[Federal Register Volume 87, Number 129 (Thursday, July 7, 2022)]
[Proposed Rules]
[Pages 40590-40706]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-13108]



[[Page 40589]]

Vol. 87

Thursday,

No. 129

July 7, 2022

Part II





Department of Energy





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10 CFR Part 430





Energy Conservation Program: Energy Conservation Standards for Consumer 
Furnaces; Proposed Rule

  Federal Register / Vol. 87 , No. 129 / Thursday, July 7, 2022 / 
Proposed Rules  

[[Page 40590]]


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DEPARTMENT OF ENERGY

10 CFR Part 430

[EERE-2014-BT-STD-0031]
RIN 1904-AD20


Energy Conservation Program: Energy Conservation Standards for 
Consumer Furnaces

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

ACTION: Notice of proposed rulemaking and request for comment.

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SUMMARY: The Energy Policy and Conservation Act, as amended (``EPCA''), 
prescribes energy conservation standards for various consumer products 
and certain commercial and industrial equipment, including consumer 
furnaces. EPCA also requires the Department of Energy (``DOE'' or ``the 
Department'') to periodically determine whether more-stringent, amended 
standards would be technologically feasible and economically justified, 
and would result in significant energy savings. In this notice of 
proposed rulemaking (``NOPR''), DOE proposes amended energy 
conservation standards for non-weatherized gas furnaces and mobile home 
gas furnaces, and also announces a public meeting webinar to receive 
comment on these proposed standards and associated analyses and 
results.

DATES: 
    Comments: DOE will accept comments, data, and information regarding 
this NOPR no later than September 6, 2022. See section VII, ``Public 
Participation,'' of this document for details.
    Comments regarding the likely competitive impact of the proposed 
standard should be sent to the Department of Justice contact listed in 
the ADDRESSES section on or before August 22, 2022. DOE notes that the 
Department of Justice is required to transmit its determination 
regarding the competitive impact of the proposed standard to DOE no 
later than September 6, 2022. The determination and analysis by the 
Department of Justice will be published by DOE in the Federal Register. 
Commenters who want to have their comments considered by DOE as part of 
any future rulemaking resulting from this NOPR also should submit such 
comments to DOE in accordance with the procedures detailed in this 
proposed rulemaking.
    Meeting: DOE will hold a public meeting via webinar on Wednesday, 
August 3, 2022, from 12:30 p.m. to 5:00 p.m. See section VII, ``Public 
Participation,'' for webinar registration information, participant 
instructions, and information about the capabilities available to 
webinar participants.

ADDRESSES: Interested persons are encouraged to submit comments using 
the Federal eRulemaking Portal at www.regulations.gov. Follow the 
instructions for submitting comments. Alternatively, interested persons 
may submit comments, identified by docket number EERE-2014-BT-STD-0031 
and/or regulatory information number (``RIN'') 1904-AD20, by any of the 
following methods:
    (1) Federal eRulemaking Portal: www.regulations.gov. Follow the 
instructions for submitting comments.
    (2) Email: [email protected]. Include the docket 
number EERE-2014-BT-STD-0031 in the subject line of the message.
    No telefacsimilies (``faxes'') will be accepted. For detailed 
instructions on submitting comments and additional information on the 
rulemaking process, see section VII of this document (Public 
Participation).
    Although DOE has routinely accepted public comment submissions 
through a variety of mechanisms, including postal mail and hand 
delivery/courier, the Department has found it necessary to make 
temporary modifications to the comment submission process in light of 
the ongoing coronavirus (``COVID-19'') pandemic. DOE is currently 
suspending receipt of public comments via postal mail and hand 
delivery/courier. If a commenter finds that this change poses an undue 
hardship, please contact Appliance Standards Program staff at (202) 
586-1445 to discuss the need for alternative arrangements. Once the 
COVID-19 pandemic health emergency is resolved, DOE anticipates 
resuming all of its regular options for public comment submission, 
including postal mail and hand delivery/courier.
    Docket: The docket for this activity, which includes Federal 
Register notices, comments, and other supporting documents/materials, 
is available for review at www.regulations.gov. All documents in the 
docket are listed in the www.regulations.gov index. However, not all 
documents listed in the index may be publicly available, such as 
information that is exempt from public disclosure.
    The docket web page can be found at www.regulations.gov/docket?D=EERE-2014-BT-STD-0031. The docket web page contains 
instructions on how to access all documents, including public comments, 
in the docket. See section VII (Public Participation) for information 
on how to submit comments through www.regulations.gov.
    Written comments regarding the burden-hour estimates or other 
aspects of the collection-of-information requirements contained in this 
proposed rule may be submitted to Office of Energy Efficiency and 
Renewable Energy following the instructions at www.RegInfo.gov.
    EPCA requires the U.S. Attorney General to provide DOE a written 
determination of whether the proposed standard is likely to lessen 
competition. The U.S. Department of Justice (``DOJ'') Antitrust 
Division invites input from market participants and other interested 
persons with views on the likely competitive impact of the proposed 
standard. Interested persons may contact the Antitrust Division at 
[email protected] in advance of the date specified in the 
DATES section. Please indicate in the ``Subject'' line of your email 
the title and Docket Number of this rulemaking.

FOR FURTHER INFORMATION CONTACT: Ms. Julia Hegarty, U.S. Department of 
Energy, Office of Energy Efficiency and Renewable Energy, Building 
Technologies Office, EE-5B, 1000 Independence Avenue SW, Washington, DC 
20585-0121. Telephone: (240) 597-6737. Email: 
[email protected].
    Mr. Eric Stas, U.S. Department of Energy, Office of the General 
Counsel, GC-33, 1000 Independence Avenue SW, Washington, DC 20585-0121. 
Telephone: (202) 586-5827. Email: [email protected].
    For further information on how to submit a comment, review other 
public comments and the docket, or participate in the public meeting 
webinar, contact the Appliance and Equipment Standards Program staff at 
(202) 287-1445 or by email: [email protected].

SUPPLEMENTARY INFORMATION: 

Table of Contents

I. Synopsis of the Notice of Proposed Rulemaking
    A. Benefits and Costs to Consumers
    B. Impact on Manufacturers
    C. National Benefits and Costs
    1. AFUE Standards
    2. Standby Mode and Off Mode Standards
    3. Combined Results for Proposed AFUE Standards and Standby Mode 
and Off Mode Standards
    D. Conclusion
II. Introduction
    A. Authority

[[Page 40591]]

    B. Background
    1. Current Standards
    2. History of Standards Rulemaking for Consumer Furnaces
    3. Current Standards in Canada
    C. Deviation From Appendix A
III. General Discussion
    A. Product Classes and Scope of Coverage
    B. Test Procedure
    C. Technological Feasibility
    1. General
    2. Maximum Technologically Feasible Levels
    D. Energy Savings
    1. Determination of Savings
    2. Significance of Savings
    E. 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
    F. Other Issues
    1. Furnace Sizing Requirements Based on ACCA Manual J and Manual 
S
    2. Compliance Date
IV. Methodology and Discussion of Related Comments
    A. Market and Technology Assessment
    1. Scope of Coverage and Product Classes
    a. General Approach
    b. Condensing and Non-Condensing Furnaces
    c. Mobile Home Gas Furnaces
    d. Standby Mode and Off Mode
    2. Technology Options
    B. Screening Analysis
    1. Screened-Out Technologies
    2. Remaining Technologies
    C. Engineering Analysis
    1. Efficiency Analysis
    a. Baseline Efficiency Level and Product Characteristics
    b. Higher Energy Efficiency Levels
    2. Cost Analysis
    a. Teardown Analysis
    b. Cost Estimation Method
    c. Manufacturing Production Costs
    d. Cost-Efficiency Relationship
    e. Manufacturer Mark-Up
    f. Manufacturer Interviews
    3. Electric Furnaces
    D. Mark-Ups Analysis
    E. Energy Use Analysis
    1. Building Sample
    2. Furnace Sizing
    3. Furnace Active Mode Energy Use
    a. Adjustments to Energy Use Estimates
    4. Furnace Electricity Use
    5. Standby Mode and Off Mode
    F. Life-Cycle Cost and Payback Period Analyses
    1. General Method
    2. Consumer Product Cost
    3. Installation Cost
    a. Basic Installation Costs
    b. Additional Installation Costs for Non-Weatherized Gas 
Furnaces
    c. Additional Installation Costs for Mobile Home Gas Furnaces
    d. Contractor Survey and DOE's Sources
    e. Summary of Installation Costs
    4. Annual Energy Consumption
    5. Energy Prices
    6. Maintenance and Repair Costs
    7. Product Lifetime
    8. Discount Rates
    9. Energy Efficiency Distribution in the No-New-Standards Case
    a. Condensing Furnace Market Share in Compliance Year
    b. Market Shares of Different Condensing Furnace Efficiency 
Levels
    c. Assignment of Furnace Efficiency to Sampled Households
    10. Alternative Size Thresholds for Small Consumer Gas Furnaces
    a. Accounting for Impacts of Downsized Equipment
    11. Accounting for Product Switching Under Potential Standards
    a. Product Switching Resulting From Standards for Non-
Weatherized Gas Furnaces
    b. Switching Resulting From Standards for Mobile Home Gas 
Furnaces
    12. Accounting for Furnace Repair as an Alternative to 
Replacement Under Potential Standards
    13. Payback Period Analysis
    G. Shipments Analysis
    1. Shipments Model and Inputs
    a. Historical Shipments Data
    b. Shipment Projections in No-New Standards Case
    2. Impact of Potential Standards on Shipments
    a. Impact of Equipment Switching
    b. Impact of Repair vs. Replace
    H. National Impact Analysis
    1. Product Efficiency Trends
    2. National Energy Savings
    3. Net Present Value Analysis
    I. Consumer Subgroup Analysis
    1. Low-Income Households
    J. Manufacturer Impact Analysis
    1. Overview
    2. Government Regulatory Impact Model and Key Inputs
    a. Manufacturer Production Costs
    b. Shipments Projections
    c. Capital and Product Conversion Costs
    d. Manufacturer Mark-up Scenarios
    3. Manufacturer Interviews
    a. Product Switching
    b. High Installation Costs for Some Consumers
    c. Negative Impacts on Industry Profitability
    K. Emissions Analysis
    1. Air Quality Regulations Incorporated in DOE's Analysis
    L. Monetizing Emissions Impacts
    1. Monetization of Greenhouse Gas Emissions
    a. Social Cost of Carbon
    b. Social Cost of Methane and Nitrous Oxide
    2. Monetization of Other 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
    2. Economic Impacts on Manufacturers
    a. Industry Cash Flow Analysis Results
    b. Direct Impacts on Employment
    c. Impacts on Manufacturing Capacity
    d. Impacts on Subgroups of Manufacturers
    e. Cumulative Regulatory Burden
    3. National Impact Analysis
    a. Significance of Energy Savings
    b. Net Present Value of Consumer Costs and Benefits
    c. Indirect Impacts on Employment
    4. Impact on Utility or Performance of Products
    5. Impact of Any Lessening of Competition
    6. Need of the Nation to Conserve Energy
    7. Other Factors
    8. Summary of National Economic Impacts
    C. Conclusion
    1. Benefits and Burdens of TSLs Considered for Non-Weatherized 
Gas Furnace and Mobile Home Gas Furnace AFUE Standards
    2. Benefits and Burdens of TSLs Considered for Non-Weatherized 
Gas Furnace and Mobile Home Gas Furnace Standby Mode and Off Mode 
Standards
    3. Benefits and Costs of the Proposed Standards
VI. Procedural Issues and Regulatory Review
    A. Review Under Executive Orders 12866 and 13563
    B. Review Under the Regulatory Flexibility Act
    1. Description of Reasons Why Action Is Being Considered
    2. Objectives of, and Legal Basis for, Rule
    3. Description of Estimated Number of Small Entities Regulated
    4. Description and Estimate of Compliance Requirements Including 
Differences in Cost, if Any, for Different Groups of Small Entities
    a. AFUE Standards
    b. Standby Mode and Off Mode Standards
    5. Duplication, Overlap, and Conflict With Other Rules and 
Regulations
    6. Significant Alternatives to the Rule
    C. Review Under the Paperwork Reduction Act of 1995
    D. Review Under the National Environmental Policy Act of 1969
    E. Review Under Executive Order 13132
    F. Review Under Executive Order 12988
    G. Review Under the Unfunded Mandates Reform Act of 1995
    H. Review Under the Treasury and General Government 
Appropriations Act, 1999
    I. Review Under Executive Order 12630
    J. Review Under the Treasury and General Government 
Appropriations Act, 2001
    K. Review Under Executive Order 13211
    L. Review Under the Information Quality Bulletin for Peer Review
VII. Public Participation
    A. Participation in the Public Meeting Webinar
    B. Procedure for Submitting Prepared General Statements for 
Distribution
    C. Conduct of the Public Meeting Webinar
    D. Submission of Comments
    E. Issues on Which DOE Seeks Comment
VIII. Approval of the Office of the Secretary

[[Page 40592]]

I. Synopsis of the Notice of Proposed Rulemaking

    Title III, Part B \1\ of EPCA established the Energy Conservation 
Program for Consumer Products Other Than Automobiles.\2\ (42 U.S.C. 
6291-6309) These products include non-weatherized gas furnaces 
(``NWGF'') and mobile home gas furnaces (``MHGF''), the subjects of 
this rulemaking. (42 U.S.C. 6292(a)(5))
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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 Act of 2020, Public Law 116-260 (Dec. 
27, 2020), which reflects the last statutory amendments that impact 
Parts A and A-1 of EPCA.
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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 DOE determines is technologically feasible and 
economically justified. (42 U.S.C. 6295(o)(2)(A)) Furthermore, the new 
or amended standard must result in significant conservation of energy. 
(42 U.S.C. 6295(o)(3)(B)) EPCA specifically provides that DOE must 
conduct two rounds of energy conservation standard rulemakings for 
NWGFs and MHGFs. (42 U.S.C. 6295(f)(4)(B) and (C)) The statute also 
requires that not later than 6 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 (``NOPR'') including new 
proposed energy conservation standards. (42 U.S.C. 6295(m)(1)) This 
rulemaking is being undertaken pursuant to the statutorily-required 
second round of rulemaking for NWGFs and MHGFs, and once completed, it 
will also satisfy the statutorily-required 6-year-lookback review.
    In accordance with these and other relevant statutory provisions 
discussed in this document, DOE is proposing amended and new energy 
conservation standards for the subject consumer furnaces (i.e., NWGFs 
and MHGFs). In this document, DOE is proposing amended active mode 
energy conservation standards for NWGFs and MHGFs, which are expressed 
in terms of minimum annual fuel utilization efficiency (``AFUE''), and 
are shown in Table I.1 of this document. DOE is also proposing new 
standby mode and off mode energy standards for NWGFs and MHGFs, which 
are expressed in terms of watts, and are shown in Table I.2 of this 
document. These proposed standards would apply to all NWGFs and MHGFs 
manufactured in, or imported into, the United States starting on the 
date 5 years after the publication of the final rule for this 
rulemaking.

     Table I.1--Proposed AFUE Energy Conservation Standards for Non-
          Weatherized Gas Furnaces and Mobile Home Gas Furnaces
------------------------------------------------------------------------
                      Product class                          AFUE (%)
------------------------------------------------------------------------
Non-Weatherized Gas Furnaces............................              95
Mobile Home Gas Furnaces................................              95
------------------------------------------------------------------------


    Table I.2--Proposed Standby Mode and Off Mode Energy Conservation
 Standards for Non-Weatherized Gas Furnaces and Mobile Home Gas Furnaces
------------------------------------------------------------------------
                                           Standby mode      Off mode
                                             standard:       standard:
              Product class                PW,SB (watts)  PW,OFF (watts)
 
------------------------------------------------------------------------
Non-Weatherized Gas Furnaces............             8.5             8.5
Mobile Home Gas Furnaces................             8.5             8.5
------------------------------------------------------------------------

A. Benefits and Costs to Consumers

    Table I.3 and Table I.4 summarize DOE's evaluation of the economic 
impacts of the proposed AFUE standards and standby mode/off mode 
standards, respectively, on consumers of NWGFs and MHGFs, as measured 
by the average life-cycle cost (``LCC'') savings and the simple payback 
period (``PBP'').\3\ The average LCC savings are positive for all 
product classes, and the PBP is less than the average lifetime of both 
NWGFs and MHGFs, which is estimated to be 21.4 years (see section IV.F 
of this document).
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    \3\ The average LCC savings refer to consumers that are affected 
by a standard and are measured relative to the efficiency 
distribution in the no-new-standards case, which depicts the market 
in the compliance year in the absence of new or amended standards 
(see section IV.F.10 of this NOPR). The simple PBP, which is 
designed to compare specific efficiency levels, is measured relative 
to the baseline product (see section IV.C of this NOPR).

  Table I.3--Impacts of Proposed AFUE Energy Conservation Standards on
 Consumers of Non-Weatherized Gas Furnaces and Mobile Home Gas Furnaces
------------------------------------------------------------------------
                                            Average LCC
              Product class                   savings     Simple payback
                                              (2020$)     period (years)
------------------------------------------------------------------------
Non-Weatherized Gas Furnaces............             464             7.2
Mobile Home Gas Furnaces................             526             7.5
------------------------------------------------------------------------


[[Page 40593]]


     Table I.4--Impacts of Proposed Standby Mode and Off Mode Energy
 Conservation Standards on Consumers of Non-Weatherized Gas Furnaces and
                        Mobile Home Gas Furnaces
------------------------------------------------------------------------
                                            Average LCC
              Product class                   savings     Simple payback
                                              (2020$)     period (years)
------------------------------------------------------------------------
Non-Weatherized Gas Furnaces............              26             2.0
Mobile Home Gas Furnaces................              27             1.7
------------------------------------------------------------------------

    DOE's analysis of the anticipated impacts of the proposed standards 
on consumers is described in section IV.F of this document.

B. Impact on Manufacturers

    The industry net present value (``INPV'') is the sum of discounted 
industry cash flows starting with the publication year (2022) of the 
NOPR and extending over a 30-year period following the expected 
compliance date of the standards (2022 to 2058). The impacts of the 
AFUE standards are independently considered from the impacts of the 
standby mode and off mode standards, as manufacturers would utilize 
different technologies to meet these two standards. Using a real 
discount rate of 6.4 percent, DOE estimates that the INPV for 
manufacturers of NWGFs and MHGFs in the case without new or amended 
standards is $1,411.8 million in 2020$. Under the proposed AFUE 
standards, the change in INPV is estimated to range from -26.9 percent 
to -2.2 percent, which is a reduction of approximately -$380.3 million 
to -$30.5 million. Under the proposed standby mode and off mode 
standards, the change in INPV is estimated to range from -0.1 percent 
to 0.4 percent, which is a change of approximately -$2.1 million to 
$5.0 million. When evaluating the proposed AFUE and proposed standby 
mode and off mode standards together, the INPV impacts are additive. 
The combined change in INPV is estimated to range from -27.1 percent to 
-1.8 percent, which is a reduction of approximately -$382.4 million to 
-$25.5 million. In order to bring products into compliance with the 
proposed new and amended standards, DOE expects industry to incur total 
conversion costs of $150.6 million. DOE's analysis of the impacts of 
the proposed energy conservation standards on manufacturers is 
described in section IV.J of this document. The analytic results of the 
MIA are presented in section V.B.2 of this document.

C. National Benefits and Costs 4
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    \4\ All monetary values in this document are expressed in 2020 
dollars (2020$).
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    Benefits and costs for the proposed AFUE standards are presented 
and considered separately from benefits and costs for the proposed 
standby mode and off mode standards because it was not feasible to 
develop a single, integrated standard. As discussed in the October 20, 
2010, test procedure final rule for consumer furnaces and boilers, DOE 
concluded that due to the magnitude of the active mode energy 
consumption as compared to the standby mode and off mode electrical 
consumption, an integrated metric would not be feasible because the 
standby mode and off mode electrical consumption would be a de minimis 
portion of the overall energy consumption. 75 FR 64621, 64627. Thus, an 
integrated metric could not be used to effectively regulate the standby 
mode and off mode energy consumption.
1. AFUE Standards
    DOE's analyses indicate that the proposed energy conservation 
standards for NWGFs and MHGFs would save a significant amount of 
energy. Relative to the case without amended AFUE standards, the 
lifetime energy savings for NWGFs and MHGFs purchased in the 30-year 
period that begins in the anticipated year of compliance with the 
amended AFUE standards (2029-2058), are estimated to be amount to 5.48 
quadrillion British thermal units (``Btu''), or ``quads.'' \5\ This 
represents a savings of 3.5 percent relative to the energy use of these 
products in the case without amended or new standards (referred to as 
the ``no-new-standards case'').
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    \5\ This quantity refers to full-fuel-cycle (``FFC'') energy 
savings. FFC energy savings includes the energy consumed in 
extracting, processing, and transporting primary fuels (i.e., coal, 
natural gas, petroleum fuels), and, thus, presents a more complete 
picture of the impacts of energy efficiency standards. For more 
information on the FFC metric, see section IV.H.2 of this NOPR.
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    The cumulative net present value (``NPV'') of total consumer 
benefits of the proposed standards for NWGFs and MHGFs ranges from $6.2 
billion (at a 7-percent discount rate) to $21.6 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 NWGFs and MHGFs purchased in 2029-2058.
    In addition, the proposed AFUE standards for NWGFs and MHGFs are 
projected to yield significant environmental benefits. DOE estimates 
that the proposed standards would result in cumulative emission 
reductions (over the same period as for energy savings) of 363 million 
metric tons (``Mt'') \6\ of carbon dioxide (``CO2''), 0.8 
million tons of nitrogen oxides (``NOX''), and 5.1 million 
tons of methane (``CH4''). The proposed standards would 
result in cumulative emission increases of 52 thousand tons of sulfur 
dioxide (``SO2''), 0.3 thousand tons of nitrous oxide 
(``N2O''), and 0.3 tons of mercury (``Hg'').\7\
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    \6\ A metric ton is equivalent to 1.1 short tons. Results for 
emissions other than CO2 are presented in short tons.
    \7\ DOE calculated emissions reductions relative to the no-new-
standards-case, which reflects key assumptions in the Annual Energy 
Outlook 2021 (``AEO2021''). AEO2021 represents current Federal and 
State legislation and final implementation of regulations as of the 
time of its preparation. See section IV.K for further discussion of 
AEO2021 assumptions that effect air pollutant emissions. The 
increase in emissions of some pollutants is due to an increase in 
electricity consumption.
---------------------------------------------------------------------------

    DOE estimates the value of climate benefits from a reduction in 
greenhouse gases using four different estimates of the social cost of 
CO2 (``SC-CO2''), the social cost of methane 
(``SC-CH4''), and the social cost of nitrous oxide (``SC-
N2O''). Together these represent the social cost of 
greenhouse gases (SC-GHG). DOE used interim SC-GHG values developed by 
an Interagency Working Group on the Social Cost of Greenhouse Gases 
(IWG).\8\ The derivation of these values is discussed in section IV.L 
of this document. For

[[Page 40594]]

presentational purposes, the climate benefits associated with the 
average SC-GHG at a 3-percent discount rate are estimated to be $16.2 
billion. DOE does not have a single central SC-GHG point estimate and 
it emphasizes the importance and value of considering the benefits 
calculated using all four SC-GHG estimates.\9\
---------------------------------------------------------------------------

    \8\ See Interagency Working Group on Social Cost of Greenhouse 
Gases, Technical Support Document: Social Cost of Carbon, Methane, 
and Nitrous Oxide. Interim Estimates Under Executive Order 13990, 
Washington, DC (February 2021) (Available at: www.whitehouse.gov/wp-content/uploads/2021/02/TechnicalSupportDocument_SocialCostofCarbonMethaneNitrousOxide.pdf) 
(Last accessed March 17, 2022).
    \9\ On March 16, 2022, the Fifth Circuit Court of Appeals (No. 
22-30087) granted the Federal government's emergency motion for stay 
pending appeal of the February 11, 2022, preliminary injunction 
issued in Louisiana v. Biden, No. 21-cv-1074-JDC-KK (W.D. La.). As a 
result of the Fifth Circuit's order, the preliminary injunction is 
no longer in effect, pending resolution of the Federal government's 
appeal of that injunction or a further court order. Among other 
things, the preliminary injunction enjoined the defendants in that 
case from ``adopting, employing, treating as binding, or relying 
upon'' the interim estimates of the social cost of greenhouse 
gases--which were issued by the Interagency Working Group on the 
Social Cost of Greenhouse Gases on February 26, 2021--to monetize 
the benefits of reducing greenhouse gas emissions. In the absence of 
further intervening court orders, DOE will revert to its approach 
prior to the injunction and present monetized benefits where 
appropriate and permissible under law.
---------------------------------------------------------------------------

    DOE also estimates health benefits from SO2 and 
NOX emissions reductions. DOE estimates the present value of 
the health benefits would be $5.9 billion using a 7-percent discount 
rate, and $19.3 billion using a 3-percent discount rate. DOE is 
currently only monetizing (for SO2 and NOX) 
PM2.5 precursor health benefits and (for NOX) 
ozone precursor health benefits but will continue to assess the ability 
to monetize other effects such as health benefits from reductions in 
direct PM2.5 emissions.
    Table I.5 summarizes the monetized benefits and costs expected to 
result from the proposed AFUE standards for NWGFs and MHGFs. There are 
other important unquantified effects, including certain unquantified 
climate benefits, unquantified public health benefits from the 
reduction of toxic air pollutants and other emissions, unquantified 
energy security benefits, and distributional effects, among others.

   Table I.5--Summary of Monetized Benefits and Costs of Proposed AFUE
   Energy Conservation Standards for Non-Weatherized Gas Furnaces and
                    Mobile Home Gas Furnaces (TSL 8)
------------------------------------------------------------------------
                                                           Billion 2020$
------------------------------------------------------------------------
                            3% discount rate
------------------------------------------------------------------------
Consumer Operating Cost Savings.........................            29.7
Climate Benefits *......................................            16.2
Net Health Benefits **..................................            19.3
Total Benefits [dagger].................................            65.2
Consumer Incremental Product Costs [Dagger].............             8.2
Net Benefits............................................            57.1
------------------------------------------------------------------------
                            7% discount rate
------------------------------------------------------------------------
Consumer Operating Cost Savings.........................            10.2
Climate Benefits *......................................            16.2
Net Health Benefits **..................................             5.9
Total Benefits [dagger].................................            32.2
Consumer Incremental Product Costs [Dagger].............             4.0
Net Benefits............................................            28.2
------------------------------------------------------------------------
Note: This table presents the costs and benefits associated with
  consumer furnaces shipped in 2029-2058. These results include benefits
  to consumers which accrue after 2058 from the products shipped in 2029-
  2058.
* Climate benefits are calculated using four different estimates of the
  social cost of carbon (SC-CO2), methane (SC-CH4), and nitrous oxide
  (SC-N2O) (model average at 2.5 percent, 3 percent, and 5 percent
  discount rates; 95th percentile at 3 percent discount rate), as shown
  in Table V.36, Table V.38, and Table V.40. Together these represent
  the global social cost of greenhouse gases (SC-GHG). For
  presentational purposes of this table, the climate benefits associated
  with the average SC-GHG at a 3 percent discount rate are shown, but
  the Department does not have a single central SC-GHG point estimate.
  See section. IV.L of this document for more details. On March 16,
  2022, the Fifth Circuit Court of Appeals (No. 22-30087) granted the
  Federal government's emergency motion for stay pending appeal of the
  February 11, 2022, preliminary injunction issued in Louisiana v.
  Biden, No. 21-cv-1074-JDC-KK (W.D. La.). As a result of the Fifth
  Circuit's order, the preliminary injunction is no longer in effect,
  pending resolution of the Federal government's appeal of that
  injunction or a further court order. Among other things, the
  preliminary injunction enjoined the defendants in that case from
  ``adopting, employing, treating as binding, or relying upon'' the
  interim estimates of the social cost of greenhouse gases--which were
  issued by the Interagency Working Group on the Social Cost of
  Greenhouse Gases on February 26, 2021--to monetize the benefits of
  reducing greenhouse gas emissions. In the absence of further
  intervening court orders, DOE will revert to its approach prior to the
  injunction and present monetized benefits where appropriate and
  permissible under law.
** Health benefits are calculated using benefit-per-ton values for NOX
  and SO2. DOE is currently only monetizing (for SO2 and NOX) PM2.5
  precursor health benefits and (for NOX) ozone precursor health
  benefits, but will continue to assess the ability to monetize other
  effects such as health benefits from reductions in direct PM2.5
  emissions. See section IV.L of this document for more details.
[dagger] Total and net benefits include those consumer, climate, and
  health benefits that can be monetized. For presentation purposes,
  total and net benefits for both the 3-percent and 7-percent cases are
  presented using the average SC-GHG with 3-percent discount rate, but
  the Department does not have a single central SC-GHG point estimate.
  DOE emphasizes the importance and value of considering the benefits
  calculated using all four SC-GHG estimates. See Table V.46 for net
  benefits using all four SC-GHG estimates.
[Dagger] Costs include incremental equipment costs, as well as
  installation costs.

    The benefits and costs of the proposed AFUE standards, for NWGFs 
and MHGFs sold in 2029-2058, can also be expressed in terms of 
annualized values. The monetary values for the total annualized net 
benefits are: (1) the reduced consumer operating costs, minus (2) the 
increases in product purchase costs and installation costs, plus (3) 
the value of climate and health benefits of emission reductions, all 
annualized.\10\
---------------------------------------------------------------------------

    \10\ To convert the time-series of costs and benefits into 
annualized values, DOE calculated a present value in 2029, 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., 2030), and then discounted the present value from each year 
to 2029. The calculation uses discount rates of 3 and 7 percent for 
all costs and benefits, as shown in Table I.6 of this document. 
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 cost savings are domestic private U.S. 
consumer monetary savings that occur as a result of purchasing the 
covered products and are measured for the lifetime of NWGFs and MHGFs 
shipped in 2029-2058. The health benefits associated with reduced 
emissions achieved as a result of the proposed standards are also 
calculated based on the lifetime of NWGFs and MHGFs shipped in 2029-
2058. Total benefits for both the 3-percent and 7-percent cases are 
presented using the average GHG social costs with 3-percent discount 
rate. Estimates of SC-GHG values are presented for all four discount 
rates in section V.B.8 of this document. Table I.6 presents the total 
estimated monetized benefits and costs associated with the proposed 
AFUE standard, expressed in terms of annualized values. The results 
under the primary estimate are as follows.
    Using a 7-percent discount rate for consumer benefits and costs and 
health benefits from SO2 and NOX emission 
changes, and the 3-percent discount rate case for climate benefits from 
reduced GHG emissions, the estimated cost of the AFUE standards 
proposed in this rule is $524 million per year in increased equipment 
costs, while the estimated annual benefits would be

[[Page 40595]]

$1,320 million in reduced equipment operating costs, $1,015 million in 
climate benefits, and $760 million in health benefits (accounting for 
reduced NOX emissions and increased SO2 
emissions). In this case, the net benefit amounts to $2,571 million per 
year.
    Using a 3-percent discount rate for all benefits and costs, the 
estimated cost of the proposed AFUE standards for NWGFs and MHGFs is 
$511 million per year in increased equipment costs, while the estimated 
annual benefits would be $1,865 million in reduced operating costs, 
$1,015 million in climate benefits, and $1,213 million in health 
benefits (accounting for reduced NOX emissions and increased 
SO2 emissions). In this case, the net benefit would amount 
to $3,581 million per year.

