Southern Co. stated that time and cost of routine 
maintenance should be higher for variable speed units. (Southern Co., 
No. 11 at p. 3)
    DOE reviewed RSMeans Facilities Maintenance & Repair Cost Data 2015 
and determined that the maintenance cost does not change with equipment 
size and equipment efficiency, even for variable-speed products. Most 
variable-speed products have intelligent controls, which have certain 
diagnostic capabilities that would likely reduce the maintained cost of 
the unit. However, DOE decided not to estimate lower maintenance costs 
for variable-speed units to be more conservative. Therefore, DOE did 
not include maintenance costs in the LCC analysis as it would have no 
impact on the results.
    DOE calculated the cost of repair by totaling the cost of replacing 
the major components in central air conditioner or heat pump that are 
expected to fail during the life of the equipment. Higher efficiency 
units have more expensive components, and the estimated repair costs 
are higher. The major components included in the analysis are the 
indoor coil, outdoor coil, indoor blower (except for coil-only unit), 
outdoor fan, indoor TXV, outdoor TXV (heat pump only), reversing valve 
(heat pump only), and controls. Compressor failures were not considered 
in the LCC and PBP analysis but, rather, were included in the shipments 
and national impact analyses. DOE assumed that compressor failure is 
the principal driver for a consumer to either replace or repair the 
unit (see section IV.G). For investors, which are often used in 
variable-speed compressors, manufacturers offer the same warranty term 
for inverters and compressors together, so DOE assumed inverters have 
approximately the same reliability as compressors.
    DOE developed component failure rates from proprietary industry 
data. The associated material cost and labor costs were initially 
developed from RSMeans Facilities Maintenance & Repair Cost Data 2015, 
the 2014 furnace fan final rule TSD,\60\ and component vendors. The 
development of repair costs considered a warranty period, as almost all 
manufacturers provide warranty coverage for their products. As a 
result, the costs associated with component repairs occurring during 
the warranty period were deducted from the total consumer repair cost. 
Because equipment of different capacities and efficiencies contain 
different components, repair costs were calculated as a function of 
efficiency and capacity. Because component failure rates are a function 
of equipment age, DOE determined failure rates and the associated 
repair costs during different periods of equipment age.
---------------------------------------------------------------------------

    \60\ Available at: http://www.regulations.gov/#!documentDetail;D=EERE-2010-BT-STD-0011-0111.
---------------------------------------------------------------------------

    Commenting on the November 2014 RFI, AHRI stated that higher 
efficiency products have more complex and expensive components 
necessitating longer repair times by more experienced technicians, and 
repair costs are generally directly proportional with equipment price. 
(AHRI, No. 13 at p. 4-5) Rheem stated that with the exception of 
evaporator and condenser coils, repair costs vary with replacement 
component prices and not product price. Rheem noted that with more 
complex technologies to achieve higher efficiency, the number of 
components increases and the number of repairs per system is likely to 
increase. (Rheem, No. 17 at p. 7) Southern Co. stated that inverters 
tend to have shorter lives than compressors and evaporators, and costs 
for inverter replacements should be separately modeled. (Southern Co., 
No. 11 at p. 3)
    The cost of replacing the major components in a central air 
conditioner or heat pump that are expected to fail during the life of 
the equipment and the component failure rates were presented to the 
CAC/HP Working Group. Based on input from the CAC/HP Working Group, DOE 
revised its estimates. (ASRAC Public Meeting, No. 84 at pp. 83-100) 
Failure rates and material costs were revised based on further 
discussion with industry experts. All components besides fan motors 
were marked up with a mechanical contractor markup. Fan motor costs 
were taken from Grainger.\61\ The labor hours for the repair remained 
the same as what was initially developed but the hourly wages were 
updated to include overhead and profit based on RS Means. Refer to 
chapter 7 of the direct final rule TSD for more details on the 
development of the costs, labor hours, and failure rates.
---------------------------------------------------------------------------

    \61\ W.W. Grainger, Inc. See: https://www.grainger.com/category/motors/ecatalog/N-bii?analytics=nav.
---------------------------------------------------------------------------

d. Product Lifetime
    Product lifetime is the age at which an appliance is retired from 
service. DOE estimated the lifetime of central air conditioners and 
heat pumps as part of the shipments analysis. The method that DOE used 
to develop lifetime estimates is described in section IV.G. DOE 
developed separate lifetime distributions for the three considered 
regions. Table IV-16 shows the average lifetimes.

                                     Table IV-16--Average Lifetime by Region
----------------------------------------------------------------------------------------------------------------
               Product class group                   National          North         Hot-humid        Hot-dry
----------------------------------------------------------------------------------------------------------------
Central Air Conditioners........................            21.2            24.1            18.0            24.9
Heat Pumps......................................            15.3            16.4            15.1            15.4
----------------------------------------------------------------------------------------------------------------

e. Discount Rates
    In the calculation of LCC, DOE applies discount rates to estimate 
the present value of future operating costs. The discount rate used in 
the LCC analysis represents the individual consumer's perspective.
    To establish discount rates for residential consumers, DOE 
identified all relevant household debt or asset classes in order to 
approximate a consumer's opportunity cost of funds related to appliance 
operating cost savings. DOE's primary data source was the Federal 
Reserve Board's Survey of

[[Page 1820]]

Consumer Finances (SCF) for 1995, 1998, 2001, 2004, 2007, and 2010. DOE 
estimated separate discount rate distributions for six income groups, 
divided based on income percentile as reported in the SCF. DOE 
calculated a weighted average discount rate for each household in the 
SCF using the shares of each type of debt and equity of a household's 
total combined debt-plus-equity. The household-level discount rates 
were then aggregated to form discount rate distributions for each of 
the six income groups, representing the discount rates that may apply 
in the year in which amended standards would take effect. DOE assigned 
each sample household a specific discount rate drawn from the 
appropriate distribution. The average residential discount rate across 
all types of household debt and equity and income groups, weighted by 
the shares of each class, is 4.5 percent.
    See chapter 8 in the direct final rule TSD for further details on 
the development of discount rates for the LCC analysis.
f. Product Efficiency in the No-New-Standards Case
    To accurately estimate the share of consumers that would be 
affected by a standard at a particular efficiency level, DOE estimates 
the distribution of product efficiencies that consumers would purchase 
in the case without new or amended energy efficiency standards 
(referred to as the no-new-standards case) in the year compliance with 
the standard is required. DOE develops such an efficiency distribution 
for each of the considered product classes.
    For the June 2011 DFR, AHRI provided historical shipment-weighted 
efficiency data by product class through 2009.\62\ Absent any recent 
data, DOE had to make its own estimates of how the efficiency 
distributions determined for the June 2011 DFR were impacted by the 
amended standards that became effective in January, 2015 and, in turn, 
how the distributions would change further from 2015 to 2021, the 
assumed first full compliance year for any amended central air 
conditioner and heat pump standards. The estimated efficiency 
distributions were presented to the CAC/HP Working Group, which 
recommended that they be revised based on recent data from AHRI. (ASRAC 
Public Meeting, No. 89 at pp. 163-170)
---------------------------------------------------------------------------

    \62\ These data, along with model data from the Air- 
Conditioning, Heating, and Refrigeration (ACHR) News, were used to 
develop base-case efficiency distributions for 2008. DOE projected 
the central air conditioner and heat pump efficiency distributions 
to 2011 based on the average growth in shipment-weighted efficiency 
observed in the AHRI data from 2006 to 2009. DOE then took into 
account Federal tax credit programs designed to encourage purchase 
of higher-efficiency products to further adjust the distributions 
for the year 2016, the assumed compliance date of new standards that 
was used for the DFR analysis.
---------------------------------------------------------------------------

    AHRI submitted data on market share for 2015 by SEER for the three 
regions for split-systems.\63\ DOE then projected the shipment-weighed 
SEER for 2021 using an efficiency growth rate equal to half of the rate 
in the 1993-2002 period. The years 1993 to 2002 were a time period when 
no new central air conditioner and heat pump standards became 
effective, and, therefore, the efficiency trend represented gains 
caused solely by non-regulatory market conditions. DOE chose to use 
half the growth rate observed during the historic period due to 
potential technological limits on further improving efficiency with 
single-speed design measures. DOE then allocated market shares to the 
efficiency levels being analyzed for this rule so that the resultant 
shipment-weighted SEER matched the value determined from the 
application of the estimated growth rate from 2015 to 2021.
---------------------------------------------------------------------------

    \63\ AHRI also provided data indicating the market shares of 
split-system air conditioners in coil-only and blower coil 
configurations. These fractions (61% and 39%, respectively) were 
used to establish the shares of projected shipments in the shipments 
model.
---------------------------------------------------------------------------

    For package systems, AHRI did not provide recent data on market 
share by SEER, so DOE retained the approach developed for the August 
2015 NODA. First, DOE altered the efficiency distributions it developed 
for the June 2011 DFR by rolling-up the market shares for products 
between 13 and 13.99 SEER to 14 SEER, the new standard level effective 
in 2015. To estimate the efficiency distributions in 2021, DOE applied 
an efficiency growth rate that was half that observed from 1993 to 2002 
to the shipment-weighted SEER estimated in 2015. After determining the 
shipment-weighed SEER in 2015, DOE then allocated market shares to the 
efficiency levels being analyzed for this rule so that the resultant 
shipment-weighted SEER matched the value determined from the 
application of the estimated growth rate from 2015 to 2021.
3. Inputs to Payback Period Analysis
    The payback period is the amount of time it takes the consumer to 
recover the additional installed cost of more efficient products, 
compared to baseline products, through energy cost savings. The simple 
payback period does not account for changes in operating expense over 
time or the time value of money. Payback periods that exceed the life 
of the product mean that the increase in total installed cost is not 
recovered in reduced operating expenses.
    The inputs to the PBP calculation are the total installed cost of 
the equipment to the customer for each efficiency level and the average 
annual operating expenditures for each efficiency level. The PBP 
calculation uses the same inputs as the LCC analysis, except that 
discount rates are not needed. The results of DOE's PBP analysis are 
presented in section V.B.1.
    For the rebuttable presumption PBP, for each considered efficiency 
level, DOE determined the value of the first year's energy savings by 
calculating the quantity of those savings in accordance with the 
applicable DOE test procedure, and multiplying that amount by the 
average energy price forecast for the year in which compliance with the 
amended standard would be required.

G. Shipments Analysis

    Shipments of covered equipment are a key input to estimates of the 
national energy savings under a proposed standard. The goal of the 
shipments model is to provide projections of the total number of units 
of shipped during the analysis period, and to estimate how those 
shipments may be affected by the equipment price and operating cost 
changes induced by a standard.
    The shipments model is factored into two segments: Estimation of 
the total number of shipments of a given product type across all 
efficiencies available in the market, and distribution of these 
shipments over efficiency bins. Consumer decisions with respect to 
repairs and equipment switching only affect the total number of units 
shipped.
1. Model Structure
    The shipments model produces separate projections for each of four 
equipment classes: Split and packaged central air conditioners (central 
air conditioners), and split and packaged heat pumps (heat pumps). To 
capture potential effects of regional standards, a separate shipments 
projection is calculated for each of the three regions considered in 
the analysis: North (N), hot-humid (HH) and hot-dry (HD). For each 
equipment class and each region the total shipments are divided into 
three market segments: (1) New shipments to new buildings, (2) new 
shipments to existing buildings, and (3) replacement shipments to 
existing buildings. Buildings are defined as single-family residences. 
More detail on the input data to the shipments model is provided in the 
next section.

[[Page 1821]]

    The model is initialized in 1983 using historic shipments from 1953 
to 1982 to define the initial distribution of stock by vintage. The 
model is run from 1983 to 2009, and compared with historical shipments, 
to calibrate the lifetime distribution parameters. The calibrated model 
is run from 1983 to 2021 to provide, for each region and product class, 
an estimate of the distribution of equipment stock by vintage in the 
start year of the analysis period. DOE's analysis of market saturation 
data shows slowly increasing heat pump saturations and slowly 
decreasing central air conditioner saturations, which lead to slight 
change in the market share of central air conditioners vs. heat pumps 
in the projections beyond 2021.
    New shipments to new buildings are calculated as the product of new 
housing starts times the new construction market saturation. Shipments 
to new buildings comprise approximately 20 percent of total central air 
conditioner shipments and 29 percent of total heat pump shipments in 
2021.
    New shipments to existing buildings represent new purchases of the 
equipment by households that did not previously own it. The data show 
that the market for central air conditioners is essentially saturated, 
but market penetration is still growing for heat pumps. Shipments to 
this market segment (i.e., homes that did not previously have a heat 
pump) comprise approximately 15 percent of total heat pump shipments.
    Replacement shipments constitute the largest segment of total 
shipments. Replacements are determined by using a survival function to 
calculate the number of units in the stock that fail in each year. The 
survival function defines the probability that a unit will fail as a 
function of the unit's age. This analysis uses a Weibull survival 
function, adjusted to account for the difference in operating hours in 
the three analysis regions, as described below in section IV.G.2.
    Shipments for each product class and market segment are calculated 
for the no-new-standards case and for each of the considered standard 
levels. The calculations proceed in three steps.
    First, the total shipments across all regions and product classes 
are calculated for the no-new-standards case, which assumes that the 
future shipments are driven entirely by new construction, growth in 
market saturations, and replacements of failed units. This shipments 
projection is then used to estimate an product price trend using a 
price-learning approach.
    In the second step, within each region and product class, the 
product distribution model is used to estimate the distribution of 
shipments across efficiency bins for each TSL. Relative market share is 
determined using a logit model, which defines the product utility as 
the sum of total installed cost plus discounted operating costs. The 
implicit discount rate and product price sensitivity are estimated from 
historic data as described in the next section. This estimation step 
uses the average total installed cost, efficiency and annual operating 
cost calculated for each efficiency level in the LCC. The operating 
cost depends on the annual operating hours and electricity price, both 
of which vary by region. The product price trend is applied to the 
product price, and the electricity price trend (taken from AEO 2015) is 
applied to the operating cost, to obtain time-dependent estimates of 
the relative market share for each equipment class and for each region.
    In the third step, the total shipments are recalculated for each 
product class, region and TSL to determine the deviation from no-new-
standards case shipments. This deviation is caused by the fact that, 
when the price of new products increases, some consumers will opt to 
repair rather than replace failed units. These ``excess repairs'' are 
numerically equal to the drop in shipments. The inputs to the 
estimation are the market-share weighted product price and annual 
operating cost for each product class and region, at each TSL. These 
are used to calculate a market-weighted average utility. The utility is 
defined as the purchase price plus the discounted operating cost over 
the lifetime of the product. The consumer discount rate for future 
operating costs was taken from the decision model used in the 
residential demand module of NEMS. This utility function is used to 
estimate the change in shipments, assuming that the percent change in 
shipments is equal to the percent change in utility times a price 
elasticity. DOE used a price elasticity equal to -0.34, which is an 
average value estimated from an analysis of available data for consumer 
purchases of household appliances (see appendix 9A). The change in 
shipments is only estimated for replacement shipments, as it is 
unlikely that shipments to new construction would be affected by the 
adopted standards. Repaired units are estimated to survive an 
additional number of years (extended lifetime), which is on average 
about half of the original lifetime, and then trigger a new replacement 
shipment.
    Commenting on the November 2014 RFI, AHRI stated that there is 
evidence that the past rulemaking on residential central air 
conditioners and heat pumps (the 2006 standards) had a negative impact 
on shipments. It noted that the significant price increase of 13 SEER 
units (compared to 10 SEER) pushed consumers to find cheaper 
alternatives including repairing old equipment or switching to room air 
conditioners. (AHRI, No. 13 at p. 5) Rheem made a similar comment, and 
stated that currently homeowners are deciding to repair old inefficient 
air conditioners, and are also replacing central air conditioners with 
less efficient window air conditioners. (Rheem, No. 17 at pp. 1, 8) 
During the October 26, 2015 CAC/HP Working Group meeting, several 
parties expressed concern on how repairs were accounted for in the 
shipments model (ASRAC Public Meeting, No. 68 at pp. 82-103) One 
stakeholder mentioned that if DOE made the SEER requirements too high, 
the market for repairing would grow substantially and DOE needed to 
account for it. (ASRAC Public Meeting, No. 68 at p. 102)
    DOE is aware that some consumers may respond to higher prices for 
central air conditioners and heat pumps by repairing the unit 
(compressor replacement) or, in the case of central air conditioners, 
by purchasing room air conditioners.\64\ DOE did not have sufficient 
data to specifically estimate these practices, however, so it used a 
price elasticity approach to estimate the consumer responses to higher 
product prices. DOE assumes that demand in the new construction market 
is inelastic because the decision to install central air conditioner 
equipment is made by the builder rather than the consumer.
---------------------------------------------------------------------------

    \64\ Purchase of room air conditioners would not be an effective 
substitute to a new heat pump since they would not provide heating.
---------------------------------------------------------------------------

    In response to the August 2015 NODA, the Edison Electric Institute 
(EEI) commissioned a nationwide builder survey, performed by the NAHB 
Home Innovation Research Labs, on the fuel and technology impacts of 
higher residential heat pump energy conservation standards. The survey 
asked installers to identify the price increase for a heat pump that 
would lead to switching to a other types of heating systems, including 
gas and oil furnaces and boilers, and identified the fractions of 
installations that would switch at different levels of price increase. 
(EEI, No. 33, NAHB Heat Pump Survey Final Tabulations July 2015) For 
the price increases associated with heat pumps that comply with the

[[Page 1822]]

adopted standards, the survey suggests that there would be some 
switching.
    In response, DOE notes that since a heat pump provides space 
cooling and space heating, switching away from a heat pump would 
require a consumer to purchase and install a central air conditioner as 
well as another type of heating product. Therefore, a decision to 
switch would be influenced by the price differential between a heat 
pump and a combination of a central air conditioner and alternative 
heating system, not simply the price increase for a heat pump. Because 
DOE is adopting standards for central air conditioners that have a 
greater estimated price increase than the increase estimated for heat 
pumps, DOE reasons that consumers would not switch from heat pumps to a 
combination of a furnace and a central air conditioner.
2. Inputs and Method
    The principal inputs to the shipments model are the projections of 
housing stock and housing starts, market saturations, price-learning 
parameters, equipment lifetime (survival function), and logit model 
parameters.
    The American Housing Survey (AHS), conducted every two years, was 
used to determine the total housing stock and the saturation of central 
air conditioners and heat pumps, in both new and existing buildings, 
from 1983 to 2011.\65\ The U.S. Census Bureau's Characteristics of New 
Housing (CNH) report, issued annually, provided the total households 
built and the amount of central air conditioners or heat pumps 
installed in newly constructed homes from 1983 to 2013.\66\ Both AHS 
and CNH provide household and equipment saturation data by census 
region (north, midwest, south, west). DOE used the U.S. Housing Census, 
which provides the number of households by state, to determine the 
proportion of homes from each census region that should be allocated to 
the three regions considered in this analysis (N, HH, HD). Future 
household projections from AEO 2015 were available by census division. 
DOE used average population growth data, by state and census division, 
from the U.S. Census Bureau to allocate the AEO data into the N, HH, HD 
regions. The price-learning parameter that DOE applied to future 
product costs was derived as described in section IV.F.1.
---------------------------------------------------------------------------

    \65\ http://www.census.gov/programs-surveys/ahs.html.
    \66\ https://www.census.gov/construction/chars/.
---------------------------------------------------------------------------

    The calibration of the no-new-standards case shipments projection 
provides an estimate of the Weibull lifetime distribution parameters s 
(shape) and T (scale). These represent national average values. Within 
each region, the scale parameter is adjusted to reflect the differences 
in average annual operating hours. In general, for mechanical devices 
the equipment life is defined as the total lifetime operating hours. 
This can be converted to a service lifetime in years by dividing by the 
average annual operating hours. Equipment that is operated for fewer 
hours can therefore be expected to have a longer service lifetime. To 
account for this effect, DOE estimated the ratio of the average 
operating hours within each analysis region to the national average 
value. The estimate was based on a database of simulations of RECS 2009 
households \67\ that was calibrated to reproduce the same distribution 
of annual end-use energy consumption as the RECS. Population-weighted 
average annual operating hours for central air conditioners and heat 
pumps were calculated for each region, and for the nation as a whole. 
If equipment failure was perfectly correlated with lifetime operating 
hours, then the service lifetime would be adjusted proportionally to 
the operating hours; for example, if the operating hours in the north 
were half the national average, then the service lifetime in the north 
would be twice the national average. However, it is likely that some 
aspects of product failure depend on the actual equipment age. Hence, 
DOE assumed that half the time the product failure would be related to 
lifetime operating hours, and half the time it would be related to 
product age. This approach results in parameter adjustments that lead 
to average product service lifetime by region shown in Table IV-16.
---------------------------------------------------------------------------

    \67\ Hopkins, A.S., Lekov, A., Lutz, J., Rosenquist, G. and Gu, 
L. (2011). Simulating a Nationally Representative Housing Sample 
Using EnergyPlus. LBNL-4420E. Berkeley, CA (US): Ernest Orlando 
Lawrence Berkeley National Laboratory.
---------------------------------------------------------------------------

    The product service lifetimes for central air conditioners and heat 
pumps were presented to the CAC Working Group and were discussed in 
detail. Members expressed general concern about the long-tailed 
distribution for central air conditioner and heat pump lifetimes, given 
that the long lifetimes have a very low probability of occurrence. 
(ASRAC Public Meeting, No. 68 at pp. 85-103) In response, DOE notes 
that the Weibull lifetime parameters were estimated to produce a match 
to historical shipments from 1983 to 2009, which were the most recent 
data DOE could access. DOE could not find, nor did it receive any other 
shipments data, and thus DOE used the same Weibull parameters and 
product service lifetimes presented to the CAC/HP Working Group in the 
analysis for this DFR.
    DOE used the total installed costs and annual operating cost of the 
products with different efficiency levels, combined with their 
respective market shares in the no-new-standards case in 2021, to 
calibrate the logit model parameters (alpha for total installed costs 
and beta for annual operating cost). These two parameters describe 
consumers' sensitivities to first costs and operating costs. These 
costs were then used to project consumer choices among efficiency 
levels in the analysis period.
    DOE presented the results of its latest shipments analysis to the 
CAC/HP Working Group for discussion. (ASRAC Public Meeting, No. 68 at 
pp. 77-127) During the meetings, certain members of the CAC Working 
Group noted that DOE's projected shipments for split-system heat pumps 
were markedly higher than in the June 2011 DFR. (ASRAC Public Meeting, 
No. 84 at pp. 103-117) DOE reviewed the two sets of projections and 
determined that the primary driver for higher forecasted heat pump 
shipments in the most recent analysis versus the 2011 DFR analysis was 
the higher saturation of heat pumps in new construction shown in more 
recent data from the Census' Characteristics of New Housing. The latest 
data also show a corresponding drop in new construction saturation for 
central air conditioners. DOE found that, in addition, heat pump 
shipments were also higher due to the relatively shorter product 
lifetime in the hot-humid region, where much of the increase in new 
housing occurs.
    For details on DOE's shipments analysis, see chapter 9 of the 
direct final rule TSD.

H. National Impact Analysis

    The national impact analysis (NIA) assesses the national energy 
savings (NES) and the net present value (NPV) from a national 
perspective of total consumer costs and savings expected to result from 
new or amended energy conservation 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 consumer costs and savings from each 
TSL.\68\ The NIA calculations were based

[[Page 1823]]

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 energy savings, energy cost savings and installed product costs for 
each product class over the lifetime of products sold from 2021 through 
2050 or, for the Recommended TSL, from 2023 through 2052.
---------------------------------------------------------------------------

    \68\ 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.
---------------------------------------------------------------------------

1. Efficiency Trends
    A key component of the NIA is the trend in energy efficiency 
forecasted for the no-new-standards case and each of the standards 
cases. Section IV.F.2.f of this direct final rule describes how DOE 
developed an energy efficiency distribution for the no-new-standards 
case for each of the considered product classes for the expected first 
full year of compliance. To project the efficiency distribution over 
the 30-year shipments period, DOE used the product distribution model 
described in section IV.G. This model was calibrated based on product 
cost information and the efficiency distribution for 2021. The 
projected efficiency trends vary by product class and region, as 
illustrated in chapter 10 of the direct final rule TSD.
    In the standards cases, the market share of products with 
efficiencies in the no-new-standards case that do not meet a potential 
amended standard level is allocated to the particular standard level, 
and the market shares of products at efficiencies above the standard 
level under consideration are projected using the consumer choice 
model. This approach provides a reasonable estimate of the potential 
energy savings in the standards cases by including consumers' 
sensitivities to total installed costs and annual operating costs, and 
accounting for equipment price trend and electricity price trend during 
the 30-year analysis period.
    Details on how the consumer choice model was developed are in 
chapter 10 of the direct final rule TSD.
2. Product Cost Trend
    As discussed in section IV.F.1, DOE used an experience curve method 
to project future product price trends. Application of the price index 
results in a decline of 22 percent in central air conditioner and heat 
pump prices (in real terms) from 2021 to 2050. In addition to the 
default trend described in section IV.F.1, which shows a modest rate of 
decline, DOE performed price trend sensitivity calculations in the NIA 
to examine the dependence of the analysis results on different 
analytical assumptions. The price trend sensitivity analysis considered 
a trend with a greater rate of decline than the default trend and a 
trend with constant prices. The derivation of these trends is described 
in appendix 10C of the direct final rule TSD.
3. Accounting for Repaired Units
    As discussed in section IV.G.1, DOE introduced ``excess repairs'' 
in the standards cases, assuming that when the price of new equipment 
increases, some consumers will opt to repair rather than replace broken 
units. The repair is assumed to consist of replacement of the 
compressor. The repaired units are assumed to live an additional number 
of years (extended lifetime), which is on average about half of the 
original lifetime. For these ``excess repair'' units, the cost of the 
repair is a one-time replacement cost for the compressor that varies 
depending on the capacity of the unit. The annual energy use of the 
repaired units is calculated as the average energy use for all of the 
units that were installed in the same year as the repaired unit. More 
details on accounting for repaired units are described in chapter 10 of 
the direct final rule TSD.
4. National Energy Savings
    To develop the NES, DOE calculated annual energy consumption for 
the no-new-standards case and the standards cases. DOE calculated the 
annual energy consumption for each case using the appropriate per-unit 
annual energy use data multiplied by the projected central air 
conditioner and heat pump shipments for each year. The per-unit annual 
energy use is adjusted with the building shell improvement index, which 
results in a decline of 12 percent in the cooling load from 2021 to 
2050, and the climate index, which results in an increase of 6.6 
percent in the cooling load. In the standards cases, there are fewer 
shipments of central air conditioners or heat pumps compared to the no-
new-standards case because of repair rather than replacement.
    As explained in section IV.E, DOE incorporated a rebound effect for 
central air conditioners and heat pumps by reducing the site energy 
savings in each year by 15 percent.
    To estimate the national primary energy savings from amended 
central air conditioner and heat pump standards, DOE used a 
multiplicative factor to convert site electricity consumption (at the 
home) into primary energy consumption (the energy required to convert 
and deliver the site electricity). These conversion factors account for 
the energy used at power plants to generate electricity and energy 
losses during transmission and distribution. The factors vary over time 
due to changes in generation sources (i.e., the power plant types 
projected to provide electricity to the country) projected in AEO 
2015.\69\ The factors that DOE developed are marginal values, which 
represent the response of the electricity sector to an incremental 
decrease in consumption associated with potential appliance standards.
---------------------------------------------------------------------------

    \69\ U.S. Department of Energy, Energy Information 
Administration, op. cit.
---------------------------------------------------------------------------

    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 Science, in 2011 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 that NEMS is the most appropriate tool for its FFC analysis 
and DOE intended to use NEMS for that purpose. 77 FR 49701 (August 17, 
2012). The FFC factors incorporates losses in production and delivery 
in the case of natural gas (including fugitive emissions) and 
additional energy used to produce and deliver the various fuels used by 
power plants. The approach used is described in more detail in appendix 
10A of the direct final rule TSD.
5. Net Present Value of Consumer Benefit
    To develop the national NPV of consumer benefits from potential 
energy conservation standards, DOE calculated projected annual 
operating costs (energy costs and repair and maintenance costs) and 
annual installation costs for the no-new-standards case and the 
standards cases. DOE calculated annual product expenditures by 
multiplying the price per unit times the projected shipments in each 
year.
    DOE calculated annual energy expenditures from annual energy 
consumption using forecasted energy prices in each year. In this direct 
final rule, DOE used the projected annual changes in national-average 
residential

[[Page 1824]]

electricity prices in the Reference case projection in AEO 2015.\70\
---------------------------------------------------------------------------

    \70\ U.S. Department of Energy, Energy Information 
Administration, op.cit.
---------------------------------------------------------------------------

    The aggregate difference each year between operating cost savings 
and increased installation costs is the net savings or net costs. DOE 
multiplies the net savings in future years by a discount factor to 
determine their present value. DOE estimates the NPV of consumer 
benefits 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.\71\ The 7-percent real value is an estimate of the average 
before-tax rate of return to private capital in the U.S. economy. The 
3-percent real value represents the ``societal rate of time 
preference,'' which is the rate at which society discounts future 
consumption flows to their present value. The discount rates for the 
determination of NPV differ from the discount rates used in the LCC 
analysis, which are designed to reflect a consumer's perspective.
---------------------------------------------------------------------------

    \71\ Office of Management and Budget, OMB Circular A-4, section 
E, Identifying and Measuring Benefits and Costs (2003), available at 
http://www.whitehouse.gov/omb/memoranda/m03-21.html.
---------------------------------------------------------------------------

    As noted, in determining national energy savings, DOE is accounting 
for the rebound effect estimated for more-efficient central air 
conditioners and heat pumps.\72\ Because consumers have foregone a 
monetary savings in energy expenses, it is reasonable to conclude that 
the value of the increased utility is equivalent to the monetary value 
of the energy savings that would have occurred without the rebound 
effect. Therefore, the economic impacts on consumers with or without 
the rebound effect, as measured in the NPV, are the same.
---------------------------------------------------------------------------

    \72\ As discussed in section IV.F, the rebound effect provides 
consumers with increased utility (e.g., a more comfortable indoor 
environment).
---------------------------------------------------------------------------

I. Consumer Subgroup Analysis

    In analyzing the potential impacts of new or amended standards on 
consumers, DOE evaluated the impacts on two identifiable subgroups of 
consumers, low-income consumers and senior citizens, that may be 
disproportionately affected by amended standards. DOE analyzed the LCC 
impacts and PBP for those particular consumers from alternative 
standard levels using subsets of the RECS 2009 sample comprised of 
households that meet the criteria for the two subgroups for both 
central air conditioners and heat pumps, along with the appropriate 
inputs for these groups.
    Chapter 11 of the direct final rule TSD describes the consumer 
subgroup analysis and its results.

J. Manufacturer Impact Analysis

1. Overview
    DOE performed a Manufacturer Impact Analysis (MIA) to estimate the 
impacts of an energy conservation standard on manufacturers. 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, manufacturer productions costs, shipments, and assumptions 
about markups and conversion expenditures. The key output is the 
industry net present value (INPV). DOE uses the GRIM to calculate cash 
flows using standard accounting principles and to compare changes in 
INPV between a scenario in which there is no new standard (the no-new-
standards case) and each TSL (the standards case). The difference in 
INPV between the no-new-standards case and a standards case represents 
the financial impact of energy conservation standards on central air 
conditioner and heat pump manufacturers. DOE uses different sets of 
assumptions (markup scenarios) to represent the uncertainty surrounding 
potential impacts on prices and manufacturer profitability as a result 
of standards. Different sets of assumptions produce a range of INPV 
results. The qualitative part of the MIA addresses the amended 
standard's potential impacts on manufacturing capacity and industry 
competition, as well as factors such as product characteristics, 
impacts on particular subgroups of firms, and important market and 
product trends.
    The MIA for central air conditioners and heat pumps in this direct 
final rule focuses on split-system air conditioners, split-system heat 
pumps, single-package air conditioners, and single-package heat pumps. 
Since this rule does not propose to amend standards for space-
constrained air conditioners, space-constrained heat pumps, or small-
duct high-velocity systems, these products were not evaluated. The 
complete MIA is outlined in chapter 12 of the direct final rule TSD.
    DOE conducted the MIA for this rulemaking in three phases. In Phase 
1 of the MIA, DOE prepared a profile of the residential central air 
conditioner and heat pump industry. This industry characterization was 
developed using publicly available information, such as Securities and 
Exchange Commission (SEC) 10-K reports,\73\ market research tools 
(e.g., Hoovers \74\), corporate annual reports, the U.S. Census 
Bureau's 2014 Annual Survey of Manufacturers (ASM),\75\ and industry 
trade association membership directories (e.g., AHRI), as well as 
information obtained through DOE's engineering analysis, life-cycle 
cost analysis, and market and technology assessment prepared for this 
rulemaking.
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    \73\ U.S. Securities and Exchange Commission, Annual 10-K 
Reports (Various Years) (Available at: www.sec.gov).
    \74\ Hoovers Inc., Company Profiles, Various Companies 
(Available at: www.hoovers.com/).
    \75\ U.S. Census Bureau, Annual Survey of Manufacturers: General 
Statistics: Statistics for Industry Groups and Industries (2014) 
(Available at: http://www.census.gov/manufacturing/asm/index.html).
---------------------------------------------------------------------------

    In Phase 2 of the MIA, DOE prepared an industry cash-flow analysis 
to quantify the potential impacts of amended energy conservation 
standards on manufacturers. In general, 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/or possible changes 
in sales volumes. To quantify these impacts, DOE used the GRIM to 
perform a cash-flow analysis for the industry using financial values 
derived during Phase 1 and the shipment scenario used in the NIA.
    DOE also conducted interviews with 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. These topics were discussed again 
during the course of CAC/HP Working Group meetings, which enabled DOE 
to further refine inputs to the MIA, including MPCs and shipments 
forecasts.
    In Phase 3, DOE evaluated subgroups of manufacturers that may be 
disproportionately impacted by energy conservation standards or that 
may not be represented accurately 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 for a separate impact 
analysis: Small business manufacturers. The small business subgroup is 
discussed in section VI.B, ``Review under the Regulatory Flexibility 
Act,'' and in chapter 12 of the direct final rule TSD.

[[Page 1825]]

2. Government Regulatory Impact Model
    DOE uses the GRIM in its standards rulemakings to quantify the 
changes in cash flow due to amended standards that result in a higher 
or lower industry value. The GRIM uses a standard, annual discounted 
cash-flow analysis that incorporates manufacturer costs, 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 2016 (the base year of 
the analysis) and continuing to 2050.\76\ DOE calculated INPVs by 
summing the stream of annual discounted cash flows during this period. 
For manufacturers of residential central air conditioners and heat 
pumps, DOE used a real discount rate of 11.0 percent,\77\ which was 
derived from industry financials and then modified according to 
feedback received during manufacturer interviews.
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    \76\ In contrast to the NIA, which uses an end date of 2050 for 
TSLs 1, 3, and 4, and an end date of 2052 for TSL 2, the MIA 
maintains the same end date (2050) for all TSLs. This is done to 
enable clear comparison of INPV impacts across TSLs. See chapter 12 
of the direct final rule TSD for a more detailed discussion of this 
assumption.
    \77\ DOE estimated preliminary financial metrics, including the 
industry discount rate, based on publicly available financial 
information, including Securities and Exchange Commission (``SEC'') 
filings and S&P bond ratings. DOE presented the preliminary 
financial metrics to manufacturers in MIA interviews. DOE adjusted 
those values based on feedback from manufacturers. The complete set 
of financial metrics and more detail about the methodology can be 
found in chapter 12 of the final rule TSD. Additionally, DOE 
provides a sensitivity analysis based on an alternative discount 
rate in chapter 12 of the TSD.
---------------------------------------------------------------------------

    The GRIM calculates cash flows using standard accounting principles 
and compares changes in INPV between the no-new-standards case and each 
standards case. The difference in INPV between the no-new-standards 
case and a standards case represents the financial impact of the 
amended energy conservation standard on manufacturers. As discussed 
previously, DOE developed critical GRIM inputs using a number of 
sources, including publicly available data, results of the engineering 
analysis, and information gathered from industry stakeholders during 
the course of manufacturer interviews and subsequent CAC/HP Working 
Group meetings. The GRIM results are presented 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 direct final 
rule TSD.
a. Government Regulatory Impact Model Key Inputs
Manufacturer Production Costs
    Manufacturing more efficient 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 costs (MPCs) of covered 
products can affect the revenues, gross margins, and cash flow of the 
industry.
    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 direct final rule TSD. The 
engineering analysis developed multiple MPCs for split-system air 
conditioners based on representative capacities (i.e., 2-ton, 3-ton, 
and 5-ton) and configurations (i.e., blower-coil versus coil only). 
Similarly, MPCs for split-system heat pumps were broken out by 
representative capacities. In addition, DOE used information from the 
engineering teardown analysis to disaggregate MPCs into material, 
labor, overhead, and depreciation costs. Both MPCs and cost breakdowns 
were validated and revised with manufacturers during manufacturer 
interviews. The MPCs used in the GRIM are presented in chapter 12 of 
the direct final rule TSD along with the methodology used to develop 
weighted average MPCs for split-system air conditioners using blower-
coil and coil only shipment weights.
Shipments Forecasts
    The GRIM estimates manufacturer revenues based on total unit 
shipment forecasts and the distribution of those shipments by 
efficiency level. Changes in sales volumes and efficiency mix over time 
can significantly affect manufacturer finances. For this analysis, the 
GRIM uses the NIA's annual shipment forecasts derived from the 
shipments analysis from 2016 (the base year) to 2050 (the end year of 
the analysis period). See chapter 9 of the direct final rule TSD for 
additional details.
Product and Capital Conversion Costs
    An amended energy conservation standard would cause manufacturers 
to incur 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 product 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 investments in research, development, testing, 
marketing, and other non-capitalized costs necessary to make product 
designs comply with amended energy conservation standards. Capital 
conversion costs are investments in property, plant, and equipment 
necessary to adapt or change existing production facilities such that 
new compliant product designs can be fabricated and assembled.
    To evaluate the level of capital conversion expenditures 
manufacturers would likely incur to comply with amended energy 
conservation standards, DOE used manufacturer interviews to request 
feedback on the anticipated level of capital investment that would be 
required at each efficiency level. However, DOE received very limited 
feedback on likely capital investments from manufacturers. As a result, 
DOE developed conversion cost estimates based on estimates of capital 
expenditure requirements derived from the product teardown analysis and 
engineering analysis described in chapter 5 of the DFR TSD.
    To evaluate the level of product conversion costs manufacturers 
would likely incur to comply with amended energy conservation 
standards, DOE integrated data from quantitative and qualitative 
sources. As with capital conversion costs, DOE requested feedback from 
manufacturers regarding potential product conversion costs. Based on 
feedback received, DOE applied a scaling factor to estimate product 
conversion costs based on the magnitude of capital conversion costs. 
DOE estimated that product conversion costs account for 40 percent of 
total conversion costs.
    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 new standard. The conversion 
cost figures used in the GRIM can be found in section V.B.2 of this 
notice. For additional information on the estimated capital and product 
conversion costs, see chapter 12 of the direct final rule TSD.
b. Government Regulatory Impact Model Scenarios
Markup Scenarios
    MSPs include direct manufacturing production costs (i.e., labor, 
materials, and overhead estimated in DOE's MPCs)

[[Page 1826]]

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 product 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 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 tiered markup scenario. 
These scenarios lead to different markup values that, when applied to 
the MPCs, result in varying revenue and cash flow impacts.
    Under the preservation of gross margin percentage scenario, DOE 
applied a single uniform ``gross margin percentage'' 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 a product 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 residential central air conditioners 
and heat pumps as well as comments from manufacturer interviews, DOE 
assumed the average non-production cost baseline markup--which includes 
SG&A expenses, R&D expenses, interest, and profit--to be 1.34 for 
split-system air conditioners, 1.35 for split-system heat pumps, and 
1.32 for single-package air conditioners and single-package heat pumps. 
Because the preservation of gross margin percentage markup scenario 
assumes manufacturers would be able to maintain their gross margin 
percentage markups as production costs increase in response to amended 
energy conservation standards, it represents a high bound to industry 
profitability.
    Under the tiered markup scenario, DOE modeled a situation in which 
manufacturers set markups based on three tiers of products. These tiers 
can be described as ``good, better, best'' or ``value, standard, 
premium.'' Under this tiered structure, high-volume ``value'' product 
lines typically offer fewer features, lower efficiency, and lower 
markups, while ``premium'' product lines offer more features, higher 
efficiency, and higher markups. The tiered markup scenario evaluates 
impacts on manufacturers when the breadth of their product portfolios 
shrinks as higher energy conservation standards ``demote'' higher-tier 
products to lower tiers. In this scenario, higher-efficiency products 
that previously commanded ``standard'' and ``premium'' markups are 
reassigned ``value'' and ``standard'' markups respectively. This markup 
scenario represents the low bound to industry profitability under an 
amended energy conservation standard.
    A comparison of industry financial impacts under the two markup 
scenarios is presented in section V.B.2.a of this notice.
3. Discussion of Comments
Cumulative Regulatory Burden
    During the RFI stage, Lennox commented that manufacturers of 
central air conditioners and heat pumps face a significant cumulative 
regulatory burden and urged DOE both to consider the impact on 
manufacturers of multiple regulations and to take action to minimize 
the associate economic burden. (Lennox, No.10 at p. 4) In response, DOE 
has performed an analysis of cumulative regulatory burden (CRB) in 
section V.B.2.e of this notice. The CRB analysis is intended to 
identify rulemakings that could be aligned or combined to minimize 
total burden. As such, the CRB section focuses on regulations that take 
effect within three years of the effective date of this rulemaking. 
Rulemakings addressed in the CRB include those for: Commercial Packaged 
Air Conditioners and Heat Pumps (Air-Cooled) (81 FR 2420), Residential 
Boilers (81 FR 2320), Commercial and Industrial Pumps (80 FR 17826), 
Portable Room Air Conditioners (81 FR 38398), Residential Furnace Fans 
(80 FR 13120), and Commercial Warm Air Furnaces (81 FR 2420).
    Additionally, Lennox commented that given the complexities 
associated with regional standards and regulating central air 
conditioners and heat pumps, DOE should utilize a negotiated rulemaking 
approach. Lennox requested that DOE consider the pace and timing of 
rulemakings to ensure stakeholders can provide meaningful comments and 
analysis. (Lennox, No.10 at p. 3) As discussed throughout this 
document, DOE established a CAC/HP Working Group to negotiate amended 
standards for central air conditioners and heat pumps. The 
recommendations made by the CAC/HP Working Group are presented in this 
direct final rule.

K. Emissions Analysis

    The emissions analysis consists of two components. The first 
component estimates the effect of potential energy conservation 
standards on power sector and site (where applicable) combustion 
emissions of CO2, NOX, SO2, and Hg. 
The second component estimates the impacts of potential standards on 
emissions of two additional greenhouse gases, CH4 and 
N2O, as well as the reductions to emissions of all species 
due to ``upstream'' activities in the fuel production chain. These 
upstream activities comprise extraction, processing, and transporting 
fuels to the site of combustion. The associated emissions are referred 
to as upstream emissions.
    The analysis of power sector emissions uses marginal emissions 
factors calculated using a methodology based on results published for 
the AEO 2015 reference case and a set of side cases that implement a 
variety of efficiency-related policies. The methodology is described in 
chapter 15 of the direct final rule TSD.
    Combustion emissions of CH4 and N2O are 
estimated using emissions intensity factors published by the EPA, GHG 
Emissions Factors Hub.\78\ The FFC upstream emissions are estimated 
based on the methodology described in chapter 15. The upstream 
emissions include both emissions from fuel combustion during 
extraction, processing and transportation of fuel, and ``fugitive'' 
emissions (direct leakage to the atmosphere) of CH4 and 
CO2.
---------------------------------------------------------------------------

    \78\ Available at http://www2.epa.gov/climateleadership/center-corporate-climate-leadership-ghg-emission-factors-hub.
---------------------------------------------------------------------------

    The emissions intensity factors are expressed in terms of physical 
units per MWh or MMBtu of site energy savings. Total emissions 
reductions are estimated using the energy savings calculated in the 
national impact analysis.
    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 each ton of the greenhouse gas by the gas's global 
warming potential (GWP) over a 100-year time horizon. Based on the 
Fifth Assessment Report of the Intergovernmental Panel on Climate 
Change,\79\ DOE used GWP values of 28 for CH4 and 265 for 
N2O.
---------------------------------------------------------------------------

    \79\ IPCC, Climate Change 2013: The Physical Science Basis. 
Contribution of Working Group I to the Fifth Assessment Report of 
the Intergovernmental Panel on Climate Change (Cambridge University 
Press, 2013).
---------------------------------------------------------------------------

    The AEO incorporates the projected impacts of existing air quality 
regulations on emissions. AEO 2015 generally represents current 
legislation and environmental regulations,

[[Page 1827]]

including recent government actions, for which implementing regulations 
were available as of October 31, 2014. DOE's estimation of impacts 
accounts for the presence of the emissions control programs discussed 
in the following paragraphs.
    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). (42 U.S.C. 7651 et seq.) 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.\80\ 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 D.C. Circuit issued 
a decision to vacate CSAPR.\81\ The court ordered EPA to continue 
administering CAIR. On April 29, 2014, the U.S. Supreme Court reversed 
the judgment of the D.C. Circuit and remanded the case for further 
proceedings consistent with the Supreme Court's opinion.\82\ On October 
23, 2014, the D.C. Circuit lifted the stay of CSAPR.\83\ Pursuant to 
this action, CSAPR went into effect (and CAIR ceased to be in effect) 
as of January 1, 2015.\84\
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    \80\ See North Carolina v. EPA, 531 F.3d 896 (D.C. Cir. 2008), 
modified on rehearing, 550 F.3d 1176 (D.C. Cir. 2008).
    \81\ See EME Homer City Generation, L.P. v. EPA, 696 F.3d 7 
(D.C. Cir. 2012).
    \82\ See EPA v. EME Homer City Generation, L.P., 134 S.Ct. 1584 
(U.S. 2014). 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.
    \83\ See EME Homer City Generation, L.P. v. EPA, Order (D.C. 
Cir. filed October 23, 2014) (No. 11-1302).
    \84\ On July 28, 2015, the D.C. Circuit issued its opinion 
regarding the remaining issues raised with respect to CSAPR that 
were remand by the Supreme Court. The D.C. Circuit largely upheld 
CSAPR, but remanded to EPA without vacatur certain States' emission 
budgets for reconsideration. EME Homer City Generation, LP v. EPA, 
795 F.3d 118 (D.C. Cir. 2015).
---------------------------------------------------------------------------

    EIA was not able to incorporate CSAPR into AEO 2015, so it assumes 
implementation of CAIR. Although DOE's analysis used emissions factors 
that assume that CAIR, not CSAPR, is the regulation in force, the 
difference between CAIR and CSAPR is not significant for the purpose of 
DOE's analysis of emissions impacts from energy conservation standards.
    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 2016, however, SO2 emissions will decline 
as a result of the Mercury and Air Toxics Standards (MATS) for power 
plants. 77 FR 9304 (February 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 
2015 assumes that, in order to continue operating, coal plants must 
have either flue gas desulfurization or dry sorbent injection systems 
installed by 2016. Both technologies, which are used to reduce acid gas 
emissions, also reduce SO2 emissions. Under the MATS, 
emissions will be far below the cap established by CAIR, so it is 
unlikely that excess SO2 emissions allowances resulting from 
the lower electricity demand would be needed or used to permit 
offsetting increases in SO2 emissions by any regulated 
EGU.\85\ Therefore, DOE believes that energy conservation standards 
will generally reduce SO2 emissions in 2016 and beyond.
---------------------------------------------------------------------------