 Table I.6--Annualized Monetized Benefits and Costs of Proposed AFUE Standards for Non-Weatherized Gas Furnaces
                                      and Mobile Home Gas Furnaces (TSL 8)
----------------------------------------------------------------------------------------------------------------
                                                                                Million 2020$/year
                                                                 -----------------------------------------------
                                                                                     Low-net-        High-net-
                                                                      Primary        benefits        benefits
                                                                     estimate        estimate        estimate
----------------------------------------------------------------------------------------------------------------
                                                3% discount rate
----------------------------------------------------------------------------------------------------------------
Consumer Operating Cost Savings.................................           1,865           1,891           1,937
Climate Benefits *..............................................           1,015           1,000           1,042
Health Benefits **..............................................           1,213           1,197           1,251
Total Benefits [dagger].........................................           4,093           4,088           4,230
Consumer Incremental Product Costs [Dagger].....................             511             508             461
Net Benefits....................................................           3,581           3,580           3,769
----------------------------------------------------------------------------------------------------------------
                                                7% discount rate
----------------------------------------------------------------------------------------------------------------
Consumer Operating Cost Savings.................................           1,320           1,338           1,352
Climate Benefits *..............................................           1,015           1,000           1,042
Health Benefits **..............................................             760             751             780
Total Benefits [dagger].........................................           3,095           3,089           3,173
Consumer Incremental Product Costs [Dagger].....................             524             516             471
Net Benefits....................................................           2,571           2,573           2,702
----------------------------------------------------------------------------------------------------------------
Note: This table presents the costs and benefits associated with consumer furnaces shipped in 2029-2058. These
  results include benefits to consumers which accrue after 2058 from the products shipped in 2029-2058.
* Climate benefits are calculated using four different estimates of the global SC-GHG (see section IV.L of this
  document). For presentational purposes of this table, the climate benefits associated with the average SC-GHG
  at a 3 percent discount rate are shown, but the Department does not have a single central SC-GHG point
  estimate, and it emphasizes the importance and value of considering the benefits calculated using all four SC-
  GHG estimates. On March 16, 2022, the Fifth Circuit Court of Appeals (No. 22-30087) granted the federal
  government's emergency motion for stay pending appeal of the February 11, 2022, preliminary injunction issued
  in Louisiana v. Biden, No. 21-cv-1074-JDC-KK (W.D. La.). As a result of the Fifth Circuit's order, the
  preliminary injunction is no longer in effect, pending resolution of the federal government's appeal of that
  injunction or a further court order. Among other things, the preliminary injunction enjoined the defendants in
  that case from ``adopting, employing, treating as binding, or relying upon'' the interim estimates of the
  social cost of greenhouse gases--which were issued by the Interagency Working Group on the Social Cost of
  Greenhouse Gases on February 26, 2021--to monetize the benefits of reducing greenhouse gas emissions. In the
  absence of further intervening court orders, DOE will revert to its approach prior to the injunction and
  presents monetized benefits where appropriate and permissible under law.
** Health benefits are calculated using benefit-per-ton values for NOX and SO2. DOE is currently only monetizing
  (for SO2 and NOX) PM2.5 precursor health benefits and (for NOX) ozone precursor health benefits, but will
  continue to assess the ability to monetize other effects such as health benefits from reductions in direct
  PM2.5 emissions. See section IV.L of this document for more details.
[dagger] Total benefits infor both the 3-percent and 7-percent cases are presented using the average SC-GHG with
  3-percent discount rate, but the Department does not have a single central SC-GHG point estimate. DOE
  emphasizes the importance and value of considering the benefits calculated using all four SC-GHG estimates.
[Dagger] Costs include incremental equipment costs, as well as installation costs.

    DOE's analysis of the national impacts of the proposed standards is 
described in sections IV.H, IV.K, and IV.L of this document.
2. Standby Mode and Off Mode Standards
    For standby mode and off mode standards, relative to the case 
without new standards, the lifetime energy savings for NWGFs and MHGFs 
purchased in the 30-year period that begins in the anticipated year of 
compliance with the new standby mode and off mode standards (2029-
2058), are estimated to be amount to 0.28 quads.\11\ This represents a 
savings of 16 percent relative to the energy use of these products in 
the no-new-standards case.
---------------------------------------------------------------------------

    \11\ This quantity refers to FFC energy savings. FFC energy 
savings includes the energy consumed in extracting, processing, and 
transporting primary fuels (i.e., coal, natural gas, petroleum 
fuels), and, thus, presents a more complete picture of the impacts 
of energy efficiency standards. For more information on the FFC 
metric, see section IV.H.2 of this NOPR.
---------------------------------------------------------------------------

    The cumulative NPV of total consumer benefits of the proposed 
standby mode and off mode standards for NWGFs and MHGFs ranges from 
$1.1 billion (at a 7-percent discount rate) to $3.4 billion (at a 3-
percent discount rate). This NPV expresses the estimated total value of 
future operating-cost savings minus the estimated increased product 
costs for NWGFs and MHGFs purchased in 2029-2058.
    In addition, the proposed standby mode and off mode standards for 
NWGFs and MHGFs are projected to yield significant environmental 
benefits. DOE estimates that the proposed standards would result in 
cumulative emission reductions (over the same period as for energy 
savings) of 9.6 Mt of CO2, 4.5 thousand tons of 
SO2, 13.5 thousand tons of NOX, 65.9 thousand 
tons of CH4, 0.1 thousand tons of N2O, and 0.03 
tons of mercury Hg.
    DOE estimates the value of climate benefits from a reduction in 
greenhouse gases using four different estimates of the SC-
CO2, the SC-CH4, and the SC-N2O. 
Together these represent the SC-

[[Page 40596]]

GHG. DOE used interim SC-GHG values developed by an IWG on the Social 
Cost of Greenhouse Gases.\12\ The derivation of these values is 
discussed in section IV.L of this document. For presentational 
purposes, the climate benefits associated with the average SC-GHG at a 
3-percent discount rate are estimated to be $0.4 billion. DOE does not 
have a single central SC-GHG point estimate and it emphasizes the 
importance and value of considering the benefits calculated using all 
four SC-GHG estimates.\13\
---------------------------------------------------------------------------

    \12\ See Interagency Working Group on Social Cost of Greenhouse 
Gases, Technical Support Document: Social Cost of Carbon, Methane, 
and Nitrous Oxide. Interim Estimates Under Executive Order 13990, 
Washington, DC, February 2021. Available at: www.whitehouse.gov/wp-content/uploads/2021/02/TechnicalSupportDocument_SocialCostofCarbonMethaneNitrousOxide.pdf 
(last accessed March 17, 2022).
    \13\ On March 16, 2022, the Fifth Circuit Court of Appeals (No. 
22-30087) granted the Federal government's emergency motion for stay 
pending appeal of the February 11, 2022, preliminary injunction 
issued in Louisiana v. Biden, No. 21-cv-1074-JDC-KK (W.D. La.). As a 
result of the Fifth Circuit's order, the preliminary injunction is 
no longer in effect, pending resolution of the Federal government's 
appeal of that injunction or a further court order. Among other 
things, the preliminary injunction enjoined the defendants in that 
case from ``adopting, employing, treating as binding, or relying 
upon'' the interim estimates of the social cost of greenhouse 
gases--which were issued by the Interagency Working Group on the 
Social Cost of Greenhouse Gases on February 26, 2021--to monetize 
the benefits of reducing greenhouse gas emissions. In the absence of 
further intervening court orders, DOE will revert to its approach 
prior to the injunction and present monetized benefits where 
appropriate and permissible under law.
---------------------------------------------------------------------------

    DOE also estimates health benefits from SO2 and 
NOX emissions reductions.\14\ DOE estimates the present 
value of the health benefits would be $0.2 billion using a 7-percent 
discount rate, and $0.6 billion using a 3-percent discount rate. DOE is 
currently only monetizing (for SO2 and NOX) 
PM2.5 precursor health benefits and (for NOX) 
ozone precursor health benefits but will continue to assess the ability 
to monetize other effects such as health benefits from reductions in 
direct PM2.5 emissions.
---------------------------------------------------------------------------

    \14\ DOE estimated the monetized value of SO2 and 
NOX emissions reductions associated with site and 
electricity savings using benefit-per-ton estimates from the 
scientific literature. See section IV.L.2 of this document for 
further discussion.
---------------------------------------------------------------------------

    Table I.7 summarizes the monetized benefits and costs expected to 
result from the proposed standby mode and off mode standards for NWGFs 
and MHGFs. There are other important unquantified effects, including 
certain unquantified climate benefits, unquantified public health 
benefits from the reduction of toxic air pollutants and other 
emissions, unquantified energy security benefits, and distributional 
effects, among others.

 Table I.7--Summary of Monetized Benefits and Costs of Proposed Standby
 Mode and Off Mode Energy Conservation Standards for Non-Weatherized Gas
              Furnaces and Mobile Home Gas Furnaces (TSL 3)
------------------------------------------------------------------------
                                                           Billion 2020$
------------------------------------------------------------------------
                            3% discount rate
------------------------------------------------------------------------
Consumer Operating Cost Savings.........................             3.6
Climate Benefits *......................................             0.4
Health Benefits **......................................             0.6
Total Benefits [dagger].................................             4.6
Consumer Incremental Product Costs [Dagger].............             0.2
Net Benefits............................................             4.4
------------------------------------------------------------------------
                            7% discount rate
------------------------------------------------------------------------
Consumer Operating Cost Savings.........................             1.2
Climate Benefits *......................................             0.4
Health Benefits **......................................             0.2
Total Benefits [dagger].................................             1.8
Consumer Incremental Product Costs [Dagger].............             0.1
Net Benefits............................................             1.7
------------------------------------------------------------------------
Note: This table presents the costs and benefits associated with
  consumer furnaces shipped in 2029-2058. These results include benefits
  to consumers which accrue after 2058 from the products shipped in 2029-
  2058.
* Climate benefits are calculated using four different estimates of the
  social cost of carbon (SC-CO2), methane (SC-CH4), and nitrous oxide
  (SC-N2O) (model average at 2.5 percent, 3 percent, and 5 percent
  discount rates; 95th percentile at 3 percent discount rate), as shown
  in Table V.37, Table V.39, Table V.41. Together these represent the
  global social cost of greenhouse gases (SC-GHG). For presentational
  purposes of this table, the climate benefits associated with the
  average SC-GHG at a 3 percent discount rate are shown, but the
  Department does not have a single central SC-GHG point estimate. See
  section. IV.L of this document for more details. On March 16, 2022,
  the Fifth Circuit Court of Appeals (No. 22-30087) granted the Federal
  government's emergency motion for stay pending appeal of the February
  11, 2022, preliminary injunction issued in Louisiana v. Biden, No. 21-
  cv-1074-JDC-KK (W.D. La.). As a result of the Fifth Circuit's order,
  the preliminary injunction is no longer in effect, pending resolution
  of the Federal government's appeal of that injunction or a further
  court order. Among other things, the preliminary injunction enjoined
  the defendants in that case from ``adopting, employing, treating as
  binding, or relying upon'' the interim estimates of the social cost of
  greenhouse gases--which were issued by the Interagency Working Group
  on the Social Cost of Greenhouse Gases on February 26, 2021--to
  monetize the benefits of reducing greenhouse gas emissions. In the
  absence of further intervening court orders, DOE will revert to its
  approach prior to the injunction and present monetized benefits where
  appropriate and permissible under law.
** Health benefits are calculated using benefit-per-ton values for NOX
  and SO2. DOE is currently only monetizing (for SO2 and NOX) PM2.5
  precursor health benefits and (for NOX) ozone precursor health
  benefits, but will continue to assess the ability to monetize other
  effects such as health benefits from reductions in direct PM2.5
  emissions. See section IV.L of this document for more details.
[dagger] Total and net benefits include those consumer, climate, and
  health benefits that can be monetized. For presentation purposes,
  total and net benefits for both the 3-percent and 7-percent cases are
  presented using the average SC-GHG with 3-percent discount rate, but
  the Department does not have a single central SC-GHG point estimate.
  DOE emphasizes the importance and value of considering the benefits
  calculated using all four SC-GHG estimates. See Table V.47 for net
  benefits using all four SC-GHG estimates.
[Dagger] Costs include incremental equipment costs, as well as
  installation costs.

    The benefits and costs of the proposed standby mode and off mode 
standards, for NWGFs and MHGFs sold in 2029-2058, can also be expressed 
in terms of annualized values. The monetary values for the total 
annualized net benefits are:

[[Page 40597]]

(1) the reduced consumer operating costs, minus (2) the increases in 
product purchase prices, plus (3) the value of climate and health 
benefits of emission reductions, all annualized.\15\
---------------------------------------------------------------------------

    \15\ To convert the time-series of costs and benefits into 
annualized values, DOE calculated a present value in 2029, 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., 2030), and then discounted the present value from each year 
to 2029. The calculation uses discount rates of 3 and 7 percent for 
all costs and benefits, as shown in Table I.8 of this document. 
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 cost savings are domestic private U.S. 
consumer monetary savings that occur as a result of purchasing the 
covered products and are measured for the lifetime of NWGFs and MHGFs 
shipped in 2029-2058. The health benefits associated with reduced 
emissions achieved as a result of the proposed standards are also 
calculated based on the lifetime of NWGFs and MHGFs shipped in 2029-
2058. Total benefits for both the 3-percent and 7-percent cases are 
presented using the average GHG social costs with 3-percent discount 
rate. Estimates of SC-GHG values are presented for all four discount 
rates in section V.B.8 of this document. Table I.8 presents the total 
estimated monetized benefits and costs associated with the proposed 
standby and off mode standard, expressed in terms of annualized values. 
The results under the primary estimate are as follows.
    Using a 7-percent discount rate for consumer benefits and costs and 
health benefits from reduced SO2 and NOX 
emissions, and the 3-percent discount rate case for climate benefits 
from reduced GHG emissions, the estimated cost of the proposed standby 
mode and off mode standards for NWGFs and MHGFs is $12.2 million per 
year in increased equipment costs, while the estimated annual benefits 
would be $160 million in reduced equipment operating costs, $23 million 
in climate benefits, and $25 million in health benefits. In this case, 
the net benefit would amount to $196 million per year.
    Using a 3-percent discount rate for all benefits and costs, the 
estimated cost of the proposed standby mode and off mode standards for 
NWGFs and MHGFs is $12.4 million per year in increased equipment costs, 
while the estimated annual benefits would be $224 million in reduced 
operating costs, $23 million in climate benefits, and $40 million in 
health benefits. In this case, the net benefit would amount to $275 
million per year.

   Table I.8--Annualized Monetized Benefits and Costs of Proposed Standby Mode and Off Mode Standards for Non-
                          Weatherized Gas Furnaces and Mobile Home Gas Furnaces (TSL 3)
----------------------------------------------------------------------------------------------------------------
                                                                                Million 2020$/year
                                                                 -----------------------------------------------
                                                                                     Low-net-        High-net-
                                                                      Primary        benefits        benefits
                                                                     estimate        estimate        estimate
----------------------------------------------------------------------------------------------------------------
                                                3% discount rate
----------------------------------------------------------------------------------------------------------------
Consumer Operating Cost Savings.................................             224             214             251
Climate Benefits *..............................................              23              23              24
Health Benefits **..............................................              40              40              43
Total Benefits [dagger].........................................             287             276             318
Consumer Incremental Product Costs [Dagger].....................              12              12              13
Net Benefits....................................................             275             264             305
----------------------------------------------------------------------------------------------------------------
                                                7% discount rate
----------------------------------------------------------------------------------------------------------------
Consumer Operating Cost Savings.................................             160             155             176
Climate Benefits *..............................................              23              23              24
Health Benefits **..............................................              25              25              27
Total Benefits [dagger].........................................             208             203             227
Consumer Incremental Product Costs [Dagger].....................              12              12              13
Net Benefits....................................................             196             190             214
----------------------------------------------------------------------------------------------------------------
Note: This table presents the costs and benefits associated with consumer furnaces shipped in 2029-2058. These
  results include benefits to consumers which accrue after 2058 from the products shipped in 2029-2058.
* Climate benefits are calculated using four different estimates of the global SC-GHG (see section IV.L of this
  document). For presentational purposes of this table, the climate benefits associated with the average SC-GHG
  at a 3 percent discount rate are shown, but the Department does not have a single central SC-GHG point
  estimate, and it emphasizes the importance and value of considering the benefits calculated using all four SC-
  GHG estimates. On March 16, 2022, the Fifth Circuit Court of Appeals (No. 22-30087) granted the federal
  government's emergency motion for stay pending appeal of the February 11, 2022, preliminary injunction issued
  in Louisiana v. Biden, No. 21-cv-1074-JDC-KK (W.D. La.). As a result of the Fifth Circuit's order, the
  preliminary injunction is no longer in effect, pending resolution of the federal government's appeal of that
  injunction or a further court order. Among other things, the preliminary injunction enjoined the defendants in
  that case from ``adopting, employing, treating as binding, or relying upon'' the interim estimates of the
  social cost of greenhouse gases--which were issued by the Interagency Working Group on the Social Cost of
  Greenhouse Gases on February 26, 2021--to monetize the benefits of reducing greenhouse gas emissions. In the
  absence of further intervening court orders, DOE will revert to its approach prior to the injunction and
  presents monetized benefits where appropriate and permissible under law.
** Health benefits are calculated using benefit-per-ton values for NOX and SO2. DOE is currently only monetizing
  (for SO2 and NOX) PM2.5 precursor health benefits and (for NOX) ozone precursor health benefits, but will
  continue to assess the ability to monetize other effects such as health benefits from reductions in direct
  PM2.5 emissions. See section IV.L of this document for more details.
[dagger] Total benefits for both the 3-percent and 7-percent cases are presented using the average SC-GHG with 3-
  percent discount rate, but the Department does not have a single central SC-GHG point estimate. DOE emphasizes
  the importance and value of considering the benefits calculated using all four SC-GHG estimates.
[Dagger] Costs include incremental equipment costs, as well as installation costs.


[[Page 40598]]

    DOE's analysis of the national impacts of the proposed standards is 
described in sections IV.H, IV.K, and IV.L of this document.
3. Combined Results for Proposed AFUE Standards and Standby Mode and 
Off Mode Standards
    DOE considers and evaluates these standards independently under 
EPCA and the analytical process outlined in DOE's Process Rule (as 
amended). However, DOE is also presenting the combined effects of these 
standards for the benefit of the public and in compliance with E.O. 
12866, as shown in Table I.9. and Table I.10 of this document \16\ The 
results under the primary estimate for Table I.10 are as follows.
---------------------------------------------------------------------------

    \16\ To obtain the combined results, DOE added the results for 
the proposed AFUE standards in Table I.6 of this document with the 
results for the proposed standby mode and off mode standards in 
Table I.8 of this document. Slight differences in totals may reflect 
the effects of rounding.
---------------------------------------------------------------------------

    Using a 7-percent discount rate for consumer benefits and costs and 
health benefits from SO2 and NOX emission 
changes, and the 3-percent discount rate case for climate benefits from 
reduced GHG emissions, the estimated cost of the proposed standards in 
this rule is $536 million per year in increased equipment costs, while 
the estimated annual benefits would be $1,480 million in reduced 
equipment operating costs, $1,038 million in climate benefits, and $785 
million in health benefits (accounting for reduced NOX 
emissions and increased SO2 emissions)., In this case, the 
net benefit amounts to $2,767 million per year.
    Using a 3-percent discount rate for all benefits and costs, the 
estimated cost of the proposed standards in this rule is $524 million 
per year in increased equipment costs, while the estimated annual 
benefits would be $2,089 million in reduced operating costs, $1,038 
million in climate benefits, and $1,253 million in health benefits 
(accounting for reduced NOX emissions and increased 
SO2 emissions). In this case, the net benefit would amount 
to $3,856 million per year.

Table I.9--Emissions Reductions of AFUE (TSL 8) and Standby Mode and Off
 Mode (TSL 3) Standards for Non-Weatherized Gas Furnaces and Mobile Home
                              Gas Furnaces
------------------------------------------------------------------------
 
------------------------------------------------------------------------
                         Power Sector Emissions
------------------------------------------------------------------------
CO2 (million metric tons)...............................             327
SO2 (thousand tons).....................................            (48)
NOX (thousand tons).....................................             137
Hg (tons)...............................................           (0.3)
CH4 (thousand tons).....................................             0.6
N2O (thousand tons).....................................           (0.3)
------------------------------------------------------------------------
                           Upstream Emissions
------------------------------------------------------------------------
CO2 (million metric tons)...............................              45
SO2 (thousand tons).....................................           (0.3)
NOX (thousand tons).....................................             696
Hg (tons)...............................................             0.0
CH4 (thousand tons).....................................           5,133
N2O (thousand tons).....................................          (0.05)
------------------------------------------------------------------------
                           Total FFC Emissions
------------------------------------------------------------------------
CO2 (million metric tons)...............................             373
SO2 (thousand tons).....................................            (47)
NOX (thousand tons).....................................             833
Hg (tons)...............................................           (0.3)
CH4 (thousand tons).....................................           5,134
N2O (thousand tons).....................................           (0.2)
------------------------------------------------------------------------


  Table I.10--Monetized Benefits and Costs of Proposed AFUE (TSL 8) and
   Standby Mode and Off Mode (TSL 3) Standards for Non-Weatherized Gas
                  Furnaces and Mobile Home Gas Furnaces
------------------------------------------------------------------------
                                         Annualized       Total present
                                       (million 2020$/   value (billion
                                             yr)             2020$)
------------------------------------------------------------------------
                                   3%
------------------------------------------------------------------------
Consumer Operating Cost Savings.....             2,089              33.3
Climate Benefits *..................             1,038              16.5
Health Benefits **..................             1,253              20.0
Total Benefits [dagger].............             4,380              69.8
Consumer Incremental Product Costs                 524               8.3
 [Dagger]...........................
Net Benefits........................             3,856              61.5
------------------------------------------------------------------------
                                   7%
------------------------------------------------------------------------
Consumer Operating Cost Savings.....             1,480              11.4
Climate Benefits *..................             1,038              16.5
Health Benefits **..................               785               6.1
Total Benefits [dagger].............             3,303              34.0

[[Page 40599]]

 
Consumer Incremental Product Costs                 536               4.1
 [Dagger]...........................
Net Benefits........................             2,767              29.9
------------------------------------------------------------------------
Note: This table presents the costs and benefits associated with
  consumer furnaces shipped in 2029-2058. These results include benefits
  to consumers which accrue after 2058 from the products shipped in 2029-
  2058.
* Climate benefits are calculated using four different estimates of the
  global SC-GHG (see section IV.L of this document). For presentational
  purposes of this table, the climate benefits associated with the
  average SC-GHG at a 3 percent discount rate are shown, but the
  Department does not have a single central SC-GHG point estimate, and
  it emphasizes the importance and value of considering the benefits
  calculated using all four SC-GHG estimates. On March 16, 2022, the
  Fifth Circuit Court of Appeals (No. 22-30087) granted the federal
  government's emergency motion for stay pending appeal of the February
  11, 2022, preliminary injunction issued in Louisiana v. Biden, No. 21-
  cv-1074-JDC-KK (W.D. La.). As a result of the Fifth Circuit's order,
  the preliminary injunction is no longer in effect, pending resolution
  of the federal government's appeal of that injunction or a further
  court order. Among other things, the preliminary injunction enjoined
  the defendants in that case from ``adopting, employing, treating as
  binding, or relying upon'' the interim estimates of the social cost of
  greenhouse gases--which were issued by the Interagency Working Group
  on the Social Cost of Greenhouse Gases on February 26, 2021--to
  monetize the benefits of reducing greenhouse gas emissions. In the
  absence of further intervening court orders, DOE will revert to its
  approach prior to the injunction and presents monetized benefits where
  appropriate and permissible under law.
** Health benefits are calculated using benefit-per-ton values for NOX
  and SO2. DOE is currently only monetizing (for SO2 and NOX) PM2.5
  precursor health benefits and (for NOX) ozone precursor health
  benefits, but will continue to assess the ability to monetize other
  effects such as health benefits from reductions in direct PM2.5
  emissions. See section IV.L of this document for more details.
[dagger] Total benefits for both the 3-percent and 7-percent cases are
  presented using the average SC-GHG with 3-percent discount rate, but
  the Department does not have a single central SC-GHG point estimate.
  DOE emphasizes the importance and value of considering the benefits
  calculated using all four SC-GHG estimates.
[Dagger] Costs include incremental equipment costs, as well as
  installation costs.

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

D. Conclusion

    DOE has tentatively concluded that the proposed AFUE standards and 
standby mode and off mode standards represent the maximum improvement 
in energy efficiency that is technologically feasible and economically 
justified, and would result in significant conservation of energy. 
Specifically, with regards to technological feasibility, products 
achieving these standard levels are already commercially available for 
the product classes covered by the proposed standards. As for economic 
justification, DOE's analysis shows that the benefits of the proposed 
standards exceed, to a great extent, the burdens of the proposed 
standards. Using a 7-percent discount rate for consumer benefits and 
costs and health benefits from SO2 and NOX 
emission changes, and the 3-percent discount rate case for climate 
benefits from reduced GHG emissions, the estimated cost of the proposed 
standards in this rule is $536 million per year in increased equipment 
costs, while the estimated annual benefits are $1,480 million in 
reduced equipment operating costs, $1,038 million in climate benefits, 
and $785 million in health benefits (accounting for reduced 
NOX emissions and increased SO2 emissions). The 
net benefit amounts to $2,767 million per year.
    The significance of energy savings offered by a new or amended 
energy conservation standard cannot be determined without knowledge of 
the specific circumstances surrounding a given rulemaking.\17\ For 
example, the United States rejoined the Paris Agreement on February 19, 
2021. As part of that agreement, the United States has committed to 
reducing greenhouse (``GHG'') emissions in order to limit the rise in 
mean global temperature. As such, energy savings that reduce GHG 
emissions have taken on greater importance. Additionally, some covered 
products and equipment have substantial energy consumption occur during 
periods of peak energy demand. The impacts of these products on the 
energy infrastructure can be more pronounced than products with 
relatively constant demand. Accordingly, DOE evaluates the significance 
of energy savings on a case-by-case basis.
---------------------------------------------------------------------------

    \17\ Procedures, Interpretations, and Policies for Consideration 
in New or Revised Energy Conservation Standards and Test Procedures 
for Consumer Products and Commercial/Industrial Equipment, 86 FR 
70892, 70901 (Dec. 13, 2021).
---------------------------------------------------------------------------

    As previously mentioned, the standards are projected to result in 
estimated national energy savings of 5.76 quads and an estimated 
cumulative emissions reduction of 373 Mt of CO2. The 
consumer benefit to the Nation (i.e., cumulative net present value of 
total consumer savings less costs) is estimated to be between $7.3 
billion and $25.0 billion (discounted at 7 percent and 3 percent, 
respectively) in 2020$. DOE has initially determined the energy savings 
from the proposed standard levels are ``significant'' within the 
meaning of 42 U.S.C. 6295(o)(3)(B). A more detailed discussion of the 
basis for these tentative conclusions is contained in the remainder of 
this document and the accompanying TSD.
    DOE also considered more-stringent energy efficiency levels as 
potential standards, and the Department is still considering them in 
this rulemaking. However, DOE has tentatively concluded that the 
potential burdens of the more-stringent energy efficiency levels would 
outweigh the projected benefits.
    Based on consideration of the public comments DOE receives in 
response to this document and related information collected and 
analyzed during the course of this rulemaking effort, DOE may adopt 
energy efficiency levels presented in this document that are either 
higher or lower than the proposed standards, or some combination of 
level(s) that incorporate the proposed standards in part.

II. Introduction

    The following section briefly discusses the statutory authority 
underlying this NOPR, as well as some of the relevant historical 
background related to the proposed standards for residential NWGFs and 
MHGFs.

A. Authority

    The Energy Policy and Conservation Act, as amended, Public Law 94-
163 (42 U.S.C. 6291-6317, as codified) authorizes DOE to regulate the 
energy efficiency of a number of consumer products and certain 
industrial equipment. Title III, Part B of EPCA

[[Page 40600]]

established the Energy Conservation Program for Consumer Products Other 
Than Automobiles. These products include the consumer furnaces that are 
the subject of this document. (42 U.S.C. 6292 (a)(5)) EPCA prescribed 
energy conservation standards for these products (42 U.S.C. 6295(f)(1) 
and (2)), and directs DOE to conduct future rulemakings to determine 
whether to amend these standards. (42 U.S.C. 6295(f)(4)) EPCA further 
provides that, not later than six years after the issuance of any final 
rule establishing or amending a standard, DOE must publish either a 
notice of determination 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))
    The energy conservation program under EPCA consists essentially of 
four parts: (1) testing, (2) labeling, (3) the establishment of Federal 
energy conservation standards, and (4) certification and enforcement 
procedures. Relevant provisions of EPCA specifically include 
definitions (42 U.S.C. 6291), test procedures (42 U.S.C. 6293), 
labeling provisions (42 U.S.C. 6294), energy conservation standards (42 
U.S.C. 6295), and the authority to require information and reports from 
manufacturers (42 U.S.C. 6296).
    Federal energy efficiency requirements for covered products 
established under EPCA generally supersede State laws and regulations 
concerning energy conservation testing, labeling, and standards. (42 
U.S.C. 6297(a)-(c)) DOE may, however, grant waivers of Federal 
preemption in limited instances for particular State laws or 
regulations, in accordance with the procedures and other provisions set 
forth under EPCA. 42 U.S.C. 6297(d).
    Subject to certain statutory criteria and conditions, DOE is 
required to develop test procedures that are reasonably designed to 
produce test results which measure the energy efficiency, energy use, 
or estimated annual operating cost of each covered product during a 
representative average use cycle and that are not unduly burdensome to 
conduct. (42 U.S.C. 6293(b)(3)) Manufacturers of covered products must 
use the prescribed Federal test procedure as the basis for: (1) 
certifying to DOE that their products comply with the applicable energy 
conservation standards adopted pursuant to EPCA and (2) making 
representations about the energy use or efficiency of those products. 
(42 U.S.C. 6293(c) and 42 U.S.C. 6295(s)) Similarly, DOE must use these 
test procedures to determine whether the products comply with the 
relevant energy conservation standards promulgated under EPCA. (42 
U.S.C. 6295(s)) The DOE test procedures for residential furnaces appear 
at title 10 of the Code of Federal Regulations (``CFR'') part 430, 
subpart B, appendix N.
    DOE must follow specific statutory criteria for prescribing new or 
amended energy conservation standards for covered products. Any new or 
amended standard for a covered product must be designed to achieve the 
maximum improvement in energy efficiency that the Secretary of Energy 
determines is technologically feasible and economically justified. (42 
U.S.C. 6295(o)(2)(A) and 42 U.S.C. 6295(o)(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 furnaces, if no test procedure has been 
established for the product, or (2) if DOE determines by rule that the 
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, DOE must determine whether the benefits of the 
standard exceed its burdens. (42 U.S.C. 6295(o)(2)(B)(i)) DOE must make 
this determination after receiving views and comments on the proposed 
standard, and by considering, to the greatest extent practicable, 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))
    Further, 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 savings during the first year that the consumer will receive 
as a result of the standard, as calculated under the applicable test 
procedure. (42 U.S.C. 6295(o)(2)(B)(iii))
    EPCA also contains what is known as an ``anti-backsliding'' 
provision, which prevents the Secretary from prescribing any amended 
standard that either increases the maximum allowable energy use or 
decreases the minimum required energy efficiency of a covered product. 
(42 U.S.C. 6295(o)(1)) Also, the Secretary may not prescribe an amended 
or new standard if the Secretary finds (and publishes such finding) 
that interested persons have established by a preponderance of the 
evidence that the standard is likely to result in the unavailability in 
the United States in any covered product type (or class) of performance 
characteristics (including reliability), features, sizes, capacities, 
and volumes that are substantially the same as those generally 
available in the United States. (42 U.S.C. 6295(o)(4))
    Additionally, EPCA specifies requirements when promulgating an 
energy conservation standard for a covered product that has two or more 
subcategories that warrant separate product classes and energy 
conservation standards with a level of energy efficiency or energy use 
either higher or lower than that which would apply for such group of 
covered products which have the same function or intended use. DOE must 
specify a different standard level for a type or class of products that 
has the same function or intended use if DOE determines that products 
within such group: (A) consume a different kind of energy from that 
consumed by other covered products within such type (or class); or (B) 
have a capacity or other performance-related feature which other 
products within such type (or class) do not have and such feature 
justifies a higher or lower standard. (42 U.S.C. 6295(q)(1)) In 
determining whether capacity or another performance-related feature 
justifies a different standard for a group of products, DOE must 
consider such factors as the utility to the consumer of such a feature 
and other factors DOE deems appropriate. Id. Any rule prescribing such 
a standard must include an explanation of the basis on which such 
higher or lower level was established. (42 U.S.C. 6295(q)(2))
    Pursuant to amendments contained in the Energy Independence and 
Security

[[Page 40601]]

Act of 2007 (EISA 2007), Public Law 110-140, DOE may consider the 
establishment of regional energy conservation standards for furnaces 
(except boilers). (42 U.S.C. 6295(o)(6)) Specifically, in addition to a 
base national standard for a product, DOE may establish for furnaces a 
single more-restrictive regional standard. (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))
    Finally, pursuant to the amendments contained in EISA 2007, any 
final rule for new or amended energy conservation standards promulgated 
after July 1, 2010, is required to address standby mode and off mode 
energy use. (42 U.S.C. 6295(gg)(3)) Specifically, when DOE adopts a 
standard for a covered product after that date, it must, if justified 
by the criteria for adoption of standards under EPCA (42 U.S.C. 
6295(o)), incorporate standby mode and off mode energy use into a 
single standard, or, if that is not feasible, adopt a separate standard 
for such energy use for that product. (42 U.S.C. 6295(gg)(3)(A)-(B)) 
DOE's current test procedures for residential furnaces address standby 
mode and off mode energy use for all covered residential furnaces. 
DOE's energy conservation standards address standby mode and off mode 
energy use only for non-weatherized oil-fired and electric furnaces. 10 
CFR 430.32(e)(1)(iii). In this NOPR, DOE is proposing to develop 
separate energy conservation standards that would address the standby 
mode and off mode energy use of NWGFs and MHGFs.

B. Background

1. Current Standards
    EPCA established the energy conservation standards that apply to 
most consumer furnaces currently being manufactured. The original 
standards established a minimum AFUE of 75 percent for mobile home 
furnaces. For all other furnaces, the original standards generally 
established a minimum AFUE of 78 percent. However, Congress recognized 
the potential need for a separate standard based on the capacity of a 
furnace and directed DOE to undertake a rulemaking to establish a 
standard for ``small'' gas furnaces (i.e., those having an input of 
less than 45,000 Btu per hour). (42 U.S.C. 6295(f)(1)-(2)) Through a 
final rule published in the Federal Register on November 17, 1989, DOE 
initially established standards for small furnaces at the same level as 
furnaces generally (i.e., a minimum AFUE of 78 percent). 54 FR 47916, 
47944.
    EPCA also required DOE to conduct two rounds of rulemaking to 
consider amended standards for consumer furnaces. (42 U.S.C. 
6295(f)(4)(B)-(C)). In addition, EPCA requires a six-year-lookback 
review of energy conservation standards for all covered products. (42 
U.S.C. 6295(m)(1)) In a final rule published in the Federal Register on 
November 19, 2007 (November 2007 final rule), DOE prescribed amended 
energy conservation standards for consumer furnaces manufactured on or 
after November 19, 2015. 72 FR 65136. The November 2007 final rule 
revised the energy conservation standards to 80-percent AFUE for NWGFs, 
to 81-percent AFUE for weatherized gas furnaces, to 80-percent AFUE for 
MHGFs, and to 82-percent AFUE for non-weatherized oil-fired 
furnaces.\18\ 72 FR 65136, 65169. Based on market assessment and the 
standard levels at issue, the November 2007 final rule established 
standards without regard to the certified input capacity of a furnace. 
Id.
---------------------------------------------------------------------------

    \18\ Although the November 2007 final rule did not explicitly 
state the standards for oil-fired furnaces were applicable only to 
non-weatherized oil-fired furnaces, the NOPR that preceded the final 
rule made clear that DOE did not perform analysis of and was not 
proposing standards for weatherized oil-fired furnaces or mobile 
home oil-fired furnaces. 71 FR 59203, 52914 (October 6, 2006). Thus, 
the proposed standards that were ultimately adopted in the November 
2007 final rule only applied to non-weatherized oil-fired furnaces.
---------------------------------------------------------------------------

    Following DOE's adoption of the November 2007 final rule, several 
parties jointly sued DOE in the United States Court of Appeals for the 
Second Circuit (``Second Circuit'') to invalidate the rule. Petition 
for Review, State of New York, et al. v. Department of Energy, et al., 
Nos. 08-0311-ag(L); 08-0312-ag(con) (2d Cir. filed Jan. 17, 2008). The 
petitioners asserted that the standards for furnaces promulgated in the 
November 2007 final rule did not reflect the ``maximum improvement in 
energy efficiency'' that ``is technologically feasible and economically 
justified'' under 42 U.S.C. 6295(o)(2)(A). On April 16, 2009, DOE filed 
with the Court a motion for voluntary remand that the petitioners did 
not oppose. The motion did not state that the November 2007 final rule 
would be vacated, but indicated that DOE would revisit its initial 
conclusions outlined in the November 2007 final rule in a subsequent 
rulemaking action. DOE also agreed that the final rule in that 
subsequent rulemaking action would address both regional standards for 
furnaces, as well as the effects of alternate standards on natural gas 
prices. The Second Circuit granted DOE's motion on April 21, 2009. DOE 
notes that the Second Circuit's order did not vacate the energy 
conservation standards set forth in the November 2007 final rule, and 
during the remand, they went into effect as originally scheduled.
    On June 27, 2011, DOE published a direct final rule (``DFR'') in 
the Federal Register (``June 2011 DFR'') amending the energy 
conservation standards for residential central air conditioners and 
consumer furnaces. (76 FR 37408) Subsequently, on October 31, 2011, DOE 
published a notice of effective date and compliance dates in the 
Federal Register (``October 2011 notice'') to confirm amended energy 
conservation standards and compliance dates contained in the June 2011 
DFR. 76 FR 67037. The November 2007 final rule and the June 2011 DFR 
represented the first and the second rounds, respectively, of the two 
rulemakings required under 42 U.S.C. 6295(f)(4)(B)-(C) to consider 
amending the energy conservation standards for consumer furnaces.
    The June 2011 DFR and October 2011 notice of effective date and 
compliance dates amended, in relevant part, the energy conservation 
standards and compliance dates for three product classes of consumer 
furnaces (i.e., NWGFs, MHGFs, and non-weatherized oil furnaces).\19\ 
The existing standards were left in place for three classes of consumer 
furnaces (i.e., weatherized oil-fired furnaces, mobile home oil-fired 
furnaces, and electric furnaces). For one class of consumer furnaces 
(weatherized gas furnaces), the existing standard was left in place, 
but the compliance date was amended. Electrical standby mode and off 
mode energy consumption

[[Page 40602]]

standards were established for non-weatherized gas and oil-fired 
furnaces (including mobile home furnaces) and electric furnaces. 
Compliance with the energy conservation standards promulgated in the 
June 2011 DFR was to be required on May 1, 2013, for non-weatherized 
furnaces and on January 1, 2015, for weatherized furnaces. 76 FR 37408, 
37547-37548 (June 27, 2011); 76 FR 67037, 67051 (Oct. 31, 2011). The 
amended energy conservation standards and compliance dates in the June 
2011 DFR superseded those standards and compliance dates promulgated by 
the November 2007 final rule for NWGFs, MHGFs, and non-weatherized oil 
furnaces. Similarly, the amended compliance date for weatherized gas 
furnaces in the June 2011 DFR superseded the compliance date in the 
November 2007 final rule.
---------------------------------------------------------------------------

    \19\ For NWGFs and MHGFs, the standards were amended to a level 
of 80-percent AFUE nationally with a more-stringent 90-percent AFUE 
requirement in the Northern Region. For non-weatherized oil-fired 
furnaces, the standard was amended to 83-percent AFUE nationally. 76 
FR 37408, 37410 (June 27, 2011).
---------------------------------------------------------------------------

    After publication of the October 2011 notice, the American Public 
Gas Association (``APGA'') sued DOE \20\ in the United States Court of 
Appeals for the District of Columbia Circuit (``D.C. Circuit'') to 
invalidate that rule as it pertained to NWGFs (as discussed further in 
section II.B.2 of this document). 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). The parties to the litigation engaged 
in settlement negotiations which ultimately led to filing of an 
unopposed motion on March 11, 2014, seeking to vacate DOE's rule in 
part and to remand to the agency for further rulemaking. On April 24, 
2014, the Court granted the motion and ordered that the standards 
established for NWGFs and MHGFs be vacated and remanded to DOE for 
further rulemaking. As a result, the standards established by the June 
2011 DFR for NWGFs and MHGFs did not go into effect, and thus, required 
compliance with the standards established in the November 2007 final 
rule for these products began on November 19, 2015. As stated 
previously, the AFUE standards for weatherized oil-fired furnaces, 
mobile home oil-fired furnaces, and electric furnaces were unchanged, 
and as such, the original standards for those product classes remain in 
effect. Further, the amended standard for non-weatherized oil furnaces 
were not subject to the Court order, and went into effect as specified 
in the June 2011 DFR.
---------------------------------------------------------------------------

    \20\ After APGA filed its petition for review on December 23, 
2011, various entities subsequently intervened.
---------------------------------------------------------------------------

    The AFUE standards currently applicable to all residential 
furnaces, including the two product classes for which DOE is proposing 
amended standards in this NOPR, are set forth in DOE's regulations at 
10 CFR 430.32(e)(1)(ii). Table II.1 presents the currently applicable 
standards for NWGF and MHGF and the date on which compliance with that 
standard was required.

   Table II.1--Current Federal Energy Conservation Standards for Non-
          Weatherized Gas Furnaces and Mobile Home Gas Furnaces
------------------------------------------------------------------------
                                          Minimum annual
                                               fuel         Compliance
              Product class                 utilization        date
                                          efficiency (%)
------------------------------------------------------------------------
Non-weatherized Gas.....................              80      11/19/2015
Mobile Home Gas.........................              80      11/19/2015
------------------------------------------------------------------------

2. History of Standards Rulemaking for Consumer Furnaces
    Given the somewhat complicated interplay of recent DOE rulemakings 
and statutory provisions related to consumer furnaces, DOE provides the 
following regulatory history as background leading to this document. 
Amendments to EPCA in the National Appliance Energy Conservation Act of 
1987 (NAECA; Pub. L. 100-12) established EPCA's original energy 
conservation standards for furnaces, consisting of the minimum AFUE 
levels described above for mobile home furnaces and for all other 
furnaces except ``small'' gas furnaces. (42 U.S.C. 6295(f)(1)-(2)) 
Pursuant to 42 U.S.C. 6295(f)(1)(B), in November 1989, DOE adopted a 
mandatory minimum AFUE level for ``small'' furnaces. 54 FR 47916 (Nov. 
17, 1989). The standards established by NAECA and the November 1989 
final rule for ``small'' gas furnaces are still in effect for mobile 
home oil-fired furnaces, weatherized oil-fired furnaces, and electric 
furnaces.
    Pursuant to EPCA, DOE was required to conduct two rounds of 
rulemaking to consider amended energy conservation standards for 
furnaces. (42 U.S.C. 6295(f)(4)(B) and (C)) In satisfaction of this 
first round of amended standards rulemaking under 42 U.S.C. 
6295(f)(4)(B), as noted above, DOE published the November 2007 final 
rule that revised these standards for most furnaces, but left them in 
place for two product classes (i.e., mobile home oil-fired furnaces and 
weatherized oil-fired furnaces). The standards amended in the November 
2007 final rule were to apply to furnaces manufactured or imported on 
and after November 19, 2015. 72 FR 65136 (Nov. 19, 2007). The energy 
conservation standards in the November 2007 final rule consist of a 
minimum AFUE level for each of the six classes of furnaces. Id. at 72 
FR 65169. As previously noted, based on the market analysis for the 
November 2007 final rule and the standards established under that rule, 
the November 2007 final rule eliminated the distinction between 
furnaces based on their certified input capacity, (i.e., the standards 
applicable to ``small' furnaces were established at the same level and 
as part of their appropriate class of furnace generally). Id.
    As described previously in section II.B.1 of this document, on June 
27, 2011, DOE published in the Federal Register the June 2011 DFR 
revising the energy conservation standards for residential furnaces 
pursuant to the voluntary remand in State of New York, et al. v. 
Department of Energy, et al. 76 FR 37408 (June 27, 2011). In the June 
2011 DFR, DOE considered the amendment of the same six product classes 
considered in the November 2007 final rule analysis plus electric 
furnaces. As discussed in section II.B.1 of this document, the June 
2011 DFR amended the existing AFUE energy conservation standards for 
NWGFs, MHGFs, and non-weatherized oil furnaces, and amended the 
compliance

[[Page 40603]]

date (but left the existing standards in place) for weatherized gas 
furnaces. The June 2011 DFR also established electrical standby mode 
and off mode energy conservation standards for NWGFs, non-weatherized 
oil furnaces, and electric furnaces. DOE confirmed the standards and 
compliance dates promulgated in the June 2011 DFR in a notice of 
effective date and compliance dates published in the Federal Register 
on October 31, 2011. 76 FR 67037.
    As noted earlier, following DOE's adoption of the June 2011 DFR, 
APGA filed a petition for review with the United States Court of 
Appeals for the District of Columbia Circuit to invalidate the DOE rule 
as it pertained to NWGFs. 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). On April 24, 2014, the Court granted a 
motion that approved a settlement agreement that was reached between 
DOE and APGA, in which DOE agreed to a partial vacatur and remand of 
the NWGFs and MHGFs portions of the June 2011 DFR in order to conduct 
further notice-and-comment rulemaking. 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.
    As part of the settlement, DOE agreed to use best efforts to issue 
a notice of proposed rulemaking within one year of the remand, and to 
issue a final rule within the later of two years of the issuance of 
remand, or one year of the issuance of the proposed rule, including at 
least a ninety-day public comment period. Due to the extensive and 
recent rulemaking history for residential furnaces, as well as the 
associated opportunities for notice and comment described previously, 
DOE forwent the typical earlier rulemaking stages (e.g., Framework 
Document, preliminary analysis) and instead published a NOPR on March 
12, 2015 (March 2015 NOPR). 80 FR 13120. DOE concluded that there was a 
sufficient recent exchange of information between interested parties 
and DOE regarding the energy conservation standards for residential 
furnaces such as to allow for this proceeding to move directly to the 
NOPR stage. Moreover, DOE notes that under 42 U.S.C. 6295(p) and 5 
U.S.C. 553(b) and (c), DOE is only required to publish a notice of 
proposed rulemaking and accept public comments before amending energy 
conservation standards in a final rule (i.e., DOE is not required to 
conduct any earlier rulemaking stages).\21\
---------------------------------------------------------------------------

    \21\ This aligns with the direction provided in the final rule 
published in the Federal Register on December 13, 2021, regarding 
the procedures, interpretations, and policies for consideration in 
new or revised energy conservation standards and test procedures for 
consumer products and commercial/industrial equipment (``December 
2021 Final Rule''). 86 FR 70892, 70922.
---------------------------------------------------------------------------

    In the March 2015 NOPR, DOE proposed adopting a national standard 
of 92-percent AFUE for all NWGFs and MHGFs. 80 FR 13120, 13198 (March 
12, 2015). In response, while some stakeholders supported the national 
92-percent AFUE standard, others opposed the proposed standards and 
encouraged DOE to withdraw the March 2015 NOPR.
    Multiple parties suggested that DOE should create a separate 
product class for furnaces based on input capacity and set lower 
standards for ``small furnaces'' in order to mitigate some of the 
negative impacts of the proposed standards. Among other reasons, 
commenters suggested that such an approach would reduce the number of 
low-income consumers switching to electric heat due to higher 
installation costs, because those consumers typically have smaller 
homes in which a furnace with a lower input capacity would be installed 
and, therefore, would not be impacted if a condensing standard were 
adopted only for higher-input-capacity furnaces. To explore the 
potential impacts of such an approach, DOE published a notice of data 
availability (``NODA'') in the Federal Register on September 14, 2015 
(September 2015 NODA). 80 FR 55038. The September 2015 NODA contained 
analysis that considered thresholds for defining the small NWGF product 
class from 45 kBtu/h to 65 kBtu/h certified input capacity and 
maintaining a non-condensing 80-percent AFUE standard for that product 
class, while increasing the standard to a condensing level (i.e., 
either 90-percent, 92-percent, 95-percent, or 98-percent AFUE) for 
large NWGFs. Id. at 80 FR 55042. The results indicated that life-cycle 
cost savings increased and the share of consumers with net costs 
decreased as a result of an 80-percent AFUE standard for a small NWGF 
product class. Id. at 80 FR 55042-55044. It also showed that national 
energy savings increased because fewer consumers switched to electric 
heat.\22\ Id. at 80 FR 55308, 55044.
---------------------------------------------------------------------------

    \22\ In terms of full-fuel-cycle energy, switching from gas to 
electricity increases energy use because of the losses in thermal 
electricity generation.
---------------------------------------------------------------------------

    Therefore, DOE published a supplemental notice of proposed 
rulemaking (``SNOPR'') in the Federal Register on September 23, 2016 
(September 2016 SNOPR) that proposed separate standards for small and 
large NWGF.\23\ 81 FR 65720. For NWGF with input capacities of 55 kBtu/
h or less, DOE proposed to maintain the standard at 80-percent AFUE. 
Id. at 81 FR 65852. For all other NWGF and for all MHGF, DOE proposed a 
standard of 92-percent AFUE. Id. As was the case in the September 2015 
NODA, a small NWGF product class was shown to reduce the number of 
consumers experiencing net costs due to higher installation costs for 
condensing furnaces or switching to electric heat. In the September 
2016 SNOPR, DOE initially determined that the combination of a 55 kBtu/
h product class threshold and a 92-percent AFUE standard for all NWGF 
above that size appropriately balanced the costs and benefits. DOE also 
noted in that SNOPR that a 60 kBtu/h threshold may also be economically 
justified based on the analysis, and sought further comment regarding 
the particular size threshold proposed. 81 FR 65720, 65755 (Sept. 23, 
2016).
---------------------------------------------------------------------------

    \23\ DOE initially provided 60 days for comment on the SNOPR, 
and subsequently reopened the comment period an additional 30 days. 
81 FR 87493 (Dec. 5, 2016).
---------------------------------------------------------------------------

    In addition, for the March 2015 NOPR and September 2016 SNOPR, DOE 
analyzed energy conservation standards for the standby mode and off 
mode energy use of NWGF and MHGF, as required by EPCA. (42 U.S.C. 
6295(gg)(3); 80 FR 13120, 13198; 81 FR 65720, 65759-65760) In both the 
March 2015 NOPR and the September 2016 SNOPR, DOE proposed a maximum 
energy use of 8.5 watts in both standby mode and off mode for NWGF and 
MHGF. 80 FR 13120, 13198 (March 12, 2015) and 81 FR 65720, 65852 (Sept. 
23, 2016).
    On January 15, 2021, in response to a petition for rulemaking \24\ 
submitted by the American Public Gas Association, Spire, Inc., the 
Natural Gas Supply Association, the American Gas Association, and the 
National Propane Gas Association (the ``Gas Industry Petition''), DOE 
published a final interpretive rule (``the January 2021 final 
interpretive rule'') in the Federal Register, determining that, in the 
context of residential furnaces, commercial water heaters, and 
similarly-situated products/equipment, use of non-condensing technology 
(and associated venting) constitutes a performance-related ``feature'' 
under EPCA that cannot be eliminated through adoption of an energy 
conservation standard. 86 FR 4776. Correspondingly,

[[Page 40604]]

on the same day, DOE published in the Federal Register a notification 
withdrawing the March 2015 NOPR and the September 2016 SNOPR for NWGFs 
and MHGFs. 86 FR 3873 (Jan. 15, 2021).
---------------------------------------------------------------------------

    \24\ DOE published the Gas Industry Petition in the Federal 
Register for comment on November 1, 2018. 83 FR 54838.
---------------------------------------------------------------------------

    On January 20, 2021, the White House issued Executive Order 13990, 
``Protecting Public Health and the Environment and Restoring Science to 
Tackle the Climate Crisis.'' 86 FR 7037 (Jan. 25, 2021). Section 1 of 
that Order lists several policies related to the protection of public 
health and the environment, including reducing greenhouse gas emissions 
and bolstering the Nation's resilience to climate change. Id. at 86 FR 
7037. Section 2 of the Order also instructs all agencies to review 
``existing regulations, orders, guidance documents, policies, and any 
other similar agency actions (agency actions) promulgated, issued, or 
adopted between January 20, 2017, and January 20, 2021, that are or may 
be inconsistent with, or present obstacles to, [these policies].'' Id. 
Agencies are then directed, as appropriate and consistent with 
applicable law, to consider suspending, revising, or rescinding these 
agency actions and to immediately commence work to confront the climate 
crisis. Id. In light of E.O. 13990, DOE undertook a re-evaluation of 
the final interpretation and withdrawal of proposed rulemakings 
published in the Federal Register on January 15, 2021, and the 
Department published a proposed interpretive rule in the Federal 
Register on August 27, 2021, to once again address this matter. 86 FR 
48049.
    Following the re-evaluation of the January 2021 final interpretive 
rule and consideration of public comments, DOE published a final 
interpretive rule in the Federal Register on December 29, 2021 
(``December 2021 final interpretive rule'') that returns to the 
Department's previous and long-standing interpretation (in effect prior 
to the January 15, 2021 final interpretive rule), under which the 
technology used to supply heated air or hot water is not a performance-
related ``feature'' that provides a distinct consumer utility under 
EPCA. 86 FR 73947. Residential furnaces were one of the two primary 
focuses of the December 2021 final interpretive rule (along with 
commercial water heaters), and in that document, the Department offered 
an extensive explanation as to its rationale for why it does not view 
noncondensing technology and associated venting to be a performance-
related feature warranting a separate product class for furnaces. Among 
these are the consumer utility of the product (i.e., providing heat, 
irrespective of venting type) and the availability of technological 
alternatives for difficult installation situations (which are costs 
concerns properly addressed under consideration of a standard's 
economic justification). However, DOE has stated that it will consider 
any particular concerns regarding specific installation circumstances 
in the context of individual rulemakings, and the Department welcomes 
such comments in response to this NOPR.
    Consistent with the December 2021 final interpretive rule, in 
conducting the analysis for this NOPR, DOE does not divide product 
classes based on condensing technologies and associated venting systems 
when analyzing potential energy conservation standards.
    As illustrated by the preceding discussion, the rulemaking for 
consumer furnaces has been subject to multiple rounds of public 
comment, including public meetings, and extensive records have been 
developed in the relevant dockets. (See Docket Number EERE-2011-BT-STD-
0011). Consequently, the information obtained through those earlier 
rounds of public comment, information exchange, and data gathering have 
been considered in this rulemaking, and DOE is building upon the 
existing record through further analysis and further notice and 
comment. DOE has tentatively found that the relevant furnaces market 
has stayed sufficiently similar since the time of these past 
rulemakings such that much of the previously-collected feedback and 
data continue to be relevant. However, as discussed in section IV of 
this NOPR, DOE has updated analytical inputs in its analyses where 
appropriate and welcomes further data, information, and comments.
    In the withdrawn September 2016 SNOPR, DOE preliminarily addressed 
the comments received in response to the March 2015 NOPR and September 
2015 NODA. In response to the withdrawn September 2016 SNOPR, DOE 
received a number of written comments from interested parties during 
the comment period on that document. Table II.2 identifies those 
commenters. Although DOE withdrew the September 2016 SNOPR, DOE 
considered these comments, as well as comments from the September 2016 
SNOPR public meeting, to the extent relevant in preparing this 
document.

     Table II.2--Interested Parties Providing Written Comment on the Withdrawn September 2016 SNOPR for Non-
                              Weatherized Gas Furnaces and Mobile Home Gas Furnaces
----------------------------------------------------------------------------------------------------------------
                         Name                             Acronyms/ abbreviation                 Type
----------------------------------------------------------------------------------------------------------------
A Ware Productions...................................  A Ware......................  CR
African American Environmentalist Association........  AAEA........................  CR
American Gas Association and American Public Gas       AGA and APGA................  U
 Association.
American Gas Association, American Public Gas          AGA, APGA, and GTI..........  U
 Association, and Gas Technology Institute.
AGL Resources........................................  ............................  U
Air Conditioning Contractors of America..............  ACCA........................  TA
Air-Conditioning, Heating, and Refrigeration           AHRI........................  TA
 Institute.
Alliance to Save Energy..............................  ASE.........................  EA
Allied Air...........................................  ............................  M
American Association of Blacks in Energy.............  AABE........................  CR
American Council for an Energy-Efficient Economy.....  ACEEE.......................  EA
American Council for an Energy-Efficient Economy,      ACEEE, ASAP, & ASE..........  EA
 Appliance Standards Awareness Project, and Alliance
 to Save Energy.
American Council for an Energy-Efficient Economy,      Efficiency Advocates........  EA
 Appliance Standards Awareness Project, Alliance to
 Save Energy, Natural Resource Defense Council,
 Northeast Energy Efficiency Partnerships, Northwest
 Energy Efficiency Alliance.
American Energy Alliance.............................  AEA.........................  EA
American Gas Association.............................  AGA.........................  U
American Public Gas Association......................  APGA........................  U
American Public Power Association....................  APPA........................  U

[[Page 40605]]

 
Anonymous............................................  ............................  I
Appliance Standards Awareness Project................  ASAP........................  EA
Austell Natural Gas System...........................  Austell.....................  U
Borough of Chambersburg, PA..........................  Chambersburg................  G
California Energy Commission.........................  CEC.........................  G
Cato Institute.......................................  ............................  PP
CenterPoint Energy...................................  ............................  U
City of Adairsville, Georgia.........................  Adairsville.................  G
City of Cairo, Georgia...............................  Cairo.......................  G
City of Camilla, Georgia.............................  Camilla.....................  G
City of Cartersville, Georgia........................  Cartersville................  G
City of Commerce, Georgia............................  Commerce....................  G
City of Covington, Georgia...........................  Covington...................  G
City of Dublin, Georgia..............................  Dublin......................  G
City of Lawrenceville, Georgia.......................  Lawrenceville...............  G
City of Louisville, Georgia..........................  Louisville..................  G
City of Monroe, Georgia..............................  Monroe......................  G
City of Moultrie, Georgia............................  Moultrie....................  G
City of Sugar Hill, Georgia..........................  Sugar Hill..................  G
City of Sylvania, Georgia............................  Sylvania....................  G
City of Thomasville, Georgia.........................  Thomasville.................  G
City of Tifton, Georgia..............................  Tifton......................  G
City of Toccoa/Toccoa Natural Gas....................  Toccoa......................  G/U
Clearwater Gas System................................  CGS.........................  U
Members of the U.S. Congress *.......................  Joint Congress Members......  G
Gregory W. Meeks (Member of Congress)................  Meeks.......................  G
Sanford D. Bishop, Jr. (Member of Congress)..........  Bishop......................  G
Donald M. Payne, Jr. (Member of Congress)............  Payne.......................  G
Consumer Federation of America, National Consumer Law  Joint Consumer Commenters...  CR
 Center, Massachusetts Union of Public Housing
 Tenants, and Texas Ratepayers' Organization to Save
 Energy.
Contractor Advisors..................................  ............................  C
Arthur Corbin........................................  Corbin......................  I
Jim Darling..........................................  Darling.....................  I
DC Jobs or Else......................................  DC Jobs or Else.............  CR
Earthjustice.........................................  ............................  EA
Edison Electric Institute............................  EEI.........................  U
Energy Association of Pennsylvania...................  ............................  U
Environmental Defense Fund, Institute for Policy       Joint Advocates.............  EA
 Integrity at NYU School of Law, Natural Resources
 Defense Council, and Union of Concerned Scientists.
Fitzgerald Utilities.................................  Fitzgerald..................  U
Catherine Fletcher...................................  Fletcher....................  I
Florida Natural Gas Association......................  FNGA........................  U
Gas Technology Institute.............................  GTI.........................  U
Goodman Global, Inc..................................  Goodman.....................  M
Heating, Air-Conditioning & Refrigeration              HARDI.......................  TA
 Distributors International.
Jennifer Hombach.....................................  Hombach.....................  I
Ingersoll Rand.......................................  Ingersoll Rand..............  M
David Johnson........................................  Johnson.....................  I
Johnson Controls, Inc................................  JCI.........................  M
Jointly Owned Natural Gas............................  ............................  U
Aaron Kelly..........................................  Kelly.......................  I
The Laclede Group, Inc/Spire, Inc. **................  Laclede/Spire...............  U
Law Offices of Barton Day, PLLC ***..................  Day.........................  U
Lennox International Inc.............................  Lennox......................  M
Liberty Utilities....................................  ............................  U
Manufactured Housing Institute.......................  MHI.........................  TA
Mark Nayes...........................................  Nayes.......................  I
Mercatus Center at George Mason University...........  Abdukadirov et al...........  I
Metal-Fab............................................  ............................  CS
Metropolitan Utilities District, Omaha, NE...........  Metropolitan Utilities        U
                                                        District.
Don Meyers...........................................  Meyers......................  I
Cameron Moore........................................  Moore.......................  I
Mortex Products, Inc.................................  Mortex......................  M
Municipal Gas Authority of Georgia...................  Gas Authority...............  U
National Association of Home Builders................  NAHB........................  TA
National Energy & Utility Affordability Coalition....  NEUAC.......................  CR
National Multifamily Housing Council, National         NMHC, NAA, NLHA.............  TA
 Apartment Association, National Leased Housing
 Association.
National Propane Gas Association.....................  NPGA........................  U

[[Page 40606]]

 
Natural Gas Association of Georgia...................  NGA.........................  U
Natural Resources Defense Council....................  NRDC........................  EA
New Jersey Natural Gas...............................  NJNG........................  U
NiSource Inc.........................................  NiSource....................  U
Nortek Global HVAC...................................  Nortek......................  M
Northeast Energy Efficiency Partnerships.............  NEEP........................  EA
ONE Gas, Inc.........................................  ONE Gas.....................  U
Pacific Gas and Electric Company.....................  PG&E........................  U
Pennsylvania Chamber of Business and Industry........  ............................  TA
Pennsylvania Department of Environmental Protection..  PA DEP......................  G
Philadelphia Gas Works...............................  PGW.........................  U
Plumbing-Heating-Cooling Contractors.................  PHCC........................  C
Prime Energy Partners, LLC...........................  Prime Energy Partners.......  EA
Questar Gas Company..................................  Questar Gas.................  U
Rheem Manufacturing Company..........................  Rheem.......................  M
David Schroeder......................................  Schroeder...................  I
Terry Small..........................................  Small.......................  I
Southern California Gas Company......................  SoCalGas....................  U
Southern Company.....................................  ............................  U
Southern Gas Association.............................  SGA.........................  U
Southside Heating and Air Conditioning...............  ............................  C
State of Indiana.....................................  Indiana.....................  G
Kimberly Swanson.....................................  Swanson.....................  I
Town of Rockford, Alabama............................  Rockford....................  G
Ubuntu Center of Chicago.............................  Ubuntu......................  CR
United Technologies Building and Industrial Systems--  Carrier.....................  M
 Carrier Corporation.
United States Joint Representatives [dagger].........  Joint Representatives.......  G
University of Pennsylvania, Kleinman Center for        Kleinman Center.............  EI
 Energy Policy.
U.S. Chamber of Commerce, the American Chemistry       Associations................  TA
 Council, the American Coke and Coal Chemicals
 Institute, the American Forest & Paper Association,
 the American Fuel & Petrochemical Manufacturers, the
 American Petroleum Institute, the Brick Industry
 Association, the Council of Industrial Boiler
 Owners, the National Association of Home Builders,
 the National Association of Manufacturers, the
 National Mining Association, the National Oilseed
 Processors Association, and the Portland Cement
 Association.
Vectren Corporation..................................  Vectren.....................  U
John von Harz........................................  von Harz....................  I
Washington Gas Light Company.........................  Washington Gas..............  U
Walter Wood..........................................  Wood........................  I
----------------------------------------------------------------------------------------------------------------
C: Mechanical Contractor; CR: Consumer Representative; CS: Component Supplier; EA: Efficiency/Environmental
  Advocate; EI: Educational Institution; G: Government; I: Individual; M: Manufacturer; PP: Public Policy
  Research Organization; TA: Trade Association; U: Utility or Utility Trade Association.
* Paul D. Tonka, Ra[uacute]l M. Grijalva, Michael M. Honda, Scott H. Peters, Alan S. Lowenthal, Jerrold Nadler,
  Sander M. Levin, Chris Van Hollen, Alan S. Lowenthal, Rep.Ted Lieu, Donald S. Beyer, Jr., Louise M. Slaughter,
  Rep. Lois Capps, and Donna F. Edwards.
** The Laclede Group, Inc. changed its name to Spire, Inc. during this rulemaking.
*** Representing Spire Inc., a gas utility.
[dagger] Mo Brooks, Tom Price, Lou Barletta, Bradley Byrne, Glenn `GT' Thompson, Steve Russell, Joe Heck, Gary
  Palmer, Kevin Yoder, Jim Bridenstine, Scott Tipton, Robert Pittenger, Chuck Fleischmann, Robert Aderholt, Mimi
  Walters, Barry Loudermilk, Gregg Harper, Mark Walker, Brian Babin, Candice S. Miller, Chris Stewart, Mike D.
  Rogers, Jim Renacci, Bob Gibbs, Dave Brat, Jeff Miller, Phil Roe, David Schweikert, Tom Marino, David B.
  McKinley, Scott DesJarlais, Marc Veasey, Ralph Abraham, Matt Salmon, David Rouzer, Richard Hudson, Cresent
  Hardy, Buddy Carter, Mike Pompeo, Martha Roby, Glenn Grothman, Tom Emmer, Paul Gosar, Ted S. Yoho, Rick Allen,
  Dan Benishek, David Young, Randy Weber, Mark Meadows, Kay Granger, Blake Farenthold, Bill Flores, Kevin
  Cramer, Daniel Webster, Tim Huelskamp, Markwayne Mullin, Chris Collins, Jason Smith, Steve Womack, Diane
  Black, Keith Rothfus, Sean P. Duffy, Renee Ellmers, Alex X. Mooney, Jim Costa, Brad Wenstrup, Sam Graves,
  Charles W. Boustany, Jr., Andy Barr, Mike Bost, Doug Collins, Jody Hice, Mike Kelly, Jim Jordan, Lynn Jenkins,
  Andy Harris, Billy Long, Bill Johnson, Rob Woodall, David W. Jolly, Rodney Davis, Joe Barton, Gus M.
  Bilirakis, Pete Olson, Randy Forbes, Ed Whitfield, Ken Calvert, John Duncan, Henry Cuellar, Steve King, John
  Shimkus, Jeb Hensarling, Pete Sessions, Vicky Hartzler, Adrian Smith, Louie Gohmert, Marsha Blackburn, Sam
  Johnson, Tom McClintock, Walter Jones, Patrick T. McHenry, Steve Chabot, Doug Lamborn, Frank D. Lucas, Sanford
  D. Bishop, Jr., Lamar Smith, Austin Scott, Mick Mulvaney, Steve Pearce, Brett Guthrie, Trent Franks, Blaine
  Luetkemeyer, Tom Graves, Mike Coffman, Robert E. Latta, F. James Sensenbrenner, Jr., Stephen Fincher, Tom
  Cole, Lynn Westmoreland, John Ratcliffe, and John Moolenaar.