    \85\ DOE notes that on June 29, 2015, the U.S. Supreme Court 
ruled that the EPA erred when the agency concluded that cost did not 
need to be considered in the finding that regulation of hazardous 
air pollutants from coal- and oil-fired electric utility steam 
generating units (EGUs) is appropriate and necessary under section 
112 of the Clean Air Act (CAA). Michigan v. EPA, 135 S. Ct. 2699 
(2015). The Supreme Court did not vacate the MATS rule, and DOE has 
tentatively determined that the Court's decision on the MATS rule 
does not change the assumptions regarding the impact of energy 
conservation standards on SO2 emissions. Further, the 
Court's decision does not change the impact of the energy 
conservation standards on mercury emissions. The EPA, in response to 
the U.S. Supreme Court's direction, has now considered cost in 
evaluating whether it is appropriate and necessary to regulate coal- 
and oil-fired EGUs under the CAA. EPA concluded in its final 
supplemental finding that a consideration of cost does not alter the 
EPA's previous determination that regulation of hazardous air 
pollutants, including mercury, from coal- and oil-fired EGUs is 
appropriate and necessary. 79 FR 24420 (April 25, 2016). The MATS 
rule remains in effect, but litigation is pending in the D.C. 
Circuit Court of Appeals over EPA's final supplemental finding MATS 
rule.
---------------------------------------------------------------------------

    CAIR established a cap on NOX emissions in 28 eastern 
States and the District of Columbia.\86\ 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 from other 
facilities. However, standards would be expected to reduce 
NOX emissions in the States not affected by the caps, so DOE 
estimated NOX emissions increases for these States.
---------------------------------------------------------------------------

    \86\ CSAPR also applies to NOX, and it would 
supersede the regulation of NOX under CAIR. As stated 
previously, the current analysis assumes that CAIR, not CSAPR, is 
the regulation in force. The difference between CAIR and CSAPR with 
regard to DOE's analysis of NOX is slight.
---------------------------------------------------------------------------

    The MATS limit mercury emissions from power plants, but they do not 
include emissions caps and, as such, the increase in electricity demand 
associated with the residential furnace efficiency levels would be 
expected to increase mercury emissions. DOE estimated mercury emissions 
using emissions factors based on AEO 2015, 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 direct final rule.
1. Social Cost of Carbon
    The social cost of carbon (SCC) is an estimate of the monetized 
damages associated with an incremental increase

[[Page 1828]]

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 (October 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 DOE acknowledges that there are many uncertainties involved in the 
estimates 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 \87\ 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.
---------------------------------------------------------------------------

    \87\ National Research Council. Hidden Costs of Energy: Unpriced 
Consequences of Energy Production and Use (2009).
---------------------------------------------------------------------------

    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 (or costs from increased) 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 each of these 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 of reducing 
carbon dioxide emissions. To ensure consistency in how benefits were 
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 global SCC estimates for 2007 (in 2006 dollars) 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 calculate 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 (IPCC). 
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, 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. 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.\88\

[[Page 1829]]

Table IV-17 presents the values in the 2010 interagency group 
report,\89\ which is reproduced in appendix 14-A of the NOPR TSD.
---------------------------------------------------------------------------

    \88\ It is recognized that this calculation for domestic values 
is approximate, provisional, and highly speculative. There is no a 
priori reason why domestic benefits should be a constant fraction of 
net global damages over time.
    \89\ Interagency Working Group on Social Cost of Carbon, Social 
Cost of Carbon for Regulatory Impact Analysis Under Executive Order 
12866 (2010), available at http://www.whitehouse.gov/sites/default/files/omb/inforeg/for-agencies/Social-Cost-of-Carbon-for-RIA.pdf.

                     Table IV-17--Annual SCC Values From 2010 Interagency Report, 2010-2050
                                      [In 2007 dollars per metric ton CO2]
----------------------------------------------------------------------------------------------------------------
                                                                         Discount rate
                                              ------------------------------------------------------------------
                     Year                            5%              3%             2.5%               3%
                                              ------------------------------------------------------------------
                                                   Average         Average         Average      95th 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 document were calculated using the 
most recent versions of the three integrated assessment models that 
have been published in the peer-reviewed literature, as described in 
the 2013 update from the interagency working group (revised July 
2015).\90\
---------------------------------------------------------------------------

    \90\ United States Government-Interagency Working Group on 
Social Cost of Carbon. Technical Support Document: Technical Update 
of the Social Cost of Carbon for Regulatory Impact Analysis Under 
Executive Order 12866. May 2013. Revised July 2015. https://www.whitehouse.gov/sites/default/files/omb/inforeg/scc-tsd-final-july-2015.pdf.
---------------------------------------------------------------------------

    Table IV-18 shows the updated sets of SCC estimates from the latest 
interagency update in five-year increments from 2010 to 2050. Appendix 
14-B of the direct final rule TSD provides the full set of values. The 
central value that emerges is the average SCC across models at a 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.

           Table IV-18--Annual SCC Values From 2013 Interagency Update (Revised July 2015), 2010-2050
                                      [In 2007 dollars per metric ton CO2]
----------------------------------------------------------------------------------------------------------------
                                                                         Discount rate
                                              ------------------------------------------------------------------
                     Year                            5%              3%             2.5%               3%
                                              ------------------------------------------------------------------
                                                   Average         Average         Average      95th Percentile
----------------------------------------------------------------------------------------------------------------
2010.........................................              10              31              50                 86
2015.........................................              11              36              56                105
2020.........................................              12              42              62                123
2025.........................................              14              46              68                138
2030.........................................              16              50              73                152
2035.........................................              18              55              78                168
2040.........................................              21              60              84                183
2045.........................................              23              64              89                197
2050.........................................              26              69              95                212
----------------------------------------------------------------------------------------------------------------

    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 describes 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 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.\91\
---------------------------------------------------------------------------

    \91\ In November 2013, OMB announced a new opportunity for 
public comment on the interagency technical support document 
underlying the revised SCC estimates. 78 FR 70586 (Nov. 26, 2013). 
In July 2015 OMB published a detailed summary and formal response to 
the many comments that were received. https://www.whitehouse.gov/blog/2015/07/02/estimating-benefits-carbon-dioxide-emissions-reductions. It also stated its intention to seek independent expert 
advice on opportunities to improve the estimates, including many of 
the approaches suggested by commenters.
---------------------------------------------------------------------------

    In summary, in considering the potential global benefits resulting 
from reduced CO2 emissions, DOE used the

[[Page 1830]]

values from the 2013 interagency report, adjusted to 2015$ using the 
Gross Domestic Product price deflator. For each of the four SCC cases 
specified, the values used for emissions in 2015 were $12.4, $40.6, 
$63.2, and $118 per metric ton avoided (values expressed in 2015$). DOE 
derived values after 2050 based on the trend in 2010-2050 in each of 
the four cases.
    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. Social Cost of Other Air Pollutants
    As noted previously, DOE has estimated how the considered energy 
conservation standards would reduce power sector NOX 
emissions in those 22 States not affected by the CAIR.
    DOE estimated the monetized value of NOX emissions 
reductions using benefit per ton estimates from the Regulatory Impact 
Analysis for the Clean Power Plan Final Rule, published in August 2015 
by EPA's Office of Air Quality Planning and Standards.\92\ The report 
includes high and low values for NOX (as PM2.5) 
for 2020, 2025, and 2030 discounted at 3 percent and 7 percent; these 
values are presented in appendix 14C of the direct final rule TSD. DOE 
primarily relied on the low estimates to be conservative.\93\ The 
national average low values for 2020 (in 2015$) are $3,187/ton at 3-
percent discount rate and $2,869/ton at 7-percent discount rate. DOE 
assigned values after 2030 using the value for 2030. DOE developed 
values specific to the end-use category for residential air 
conditioners and heat pumps using a method described in appendix 14C. 
For this analysis DOE used linear interpolation to define values for 
the years between 2020 and 2025 and between 2025 and 2030; for years 
beyond 2030 the value is held constant.
---------------------------------------------------------------------------

    \92\ Available at: http://www.epa.gov/cleanpowerplan/clean-power-plan-final-rule-regulatory-impact-analysis. See Tables 4A-3, 
4A-4, and 4A-5 in the report. The U.S. Supreme Court has stayed the 
rule implementing the Clean Power Plan until the current litigation 
against it concludes. Chamber of Commerce, et al. v. EPA, et al., 
Order in Pending Case, 577 U.S. ___(2016). However, the benefit-per-
ton estimates established in the Regulatory Impact Analysis for the 
Clean Power Plan are based on scientific studies that remain valid 
irrespective of the legal status of the Clean Power Plan.
    \93\ For the monetized NOX benefits associated with 
PM2.5, the related benefits are primarily based on an 
estimate of premature mortality derived from the ACS study (Krewski 
et al. 2009), which is the lower of the two EPA central tendencies. 
Using the lower value is more conservative when making the policy 
decision concerning whether a particular standard level is 
economically justified. If the benefit-per-ton estimates were based 
on the Six Cities study (Lepuele et al. 2012), the values would be 
nearly two-and-a-half times larger. (See chapter 14 of the direct 
final rule TSD for further description of the studies mentioned 
above.)
---------------------------------------------------------------------------

    DOE multiplied the emissions reduction (in tons) in each year by 
the associated $/ton values, and then discounted each series using 
discount rates of 3 percent and 7 percent as appropriate. DOE will 
continue to evaluate the monetization of avoided NOX 
emissions and will make any appropriate updates in energy conservation 
standards rulemakings.
    DOE is evaluating appropriate monetization of avoided 
SO2 and Hg emissions in energy conservation standards 
rulemakings. DOE has not included monetization of those emissions in 
the current analysis.

M. Utility Impact Analysis

    The utility impact analysis estimates several effects on the 
electric power generation industry that would result from the adoption 
of new or amended energy conservation standards. The utility impact 
analysis estimates the changes in installed electrical capacity and 
generation that would result for each TSL. The analysis is based on 
published output from the NEMS associated with AEO 2015. NEMS produces 
the AEO Reference case, as well as a number of side cases that estimate 
the economy-wide impacts of changes to energy supply and demand. DOE 
uses published side cases to estimate the marginal impacts of reduced 
energy demand on the utility sector. These marginal factors are 
estimated based on the changes to electricity sector generation, 
installed capacity, fuel consumption and emissions in the AEO Reference 
case and various side cases. Details of the methodology are provided in 
the appendices to chapters 13 and 15 of the DFR TSD.
    The output of this analysis is a set of time-dependent coefficients 
that capture the change in electricity generation, primary fuel 
consumption, installed capacity and power sector emissions due to a 
unit reduction in demand for a given end use. These coefficients are 
multiplied by the stream of electricity savings calculated in the NIA 
to provide estimates of selected utility impacts of new or amended 
energy conservation standards.

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 products subject to standards; the MIA addresses those impacts. 
Indirect employment impacts are changes in national employment that 
occur due to the shift in expenditures and capital investment caused by 
the purchase and operation of more-efficient appliances. Indirect 
employment impacts from standards consist of the 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 
products; 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.\94\ 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, the BLS 
data suggest that net national employment may increase because of 
shifts in economic activity resulting from amended standards for 
central air conditioners and heat pumps.
---------------------------------------------------------------------------

    \94\ See Bureau of Economic Analysis, ``Regional Multipliers: A 
Handbook for the Regional Input-Output Modeling System (RIMS II),'' 
U.S. Department of Commerce (1992).
---------------------------------------------------------------------------

    DOE estimated indirect national employment impacts for the standard 
levels considered in this direct final rule using an input/output model 
of the U.S. economy called Impact of Sector Energy

[[Page 1831]]

Technologies, Version 3.1.1 (ImSET).\95\ 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 this DFR, 
DOE used ImSET only to estimate short-term (through 2023) employment 
impacts, where these uncertainties are reduced.
---------------------------------------------------------------------------

    \95\ M.J. Scott, et. al., ImSET 3.1: Impact of Sector Energy 
Technologies, PNNL-18412, (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 DFR TSD.

V. Analytical Results and Conclusions

    This section addresses the results from DOE's analyses with respect 
to amended energy conservation standards for central air conditioners 
and heat pumps. It addresses the trial standard levels examined by DOE, 
the projected impacts of each of these levels if adopted as energy 
conservation standards for central air conditioners and heat pumps, and 
the standards levels that DOE is adopting in this direct final rule.

A. Trial Standard Levels

    For this DFR, DOE analyzed the benefits and burdens of seven TSLs 
for central air conditioners and heat pumps. These TSLs were developed 
using combinations of efficiency levels for each of the product classes 
analyzed by DOE. DOE presents the results for those TSLs in this 
document. The results for all efficiency levels that DOE analyzed are 
in the direct final rule TSD.
    Table V-1 presents the TSLs and the corresponding efficiency levels 
for the central air conditioner and heat pump product classes. TSL 4 
represents the maximum technologically feasible (``max-tech'') for all 
product classes. TSL 3 represents the maximum energy savings, 
considering a national standard. TSL 2, the Recommended TSL, represents 
the maximum national NPV, considering regional standards. TSL 1 
represents a minimal increase in SEER for split-system product classes 
only, considering regional standards.

                                      Table V-1--Trial Standard Levels for Central Air Conditioners and Heat Pumps
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                           Product class
                                                                          ------------------------------------------------------------------------------
               TSL                        Region             Efficiency                    Split-                   Single-     Small-duct     Space-
                                                               metric         Split-    system heat    Single-      package       high-      constrain.
                                                                            system AC      pumps      package AC   heat pumps    velocity        AC
--------------------------------------------------------------------------------------------------------------------------------------------------------
1...............................  National..............  SEER...........         14.0         14.5         14.0         14.0         12.0          12.0
                                                          HSPF...........          n/a          8.4          n/a          8.0          n/a           n/a
                                  Hot-Humid **..........  SEER...........         14.5          n/a          n/a          n/a          n/a           n/a
                                  Hot-Dry ***...........  SEER...........         14.5          n/a          n/a          n/a          n/a           n/a
Recommend *.....................  National..............  SEER...........         14.0         15.0         14.0         14.0         12.0          12.0
                                                          HSPF...........          n/a          8.8          8.0          8.0          n/a           n/a
                                  Hot-Humid **..........  SEER...........     [dagger]          n/a          n/a          n/a          n/a           n/a
                                                                             15.0/14.5
                                  Hot-Dry ***...........  SEER...........     [dagger]          n/a          n/a          n/a          n/a           n/a
                                                                             15.0/14.5
3...............................  National..............  SEER...........         16.0         16.0         15.0         15.0         12.0          12.0
                                                          HSPF...........          n/a          8.9          n/a          8.2          n/a           n/a
4...............................  National..............  SEER...........  # 17.0/16.5  ##19.0/17.5         17.5         15.0         14.0          14.0
                                                          HSPF...........          n/a   ## 9.9/9.4          n/a          8.2          n/a           n/a
--------------------------------------------------------------------------------------------------------------------------------------------------------
* The Recommended TSL includes energy conservation standards based on EER in addition to SEER for split-system and single-package air conditioners in
  the Hot-Dry region. For split-system air conditioners the EER standards are: 12.2 EER for cooling capacities less than 45,000 Btu/hr; 11.7 EER for
  cooling capacities equal to or greater than 45,000 Btu/hr; and 10.2 EER for split-system air conditioners with a seasonal energy efficiency ratio
  greater than or equal to 16.0. For single-package air conditioners, the EER standard is 11.0.
** Hot-Humid includes: The states of Alabama, Arkansas, Delaware, Florida, Georgia, Hawaii, Kentucky, Louisiana, Maryland, Mississippi, North Carolina,
  Oklahoma, Puerto Rico, South Carolina, Tennessee, Texas, Virginia, the District of Columbia, and the U.S. territories.
*** Hot-Dry includes the states of Arizona, California, Nevada, and New Mexico.
[dagger] The 15.0 SEER energy conservation standard applies to cooling capacities less than 45,000 Btu/hr; the 14.5 SEER energy conservation standard
  applies to cooling capacities equal to or greater than 45,000 Btu/hr.
# The 17.0 SEER energy conservation standard applies to cooling capacities less than 30,000 Btu/hr; the 16.5 SEER energy conservation standards applies
  to cooling capacities equal to or greater than 30,000 Btu/hr.
## The 19.0 SEER and 9.9 HSPF energy conservation standards apply to cooling capacities less than 45,000 Btu/hr; the 17.5 SEER and 9.4 HSPF energy
  conservation standards apply to cooling capacities equal to or greater than 45,000 Btu/hr.
n/a--Not applicable.

B. Economic Justification and Energy Savings

1. Economic Impacts on Individual Consumers
    DOE analyzed the economic impacts on central air conditioner and 
heat pump consumers by looking at the effects potential amended 
standards at each TSL would have on the LCC and PBP. DOE also examined 
the impacts of potential standards on selected consumer subgroups. 
These analyses are discussed below.
a. Life-Cycle Cost and Payback Period
    In general, higher-efficiency products affect consumers in two 
ways: (1) Purchase price increases, and (2) annual operating costs 
decrease. Inputs used for calculating the LCC and PBP include total 
installed costs (i.e., product price plus installation costs), and 
operating

[[Page 1832]]

costs (i.e., annual energy use, energy prices, energy price trends, 
repair costs, and maintenance costs). The LCC calculation also uses 
product lifetime and a discount rate. Chapter 8 of the direct final 
rule TSD provides detailed information on the LCC and PBP analyses.
    Table V-2 through show the LCC and PBP results for the TSLs 
considered for each product class. In the first of each pair of tables, 
the simple payback is measured relative to consumer use of the baseline 
product. In the second table, the LCC impacts are measured relative to 
the consumer LCCs projected for the no-new-standards case in the 
compliance year (see section IV.F.2.f). Because some consumers purchase 
products with higher efficiency in the no-new-standards case, the 
average savings are less than the difference between the average LCC of 
EL 0 and the average LCC at each TSL. The savings refer only to 
consumers who are affected by a standard at a given TSL. Those who 
already purchase a product with an efficiency at or above a given TSL 
are not affected. Consumers for whom the LCC increases at a given TSL 
experience a net cost.

                                    Table V-2--Average LCC and PBP Results for Split-System Central Air Conditioners
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                           Average costs (2015$)
                                                                           ----------------------------------------------------
                                                                                            First                                  Simple      Average
                 TSL                           Region              SEER      Installed      year's      Lifetime                  payback      lifetime
                                                                                cost      operating    operating       LCC        (years)      (years)
                                                                                             cost         cost
--------------------------------------------------------------------------------------------------------------------------------------------------------
Baseline............................  North..................           13       $3,966         $172       $3,875       $7,841          N/A         24.1
                                      Hot-Dry................           14        4,392          279        5,639       10,031          5.0         24.9
                                      Hot-Humid..............           14        4,011          320        5,044        9,054          5.0         18.0
1...................................  North..................           14        4,092          161        3,696        7,787         10.5         24.1
                                      Hot-Dry................         14.5        4,475          263        5,387        9,862          5.4         24.9
                                      Hot-Humid..............         14.5        4,086          308        4,884        8,969          5.5         18.0
Recommended.........................  North..................           14        4,092          161        3,696        7,787         10.5         24.1
                                      Hot-Dry *..............      15/14.5        4,584          256        5,269        9,853          7.6         24.9
                                      Hot-Humid *............      15/14.5        4,183          302        4,812        8,995          7.7         18.0
3...................................  National...............           16        4,638          224        4,216        8,854         15.2         21.2
4...................................  National **............     17/16.5/        4,906          217        4,130        9,036         19.2         21.2
                                                                      16.5
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: The results for each TSL are calculated assuming that all consumers use products with that efficiency level. The PBP is measured relative to use
  of the baseline product.
* 15 SEER for 2 and 3 ton units, 14.5 SEER for 5 ton units.
** Max-Tech SEER is different for 2, 3, and 5 ton units.


     Table V-3--LCC Impacts Relative to the No-New-Standards Case for Split-System Central Air Conditioners
----------------------------------------------------------------------------------------------------------------
                                                                                    Average LCC
                  TSL                            Region                SEER           savings      % of net cost
----------------------------------------------------------------------------------------------------------------
Baseline..............................  North...................              13             N/A             N/A
                                        Hot-Dry.................              14             N/A             N/A
                                        Hot-Humid...............              14             N/A             N/A
1.....................................  North...................              14             $43              25
                                        Hot-Dry.................            14.5             169              14
                                        Hot-Humid...............            14.5              82              15
Recommended...........................  North...................              14              43              25
                                        Hot-Dry *...............         15/14.5             150              42
                                        Hot-Humid *.............         15/14.5              39              45
3.....................................  National................              16           (122)              63
4.....................................  National **.............    17/16.5/16.5           (304)              75
----------------------------------------------------------------------------------------------------------------
* 15 SEER for 2 and 3 ton units, 14.5 SEER for 5 ton units.
** Max-Tech SEER is different for 2, 3, and 5 ton units.


                                       Table V-4--Average LCC and PBP Results for Split-System Central Heat Pumps
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                               Average costs (2015$)
                                                                                 ------------------------------------------------
                                                                                                 First                              Simple      Average
                TSL                        Region            SEER        HSPF      Installed    year's     Lifetime                 payback    lifetime
                                                                                     cost      operating   operating      LCC       (years)     (years)
                                                                                                 cost        cost
--------------------------------------------------------------------------------------------------------------------------------------------------------
Baseline..........................  National............          14         8.2      $5,246        $468      $6,396     $11,642         N/A        15.3
1.................................  National............        14.5         8.4       5,318         455       6,253      11,570         5.2        15.3
Recommended.......................  National............          15         8.5       5,391         439       6,081      11,472         4.9        15.3
3.................................  National............          16         8.9       5,720         420       5,906      11,627         9.4        15.3
4.................................  National *..........  19/19/17.5     9.9/9.3       6,572         378       5,476      12,047        14.9        15.3
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: The results for each TSL are calculated assuming that all consumers use products with that efficiency level. The PBP is measured relative to the
  baseline product.
* Max-Tech SEER is different for 2, 3, and 5 ton unit.


[[Page 1833]]


        Table V-5--LCC Impacts Relative to the No-New-Standards Case for Split-System Central Heat Pumps
----------------------------------------------------------------------------------------------------------------
                                                                                    Average LCC
              TSL                    Region            SEER            HSPF           savings      % of net cost
----------------------------------------------------------------------------------------------------------------
Baseline......................  National........              14             8.2             N/A             N/A
1.............................  National........            14.5             8.4             $72               9
Recommended...................  National........              15             8.5             131              20
3.............................  National........              16             8.9            (25)              54
4.............................  National *......      19/19/17.5         9.9/9.3           (425)              79
----------------------------------------------------------------------------------------------------------------
* Max-Tech SEER is different for 2, 3, and 5 ton units.


                                      Table V-6--Average LCC and PBP Results for Packaged Central Air Conditioners
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                           Average costs (2015$)
                                                                           ----------------------------------------------------
                                                                                            First                                  Simple      Average
                 TSL                           Region              SEER      Installed      year's      Lifetime                  payback      lifetime
                                                                                cost      operating    operating       LCC        (years)      (years)
                                                                                             cost         cost
--------------------------------------------------------------------------------------------------------------------------------------------------------
Baseline............................  National...............           14       $4,779         $294       $5,452      $10,231          N/A         21.2
1...................................  National...............           14        4,779          294        5,452       10,231          N/A         21.2
Recommended.........................  National...............           14        4,779          294        5,452       10,231          N/A         21.2
3...................................  National...............           15        4,935          275        5,225       10,160          8.9         21.2
4...................................  National...............         17.5        5,427          237        4,855       10,281         12.3         21.2
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: The results for each TSL are calculated assuming that all consumers use products with that efficiency level. The PBP is measured relative to the
  baseline product.