    A parenthetical reference at the end of a comment quotation or 
paraphrase provides the location of the item in the public record.\25\
---------------------------------------------------------------------------

    \25\ The parenthetical reference provides a reference for 
information located in the docket of DOE's rulemaking to develop 
energy conservation standards for NWGF and MHGF. (Docket No. EERE-
2014-BT-STD-0031, which is maintained at www.regulations.gov). The 
references are arranged as follows: (commenter name, comment docket 
ID number, page of that document).
---------------------------------------------------------------------------

3. Current Standards in Canada
    Consumer furnaces are a regulated product in Canada and are subject 
to energy efficiency regulations. On December 24, 2008, Natural 
Resources Canada published regulations in the Canada Gazette, Part II 
amending the energy efficiency regulations for consumer furnaces, among 
other appliances and equipment.\26\ The revised regulation, required on 
or after December 31, 2009, sets a minimum

[[Page 40607]]

efficiency of 90-percent AFUE for gas furnaces. This standard is 
applicable to gas furnaces, other than those with an integrated cooling 
component that are outdoor or through-the-wall gas furnaces, that have 
an input rate no greater than 65.92 kW (225,000 Btu/h), and that use 
single-phase electric current.
---------------------------------------------------------------------------

    \26\ See Canada Gazette, Part II, Vol. 142, No. 26, pp. 2512-
2570. (Available at: www.gazette.gc.ca/rp-pr/p2/2008/2008-12-24/pdf/g2-14226.pdf) (Last accessed Feb. 15, 2022).
---------------------------------------------------------------------------

    On June 12, 2019, Natural Resources Canada published regulations in 
the Canada Gazette, Part II amending the energy efficiency regulations 
for consumer furnaces, among other appliances and equipment.\27\ The 
definition of gas furnaces was clarified to exclude gas furnaces for 
relocatable buildings (e.g., MHGFs). The revised regulation, required 
on or after July 3, 2019, sets a minimum efficiency of 95-percent AFUE 
for gas furnaces. Furthermore, the revised regulation also sets a 
minimum efficiency of 80-percent AFUE for gas furnaces for relocatable 
buildings.\28\
---------------------------------------------------------------------------

    \27\ See Canada Gazette, Part II, Vol. 153, No. 12, pp. 2423-
2517. (Available at: www.gazette.gc.ca/rp-pr/p2/2019/2019-06-12/pdf/g2-15312.pdf) (Last accessed Feb. 15, 2022).
    \28\ ``Gas furnace for relocatable buildings'' is defined in 
that regulation as a gas furnace that is intended for use in a 
temporary modular building that can be relocated from one site to 
another and is marked for use in relocatable buildings.
---------------------------------------------------------------------------

C. Deviation From Appendix A

    In accordance with section 3(a) of 10 CFR part 430, subpart C, 
appendix A (``appendix A''), DOE notes that it is deviating from the 
provision in appendix A regarding the pre-NOPR stages for an energy 
conservation standards rulemaking. Section 6(a)(2) of appendix A states 
that if the Department determines it is appropriate to proceed with a 
rulemaking, the preliminary stages of a rulemaking to issue or amend an 
energy conservation standard that DOE will undertake will be a 
framework document and preliminary analysis, or an advance notice of 
proposed rulemaking. For the reasons that follow, DOE finds it 
necessary and appropriate to deviate from this step in appendix A and 
to instead publish this NOPR without once again conducting these 
preliminary stages. Completion of this furnaces rulemaking is overdue 
under the relevant statutory deadline, so DOE seeks to complete its 
statutory obligations as expeditiously as possible. Moreover, DOE finds 
that there would be little benefit in repeating the preliminary stages 
of this rulemaking. The earlier stages of a rulemaking are intended to 
introduce the various analyses DOE conducts during the rulemaking 
process, present preliminary results, and request initial feedback from 
interested parties to seek early input. Although the most recent 
rulemaking notices for NWGFs and MHGFs (the March 2015 NOPR and 
September 2016 SNOPR) have been withdrawn, as discussed in section 
II.B.2 of this document, this analysis builds upon the previous 
rulemaking stages. As DOE is using similar analytical methods in this 
NOPR (with differences described in the sections that follow), 
publication of a framework document, preliminary analysis, or ANOPR 
would be largely redundant of previously published documents. 
Stakeholders have previously provided numerous rounds of input on these 
methodologies in the most recent rulemaking. Further, as discussed in 
section II.A, EPCA provides that DOE must conduct two rounds of energy 
conservation standard rulemakings for NWGFs and MHGFs. (42 U.S.C. 
6295(f)(4)(B) and (C)) The statute also requires that not later than 6 
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 NOPR 
including new proposed energy conservation standards. (42 U.S.C. 
6295(m)(1)) The energy conservation standards for NWGF and MHGF were 
last amended in the November 2007 final rule. Additionally, as 
discussed in section II.B.2 of this document, in settling the lawsuit 
filed by APGA following the June 2011 DFR (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)), DOE agreed to use 
best efforts to issue a NOPR within one year of the remand (i.e., by 
April 24, 2015), and to issue a final rule within the later of two 
years of the issuance of remand, or one year of the issuance of the 
proposed rule (i.e., by April 24, 2016).\29\ As it has been more than 8 
years since the settlement agreement and over 6 years past the original 
target date for issuance of a final rule, DOE has determined that 
moving as expeditiously as is reasonably practical is the approach most 
consistent with the terms of the settlement agreement as well as the 
requirements of EPCA. As such, DOE is not publishing pre-NOPR 
documents. DOE has tentatively found that the portions of analysis done 
for previous rulemakings continue to apply to the current market for 
the furnaces at issue. However, as discussed in section IV of this 
NOPR, DOE has updated analytical inputs in its analyses where 
appropriate and welcomes submission of additional data, information, 
and comments.
---------------------------------------------------------------------------

    \29\ DOE issued the March 2015 NOPR on February 10, 2015. 80 FR 
13120, 13197. Therefore, the later of the two dates is April 24, 
2016.
---------------------------------------------------------------------------

    Section 6(f)(2) of appendix A provides that the length of the 
public comment period for the NOPR will be at least 75 days. For this 
NOPR, DOE finds it necessary and appropriate to provide a 60-day 
comment period. As stated previously, DOE faces an overdue statutory 
deadline for this rulemaking and, furthermore, the analytical methods 
used for this NOPR are similar to those used in previous rulemaking 
notices. Consequently, DOE has determined it is necessary and 
appropriate to provide a 60-day comment period, which the Department 
has determined provides sufficient time for interested parties to 
review the NOPR and develop comments.

III. General Discussion

    DOE developed this proposed rule after considering comments, data, 
and information from interested parties that represent a variety of 
interests. This NOPR addresses all relevant issues raised by commenters 
since the last published proposal in this rulemaking proceeding.

A. Product Classes and Scope of Coverage

    When evaluating and establishing energy conservation standards, DOE 
divides covered products into product classes by the type of energy 
used, or by capacity or other performance-related features that justify 
differing standards. In making a determination whether a performance-
related feature justifies a different standard, DOE must consider such 
factors as the utility of the feature to the consumer and other factors 
DOE determines are appropriate. (42 U.S.C. 6295(q))
    In this proposed rule, DOE is only analyzing a subset of consumer 
furnace classes. DOE agreed to the partial vacatur and remand of the 
June 2011 DFR, specifically as it related to energy conservation 
standards for NWGFs and MHGFs in the settlement agreement to resolve 
the litigation in American Public Gas Ass'n v. U.S. Dept. of Energy 
(No. 11-1485, D.C. Cir. Filed Dec 23, 2011). 80 FR 13120, 13130-13132 
(March 12, 2015). Therefore, in this proposed rule, DOE is only 
proposing amended standards for NWGFs and for MHGFs. For a detailed 
discussion of the product classes considered for this NOPR, see section 
IV.A.1 of this document.

B. Test Procedure

    EPCA sets forth generally applicable criteria and procedures for 
DOE's adoption and amendment of test

[[Page 40608]]

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. (42 U.S.C. 6295(s)) DOE's current energy conservation 
standards for consumer furnaces are expressed in terms of AFUE (see 10 
CFR 430.32(e)(1)). AFUE is an annualized fuel efficiency metric that 
accounts for fossil fuel consumption in active, standby, and off modes. 
The existing DOE test procedure for determining the AFUE of consumer 
furnaces is located at 10 CFR part 430, subpart B, appendix N. The DOE 
test procedure for consumer furnaces was originally established by a 
May 12, 1997 final rule, which incorporates by reference the American 
Society of Heating, Refrigerating and Air-Conditioning Engineers 
(``ASHRAE'')/American National Standards Institute (``ANSI'') Standard 
103-1993, Method of Testing for Annual Fuel Utilization Efficiency of 
Residential Central Furnaces and Boilers (1993). 62 FR 26140, 26157.
    Since the initial adoption of the consumer furnaces test procedure, 
DOE has undertaken a number of additional rulemakings related to that 
test procedure, including ones to account for measurement of standby 
mode and off mode energy use (see 75 FR 64621 (Oct. 20, 2010); 77 FR 
76831 (Dec. 31, 2012)) and to supply necessary equations related to 
optional heat-up and cool-down tests (see 78 FR 41265 (July 10, 2013)).
    Most recently, DOE published a final rule in the Federal Register 
on January 15, 2016, that further amended the test procedure for 
consumer furnaces (January 2016 TP final rule). 81 FR 2628. The 
revisions included:
     Clarification of the electrical power term ``PE'';
     Adoption of a smoke stick test for determining use of 
minimum default draft factors;
     Allowance for the measurement of condensate under steady-
state conditions;
     Reference to manufacturer's installation and operation 
manual and clarifications for when that manual does not specify test 
set-up;
     Specification of ductwork requirements for units that are 
installed without a return duct; and
     Revision of the requirements regarding AFUE reporting 
precision.

81 FR 2628, 2629-2630.

    As such, the most current version of the test procedure (published 
in January 2016) has now been in place for several years and is 
available to commenters when considering the proposals presented in 
this NOPR.

C. 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. DOE then 
determines which of those means for improving efficiency are 
technologically feasible. DOE considers technologies incorporated in 
commercially-available products or in working prototypes to be 
technologically feasible. See 10 CFR part 430, subpart C, appendix A 
(``Process Rule''), sections 6(b)(3)(i) and 7(b)(1).
    After DOE has determined that particular technology options are 
technologically feasible, it further evaluates each technology option 
in light of the following additional screening criteria: (1) 
practicability to manufacture, install, and service; (2) adverse 
impacts on product utility or availability; (3) adverse impacts on 
health or safety; and (4) unique-pathway proprietary technologies. 
Sections 6(b)(3)(ii)-(v) and 7(b)(2)-(5) of the Process Rule. Section 
IV.B of this document discusses the results of the screening analysis 
for NWGF and MHGF, particularly the designs DOE considered, those it 
screened out, and those that are the basis for the potential standards 
considered in this rulemaking. For further details on the screening 
analysis for this rulemaking, see chapter 4 of the technical support 
document (``TSD'').
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 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 NWGFs and 
MHGFs, using the design parameters for the most efficient products 
available on the market or in working prototypes. The max-tech levels 
that DOE determined for this rulemaking are described in section 
IV.C.1.b of this NOPR and in chapter 5 of the TSD.

D. Energy Savings

1. Determination of Savings
    For each trial standard level (``TSL''), DOE projected energy 
savings from application of the TSL to NWGFs and MHGFs purchased in the 
30-year period that begins in the expected first year of compliance 
with the proposed amended or new standards (2029-2058).\30\ The savings 
are measured over the entire lifetime of 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 no-new-standards case 
represents a projection of energy consumption that reflects how the 
market for a product would likely evolve in the absence of amended or 
new energy conservation standards.
---------------------------------------------------------------------------

    \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 models 
to estimate national energy savings (``NES'') from potential amended 
and new standards for NWGFs and MHGFs. The NIA spreadsheet model 
(described in section IV.H of this NOPR) calculates) energy savings in 
terms of site energy, which is the energy directly consumed by products 
at the locations where they are used. For electricity, DOE reports 
national energy savings in terms of primary (source) energy savings, 
which is the savings in the energy that is used to generate and 
transmit the site electricity. For natural gas, the primary energy 
savings are considered to be equal to the site energy savings. To 
calculate the primary energy impacts, DOE derives annual conversion 
factors from the model used to prepare the Energy Information 
Administration's (``EIA'') most recent Annual Energy Outlook (``AEO'') 
currently AEO 2021. DOE also calculates NES in terms of full-fuel-cycle 
(``FFC'') energy savings. The FFC metric includes the energy consumed 
in extracting, processing, and transporting primary fuels (i.e., coal, 
natural gas, petroleum fuels), and, thus, presents a more complete 
picture of the impacts of energy conservation standards.\31\ DOE's 
approach is based on

[[Page 40609]]

the calculation of an FFC multiplier for each of the energy types used 
by covered products or equipment. For more information on FFC energy 
savings, see section IV.H.2 of this NOPR.
---------------------------------------------------------------------------

    \31\ The FFC metric is discussed in DOE's statement of policy 
and notice of policy amendment. 76 FR 51282 (August 18, 2011), as 
amended at 77 FR 49701 (August 17, 2012).
---------------------------------------------------------------------------

2. Significance of Savings
    To adopt any new or amended standards for a covered product, DOE 
must determine that such action would result in significant energy 
savings. (42 U.S.C. 6295(o)(3)(B))
    The significance of energy savings offered by a new or amended 
energy conservation standard cannot be determined without knowledge of 
the specific circumstances surrounding a given rulemaking.\32\ For 
example, the United States has rejoined the Paris Agreement and will 
exert leadership in confronting the climate crisis.\33\ Additionally, 
some covered products and equipment have most of their energy 
consumption occur during periods of peak energy demand. The impacts of 
these products on the energy infrastructure can be more pronounced than 
products with relatively constant demand. In evaluating the 
significance of energy savings, DOE considers differences in primary 
energy and FFC effects for different covered products and equipment 
when determining whether energy savings are significant. Primary energy 
and FFC effects include the energy consumed in electricity production 
(depending on load shape), in distribution and transmission, and in 
extracting, processing, and transporting primary fuels (i.e., coal, 
natural gas, petroleum fuels), and, thus, present a more complete 
picture of the impacts of energy conservation standards.
---------------------------------------------------------------------------

    \32\ The numeric threshold for determining the significance of 
energy savings, which was established in a final rule published in 
the Federal Register on February 14, 2020 (85 FR 8626, 8705), was 
subsequently eliminated in a final rule published in the Federal 
Register on December 13, 2021 (86 FR 70892, 70901-70906).
    \33\ See Executive Order 14008, ``Tackling the Climate Crisis at 
Home and Abroad,'' 86 FR 7619 (Feb. 1, 2021).
---------------------------------------------------------------------------

    Accordingly, DOE is evaluating the significance of energy savings 
on a case-by-case basis, taking into account the significance of 
cumulative FFC national energy savings, the cumulative FFC emissions 
reductions, and the need to confront the global climate crisis, among 
other factors. As discussed in section V.C of this document, DOE is 
proposing to adopt TSL 8 for AFUE, which would save an estimated 5.76 
quads of energy (FFC) over 30 years, and TSL 3 for standby mode and off 
mode, which would save an estimated 0.28 quads over 30 years. Based on 
this amount of FFC savings, the corresponding reduction in emissions, 
and need to confront the global climate crisis, DOE has initially 
determined the energy savings from the proposed standard levels are 
``significant'' within the meaning of 42 U.S.C. 6295(o)(3)(B).

E. Economic Justification

1. Specific Criteria
    As noted previously, EPCA provides seven factors to be evaluated in 
determining whether a potential energy conservation standard is 
economically justified. (42 U.S.C. 6295(o)(2)(B)(i)(I)-(VII)) The 
following sections discuss how DOE has addressed each of those seven 
factors in this rulemaking.
a. Economic Impact on Manufacturers and Consumers
    In determining the impacts of potential amended standards on 
manufacturers, DOE conducts an MIA, as discussed in section IV.J of 
this document. DOE first uses an annual cash-flow approach to determine 
the quantitative impacts. This step includes both a short-term 
assessment--based on the cost and capital requirements during the 
period between when a regulation is issued and when entities must 
comply with the regulation--and a long-term assessment over a 30-year 
period. The industry-wide impacts analyzed include (1) INPV, which 
values the industry on the basis of expected future cash flows; (2) 
cash flows by year; (3) changes in revenue and income; and (4) other 
measures of impact, as appropriate. Second, DOE analyzes and reports 
the impacts on different types of manufacturers, including impacts on 
small manufacturers. Third, DOE considers the impact of standards on 
domestic manufacturer employment and manufacturing capacity, as well as 
the potential for standards to result in plant closures and loss of 
capital investment. Finally, DOE takes into account cumulative impacts 
of various DOE regulations and other product-specific regulatory 
requirements on manufacturers.
    For individual consumers, measures of economic impact include the 
changes in LCC and PBP associated with new or amended standards. These 
measures are discussed further in the following section. For consumers 
in the aggregate, DOE also calculates the national 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 discount rates appropriate for 
consumers. To account for uncertainty and variability in specific 
inputs, such as product lifetime and discount rate, DOE uses a 
distribution of values, with probabilities attached to each value.
    The PBP is the estimated amount of time (in years) it takes 
consumers to recover the increased purchase cost (including 
installation) of a more-efficient product through lower operating 
costs. In general, 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 analyses, DOE assumes that consumers will 
purchase the covered products in the first year of compliance with new 
or amended standards. The LCC savings for the considered efficiency 
levels are calculated relative to the case that reflects projected 
market trends in the absence of new or amended standards. DOE's LCC and 
PBP analyses is discussed in further detail in section IV.F of this 
document.
c. Energy Savings
    Although significant conservation of energy is a separate statutory 
requirement for adopting an energy conservation standard, EPCA requires 
DOE, in determining the economic justification of a standard, to 
consider the total projected energy savings that are expected to result 
directly from the standard. (42 U.S.C. 6295(o)(2)(B)(i)(III)) As 
discussed in section IV.H of this document, DOE uses the NIA 
spreadsheet models to project national energy savings.

[[Page 40610]]

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 proposed 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 proposed 
rule to the Attorney General with a request that the Department of 
Justice (``DOJ'') provide its determination on this issue. DOE will 
publish and respond to the Attorney General's determination in the 
final rule. DOE invites comment from the public regarding the 
competitive impacts that are likely to result from this proposed rule. 
In addition, stakeholders may also provide comments separately to DOJ 
regarding these potential impacts. See the ADDRESSES section for 
information to send comments to DOJ.
f. Need for National Energy Conservation
    DOE also considers the need for national energy and water 
conservation in determining whether a new or amended standard is 
economically justified. (42 U.S.C. 6295(o)(2)(B)(i)(VI)) The energy 
savings from the proposed 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 
potential standards may affect the Nation's needed power generation 
capacity, as discussed in section IV.M of this document.
    DOE maintains that environmental and public health benefits 
associated with the more efficient use of energy are important to take 
into account when considering the need for national energy 
conservation. The proposed standards are likely to result in 
environmental benefits in the form of reduced emissions of air 
pollutants and GHGs associated with energy production and use. DOE 
conducts an emissions analysis to estimate how potential standards may 
affect these emissions, as discussed in section IV.K of this document; 
the estimated emissions impacts are reported in section V.B.6 of this 
document. DOE also estimates the monetized value of health benefits of 
certain emissions reductions resulting from the considered TSLs, as 
discussed in section IV.L of this document.
g. Other Factors
    In determining whether an energy conservation standard is 
economically justified, DOE may consider any other factors that the 
Secretary deems to be relevant. (42 U.S.C. 6295(o)(2)(B)(i)(VII)) To 
the extent DOE identifies any relevant information regarding economic 
justification that does not fit into the other categories described 
above, DOE could consider such information under ``other factors.''
2. Rebuttable Presumption
    As set forth in 42 U.S.C. 6295(o)(2)(B)(iii), EPCA creates a 
rebuttable presumption that an energy conservation standard is 
economically justified if the additional cost to the consumer of a 
product that meets the standard is less than three times the value of 
the first 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 effect potential amended 
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 of this proposed rule.

F. Other Issues

1. Furnace Sizing Requirements Based on ACCA Manual J and Manual S
    On June 30, 2016, AGA presented information to DOE and the Office 
of Information and Regulatory Affairs (``OIRA'') that AGA asserted 
supports a 70 kBtu/h maximum capacity threshold for small furnaces.\34\ 
Specifically, AGA submitted calculations performed by a consultant, HTR 
Engineering, that used the ACCA Manual J methodology to determine the 
heating load for various types of houses in various locations.\35\ For 
each scenario, AGA submitted Microsoft Excel worksheets and PDF ``J1-
ALP'' forms with the summary inputs, assumptions, and corresponding 
components of the overall heating load to DOE.\36\ In addition to the 
Manual J results for each scenario, in its presentation, AGA also 
provided information on the appropriate furnace size for each scenario 
based on ACCA Manual S. DOE subsequently presented a slide at the 
October 2016 public meeting covering the September 2016 SNOPR that 
summarized the information provided by AGA for further discussion among 
all interested parties.\37\ DOE noted that Manual S requires that 
furnaces be sized at between 1.0 and 1.4 times the Manual J calculated 
load, and the ``appropriate furnace size'' presented by AGA based on 
the Manual S requirement did not appear to be within that range, based 
on the Manual J data provided by AGA.
---------------------------------------------------------------------------

    \34\ AGA presented this information in a PowerPoint slide deck 
titled, ``Additional Information for OIRA Staff DOE Furnace SNOPR'' 
(June 30, 2016). This presentation is located at the docket at: 
www.regulations.gov/document?D=EERE-2014-BT-STD-0031-0209.
    \35\ AGA provided results for four building types at two levels 
of efficiency and in five locations. The four building types were: 
two-story townhome with basement; two-story townhome without 
basement; three-story townhome without basement; and small single 
family detached home. The two efficiency levels were a highly 
efficient home built to 2015 code and a highly inefficient home 
built to 1950s era practices and standards. The five locations were 
Atlanta, Chicago, Minneapolis, Salt Lake City, and Oklahoma City.
    \36\ See: www.regulations.gov/document?D=EERE-2014-BT-STD-0031-0209.
    \37\ See: www.regulations.gov/document/EERE-2014-BT-STD-0031-0236.
---------------------------------------------------------------------------

    In their subsequent written comments, AGA stated that DOE 
misrepresented the information from the HTR Engineering furnace sizing 
study to support the proposed standard. First, AGA commented that DOE 
incorrectly described the data in the table presented at the SNOPR 
public meeting as AGA's data and AGA's methodology, even

[[Page 40611]]

though the analysis was done by a third-party consultant. Second, AGA 
stated that the numbers DOE presented in the public meeting only 
included the results from the building envelope efficiency assessment 
of the HTR study and excluded the load associated with the duct system 
efficiency assessment and the outdoor air requirements presented in the 
study, thereby significantly understating the actual building heating 
loads. Third, AGA asserted that due to the use of what it stated are 
the incorrect building load numbers, the calculated preferred output 
and input capacity, as presented by DOE, were also incorrect. Fourth, 
AGA commented that if DOE had used what AGA deemed to be the correct 
building load numbers, the ``AGA'' oversize factors (as presented by 
DOE) would reflect the 1.4 oversize factor from ACCA Manual S. AGA 
presented a revised version of the table shown in the public meeting 
with corrected values. Lastly, AGA asserted that if DOE were to use 
what AGA understood to be the correct building heating load, a 55,000 
Btu/h NWGF would not be able to serve the heating needs of the type of 
home assessed. (AGA, No. 306-1 at pp. 13, 52-54) PHCC stated that the 
heating loads submitted by AGA and presented on DOE's slide 30 of the 
October 17, 2016 Public Meeting are understated. PHCC commented that it 
appears that infiltration losses and the possibility of unoccupied 
space may not have been fully accounted for in these calculations. As a 
result, PHCC stated that this analytical flaw puts in question the 
calculations used to justify the input capacity limit for exemption 
from the proposed standard. PHCC presented alternative calculations 
based on a 1,500 square foot townhouse, which it asserted show that a 
1500 square foot townhouse similar to the one analyzed by AGA would not 
be a candidate for a 55,000 Btu/h furnace on a 25 [deg]F day. (PHCC, 
No. 298 at p. 2)
    In response, DOE notes that in the summary spreadsheets provided by 
AGA, the output from the Manual J load calculation, as listed on the 
J1-ALP forms, is used for the Manual S furnace sizing. In other words, 
Manual S specifies that the appropriate equipment size be based on the 
load calculation resulting from Manual J. When compared to the 
information presented by AGA regarding the appropriate furnace size for 
each scenario (Additional Information for OIRA Staff DOE Furnace SNOPR, 
June 30, 2016 presented in slide #7), these values imply an oversize 
factor of approximately 2, which is inconsistent with the Manual S 
requirement for an oversize factor of 1.0-1.4 for these buildings. In 
their written comments, AGA provided a table (AGA, No. 306-1 at p. 52) 
which includes heating load numbers (labeled Heating Load Numbers from 
HTR Furnace Sizing Study); however, these values were not previously 
provided as the basis for the furnace sizing requirements for the 
scenarios by AGA. More specifically, AGA did not provide information to 
DOE regarding its assumptions or calculations for the load associated 
with the duct system efficiency assessment or the outdoor air 
requirements. Therefore, DOE maintains that its characterization of the 
original data submittal compared to the presented data is appropriate.
    However, when considering AGA's ``corrected'' version of the table, 
DOE notes that for the ranges presented in the column for ``ACCA Manual 
S preferred input capacity '' show that in most cases (all but one--
Minneapolis), a 55,000 Btu/h furnace could meet the required load. 
While AGA's ``corrected'' table shows the ``Appropriate Furnace Size 
for a 1,500 s.f. Inefficient Townhouse presented in AGA slide deck to 
OMB (kBtu/h)'' is based on a 1.4 oversize factor, DOE notes that Manual 
S specifies that the factor can be anywhere from 1.0 to 1.4, and Manual 
S recommends sizing the furnace as close to 1.0 as possible. Thus, 
while oversizing a furnace up to 40 percent is acceptable, it is 
preferred to size it appropriately according to the calculated load in 
Manual S. Therefore, the ``preferred'' input capacity would be the low 
end of the range presented in AGA's table, which for four of the five 
scenarios presented is below 55,000 Btu/h (and in the fifth case is 
62,200 Btu/h). Thus, based on the data submitted by AGA, a threshold of 
55,000 Btu/h would alleviate impacts in the majority of situations, 
except in the most extreme cases (such as Minneapolis). Even in these 
situations, such as in Minneapolis, a 55,000 Btu/h furnace would likely 
be able to meet the majority of the heating load, with a small amount 
of supplemental heating required from other sources. Therefore, DOE 
maintains its position that 55 kBtu/h is appropriate for consideration 
as a potential threshold for defining small furnaces, and further 
discusses its decision with regard to this in sections IV.A.1.a and 
V.C.1 of this document. Furnaces at or above this threshold would 
represent approximately 86% of furnace shipments in the no-new-
standards case. In response to PHCC, DOE notes that the files submitted 
by AGA do appear to account for infiltration losses, and some scenarios 
include unoccupied basement space. However, some of the assumptions 
used by PHCC in its calculations appear to differ from those made in 
the data submitted by AGA, including the dimensions of exterior walls 
and area and type of windows, among other parameters, which may account 
for the difference in results.
2. Compliance Date
    As discussed in the withdrawn September 2016 SNOPR, missed 
deadlines in the furnace rulemaking history have resulted in ambiguity 
in terms of the applicable statutory compliance date for any potential 
amended standards that result from this rulemaking. 81 FR 65720, 65746 
(Sept. 23, 2016). DOE explained that, in light of this ambiguity, it is 
informed by Congress's most recent direction regarding the lead time 
specific to furnace rulemakings (i.e., 5 years) under the 6-year review 
requirement (42 U.S.C. 6295(m)(4)(A)(ii)). 81 FR 65720, 65747 (Sept. 
23, 2016). DOE posited that a lead time for compliance of 5 years after 
publication of the final rule for amended furnaces standards, 
consistent with the requirements of both 42 U.S.C. 6295(f)(4)(C) and 
(m)(4)(A)(ii), would be in alignment with the provision in the 6-year-
lookback authority that manufacturers shall not be subject to new 
standards for a covered product for which other new standards have been 
required in the past 6 years. (42 U.S.C. 6295(m)(4)(B); the relevant 
date being November 19, 2015--the compliance date of the last 
amendments applicable to NWGFs and MHGFs.) Id. Further, DOE asserted 
that the compliance date of the July 2014 Furnace Fan Final Rule \38\ 
(i.e., July 3, 2019) is not relevant to the minimum 6-year period 
required under 42 U.S.C. 6295(m)(4)(B), stating that furnace fan 
standards are to be treated as a separate covered product and are not 
to be understood as a standard on furnaces. Id. DOE continues to adhere 
to this view and is proposing a five-year lead time for compliance with 
any amended energy conservation standards for NWGFs and MHGFs, for the 
reasons that follow.
---------------------------------------------------------------------------

    \38\ See 79 FR 38130 (July 3, 2014).
---------------------------------------------------------------------------

    DOE interprets furnaces and furnace fans as separate products under 
EPCA. The 6-year period under 42 U.S.C. 6295(m)(4)(B) is applicable in 
the context of standards directly applicable to the product in 
question. As such, the standards for furnace fans are not a 
consideration when applying the 6-year period to new or amended 
standards for furnaces. DOE acknowledges that

[[Page 40612]]

``furnace fan'' is not expressly defined by EPCA as a ``covered 
product.'' However, EPCA, and the relevant amending statutes, provide 
for the treatment of furnace fans as a product separate from furnaces, 
and DOE's standards for furnace fans are separate and distinct from the 
standards for furnaces. DOE is expressly authorized to establish energy 
conservation standards for electricity used for purpose of circulating 
air through duct work. (42 U.S.C. 6295(f)(4)(D)) An energy conservation 
standard is a performance standard ``which prescribes a minimum level 
of energy efficiency or a maximum quantity of energy use . . . for a 
covered product.'' (42 U.S.C. 6291(6)) DOE has interpreted EPCA as 
providing direction to the Department to establish an energy 
conservation standard for furnace fans, which are to be treated as a 
separate consumer product.
    Further, the authority to establish such standards was added to 
EPCA by section 135, of the Energy Policy Act of 2005, which was titled 
``Energy Conservation Standards for Other Products,'' again indicating 
that the standards are to be treated as standards applicable to a 
product separate from furnaces. Public Law 109-58, section 135 (August 
8, 2005); 119 Stat. 594, 624. The establishment of such standards was 
made mandatory under section 304 of the Energy Independence and 
Security Act of 2007 (EISA 2007), which was titled ``Furnace Fan 
Standard Process,'' further indicating that furnace fans are to be 
considered as a covered product separate from furnaces. Public Law 110-
140, section 304 (Dec. 19, 2007); 121 Stat. 1492, 1553.
    The authority to establish energy conservation standards for 
``electricity used for purposes of circulating air through duct work'' 
does not expressly reference furnaces. (See 42 U.S.C. 6295(f)(4)(D)) 
Where EPCA has required the establishment of standards for furnaces, it 
has done so expressly. ``Furnaces (other than furnaces designed solely 
for installation in mobile homes) manufactured on or after January 1, 
1992, shall have an annual fuel utilization efficiency of not less than 
78 percent[.]'' (42 U.S.C. 6295(f)(1)); ``Furnaces which are designed 
solely for installation in mobile homes and which are manufactured on 
or after September 1, 1990, shall have an annual fuel utilization 
efficiency of not less than 75 percent.'' (42 U.S.C. 6295(f)(2)); ``The 
Secretary shall publish a final rule no later than January 1, 1994, to 
determine whether the standards established by this subsection for 
furnaces (including mobile home furnaces) should be amended.'' (42 
U.S.C. 6295(f)(4)(C)) Instead of directing DOE to establish furnace 
standards for electricity used for the purpose of circulating air, or 
standards for electricity used by furnaces for the purpose of 
circulating air through duct work, EPCA directs DOE to establish 
standards for electricity used for purposes of circulating air through 
duct work without reference to furnaces in that paragraph. Further, DOE 
has found that this language could be interpreted as encompassing 
electrically-powered devices used in any residential heating, 
ventilation, and air-conditioning (``HVAC'') product to circulate air 
through duct work, not just furnaces. 79 FR 500, 504 (Jan. 3, 2014).
    Consistent with treating the furnace fan standards and the furnace 
standards as standards on separate products, EPCA established two 
separate timeframes for the furnace fan and furnace rulemakings. 
Section 304 of EISA 2007, Furnace Fan Standard Process, amended the 
provision regarding standards for electricity used for the purpose of 
circulating air through duct work by requiring DOE to establish such 
standards by December 31, 2013. EISA 2007, Public Law 110-140, section 
304 (Dec. 19, 2007); 121 Stat. 1492, 1553; 42 U.S.C. 6295(f)(4)(D). In 
the section immediately following the Furnace Fan Standard Process 
section, EISA 2007 amended EPCA to establish the 6-year-lookback review 
requirement for energy conservation standards. EISA 2007, Public Law 
110-140, section 305 (Dec. 19, 2007); 121 Stat. 1492, 1553; 42 U.S.C. 
6295(m). EPCA required DOE to establish an amended final rule for 
furnaces no later than January 1, 2007, with a compliance date of 
January 1, 2012. (42 U.S.C. 6295(f)(4)(C)) As a result of the 6-year 
review provision added under EISA 2007, DOE had to either a publish a 
determination that no amendment of the furnace standards is needed or 
issue a notice of proposed rulemaking to amend the furnace standards by 
January 1, 2013. Instead of aligning the furnace fan rulemaking with 
the furnace rulemaking schedule, EPCA, as amended by EISA 2007, 
established a distinct December 1, 2013 deadline, further indicating 
that furnace fans are to be treated separately from furnaces.
    As DOE acknowledged in a 2013 notice of proposed rulemaking for 
furnace fan energy conservation standards, standards for furnace fans 
may require manufacturers to redesign the furnaces in which the fans 
are installed. 78 FR 64068, 64103 (Oct. 25, 2013). However, the 
compliance date mandated by EPCA for amendments to standards under the 
6-year review requirement does not permit DOE to account for standards 
applicable to other products, even if such standards for other products 
may impact the product subject to the amendment. (42 U.S.C. 6295(m)(4)) 
EPCA directs DOE to prescribe a compliance date in consideration of 
both the publication date of the final rule and the date of the last 
amended standards with which that product was required to comply. (42 
U.S.C. 6295(m)(4)(A)-(B)) Standards with which furnaces are not 
required to comply are not a consideration under 42 U.S.C. 6295 
(m)(4)(A)-(B) even if those standards have an impact on furnaces. As 
discussed, EPCA treats furnaces and furnace fans as two separate 
products. As such, DOE has not considered the furnace fan standards 
when establishing the compliance date of furnace standards under 42 
U.S.C. 6295(m)(4)(A)-(B).

IV. Methodology and Discussion of Related Comments

    This section addresses the analyses DOE has performed for this 
rulemaking with regard to NWGFs and MHGFs. Separate subsections address 
each component of DOE's analyses. Comments on the methodology and DOE's 
responses are presented in each section.
    DOE used several analytical tools to estimate the impact of the 
standards considered in this document. The first tool is a spreadsheet 
that calculates the LCC savings and PBP of potential amended or new 
energy conservation standards. The national impacts analysis uses a 
second spreadsheet set that provides shipments projections and 
calculates national energy savings and net present value of total 
consumer costs and savings expected to result from potential energy 
conservation standards. DOE uses the third spreadsheet tool, the 
Government Regulatory Impact Model (``GRIM''), to assess manufacturer 
impacts of potential standards. These three spreadsheet tools are 
available on the DOE website for this rulemaking: www1.eere.energy.gov/buildings/appliance_standards/standards.aspx?productid=59&action=viewlive. Additionally, DOE used 
output from AEO 2021 for the emissions and utility impact analyses.

A. Market and Technology Assessment

    DOE develops information in the market and technology assessment 
that provides an overall picture of the market for the products 
concerned, including the purpose of the products, the industry 
structure, manufacturers, market characteristics, and technologies used 
in the products. This activity

[[Page 40613]]

includes both quantitative and qualitative assessments, based primarily 
on publicly-available information. The subjects addressed in the market 
and technology assessment for this rulemaking include: (1) a 
determination of the scope of the rulemaking and product classes; (2) 
manufacturers and industry structure; (3) existing efficiency programs; 
(4) shipments information; (5) market and industry trends, and (6) 
technologies or design options that could improve the energy efficiency 
of NWGFs and MHGFs. The key findings of DOE's market assessment are 
summarized below. See chapter 3 of the TSD for further discussion of 
the market and technology assessment.
1. Scope of Coverage and Product Classes
a. General Approach
    EPCA defines a ``furnace'' as ``a product which utilizes only 
single-phase electric current, or single-phase electric current or DC 
current in conjunction with natural gas, propane, or home heating oil, 
and which:
    (1) Is designed to be the principal heating source for the living 
space of a residence;
    (2) Is not contained within the same cabinet with a central air 
conditioner whose rated cooling capacity is above 65,000 Btu per hour;
    (3) Is an electric central furnace, electric boiler, forced-air 
central furnace, gravity central furnace, or low pressure steam or hot 
water boiler; and
    (4) Has a heat input rate of less than 300,000 Btu per hour for 
electric boilers and low pressure steam or hot water boilers and less 
than 225,000 Btu per hour for forced-air central furnaces, gravity 
central furnaces, and electric central furnaces.'' (42 U.S.C. 6291(23))
    DOE has incorporated this definition into its regulations in the 
Code of Federal Regulations (``CFR'') at 10 CFR 430.2.
    EPCA's definition of a ``furnace'' covers the following types of 
products: (1) gas furnaces (non-weatherized and weatherized); (2) oil-
fired furnaces (non-weatherized and weatherized); (3) mobile home 
furnaces (gas and oil-fired); (4) electric resistance furnaces; (5) hot 
water boilers (gas and oil-fired); (6) steam boilers (gas and oil-
fired); and (7) combination space/water heating appliances (water-
heater/fancoil combination units and boiler/tankless coil combination 
units). As discussed in section II.B.1 of this document, DOE agreed to 
the partial vacatur and remand of the June 2011 DFR, specifically as it 
related to energy conservation standards for NWGFs and MHGFs in the 
settlement agreement to resolve the litigation in American Public Gas 
Ass'n v. U.S. Dept. of Energy (No. 11-1485, D.C. Cir. Filed Dec. 23, 
2011). 80 FR 13120, 13130-13132 (March 12, 2015). Therefore, DOE only 
considered amending the energy conservation standards for these two 
product classes of residential furnaces (i.e., NWGFs and MHGFs) for 
this NOPR.
    At various rulemaking stages, interested parties have raised 
concerns pertaining to potential impacts of a national condensing 
standard on certain consumers as a result of either increased 
installation costs (due to the increased cost of the condensing furnace 
itself and/or related venting modifications) or switching to electric 
heat (potentially resulting in higher monthly bills). In response to 
these concerns, DOE first published the September 2015 NODA, which 
contained analyses examining the potential impacts of a separate 
product class for furnaces with a lower input capacity, one of the 
statutory bases for establishing a separate product class. Such an 
approach was suggested by stakeholders as a potential way to reduce 
negative impacts on some furnace consumers while maintaining the 
overall economic and environmental benefits of amended standards for 
consumer furnaces. 80 FR 55038, 55038-55039 (Sept. 14, 2015). In 
response to the September 2015 NODA, DOE received further comments from 
several stakeholders recommending that DOE establish separate product 
classes based on furnace capacity, in order to preserve the 
availability of non-condensing NWGF for buildings with lower heating 
loads, thereby helping to alleviate the negative impacts of the 
proposed standards. DOE responded to these comments in the withdrawn 
September 2016 SNOPR, in which the Department tentatively concluded 
that the establishment of a small furnace class would have merit. 
Accordingly, after considering energy savings and economic benefits of 
several potential input capacity thresholds, DOE proposed to establish 
a separate product class for small NWGF, defined as those furnaces with 
a certified input capacity of less than or equal to 55 kBtu/h, and the 
Department proposed to retain a minimum standard of 80-percent AFUE for 
this class. 81 FR 65720, 65752 and 65837 (Sept. 23, 2016).
    For the current NOPR analysis, DOE again considered whether a 
``small furnace'' product class is justified for NWGFs and MHGFs and 
evaluated several input capacity thresholds, including the 55 kBtu/h 
threshold that was proposed in the withdrawn 2016 SNOPR, along with 
several others. DOE analyzed a range of potential input capacity cut-
offs and considered the benefits and burdens of each. However, as 
discussed in section V.C.1 of this document, after considering the 
benefits and burdens of the various approaches, DOE is not proposing to 
divide furnace product classes by capacity in this document.
b. Condensing and Non-Condensing Furnaces
    DOE has recently considered whether different venting technologies 
should be considered a necessary feature. On January 15, 2021, in 
response to a petition for rulemaking \39\ submitted by the American 
Public Gas Association, Spire, Inc., the Natural Gas Supply 
Association, the American Gas Association, and the National Propane Gas 
Association (the ``Gas Industry Petition''), DOE published the January 
2021 final interpretive rule in the Federal Register determining that, 
in the context of residential furnaces, commercial water heaters, and 
similarly-situated products/equipment, use of non-condensing technology 
(and associated venting) constitutes a performance-related ``feature'' 
under EPCA that cannot be eliminated through adoption of an energy 
conservation standard. 86 FR 4776. Correspondingly, on the same day, 
DOE published in the Federal Register a notification withdrawing the 
March 2015 NOPR and the September 2015 SNOPR for NWGFs and MHGFs. 86 FR 
3873 (Jan. 15, 2021).
---------------------------------------------------------------------------

    \39\ DOE published the Gas Industry Petition in the Federal 
Register for comment on November 1, 2018. 83 FR 54883.
---------------------------------------------------------------------------

    However, as explained in section II.B.2 of this document, DOE 
subsequently published a final interpretive rule in the Federal 
Register that returns to the Department's previous and long-standing 
interpretation (in effect prior to the January 15, 2021 final 
interpretive rule), under which the technology used to supply heated 
air or hot water is not a performance-related ``feature'' that provides 
a distinct consumer utility under EPCA. 86 FR 73947 (Dec. 29, 2021). 
Accordingly, for purposes of the analyses conducted for this NOPR, DOE 
did not analyze separate equipment classes for non-condensing and 
condensing furnaces. However, as discussed in section IV.A.1.a of this 
document, the current analysis does consider various capacity 
thresholds to establish a separate product class for small NWGFs for 
which DOE would propose less stringent energy conservation standards. 
The

[[Page 40614]]

consideration of capacity-based product classes for MHGFs is discussed 
in section IV.A.1.c of this document.
c. Mobile Home Gas Furnaces
    In response to the September 2016 SNOPR (subsequently withdrawn), 
some stakeholders requested that DOE establish a small furnace product 
class for MHGFs. MHI suggested that DOE should exempt all MHGFs from 
this rule, but it stated that if MHGFs are included, DOE should adopt a 
small furnace MHGFs product class with a threshold of 80 kBtu/h. Nortek 
and MHI commented that tight construction of manufactured homes reduces 
the structure's air leakage, which results in lower heating loads and 
negates the need for a more expensive 92-percent AFUE furnace in many 
climates, especially in the South. (Nortek, No. 300 at p. 2; MHI, No. 
282 at p. 2) Nortek and MHI further stated that because the majority of 
manufactured home buyers are low- to median-income consumers, it is 
important that any increase in home cost resulting from new energy 
conservation standards be economically justified and not burden 
affordability by increasing up-front costs without mitigating resulting 
access barriers. Nortek stated that without a small MHGFs product 
class, potential homebuyers with modest incomes will be forced to 
purchase MHGFs that are unnecessary for their home. (Nortek, No. 300 at 
pp. 5-6; MHI, No. 282 at p. 4)
    Mortex argued that the standard level for MHGFs should not be 
changed due to the small market size, and the commenter also stated 
that an input capacity threshold for MHGFs at any level does not make 
sense because it would create a smaller, less significant market size 
for each class (above and below the threshold). (Mortex, No. 305 at p. 
2)
    AHRI stated that DOE must reevaluate its analysis for MHGFs so as 
to set an appropriate breakpoint for such products that maintains a 
non-condensing option for that market. (AHRI, No. 303 at p. 1) AHRI and 
Nortek noted that in previous comments submitted by AHRI in response to 
the September 2015 NODA, AHRI had requested that DOE analyze potential 
separate standard levels for small and large MHGF in order to minimize 
potential negative aspects of the proposed standard in the (now 
withdrawn) March 2015 NOPR. (AHRI, No. 303 at p. 18; Nortek, No. 300 at 
p. 3) In particular, AHRI's comments responding to the September 2015 
NODA expressed concerns regarding the number of consumers that would be 
negatively affected or would switch heating fuels if an AFUE standard 
set at a condensing level were adopted as the minimum efficiency 
standard for MHGFs. Furthermore, AHRI expressed its concerns with the 
tools utilized in the (now withdrawn) March 2015 NOPR analysis would 
apply equally to MHGFs. (AHRI, No. 195 at p. 1)
    AHRI and Nortek also argued that DOE reached a number of incorrect 
conclusions in the September 2016 SNOPR, including: (1) that condensing 
gas furnaces in new mobile homes will cost about the same as non-
condensing models; (2) that replacing an existing non-condensing MHGF 
with a condensing MHGF would not have a significant increased 
installation cost; and (3) that very few residents living in mobile 
homes will experience negative life cycle costs.\40\ AHRI and Nortek 
stated that U.S. Department of Housing and Urban Development (``HUD'') 
regulations for the construction of mobile (manufactured) homes, 
require that a MHGF be installed such that it is isolated from the 
conditioned space of the mobile home, and that all combustion and 
ventilation air must be taken from the outdoors, and the vent system 
must vent vertically through a roof jack. Additionally, the commenters 
noted that the space in which a MHGF is installed is minimized to the 
smallest size that safety and performance considerations will allow 
because space is at a premium in mobile homes. (AHRI, No. 303 at pp. 
18-19; Nortek, No. 300 at pp. 3-4)
---------------------------------------------------------------------------

    \40\ AHRI and Nortek also provided more specific arguments 
stating that: (1) replacing a non-condensing MHGF with a condensing 
MHGF is not a simple drop-in; (2) a condensing furnace, with the 
added heat exchanger needed to achieve condensing operation, may not 
be dimensionally the same as the original non-condensing furnace 
installed in the mobile home when it was manufactured; (3) rework 
may be needed to install the new PVC venting system; and (4) there 
will be the added cost of the labor to remove the old venting 
system.
---------------------------------------------------------------------------

    After considering these comments regarding a ``small'' MHGF product 
class, DOE has preliminarily determined that that some of the potential 
negative outcomes for MHGF consumers could be mitigated by 
consideration of a separate standard for ``small'' MHGF similar to the 
analysis done for NWGF. Accordingly, DOE analyzed a separate standard 
for small MHGFs for this NOPR. However, as discussed in section 
IV.A.1.a of this document, after considering the benefits and burdens 
of potential capacity-based product classes, DOE has decided not to 
propose to establish classes based on capacity in this document. 
Section V.C.1 of this document contains discussion that explains DOE's 
weighting of the burdens and benefits of the potential new and amended 
energy conservation standards analyzed for this NOPR. Additionally, DOE 
does not agree that condensing MHGFs are necessarily larger than 
noncondensing MHGFs. Based on a review of product literature, it 
appears that noncondensing and condensing MHGFs are often designed with 
similar cabinet sizes, and, thus, DOE does not expect that replacing a 
noncondensing MHGF with a condensing MHGF would necessitate a larger 
footprint.
d. Standby Mode and Off Mode
    As discussed in section II.A of this document, EPCA requires any 
final rule for new or amended energy conservation standards promulgated 
after July 1, 2010, to address standby mode and off mode energy use. 
(42 U.S.C. 6295(gg)(3)) Accordingly, this rulemaking considers standby 
mode and off mode energy consumption of NWGFs and MHGFs, and this 
notice includes proposed standards for these operational modes.
    ``Standby mode'' and ``off mode'' energy use are defined in the DOE 
test procedure for residential furnaces and boilers (i.e., ``Uniform 
Test Method for Measuring the Energy Consumption of Furnaces and 
Boilers,'' 10 CFR part 430, subpart B, appendix N). In that test 
procedure, DOE defines ``standby mode'' for consumer furnaces and 
boilers as any mode in which the furnace or boiler is connected to a 
mains power source and offers one or more of the following space 
heating functions that may persist: (a) To facilitate the activation of 
other modes (including activation or deactivation of active mode) by 
remote switch (including thermostat or remote control), internal or 
external sensors, or timer; and (b) Continuous functions, including 
information or status displays or sensor based functions. (10 CFR part 
430, subpart B, appendix N, section 2.12) ``Off mode'' for consumer 
furnaces and boilers is defined as a mode in which the furnace or 
boiler is connected to a mains power source and is not providing any 
active mode or standby mode function, and where the mode may persist 
for an indefinite time. The existence of an off switch in off position 
(a disconnected circuit) is included within the classification of off 
mode. (10 CFR part 430, subpart B, appendix N, section 2.9) An ``off 
switch'' is defined as the switch on the furnace or boiler that, when 
activated, results in a measurable change in energy consumption between 
the standby and off modes. (10 CFR part 430, subpart B, appendix N, 
section 2.10.) As discussed

[[Page 40615]]

previously, DOE does not currently prescribe standby mode or off mode 
standards for NWGFs and MHGFs. DOE's analysis of standby mode and off 
mode standards is discussed further in section IV.C of this document.
2. Technology Options
    In the market analysis and technology assessment, DOE has 
identified 12 technology options that would be expected to improve the 
AFUE efficiency of NWGFs and MHGFs, as measured by the DOE test 
procedure: (1) using a condensing secondary heat exchanger; (2) 
increasing the heat exchanger surface area; (3) heat exchanger baffles; 
(4) heat exchanger surface feature improvements; (5) two-stage 
combustion; (6) step-modulating combustion; (7) pulse combustion; (8) 
premix burners; (9) burner de-rating; (10) insulation improvements; 
(11) off-cycle dampers; and (12) direct venting. In addition, DOE 
identified three technologies that would reduce the standby mode and 
off mode energy consumption of residential furnaces: (1) low-loss 
linear transformer (``LL-LTX''); (2) switching mode power supply 
(``SMPS''); and (3) control relay for models with brushless permanent 
magnet (``BPM'') motors. A detailed discussion of each technology 
option identified is contained in chapter 3 of the NOPR TSD.
    DOE considered each technology further in the screening analysis 
(see section IV.B of this document or chapter 4 of the NOPR TSD) to 
determine which could be considered further in the analysis and which 
should be eliminated.

B. Screening Analysis

    DOE uses the following five screening criteria to determine which 
technology options are suitable for further consideration in an energy 
conservation standards rulemaking:
    (1) Technological feasibility. Technologies that are not 
incorporated in commercial products or in working prototypes will not 
be considered further.
    (2) Practicability to manufacture, install, and service. If it is 
determined that mass production and 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 
projected compliance date of the standard, then that technology will 
not be considered further.
    (3) Impacts on product utility or product availability. If it is 
determined that a technology would have significant adverse impacts on 
the utility of the product to significant subgroups of consumers or 
would result in the unavailability of any covered product with 
performance characteristics (including reliability), features, sizes, 
capacities, and volumes that are substantially the same as products 
generally available in the United States at the time, it will not be 
considered further.
    (4) Adverse impacts on health or safety. If it is determined that a 
technology would have significant adverse impacts on health or safety, 
it will not be considered further.
    (5) Unique-Pathway Proprietary Technologies. If a design option 
utilizes proprietary technology that represents a unique pathway to 
achieving a given efficiency level, that technology will not be 
considered further due to the potential for monopolistic concerns.

10 CFR part 430, subpart C, appendix A, sections 6(b)(3) and 7(b).
    In summary, if DOE determines that a technology, or a combination 
of technologies, fails to meet one or more of the above five criteria, 
it will be excluded from further consideration in the engineering 
analysis. The reasons for eliminating any technology are discussed in 
the following sections.
    The subsequent sections include comments from interested parties 
pertinent to the screening criteria, DOE's evaluation of each 
technology option against the screening analysis criteria, and whether 
DOE determined that a technology option should be excluded (``screened 
out'') based on the screening criteria.
1. Screened-Out Technologies
    For this NOPR, DOE has screened out the following technologies: 
pulse combustion, burner de-rating, and control relay to depower BPM 
motors. Each of these will be discussed in turn.
    As mentioned, DOE screened out the use of pulse combustion. Pulse 
combustion furnaces use self-sustaining pressure waves to draw a fresh 
fuel-air mixture into the combustion chamber, heat it by way of 
compression, and then ignite it using a spark. This technology option 
was screened out due to past reliability and safety issues, which has 
resulted in manufacturers generally not considering their use a viable 
option to improve efficiency. In addition, furnace manufacturers can 
achieve similar or greater efficiencies through the use of other 
technologies that do not operate with positive pressure in the heat 
exchanger, such as those relying on induced draft.
    DOE also screened out burner de-rating. Burner de-rating reduces 
the burner firing rate while maintaining the same heat exchanger 
geometry/surface area and fuel-air ratio, which increases the ratio of 
heat transfer surface area to energy input, which increases efficiency. 
This technology option was screened out because it reduces the burner 
firing rate while maintaining the same heat exchanger geometry/surface 
area and fuel-air ratio, resulting in less heat being provided to the 
user than is provided using conventional burner firing rates.
    Lastly, DOE screened out use of a control relay to depower BPM 
motors. For this option, a switch is spring-loaded to a disconnected 
position and can only close to allow a supply of electrical power to 
the BPM motor upon an inrush of current. This technology option was 
screened out because manufacturer interviews previously indicated that 
using a control relay to depower BPM motors could reduce the lifetime 
of the motors.
    It is noted that in earlier rulemaking analyses (e.g., for the 
since withdrawn September 2016 SNOPR), DOE had screened out premix 
burners from further analysis because premix burners had not yet been 
successfully incorporated into a consumer furnace design, raising 
concerns about the technological feasibility of premix burners in 
furnaces. Incorporating this technology into furnaces on a large scale 
at that time would have required further research and development due 
to the technical constraints imposed by current furnace burner and heat 
exchanger design. However, in conducting the market and technology 
assessment and screening analysis for this NOPR, DOE has now identified 
NWGF furnaces with premix burners on the market and, therefore, has not 
screened this technology option out of its analysis, because the 
technological feasibility and practicability to manufacture such 
designs has been demonstrated. However, DOE notes that the premix 
burner designs observed on the market were implemented in ultra low 
NOX \41\ models, indicating that the development of premix 
burner designs has been primarily driven by NOX 
requirements. The efficiencies of these models are the same as those 
achieved by more conventional non-premix burner designs used in 
furnaces. Therefore, while the use of premix burners was not screened 
out, it was not considered a primary driver for improving efficiency.
---------------------------------------------------------------------------

    \41\ ``Ultra low NOX'' furnaces produce no more than 
14 nanograms of NOX per Joule.
---------------------------------------------------------------------------

    The technology options assumed to be implemented to achieve each 
efficiency

[[Page 40616]]

level are discussed further in section IV.C.1 of this NOPR. Chapter 4 
of the TSD includes additional information on the screening analysis.
    Based on comments received in response to the September 2016 SNOPR 
from stakeholders who were concerned that raising standards to 
condensing levels would result in adverse impacts to safety (see: PHCC, 
No. 298 at pp. 1, 2; Lennox, No. 299 at pp. 19-20; Southern Company, 
No. 257 at pp. 10-11; Spire, No. 224 at pp. 27, 39; Efficiency 
Advocates, No. 285 at pp. 4-5), DOE carefully considered the safety of 
condensing furnaces for this NOPR. DOE notes that condensing furnaces 
have been in use for decades and have significant market share across 
the entire United States. These products have been demonstrated to be 
safe when installed and used in accordance with manufacturer 
instructions. Some commenters suggested that an increase in the number 
of condensing furnaces installed would lead to an increase in safety 
issues due to a higher likelihood of improper venting or use of heat 
tape. However, the reports cited by commenters, which suggest an 
increased prevalence of fires and deaths attributable to improper 
furnace installation, improper maintenance, and improper venting, do 
not distinguish between instances involving condensing furnaces and 
instances involving non-condensing furnaces and may encompass both 
types of units.\42\ To the extent that any theoretical safety issues 
might arise due to inexperience with the installation of condensing 
furnaces, DOE once again notes that condensing furnaces have achieved 
substantial market penetration in both the northern and southern United 
States,\43\ and installers will become more familiar with the proper 
installation methods for these products as their presence continues to 
increase in the market. The 5-year lead time before compliance is 
required with any standards arising from this rulemaking provides 
manufacturers and trade associations sufficient time to educate 
installers, particularly those less experienced with condensing 
furnaces, about how to safely install, operate, and repair them.
---------------------------------------------------------------------------

    \42\ DOE also notes that a more recent report by the National 
Fire Protection Association (``NFPA'') does not attribute any deaths 
to fires resulting from heating tape between 2014 and 2018. See 
Richard Campbell, National Fire Protection Association Fire Analysis 
and Research Division, Home Heating Fires Supporting Tables (January 
2021) p. 7 (Available at: www.nfpa.org/news-and-research/fire-statistics-and-reports/fire-statistics/fire-causes/appliances-and-equipment/heating-equipment) (Last accessed February 15, 2022).
    \43\ See section IV.F.9 of this document for further discussion 
of the efficiency distribution for the subject furnaces.
---------------------------------------------------------------------------

    Commenters also suggested in response to the subsequently withdrawn 
2016 SNOPR that the increased cost of furnace replacement could lead 
consumers to use alternate heat sources that they characterize as less 
safe, or to conduct an unsafe repair of a malfunctioning furnace rather 
than replace it. In response, DOE notes that furnace repairs are 
typically performed by contractors, so it is unlikely that a contractor 
would opt to repair a furnace in a manner that allows for unsafe 
operation. In most cases, to do so would be a breach of local codes 
that have negative consequences for the contractor. Regarding the 
possibility of a consumer choosing to use an alternate heating source 
such as a space heater, the reports cited by commenters state that the 
leading factors contributing to fires resulting from space heaters are 
the misuse of the product or improper maintenance of the product.\44\ 
The standards proposed in this document do not require consumers to use 
alternate heating products such as space heaters, let alone use such 
products in an unsafe manner. Further, there is no indication that the 
proposed standards would make it more likely that consumers choosing to 
reply upon such products would do so in an unsafe manner.
---------------------------------------------------------------------------

    \44\ FEMA, Heating Fires in Residential Buildings (2010-2012), 
Topical Fire Report Series (December 2014) p. 7 (Available at: 
www.usfa.fema.gov/downloads/pdf/statistics/v15i7.pdf) (Last accessed 
February 15 2022); See also, Richard Campbell, NFPA Fire Analysis 
and Research Division, Home Heating Fires Supporting Tables (January 
2021) (Available at: www.nfpa.org/news-and-research/fire-statistics-and-reports/fire-statistics/fire-causes/appliances-and-equipment/heating-equipment) (Last accessed February 15, 2022).
---------------------------------------------------------------------------

2. Remaining Technologies
    Through a review of each technology, DOE tentatively concludes that 
all of the other identified technologies listed in section IV.A.2 of 
this document met all five screening criteria to be examined further as 
design options in DOE's analysis. In summary, DOE did not screen out 
the following technology options to improve AFUE: (1) condensing 
secondary heat exchanger; (2) increased heat exchanger face area; (3) 
heat exchanger baffles; (4) heat exchanger surface feature 
improvements; (5) two-stage combustion; (6) step-modulating combustion; 
(7) insulation improvements; (8) off-cycle dampers; (9) direct venting; 
and (10) premix burners. DOE also maintained the following technology 
options to improve standby mode and off mode energy consumption: (1) 
low-loss transformer; and (2) switching mode power supply.
    DOE has determined that these technology options are 
technologically feasible because they are being used or have previously 
been used in commercially-available products or working prototypes. DOE 
also continues to find that all of the remaining technology options 
meet the other screening criteria (i.e., practicable to manufacture/
install/service, do not result in adverse impacts on consumer utility, 
product availability, health, or safety, and do not involve a 
proprietary technology that is a unique pathway to meeting a given 
efficiency level). For additional details, see chapter 4 of the TSD.