       Table V-7--LCC Impacts Relative to the No-New-Standards Case for Packaged Central Air Conditioners
----------------------------------------------------------------------------------------------------------------
                                                                                    Average LCC
                  TSL                            Region                SEER           savings      % of net cost
----------------------------------------------------------------------------------------------------------------
Baseline..............................  National................              14             N/A             N/A
1.....................................  National................              14             N/A             N/A
Recommended...........................  National................              14             N/A             N/A
3.....................................  National................              15             $43              53
4.....................................  National................            17.5            (80)              69
----------------------------------------------------------------------------------------------------------------


                                         Table V-8--Average LCC and PBP Results for Packaged Central Heat Pumps
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                               Average costs (2015$)
                                                                                 ------------------------------------------------
                                                                                                 First                              Simple      Average
                TSL                        Region            SEER        HSPF      Installed    year's     Lifetime                 payback    lifetime
                                                                                     cost      operating   operating      LCC       (years)     (years)
                                                                                                 cost        cost
--------------------------------------------------------------------------------------------------------------------------------------------------------
Baseline..........................  National............          14         8.0      $5,361        $517      $6,998     $12,359         N/A        15.3
1.................................  National............          14         8.0       5,361         517       6,998      12,359         N/A        15.3
Recommended.......................  National............          14         8.0       5,361         517       6,998      12,359         N/A        15.3
3.................................  National............          15         8.2       5,545         479       6,584      12,129         5.2        15.3
4.................................  National............          15         8.2       5,545         479       6,584      12,129         5.2        15.3
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: The results for each TSL are calculated assuming that all consumers use products with that efficiency level. The PBP is measured relative to the
  baseline product.


          Table V-9--LCC Impacts Relative to the No-New-Standards Case for Packaged Central Heat Pumps
----------------------------------------------------------------------------------------------------------------
                                                                                    Average LCC
              TSL                    Region            SEER            HSPF           savings      % of net cost
----------------------------------------------------------------------------------------------------------------
Baseline......................  National........              14             8.0             N/A             N/A
1.............................  National........              14             8.0             N/A             N/A
Recommended...................  National........              14             8.0             N/A             N/A
3.............................  National........              15             8.2            $115              39
4.............................  National........              15             8.2             115              39
----------------------------------------------------------------------------------------------------------------


[[Page 1834]]


                                     Table V-10--Average LCC and PBP Results for Space-Constrained Air Conditioners
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                           Average costs (2015$)
                                                                           ----------------------------------------------------
                                                                                            First                                  Simple      Average
                 TSL                           Region              SEER      Installed      year's      Lifetime                  payback      lifetime
                                                                                cost      operating    operating       LCC        (years)      (years)
                                                                                             cost         cost
--------------------------------------------------------------------------------------------------------------------------------------------------------
Baseline............................  National...............           12       $4,736         $190       $3,779       $8,515          N/A         21.2
1...................................  National...............           12        4,736          190        3,779        8,515          N/A         21.2
Recommended.........................  National...............           12        4,736          190        3,779        8,515          N/A         21.2
3...................................  National...............           12        4,736          190        3,779        8,515          N/A         21.2
4...................................  National...............           14        5,040          164        3,417        8,458         11.6         21.2
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: The results for each TSL are calculated assuming that all consumers use products with that efficiency level. The PBP is measured relative to the
  baseline product.


      Table V-11--LCC Impacts Relative to the No-New-Standards Case for Space-Constrained Air Conditioners
----------------------------------------------------------------------------------------------------------------
                                                                                    Average LCC
                  TSL                            Region                SEER           savings      % of net cost
----------------------------------------------------------------------------------------------------------------
Baseline..............................  National................              12             N/A             N/A
1.....................................  National................              12             N/A             N/A
Recommended...........................  National................              12             N/A             N/A
3.....................................  National................              12             N/A             N/A
4.....................................  National................              14             $58              60
----------------------------------------------------------------------------------------------------------------


                                  Table V.12--Average LCC and PBP Results for Small-Duct High-Velocity Air Conditioners
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                           Average costs (2015$)
                                                                           ----------------------------------------------------
                                                                                            First                                  Simple      Average
                 TSL                           Region              SEER      Installed      year's      Lifetime                  payback      lifetime
                                                                                cost      operating    operating       LCC        (years)      (years)
                                                                                             cost         cost
--------------------------------------------------------------------------------------------------------------------------------------------------------
Baseline............................  National...............           12       $5,544         $197       $4,035       $9,579          N/A         21.2
1...................................  National...............           12        5,544          197        4,035        9,579          N/A         21.2
Recommended.........................  National...............           12        5,544          197        4,035        9,579          N/A         21.2
3...................................  National...............           12        5,544          197        4,035        9,579          N/A         21.2
4...................................  National...............           14        6,478          170        3,648       10,126         34.3         21.2
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: The results for each TSL are calculated assuming that all consumers use products with that efficiency level. The PBP is measured relative to the
  baseline product.


   Table V.13--LCC Impacts Relative to the No-New-Standards Case for Small-Duct High-Velocity Air Conditioners
----------------------------------------------------------------------------------------------------------------
                                                                                    Average LCC
                  TSL                            Region                SEER           savings      % of net cost
----------------------------------------------------------------------------------------------------------------
Baseline..............................  National................              12             N/A             N/A
1.....................................  National................              12             N/A             N/A
Recommended...........................  National................              12             N/A             N/A
3.....................................  National................              12             N/A             N/A
4.....................................  National................              14          ($540)              90
----------------------------------------------------------------------------------------------------------------

b. Consumer Subgroup Analysis
    In the consumer subgroup analysis, DOE estimated the impacts of the 
considered TSLs on low-income households and senior-only households. 
The average LCC savings and simple payback periods for low-income and 
senior-only households are compared to the results for all consumers of 
split air conditioners and split heat pumps in Table V-12 and Table V-
13. In most cases, the average LCC savings and PBP for low-income 
households and senior-only households at the considered efficiency 
levels are not substantially different from the average for all 
households. Chapter 11 of the direct final rule TSD presents detailed 
results of the consumer subgroup analysis.

[[Page 1835]]



         Table V-12--Split-System Central Air Conditioners: Impacts for Senior-Only and Low-Income Consumer Subgroups Compared to All Households
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                     Average LCC savings                   Simple payback period
                                                                           -----------------------------------------------------------------------------
                 TSL                           Region              SEER                                   All                                    All
                                                                               Senior     Low-income   consumers      Senior     Low-income   consumers
--------------------------------------------------------------------------------------------------------------------------------------------------------
Baseline............................  North..................           13          N/A          N/A          N/A          N/A          N/A          N/A
                                      Hot-Dry................           14          N/A          N/A          N/A          4.9          6.8          5.0
                                      Hot-Humid..............           14          N/A          N/A          N/A          5.0          5.0          5.0
1...................................  North..................           14          $32          $28          $43         11.3         11.7         10.5
                                      Hot-Dry................         14.5          171          105          169          5.5          7.3          5.4
                                      Hot-Humid..............         14.5           74           62           82          5.8          6.1          5.5
Recommended.........................  North..................           14           32           28           43         11.3         11.7         10.5
                                      Hot-Dry................      15/14.5          149           71          150          7.9         10.0          7.6
                                      Hot-Humid..............      15/14.5           30           16           39          8.1          8.4          7.7
3...................................  National...............           16        (122)        (179)        (122)         16.1         15.3         15.2
4...................................  National...............     17/16.5/        (306)        (368)        (304)         20.4         19.3         19.2
                                                                      16.5
--------------------------------------------------------------------------------------------------------------------------------------------------------
* 15 SEER for 2 and 3 ton units, 14.5 SEER for 5 ton units.
** Max-Tech SEER is different for 2, 3, and 5 ton units.


                Table V-13--Split-System Heat Pumps: Impacts for Senior-Only and Low-Income Consumer Subgroups Compared to All Households
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                       Average LCC savings                  Simple payback period
                                                                             ---------------------------------------------------------------------------
               TSL                      Region           SEER        HSPF                                  All                                   All
                                                                                Senior     Low-income   consumers     Senior     Low-income   consumers
--------------------------------------------------------------------------------------------------------------------------------------------------------
Baseline........................  National..........          14         8.2         N/A          N/A          N/A         N/A          N/A          N/A
1...............................  National..........        14.5         8.4         $76          $70          $72         5.0          5.1          5.2
Recommended.....................  National..........          15         8.5         140          125          131         4.8          5.0          4.9
3...............................  National..........          16         8.9         (6)         (33)         (25)         9.1          9.5          9.4
4...............................  National..........  19\19\17.5     9.9/9.3       (398)        (450)        (425)        14.7         15.1         14.9
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Max-Tech SEER is different for 2, 3, and 5 ton units.

c. Rebuttable Presumption Payback Period
    As discussed in section III.J.2, EPCA establishes a rebuttable 
presumption that an energy conservation standard is economically 
justified if the increased purchase cost for a product that meets the 
standard is less than three times the value of the first-year energy 
savings resulting from the standard. In calculating a rebuttable 
presumption payback period for each of the considered TSLs, DOE used 
discrete values rather than distributions for input values, and, as 
required by EPCA, based the energy use calculation on the DOE test 
procedures for central air conditioners and heat pumps. In contrast, 
the PBPs presented in section V.B.1.a were calculated using 
distributions that reflect the range of energy use in the field.
    Table V-14 presents the rebuttable-presumption payback periods for 
the considered TSLs. While DOE examined the rebuttable-presumption 
criterion, it considered whether the standard levels considered for 
this rule are economically justified through a more detailed analysis 
of the economic impacts of those levels, pursuant to 42 U.S.C. 
6295(o)(2)(B)(i), that considers the full range of impacts to the 
consumer, manufacturer, Nation, and environment. The results of that 
analysis serve as the basis for DOE to definitively evaluate the 
economic justification for a potential standard level, thereby 
supporting or rebutting the results of any preliminary determination of 
economic justification.

          Table V-14 Rebuttable Presumption Payback Period for Central Air Conditioners and Heat Pumps
----------------------------------------------------------------------------------------------------------------
                                                                      Trial standard level
                 Product class                 -----------------------------------------------------------------
                                                       1           Recommended           3               4
----------------------------------------------------------------------------------------------------------------
Split Air Conditioners *......................             N/A               N/A             6.2            12.5
Split Heat Pumps..............................             2.2               1.8             4.2             6.5
Package Air Conditioners **...................             N/A               N/A             5.5             7.7
Package Heat Pumps **.........................             N/A               N/A             3.9             3.9
Space-Constrained Air Conditioners **.........             N/A               N/A             N/A             6.2
Small-Duct High-Velocity Air Conditioners **..             N/A               N/A             N/A            16.1
----------------------------------------------------------------------------------------------------------------
* The rebuttable presumption payback period uses a national calculation so there are no results for TSL 1 and
  the Recommended TSL because split-system central air conditioners have regional standards.
** The TSL is set at the baseline level so payback period is not relevant.


[[Page 1836]]

2. Economic Impacts on Manufacturers
    DOE performed a manufacturer impact analysis (MIA) to estimate the 
impact of amended energy conservation standards on central air 
conditioner and heat pump manufacturers. The following section 
describes the expected impacts on manufacturers at each considered TSL. 
Chapter 12 of the direct final rule TSD explains the analysis in 
further detail.
a. Industry Cash Flow Analysis Results
    Table V-15 and Table V-16 depict the estimated financial impacts 
(represented by changes in industry net present value, or INPV) of 
amended energy conservation standards on manufacturers of central air 
conditioners and heat pumps, as well as the conversion costs that DOE 
expects manufacturers would incur at each TSL.
    As discussed in section 2.b, DOE modeled two different markup 
scenarios to evaluate the range of cash flow impacts on the central air 
conditioner and heat pump industry: (1) The preservation of gross 
margin percentage markup scenario; and (2) the tiered markup scenario.
    To assess the less severe end of the range of potential impacts on 
industry profitability, DOE modeled a preservation of gross margin 
percentage markup scenario, in which a uniform ``gross margin 
percentage'' markup is applied across all potential efficiency levels. 
In this scenario, DOE assumed that a manufacturer's absolute dollar 
markup would increase as production costs increase in the standards 
case.
    To assess the more severe end of the range of potential impacts on 
industry profitability, DOE modeled a tiered markup scenario. In this 
scenario, the breadth of manufacturers' product portfolios shrinks as 
higher energy conservation standards increase the efficiency of 
baseline products. In this scenario, products in more efficient tiers 
that previously commanded higher markups are ``demoted'' to lower 
efficiency tiers that command lower markups. The contraction in markups 
in this scenario reduces manufacturers' per-unit revenues.
    Each of the markup scenarios results in a unique set of cash flows 
and corresponding industry values at each TSL. In the following 
discussion, the INPV results refer to the difference in industry value 
between the no-new-standards case and each standards case that result 
from the sum of discounted cash flows from the base year (2016) through 
the end of the analysis period (2050). To provide perspective on the 
short-run cash flow impact, DOE includes in the discussion of results a 
comparison of free cash flow between the no-new-standards case and the 
standards case at each TSL in the year before amended standards would 
take effect. This figure provides an understanding of the magnitude of 
required conversion costs relative to cash flows calculated by the 
industry in the no-new-standards case.

  Table V-15--Manufacturer Impact Analysis Results for Central Air Conditioners and Heat Pumps: Preservation of Gross Margin Percentage Markup Scenario
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                              Trial standard level *
                                                        Units                 No-new-    ---------------------------------------------------------------
                                                                           standard case         1             2 **              3               4
--------------------------------------------------------------------------------------------------------------------------------------------------------
INPV......................................  2015$M......................         4,496.1         4,466.2         4,381.9         4,512.2         4,889.6
Change in INPV............................  2015$M......................  ..............          (29.9)         (114.2)            16.1           393.5
                                            %...........................  ..............           (0.7)           (2.5)           (0.4)             8.8
Product Conversion Costs..................  2015$M......................  ..............            40.7           137.0           225.2           248.7
Capital Conversion Costs..................  2015$M......................  ..............            61.0           205.6           337.9           373.0
Total Conversion Costs....................  2015$M......................  ..............           101.7           342.6           563.1           621.6
Free Cash Flow............................  2015$M......................    416.0 (429.6           376.2           278.8           195.7           172.8
                                                                              for TSL 2)
                                            %...........................  ..............           (9.6)          (35.1)          (53.0)          (58.5)
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Parentheses indicate negative values. All values have been rounded to the nearest tenth. M = millions.
** TSL recommended by the CAC/HP Working Group with 2023 compliance date. All other TSLs have a modeled compliance date of 2021, which is six years
  after the compliance date of the standards adopted in the June 27, 2011 DFR.


                  Table V-16--Manufacturer Impact Analysis Results for Central Air Conditioners and Heat Pumps: Tiered Markup Scenario
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                              Trial standard level *
                                               Units             No-new-  standard case  ---------------------------------------------------------------
                                                                                                 1             2 **              3               4
--------------------------------------------------------------------------------------------------------------------------------------------------------
INPV...............................  2015$M...................  4,496.1.................         3,852.0         3,803.9         3,382.0         3,360.6
Change in INPV.....................  2015$M...................  ........................         (644.1)         (692.3)       (1,114.2)       (1,135.6)
                                     %........................  ........................          (14.3)          (15.4)          (24.8)          (25.3)
Product Conversion Costs...........  2015$M...................  ........................            40.7           137.0           225.2           248.7
Capital Conversion Costs...........  2015$M...................  ........................            61.0           205.6           337.9           373.0
Total Conversion Costs.............  2015$M...................  ........................           101.7           342.6           563.1           621.6
Free Cash Flow.....................  2015$M...................  411.9 (426.8 for TSL 2).           372.1           276.1           191.6           168.7
                                     %........................  ........................           (9.7)          (35.3)          (53.5)          (59.0)
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Parentheses indicate negative values. All values have been rounded to the nearest tenth. M = millions.
** TSL recommended by the CAC/HP Working Group with 2023 compliance date. All other TSLs have a modeled compliance date of 2021, which is six years
  after the compliance date of the standards adopted in the June 27, 2011 DFR.

    At TSL 1, DOE estimates impacts on INPV to range from -$644.1 
million to -$29.9 million, or a change of -14.3 percent to -0.7 
percent. DOE projects that in the absence of new standards, 57 percent 
of central air conditioner and heat pump shipments would already meet 
or exceed the efficiency levels prescribed by TSL 1 in the compliance

[[Page 1837]]

year (2021). DOE estimates total industry conversion costs of $101.7 
million would be required to bring the balance of shipments into 
compliance with a new standard. These conversion costs drive an 
estimated decrease in industry free cash flow in the year before the 
compliance date (2020). In the more severe tiered markup scenario, DOE 
estimates a decrease in industry free cash flow in the year prior to 
compliance of $39.8 million, or a change of -9.7 percent relative to 
the no-new-standards case value of $411.9 million. At TSL 1, DOE also 
projects higher unit prices will result in a slight decrease in total 
shipments over the period beginning with the compliance year (2021) and 
ending in 2050. DOE estimates a change in shipments of -0.04 percent 
relative to the no-new-standards case.
    At TSL 1, under the preservation of gross margin percentage 
scenario, the shipment-weighted average price per unit increases by 1.8 
percent relative to the no-new-standards-case price per unit in the 
year of compliance (2021). This slight price increase would mitigate a 
portion of the $101.7 million in conversion costs estimated at TSL 1, 
resulting in slightly negative INPV impacts under this scenario. Under 
the tiered markup scenario, the industry markup structure is compressed 
as the least efficient products are eliminated from the market. Under 
amended standards, products in higher efficiency tiers that previously 
commanded higher markups are demoted to lower efficiency tiers that 
command lower markups. At TSL 1, this markup scenario results in a 
weighted average price increase of 0.3 percent. This relatively modest 
price increase is outweighed by the expected conversion costs and 
slight decrease in total shipments, resulting in more severe INPV 
impacts at TSL 1.
    At TSL 2, the TSL recommended by the ASRAC CAC/HP Working Group, 
DOE estimates impacts on INPV to range from -$692.3 million to -$114.2 
million, or a change in INPV of -15.4 percent to -2.5 percent. DOE 
projects that in the absence of new standards, 32 percent of central 
air conditioner and heat pump shipments would already meet or exceed 
the efficiency levels prescribed by TSL 2 in the compliance year 
(2023). DOE estimates total industry conversion costs of $342.6 million 
would be required to bring the balance of shipments into compliance 
with a new standard. These conversion costs drive an estimated decrease 
in industry free cash flow in the year before the compliance date 
(2022). In the more severe tiered markup scenario, DOE estimates a 
decrease in industry free cash flow of up to $150.8 million, or a 
change of -35.3 percent relative to the no-new-standards case value of 
$426.8 million in the year before compliance (2022). At TSL 2, DOE also 
projects higher unit prices will result in a slight decrease in total 
shipments over the period beginning with the compliance year (2023) and 
ending in 2050. DOE estimates a change in shipments of -0.03 percent 
relative to the no-new-standards case.
    At TSL 2, under the preservation of gross margin percentage 
scenario, the shipment-weighted average price per unit increases by 4.4 
percent relative to the no-new-standards-case price per unit in the 
year of compliance (2023). In this scenario, manufacturers are able to 
fully pass on the increase in MPC to consumers. However, this price 
increase is outweighed by the $342.6 million in conversion costs 
estimated at TSL 2, resulting in slightly negative INPV impacts under 
this scenario. Under the tiered markup scenario, the weighted average 
price per unit increases by 2.9 percent. This price increase is offset 
by the expected conversion costs and slight decrease in total 
shipments, resulting in more severe INPV impacts at TSL 2.
    At TSL 3, DOE estimates impacts on INPV to range from -$1,114.2 
million to $16.1 million, or a change in INPV of -24.8 percent to 0.4 
percent. DOE projects that in the absence of new standards, 8 percent 
of central air conditioner and heat pump shipments would meet or exceed 
the efficiency levels prescribed by TSL 3 in the compliance year 
(2021). DOE estimates total industry conversion costs of $563.1 million 
would be required to bring the balance of shipments into compliance 
with a new standard. These conversion costs drive an estimated decrease 
in industry free cash flow in the year before the compliance date 
(2020). In the more severe tiered markup scenario, DOE estimates a 
decrease in industry free cash flow in the year prior to compliance of 
$220.3 million, or a change of -53.5 percent relative to the no-new-
standards case. At TSL 3, DOE also projects higher unit prices will 
result in a slight decrease in total shipments over the period 
beginning with the compliance year (2021) and ending in 2050. DOE 
estimates a change in shipments of -0.24 percent relative to the no-
new-standards case.
    At TSL 3, under the preservation of gross margin percentage 
scenario, the shipment-weighted average price per unit increases by 
20.9 percent relative to the no-new-standards-case price per unit in 
the year of compliance (2021). Under this scenario, the higher unit 
price offsets conversion costs and the slight decrease in shipments to 
produce slightly positive INPV impacts. Under the tiered markup 
scenario, the weighted average price increases by 17.9 percent. This 
price increase is not sufficient to offset the expected conversion 
costs and slight decrease in total shipments, resulting in negative 
INPV impacts at this level.
    At TSL 4, DOE estimates impacts on INPV to range from -$1,135.6 
million to $393.5 million, or a change in INPV of -25.3 percent to 8.8 
percent. DOE projects that in the absence of new standards, 3 percent 
of central air conditioner and heat pump shipments would meet or exceed 
the efficiency levels prescribed by TSL 4 in the compliance year 
(2021). DOE estimates total industry conversion costs of $621.6 million 
would be required to bring the balance of shipments into compliance 
with a new standard. These conversion costs drive an estimated decrease 
in industry free cash flow in the year before the compliance date 
(2020). In the more severe tiered markup scenario, DOE estimates a 
decrease in industry free cash flow in the year prior to compliance of 
approximately $243.2 million, or a change of -59.0 percent relative to 
the no-new-standards case. At this level, DOE also projects higher 
prices will result in a slight decrease in total shipments over the 
period beginning with the compliance year (2021) and ending in 2050. 
DOE estimates a change in shipments of -0.29 percent relative to the 
no-new-standards case.
    At TSL 4, under the preservation of gross margin percentage 
scenario, the shipment-weighted average price per unit increases by 
43.2 percent relative to the no-new-standards-case price per unit in 
the year of compliance (2021). Under this scenario, the higher unit 
price offsets conversion costs and the slight decrease in shipments to 
produce positive INPV impacts. Under the tiered markup scenario, the 
weighted average price per unit increases by 39.2 percent. This 
increase is outweighed by the expected conversion costs and a decrease 
in total shipments, resulting in negative INPV impacts at TSL 4.
b. Direct Impacts on Employment
    To quantitatively assess the potential impacts of amended energy 
conservation standards on direct employment, DOE used the GRIM to 
estimate the domestic labor expenditures and number of direct employees 
in the no-new-standards case and at each TSL from the base year of the 
analysis (2016) through the end of the analysis (2050). DOE used 
statistical

[[Page 1838]]

data from the U.S. Census Bureau's 2014 Annual Survey of Manufacturers, 
the results of the engineering analysis, and interviews with 
manufacturers to determine the inputs necessary to calculate industry-
wide labor expenditures and domestic direct employment levels. Labor 
expenditures related to producing the equipment are a function of the 
labor intensity of producing the equipment, 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 50 percent of 
residential central air conditioner and heat pump units are produced 
domestically.
    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 
2014 Annual Survey of Manufacturers). The production worker estimates 
in this section only cover workers up to the line-supervisor level who 
are directly involved in fabricating and assembling a product within an 
OEM 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.
    To estimate an upper bound to employment change, DOE assumes all 
domestic manufacturers would choose to continue producing products in 
the U.S. and would not move production to foreign countries. To 
estimate a lower bound to employment, DOE considers the case where all 
manufacturers choose to relocate production overseas rather than make 
the necessary conversions at domestic production facilities. A complete 
description of the assumptions used to calculate these upper and lower 
bounds can be found in chapter 12 of the direct final rule TSD.
    In the absence of amended energy conservation standards, DOE 
estimates that the residential central air conditioner and heat pump 
industry would employ 10,379 and 10,708 domestic production workers in 
2021 and 2023, respectively. Table V-17 shows the range of impacts of 
potential amended energy conservation standards on U.S. production 
workers of central air conditioners and heat pumps.

          Table V-17--Potential Changes in the Total Number of Central Air Conditioner and Heat Pump Production Workers in in Compliance Year *
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                               Trial standard level **
                                         No-new-standard    --------------------------------------------------------------------------------------------
                                            [dagger]                    1                      2                      3                      4
--------------------------------------------------------------------------------------------------------------------------------------------------------
Potential Changes in Domestic        ......................  (10,379) to 139.......  (10,708) to 642......  (10,379) to 886......  (10,379) to 1,878.
 Production Workers in Compliance
 Year.
--------------------------------------------------------------------------------------------------------------------------------------------------------
* The compliance year for TSL 2 is 2023, as recommended by the CAC/HP Working Group; all other TSLs have a compliance year of 2021.
** Parentheses indicate negative values.
[dagger] The no-new-standard case assumes 10,379 domestic production workers in 2021 and 10,708 in 2023.

    The upper end of the range estimates the maximum increase and/or 
minimum decrease in the estimated number of domestic production workers 
in the residential central air conditioner and heat pump industry after 
implementation of amended energy conservation standards. It assumes 
manufacturers would continue to produce the same scope of covered 
products within the United States.
    The lower end of the range represents the maximum decrease in the 
total number of U.S. production workers that could result from an 
amended energy conservation standard. In interviews, manufacturers 
stated that the residential HVAC industry has seen increasing migration 
to foreign production facilities, often located in Mexico. Many 
manufacturers of central air conditioners and heat pumps already have 
foreign production facilities. Some manufacturers indicated a change in 
standard would lead to a re-evaluation of production in other 
countries, where it may be possible to mitigate capital investments 
and/or to reduce the cost of labor inputs. As a result, the lower bound 
of direct employment impacts assumes domestic production of covered 
products ceases as manufacturers shift production abroad in search of 
reduced manufacturing costs.
    This conclusion is independent of any conclusions regarding 
indirect employment impacts in the broader United States economy, which 
are documented in chapter 15 of the direct final rule TSD.
c. Impacts on Manufacturing Capacity
    In interviews and in discussions during the CAC/HP Working Group 
meetings, manufacturers of residential central air conditioners and 
heat pumps did not indicate that amended energy conservation standards 
would significantly constrain manufacturing production capacity.
d. Impacts on Subgroups of Manufacturers
    As discussed above, using average cost assumptions to develop an 
industry cash flow estimate is not adequate for assessing differential 
impacts among subgroups of manufacturers. Small manufacturers, niche 
players, or manufacturers exhibiting a cost structure that differs 
largely from the industry average could be affected differently. DOE 
used the results of the industry characterization to group 
manufacturers exhibiting similar characteristics. Specifically, DOE 
identified small business manufacturers as a subgroup for a separate 
impact analysis.
    For the small business subgroup analysis, DOE applied the small 
business size standards published by the Small Business Administration 
(SBA) to determine whether a company is considered a small business. 
The size standards are codified at 13 CFR part 121. To be categorized 
as a small business under North American Industry Classification System 
(NAICS) code 333415, ``Air-Conditioning and Warm Air Heating Equipment 
and Commercial and Industrial Refrigeration Equipment Manufacturing,'' 
a residential central air conditioner and heat pump manufacturer and 
its affiliates may employ a maximum of 1,250 employees. The 1,250-
employee threshold includes all employees in a business's parent 
company and any other subsidiaries. The small business subgroup 
analysis is discussed in

[[Page 1839]]

section VI.B of this notice and in chapter 12 of the direct final rule 
TSD.
e. Cumulative Regulatory Burden
    While any one regulation may not impose a significant burden on 
manufacturers, the combined effects of several 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. Multiple 
regulations affecting the same manufacturer can strain profits and can 
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 manufacturers of central air conditioners 
and heat pumps during the compliance period, from 2017 to 2023, or 
those that will take effect approximately three years after the 2023 
compliance date of amended energy conservation standards for central 
air conditioners and heat pumps. In interviews, manufacturers cited 
federal regulations on equipment other than central air conditioners 
and heat pumps 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-18.

Table V-18--Compliance Dates and Expected Conversion Expenses of Federal Energy Conservation Standards Affecting Residential Central Air Conditioner and
                                                                 Heat Pump Manufacturers
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                            Number of
                                           Number of      manufacturers    Approximate  compliance    Estimated total industry     Industry conversion
 Federal energy conservation  standard  manufacturers *   affected from              date               conversion expenses      costs/revenue [dagger]
                                                         today's rule **                                    (millions $)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Commercial Packaged Air Conditioners                 13               11  2018 and 2023............  520.8 (2014$)............  4.4%.
 and Heat Pumps (Air-Cooled) 81 FR
 2420 (January 15, 2016).
Residential Boilers *** 81 FR 2320                   36                5  2020.....................  2.5 (2014$)..............  Less than 1%.
 (January 15, 2016).
Commercial and Industrial Pumps 80 FR                86                1  2020.....................  81.2 (2014$).............  5.6%.
 17826 (January 26, 2016).
Portable Room Air Conditioners *** 81                29                5  2021.....................  302.8 (2014$)............  10.8%.
 FR 38398 (June 13, 2016).
Residential Furnaces *** 80 FR 13120                 12               12  2021.....................  55.0 (2013$).............  1%.
 (March 12, 2015).
Commercial Packaged Boilers *** 81 FR                45                4  2022.....................  27.5 (2014$).............  2.3%.
 158836 (March 24, 2016).
Commercial Warm Air Furnaces 81 FR                   14               10  2023.....................  7.5 to 22.2 (2014$)        1.7% to 5.2%
 2420 (January 15, 2016).                                                                             [dagger][dagger].          [dagger][dagger].
--------------------------------------------------------------------------------------------------------------------------------------------------------
* The number of manufacturers listed in the final rule or notice of proposed rulemaking for the energy conservation standard that is contributing to
  cumulative regulatory burden.
** The number of manufacturers producing central air conditioners and heat pumps that are affected by the listed energy conservation standards.
*** The final rule for this energy conservation standard has not been published. The compliance date and analysis of conversion costs have not been
  finalized at this time. (If a value is provided for total industry conversion expense, this value represents an estimate from the NOPR.)
[dagger] This column presents conversion costs as a percentage of cumulative revenue for the industry during the conversion period. The conversion
  period is the timeframe over which manufacturers must make conversion cost investments and lasts from the announcement year of the final rule to the
  standards year of the rule. This period typically ranges from 3 to 5 years, depending on the energy conservation standard.
[dagger][dagger] Low and high conversion cost scenarios were analyzed as part of this Direct Final Rule. The range of estimated conversion expenses
  presented here reflects those two scenarios.

    DOE also identified federal energy conservation standards for 
residential water heaters, residential room air conditioners, and 
commercial packaged air conditioners and heat pumps (water and 
evaporative cooled) as sources of cumulative regulatory burden for 
manufacturers of central air conditioners and heat pumps. However, 
NOPRs have not yet been published for those standards so information on 
manufacturer impacts is not yet available.
    In addition to the energy conservation standards listed, 
manufacturers cited increasing ENERGY STAR \96\ standards as a source 
of regulatory burden. In response, DOE does not consider ENERGY STAR in 
its presentation of cumulative regulatory burden, because ENERGY STAR 
is a voluntary program and is not federally mandated.
---------------------------------------------------------------------------

    \96\ ENERGY STAR is a U.S. EPA voluntary program designed to 
identify and promote energy-efficient products to reduce greenhouse 
gas emissions. For more information on the ENERGY STAR program, 
please visit www.energystar.gov.
---------------------------------------------------------------------------

    Manufacturers also cited the U.S. EPA Significant New Alternatives 
Policy (SNAP) Program as a source of regulatory burden. The SNAP 
Program evaluates and regulates substitutes for ozone-depleting 
chemicals (such as air conditioning refrigerants) that are being phased 
out under the stratospheric ozone protection provisions of the Clean 
Air Act. On April 10, 2015, the EPA issued a final rule allowing the 
use of three flammable refrigerants (HFC-32 (R-32), Propane (R-290), 
and R-441A) as new acceptable substitutes, subject to use conditions, 
for refrigerant in the Household and Light Commercial Air Conditioning 
class of equipment. 80 FR 19454 (April 10, 2015). However, DOE notes 
that the use of alternate refrigerants by manufacturers of residential 
central air conditioners and heat pumps would not be required as a 
direct result of this rule. Hence, alternate refrigerants were not 
considered in this analysis.
    More information on the cumulative regulatory burden can be found 
in chapter 12 of the direct final rule TSD.
3. National Impact Analysis
a. Significance of Energy Savings
    To estimate the energy savings attributable to potential standards 
for central air conditioners and heat pumps, DOE compared the energy 
consumption of those products under the base case to

[[Page 1840]]

their anticipated energy consumption under each TSL. The savings are 
measured over the entire lifetime of products purchased in the 30-year 
period that begins in the first full year of anticipated compliance 
with amended standards (2021-2050 or, for the recommended TSL, 2023-
2052). Table V-19 presents the estimated national energy savings for 
each considered TSL disaggregated by product class. Because TSL 1 and 
the Recommended TSL are comprised of regional standards for split 
system central air conditioners, the national energy savings results 
for this product class are disaggregated by region. The approach for 
estimating national energy savings is described in section IV.H.

                     Table V-19--Central Air Conditioners and Heat Pumps: Cumulative National Energy Savings for Potential Standards
                                                             [Units sold in 30-year period]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                 TSL 1 *                           Recommended TSL *               TSL 3        TSL 4
                  Product class                  -------------------------------------------------------------------------------------------------------
                                                     North      Hot-humid     Hot-dry       North      Hot-humid     Hot-dry      National     National
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                   Primary Energy Use
--------------------------------------------------------------------------------------------------------------------------------------------------------
Split AC........................................          0.3          0.4          0.1          0.4          0.8          0.2          4.6          5.7
                                                 ------------------------------------------------------------------------------
Split HP........................................                   0.4
                                                                   1.7                           3.2          7.0
Packaged AC.....................................                   0.0
                                                                   0.0                           0.2          0.7
Packaged HP.....................................                   0.0
                                                                   0.0                           0.3          0.3
                                                 -------------------------------------------------------------------------------------------------------
    Total.......................................                   1.2
                                                                   3.1                           8.2         13.6
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               Full Fuel Cycle Energy Use
--------------------------------------------------------------------------------------------------------------------------------------------------------
Split AC........................................          0.4          0.4          0.1          0.4          0.8          0.2          4.8          5.9
                                                 ------------------------------------------------------------------------------
Split HP........................................                   0.5
                                                                   1.8                           3.4          7.3
Packaged AC.....................................                   0.0
                                                                   0.0                           0.2          0.7
Packaged HP.....................................                   0.0
                                                                   0.0                           0.3          0.3
                                                 -------------------------------------------------------------------------------------------------------
    Total.......................................                   1.3
                                                                   3.2                           8.6         14.2
--------------------------------------------------------------------------------------------------------------------------------------------------------
* National results for all product classes with exception of split system central air conditioners.

    OMB Circular A-4 \97\ 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 product 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.\98\ The review timeframe established in EPCA is generally 
not synchronized with the product lifetime, product manufacturing 
cycles, or other factors specific to central air conditioners and heat 
pumps. Thus, such results are presented for informational purposes only 
and are not indicative of any change in DOE's analytical methodology. 
The NES sensitivity analysis results based on a nine-year period of 
shipments are presented in Table V-20.
---------------------------------------------------------------------------

    \97\ U.S. Office of Management and Budget, ``Circular A-4: 
Regulatory Analysis'' (Sept. 17, 2003) (Available at: http://www.whitehouse.gov/omb/circulars_a004_a-4/).
    \98\ Section 325(m) of EPCA requires DOE to review its standards 
at least once every 6 years, and requires, for certain products, a 
3-year period after any new standard is promulgated before 
compliance is required, except that in no case may any new standards 
be required within 6 years of the compliance date of the previous 
standards. 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-20--Cumulative National Energy Savings for Potential Standards for Central Air Conditioners and Heat Pumps
                                                              [Units sold in 9-year period]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                 TSL 1 *                           Recommended TSL *               TSL 3        TSL 4
                  Product class                  -------------------------------------------------------------------------------------------------------
                                                     North      Hot-humid     Hot-dry       North      Hot-humid     Hot-dry      National     National
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                   Primary Energy Use
--------------------------------------------------------------------------------------------------------------------------------------------------------
Split AC........................................          0.1          0.1          0.0          0.1          0.2          0.0          1.2          1.5
                                                 ------------------------------------------------------------------------------
Split HP........................................                   0.1
                                                                   0.4                           0.8          1.7
Packaged AC.....................................                   0.0
                                                                   0.0                           0.0          0.2
Packaged HP.....................................                   0.0
                                                                   0.0                           0.1          0.1
                                                 -------------------------------------------------------------------------------------------------------

[[Page 1841]]

 
    Total.......................................                   0.3
                                                                   0.8                           2.1          3.5
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               Full Fuel Cycle Energy Use
--------------------------------------------------------------------------------------------------------------------------------------------------------
Split AC........................................          0.1          0.1          0.0          0.1          0.2          0.1          1.3          1.6
                                                 ------------------------------------------------------------------------------
Split HP........................................                   0.1
                                                                   0.5                           0.8          1.8
Packaged AC.....................................                   0.0
                                                                   0.0                           0.0          0.2
Packaged HP.....................................                   0.0
                                                                   0.0                           0.1          0.1
                                                 -------------------------------------------------------------------------------------------------------
    Total.......................................                   0.4
                                                                   0.9                           2.2          3.6
--------------------------------------------------------------------------------------------------------------------------------------------------------
* National results for all product classes with exception of split system central air conditioners.

b. Net Present Value of Consumer Costs and Benefits
    Table V-21 shows the consumer NPV of the total costs and savings 
for consumers that would result from each TSL considered for central 
air conditioners and heat pumps disaggregated by product class. As 
noted above in the presentation of national energy savings results, 
because TSL 1 and the Recommended TSL are comprised of regional 
standards for split system central air conditioners, the national 
energy savings results for this product class are disaggregated by 
region. The impacts cover the lifetime of products purchased in 2021-
2050. In accordance with OMB's guidelines on regulatory analysis,\99\ 
DOE calculated NPV using both a 7-percent and a 3-percent real discount 
rate.
---------------------------------------------------------------------------

    \99\ OMB Circular A-4, section E (Sept. 17, 2003) (Available at: 
http://www.whitehouse.gov/omb/circulars_a004_a-4).

             Table V-21--Central Air Conditioners and Heat Pumps: Cumulative Net Present Value of Consumer Benefits for Potential Standards
                                                             [Units sold in 30-year period]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                 TSL 1 *                           Recommended TSL *               TSL 3        TSL 4
                  Product class                  -------------------------------------------------------------------------------------------------------
                                                     North      Hot-humid     Hot-dry       North      Hot-humid     Hot-dry      National     National
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                 3-percent discount rate
--------------------------------------------------------------------------------------------------------------------------------------------------------
Split AC........................................          1.0          1.6          1.0          1.0          1.2          1.5        (4.5)       (18.2)
                                                 ------------------------------------------------------------------------------
Split HP........................................                   2.1
                                                                   8.5                           3.9       (11.5)
Packaged AC.....................................                   0.0
                                                                   0.0                           0.6          0.4
Packaged HP.....................................                   0.0
                                                                   0.0                           1.1          1.1
                                                 -------------------------------------------------------------------------------------------------------
    Total.......................................                   5.7
                                                                   12.2                          1.1       (28.1)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                 7-percent discount rate
--------------------------------------------------------------------------------------------------------------------------------------------------------
Split AC........................................        (0.1)          0.4          0.3          0.0        (0.3)          0.3        (9.2)       (18.1)
                                                 ------------------------------------------------------------------------------
Split HP........................................                   0.7
                                                                   2.5                         (1.2)       (13.1)
Packaged AC.....................................                   0.0
                                                                   0.0                           0.1        (0.6)
Packaged HP.....................................                   0.0
                                                                   0.0                           0.3          0.3
                                                 -------------------------------------------------------------------------------------------------------
    Total.......................................                   1.3
                                                                   2.5                        (10.0)       (31.4)
--------------------------------------------------------------------------------------------------------------------------------------------------------
* National results for all product classes with exception of split system central air conditioners.

    The NPV results based on the aforementioned nine-year analytical 
period are presented in Table V-22. The impacts are counted over the 
lifetime of products purchased in 2021-2029. As mentioned previously, 
such results are presented for informational purposes only and is not 
indicative of any change in DOE's analytical methodology or decision 
criteria.

[[Page 1842]]



            Table V-22--Cumulative Net Present Value of Consumer Benefits for Potential Standards for Central Air Conditioners and Heat Pumps
                                                              [Units sold in 9-year period]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                 TSL 1 *                           Recommended TSL *               TSL 3        TSL 4
                  Product class                  -------------------------------------------------------------------------------------------------------
                                                     North      Hot-humid     Hot-dry       North      Hot-humid     Hot-dry      National     National
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                 3-percent discount rate
--------------------------------------------------------------------------------------------------------------------------------------------------------
Split AC........................................          0.2          0.5          0.3          0.3          0.2          0.5        (3.7)        (9.6)
                                                 ------------------------------------------------------------------------------
Split HP........................................                   0.7
                                                                   2.5                           0.3        (6.4)
Packaged AC.....................................                   0.0
                                                                   0.0                           0.2        (0.1)
Packaged HP.....................................                   0.0
                                                                   0.0                           0.3          0.3
                                                 -------------------------------------------------------------------------------------------------------
    Total.......................................                   1.7
                                                                   3.5                         (2.9)       (15.7)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                 7-percent discount rate
--------------------------------------------------------------------------------------------------------------------------------------------------------
Split AC........................................        (0.1)          0.1          0.1        (0.1)        (0.2)          0.1        (5.5)       (10.3)
                                                 ------------------------------------------------------------------------------
Split HP........................................                   0.3
                                                                   1.0                         (1.0)        (7.2)
Packaged AC.....................................                   0.0
                                                                   0.0                           0.0        (0.4)
Packaged HP.....................................                   0.0
                                                                   0.0                           0.1          0.1
                                                 -------------------------------------------------------------------------------------------------------
    Total.......................................                   0.5
                                                                   0.8                         (6.4)       (17.8)
--------------------------------------------------------------------------------------------------------------------------------------------------------
* National results for all product classes with exception of split system central air conditioners.

    The above results reflect the use of the default decreasing price 
trend (see section IV.H.2) to estimate the change in price for central 
air conditioners and heat pumps over the analysis period. DOE also 
conducted a sensitivity analysis that considered one scenario with a 
constant price trend and one scenario with a slightly higher rate of 
price decline than the reference case. The results of these alternative 
cases are presented in appendix 10-C of the direct final rule TSD.
c. Indirect Impacts on Employment
    DOE expects amended energy conservation standards for central air 
conditioners and heat pumps to reduce energy costs for consumers, 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 calculated results for near-term time frames 
(2021 to 2026), where these uncertainties are reduced.
    The results suggest that the amended standards are likely to have a 
negligible impact on the net demand for labor in the economy. The net 
change in jobs is so small that it would be imperceptible in national 
labor statistics and might be offset by other, unanticipated effects on 
employment. Chapter 16 of the direct final rule TSD presents results 
regarding anticipated indirect employment impacts.
4. Impact on Product Utility or Performance
    DOE has concluded that the amended standards it is adopting in this 
direct final rule would not lessen the utility or performance of 
central air conditioners and heat pumps. Manufacturers of these 
products currently offer central air conditioner and heat pump that 
meet or exceed the amended standards.
5. Impact of Any Lessening of Competition
    As discussed in section III.I.1.e, EPCA directs DOE to consider any 
lessening of competition that is likely to result from standards. It 
also directs the Attorney General of the United States (Attorney 
General) to determine the impact, if any, of any lessening of 
competition likely to result from a proposed standard and to transmit 
such determination in writing to the Secretary within 60 days of the 
publication of a proposed rule, together with an analysis of the nature 
and extent of the impact. To assist the Attorney General in making this 
determination, DOE provided the Department of Justice (DOJ) with copies 
of the NOPR and the TSD for review. In its assessment letter responding 
to DOE, DOJ concluded that the proposed energy conservation standards 
for central air conditioners and heat pumps are unlikely to have a 
significant adverse impact on competition. DOE is publishing the 
Attorney General's assessment at the end of this direct final rule.
6. Need of the Nation To Conserve Energy
    Enhanced energy efficiency, where economically justified, improves 
the Nation's energy security, strengthens the economy, and reduces the 
environmental impacts of energy production. Reduced electricity demand 
due to energy conservation standards is also likely to reduce the cost 
of maintaining the reliability of the electricity system, particularly 
during peak-load periods. As a measure of this reduced demand, chapter 
15 in the direct final rule TSD presents the estimated reduction in 
generating capacity, relative to the base case, for the TSLs that DOE 
considered in this rulemaking.
    Energy conservation resulting from amended standards for central 
air conditioners and heat pumps are expected to yield environmental 
benefits in the form of reduced emissions of air pollutants and 
greenhouse gases. Table V-23 provides DOE's estimate of cumulative 
reductions in air pollutant emissions resulting from each of the TSLs. 
The tables include both power sector emissions and upstream emissions. 
The emissions were calculated using the multipliers discussed in 
section IV.K. DOE reports annual emissions impacts for each TSL in 
chapter 13 of the direct final rule TSD.

[[Page 1843]]



    Table V-23--Cumulative Emissions Reduction Estimated for Central Air Conditioner and Heat Pump Potential
                                                    Standards
                                         [Units sold in 30-year period]
----------------------------------------------------------------------------------------------------------------
                                                                     Trial standard level
                                             -------------------------------------------------------------------
                                                     1           Recommended           3                4
----------------------------------------------------------------------------------------------------------------
                                             Power Sector Emissions
----------------------------------------------------------------------------------------------------------------
CO2 (million metric tons)...................            72.45            177.9            480.7            794.7
SO2 (thousand tons).........................            40.16            98.84            267.3            443.8
NOX (thousand tons).........................            81.71            200.5            541.6            894.3
Hg (tons)...................................            0.149            0.368            0.994            1.651
CH4 (thousand tons).........................             5.82            14.33            38.71            64.25
N2O (thousand tons).........................            0.820            2.019            5.456            9.058
----------------------------------------------------------------------------------------------------------------
                                               Upstream Emissions
----------------------------------------------------------------------------------------------------------------
CO2 (million metric tons)...................            4.230            10.44            28.06            46.34
SO2 (thousand tons).........................            0.780            1.923            5.176            8.546
NOX (thousand tons).........................            60.68            149.8            402.6            664.8
Hg (tons)...................................            0.002            0.004            0.011            0.019
CH4 (thousand tons).........................            335.4            828.0            2,225            3,674
N2O (thousand tons).........................            0.039            0.095            0.256            0.422
----------------------------------------------------------------------------------------------------------------
                                                 Total Emissions
----------------------------------------------------------------------------------------------------------------
CO2 (million metric tons)...................            76.68            188.3            508.7            841.0
SO2 (thousand tons).........................            40.94            100.8            272.4            452.4
NOX (thousand tons).........................            142.4            350.3            944.2            1,559
Hg (tons)...................................            0.151            0.372            1.005            1.669
CH4 (thousand tons).........................            341.2            842.4            2,264            3,738
CH4 (thousand tons CO2eq) *.................            9,553           23,586           63,387          104,677
N2O (thousand tons).........................            0.858            2.114            5.711            9.481
N2O (thousand tons CO2eq) *.................            227.5            560.3            1,514            2,512
----------------------------------------------------------------------------------------------------------------
* CO2eq is the quantity of CO2 that would have the same global warming potential (GWP).