C. Engineering Analysis

    The purpose of the engineering analysis is to establish the 
relationship between the efficiency and cost of NWGFs and MHGFs. There 
are two elements to consider in the engineering analysis: (1) the 
selection of efficiency levels to analyze (i.e., the ``efficiency 
analysis'') and (2) the determination of product cost at each 
efficiency level (i.e., the ``cost analysis''). In determining the 
performance of higher-efficiency NWGFs and MHGFs, DOE considers 
technologies and design option combinations not eliminated by the 
screening analysis. For each furnace class analyzed for this NOPR, DOE 
estimates the baseline cost, as well as the incremental cost for the 
furnace at efficiency levels above the baseline. The output of the 
engineering analysis is a set of cost-efficiency ``curves'' that are 
used in downstream analyses (i.e., the LCC and PBP analyses and the 
NIA).
    The methodology for the efficiency analysis and the cost analysis 
is described in detail in the following sections that immediately 
follow (sections IV.C.1 and IV.C.2, respectively, of this document). 
DOE uses its methodology, which consists of the engineering analysis 
and mark-ups analysis (see section IV.D of this document), to determine 
the final price of the furnace to the consumer for several reasons. The 
sales prices of furnaces currently seen in the marketplace, which 
include both a manufacturer production cost (``MPC'') and various mark-
ups applied through the distribution chain, are not necessarily 
indicative of what the sales prices of those furnaces would be 
following the implementation of a more-stringent energy conservation 
standard. At a given efficiency level, MPC depends in part on the 
production volume. In general, for efficiency levels above the current 
baseline, the price to

[[Page 40617]]

the consumer at that level may be high relative to what it would be 
under a more-stringent standard, due to the increase in production 
volume (and, thus, improved economies of scale and purchasing power for 
furnace components) which would occur at that level if a Federal 
standard made it the new baseline efficiency.
    DOE notes that the engineering analysis incorporated condensing 
furnaces without ``premium'' features, and condensing furnaces are more 
likely to be equipped with ``premium'' features in today's market. One 
would expect increased designs (and/or sales) with minimal ``premium'' 
features to cater to cost-sensitive consumers, as compared to the 
current market, and perhaps redesigns where possible, to minimize 
costs. In its analysis of AFUE levels, DOE sought to minimize or 
normalize the presence of additional designs or features that do not 
affect AFUE, as they can increase costs while not affecting the 
measured AFUE efficiency. In other words, DOE's analysis of the cost-
efficiency relationship is for a product that provides only the basic 
utility (i.e., heat) without other special features that consumers may 
find beneficial (e.g., sound reduction or humidity control). Although 
it may be possible to identify prices for products without premium 
features, simply aggregating a collection of current furnace sales 
price information could lead to a higher consumer price than would be 
expected under an amended standards scenario, as many condensing 
products available on the market today are bundled with ``premium'' 
features but under an amended standards scenario, condensing products 
without as many ``premium'' features may become more common.
    As described in section IV.D of this document, under a more-
stringent standard, the mark-ups incorporated into the sales price may 
also change relative to current mark-ups. Therefore, DOE has 
tentatively concluded that basing the engineering analysis on prices of 
furnaces as currently seen in the marketplace would be a less accurate 
method of estimating future furnace prices following an amended 
standard than DOE's approach of conducting an engineering analysis and 
mark-ups analysis for this NOPR. (However, as noted in section IV.C.2 
of this document, price surveys are sometimes required when other 
methods are infeasible.)
    Furthermore, at earlier stages of the NWGF and MHGF rulemaking, 
some stakeholders performed cost-benefit analyses that relied on online 
retail pricing,\45\ which raise additional concerns beyond the issues 
previously discussed (i.e., the data likely includes prices for 
condensing furnaces with ``premium'' features and does not account for 
the likely change in designs, market, and pricing that would occur 
under an amended standard). Differences between online vendors with 
respect to mark-up and pricing practices could lead to online prices 
being unrepresentative for the overall market. In addition, 
manufacturers indicated during interviews (see section IV.C.2.f of this 
document) that the number of furnaces sold directly to consumers over 
the internet is very small, and, therefore, DOE questions whether such 
prices are representative of what most consumers actually pay for these 
products. For these reasons, it is unlikely that a collection of online 
price data is truly representative of what consumers are paying for 
furnaces currently, much less under an amended standards scenario.
---------------------------------------------------------------------------

    \45\ As one example, consider the 2013 Furnace Price Guide, 
originally published on www.furnacecompare.com. See: www.amazon.com/Furnace-Price-Guide-Chris-Brooks-ebook/dp/B00GR784IK. The Gas 
Technology Institute (GTI) used these data for its report 
``Technical Analysis of DOE Supplemental Notice of Proposed 
Rulemaking on Residential Furnace Minimum Efficiencies.'' (See: 
EERE-2014-BT-STD-0031-0301.)
---------------------------------------------------------------------------

    Certain stakeholders also urged DOE to improve the transparency of 
the engineering analysis by releasing certain information currently not 
available within the public domain. (Spire No. 309-1 at pp. 66-67; 
APGA, No. 292-1 at p. 41) However, previously during this rulemaking, 
Rheem objected to DOE publishing any information on the manufacturing 
costs of Rheem's units. Further, Rheem commented that manufacturers in 
general will object to having a bill of materials (``BOM'') from a 
complete teardown analysis of their product(s) being made available to 
the public. (Rheem, NOPR Public Meeting Transcript, No. 0044, at pp. 
74-75)
    In response, DOE's analysis and proposal are based, in part, on the 
aggregated data generated during the engineering analysis. The process 
by which the aggregated data have been generated is discussed in this 
document and is the result of the engineering analyses described in 
chapter 5 of the NOPR TSD. The primary inputs to the engineering 
analysis are data from the market and technology assessment, input from 
manufacturers, furnace specifications, and production cost estimates 
developed based on teardown analysis and consultation with 
manufacturers. DOE's contractor conducts interviews with manufacturers 
under non-disclosure agreements (``NDAs'') to determine if the MPCs 
developed by the analysis reflect the industry average cost rather than 
current sales prices, and applies mark-ups to determine the expected 
sales price once a more-stringent standard is implemented. In addition, 
because the cost estimation methodology uses data supplied by 
manufacturers under the NDAs (such as raw material and purchased part 
prices), the resulting individual model cost estimates themselves 
cannot be published. DOE notes that manufacturers that participated in 
manufacturer interviews had access to the raw material and purchased 
part price data underlying the MPC estimates for those models at the 
time the interviews were conducted. The data resulting from the 
engineering analysis and which DOE has used as inputs to its modeling 
are available to the public for comment. Including manufacturer-
specific information in the docket would raise serious concerns 
regarding the business confidentiality of that information and 
undermine the ability of the Department to gain access to key data 
based on such specific information going forward. DOE's treatment of 
confidential business information is governed by the Freedom of 
Information Act (``FOIA'') and 10 CFR 1004.11. (5 U.S.C. 552(b)(4))
    In the present proceeding, as is generally the case in appliance 
standards rulemakings, manufacturer-specific and product-specific data 
are presented in aggregate. Given the potential for competitive harm, 
data are not released outside the aggregated form to DOE or its 
National Labs. Instead, the BOMs used to estimate the industry-
aggregate MPCs are developed by a DOE contractor and are not provided 
to DOE; DOE only receives the industry-aggregate MPCs from its 
contractor for use in its analyses, without fear of such sensitive data 
being released to the public. This approach allows manufacturers to 
provide candid and detailed feedback under NDA, thereby improving the 
quality of the analysis. The public is provided the opportunity to 
comment on the aggregated data that was provided to DOE (i.e., the same 
data that DOE used in its analyses). Making manufacturer-specific data 
available would theoretically provide additional background on that 
data, but it would be merely supplemental to the data upon which DOE 
relied, and it would certainly have a chilling effect on manufacturers' 
willingness to share this crucial data going forward. Consequently, DOE 
plans to retain its

[[Page 40618]]

current and long-standing approach to the engineering analysis.
1. Efficiency Analysis
    DOE typically uses one of two approaches to develop energy 
efficiency levels for the engineering analysis: (1) relying on observed 
efficiency levels in the market (i.e., the efficiency-level approach), 
or (2) determining the incremental efficiency improvements associated 
with incorporating specific design options to a baseline model (i.e., 
the design-option approach). Using the efficiency-level approach, the 
efficiency levels established for the analysis are determined based on 
the market distribution of existing products (in other words, based on 
the range of efficiencies and efficiency level ``clusters'' that 
already exist on the market). Using the design option approach, the 
efficiency levels established for the analysis are determined through 
detailed engineering calculations and/or computer simulations of the 
efficiency improvements from implementing specific design options that 
have been identified in the technology assessment. DOE may also rely on 
a combination of these two approaches. For example, the efficiency-
level approach (based on actual products on the market) may be extended 
using the design option approach to ``gap fill'' levels (i.e., to 
bridge large gaps between other identified efficiency levels) and/or to 
extrapolate to the max-tech level (particularly in cases where the max-
tech level exceeds the maximum efficiency level currently available on 
the market).
    DOE conducted separate engineering analyses for analyzing AFUE 
standards and standby mode/off mode standards for this rulemaking, 
because these are independent metrics that are improved via application 
of different technologies, and DOE had different sources of data for 
the two metrics. For the AFUE engineering analysis, DOE generally 
employed an efficiency level approach, which identified the 
intermediate efficiency levels (i.e., levels between baseline and max-
tech) for analysis based on the most common efficiency levels on the 
market. One exception is that DOE analyzed a 90-percent AFUE level for 
NWGFs and MHGFs despite relatively few models at that level, as it 
would serve as a minimum condensing level.
    For the standby mode and off mode engineering analysis, DOE adopted 
a design option approach to identify the efficiency levels that would 
result from implementing certain design options for reducing energy use 
in standby mode and off mode. DOE decided on this approach because the 
Department does not have sufficient data to execute an efficiency-level 
analysis, as manufacturers typically do not rate or publish data on the 
standby mode and/or off mode energy consumption of their NWGF and MHGF 
products.
a. Baseline Efficiency Level and Product Characteristics
    For each product/equipment class, DOE generally selects a baseline 
model as a reference point for each class, and measures anticipated 
changes to the product resulting from potential energy conservation 
standards against the baseline. The baseline model in each product/
equipment class represents the characteristics of a product/equipment 
typical of that class (e.g., capacity, physical size). Generally, a 
baseline model is one that just meets current energy conservation 
standards, or, if no standards are in place, the baseline is typically 
the most common or least efficient unit on the market.
    DOE selected baseline units for the NWGF and MHGF product classes 
that include characteristics typical of the least-efficient 
commercially-available consumer furnaces. The baseline unit in each 
product class represents the basic characteristics of products in that 
class. Baseline units serve as reference points, against which DOE 
measures changes resulting from potential amended energy conservation 
standards. Additional details on the selection of baseline units are in 
chapter 5 of the NOPR TSD.
AFUE
    Table IV.1 presents the baseline AFUE levels identified for each 
product class of furnaces addressed by this rulemaking. The baseline 
AFUE levels analyzed are the same as the current Federal minimum AFUE 
standards for the subject furnaces, as established by the November 2007 
final rule. 10 CFR 430.32(e)(1)(ii); 72 FR 65136, 65169 (Nov. 19, 
2007).

     Table IV.1--Baseline Residential Furnace AFUE Efficiency Levels
------------------------------------------------------------------------
                                                                  AFUE
                        Product class                          (percent)
------------------------------------------------------------------------
Non-Weatherized Gas Furnaces.................................         80
Mobile Home Gas Furnaces.....................................         80
------------------------------------------------------------------------

Standby Mode and Off Mode
    For the standby mode and off mode analysis, DOE identified baseline 
components as those that consume the most electricity during the 
operation of those modes. Because it would not be practical for DOE to 
test every furnace on the market to determine the baseline efficiency, 
and because manufacturers do not currently report standby mode and off 
mode energy consumption of NWGFs and MHGFs, DOE ``assembled'' the most 
consumptive baseline components from the models selected for 
investigative testing to model the electrical system of a furnace with 
the expected maximum system standby mode and off mode energy use 
observed during testing of furnaces. Through reviewing product 
literature and discussions with manufacturers, DOE found that furnaces 
generally do not have a seasonal off switch that would be used to turn 
the product off during the off season. Further, if a switch is included 
with a product, it is typically left in the on position during the non-
heating season because the indoor blower motor in the furnace is needed 
to move air for the AC side of the home's HVAC system. DOE found that 
such switch is typically used only as a service or repair switch. 
Therefore, DOE concluded that time spent in off mode is expected to be 
minimal, and the energy consumption in standby mode will always be 
greater than or equal to the energy consumption in off mode. 
Accordingly, in the analysis of potential standby mode and off mode 
energy conservation standards, DOE treated both the standby mode and 
the off mode energy use for residential furnaces as having the same 
level of energy consumption, which is typical of standby mode.
    The components of the baseline standby mode and off mode energy use 
level used in this analysis are presented in Table IV.2 of this 
document.

 Table IV.2--Baseline Standby Mode and Off Mode Energy Use for NWGFs and
                                  MHGFs
------------------------------------------------------------------------
                                                                Standby
                                                                mode and
                                                                off mode
                          Component                              energy
                                                                  use
                                                                (watts)
------------------------------------------------------------------------
Transformer..................................................          4
BPM Blower Motor (includes controls).........................          3
Controls/Other...............................................          4
                                                              ----------
  Total (Watts)..............................................         11
------------------------------------------------------------------------

b. Higher Energy Efficiency Levels
AFUE
    Table IV.3 and Table IV.4 show the efficiency levels DOE selected 
for analysis of amended AFUE standards for NWGFs and MHGFs, 
respectively,

[[Page 40619]]

up to the maximum available efficiency level, along with a description 
of the typical technological change at each level. The maximum 
available efficiency level was the highest-efficiency unit available on 
the market when DOE began this analysis. DOE also defines a ``max-
tech'' efficiency level to represent the maximum possible efficiency 
for a given product.

   Table IV.3--AFUE Efficiency Levels for Non-Weatherized Gas Furnaces
------------------------------------------------------------------------
     Efficiency level (EL)          AFUE (%)        Technology options
------------------------------------------------------------------------
0--Baseline....................              80  Baseline.
1..............................              90  EL0 + Secondary
                                                  condensing heat
                                                  exchanger.
2..............................              92  EL1 + Increased heat
                                                  exchanger area.
3..............................              95  EL2 + Increased heat
                                                  exchanger area.
4--Max-Tech....................              98  EL3 + Increased heat
                                                  exchanger area + Step-
                                                  modulating combustion
                                                  + Constant-airflow BPM
                                                  blower motor.
------------------------------------------------------------------------


     Table IV.4--AFUE Efficiency Levels for Mobile Home Gas Furnaces
------------------------------------------------------------------------
        Efficiency level            AFUE (%)        Technology options
------------------------------------------------------------------------
0--Baseline....................              80  Baseline.
1..............................              90  EL0 + Secondary
                                                  condensing heat
                                                  exchanger.
2..............................              92  EL1 + Increased heat
                                                  exchanger area.
3..............................              95  EL2 + Increased heat
                                                  exchanger area.
4--Max-Tech....................              96  EL3 + Increased heat
                                                  exchanger area.
------------------------------------------------------------------------

Standby/Off Mode
    Table IV.5 shows the efficiency levels DOE selected for the 
analysis of standby mode and off mode standards in this NOPR, along 
with a description of the design options used to achieve each 
efficiency level above baseline. The baseline technology options 
include a linear power supply and a 40VA linear transformer (``LTX''). 
Technology options that may be used to achieve efficiency levels above 
baseline include a low-loss LTX (``LL-LTX'') and a switching mode power 
supply (``SMPS'').

    Table IV.5--Standby Mode and Off Mode Efficiency Levels for Non-
          Weatherized Gas Furnaces and Mobile Home Gas Furnaces
------------------------------------------------------------------------
                                  Standby mode
                                  and off mode
     Efficiency level (EL)         energy use       Technology options
                                     (watts)
------------------------------------------------------------------------
0--Baseline....................              11  Linear Power Supply
                                                  with 40VA LTX.
1..............................             9.5  Linear Power Supply
                                                  with 40VA LL-LTX.
2..............................             9.2  SMPS with 20VA LTX.
3--Max-Tech....................             8.5  SMPS with 20VA LL-LTX.
------------------------------------------------------------------------

2. Cost Analysis
    The cost analysis portion of the engineering analysis is conducted 
using one or a combination of cost approaches. The selection of cost 
approach depends on a suite of factors, including the availability and 
reliability of public information, characteristics of the regulated 
product, and the availability and timeliness of purchasing the product 
on the market. The available cost approaches are summarized as follows:
     Physical teardowns: Under this approach, DOE physically 
dismantles a commercially-available product, component-by-component, to 
develop a detailed bill of materials for the product.
     Catalog teardowns: In lieu of physically deconstructing a 
product, DOE identifies each component using parts diagrams (available 
from manufacturer websites or appliance repair websites, for example) 
to develop the bill of materials for the product.
     Price surveys: If a physical or catalog teardown is 
infeasible (e.g., for tightly integrated products such as fluorescent 
lamps, which are infeasible to disassemble and for which parts diagrams 
are unavailable), cost-prohibitive, or otherwise impractical (e.g. 
large commercial boilers), DOE conducts price surveys using publicly-
available pricing data published on major online retailer websites and/
or by soliciting prices from distributors and other commercial 
channels.
    In the present case, DOE conducted its cost analysis using a 
combination of physical and catalog teardowns to assess how 
manufacturing costs change with increased product efficiency. Products 
were selected for physical teardown analysis that have characteristics 
of typical products on the market at a representative input capacity of 
80,000 Btu/h (determined based on market data and discussions with 
manufacturers). Selections spanned the range of efficiency levels 
analyzed and included most manufacturers. The teardown analysis allowed 
the creation of detailed BOMs for each product torn down, which 
included all components and processes used to manufacture the products. 
DOE used the BOMs from the teardowns as inputs to calculate the MPC for 
products at various efficiency levels spanning the full range of 
efficiencies from the baseline to the maximum technology achievable 
(``max-tech'') level.

[[Page 40620]]

    During the development of the since withdrawn March 2015 NOPR, 
interviews were held with NWGF and MHGF manufacturers to gain insight 
into the residential furnace industry, and to request feedback on the 
engineering analysis. A second round of interviews were held in 2021 to 
review updates to the cost analysis since that prepared for the 
withdrawn March 2015 NOPR. DOE used the information gathered from these 
interviews, along with the information obtained through the teardown 
analysis, to develop its MPC estimates. For this NOPR, DOE used eight 
physical teardowns performed for prior rulemaking stages where the 
model torn down is still available on the current market by updating 
the BOM for that model to incorporate the most recent input data (e.g., 
for raw materials, purchased components, labor). When incorporating 
teardowns from past analyses into the analysis for this NOPR, DOE only 
selected the units with designs and components that are the same as 
units currently on the market. DOE also performed an additional 23 
physical teardowns in the spring of 2021 to update the analysis for 
this NOPR. DOE purposefully selected these particular units for use 
this NOPR, in an effort to ensure the analysis's representativeness of 
current furnace designs. For additional detail about the models used, 
see chapter 5 of the NOPR TSD
a. Teardown Analysis
    To assemble BOMs and to calculate the manufacturing costs for the 
different components in residential furnaces, multiple units were 
disassembled into their base components, and DOE estimated the 
materials, processes, and labor required for the manufacture of each 
individual component, a process referred to as a ``physical teardown.'' 
Using the data gathered from the physical teardowns, each component was 
characterized according to its weight, dimensions, material, quantity, 
and the manufacturing processes used to fabricate and assemble it.
    For supplementary catalog teardowns, product data were gathered 
such as dimensions, weight, and design features from publicly-available 
information, such as manufacturer catalogs. Such ``virtual teardowns'' 
allowed DOE to estimate the major physical differences between a 
product that was physically disassembled and a similar product that was 
not. For this NOPR, data from a total of 83 physical and virtual 
teardowns of residential furnaces were used to calculate industry MPCs 
in the engineering analysis.
    The teardown analysis allowed DOE to identify the technologies that 
manufacturers typically incorporate into their products, along with the 
efficiency levels associated with each technology or combination of 
technologies. The end result of each teardown is a structured BOM, 
which was developed for each of the physical and virtual teardowns. The 
BOMs incorporate all materials, components, and fasteners (classified 
as either raw materials or purchased parts and assemblies), and 
characterize the materials and components by weight, manufacturing 
processes used, dimensions, material, and quantity. The BOMs from the 
teardown analysis were then used as inputs to calculate the MPC for 
each product that was torn down. The MPCs resulting from the teardowns 
were then used to develop an industry average MPC for each efficiency 
level of each product class analyzed.
    As discussed in section IV.C.2.d of this document, DOE also 
performed several physical and catalog teardowns of units at input 
capacities other than the representative input capacity (i.e., 40, 60, 
100, and 120 kBtu/h in addition to 80 kBtu/h). These teardowns allowed 
DOE to develop cost-efficiency curves for NWGFs and MHGFs at different 
input capacities. For more detailed information on the teardown 
analysis, see chapter 5 of the NOPR TSD.
b. Cost Estimation Method
    The costs of individual models are estimated using the content of 
the BOMs (i.e., materials, fabrication, labor, and all other aspects 
that make up a production facility) to generate MPCs. These MPCs hence 
include overhead and depreciation, for example. DOE collected 
information on labor rates, tooling costs, raw material prices, and 
other factors as inputs into the cost estimates. For purchased parts, 
DOE estimates the purchase price based on volume-variable price 
quotations and detailed discussions with manufacturers and component 
suppliers.
    For parts fabricated in-house, the prices of the underlying ``raw'' 
metals (e.g., tube, sheet metal) are estimated on the basis of 5-year 
averages to smooth out spikes in demand. Other ``raw'' materials, such 
as plastic resins, insulation materials, etc., are estimated on a 
current-market basis. The costs of raw materials are based on 
manufacturer interviews, quotes from suppliers, and secondary research. 
Past results are updated periodically and/or inflated to present-day 
prices using indices from resources such as MEPS Intl.,\46\ 
PolymerUpdate,\47\ the U.S. geologic survey (``USGS''),\48\ and the 
Bureau of Labor Statistics (``BLS'').\49\ The cost of transforming the 
intermediate materials into finished parts is estimated based on 
current industry pricing.
---------------------------------------------------------------------------

    \46\ For more information on MEPS Intl, please visit: 
www.mepsinternational.com/gb/en (Last accessed Feb. 16, 2022).
    \47\ For more information on PolymerUpdate, please visit: 
www.polymerupdate.com (Last accessed Feb. 16, 2022).
    \48\ For more information on the USGS metal price statistics, 
please visit www.usgs.gov/centers/national-minerals-information-center/commodity-statistics-and-information (Last accessed Feb. 16, 
2022).
    \49\ For more information on the BLS producer price indices, 
please visit: www.bls.gov/ppi/ (Last accessed Feb. 16, 2022).
---------------------------------------------------------------------------

c. Manufacturing Production Costs
    DOE estimated the MPC at each efficiency level considered for each 
product class, from the baseline through the max-tech, and then 
calculated the fractions of the MPC (in percentages) attributable to 
each cost component (i.e., materials, labor, depreciation, and 
overhead). These percentages were used to validate analytical inputs by 
comparing them to manufacturers' actual financial data published in 
annual reports, along with feedback obtained from manufacturers during 
interviews. DOE uses these production cost percentages in MIA (see 
section IV.J of this document).
    Table IV.6 and Table IV.7 present DOE's estimates of the MPCs by 
AFUE efficiency level at the representative input capacity (80 kBtu/h) 
for both the NWGF and MHGF furnaces in this rulemaking. The MPCs 
presented incorporate the appropriate design characteristics of NWGFs 
and MHGFs at each efficiency level. DOE observed both in its market 
analysis and teardown analysis that products are available on the 
market across all efficiency levels with a mix of blower motor 
technologies, including permanent split capacitor (``PSC'') motors, 
constant torque brushless permanent magnet (``BPM'') motors, and 
constant airflow BPM motors. To account for the variety of blower 
motors available on the market, DOE developed cost adjustment factors 
(``adders'') for each type of blower motor and at each input capacity 
analyzed (i.e., 40, 60, 80, 100, and 120 kBtu/h) to normalize the 
blower costs and allow for estimation of the cost differences between 
models with different blower technologies. DOE normalized the costs of 
the blower assemblies present in the teardown models when generating 
the industry-aggregate MPCs, with the exception of

[[Page 40621]]

the max-tech level for NWGFs which was always assigned a constant 
airflow BPM motor. These adders are discussed in more detail in Chapter 
5 of the TSD accompanying this notice. As discussed in section IV.F of 
this document, these adders were applied in the LCC analysis to 
represent the distribution of blower motor technologies expected on the 
market.
    Similarly, in its market analysis and teardown analysis, DOE 
observed models across efficiency levels with single-stage, two-stage, 
and modulating operation. DOE, therefore, also developed a cost adder 
for two-stage and modulating combustion systems (as compared to single-
stage models). The cost to change from a single-stage to a two-stage 
combustion system includes the cost of a two-stage gas valve, a two-
speed inducer assembly, upgraded pressure switch/tubing assembly, and 
additional controls and wiring. Similarly, the cost to change from a 
single-stage to a modulating combustion system includes the cost of a 
modulating gas valve, an upgraded inducer assembly, upgraded pressure 
switch/tubing assembly, and additional controls and wiring. These cost 
adders are discussed in more detail in Chapter 5 of the TSD. DOE 
normalized the burner stages when generating the industry-aggregate 
MPCs, with the exception of the max-tech level for NWGFs which was 
assumed to be modulating based on current furnace designs observed at 
the max-tech level.
    Table IV.6 and Table IV.7 present costs for NWGF with a constant-
torque BPM and single-stage combustion (except for the max-tech level 
which, as previously noted, includes a constant airflow BPM and 
modulating combustion), and for MHGF with an improved PSC and single-
stage combustion, respectively. However, as discussed, DOE observed 
that a variety of products exist on the market that include various 
blower motor technologies and burner system stages, so the Department 
developed adders to translate MPCs across various technologies. DOE 
presents MPCs with these technologies because they are the technologies 
that DOE has observed are necessary to achieve minimum compliance with 
the 2014 furnace fan final rule, for which compliance was required 
beginning on July 3, 2019.\50\ 79 FR 38130, 38151 (July 3, 2014). 
Therefore, DOE believes these designs are likely the most 
representative of furnaces on the current market, although DOE 
recognizes there are some exceptions.
---------------------------------------------------------------------------

    \50\ The furnace fans final rule set a mandatory fan energy 
rating (FER) of .044 * Qmax + 182 for NWGF units, .071 * Qmax + 222 
for non-condensing MHGF units, and .071 * Qmax + 240 for condensing 
MHGF units, where Qmax equals the airflow through the furnace at the 
maximum airflow-control setting operating point. For more 
information, see the furnace fans rulemaking web page at: 
www1.eere.energy.gov/buildings/appliance_standards/rulemaking.aspx/ruleid/41.

 Table IV.6--Manufacturer Production Cost for Non-Weatherized Gas Furnaces at the Representative Input Capacity
                                                  of 80 kBtu/h
----------------------------------------------------------------------------------------------------------------
                                                                                                    Incremental
                                                                    Efficiency                      cost above
                        Efficiency level                           level (AFUE)    MPC * (2020$)     baseline
                                                                        (%)                           (2020$)
----------------------------------------------------------------------------------------------------------------
Baseline........................................................              80             317  ..............
EL1.............................................................              90             403              86
EL2.............................................................              92             411              94
EL3.............................................................              95             422             105
EL4.............................................................              98             539             222
----------------------------------------------------------------------------------------------------------------
* The MPCs for the NWGF efficiency levels from Baseline through EL3 include single-stage combustion and
  incorporation of a constant-torque BPM indoor blower motor. DOE has determined that NWGFs at EL4 incorporate
  modulating operation and a constant-airflow BPM blower motor.


Table IV.7--Manufacturer Production Cost for Mobile Home Gas Furnaces at the Representative Input Capacity of 80
                                                     kBtu/h
----------------------------------------------------------------------------------------------------------------
                                                                                                    Incremental
                                                                    Efficiency                      cost above
                        Efficiency level                           level (AFUE)    MPC * (2020$)     baseline
                                                                        (%)                           (2020$)
----------------------------------------------------------------------------------------------------------------
Baseline........................................................              80             325  ..............
EL1.............................................................              90             414              89
EL2.............................................................              92             421              97
EL3.............................................................              95             432             108
EL4.............................................................              96             436             112
----------------------------------------------------------------------------------------------------------------
* The MPCs for all MHGF efficiency levels include single-stage combustion and incorporation of an improved PSC
  indoor blower motor.

    Table IV.8 presents DOE's estimates of the incremental MPCs of each 
standby mode/off mode efficiency level for this rulemaking, relative to 
the baseline efficiency level. For standby mode and off mode, the 
design options used to obtain higher efficiencies were composed of 
purchased parts, so obtaining price quotes on these electrical 
components was more accurate than attempting to determine their 
manufacturing costs via a reverse-engineering analysis. Therefore, the 
incremental MPC shown reflects the price to implement the component 
necessary to achieve the given efficiency level. DOE also considered 
whether other design changes would be necessary to accommodate the 
components at each efficiency level. Based on the LL-LTX designs DOE 
has reviewed and the furnace products observed during teardowns (which 
included numerous models across manufacturers and efficiencies), DOE 
believes that major redesign would not be required to accommodate these 
components. While it is possible that thicker metal may be required for 
the mounting brackets, DOE maintains that

[[Page 40622]]

it is more likely that the current mounting brackets are sufficient to 
support the slight increase in weight and size of LL-LTX. DOE seeks 
further input on this issue.

Table IV.8--Incremental Manufacturer Production Cost for Non-Weatherized
   Gas Furnaces and Mobile Home Gas Furnaces Standby Mode and Off Mode
------------------------------------------------------------------------
                                           Standby mode
                                           and off mode     Incremental
            Efficiency level                energy use      MPC (2020$)
                                              (watts)
------------------------------------------------------------------------
Baseline................................              11               0
EL1.....................................             9.5            0.52
EL2.....................................             9.2            1.44
EL3.....................................             8.5            2.65
------------------------------------------------------------------------

    Chapter 5 of the NOPR TSD presents more information regarding the 
development of DOE's estimates of the MPCs for this proposal. DOE seeks 
further comment on its estimates for the MPC of consumer furnaces under 
each standards scenario.
d. Cost-Efficiency Relationship
    DOE created cost-efficiency curves representing the cost-efficiency 
relationships for the product classes that it examined (i.e., NWGFs and 
MHGFs). To develop the cost-efficiency relationships for NWGFs at the 
representative capacity (80 kBtu/h), DOE calculated a market-share 
weighted average MPC for each efficiency level analyzed, based on the 
units torn down at that efficiency level. As discussed in section 
IV.C.2.a of this document, DOE performed several physical and catalog 
teardowns across a range of input capacities in order to develop cost-
efficiency curves for NWGFs and MHGFs at different input capacities. 
These cost-efficiency curves were then used in the downstream analyses. 
The cost-efficiency curves developed for input capacities other than 
the representative input capacity are presented in chapter 5 of the 
NOPR TSD. For MHGFs, DOE performed physical teardowns of several MHGF 
models and compared them to NWGF teardowns from a common manufacturer 
and similar design, in order to determine the typical design 
differences between the two product classes. (A detailed description of 
the typical differences between MHGF and NWGF is provided in chapter 5 
of the TSD.) Using this information, DOE then developed cost adders 
which it applied to the NWGF MPCs, in order to estimate the MPCs of 
MHGFs at each of the MHGF efficiency levels. Additional details on how 
DOE developed the cost-efficiency relationships and related results are 
available in chapter 5 of the TSD.
    As displayed in Table IV.6 and Table IV.7 of this document, the 
results indicate that cost-efficiency relationships are nonlinear. For 
both NWGF and MHGF, the cost increase between the non-condensing (80 
percent AFUE) and condensing (90 percent AFUE) efficiency levels is due 
to the addition of a secondary heat exchanger, so there is a large step 
in both AFUE and MPC. For NWGFs, a significant cost increase also 
occurs between the 95 percent and 98 percent AFUE levels due to the 
addition of modulating combustion components paired with a constant 
airflow BPM indoor blower motor at 98 percent AFUE.
e. Manufacturer Mark-Up
    DOE calculates the manufacturer selling price (``MSP'') by 
multiplying the MPC and the manufacturer markup. The MSP is the price 
the manufacturer charges its direct customer (e.g., a wholesaler). The 
MPC is the cost for the manufacturer to produce a single unit of 
product, accounting for direct costs and overhead associated with the 
manufacturing facility. The manufacturer markup is a multiplier that 
accounts for manufacturers' production costs and revenue attributable 
to the product.
    DOE initially developed an average manufacturer mark-up by 
examining the annual Securities and Exchange Commission (``SEC'') 10-K 
\51\ reports filed by publicly-traded manufacturers primarily engaged 
in consumer furnace manufacturing and whose product range includes 
NWGFs and MHGFs. DOE refined its understanding of manufacturer mark-ups 
by using information obtained during manufacturer interviews. For 
additional detail on DOE's methodology to determine the no-new-
standards case manufacturer markup, see chapter 5 of the NOPR TSD.
---------------------------------------------------------------------------

    \51\ U.S. Securities and Exchange Commission's Electronic Data 
Gathering, Analysis, and Retrieval system (``EDGAR'') database. 
(Available at: www.sec.gov/edgar/search/) (Last accessed Feb. 4, 
2022).
---------------------------------------------------------------------------

    To meet new or amended energy conservation standards, manufacturers 
typically redesign their baseline products in ways that increase the 
MPC. Depending on the competitive environment for these particular 
products, some or all of the increased production costs may be passed 
from manufacturers to retailers and eventually to consumers in the form 
of higher purchase prices. As production costs increase, manufacturers 
may also incur additional overhead (e.g., warranty costs). The MSP is 
typically high enough so that the manufacturer can recover the full 
cost of the product (i.e., full production and non-production costs) 
and yield a profit. See chapter 12 of the NOPR TSD for a detailed 
description of the standards-case manufacturer mark-up calculation.
f. Manufacturer Interviews
    Throughout the rulemaking process, DOE sought feedback and insight 
from interested parties that would improve the information used in its 
analyses. DOE interviewed NWGF and MHGF manufacturers as a part of the 
manufacturer impact analysis for the since withdrawn March 2015 NOPR. 
During these interviews, DOE sought feedback on all aspects of its 
analyses for residential furnaces. DOE discussed the analytical 
assumptions and estimates, cost estimation method, and cost-efficiency 
curves with consumer furnace manufacturers. In 2021, DOE conducted a 
second series of interviews to obtain feedback on the updates to the 
cost analysis from the additional teardowns performed in spring 2021. 
DOE considered all the information manufacturers provided while 
refining its cost estimates (and underlying data) and analytical 
assumptions. In order to avoid disclosing sensitive information about 
individual manufacturers' products or manufacturing processes, DOE 
incorporated equipment and manufacturing process figures into the 
analysis as averages. Additional information on manufacturer interviews 
can be found in chapter 12 of the NOPR TSD.
3. Electric Furnaces
    In addition to NWGFs and MHGFs, DOE also estimated the MPCs of 
electric furnaces. This analysis was performed to develop accurate 
electric furnace cost data as an input to the product switching 
analysis (see section IV.F.11 of this document for additional 
information). To estimate the MPCs of electric furnaces, DOE used 
information obtained from the teardowns of three modular blower units, 
as well as a teardown of an electric heat kit assembly, which were all 
originally used as inputs to the engineering analysis performed for the 
2014 furnace fans rulemaking.\52\
---------------------------------------------------------------------------

    \52\ Modular blower units with electric heat kits are also 
referred to as electric furnaces.
---------------------------------------------------------------------------

    The MPCs of electric furnaces were developed by calculating a 
market share-weighted MPC of the three modular blower units that were 
torn

[[Page 40623]]

down, and then adding the MPC of the electric heat kit to the market 
share-weighted modular blower MPC. The MPC of the electric heat kit was 
scaled appropriately in order to approximate the MPCs of different 
input capacity electric furnaces. Similar to the engineering analysis 
performed for NWGFs, DOE estimated the MPCs of electric furnaces at 
input capacities of 40, 60, 80, 100, and 120 kBtu/h. These MPCs are 
presented in Table IV.9.

                    Table IV.9--Electric Furnace MPCs
------------------------------------------------------------------------
                 Input capacity (kBtu/h)                    MPC (2020$)
------------------------------------------------------------------------
40......................................................             261
60......................................................             279
80......................................................             305
100.....................................................             316
120.....................................................             342
------------------------------------------------------------------------

    Further details regarding the methodology used to estimate electric 
furnace MPCs are provided in chapter 5 of the NOPR TSD.

D. Mark-Ups Analysis

    The mark-ups analysis develops appropriate mark-ups (e.g., 
wholesalers, distributors, mechanical contractors, remodelers, builder, 
retailers, mobile home manufacturers, and mobile home dealers) in the 
distribution chain and sales taxes to convert the MSP estimates derived 
in the engineering analysis to consumer prices, which are then used in 
the LCC and PBP analyses. At each step in the distribution channel, 
companies mark up the price of the product to cover costs. Before 
developing mark-ups, DOE defines key market participants and identifies 
distribution channels.
    DOE characterized two distribution channel market segments to 
describe how NWGF and MHGF products pass from the manufacturer to 
residential and commercial consumers: \53\ (1) replacements and new 
owners \54\ and (2) new construction.
---------------------------------------------------------------------------

    \53\ DOE estimates that three percent of NWGFs are installed in 
commercial buildings. See section IV.G of this document for further 
discussion.
    \54\ New owners are new furnace installations in buildings that 
did not previously have a NWGF or MHGF or existing NWGF or MHGF 
owners that are adding an additional consumer furnace. They 
primarily consist of households that add or switch to NWGFs or MHGFs 
during a major remodel.
---------------------------------------------------------------------------

    The NWGF and MHGF replacement/new owners market distribution 
channel is primarily characterized as follows:

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

    Based on a 2019 BRG report,\55\ 2019 Clear Seas Research HVAC 
contractor survey,\56\ and Decision Analyst's 2019 American Home 
Comfort Study,\57\ DOE determined that the retail distribution channel 
(including internet sales) has been growing significantly in the last 
five years (previously it was negligible). Based on these sources, DOE 
estimated that 15 percent of the replacement market distribution 
channel will be going through this market channel as follows (including 
some consumers that purchase directly and then have contractors install 
it): \58\
---------------------------------------------------------------------------

    \55\ BRG Building Solutions, The North American Heating & 
Cooling Product Markets (2020 Edition) (Available at: 
www.brgbuildingsolutions.com/reports-insights) (Last accessed 
February 15, 2022).
    \56\ Clear Seas Research, 2019 Unitary Trends (Available at: 
clearseasresearch.com/?attachment_id=2311) (Last accessed February 
15, 2022).
    \57\ Decision Analyst, 2019 American Home Comfort Studies 
(Available at: www.decisionanalyst.com/syndicated/homecomfort/) 
(Last accessed February 15, 2022).
    \58\ The Do-It-Yourself (``DIY'') market is very small (only 
represents about 1-2% of the whole gas furnace market) and is not 
analyzed by DOE in this analysis.

Manufacturer [rarr] Retailer [rarr] Mechanical contractor [rarr] 
---------------------------------------------------------------------------
Consumer

    The NWGF new construction distribution channel is characterized as 
follows, where DOE assumes that for 25 percent of installations, a 
larger builder has an in-house mechanical contractor:

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

Manufacturer [rarr] Wholesaler [rarr] Builder [rarr] Consumer

    The MHGF new construction distribution channel is characterized as 
follows:

Manufacturer [rarr] Mobile Home Manufacturer [rarr] Mobile Home Dealer 
[rarr] Consumer

    For replacements, new owners, and new construction, DOE also 
considered the national accounts or direct from manufacturer 
distribution channel, where the manufacturer sells directly to a buyer 
(builder, mechanical contractor, or commercial consumer).\59\
---------------------------------------------------------------------------

    \59\ The national accounts channel where the buyer is the same 
as the consumer is mostly applicable to NWGFs installed in small to 
mid-size commercial buildings, where on-site contractors purchase 
equipment directly from wholesalers at lower prices due to the large 
volume of equipment purchased, and perform the installation 
themselves. Overall, DOE's analysis assumes that approximately 15 
percent of NWGFs installed in the residential and commercial sector 
use national accounts.

Manufacturer [rarr] Wholesaler [rarr] Buyer [rarr] Consumer (National 
---------------------------------------------------------------------------
Account)

    At each step in the distribution channel, companies mark up the 
price of the product to cover costs. DOE developed baseline and 
incremental mark-ups for each participant in the distribution chain to 
ultimately determine the consumer purchase cost. Baseline mark-ups are 
applied to the price of products with baseline efficiency, while 
incremental mark-ups are applied to the difference in price between 
baseline and higher-efficiency models (the incremental cost increase). 
The incremental mark-up is typically less than the baseline mark-up and 
is designed to maintain similar per-unit operating profit before and 
after new or amended standards.\60\
---------------------------------------------------------------------------

    \60\ Because the projected price of standards-compliant products 
is typically higher than the price of baseline products, using the 
same mark-up for the incremental cost and the baseline cost would 
result in higher per-unit operating profit. While such an outcome is 
possible, DOE maintains that in markets that are reasonably 
competitive, it is unlikely that standards would lead to a 
sustainable increase in profitability in the long run.
---------------------------------------------------------------------------

    To estimate average baseline and incremental mark-ups, DOE relied 
on several sources, including: (1) the HARDI 2013 Profit Report \61\ 
(for wholesalers); and (1) U.S. Census Bureau 2017 Economic Census data 
\62\ on the residential and commercial building construction industry 
(for general contractors, mechanical contractors, and mobile home 
manufacturers). In addition, DOE used the 2005 Air Conditioning 
Contractors of America's (``ACCA'') Financial Analysis on the Heating, 
Ventilation, Air-Conditioning, and Refrigeration (``HVACR'') 
contracting industry \63\ to disaggregate the mechanical contractor 
mark-ups into replacement and new construction markets. DOE also used 
various sources for the derivation of the mobile home dealer mark-ups 
(see chapter 6 of the NOPR TSD).
---------------------------------------------------------------------------

    \61\ Heating, Air Conditioning & Refrigeration Distributors 
International (``HARDI''), 2013 HARDI Profit Report (Available at: 
www.hardinet.org/) (Last accessed February 15, 2022).
    \62\ U.S. Census Bureau, 2017 Economic Census Data (Available at 
www.census.gov/econ/) (Last accessed February 15, 2022).
    \63\ Air Conditioning Contractors of America (``ACCA''), 
Financial Analysis for the HVACR Contracting Industry (2005) 
(Available at: www.acca.org/store) (Last accessed February 15, 
2022).
---------------------------------------------------------------------------

    Typically, contractors will mark up equipment and labor 
differently, with the labor mark-up being greater than the equipment 
mark-up. For the purposes of the analysis, DOE is treating the furnace 
installation work, including the equipment and labor components, as one 
job, and assumes that the mechanical contractors use the same mark-up 
to account for overhead and profit of the entire job. However, the 
determination of that overall markup accounts for the different 
components of

[[Page 40624]]

the job. After reviewing the available 2017 economic census data,\64\ 
DOE adjusted the mechanical contractor mark-up to take into account 
that a fraction of the fringe costs related to the direct construction 
labor are part of the labor cost. This better matches the approach used 
in RS Means \65\ and other cost books \66\ on how the overall 
contractor mark-up is determined. Based on this methodology, the 
average baseline mark-up for mechanical contractors is 1.47 for 
replacements and 1.38 for new construction, while the incremental mark-
up for mechanical contractors is 1.27 for replacements and 1.20 for new 
construction. The overall baseline mark-up is 2.68 for NWGFs and 2.48 
for MHGFs, while the incremental mark-up is 1.98 for NWGFs and 1.88 for 
MHGFs. See chapter 6 of the NOPR TSD for more details.
---------------------------------------------------------------------------

    \64\ U.S. Census Bureau, 2017 Economic Census Data (Available 
at: www.census.gov/econ/) (Last accessed February 15, 2022).
    \65\ RS Means Company Inc., 2021 RS Means Mechanical Cost Data. 
Kingston, MA (2021) (Available at: www.rsmeans.com/products/books/) 
(Last accessed February 15, 2022).
    \66\ Craftsman Book Company, 2021 National Construction 
Estimator, CA (2021) (Available at: craftsman-book.com/books-and-software/shop-by-type/shop-estimating-books) (Last accessed February 
15, 2022).
---------------------------------------------------------------------------

    In addition to the mark-ups, DOE obtained State and local taxes 
from data provided by the Sales Tax Clearinghouse.\67\ 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.
---------------------------------------------------------------------------

    \67\ Sales Tax Clearinghouse Inc., State Sales Tax Rates Along 
with Combined Average City and County Rates (February 8, 2021) 
(Available at: www.thestc.com/STrates.stm) (Last accessed February 
15, 2022).
---------------------------------------------------------------------------

    DOE acknowledges that there is uncertainty regarding the 
appropriate mark-ups to use, so the Department conducted a sensitivity 
analysis in which the same average mark-up is applied to baseline and 
higher-efficiency products. Appendix 6B of the NOPR TSD describes this 
analysis and how the associated LCC results differ from the results 
using the incremental mark-up approach. The relative comparison of the 
different efficiency levels remains similar, however, and the proposed 
energy conservation standard level remains economically justified 
regardless of which mark-up scenario is utilized.
    Chapter 6 of the NOPR TSD provides details on DOE's development of 
mark-ups for NWGFs and MHGFs.

E. Energy Use Analysis

    The purpose of the energy use analysis is to determine the annual 
energy consumption of NWGFs and MHGFs at different efficiencies in 
representative U.S. single-family homes, multi-family residences, 
mobile homes, and commercial buildings, and to assess the energy 
savings potential of increased furnace efficiency. The energy use 
analysis estimates the range of energy use of NWGFs and MHGFs in the 
field (i.e., as they are actually used by consumers). The energy use 
analysis provides the basis for other analyses DOE performed, 
particularly assessments of the energy savings and the savings in 
consumer operating costs that could result from adoption of amended or 
new standards.
    DOE estimated the annual energy consumption of NWGFs and MHGFs at 
specific energy efficiency levels across a range of climate zones, 
building characteristics, and heating applications. The annual energy 
consumption includes the natural gas, liquid petroleum gas (``LPG''), 
and electricity used by the furnace.
    Chapter 7 of the NOPR TSD provides details on DOE's energy use 
analysis for NWGFs and MHGFs.
1. Building Sample
    To determine the field energy use of residential furnaces used in 
homes, DOE established a sample of households using NWGFs and MHGFs 
from EIA's 2015 Residential Energy Consumption Survey (``RECS 
2015'').\68\ DOE assumed that furnaces in residential buildings smaller 
than 10,000 sq. ft. are consumer furnaces subject to this rulemaking. 
The RECS data provide information on the vintage of the home, as well 
as heating energy use in each household. DOE used the household samples 
not only to determine furnace annual energy consumption, but also as 
the basis for conducting the LCC and PBP analyses. DOE projected 
household weights and household characteristics in 2029, the first year 
of compliance with any amended or new energy conservation standards for 
NWGFs and MHGFs. To characterize future new homes, DOE used a subset of 
homes in RECS 2015 that were built after 2000.
---------------------------------------------------------------------------

    \68\ Energy Information Administration (``EIA''), 2015 
Residential Energy Consumption Survey (``RECS'') (Available at: 
www.eia.gov/consumption/residential/) (Last accessed Feb. 15, 2022).
---------------------------------------------------------------------------

    On November 2016, AHRI provided regional shipment data (North vs. 
Rest of Country) up to 2015, and DOE also used HARDI shipments data by 
State and region from 2013-2020.\69\ Based on these recent shipments 
data and the updated shipments analysis (as explained in section IV.G 
of this document), DOE determined shipment weights for the North and 
Rest of Country, projected to 2029. For NWGFs, 57 percent of shipments 
are projected to be in the North and 43 percent in the Rest of Country. 
For MHGFs, 51 percent of shipments are projected to be in the North and 
49 percent in the Rest of the Country. Further details about the 
development of these numbers is available in appendix 7A of the NOPR 
TSD.
---------------------------------------------------------------------------

    \69\ Heating, Air-conditioning and Refrigeration Distributors 
International (``HARDI''), DRIVE portal (HARDI Visualization Tool 
managed by D+R International), Gas Furnace Shipments Data from 2013-
2020 (Available at: www.drintldata.com) (Last accessed Feb. 15, 
2022).
---------------------------------------------------------------------------

    Based on DOE's shipments model, DOE estimated that 19 percent of 
NWGF installations in 2029 would be in new construction and that 81 
percent would be for replacement and new owners. DOE further estimated 
that 43 percent of MHGF installations in 2029 would be in new 
construction and that 57 percent would be for replacement and new 
owners. See section IV.G of this document and chapter 9 of the NOPR TSD 
for further details.
    To determine the field energy use of NWGFs used in commercial 
buildings, DOE established a sample of buildings using NWGFs from EIA's 
2012 Commercial Building Energy Consumption Survey (``CBECS 2012''), 
which is the most recent such survey that is currently available.\70\ 
See appendix 7A of the NOPR TSD for details about the CBECS 2012 
sample.
---------------------------------------------------------------------------

    \70\ U.S. Department of Energy: Energy Information 
Administration, Commercial Buildings Energy Consumption Survey 
(2012) (Available at: www.eia.gov/consumption/commercial/data/2012/index.php?view=microdata) (Last accessed Feb. 15, 2022). EIA has 
published building characteristics data for the 2018 CBECS. However, 
DOE utilizes the energy consumption microdata for the energy use 
analysis. The 2018 CBECS energy consumption microdata are expected 
to be fully released later in 2022. Until that time, 2012 CBECS 
remains the most recent full data release. For future analyses, DOE 
plans to consider using the complete CBECS 2018 microdata when 
available.
---------------------------------------------------------------------------

2. Furnace Sizing
    DOE assigned an input capacity for the existing NWGF or MHGF of 
each housing unit based on an algorithm that correlates the heating 
square footage provided by RECS 2015 or CBECS 2012 and the outdoor 
design temperature for heating,\71\ based on the estimated location of 
the RECS 2015 household or CBECS 2012 building, with the distribution 
of input capacities of furnaces based on a reduced set of models from 
DOE's 2021 Compliance

[[Page 40625]]

Certification Management System database for furnaces \72\ and from 
AHRI's 2021 residential furnace certification directory.\73\ DOE 
assumed that for the new furnace installation, the output capacity 
would remain similar to the output capacity for the existing furnace. 
DOE distributed the NWGF input capacities based on shipments data by 
input capacity bins provided by AHRI from 1995-2014,\74\ HARDI 
shipments data by capacity and region from 2013-2020,\75\ and 
manufacturer input from manufacturer interviews. The shipments data by 
input capacity was further disaggregated into 5-kBtu/h bins using the 
reduced set of models.
---------------------------------------------------------------------------

    \71\ This is the temperature that is exceeded by the 30-year 
minimum average temperature one percent of the time.
    \72\ U.S. Department of Energy, Compliance Certification 
Management System (Available at: www.regulations.doe.gov/certification-data/) (Last accessed Feb. 15, 2022).
    \73\ AHRI, Directory of Certified Product Performance: 
Residential Furnaces (Available at: www.ahridirectory.org/Search/QuickSearch?category=8&searchTypeId=3&producttype=32) (Last visited 
Feb. 15, 2022).
    \74\ AHRI, Attachment A: Percentage of Residential Gas Furnace 
Shipments by Input Ranges, 20 Year Average (1995-2014) (October 14, 
2015) (Available at: www.regulations.gov/comment/EERE-2014-BT-STD-0031-0181) (Last accessed Feb. 15, 2022).
    \75\ Heating, Air-conditioning and Refrigeration Distributors 
International (``HARDI''), DRIVE portal (HARDI Visualization Tool 
managed by D+R International), Gas Furnace Shipments Data from 2013-
2020 (Available at: www.drintldata.com) (Last accessed Feb. 15, 
2022).
---------------------------------------------------------------------------

    DOE further refined the methodology to capture the degree of 
insulation type and other household characteristics by adding ACCA 
Manual J calculation methods to more accurately determine the design 
heating load requirements of each household based on all available RECS 
2015 household characteristics. The households' calculated design 
heating load values are then rank ordered to match actual shipments 
distributions to determine the assigned furnace input capacity. This 
improved methodology, applied to both NWGFs and MHGFs, allows for 
older, less-insulated homes to be assigned larger furnaces compared to 
similar newly-built homes.
    The ACCA Manual J process is the most widely accepted method to 
calculate heating and cooling requirements for the house by using well-
documented values and building codes, based on experimental data and 
extreme conditions (worst-case assumptions). For the NOPR analysis, the 
actual sizing in the field is accomplished by matching the household 
Manual J heating load calculations to actual shipments data by 
capacity. This methodology takes into account the actual field 
conditions where some households have a greater oversizing factor than 
recommended by ACCA, which could occur due to old furnaces being 
replaced by a much more efficient furnace and/or improvements to the 
building shell since the last furnace installation. This methodology 
also accounts for regional differences in building shells, which show 
that, on average, Southern homes are not as well insulated as Northern 
homes. Regional differences in peak heating load are also captured in 
the sizing methodology by using the outdoor design temperature that 
best matches the household location and climate characteristics. 
Regarding the use of factors for adjusting the annual heating load 
(such as heating degree day, or ``HDD,'' adjustment to average climate 
conditions, HDD trends based on climate change, and the adjustment 
based on the building shell index), DOE notes that these are only used 
to adjust the annual heating load to account for changes in the energy 
use required for heating in a given year. In contrast, the furnace size 
is determined by calculating the design heating load, which is based on 
outdoor design temperature and other household characteristics which 
are not adjusted by these annual heating load factors.
    DOE also accounted for the air conditioning sizing when determining 
the input capacity size of the furnace. DOE acknowledges that 
currently, there are few low-input-capacity furnace models with large 
furnace fans. For some installations, particularly in the South, a 
large furnace fan is required to meet the cooling requirements. DOE 
accounted for the fact that some furnace installations in the South 
have a larger input capacity than determined by the peak heating load 
calculations by calculating the size of the furnace fan required to 
meet the cooling requirements of the household by using the AHRI 
shipments data \76\ and the HARDI furnace shipments by input capacity 
and region.\77\ DOE notes that this will primarily affect furnaces 
located in warmer areas of the country (with higher cooling loads), 
which potentially lead to a higher amount of oversizing than is assumed 
in the analysis for these households. DOE performed a sensitivity 
analysis to assess the impact of furnace fan cooling requirements and 
the pending changes in furnace fan design as part of its furnace sizing 
methodology by primarily using 2013-2020 HARDI regional shipments data 
by capacity. DOE notes that the Federal furnace fan standards that took 
effect in July 2019 require fan motor designs that can more efficiently 
adjust the amount of air depending on both heating and cooling 
requirements. Thus, the size of the furnace fan (and the furnace 
capacity) will be able to better match both the heating and cooling 
requirements of the house. DOE acknowledges that in the future, there 
might be greater availability of small furnaces with larger furnace 
fans, but for this NOPR, DOE made a conservative assumption that larger 
furnace input capacities will be necessary to satisfy these cooling 
requirements. See chapter 7 of the NOPR TSD for further detail.
---------------------------------------------------------------------------

    \76\ AHRI, Attachment A: Percentage of Residential Gas Furnace 
Shipments by Input Ranges, 20 Year Average (1995-2014) (Oct. 14, 
2015) (Available at: www.regulations.gov/comment/EERE-2014-BT-STD-0031-0181) (Last accessed Feb. 15, 2022).
    \77\ Heating, Air-conditioning and Refrigeration Distributors 
International (``HARDI''), DRIVE portal (HARDI Visualization Tool 
managed by D+R International), Gas Furnace Shipments Data from 2013-
2020 (Available at: www.drintldata.com) (Last accessed Feb. 15, 
2022).
---------------------------------------------------------------------------

3. Furnace Active Mode Energy Use
    To estimate the annual energy consumption in active mode of 
furnaces meeting the considered efficiency levels, DOE first calculated 
the annual household/building heating load using the RECS 2015 and 
CBECS 2012 estimates of household or building furnace annual energy 
consumption,\78\ the existing furnace's estimated capacity and 
efficiency (AFUE), and the heat generated from the electrical 
components. The analysis assumes that some homes have two or more 
furnaces, with the heating load split evenly between them. The 
estimation of furnace capacity is discussed in the previous section. 
The AFUE of the existing furnaces was estimated using the furnace 
vintage (the year of installation) provided by RECS and historical data 
on the market share of furnaces by AFUE by region (see section IV.F.10 
of this document). DOE then used the household/building heating load to 
calculate the burner operating hours at each considered efficiency 
level, which were then used to calculate the fuel and electricity 
consumption based on the DOE residential furnace test procedure.
---------------------------------------------------------------------------

    \78\ EIA estimated the equipment's annual energy consumption 
from the household's utility bills using conditional demand 
analysis.
---------------------------------------------------------------------------

a. Adjustments to Energy Use Estimates
    DOE adjusted the energy use estimates in RECS 2015 (for the year 
2015) and in CBECS 2012 (for the year 2012) to ``normal'' weather using 
long-term heating degree-day (``HDD'') data for each geographical 
region.\79\ For this

[[Page 40626]]

NOPR, DOE then applied an HDD correction factor from AEO2021 \80\ that 
accounts for projected population migrations across the Nation and 
continues any realized historical changes in degree days at the State 
level.
---------------------------------------------------------------------------

    \79\ National Oceanic and Atmospheric Administration (NOAA), 
NNDC Climate Data Online (Available at: www.ncdc.noaa.gov/cdo-web/search) (Last accessed Feb. 15, 2022).
    \80\ U.S. Department of Energy, Energy Information 
Administration, Annual Energy Outlook 2021 (Available at: 
www.eia.gov/outlooks/aeo/) (Last accessed Feb. 15, 2022).
---------------------------------------------------------------------------

    DOE accounted for changes in building shell efficiency between 2015 
(for RECS 2015) or 2012 (for CBECS 2012) and the compliance year by 
applying the shell integrity indexes associated with AEO2021. The 
indexes consider projected improvements in building shell efficiency 
due to improvements in home insulation and other thermal efficiency 
practices. EIA provides separate indexes for new buildings and existing 
buildings for a given year, for both residential homes and commercial 
buildings. For the year 2029, the factor applied for homes is 0.98 for 
residential replacements and 0.97 for residential new construction. The 
factor applied for commercial building replacements depend on building 
type and Census Division, ranging from 0.81 to 0.97 (on average 0.91). 
For new construction commercial buildings, the factor used ranged from 
0.31 to 0.86, depending on building type and Census Division (on 
average 0.63). See chapter 7 of the NOPR TSD for more details.
    Building codes and building practices vary widely across the U.S. 
For example, as of November 2021, more than half of the States were 
still under the 2009 International Energy Conservation Code (``IECC'') 
or older codes instead of the 2012 IECC, 2015 IECC, or 2018 IECC.\81\ 
EIA's building shell index for new construction takes into account 
regional differences in building codes and building practices by 
including both homes that meet IECC requirements and homes that are 
built with the most efficient shell components, as well as non-
compliant homes that fail to meet IECC requirements. It is uncertain 
how these building codes and building practices will change over time, 
so EIA uses technical and economic factors to project change in the 
building shell integrity indexes. For new home construction, EIA 
determined the building shell efficiency by using the relative costs 
and energy bill savings in conjunction with the building shell 
attributes. For commercial buildings, the shell efficiency factors vary 
by building type and region, and they take into account significant 
improvements to the commercial building shell, particularly in new 
commercial buildings.
---------------------------------------------------------------------------

    \81\ DOE Building Energy Codes Program, Status of State Energy 
Code Adoption (Available at: www.energycodes.gov/status) (Last 
accessed Feb. 15, 2022).
---------------------------------------------------------------------------

4. Furnace Electricity Use
    DOE's analysis of furnace electricity consumption takes into 
account the electricity used by the furnace's electrical components 
(such as blower, the draft inducer, and the ignitor). DOE determined 
furnace fan electricity consumption using field data on static 
pressures of duct systems and furnace fan performance data from 
manufacturer literature. As noted in section IV.C of this document, the 
furnace designs used in DOE's analysis incorporate furnace fans that 
meet the energy conservation standards for those covered products that 
took effect in 2019.\82\ DOE accounted for furnace fan energy use 
during heating mode, as well as for the difference in furnace fan 
electricity use between a baseline furnace (80-percent AFUE) and a more 
efficient furnace during cooling and continuous fan circulation. DOE 
also accounted for increased furnace fan energy use in condensing 
furnaces to produce the equivalent airflow output compared to a similar 
non-condensing furnace, since condensing furnaces tend to have a more 
restricted airflow path than non-condensing furnaces due to the 
presence of a secondary heat exchanger. To calculate electricity 
consumption for the inducer fan, ignition device, gas valve, and 
controls, DOE used the calculation described in DOE's furnaces test 
procedure,\83\ as well as in DOE's 2021 reduced furnace model dataset 
and manufacturer product literature. The electricity consumption of 
condensing furnaces also reflects the use of condensate pumps and heat 
tape.
---------------------------------------------------------------------------

    \82\ See 10 CFR 430.32(y).
    \83\ Found in 10 CFR part 430, subpart B, appendix N, section 
10.
---------------------------------------------------------------------------

    DOE accounts for the increased electricity use of condensing 
furnaces in heating, cooling, and continuous fan circulation due to 
larger internal static pressure (a more restricted airflow path due to 
the presence of a secondary heat exchanger). DOE notes that the furnace 
fan energy conservation standards that took effect in 2019 (for both 
non-condensing and condensing NWGFs \84\) can be met using constant-
torque brushless permanent magnet (``BPM'') motors, which do not 
require increasing the size of an undersized duct since the speed of 
the motor is kept constant with increased static pressure. DOE also 
accounts for higher energy use for a fraction of installations that 
include a constant airflow BPM (variable speed motor) that can increase 
the speed of the motor to compensate for high static pressures. See 
appendix 7C of the NOPR TSD for more details.
---------------------------------------------------------------------------

    \84\ The furnace fan energy conservation standards relevant to 
condensing and non-condensing MHGFs can be met using improved PSC 
motors and, therefore, these considerations do not apply.
---------------------------------------------------------------------------

    As stated previously, a condensing furnace uses more electricity 
than an equivalent non-condensing furnace but uses significantly less 
natural gas or LPG. DOE accounted for the additional heat released by 
the furnace fan motor, which must be compensated by the central air 
conditioner during the cooling season, based on the 2014 furnace fan 
final rule analysis.\85\ DOE also accounted for additional electricity 
use by the furnace fan during continuous fan operation throughout the 
year.
---------------------------------------------------------------------------

    \85\ U.S. Department of Energy--Office of Energy Efficiency and 
Renewable Energy, Energy Conservation Program for Consumer Products: 
Technical Support Document: Energy Efficiency Standards for Consumer 
Products: Residential Furnace Fans Including: Regulatory Impact 
Analysis (July 2014) (Available at: www.regulations.gov/document/EERE-2010-BT-STD-0011-0111) (Last accessed Feb. 15, 2022).
---------------------------------------------------------------------------

5. Standby Mode and Off Mode
    DOE calculated annual standby mode energy use by multiplying the 
standby power consumption at each efficiency level by the number of 
standby mode hours, for each technology option identified in the 
engineering analysis. DOE assumed that furnaces are not usually 
equipped with an off mode, so only standby mode energy use was 
considered. To calculate the annual number of standby mode hours for 
each sampled household, DOE subtracted the estimated total furnace fan 
operating hours from the total hours in a year (8,760). The total 
furnace fan operating hours are the sum of the furnace fan operating 
hours during heating, cooling, and continuous fan modes. It is noted 
that DOE did account for the additional electricity use of brushless 
permanent magnet motors in standby mode. Chapter 7 of this NOPR TSD 
describes this methodology in more detail.

F. Life-Cycle Cost and Payback Period Analyses

    DOE conducted LCC and PBP analyses to evaluate the economic impacts 
on individual consumers of potential energy conservation standards for 
NWGFs and MHGFs. The effect of new or amended energy conservation 
standards on individual consumers usually involves a reduction in

[[Page 40627]]

operating cost and an increase in purchase cost. DOE used the following 
two metrics to measure consumer impacts:
     Life-cycle cost (LCC) is the total consumer expense of an 
appliance or product over the life of that product, consisting of total 
installed cost (manufacturer selling price, distribution chain mark-
ups, sales tax, and installation costs) plus operating costs (expenses 
for energy use, maintenance, and repair). To compute the operating 
costs, DOE discounts future operating costs to the time of purchase and 
sums them over the lifetime of the product.
     Payback period (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 at higher efficiency levels by the change in annual 
operating cost for the year that amended or new standards are assumed 
to take effect.
    For any given efficiency level, DOE measures the change in LCC 
relative to the LCC in the no-new-standards case, which reflects the 
estimated efficiency distribution of NWGFs and MHGFs in the absence of 
new or amended energy conservation standards. In contrast, the PBP for 
a given efficiency level is measured relative to the baseline product.
1. General Method
    For each considered efficiency level in each product class, DOE 
calculated the LCC and PBP for a nationally representative set of 
housing units and, for NWGFs, commercial buildings. As stated 
previously, DOE developed household samples from RECS 2015 and CBECS 
2012. For each sample household, DOE determined the energy consumption 
of the furnace and the appropriate natural gas, LPG, and electricity 
price. By developing a representative sample of households, the 
analysis captured the variability in energy consumption and energy 
prices associated with the use of NWGFs and MHGFs.
    Inputs to the LCC calculation include the installed cost to the 
consumer, operating expenses, the lifetime of the product, and a 
discount rate. Inputs to the calculation of total installed cost 
include the cost of the product--which includes MPCs, manufacturer 
markups, product price projections, wholesaler and contractor markups, 
and sales taxes (where appropriate)--and installation costs. Inputs to 
the calculation of operating expenses include annual energy 
consumption, energy prices and price projections, repair and 
maintenance costs, product lifetimes, and discount rates. Inputs to the 
payback period calculation include the installed cost to the consumer 
and first year operating expenses. DOE created distributions of values 
for installation cost, repair and maintenance, product lifetime, and 
discount rates, with probabilities attached to each value, to account 
for their uncertainty and variability. In addition, DOE established the 
efficiency in the no-new-standards case using a distribution of furnace 
efficiency values.
    The computer model DOE uses to calculate the LCC and PBP relies on 
Monte Carlo simulations to incorporate uncertainty and variability into 
the analysis. The Monte Carlo simulations randomly sample input values 
from the probability distributions and NGWF and MHGF user samples. For 
this rulemaking, the Monte Carlo approach is implemented in MS Excel 
together with the Crystal Ball\TM\ add-on.\86\ The model calculated the 
LCC and PBP for products at each efficiency level for 10,000 furnace 
installations per simulation run. The analytical results include a 
distribution of 10,000 data points showing the range of LCC savings for 
a given efficiency level relative to the no-new-standards case 
efficiency distribution. 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.
---------------------------------------------------------------------------

    \86\ Crystal Ball\TM\ is a commercially-available software tool 
to facilitate the creation of these types of models by generating 
probability distributions and summarizing results within Excel 
(Available at: www.oracle.com/technetwork/middleware/crystalball/overview/index.html) (Last accessed Feb. 15, 2022).
---------------------------------------------------------------------------

    DOE calculated the LCC and PBP for all consumers of NWGFs and MHGFs 
as if each were to purchase a new product in the first year of required 
compliance with new or amended standards. Any amended standards would 
apply to NWGFs and MHGFs manufactured 5 years after the date on which 
any new or amended standard is published. (42 U.S.C. 6295(f)(4)(C)) For 
the reasons described previously, DOE used 2029 as the first year of 
compliance with amended or new standards for NWGFs and MHGFs.
    DOE recognizes the uncertainties associated with some of the 
parameters used in the analysis. To assess these uncertainties, DOE has 
performed sensitivity analyses for key parameters such as energy 
prices, condensing furnace market penetration, consumer discount rates, 
lifetime, installation costs, downsizing criteria, and product 
switching criteria. DOE notes that the analysis is based on a Monte 
Carlo simulation approach, which uses the Crystal Ball\TM\ add-on as a 
tool to more easily apply probability distributions to various 
parameters in the analysis. See appendix 8B of the NOPR TSD and 
relevant analytical sections of this document for further details about 
uncertainty, variability, and sensitivity analyses in the LCC analysis.
    DOE's LCC analysis results at a given efficiency level account for 
the households that will not install condensing NWGFs unless the 
standard is changed, based on the no-new-standards case efficiency 
distribution described in section IV.F.9 of this document. This 
approach reflects the fact that some consumers may purchase products 
with efficiencies greater than the baseline levels.
    DOE's analysis models the expected product lifetime, not the 
expected period of homeownership. DOE recognizes that the lifetime of a 
gas furnace and the residence time of the purchaser may not always 
overlap. However, EPCA requires DOE to consider the savings in 
operating costs throughout the estimated average life of the covered 
product compared to any increase in the price of, 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)) In 
the context of this requirement, the expected product lifetime, not the 
expected period of homeownership, is the appropriate modeling period 
for the LCC, as energy cost savings will continue to accrue to the new 
owner/occupant of a home after its sale. If some of the price premium 
for a more-efficient furnace is passed on in the price of the home, 
there would be a reasonable matching of costs and benefits between the 
original purchaser and the home buyer. To the extent this does not 
occur, the home buyer would gain at the expense of the original 
purchaser.
    As discussed in section IV.F.12 of this document, in its LCC 
analysis, DOE considered the possibility that some consumers may switch 
to alternative heating systems under a standard that requires 
condensing technology in its

[[Page 40628]]

LCC analysis. The LCC analysis showed that some consumers who switch 
end up with a reduction in the LCC relative to their projected purchase 
in the no-new-standards case.
    As part of the determination of whether a potential standard is 
economically justified, EPCA directs DOE to consider, to the greatest 
extent practicable, 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 products which are likely 
to result from imposition of the standard. (42 U.S.C. 
6295(o)(2)(B)(i)(II)) EPCA does not expressly limit consideration of 
the covered product or covered products likely to result under an 
amended standard to the covered product type (or class) of that would 
be subject to the amended standard (i.e., no prohibition on 
consideration of the potential for product switching due to new or 
amended standards). EPCA indicates that the timeframe of the LCC 
analysis is based on the estimated average life of the covered product 
subject to the standard under consideration for amendment. (Id.) 
However, the use of ``covered products'' in the plural for what is to 
be considered as resulting from an amended standard suggests that DOE 
could consider covered products other than that subject to the 
standard. In the present case, were DOE not to consider the potential 
for consumers switching products in response to an amended standard, 
the analysis would not capture what could be expected to occur in 
actual practice. Given that understanding, DOE performed a sensitivity 
analysis without product switching for the LCC analysis (presented in 
section V.B.1.a of this document and in appendix 8J of the NOPR TSD) 
and for the NIA as well (presented in section V.B.3.a of this document, 
section V.B.3.b and in appendix 10E of the NOPR TSD). The economic 
justifications for the proposed energy conservation standards for NWGFs 
and MHGFs are similar with either no product switching or with product 
switching, and the relative comparison between the TSLs remains 
similar.
    EPCA also establishes, as noted above in section III.E.2 of this 
document, 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. (42 U.S.C. 
6295(o)(2)(B)(iii)) As with the LCC analysis, accounting for the 
potential for switching in the PBP analysis provides a payback that is 
representative across consumers.
    Table IV.10 summarizes the approach and data DOE used to derive 
inputs to the LCC and PBP calculations. The subsections that follow 
provide further discussion. Details of the spreadsheet model, and of 
all the inputs to the LCC and PBP analyses, are contained in chapter 8 
of the TSD for this NOPR and its appendices.