    As part of the analysis for this 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 central air conditioners and heat pumps. As discussed in section 
IV.L, for CO2, 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 2014$) are represented by $12.4/metric ton (the average 
value from a distribution that uses a 5-percent discount rate), $40.6/
metric ton (the average value from a distribution that uses a 3-percent 
discount rate), $63.2/metric ton (the average value from a distribution 
that uses a 2.5-percent discount rate), and $118/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 
impacts increases.
    Table V-24 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 direct final rule TSD.

  Table V-24--Estimates of Global Present Value of CO2 Emissions Reduction for Central Air Conditioner and Heat
                                            Pump Potential Standards
                                         [Units sold in 30-year period]
----------------------------------------------------------------------------------------------------------------
                                                                          SCC Case *
                                             -------------------------------------------------------------------
                     TSL                                                                           3% discount
                                                5% discount      3% discount     2.5% discount      rate 95th
                                               rate, average    rate, average    rate, average      percentile
----------------------------------------------------------------------------------------------------------------
                                                                        (billion 2015$)
----------------------------------------------------------------------------------------------------------------
                                             Power Sector Emissions
----------------------------------------------------------------------------------------------------------------
1...........................................              456            2,171            3,487            6,614
Recommended.................................            1,081            5,225            8,420           15,927
3...........................................            3,016           14,387           23,110           43,835
4...........................................            5,010           23,869           38,322           72,741
----------------------------------------------------------------------------------------------------------------

[[Page 1844]]

 
                                               Upstream Emissions
----------------------------------------------------------------------------------------------------------------
1...........................................               26              126              202              383
Recommended.................................               63              305              491              929
3...........................................              174              833            1,340            2,539
4...........................................              288            1,381            2,220            4,209
----------------------------------------------------------------------------------------------------------------
                                               Total FFC Emissions
----------------------------------------------------------------------------------------------------------------
1...........................................              482            2,297            3,689            6,997
Recommended.................................            1,143            5,530            8,912           16,855
3...........................................            3,190           15,220           24,450           46,375
4...........................................            5,298           25,249           40,542           76,950
----------------------------------------------------------------------------------------------------------------
* For each of the four cases, the corresponding SCC value for emissions in 2015 is $12.4, $40.6, $63.2, and $118
  per metric ton (2015$). The values are for CO2 only (i.e., not CO2eq of other greenhouse gases).

    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 direct final rule 
the most recent values and analyses resulting from the interagency 
review process.
    DOE also estimated the cumulative monetary value of the economic 
benefits associated with NOX emissions reductions 
anticipated to result from amended standards for central air 
conditioners and heat pumps. The dollar-per-ton values that DOE used 
are discussed in section IV.L.2. Table V-25 presents the cumulative 
present values for NOX emissions reductions for each TSL 
calculated using seven-percent and three-percent discount rates. This 
table presents values that use the low dollar-per-ton values, which 
reflect DOE's primary estimate. Results that reflect the range of 
NOX dollar-per-ton values are presented in Table V-25.

  Table V-25--Estimates of Present Value of NOX Emissions Reduction for
        Central Air Conditioner and Heat Pump Potential Standards
                     [Units sold in 30-year period]
------------------------------------------------------------------------
                                                        3%         7%
                        TSL                          Discount   Discount
                                                       rate       rate
------------------------------------------------------------------------
                                                       (million 2015$)
------------------------------------------------------------------------
                         Power Sector Emissions
------------------------------------------------------------------------
1.................................................        123         45
Recommended.......................................        292        100
3.................................................        814        294
4.................................................      1,358        490
------------------------------------------------------------------------
                           Upstream Emissions
------------------------------------------------------------------------
1.................................................         99         35
Recommended.......................................        236         79
3.................................................        657        232
4.................................................      1,090        385
------------------------------------------------------------------------
                          Total FFC Emissions *
------------------------------------------------------------------------
1.................................................        222         80
Recommended.......................................        528        179
3.................................................      1,472        525
4.................................................      2,448        875
------------------------------------------------------------------------
* Components may not sum to total due to rounding.

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. 6295(o)(2)(B)(i)(VI)) No 
other factors were considered in this analysis.
8. Summary of National Economic Impacts
    The NPV of the monetized benefits associated with emissions 
reductions can be viewed as a complement to the NPV of the consumer 
savings calculated for each TSL considered in this rulemaking. Table V-
26 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 consumer savings calculated for each TSL for the central air 
conditioners and heat pumps 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 2015 values 
in the four sets of SCC values discussed above.

[[Page 1845]]



  Table V-26--Central Air Conditioners and Heat Pumps: Net Present Value of Consumer Savings Combined With Present Value of Monetized Benefits From CO2
                                                  and NOX Emissions Reductions for Potential Standards
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                 Consumer NPV at 3% discount rate added with:
                                                     ---------------------------------------------------------------------------------------------------
                         TSL                           SCC case $12.4/metric    SCC case $40.6/metric    SCC case $63.2/metric     SCC case $118/metric
                                                         ton and 3% low NOX       ton and 3% low NOX       ton and 3% low NOX       ton and 3% low NOX
                                                               values                   values                   values                   values
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                (billion 2015$)
--------------------------------------------------------------------------------------------------------------------------------------------------------
1...................................................                      6.4                      8.3                      9.7                     13.0
Recommended.........................................                     13.8                     18.2                     21.6                     29.5
3...................................................                      5.8                     17.8                     27.0                     48.9
4...................................................                   (20.3)                    (0.4)                     14.9                     51.3
--------------------------------------------------------------------------------------------------------------------------------------------------------


 
                                                                                 Consumer NPV at 7% Discount Rate added with:
                                                     ---------------------------------------------------------------------------------------------------
                         TSL                           SCC case $12.4/metric    SCC case $40.6/metric    SCC case $63.2/metric     SCC case $118/metric
                                                         ton and 7% low NOX       ton and 7% low NOX       ton and 7% low NOX       ton and 7% low NOX
                                                               values                   values                   values                   values
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                (billion 2015$)
--------------------------------------------------------------------------------------------------------------------------------------------------------
1...................................................                      1.8                      3.7                      5.0                      8.4
Recommended.........................................                      3.8                      8.2                     11.6                     19.5
3...................................................                    (6.3)                      5.8                     15.0                     36.9
4...................................................                   (25.3)                    (5.3)                     10.0                     46.4
--------------------------------------------------------------------------------------------------------------------------------------------------------

    The national operating cost savings are domestic U.S. monetary 
savings that occur as a result of purchasing the covered products. The 
CO2 reduction is a benefit that accrues globally due to 
decreased domestic energy consumption that is expected to result from 
this rule. Because CO2 emissions have a very long residence 
time in the atmosphere, the SCC values in future years reflect future 
climate-related impacts that continue beyond 2100 through 2300.

C. Conclusion

    When considering new or amended energy conservation standards, the 
standards that DOE adopts for any type (or class) of covered product 
must be designed to achieve the maximum improvement in energy 
efficiency that the Secretary determines is technologically feasible 
and economically justified. (42 U.S.C. 6295(o)(2)(A)) In determining 
whether a standard is economically justified, the Secretary must 
determine whether the benefits of the standard exceed its burdens by, 
to the greatest extent practicable, considering the seven statutory 
factors discussed previously. (42 U.S.C. 6295(o)(2)(B)(i)) The new or 
amended standard must also result in significant conservation of 
energy. (42 U.S.C. 6295(o)(3)(B))
    For this direct final rule, DOE considered the impacts of amended 
standards for central air conditioners and heat pumps 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 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. In addition to the quantitative results presented 
in the tables, DOE also considers other burdens and benefits that 
affect economic justification. These include the impacts on 
identifiable subgroups of consumers who may be disproportionately 
affected by a standard and impacts on employment.
    DOE also notes that the economics literature provides a wide-
ranging discussion of how consumers trade off upfront costs and energy 
savings in the absence of government intervention. Much of this 
literature attempts to explain why consumers appear to undervalue 
energy efficiency improvements. There is evidence that consumers 
undervalue future energy savings as a result of: (1) A lack of 
information; (2) a lack of sufficient salience of the long-term or 
aggregate benefits; (3) a lack of sufficient savings to warrant 
delaying or altering purchases; (4) excessive focus on the short term, 
in the form of inconsistent weighting of future energy cost savings 
relative to available returns on other investments; (5) computational 
or other difficulties associated with the evaluation of relevant 
tradeoffs; and (6) a divergence in incentives (for example, renter 
versus owner or builder versus purchaser). Other literature indicates 
that with less than perfect foresight and a high degree of uncertainty 
about the future, consumers may trade off at a higher than expected 
rate between current consumption and uncertain future energy cost 
savings. This undervaluation suggests that regulation that promotes 
energy efficiency can produce significant net private gains (as well as 
producing social gains by, for example, reducing pollution).
    In DOE's current regulatory analysis, potential changes in the 
benefits and costs of a regulation due to changes in consumer purchase 
decisions are included in two ways. First, if consumers forego a 
purchase of a product in the standards case, this decreases sales for 
product manufacturers, and the cost to manufacturers is included in the 
MIA. Second, DOE accounts for energy savings attributable only to 
products actually used by consumers in the standards case; if a 
standard decreases the number of products purchased by consumers, this 
decreases the potential energy savings from an energy conservation 
standard. DOE provides estimates of changes in the volume of product 
purchases in chapter 9 of the direct final rule TSD. DOE's current 
analysis does not explicitly control for heterogeneity in consumer 
preferences,

[[Page 1846]]

preferences across subcategories of products or specific features, or 
consumer price sensitivity variation according to household 
income.\100\
---------------------------------------------------------------------------

    \100\ P.C. Reiss and M.W. White, Household Electricity Demand, 
Revisited, Review of Economic Studies (2005) 72, 853-883.
---------------------------------------------------------------------------

    While DOE is not prepared at present to provide a fuller 
quantifiable framework for estimating the benefits and costs of changes 
in consumer purchase decisions due to an energy conservation standard, 
DOE is committed to developing a framework that can support empirical 
quantitative tools for improved assessment of the consumer welfare 
impacts of appliance standards. DOE has posted a paper that discusses 
the issue of consumer welfare impacts of appliance standards, and 
potential enhancements to the methodology by which these impacts are 
defined and estimated in the regulatory process.\101\ DOE welcomes 
comments on how to more fully assess the potential impact of energy 
conservation standards on consumer choice and how to quantify this 
impact in its regulatory analysis in future rulemakings.
---------------------------------------------------------------------------

    \101\ Alan Sanstad, Notes on the Economics of Household Energy 
Consumption and Technology Choice. Lawrence Berkeley National 
Laboratory (2010) (Available at: http://www1.eere.energy.gov/buildings/appliance_standards/pdfs/consumer_ee_theory.pdf (Last 
accessed May 3, 2013).
---------------------------------------------------------------------------

1. Benefits and Burdens of TSLs Considered for Central Air Conditioner 
and Heat Pump Standards
    Table V-27 and Table V-28 summarize the quantitative impacts 
estimated for each TSL for central air conditioners and heat pumps. The 
national impacts are measured over the lifetime of central air 
conditioners and heat pumps purchased in the 30-year period that begins 
in the anticipated first year of compliance with any amended standards 
(2021-2050 or, in the case of the recommended TSL, 2023-2052). The 
energy savings, emissions reductions, and value of emissions reductions 
refer to full-fuel-cycle results. The efficiency levels contained in 
each TSL are described in section V.A.

                             Table V-27--Summary of Results for Central Air Conditioner and Heat Pump TSLs: National Impacts
--------------------------------------------------------------------------------------------------------------------------------------------------------
           Category                         TSL 1                      Recommended TSL                     TSL 3                        TSL 4
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               FFC National Energy Savings
--------------------------------------------------------------------------------------------------------------------------------------------------------
Quads.........................  1.3.........................  3.2.............................  8.6........................  14.2.
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                   NPV of Consumer Costs and Benefits (2015$ billion)
--------------------------------------------------------------------------------------------------------------------------------------------------------
3% discount rate..............  5.7.........................  12.2............................  1.1........................  (28.1).
7% discount rate..............  1.3.........................  2.5.............................  (10.0).....................  (31.4).
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                  Cumulative Emissions Reduction (Total FFC Emissions)
--------------------------------------------------------------------------------------------------------------------------------------------------------
CO2 (million metric tons).....  76.68.......................  188.3...........................  508.7......................  841.0.
SO2 (thousand tons)...........  40.94.......................  100.8...........................  272.4......................  452.4.
NOX (thousand tons)...........  142.4.......................  350.3...........................  944.2......................  1,559.
Hg (tons).....................  0.151.......................  0.372...........................  1.005......................  1.669.
CH4 (thousand tons)...........  341.2.......................  842.4...........................  2,264......................  3,738.
CH4 (million tons CO2eq) *....  9,553.......................  23,586..........................  63,387.....................  104,677.
N2O (thousand tons)...........  0.858.......................  2.114...........................  5.711......................  9.481.
N2O (thousand tons CO2eq) *...  227.5.......................  560.3...........................  1,514......................  2,512.
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                   Value of Emissions Reduction (Total FFC Emissions)
--------------------------------------------------------------------------------------------------------------------------------------------------------
CO2 (2015$ billion) **........  0.482 to 6.997..............  1.143 to 16.855.................  3.190 to 46.375............  5.298 to 76.950.
NOX--3% discount rate (2015$    222.2 to 506.6..............  528.1 to 1204.1.................  1471.5 to 3355.0...........  2448.1 to 5581.5.
 million).
NOX--7% discount rate (2015$    80.0 to 180.4...............  178.6 to 402.6..................  525.4 to 1184.5............  875.0 to 1972.9.
 million).
--------------------------------------------------------------------------------------------------------------------------------------------------------
* CO2eq is the quantity of CO2 that would have the same global warming potential (GWP).
** Range of the economic value of CO2 reductions is based on estimates of the global benefit of reduced CO2 emissions.
Note: Parentheses indicate negative values.


                  Table V-28--Summary of Results for Central Air Conditioners and Heat Pumps by TSL: Manufacturer and Consumer Impacts
--------------------------------------------------------------------------------------------------------------------------------------------------------
           Category                         TSL 1                     Recommended TSL *                    TSL 3                        TSL 4
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                  Manufacturer Impacts
--------------------------------------------------------------------------------------------------------------------------------------------------------
Industry NPV (2015$ million)
No-new-standards case INPV =    3,852.0 to 4,466.2..........  3,803.9 to 4,381.9..............  3,382.0 to 4,512.2.........  3,360.6 to 4,889.6
 $4,496.1.
Change in Industry NPV (%)....  (14.3) to (0.7).............  (15.4) to (2.5).................  (24.8) to 0.4..............  (25.3) to 8.8
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                          Consumer Average LCC Savings (2015$)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Split Air Conditioners........  N: $43......................  N: $43..........................                               ...........................
                                HD: $169....................  HD: $150........................  ($122).....................  ($304)
                                HH: $82.....................  HH: $39.........................
Split Heat Pumps..............  $72.........................  $131............................  ($25)......................  ($425)
Package Air Conditioners......  N/A.........................  N/A.............................  $43........................  ($80)
Package Heat Pumps............  N/A.........................  N/A.............................  $115.......................  $115

[[Page 1847]]

 
Space-Constrained Air           N/A.........................  N/A.............................  N/A........................  $58
 Conditioners.
Small-Duct High-Velocity......  N/A.........................  N/A.............................  N/A........................  ($540)
Shipment-Weighted Average **..  $68.........................  $75.............................  ($71)......................  ($315)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               Consumer Simple PBP (years)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Split Air Conditioners........  N: 10.5                       N: 10.5
                                HD: 5.4.....................  HD: 7.6.........................  15.2.......................  19.2
                                HH: 5.5.....................  HH: 7.7.........................
Split Heat Pumps..............  5.2.........................  4.9.............................  9.4........................  14.9
Package Air Conditioners......  N/A.........................  N/A.............................  8.9........................  12.3
Package Heat Pumps............  N/A.........................  N/A.............................  5.2........................  5.2
Space-Constrained Air           N/A.........................  N/A.............................  N/A........................  11.6
 Conditioners.
Small-Duct High-Velocity......  N/A.........................  N/A.............................  N/A........................  34.3
Shipment-Weighted Average **..  6.0.........................  6.7.............................  12.5.......................  16.8
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                         % of Consumers That Experience Net Cost
--------------------------------------------------------------------------------------------------------------------------------------------------------
Split Air Conditioners........  N: 25%......................  N: 25%..........................
                                HD: 14%.....................  HD: 42%.........................  63%........................  75%
                                HH: 15%.....................  HH: 45%.........................
Split Heat Pumps..............  9%..........................  20%.............................  54%........................  79%
Package Air Conditioners......  N/A.........................  N/A.............................  53%........................  69%
Package Heat Pumps............  N/A.........................  N/A.............................  39%........................  39%
Space-Constrained Air           N/A.........................  N/A.............................  N/A........................  60%
 Conditioners.
Small-Duct High-Velocity......  N/A.........................  N/A.............................  N/A........................  90%
Shipment-Weighted Average *...  14%.........................  28%.............................  59%........................  74%
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: Parentheses indicate negative values. N = North region. HD = Hot-dry region; HH = Hot-humid region.
* There are no impacts for Package Air Conditioners. Package Heat Pumps, Space-Constrained Air Conditioners, and Small-Duct High-Velocity because the
  standard levels are at the baseline efficiency.
** Weighted by shares of each product class in total projected shipments in 2021. Does not include shipments for SCAC and SDHV.

    First, DOE considered TSL 4, which would save an estimated total of 
14.2 quads of energy, an amount DOE considers significant. TSL 4 has an 
estimated NPV of consumer benefit of -$31.4 billion using a 7-percent 
discount rate, and -$28.1 billion using a 3-percent discount rate.
    The cumulative emissions reductions at TSL 4 are 841 Mt of 
CO2, 452.4 thousand tons of SO2, 1,559 thousand 
tons of NOX, 1.669 tons of Hg, 3,738 thousand tons of 
CH4, and 9.481 thousand tons of N2O. The 
estimated monetary value of the CO2 emissions reductions at 
TSL 4 ranges from $5.298 billion to $76.950 billion.
    At TSL 4, the average LCC savings is -$304 for split air 
conditioners, -$425 for split heat pumps, -$80 for package air 
conditioners, $115 for package heat pumps, $58 for space-constrained 
air conditioners, and -$540 for small-duct high-velocity air 
conditioners. The simple PBP is 19.2 years for split air conditioners, 
14.9 years for split heat pumps, 12.3 years for package air 
conditioners, 5.2 years for package heat pumps, 11.6 years for space-
constrained air conditioners, and 34.3 years for small-duct high-
velocity air conditioners. The share of consumers experiencing a net 
LCC cost is 75 percent for split air conditioners, 79 percent for split 
heat pumps, 69 percent for package air conditioners, 39 percent for 
package heat pumps, 60 percent for space-constrained air conditioners, 
and 90 percent for small-duct high-velocity air conditioners.
    At TSL 4, the projected change in INPV ranges from a decrease of 
$1,135.6 million to an increase of $393.5 million. If the more severe 
range of impacts is reached, TSL 4 could result in a net loss of up to 
25.3 percent of INPV for manufacturers.
    After considering the analysis and weighing the benefits and the 
burdens, the Secretary has concluded that, at TSL 4 for central air 
conditioner and heat pump standards, the benefits of energy savings and 
emissions reductions would be outweighed by the negative NPV of total 
consumer benefits at a 3-percent and 7-percent discount rate, negative 
average consumer LCC savings for most product classes, and the 
reduction in industry value.
    Next, DOE considered TSL 3, which would save an estimated total of 
8.6 quads of energy, an amount DOE considers significant. TSL 3 has an 
estimated NPV of consumer benefit of -$10 billion using a 7-percent 
discount rate, and $1.1 billion using a 3-percent discount rate.
    The cumulative emissions reductions at TSL 3 are 508.7 Mt of 
CO2, 272.4 thousand tons of SO2, 944.2 thousand 
tons of NOX, 1.005 tons of Hg, 2,264 thousand tons of 
CH4, and 5.711 thousand tons of N2O. The 
estimated monetary value of the CO2 emissions reductions at 
TSL 3 ranges from $3.190 billion to $46.375 billion.
    At TSL 3, the average LCC savings is -$122 for split air 
conditioners, -$25 for split heat pumps, $43 for package air 
conditioners, and $115 for package heat pumps. The simple PBP is 15.2 
years for split air conditioners, 9.4 years for split heat pumps, 8.9 
years for package air conditioners, and 5.2 years for package heat 
pumps. The share of consumers experiencing a net LCC cost is 63 percent 
for split air conditioners, 54 percent for split heat pumps, 53 percent 
for package air conditioners, and 39 percent for package heat pumps. 
There are no impacts on space-constrained air conditioners or small-
duct high-velocity air conditioners at TSL 3.
    At TSL 3, the projected change in INPV ranges from a decrease of 
$1,114.2 million to an increase of $16.1 million. If the more severe 
range of impacts is reached, TSL 3 could result in a net loss of up to 
24.8 percent of INPV for manufacturers.

[[Page 1848]]

    After considering the analysis and weighing the benefits and the 
burdens, the Secretary has concluded that at TSL 3 for central air 
conditioner and heat pump standards, the benefits of energy savings, 
positive NPV of consumer benefit at a 3-percent discount rate, and 
emissions reductions would be outweighed by the negative NPV of 
consumer benefit at a 7-percent discount rate, negative average LCC 
savings for most product classes, and the potential reduction in INPV 
for manufacturers.
    Next, DOE considered the Recommended TSL, which would save an 
estimated total of 3.2 quads of energy, an amount DOE considers 
significant. The Recommended TSL has an estimated NPV of consumer 
benefit of $2.5 billion using a 7-percent discount rate, and $12.2 
billion using a 3-percent discount rate.
    The cumulative emissions reductions under the Recommended TSL are 
188.3 Mt of CO2, 100.8 thousand tons of SO2, 
350.3 thousand tons of NOX, 0.372 tons of Hg, 842.4 thousand 
tons of CH4, and 2.114 thousand tons of N2O. The 
estimated monetary value of the CO2 emissions reductions 
ranges from $1.143 billion to $16.855 billion.
    Under the Recommended TSL, the average LCC savings for split air 
conditioners is $43 in the north region, $150 in the hot dry region, 
$39 in the hot humid region, and $131 for split heat pumps. The simple 
payback period for split air conditioners is 10.5 years in the north 
region, 7.6 years in the hot dry region, 7.7 years in the hot humid 
region, and 4.9 years for split heat pumps. The share of consumers 
experiencing a net LCC cost for split air conditioners is 25 percent in 
the north region, 42 percent in the hot dry region, 45 percent in the 
hot humid region, and 20 percent for split heat pumps. There are no 
impacts to packaged air conditioners, packaged heat pumps, space-
constrained air conditioners, and small-duct high-velocity air 
conditioners under the Recommended TSL.
    Under the Recommended TSL, the projected change in INPV ranges from 
a decrease of $692.3 million to a decrease of $114.2 million. If the 
more severe range of impacts is reached, TSL 3 could result in a net 
loss of up to 15.4 percent of INPV for manufacturers.
    After considering the analysis and weighing the benefits and the 
burdens, the Secretary has concluded that under the Recommended TSL for 
central air conditioner and heat pump standards, the benefits of energy 
savings, positive NPV of consumer benefit, positive impacts on 
consumers (as indicated by positive average LCC savings and favorable 
PBPs), and emission reductions, would outweigh the negative impacts on 
some consumers and the potential reduction in INPV for manufacturers.
    Under the authority provided by 42 U.S.C. 6295(p)(4), DOE is 
issuing this direct final rule that establishes amended energy 
conservation standards for central air conditioners and heat pumps at 
the Recommended TSL. The amended energy conservation standards for 
central air conditioners and heat pumps as determined by the DOE test 
procedure at the time of the 2015-2016 ASRAC negotiations are presented 
in Table V-29.

 Table V-29--Amended Energy Conservation Standards for Central Air Conditioners and Heat Pumps as Determined by
                     the DOE Test Procedure at the Time of the 2015-2016 ASRAC Negotiations
----------------------------------------------------------------------------------------------------------------
                                             National               Southeast *            Southwest **
          Product class          -------------------------------------------------------------------------------
                                       SEER            HSPF            SEER            SEER             EER
----------------------------------------------------------------------------------------------------------------
Split-System Air Conditioners                 14  ..............              15              15   *** 12.2/10.2
 with a Certified Cooling
 Capacity <45,000 Btu/h.........
Split-System Air Conditioners                 14  ..............            14.5            14.5   *** 11.7/10.2
 with a Certified Cooling
 Capacity >=45,000 Btu/h........
Split-System Heat Pumps.........              15             8.8
Single-Package Air Conditioners               14  ..............  ..............  ..............            11.0
 [dagger].......................
Single-Package Heat Pumps                     14             8.0
 [dagger].......................
Space-Constrained Air                         12
 Conditioners [dagger]..........
Space-Constrained Heat Pumps                  12             7.4
 [dagger].......................
Small-Duct High-Velocity Systems              12             7.2
 [dagger].......................
----------------------------------------------------------------------------------------------------------------
* Southeast includes: The states of Alabama, Arkansas, Delaware, Florida, Georgia, Hawaii, Kentucky, Louisiana,
  Maryland, Mississippi, North Carolina, Oklahoma, Puerto Rico, South Carolina, Tennessee, Texas, Virginia, the
  District of Columbia, and the U.S. territories.
** Southwest includes the states of Arizona, California, Nevada, and New Mexico.
*** The 10.2 EER amended energy conservation standard applies to split-system air conditioners with a seasonal
  energy efficiency ratio greater than or equal to 16.
[dagger] The energy conservation standards for small-duct high velocity and space-constrained product classes
  remain unchanged from current levels.

    Table V-30 shows the amended energy conservation standards for 
central air conditioners and heat pumps as determined by the November 
2016 test procedure final rule.

 Table V-30--Amended Energy Conservation Standards for Central Air Conditioners and Heat Pumps as Determined by
                                   the November 2016 Test Procedure Final Rule
----------------------------------------------------------------------------------------------------------------
                                             National               Southeast *            Southwest **
          Product class          -------------------------------------------------------------------------------
                                       SEER2           HSPF2           SEER2           SEER2           EER2
----------------------------------------------------------------------------------------------------------------
Split-System Air Conditioners               13.4  ..............            14.3            14.3    *** 11.7/9.8
 with a Certified Cooling
 Capacity <45,000 Btu/h.........
Split-System Air Conditioners               13.4  ..............            13.8            13.8    *** 11.2/9.8
 with a Certified Cooling
 Capacity >=45,000 Btu/h........
Split-System Heat Pumps.........            14.3             7.5

[[Page 1849]]

 
Single-Package Air Conditioners             13.4  ..............  ..............  ..............            10.6
 [dagger].......................
Single-Package Heat Pumps                   13.4             6.7
 [dagger].......................
Space-Constrained Air                       11.7
 Conditioners [dagger]..........
Space-Constrained Heat Pumps                11.9             6.3
 [dagger].......................
Small-Duct High-Velocity Systems              12             6.1
 [dagger].......................
----------------------------------------------------------------------------------------------------------------
* Southeast includes: The states of Alabama, Arkansas, Delaware, Florida, Georgia, Hawaii, Kentucky, Louisiana,
  Maryland, Mississippi, North Carolina, Oklahoma, Puerto Rico, South Carolina, Tennessee, Texas, Virginia, the
  District of Columbia, and the U.S. territories.
** Southwest includes the states of Arizona, California, Nevada, and New Mexico.
*** The 9.8 EER amended energy conservation standard applies to split-system air conditioners with a seasonal
  energy efficiency ratio greater than or equal to 15.2.
[dagger] The energy conservation standards for small-duct high velocity and space-constrained product classes
  remain unchanged from current levels.

    The following paragraph describes how DOE translated the energy 
conservation standards in Table V-29--which are in terms of SEER, HSPF, 
and EER as determined by the DOE test procedure at the time of the 
2015-2016 ASRAC Negotiations--to the energy conservation standard 
levels in Table V-30--which are in terms of SEER2, HSPF2, and EER2 as 
determined by the November 2016 test procedure final rule. DOE used a 
methodology consistent with the recommendations of the CAC/HP Working 
Group to translate the SEER standard levels to SEER2 standard levels 
for the split-system and single-package product classes. Note that the 
heating load line slope factor established by the November 2016 test 
procedure final rule is different than the heating load line slope 
factors used by the CAC/HP Working Group in their Term Sheet 
recommendation #9. DOE translated the HSPF standard levels to HSPF2 
standard levels for split-system and single-package heat pumps by 
adjusting for the intermediate heating load line slope factor 
established by the November 2016 test procedure final rule using 
interpolation. (November 2016 Test Procedure Final Rule, pp. 127-130)
    Comments in response to the provisional translations for HSPF2 for 
split system and single-package heat pumps are summarized in the 
November 2016 test procedure final rule. (November 2016 Test Procedure 
Final Rule, pp. 127-130) Commenters agreed with the translation for 
split-system heat pumps, but industry commenters felt that the 6.8 
value was too high for single-package heat pumps. Alternative HSPF2 
values that were suggested in comments ranged from 6.5 (Docket No. 
EERE-2016-BT-TP-0029, Lennox, No. 25 at p. 10) to 6.7 (Docket No. EERE-
2016-BT-TP-0029, Goodman, No. 39 at p. 10) Data provided under 
confidentiality supports the range suggested in comments. DOE combined 
that data with the data it used to validate its interpolated value of 
6.8. DOE found that the combined data shows that 6.7 HSPF2 is an 
appropriate translation. For this reason, DOE is adopting 6.7 HSPF2 for 
single-package heat pumps in this direct final rule.
    The August 2016 test procedure SNOPR and November 2016 test 
procedure final rule did not include translated levels for small-duct 
high velocity (SDHV) and space-constrained products. Neither did 
Recommendation #9 of the Term Sheet. Recommendation #9 did, however, 
state that the energy conservation standards for those product classes 
should remain unchanged from current levels (i.e., that there would be 
no change in stringency). (ASRAC Term Sheet, No. 76 at pp. 4-5) On 
October 27, 2016, DOE published a notice of data availability (NODA) 
that provided provisional translations of the CAC/HP Working Group's 
recommended energy conservation standard levels for small-duct high 
velocity and space constrained products (which are in terms of the test 
procedure at the time of the 2015-2016 Negotiations) into levels 
consistent with the test procedure proposed in the August 2016 test 
procedure SNOPR. 81 FR 74727 (October 27, 2016). Table V-31 presents 
the provisional translations included in the October 2016 NODA. Note 
that multiple provisional translations from SEER to SEER2 are included 
for space-constrained air conditioners and heat pumps because, at the 
time of the NODA publication, DOE had not finalized the test procedure 
which would establish the minimum external static pressure 
requirements.

  Table V-31--Provisional Translations of CAC/HP Working Group-Recommended Energy Conservation Standard Levels
                                          Included in October 2016 NODA
----------------------------------------------------------------------------------------------------------------
                                                       CAC/HP working group         August 2016 test procedure
                                                          recommendation                 SNOPR translation
                  Product class                  ---------------------------------------------------------------
                                                       SEER            HSPF            SEER2           HSPF2
----------------------------------------------------------------------------------------------------------------
Small-Duct High-Velocity Systems................              12             7.2              12             6.1
Space-Constrained Air Conditioners..............  ..............  ..............  * 11.6/** 11.8
Space-Constrained Heat Pumps....................              12  ..............  * 11.5/** 11.9             6.3
----------------------------------------------------------------------------------------------------------------
* Estimated SEER2 at 0.50 in. wc.
** Estimated SEER2 at 0.30 in. wc.

In developing its provisional translations for space-constrained air 
conditioners published in the NODA, DOE reviewed existing test data, 
adjusted relevant measurements based on blower performance data, and

[[Page 1850]]

translated the levels based on the average impact. For the space-
constrained and SDHV heat pump translations published in the NODA, DOE 
also reviewed test data and confirmed that the 15% reduction from HSPF 
to HSPF2 that DOE observed for split-system and single-package heat 
pumps was appropriate also for space-constrained and SDHV heat pumps.
    In written comments, manufacturers and AHRI expressed support for 
DOE's provisional translations for SDHV products. Unico stated that it 
reviewed all of its test reports from the previous two years and found 
its range of results validated DOE's translations for SDHV products. 
(Unico, No. 95 at p. 2). AHRI and Lennox also expressed support for 
DOE's SEER and HPSF to SEER2 and HSPF2 levels for SDHV products. (AHRI, 
No. 94 at p. 1; Lennox, No. 97 at p. 1) EEI commented that it did not 
agree with DOE's translation because the HSPF appears to drop by 
approximately 15.3%, even though there has been no change to the 
product. (EEI, No. 96 at p. 2).
    Regarding the concern expressed by EEI, DOE's translations do not 
assume nor reflect any change to product design. EPCA requires DOE to 
consider changes in energy conservation standards if a test procedure 
change alters the measurement, but does not prohibit a test procedure 
change that alters the measurement. (42 U.S.C. 6293(e)) In the November 
2016 test procedure final rule, DOE adopted provisions that amend the 
test procedure required to determine representations for CAC/HP, 
including SDHV products. These provisions impact the value of the test 
procedure results. For instance, the November 2016 test procedure final 
rule assumes higher heating loads for heat pumps in colder outdoor 
conditions, which will typically result in lower HSPF2 ratings. 
(November 2016 Test Procedure Final Rule, pp. 110-127) Simply stated, 
an SDHV product tested in accordance with the test procedure at the 
time of the 2015-2016 ASRAC Negotiations will get a different rating 
than the same SDHV product (without design changes) tested in 
accordance with the test procedure adopted in the November 2016 test 
procedure final rule. DOE's translations are intended to reflect these 
differences. DOE is using ``SEER2'', ``HSPF2'', and ``EER2'' to 
distinguish ratings determined by the November 2016 test procedure from 
the SEER, HSPF and EER ratings determined by past test procedures to 
mitigate confusion that may result from the possibility that products 
available before and after the November 2016 test procedure final rule 
may have a different SEER2/HSPF2/EER2 than SEER/HSPF/EER rating despite 
no changes to design.
    Unico's SDHV data validate DOE's translations, which are also 
supported by AHRI and Lennox. DOE did not receive any other comments or 
data suggesting that its translations for SDHV products are 
inappropriate. For these reasons, DOE is adopting the SDHV translations 
presented in the October 2016 NODA in this final rule.
    AHRI is concerned that the SEER2 translation DOE presented for 
space-constrained air conditioners is too high by 0.1. AHRI calculated 
SEER2 to be 11.7 at 0.30 in. wc. rather than 11.8. AHRI provided data 
for 4 space-constrained products to illustrate its results. (AHRI, No. 
94 at p. 2). Lennox also commented that DOE's SEER2 translation for 
space-constrained air conditioners is too high by 0.1. (Lennox, No. 97 
at p. 2) AHRI and Lennox also commented that DOE should adopt the same 
SEER2 standard for space-constrained air conditioners and heat pumps 
(AHRI, No. 94 at p.2; Lennox, No. 97 at p. 2) First Co. strongly 
disagrees with DOE's proposed translation of SEER to SEER2 values for 
space-constrained air conditioners because DOE's methodology for 
determining SEER2 fails to account for the significant SEER reduction 
resulting from what they claim to be ``new'' coil-only testing 
requirements for space-constrained air conditioners. First Co. is 
referring to amendments to the certification requirements of 10 CFR 429 
adopted for CAC/HP in the June 2016 test procedure final rule, which 
became effective in July 2016 and are required for representations 
starting December 5, 2016. (10 CFR 429.16(a)(1)) First Co. stated that 
prior to the June 2016 test procedure final rule, space constrained 
units, which are manufactured and sold only for installation with 
blower coil indoor units, have been tested with blower coil units with 
high-efficiency motors (ECMs). The high-efficiency motors average 200W/
1000 scfm or less for indoor power compared with the default fan power 
value of 365W/1000 scfm applied under the ``coil- only'' test. First 
Co. claims that the impact of the ``coil-only'' test alone is 
approximately a 10% reduction in SEER of these products from 12 SEER to 
10.8 SEER, and that DOE's methodology is flawed because it uses a 
starting point of 365W/1000 (i.e., the ``coil-only'' default fan power 
value of the current test procedure) and only considers the change in 
energy usage from 365W/1000 scfm to 441 W/1000 scfm. They claim that 
this ignores the increase in energy usage from 200W/1000 scfm to 365W/
1000 scfm, and the resulting SEER reduction, caused by the imposition 
of the ``coil-only'' test. First Co. submits that SEER2 should be 
calculated by applying the following methodology, which takes into 
account the new ``coil-only'' test and the changes in the August 2016 
test procedure SNOPR: replace 200W/1000 scfm (test data using ECM) with 
411 W/1000 scfm and recalculate the SEER. First Co. indicates that 
applying this methodology, SEER will be reduced by approximately 10% 
for the coil only test and by an additional 4% to account for the 
suggested 411 W/1000 scfm number, resulting in a 10.4 SEER2 rating for 
space constrained air conditioners. (First Co., No. 93 at pp. 1,2)
    DOE appreciates the space-constrained air conditioner translation 
data provided by AHRI. DOE combined AHRI's data with the data DOE used 
to develop DOE's provisional translations. Note that after the October 
2016 NODA, DOE issued the November 2016 test procedure final rule in 
which it adopted a minimum external static pressure requirement of 0.3 
in. wc. for space-constrained air conditioners and heat pumps. 
(November 2016 Test Procedure Final Rule, pp. 97-99) Consequently, DOE 
combined AHRI's data with DOE's data reflective of performance at that 
operating condition. Once combined, the data validates AHRI's assertion 
that 11.7 is the appropriate SEER2 level for space-constrained air 
conditioners at 0.3 in. wc. Thus, DOE is adopting 11.7 SEER2 as the 
standard level for space-constrained air conditioners in this final 
rule. DOE disagrees with AHRI and Lennox that 11.7 SEER2 should also be 
used for space-constrained heat pumps. While space-constrained air 
conditioners are required to certify at least one coil-only combination 
that is representative of the least efficient coil-only combination 
distributed in commerce, space-constrained heat pumps have no coil-only 
requirement. (10 CFR 429.16(a)(1)) AHRI derived 11.7 SEER2 using 406 W/
1000 scfm (the default fan power at 0.3 in. wc.) for indoor fan power 
consumption. As discussed in the November 2015 test procedure SNOPR and 
subsequently referenced in the November 2016 test procedure final rule, 
this default fan power value is reflective of the weighted-average 
performance of indoor fan by motor type distribution projected for the 
effective date of this standard, which includes a significant majority 
of lower-efficiency PSC motors. 80 FR 69319-20 and (November 2016 Test 
Procedure Final Rule, pp. 104-110) First

[[Page 1851]]

Co. states that most space-constrained blower-coil systems currently 
sold include a high-efficiency ECM motor. (First Co., No. 93 at pp. 1-
2) Brushless permanent magnet motors (often referred to as ``ECM'') are 
more efficient than PSC motors. Thus, 406 W/1000 scfm is not 
representative of the field operation of space-constrained blower-coil 
systems being sold. DOE's provisional analysis presented in the October 
2016 NODA is consistent with First Co.'s claims, showing that higher-
efficiency motors typically used in space-constrained blower-coil 
systems sold today consume less than 406 W/1000 scfm, resulting in a 
higher SEER2 level for space-constrained blower-coil systems compared 
to space-constrained coil-only systems. DOE did not receive any 
additional comments or data regarding the SEER2 level for space-
constrained heat pumps. For these reasons, DOE finds that a higher 
SEER2 level for space-constrained heat pumps--which is based on blower-
coil performance--compared to space-constrained air-conditioners--which 
is based on coil-only performance--is appropriate. DOE adopts its 
provisional translation of 11.9 SEER2 for space-constrained heat pumps 
for these reasons.
    DOE provided a response to First Co.'s comment regarding the 
required coil-only test for testing of space constrained products in 
the November 30, 2016 test procedure final rule. (November 2016 Test 
Procedure Final Rule, pp. 146-148)
2. Summary of Benefits and Costs (Annualized) of the Amended Standards
    The benefits and costs of the amended 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 2015$) of the benefits from operation of products that meet the 
proposed standards (consisting primarily of operating cost savings from 
using less energy, minus increases in product 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.\102\
---------------------------------------------------------------------------

    \102\ To convert the time-series of costs and benefits into 
annualized values, DOE calculated a present value in 2016, the year 
used for discounting the NPV of total consumer costs and savings. 
For the benefits, DOE calculated a present value associated with 
each year's shipments in the year in which the shipments occur 
(e.g., 2020 or 2030), and then discounted the present value from 
each year to 2016. The calculation uses discount rates of 3 and 7 
percent for all costs and benefits except for the value of 
CO2 reductions, for which DOE used case-specific discount 
rates. Using the present value, DOE then calculated the fixed annual 
payment over a 30-year period, starting in the compliance year, that 
yields the same present value.
---------------------------------------------------------------------------

    Estimates of annualized benefits and costs of the amended standards 
for central air conditioners and heat pumps, expressed in 2015$, are 
shown in Table V-32. 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 
($40.6/t in 2015)), the estimated cost of the adopted standards is $741 
million per year in increased product costs, while the estimated 
benefits are $1,041 million per year in reduced product operating 
costs, $337 million per year in CO2 reductions, and $22 
million per year in reduced NOX emissions. In this case, the 
net benefit would amount to $659 million per year.
    Using a 3-percent discount rate for all benefits and costs and the 
average SCC series that uses a 3-percent discount rate ($40.6/t in 
2015), the estimated cost of the standards adopted in this rule is $747 
million per year in increased product costs, while the estimated 
benefits are $1,488 million per year in reduced product operating 
costs, $337 million per year in CO2 reductions, and $32 
million per year in reduced NOX emissions. In this case, the 
net benefit would amount to $1,110 million per year.
    DOE also notes that, using a 7-percent discount rate for only the 
increased product costs and the reduced product operating costs, the 
net benefit would amount to $300 million per year. Using a 3-percent 
discount rate for only the increased product costs and the reduced 
product operating costs, the net benefit would amount to $741 million 
per year.

             Table V-32--Annualized Benefits and Costs of Amended Standards (Recommended TSL) for Central Air Conditioners and Heat Pumps *
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                       Low net  benefits           High net benefits
                                            Discount rate (%)             Primary  estimate *             estimate *                  estimate *
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                       million 2015$/year
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                        Benefits
--------------------------------------------------------------------------------------------------------------------------------------------------------
Consumer Operating Cost Savings...  7...............................  1,041.....................  1,005.....................  1,147
                                    3...............................  1,488.....................  1,425.....................  1,653.
CO[ihel2] Reduction (using mean     5...............................  100.......................  100.......................  100.
 SCC at 5% discount rate) \**\.
CO[ihel2] Reduction (using mean     3...............................  337.......................  337.......................  337.
 SCC at 3% discount rate) \**\.
CO[ihel2] Reduction (using mean     2.5.............................  494.......................  494.......................  494.
 SCC at 2.5% discount rate) \**\.
CO[ihel2] Reduction (using 95th     3...............................  1,027.....................  1,027.....................  1,027.
 percentile SCC at 3% discount
 rate ) \**\.
NOX Reduction [dagger]............  7...............................  22........................  22........................  49.
                                    3...............................  32........................  32........................  73.
Total Benefits [dagger][dagger]...  7 plus CO[ihel2] range..........  1,163 to 2,090............  1,127 to 2,054............  1,296 to 2,223
                                    7...............................  1,400.....................  1,364.....................  1,533
                                    3 plus CO[ihel2] range..........  1,620 to 2,547............  1,557 to 2,484............  1,826 to 2,753
                                    3...............................  1,857.....................  1,794.....................  2,063
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                          Costs
--------------------------------------------------------------------------------------------------------------------------------------------------------
Consumer Incremental Installed      7...............................  741.......................  784.......................  723
 Costs.                             3...............................  747.......................  799.......................  725
--------------------------------------------------------------------------------------------------------------------------------------------------------

[[Page 1852]]

 
                                                                      Net Benefits
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total [dagger][dagger]............  7 plus CO[ihel2] range..........  422 to 1,349..............  342 to 1,269..............  573 to 1,500
                                    7...............................  659.......................  580.......................  810
                                    3 plus CO[ihel2] range..........  873 to 1,800..............  757 to 1,684..............  1,100 to 2,028
                                    3...............................  1,110.....................  994.......................  1,338
--------------------------------------------------------------------------------------------------------------------------------------------------------
* This table presents the annualized costs and benefits associated with central air conditioners and heat pumps shipped in 2023-2052. These results
  include benefits to consumers which accrue after 2050 from the products purchased in 2023-2052. The incremental installed costs include incremental
  equipment cost as well as installation costs. The CO[ihel2] reduction benefits are global benefits due to actions that occur nationally. The Primary,
  Low Net Benefits, and High Net Benefits Estimates utilize projections of energy prices from the AEO 2015 Reference case, Low Estimate, and High
  Estimate, respectively. In addition, incremental product costs reflect a modest decline rate for projected product prices in the Primary Estimate, a
  constant rate in the Low Net Benefits Estimate, and a higher decline rate in the High Net Benefits Estimate. The methods used to derive projected
  price trends are explained in section IV.F.1. Note that the Benefits and Costs may not sum to the Net Benefits due to rounding.
** The CO[ihel2] reduction benefits are calculated using 4 different sets of SCC values. The first three use the average SCC calculated using 5%, 3%,
  and 2.5% discount rates, respectively. The fourth represents the 95th percentile of the SCC distribution calculated using a 3% discount rate. The SCC
  values are emission year specific. See section IV.L.1 for more details
[dagger] DOE estimated the monetized value of NOx emissions reductions using benefit per ton estimates from the Regulatory Impact Analysis for the Clean
  Power Plan Final Rule, published in August 2015 by EPA's Office of Air Quality Planning and Standards. (Available at: http://www.epa.gov/cleanpowerplan/clean-power-plan-final-rule-regulatory-impact-analysis.) See section IV.L.2 for further discussion. For the Primary Estimate and Low
  Net Benefits Estimate, DOE used a national benefit-per-ton estimate for NOX emitted from the Electric Generating Unit sector based on an estimate of
  premature mortality derived from the ACS study (Krewski et al., 2009). For the High Net Benefits Estimate, the benefit-per-ton estimates were based on
  the Six Cities study (Lepuele et al., 2011); these are nearly two-and-a-half times larger than those from the ACS study.
[dagger][dagger] Total Benefits for both the 3% and 7% cases are presented using only the average SCC with 3-percent discount rate. In the rows labeled
  ``7% plus CO[ihel2] range'' and ``3% plus CO[ihel2] range,'' the operating cost and NOX benefits are calculated using the labeled discount rate, and
  those values are added to the full range of CO[ihel2] values.

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 (October 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 standards set forth in this direct 
final rule are intended to 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.
    (3) There are external benefits resulting from improved energy 
efficiency of appliances and equipment that are not captured by the 
users of such products. These benefits include externalities related to 
public health, environmental protection, and national energy 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. DOE attempts to quantify some of the external benefits through 
use of social cost of carbon values.
    The Administrator of the Office of Information and Regulatory 
Affairs (OIRA) in the OMB has determined that this regulatory action is 
a significant regulatory action under section (3)(f) of Executive Order 
12866. Accordingly, pursuant to section 6(a)(3)(B) of the Order, DOE 
has provided to OIRA: (i) The text of the draft regulatory action, 
together with a reasonably detailed description of the need for the 
regulatory action and an explanation of how the regulatory action will 
meet that need; and (ii) An assessment of the potential costs and 
benefits of the regulatory action, including an explanation of the 
manner in which the regulatory action is consistent with a statutory 
mandate. DOE has included these documents in the rulemaking record.
    In addition, the Administrator of OIRA has determined that the 
regulatory action is an ``economically'' significant regulatory action 
under section (3)(f)(1) of Executive Order 12866. Accordingly, pursuant 
to section 6(a)(3)(C) of the Order, DOE has provided to OIRA an 
assessment, including the underlying analysis, of benefits and costs 
anticipated from the regulatory action, together with, to the extent 
feasible, a quantification of those costs; and an assessment, including 
the underlying analysis, of costs and benefits of potentially effective 
and reasonably feasible alternatives to the planned regulation, and an 
explanation why the planned regulatory action is preferable to the 
identified potential alternatives. These assessments can be found in 
the technical support document for this rulemaking.
    DOE has also reviewed this regulation pursuant to Executive Order 
13563, issued on January 18, 2011. 76 FR 3281 (January 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

[[Page 1853]]

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, OIRA 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 this direct final 
rule 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).
1. Description of Reasons Why Action is Being Considered
    DOE has undertaken this rulemaking pursuant to 42 U.S.C. 
6295(d)(3), which requires DOE to conduct a second round of amended 
standards rulemaking for residential central air conditioners and heat 
pumps. The Energy Policy and Conservation Act of 1975 (EPCA), as 
amended by the Energy Independence and Security Act of 2007 (EISA 
2007), requires that not later than six years after issuance of any 
final rule establishing or amending a standard, DOE must publish either 
a notice of the determination that standards for the product do not 
need to be amended, or a notice of proposed rulemaking including new 
proposed energy conservation standards. (42 U.S.C. 6295(m)(1)) DOE's 
last final rule for residential central air conditioners and heat pumps 
was issued on June 27, 2011, so as a result, DOE must act by June 27, 
2017.
2. Objectives of, and Legal Basis for, the Rule
    As described in section II.A above, Title III, Part B of the Energy 
Policy and Conservation Act of 1975 (EPCA or the Act), Public Law 94-
163 (42 U.S.C. 6291-6309, as codified) established the Energy 
Conservation Program for Consumer Products Other Than Automobiles, a 
program covering most major household appliances (collectively referred 
to as ``covered products''), which includes the residential central air 
conditioners and heat pumps that are the subject of this rulemaking. 
(42 U.S.C. 6292(a)(3))
    The National Appliance Energy Conservation Act of 1987 (NAECA; Pub. 
L. 100-12) included amendments to EPCA that established the original 
energy conservation standards for central air conditioners and heat 
pumps. (42 U.S.C. 6295(d)(1)-(2)) EPCA, as amended, also requires DOE 
to conduct two cycles of rulemakings to determine whether to amend the 
energy conservation standards for central air conditioners and heat 
pumps. (42 U.S.C. 6295(d)(3)) The first cycle culminated in a final 
rule published in the Federal Register on August 17, 2004 (the August 
2004 Rule), which prescribed energy conservation standards for central 
air conditioners and heat pumps manufactured or imported on and after 
January 23, 2006. 69 FR 50997. DOE completed the second of the two 
rulemaking cycles by publishing a direct final rule on June 27, 2011 
(2011 Direct Final Rule). 76 FR 37414. The 2011 Direct Final Rule (2011 
DFR) amended standards for central air conditioners and heat pumps 
manufactured on or after January 1, 2015.
    EPCA requires DOE to periodically review its already established 
energy conservation standards for a covered product. Not later than six 
years after issuance of any final rule establishing or amending a 
standard, DOE must publish a notice of determination that standards for 
the product do not need to be amended, or a notice of proposed 
rulemaking including new proposed standards. (42 U.S.C. 6295(m)(1)) 
Pursuant to this requirement, the next review that DOE would need to 
conduct must occur no later than six years from the issuance of the 
2011 direct final rule. This direct final rule fulfills that 
requirement.
3. Description and Estimated Number of Small Entities Regulated
a. Methodology for Estimating the Number of Small Entities
    For manufacturers of residential central air conditioners and heat 
pumps, 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 this rule. The size standards are 
codified at 13 CFR part 121. The standards are listed by North American 
Industry Classification System (NAICS) code and industry description 
and are available at: http://www.sba.gov/sites/default/files/files/Size_Standards_Table.pdf.
    Residential central air conditioner and heat pump manufacturing 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 1,250 employees or fewer 
for an entity to be considered a small business for this category.
    DOE reviewed the potential standard levels considered in today's 
direct final rule under the provisions of the Regulatory Flexibility 
Act and the procedures and policies published on February 19, 2003. 
During its market survey, DOE used publicly available information to 
identify small manufacturers. DOE's research involved industry trade 
association membership directories (e.g., AHRI), information from 
previous rulemakings, individual company Web sites, and market research 
tools (e.g., Hoover's reports) to create a list of companies that 
manufacture or sell central air conditioner and heat pump products 
covered by this rulemaking. DOE also asked stakeholders and industry 
representatives if they were aware of any additional small 
manufacturers during manufacturer interviews. DOE

[[Page 1854]]

reviewed publicly available data and contacted various companies on its 
complete list of manufacturers to determine whether they met the SBA's 
definition of a small business manufacturer. DOE screened out companies 
that do not offer products impacted by this rulemaking, do not meet the 
definition of a ``small business,'' exclusively rebrand and distribute 
products manufactured by others, or are foreign owned and operated.
    DOE identified 30 manufacturers of central air conditioner and heat 
pump products affected by this direct final rule. Of these, DOE 
identified three as domestic small businesses.
b. Manufacturer Participation
    DOE contacted the identified small businesses to invite them to 
take part in a manufacturer impact analysis interview. DOE was able to 
reach and discuss potential standards with one small business. DOE also 
obtained information about small businesses and potential impacts on 
small businesses while interviewing large manufacturers.
c. Residential Central Air Conditioner and Heat Pump Industry Structure 
and Nature of Competition
    Seven large manufacturers supply over 95 percent of the market for 
central air conditioners and heat pumps. Of the three domestic small 
businesses identified, DOE's research indicates that all three are 
independent coil manufacturers (ICMs). DOE defines an ICM as a 
manufacturer of indoor units that does not manufacture single-package 
units or outdoor units. ICMs match their indoor evaporators or air 
handlers with condensing units from original equipment manufacturers 
(OEMs). For the purpose of this rulemaking, DOE did not identify any 
domestic small businesses that are OEMs of central air conditioner and 
heat pump products impacted by this direct final rule.
4. Description and Estimate of Compliance Requirements
    As discussed in section 2.a, manufacturers of central air 
conditioners and heat pumps may incur conversion costs to bring their 
manufacturing facilities and product designs into compliance with 
amended standards. Because DOE did not identify any small business OEMs 
of products impacted by this direct final rule, the following 
discussion of small business impacts focuses on the potential impacts 
facing small business ICMs. Like OEMs, ICMs operate factories and 
equipment and, accordingly, would be responsible for updating 
manufacturing practices to ensure products comply with amended energy 
conservation standards.
    To evaluate impacts facing small ICMs, DOE used data from its 
engineering analysis and product teardown analysis to estimate 
investments in equipment and tooling that ICMs may incur as a result of 
this direct final rule. Indoor coils do not have SEER ratings on their 
own because they are a component of split-systems. Consequently, their 
rated efficiency depends on their interaction with the outdoor units 
with which they are paired. Generally, all else being equal, split-
systems with larger indoor coils will be more efficient because the 
indoor coil has a larger heat transfer surface area. Accordingly, DOE 
estimated investments in equipment and tooling ICMs may make in 
response to this direct final rule to increase the heat transfer 
surface area of their indoor coils and, in turn, increase the overall 
efficiency of split-systems. DOE used the least-cost coil-only units 
from its engineering analysis to determine the typical size of indoor 
coil used by manufacturers at each efficiency level analyzed. DOE then 
estimated potential capital conversion costs (i.e., investments in 
equipment and tooling) small ICMs would make to meet the recommended 
level. Focusing on equipment and tooling used to manufacture heat 
exchangers and outdoor cases, DOE estimated capital conversion costs of 
$2.3 million per small ICM. Using assumptions outlined in section 2.a 
and in chapter 12 of the direct final rule TSD, DOE calculated product 
conversion costs (i.e., R&D expenditures) as 40 percent of total 
conversion costs, or $1.5 million per small ICM. This equates to total 
estimated conversion costs of $3.8 million per small ICM.
    Using publicly available data, DOE estimated the average annual 
revenue of the three small ICMs to be $29.7 million. As negotiated by 
the CAC/HP Working Group, this direct final rule will not take effect 
until 2023. DOE therefore expects ICMs will be able to spread their 
conversion costs over the six-year period between publication of this 
direct final rule and the compliance year. Given these assumptions, DOE 
estimates total conversion costs resulting from this direct final rule 
to be 2.2 percent of small ICMs' six-year revenues.
5. 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 rule being considered today.
6. Significant Alternatives to the Rule
    The discussion in the previous section analyzes impacts on small 
businesses that would result from the recommended standards, 
represented by TSL 2. In reviewing alternatives to the adopted 
standards, DOE examined energy conservation standards set at both lower 
and higher efficiency levels than those recommended in this direct 
final rule. TSL 1 would establish less stringent efficiency levels, 
potentially reducing impacts on small business manufacturers. However, 
it would come at the expense of a reduction in energy savings. Where 
TSL 2 is projected to save 3.2 quads of energy, TSL 1 would save only 
1.3 quads of energy, or 41% of the savings achieved at TSL 2. In 
addition to TSL 1, DOE examined more stringent efficiency levels at 
TSLs 3 and 4. These levels would achieve significantly higher energy 
savings of 8.6 and 14.2 quads respectively; however, the financial 
burden facing manufacturers, including small businesses, would also be 
more severe at these levels. (See section V.B.2.a for a more detailed 
discussion of financial impacts facing manufacturers at each TSL.) DOE 
believes that establishing standards at the recommended level, TSL 2, 
balances the benefits of energy savings with the potential burdens 
placed on manufacturers of covered products, including small business 
manufacturers. Accordingly, DOE is not adopting one of the other TSLs 
considered in the analysis, or the other policy alternatives examined 
as part of the regulatory impact analysis and included in chapter 17 of 
the direct final rule TSD.
    Additional compliance flexibilities for small business 
manufacturers 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 million 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

[[Page 1855]]

should refer to 10 CFR part 430, subpart E, and Part 1003 for 
additional details.

C. Review Under the Paperwork Reduction Act

    Manufacturers of central air conditioners and heat pumps must 
certify to DOE that their products comply with any applicable energy 
conservation standards. In certifying compliance, manufacturers must 
test their products according to the DOE test procedures for central 
air conditioners and heat pumps, including any amendments adopted for 
those test procedures. DOE has established regulations for the 
certification and recordkeeping requirements for all covered consumer 
products and commercial equipment, including central air conditioners 
and heat pumps. 76 FR 12422 (March 7, 2011); 80 FR 5099 (January 30, 
2015). 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 30 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 this direct final 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 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 rule is available at http://cxnepa.energy.gov/.

E. Review Under Executive Order 13132

    Executive Order 13132, ``Federalism,'' 64 FR 43255 (August 10, 
1999), imposes certain requirements on Federal agencies formulating and 
implementing policies or regulations that preempt State law or that 
have Federalism implications. The Executive Order requires agencies to 
examine the constitutional and statutory authority supporting any 
action that would limit the policymaking discretion of the States and 
to carefully assess the necessity for such actions. The Executive Order 
also requires agencies to have an accountable process to ensure 
meaningful and timely input by State and local officials in the 
development of regulatory policies that have Federalism implications. 
On March 14, 2000, DOE published a statement of policy describing the 
intergovernmental consultation process it will follow in the 
development of such regulations. 65 FR 13735. DOE has examined this 
rule and has determined that it would not have a substantial direct 
effect on the States, on the relationship between the national 
government and the States, or on the distribution of power and 
responsibilities among the various levels of government. EPCA governs 
and prescribes Federal preemption of State regulations as to energy 
conservation for the products that are the subject of this rule. States 
can petition DOE for exemption from such preemption to the extent, and 
based on criteria, set forth in EPCA. (42 U.S.C. 6297) Therefore, no 
further action is required by Executive Order 13132.

F. Review Under Executive Order 12988

    With respect to the review of existing regulations and the 
promulgation of new regulations, section 3(a) of 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; (3) 
provide a clear legal standard for affected conduct rather than a 
general standard; and (4) promote simplification and burden reduction. 
61 FR 4729 (February 7, 1996). Regarding the review required by section 
3(a), section 3(b) of 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 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. Public Law 104-4, sec. 201 (codified at 2 U.S.C. 1531). 
For a regulatory action likely to result in a rule that may cause the 
expenditure by State, local, and Tribal governments, in the aggregate, 
or by the private sector of $100 million or more in any one year 
(adjusted annually for inflation), section 202 of UMRA requires a 
Federal agency to publish a written statement that estimates the 
resulting costs, benefits, and other effects on the national economy. 
(2 U.S.C. 1532(a), (b)) 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 ``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/sites/prod/files/gcprod/documents/umra_97.pdf.
    DOE has concluded that this direct final rule may require 
expenditures of $100 million or more by the private sector. Such 
expenditures may include: (1) Investment in research and development 
and in capital expenditures by central air conditioner and heat pump 
manufacturers in the years between the final rule and the compliance 
date for the new standards,

[[Page 1856]]

and (2) incremental additional expenditures by consumers to purchase 
higher-efficiency central air conditioners and heat pumps, 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 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 this document and chapter 17 of 
the TSD for this 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 rule unless DOE publishes an 
explanation for doing otherwise, or the selection of such an 
alternative is inconsistent with law. In accordance with the statutory 
provisions discussed in this document, this rule would establish 
amended energy conservation standards for central air conditioners and 
heat pumps 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 chapter 17 of the TSD 
for this 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 rule would not 
result in any takings that might require compensation under the Fifth 
Amendment to the U.S. Constitution.

J. Review Under the Treasury and General Government Appropriations Act, 
2001

    Section 515 of the Treasury and General Government Appropriations 
Act, 2001 (44 U.S.C. 3516 note) provides for Federal agencies to review 
most disseminations of information to the public under information 
quality guidelines established by each agency pursuant to general 
guidelines issued by OMB. OMB's guidelines were published at 67 FR 8452 
(February 22, 2002), and DOE's guidelines were published at 67 FR 62446 
(October 7, 2002). DOE has reviewed this direct final rule under the 
OMB and DOE guidelines and has concluded that it is consistent with 
applicable policies in those guidelines.

K. Review Under Executive Order 13211

    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 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 concluded that this regulatory action, which adopts amended 
energy conservation standards for central air conditioners and heat 
pumps, is not a significant energy action because the standards are not 
likely to have a significant adverse effect on the supply, 
distribution, or use of energy, nor has it been designated as such by 
the Administrator at OIRA. Accordingly, DOE has not prepared a 
Statement of Energy Effects on this 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 (January 
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 FR 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.

M. Congressional Notification

    As required by 5 U.S.C. 801, DOE will report to Congress on the 
promulgation of this direct final rule prior to its effective date. The 
report will state that it has been determined that the rule is a 
``major rule'' as defined by 5 U.S.C. 804(2). DOE also will submit the 
supporting analyses to the Comptroller General in the U.S. Government 
Accountability Office (``GAO'') and make them available to each House 
of Congress.

[[Page 1857]]

VII. Approval of the Office of the Secretary

    The Secretary of Energy has approved publication of this direct 
final rule.

List of Subjects in 10 CFR Part 430

    Administrative practice and procedure, Confidential business 
information, Energy conservation, Household appliances, Imports, 
Incorporation by reference, Intergovernmental relations, Small 
businesses.

    Issued in Washington, DC, on December 5, 2016.
David J. Friedman,
Acting Assistant Secretary, Energy Efficiency and Renewable Energy.
    For the reasons set forth in the preamble, DOE is amending part 430 
of chapter II, subchapter D, of title 10 of the Code of Federal 
Regulations, as set forth below:

PART 430--ENERGY CONSERVATION PROGRAM FOR CONSUMER PRODUCTS

0
1. The authority citation for part 430 continues to read as follows:

    Authority:  42 U.S.C. 6291-6309; 28 U.S.C. 2461 note.

0
2. Section 430.32 is amended by revising paragraphs (c)(1) through (3) 
and adding paragraphs (c)(5) and (6) to read as follows:


Sec.  430.32   Energy and water conservation standards and their 
compliance dates.

* * * * *
    (c) Central air conditioners and heat pumps. The energy 
conservation standards defined in terms of the heating seasonal 
performance factor are based on Region IV, the minimum standardized 
design heating requirement, and the provisions of 10 CFR 429.16. (1) 
Central air conditioners and central air conditioning heat pumps 
manufactured on or after January 1, 2015, and before January 1, 2023, 
must have Seasonal Energy Efficiency Ratio and Heating Seasonal 
Performance Factor not less than:

------------------------------------------------------------------------
                                             Seasonal         Heating
                                              energy         seasonal
              Product class                 efficiency      performance
                                           ratio  (SEER)   factor (HSPF)
------------------------------------------------------------------------
(i) Split systems--air conditioners.....              13  ..............
(ii) Split systems--heat pumps..........              14             8.2
(iii) Single package units--air                       14  ..............
 conditioners...........................
(iv) Single package units--heat pumps...              14             8.0
(v) Small-duct, high-velocity systems...              12             7.2
(vi)(A) Space-constrained products--air               12  ..............
 conditioners...........................
(vi)(B) Space-constrained products--heat              12             7.4
 pumps..................................
------------------------------------------------------------------------

    (2) In addition to meeting the applicable requirements in paragraph 
(c)(1) of this section, products in product class (i) of paragraph 
(c)(1) of this section (i.e., split-systems--air conditioners) that are 
installed on or after January 1, 2015, and before January 1, 2023, in 
the States of Alabama, Arkansas, Delaware, Florida, Georgia, Hawaii, 
Kentucky, Louisiana, Maryland, Mississippi, North Carolina, Oklahoma, 
South Carolina, Tennessee, Texas, or Virginia, or in the District of 
Columbia, must have a Seasonal Energy Efficiency Ratio (SEER) of 14 or 
higher. Any outdoor unit model that has a certified combination with a 
rating below 14 SEER cannot be installed in these States. The least 
efficient combination of each basic model must comply with this 
standard.
    (3)(i) In addition to meeting the applicable requirements in 
paragraph (c)(1) of this section, products in product classes (i) and 
(iii) of paragraph (c)(1) of this section (i.e., split systems--air 
conditioners and single-package units--air conditioners) that are 
installed on or after January 1, 2015, and before January 1, 2023, in 
the States of Arizona, California, Nevada, or New Mexico must have a 
Seasonal Energy Efficiency Ratio (SEER) of 14 or higher and have an 
Energy Efficiency Ratio (EER) (at a standard rating of 95[emsp14][deg]F 
dry bulb outdoor temperature) not less than the following:

------------------------------------------------------------------------
                                                              Energy
                      Product class                         efficiency
                                                            ratio (EER)
------------------------------------------------------------------------
(i) Split systems--air conditioners with rated cooling              12.2
 capacity less than 45,000 Btu/hr.......................
(ii) Split systems--air conditioners with rated cooling             11.7
 capacity equal to or greater than 45,000 Btu/hr........
(iii) Single-package units--air conditioners............            11.0
------------------------------------------------------------------------

    (ii) Any outdoor unit model that has a certified combination with a 
rating below 14 SEER or the applicable EER cannot be installed in this 
region. The least-efficient combination of each basic model must comply 
with this standard.
* * * * *
    (5) Central air conditioners and central air conditioning heat 
pumps manufactured on or after January 1, 2023, must have a Seasonal 
Energy Efficiency Ratio 2 and a Heating Seasonal Performance Factor 2 
not less than:

------------------------------------------------------------------------
                                             Seasonal         Heating
                                              energy         seasonal
              Product class                 efficiency      performance
                                              ratio 2        factor 2
                                              (SEER2)         (HSPF2)
------------------------------------------------------------------------
(i)(A) Split systems--air conditioners              13.4  ..............
 with a certified cooling capacity less
 than 45,000 Btu/hr.....................
(i)(B) Split systems--air conditioners              13.4  ..............
 with a certified cooling capacity equal
 to or greater than 45,000 Btu/hr.......
(ii) Split systems--heat pumps..........            14.3             7.5
(iii) Single-package units--air                     13.4  ..............
 conditioners...........................

[[Page 1858]]

 
(iv) Single-package units--heat pumps...            13.4             6.7
(v) Small-duct, high-velocity systems...              12             6.1
(vi)(A) Space-constrained products--air             11.7  ..............
 conditioners...........................
(vi)(B) Space-constrained products--heat            11.9             6.3
 pumps..................................
------------------------------------------------------------------------

    (6)(i) In addition to meeting the applicable requirements in 
paragraph (c)(5) of this section, products in product classes (i) and 
(iii) of paragraph (c)(5) of this section (i.e., split systems--air 
conditioners and single-package units--air conditioners) that are 
installed on or after January 1, 2023, in the southeast or southwest 
must have a Seasonal Energy Efficiency Ratio 2 and a Energy Efficiency 
Ratio 2 not less than:

----------------------------------------------------------------------------------------------------------------
                                                                    Southeast *            Southwest **
                          Product class                          -----------------------------------------------
                                                                       SEER2           SEER2         EER2 ***
----------------------------------------------------------------------------------------------------------------
(i)(A) Split-systems--air conditioners with a certified cooling             14.3            14.3        11.7/9.8
 capacity less than 45,000 Btu/hr...............................                                        [dagger]
(i)(B) Split-systems--air conditioners with a certified cooling             13.8            13.8        11.2/9.8
 capacity equal to or greater than 45,000 Btu/hr................                                  [dagger][dagge
                                                                                                              r]
(iii) Single-package units--air conditioners....................  ..............  ..............            10.6
----------------------------------------------------------------------------------------------------------------
* ``Southeast'' includes the States of Alabama, Arkansas, Delaware, Florida, Georgia, Hawaii, Kentucky,
  Louisiana, Maryland, Mississippi, North Carolina, Oklahoma, Puerto Rico, South Carolina, Tennessee, Texas,
  Virginia, the District of Columbia, and the U.S. Territories.
** ``Southwest'' includes the States of Arizona, California, Nevada, and New Mexico.
*** EER refers to the energy efficiency ratio at a standard rating of 95 [deg]F dry bulb outdoor temperature.
[dagger] The 11.7 EER2 standard applies to products with a certified SEER2 less than 15.2. The 9.8 EER2 standard
  applies to products with a certified SEER2 greater than or equal to 15.2.
[dagger][dagger] The 11.2 EER2 standard applies to products with a certified SEER2 less than 15.2. The 9.8 EER2
  standard applies to products with a certified SEER2 greater than or equal to 15.2.

    (ii) Any outdoor unit model that has a certified combination with a 
rating below the applicable standard level(s) for a region cannot be 
installed in that region. The least-efficient combination of each basic 
model must comply with this standard.
* * * * *
[FR Doc. 2016-29992 Filed 1-5-17; 8:45 am]
 BILLING CODE 6450-01-P