 Table IV.10--Summary of Inputs and Methods for the LCC and PBP Analyses
------------------------------------------------------------------------
              Inputs                            Source/method
------------------------------------------------------------------------
Product Cost......................  Derived by multiplying MPCs by
                                     manufacturer, wholesaler, and
                                     contractor mark-ups and sales tax,
                                     as appropriate. Used historical
                                     data to derive a price scaling
                                     index to forecast product costs.
Installation Costs................  Baseline installation cost
                                     determined with data from 2021 RS
                                     Means. Assumed variation in cost
                                     with efficiency level.
Annual Energy Use.................  Total annual energy use based on the
                                     annual heating load, derived from
                                     the building samples. Electricity
                                     consumption based on field energy
                                     use data.
                                    Variability: Based on the RECS 2015
                                     and CBECS 2012.
Energy Prices.....................  Natural Gas: Based on EIA's Natural
                                     Gas Navigator data for 2020 and
                                     RECS 2015 billing data.
                                    Propane: Based on EIA's State Energy
                                     Data System (``SEDS'') for 2019.
                                    Electricity: Based on EIA's Form 861
                                     data for 2020 and RECS 2015 billing
                                     data.
                                    Variability: Regional energy prices
                                     determined for 30 regions for
                                     residential applications and 9
                                     regions for commercial
                                     applications.
                                    Marginal prices used for natural
                                     gas, propane, and electricity
                                     prices.
Energy Price Trends...............  Based on AEO2021 price projections.
Repair and Maintenance Costs......  Based on 2021 RS Means data and
                                     other sources. Assumed variation in
                                     cost by efficiency.
Product Lifetime..................  Based on shipments data, multi-year
                                     RECS, American Housing Survey,
                                     American Home Comfort Survey data.
                                     Mean lifetime of 21.4 years.
Discount Rates....................  Residential: approach involves
                                     identifying all possible debt or
                                     asset classes that might be used to
                                     purchase the considered appliances,
                                     or might be affected indirectly.
                                     Primary data source was the Federal
                                     Reserve Board's Survey of Consumer
                                     Finances.
                                    Commercial: Calculated as the
                                     weighted average cost of capital
                                     for businesses purchasing NWGFs.
                                     Primary data source was Damodaran
                                     Online.
Compliance Date...................  2029.
------------------------------------------------------------------------
Note: References for the data sources mentioned in this table are
  provided in the sections following the table or in chapter 8 of the
  TSD.

2. Consumer Product Cost
    To calculate consumer product costs, DOE multiplied the MPCs 
developed in the engineering analysis by the mark-ups described in 
section IV.D of this document (along with sales taxes). DOE used 
different mark-ups for baseline products and higher-efficiency 
products, because DOE applies an incremental mark-up to the increase in 
MSP associated with higher-efficiency products.
    For the default price trend for residential furnaces, 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 warm-air furnace equipment from the Bureau of Labor 
Statistics from 1990 through 2020.\87\ An inflation-adjusted PPI was 
calculated using the implicit price deflators for GDP for the same 
years. To calculate an experience rate, DOE performed a least-squares 
power-law fit on the inflation-adjusted PPI versus

[[Page 40629]]

cumulative shipments of residential furnaces, based on a corresponding 
series for total shipments of residential furnaces (see section IV.G of 
this document for discussion of shipments data). Using the most recent 
data available, DOE fitted a power-law function to the deflated warm 
air furnace PPI and cumulative furnace shipments time series data 
between 1990 and 2020. The resulting power-law model has an R-square of 
84 percent, indicating that the model explains 84 percent of the 
variability of the observations around the mean. DOE then derived a 
price factor index, with the price in 2020 equal to 1, to forecast 
prices in 2029 for the LCC and PBP analyses, and, for the NIA, for each 
subsequent year through 2058. 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 in the no-new-standards case determined 
for the NIA (see section IV.H of this document).
---------------------------------------------------------------------------

    \87\ U.S. Department of Labor, Bureau of Labor Statistics, 
Produce Price Indices Series ID PCU333415333415C (Available at: 
www.bls.gov/ppi/) (last accessed Feb. 15, 2022).
---------------------------------------------------------------------------

    DOE's learning curve methodology was developed by examining the 
literature on accounting for technological change and empirical studies 
of energy technology learning rates.\88\ DOE utilized the most 
extensive time series data available specific to residential furnaces.
---------------------------------------------------------------------------

    \88\ Taylor, M. and K.S. Fujita, Accounting for Technological 
Change in Regulatory Impact Analyses: The Learning Curve Technique, 
Lawrence Berkeley National Laboratory, Report No. LBNL-6195E (2013) 
(Available at: eta-publications.lbl.gov/sites/default/files/lbnl-6195e_.pdf) (Last accessed Feb. 15, 2022).
---------------------------------------------------------------------------

    Furnace prices can be affected by a variety of factors, and the 
cost of commodity materials is one of them. The nominal commodity PPI 
data for copper wire and cable, iron and steel, and aluminum wire and 
cable indicate that the nominal indices rose substantially between the 
early 2000s and 2011, which is primarily attributed to an increasing 
demand for such commodities from rapid industrialization in China, 
India, and other emerging economies. During the same period, the 
nominal warm air furnace PPI increased by 16 percent. However, these 
commodity indices have trended downward since 2011, and the nominal 
warm air furnace PPI has steadily trended upward during this period. 
Based on these observations, DOE contends that even though the warm air 
furnace PPI, to a certain extent, is influenced by commodity indices, 
other factors impact furnace prices. In addition, due to the long-term 
nature of DOE's analysis, it would be inappropriate to make assumptions 
based on recent, short-term trends only.
    The learning curve methodology implemented in this proposed rule is 
based on sound economic theory, empirical evidence, and historical 
data. Based on the historical PPI data, the cost of commodity materials 
can only partially explain the furnace price trend, particularly when 
considering the recent trend observed in commodity and furnace price 
indices. The experience curve model that DOE developed, using the most 
recent data available, shows strong explanatory power and high 
statistical significance. DOE welcomes information that could support 
improvement in its methodology.
    DOE acknowledges that the prices of non-condensing and condensing 
furnaces may not change at the same rate and using a trend for all 
NWGFs and MHGFs to represent the price trend of condensing furnaces may 
underestimate the future decline in the cost of condensing furnaces. It 
also acknowledges that an increase in production and innovation due to 
a condensing standard could result in a decline in the cost of 
condensing furnaces. However, DOE could not find detailed data that 
would allow for a price trend projection for condensing NWGFs and MHGFs 
that may differ from non-condensing NWGFs and MHGFs. Thus, for this 
NOPR, it used the same price trend projection for condensing and non-
condensing NWGFs and MHGFs. Although DOE was not able to find 
information or data regarding price trends related to different furnace 
technologies, DOE is exploring ways to estimate learning rates for 
different technologies.\89\
---------------------------------------------------------------------------

    \89\ Taylor, M. and K.S. Fujita, Accounting for Technological 
Change in Regulatory Impact Analyses: The Learning Curve Technique, 
Lawrence Berkeley National Laboratory, Report No. LBNL-6195E (2013) 
(Available at: eta-publications.lbl.gov/sites/default/files/lbnl-6195e_.pdf) (Last accessed Feb. 15, 2022).
---------------------------------------------------------------------------

    A detailed discussion of DOE's derivation of the experience rate is 
provided in appendix 8C of the NOPR TSD.
    DOE requests data and information on the price trend for condensing 
NWGFs as compared to the trend for non-condensing NWGFs.
3. Installation Cost
    The installation cost is the cost to the consumer of installing the 
furnace, in addition to the cost of the furnace itself. The cost of 
installation covers all labor, overhead, and material costs associated 
with the replacement of an existing furnace or the installation of a 
furnace in a new home, as well as delivery of the new furnace, removal 
of the existing furnace, and any applicable permit fees. Higher-
efficiency furnaces may require one to incur additional installation 
costs. DOE's analysis of installation costs estimated specific 
installation costs for each sample household based on building 
characteristics given in RECS 2015. For this NOPR, DOE used 2021 RS 
Means data for the installation cost estimates, including labor 
costs.90 91 92 93 DOE's analysis of installation costs 
accounted for regional differences in labor costs by aggregating city-
level labor rates from RS Means into 30 distinct State or multi-State 
regions to match RECS 2015 data and into the nine Census Divisions to 
match CBECS 2012 data.
---------------------------------------------------------------------------

    \90\ RS Means Company Inc., RS Means Mechanical Cost Data. 
Kingston, MA (2021) (Available at: www.rsmeans.com/products/books/2021-cost-data-books) (Last accessed Sept. 9, 2021).
    \91\ RS Means Company Inc., RS Means Residential Repair & 
Remodeling Cost Data. Kingston, MA (2021) (Available at: 
www.rsmeans.com/products/books/2021-cost-data-books) (Last accessed 
Feb. 15, 2022).
    \92\ RS Means Company Inc., RS Means Plumbing Cost Data. 
Kingston, MA (2021) (Available at: www.rsmeans.com/products/books/2021-cost-data-books) (Last accessed Feb. 15, 2022).
    \93\ RS Means Company Inc., RS Means Electrical Cost Data. 
Kingston, MA (2021) (Available at: www.rsmeans.com/products/books/2021-cost-data-books) (Last accessed Feb. 15, 2022).
---------------------------------------------------------------------------

    DOE conducted a detailed analysis of installation costs for all 
potential installation cases, including when a non-condensing gas 
furnace is replaced with a non-condensing gas furnace, and when a non-
condensing gas furnace is replaced with a condensing gas furnace. For 
the latter, particular attention was paid to venting issues in 
replacement applications, including adding a new flue venting (PVC), 
combustion air venting (PVC), concealing vent pipes, addressing an 
orphaned water heater (by updating flue vent connectors, vent resizing, 
or chimney relining), as well as condensate removal. DOE also included 
additional installation costs (``adders'') for new construction 
installations. These are described below.
a. Basic Installation Costs
    DOE's analysis estimated basic installation costs for replacement, 
new owner, and new home applications. These costs, which apply to both 
condensing and non-condensing gas furnaces, include furnace set-up and 
transportation, gas piping, ductwork, electrical hook-up, permit and 
removal/disposal fees, and where applicable, additional labor hours for 
an attic installation.
    DOE's installation costs account for cases where significant 
ductwork redesign is required, including when

[[Page 40630]]

furnaces with variable speed motors are utilizing undersized ducts. DOE 
notes that this cost is applicable to variable speed motors installed 
in either condensing or non-condensing furnaces. Variable speed furnace 
blowers will try to maintain the same air flow at high static pressure 
(especially if the variable speed blower is designed with a high cut-
off or no cut-off static pressure),\94\ which could lead to noise 
issues in smaller ducts due to the increased speed of moving the air. 
However, the Federal furnace fan standard that took effect in 2019 
requires constant torque furnace fans (with X13 motors), which have 
similar performance curves as PSC motors.\95\
---------------------------------------------------------------------------

    \94\ Newer variable speed motors are designed with lower cut-off 
static pressures to deal with this issue. In addition, the installer 
can easily decrease the airflow to address the issue by changing the 
airflow speed control setting (tap) on the furnace motor.
    \95\ For further details, see the Technical Support Document for 
the July 2014 final rule for furnace fans. (Available at: 
www.regulations.gov/document/EERE-2010-BT-STD-0011-0111) (Last 
accessed Feb. 15, 2022).
---------------------------------------------------------------------------

    DOE notes that asbestos presents a safety hazard that must be 
properly abated for all retrofit installations where it is present. As 
explained above, DOE recognizes that potential ductwork modifications 
typically occur due to the furnace fan requirements and not necessarily 
due to the installation of a condensing furnace. DOE included the cost 
of asbestos abatement for a fraction of both non-condensing and 
condensing NWGF installations. See appendix 8D of the NOPR TSD for more 
details.
b. Additional Installation Costs for Non-Weatherized Gas Furnaces
    For replacement applications, DOE included a number of adders for a 
fraction of the sample households. For non-condensing gas furnaces, 
these additional costs included updating flue vent connectors, vent 
resizing, and chimney relining. For condensing gas furnaces, DOE 
included adders for flue venting (PVC), combustion air venting (PVC), 
concealing vent pipes, addressing an orphaned water heater (by updating 
flue vent connectors, vent resizing, or chimney relining), and 
condensate removal.
Replacement Installations: Non-Condensing to Non-Condensing Non-
Weatherized Gas Furnace
    For non-condensing non-weatherized gas furnace replacements, DOE 
added additional costs to a small fraction of installations that 
involve updating flue vent connectors, vent resizing, and chimney 
relining. These costs are most commonly applied to older furnace 
installations, such as natural draft furnace installations, furnaces 
not installed according to the current codes, and furnace installations 
that do not meet manufacturers' installation requirements. In total, 
these costs for vent resizing or chimney relining are applied to less 
than 5 percent of non-condensing to non-condensing furnace replacement 
installations in 2029, with an average cost of $755. In addition, DOE 
estimated that 24 percent of installations of non-condensing to non-
condensing furnace replacement installations in 2029 would require 
updating flue vent connectors, with an average cost of $284.
Replacement Installations: Non-Condensing to Condensing Non-Weatherized 
Gas Furnace
    DOE assumed that condensing furnaces that replace non-condensing 
furnaces do not utilize the existing venting system, but instead 
require new, dedicated plastic venting that meets all applicable 
building codes and manufacturer instructions. In determining these 
installation costs, DOE takes into account vent length, vent diameter, 
vent termination, the potential need to create openings in walls or 
floors for the vent system, additional vent costs for housing units 
with shared walls, vent resizing in the case of an orphaned water 
heater, and concealment work cost increases in some installations.
    Appendix 8D in the TSD for this NOPR describes the methodology used 
to determine the installation costs for all of the issues described in 
the paragraphs that follow.
(a) Flue Venting
    DOE assumed that condensing furnaces do not utilize the existing 
venting system but instead require new, dedicated plastic venting that 
meets all applicable building codes and manufacturer instructions. 
Accordingly, DOE determined whether a condensing furnace is 
horizontally or vertically vented based on the shortest vent length. 
DOE's analysis estimated that 70 percent of condensing furnaces will be 
installed with a horizontal vent.
    DOE assumed that vent length varies depending on where a suitable 
wall is located relative to the furnace. In addition, when applicable, 
DOE accounts for use of a snorkel termination to meet minimum 
clearances to sidewalks, average snow accumulation level, overhangs, 
and air intake sources, including operable doors and windows, building 
corners, and gas meter vents. In DOE's analysis, snorkel termination is 
more frequently needed in situations where the furnace is below the 
snow line (such as in basements or crawl spaces). DOE assumed that the 
replacement furnace would remain in the same location as the existing 
furnace and accounted for the new vent length and structural changes, 
such as wall knockouts, to install new venting. In some installations, 
it might be easier and cheaper to change the furnace location, but this 
would require both gas line extensions and ductwork modifications, 
which were not modeled in DOE's installation cost analysis. DOE 
accounted for additional vent length for housing units with shared 
walls. DOE also accounted for the cost of vent resizing in the case of 
an orphaned water heater and the cost of concealment work in some 
installations.
    The vent pipe length limitations depend on a number of factors 
including number of elbows, vent diameter, horizontal vs. vertical 
length, as well as combustion fan size. A review of several 
manufacturer installation manuals shows that the maximum vent lengths 
range from 30 to 130 feet, depending primarily on the vent diameter. 
For a fraction of installations, DOE increased the vent diameter in 
order to be able to extend the vent length according to manufacturer 
specifications.
(b) Common Venting Issues (Including Orphaned Water Heaters)
    Common venting provides a single exhaust flue for multiple gas 
appliances. In some cases, a non-condensing NWGF is commonly vented 
with a gas-fired water heater. When the non-condensing NWGF is replaced 
with a condensing NWGF, the new condensing furnace and the existing 
water heater can no longer be commonly vented due to different venting 
requirements,\96\ and the water heater becomes ``orphaned.'' The 
existing vent may need to be modified to safely vent the orphaned water 
heater, while a new vent is installed for the condensing NWGF. DOE 
accounted for a fraction of installations that would require chimney 
relining or vent resizing for the orphaned water heater,

[[Page 40631]]

including updating flue vent connectors, resizing vents, or relining 
chimneys when applicable based upon the age of the furnace and the 
home.
---------------------------------------------------------------------------

    \96\ The ANSI Z223.1/NFPA 54 Natural Fuel Gas Code (``NFGC'') 
venting requirements refer to Category I, II, III, and IV gas 
appliances. Category I gas appliances, such as natural draft gas 
water heaters, exhaust high-temperature flue gases and are vented 
using negative static pressure vents designed to avoid excessive 
condensate production in the vent. Category IV gas appliances, such 
as condensing furnaces, exhaust low temperature flue gases and are 
vented using positive static pressure corrosion-resistant vents. Due 
to the different venting requirements, the NFGC does not allow 
common venting of condensing and non-condensing appliances. The 2021 
Edition is available at www.nfpa.org/codes-and-standards/all-codes-and-standards/list-of-codes-and-standards/detail?code=54 (Last 
accessed Feb. 15, 2022).
---------------------------------------------------------------------------

    DOE accounted for the probability that in some cases, replacing a 
non-condensing furnace with a condensing furnace may require 
significant modifications to the existing vent system for the commonly-
vented gas water heater. DOE accounted for costs related to updating 
the vent connector, relining the chimney, and resizing the vent, which 
would satisfy the installation requirements of the Natural Fuel Gas 
Code. DOE understands that a potential option would be to install 
either a storage or tankless power-vented water heater to avoid the 
cost of a chimney or metal flue vent modification just for the gas 
water heater, or to switch to an electric storage water heater. DOE 
recognizes that the frequency of chimney relining and vent resizing may 
decrease slightly due to the increase in adoption of high-efficiency 
gas water heaters. However, DOE did not find any additional information 
or data \97\ to project the market share of high-efficiency water 
heaters in 2029 or the decrease in the fraction of installations with 
common vents. Therefore, DOE did not consider the power-vented gas 
storage or other higher-efficiency water heater options. Instead, DOE 
either added additional installation costs associated with venting a 
Category I water heater, such that the orphaned water heater could be 
vented through the chimney, or accounted for the installation of an 
electric storage water heater as an alternative. For new owners and new 
construction installations, DOE applied a venting cost differential if 
the owner/builder was planning to install a commonly-vented non-
condensing furnace and water heater.
---------------------------------------------------------------------------

    \97\ Data from the residential water heater final rule were used 
in this analysis. 75 FR 20112 (April 16, 2010).
---------------------------------------------------------------------------

    DOE acknowledges that multi-family buildings may require additional 
measures to replace non-condensing furnaces with condensing furnaces. 
Such measures include the vent length, existing common vents, and 
horizontal venting. For this NOPR, DOE assigned additional venting 
installation costs (on average $248) for a quarter of replacement 
installations \98\ in multi-family buildings to account for modifying 
the existing vent systems to accommodate a condensing furnace 
installation.
---------------------------------------------------------------------------

    \98\ This fraction accounts for buildings without common 
venting; buildings where all/most furnaces are replaced at the same 
time (many rentals/HOA situations); smaller multi-family units/
smaller number of floors; and situations where disconnecting one 
furnace from the common vent does not impact the common venting for 
remaining furnaces. This fraction is also based on 2015 RECS data 
regarding the number of apartments/units and the number of stories 
per multi-family building.
---------------------------------------------------------------------------

(c) New Venting Technologies
    To address certain difficult installation situations, new venting 
technologies are being developed to vent a condensing residential 
furnace and an atmospheric combustion water heater through the same 
vent by reusing the existing metal vent or masonry chimney with a new 
vent cap and appropriate liner(s).99 100 In 2015, the 
FasNSeal 80/90 venting system was introduced commercially by M&G 
DuraVent, a new venting system that uses a unique, pipe-within-a-pipe 
design to vent a condensing furnace and a natural draft water 
heater.\101\ FasNSeal 80/90 is UL-approved. An additional venting 
solution known as EntrainVent is available as a pre-commercial 
prototype by Oak Ridge National Laboratory.\102\ DOE conducted a 
sensitivity analysis to estimate the impact of such technologies on the 
installation cost of a condensing NWGF, but did not include the 
technologies in the primary analysis.
---------------------------------------------------------------------------

    \99\ Oak Ridge National Laboratory, Condensing Furnace Venting 
Part 1: The Issue, Prospective Solutions, and Facility for 
Experimental Evaluation (October 2014) (Available at: web.ornl.gov/sci/buildings/docs/Condensing-Furnace-Venting-Part1-Report.pdf) 
(Last accessed Feb. 15, 2022).
    \100\ Oak Ridge National Laboratory, Condensing Furnace Venting 
Part 2: Evaluation of Same-Chimney Vent Systems for Condensing 
Furnaces and Natural Draft Water Heaters (February 2015) (Available 
at: web.ornl.gov/sci/buildings/docs/Condensing-Furnace-Venting-Part2-Report.pdf) (Last accessed Feb. 15, 2022).
    \101\ M&G DuraVent's FasNSeal 80/90 Combination Cat I and Cat IV 
gas vent system is UL listed to applicable portions of ULC S636/
UL1738, UL1777, and UL441 (Available at: www.duravent.com/fasnseal-80-90/) (Last accessed Feb. 15, 2022).
    \102\ Oak Ridge National Laboratory, Condensing Furnace Venting 
Part 2: Evaluation of Same-Chimney Vent Systems for Condensing 
Furnaces and Natural Draft Water Heaters (February 2015) (Available 
at: web.ornl.gov/sci/buildings/docs/Condensing-Furnace-Venting-Part2-Report.pdf) (Last accessed Feb. 15, 2022).
---------------------------------------------------------------------------

    DOE recognizes that there are currently limitations to DuraVent's 
new FasNSeal 80/90 venting technology related to venting in masonry 
chimneys and that currently there are limited field performance 
data.\103\ Because of the uncertainty regarding applicability of 
FasNSeal 80/90 and other new venting technologies, DOE only considered 
using this option in a sensitivity analysis. DOE conducted two 
additional sensitivity analyses: (1) the FasNSeal 80/90 option is 
applied to installations that can currently meet the FasNSeal 80/90 
installation requirements (metal vents only); and (2) all new venting 
technology options are applied to installations that could meet the 
respective installation requirements (metal vents and masonry chimney 
installations, including installations with more horizontal sections). 
DOE notes that while new venting technologies could lower installation 
costs, DOE must base its approach on currently available data rather 
than make assumptions as to future developments in advanced venting 
technologies. DOE welcomes any available data on the use of new venting 
technologies.
---------------------------------------------------------------------------

    \103\ Oak Ridge National Laboratory, Furnace and Water Heater 
Venting Field Demonstration (May, 2019) (Available at: www.ornl.gov/publication/furnace-and-water-heater-venting-field-demonstration) 
(Last accessed Feb. 15, 2022).
---------------------------------------------------------------------------

(d) Combustion Air Venting
    DOE's analysis accounts for the additional cost associated with 
direct vent installations that use combustion air intake. Direct vent 
or sealed combustion is not required for condensing installations, but 
it is recommended for any condensing furnace to utilize ``sealed 
combustion.'' All condensing furnaces come with this feature (which 
requires an opening for the intake combustion air pipe/vent). 
Condensing furnaces will often be installed as direct vent furnaces 
since it offers significant energy savings \104\ and safety \105\ 
advantages.106 107
---------------------------------------------------------------------------

    \104\ A non-direct vent furnace increases the air infiltration 
that the house experiences since for every cubic foot of air that 
leaves the house, another cubic foot of air comes in. Thus, a direct 
vent furnace avoids using heated indoor air for combustion.
    \105\ By separating the combustion air from indoor household 
air, the furnace is not affected by other home appliances in a tight 
home. A direct vent furnace reduces the danger of any potential 
backdrafts (pulling exhaust gases down the chimney), as well as 
reducing the danger of foreign gases in the combustion air. For 
example, a furnace could be damaged by vapors from laundry products, 
as these vapors can mix with indoor combustion air to corrode 
furnace components.
    \106\ DOE, Technology Fact Sheer. Combustion Equipment Safety: 
Provide Safe Installation for Combustion Appliances (October 2000) 
(DOE/GO-102000-0784) (Available at: www1.eere.energy.gov/buildings/publications/pdfs/building_america/26464.pdf) (Last accessed Feb. 
15, 2022).
    \107\ DOE, Furnace and Boilers (Available at: www.energy.gov/energysaver/home-heating-systems/furnaces-and-boilers) (Last 
accessed Feb. 15, 2022).
---------------------------------------------------------------------------

    DOE's analysis assumes that two-thirds of condensing furnaces will 
be installed with the direct vent feature. Typically, the combustion 
air intake pipe will go in the same direction of the flue vent or can 
be in a concentric vent.
(e) Condensate Withdrawal
    DOE accounted for the cost of condensate removal for condensing

[[Page 40632]]

NWGF installations, including, when applicable, a condensate drain, 
condensate pump, freeze protection (heat tape),\108\ drain pan, 
condensate neutralizer, and an additional electric outlet for the 
condensate pump.
---------------------------------------------------------------------------

    \108\ Heat tape is also referred to as heating cable and 
provides electric heating.
---------------------------------------------------------------------------

    DOE acknowledges that condensate management can be costly for some 
installations (e.g., multi-family units) and very difficult in rare 
cases. DOE's current installation cost approach accounts for these 
costs. However, DOE added a sensitivity analysis with additional 
condensate costs.
    The use of heat tape to prevent condensate pipes from freezing is 
standard installation practice.109 110 DOE's analysis 
accounts for the use of heat tape typical in unconditioned attic 
installations, which are more likely to face freezing conditions. DOE 
acknowledges that other unconditioned locations could also face 
freezing, but it is far less common.\111\ DOE also included heat tape 
to installations in additional non-conditioned spaces such as crawl 
spaces, non-conditioned basements, and garages that are in regions that 
could be exposed to freezing conditions. DOE accounted for the 
additional installation cost and energy use of the heat tape. 
Additionally, because it is recommended practice that heat tape be 
plugged into a ground fault circuit interrupter (``GFCI'') circuit, DOE 
included the cost of adding a GFCI circuit for the fraction of 
households that do not have one available. DOE also conducted a 
sensitivity analysis with an additional fraction of installations 
necessitating the use of heat tape.
---------------------------------------------------------------------------

    \109\ ICP, Installation Instructions for Condensate Freeze 
Protection Kit (2012) (Available at: www.icptempstarparts.com/mdocs-posts/naha00201hh-condensate-freeze-protection-kit-installation-instructions/) (Last accessed Feb. 15, 2022).
    \110\ Bryant, Installation Instructions: Condensate Drain 
Protection (2008) (Available at: www.questargas.com/ForEmployees/qgcOperationsTraining/Furnaces/Bryant_355AAV.pdf) (Last accessed 
Feb. 15, 2022).
    \111\ Brand, L. and W. Rose, Strategy Guideline: Accurate 
Heating and Cooling Load Calculations. Partnership for Advanced 
Residential Retrofits (October 2012) (Available at: www.nrel.gov/docs/fy13osti/55493.pdf) (Last accessed Feb. 15, 2022).
---------------------------------------------------------------------------

    To address situations where condensate must be treated before 
disposal (e.g., due to a local regulation), DOE assumed that a fraction 
of installations require condensate neutralizer for condensate 
withdrawal. As discussed in appendix 8D of the TSD for this NOPR, the 
fraction of installations that require condensate neutralizer used in 
the analysis is representative of the current use. DOE includes the 
cost of using non-corrosive drains for an additional fraction of 
installations. Additionally, DOE conducted a sensitivity analysis 
assuming a high fraction of installations use condensate neutralizer or 
are installed with a non-corrosive drain.
(f) Difficult Installations
    DOE considered the potential need for additional vent length to 
reach a suitable location on an outside wall where the vent termination 
could be located, as well as the potential need for wall penetrations 
and/or concealing of flue vents in conditioned spaces.
    DOE used the best available information and data to characterize 
the likely nature and cost of installations of a condensing furnace as 
a replacement for a non-condensing furnace in its consumer sample. DOE 
estimates that 51 percent of replacements could be labeled as 
``difficult'' installations,\112\ with an average incremental 
installation cost of $1,003 relative to the baseline 80 percent AFUE 
NWGF (compared to an incremental cost of $262 for all other replacement 
installations).
---------------------------------------------------------------------------

    \112\ DOE considered an installation to be ``difficult'' if 
there is an orphaned water heater, a long PVC vent connection though 
multiple walls, or in households with condensate issues (e.g., ones 
requiring heat tape or a condensate pump).
---------------------------------------------------------------------------

    DOE is not aware of any physical limitations or building code 
issues that would preclude the installation of a condensing NWGF in 
multi-family buildings, townhomes, and row houses.
    DOE sought any information or data regarding potential physical 
limitations when installing a new condensing furnace. In consumer \113\ 
and contractor \114\ surveys, relocation was not mentioned as an issue 
for furnace installation.\115\ DOE recognizes that in some cases, 
homeowners could elect to relocate their furnace when replacing a non-
condensing NWGF with a condensing NWGF, especially if the relocation is 
part of a planned remodel of the home. In such cases, the cost of 
relocation is likely to be comparable to the costs that DOE estimated 
for difficult installations.
---------------------------------------------------------------------------

    \113\ Decision Analyst, Homeowner ``Spotlight'' Report: 
Equipment Switching, Repair Profile and Energy Efficiency (August 
2011). (www.decisionanalyst.com/) (Last accessed Feb. 15, 2022).
    \114\ Decision Analyst, Contractor ``Spotlight'' Report: Energy 
Efficiency and Installation Profile (August 2011). 
(www.decisionanalyst.com/) (Last accessed Feb. 15, 2022).
    \115\ This finding is supported by an expert consultant (EER 
Consulting).
---------------------------------------------------------------------------

(g) Emergency Replacements
    DOE acknowledges that installation costs could increase for 
condensing furnaces in an unplanned emergency situation for the reasons 
that follow. While it is not possible to estimate the share of 
installations that would constitute an emergency (unplanned during the 
heating season), Decision Analyst's 2019 American Home Comfort Study 
(``AHCS'') \116\ reported that unplanned replacements accounted for one 
third of gas furnace installations. For this NOPR, DOE included labor 
costs for unplanned replacements to account for additional contractor 
labor needed to finish the installation, factoring in the difficulty of 
accessing the roof during periods of snow or ice accumulation. In 
addition, to address periods without heat during the replacement, DOE 
considered the costs of the temporary use of small electric resistance 
space heaters or secondary/back-up heaters.
---------------------------------------------------------------------------

    \116\ Decision Analysts, 2019 American Home Comfort Studies 
(Available at: www.decisionanalyst.com/syndicated/homecomfort/) 
(Last accessed Feb. 15, 2022).
---------------------------------------------------------------------------

(h) Incremental Installation Cost for Condensing Furnaces
    DOE estimated that the incremental retrofit installation cost for 
condensing furnaces was $644. For new construction and new owners, the 
incremental installation cost was estimated to be, on average, -
$647.\117\ Since 26 percent of shipments were assumed to be in the new 
construction and new owners market, the resulting average incremental 
installation cost was $301. The incremental installation cost estimates 
reflect labor cost and installation material cost data from 2021 RS 
Means.
---------------------------------------------------------------------------

    \117\ DOE calculated that on average condensing NWGF 
installation costs are lower in the new construction market compared 
to non-condensing NWGFs, since high-efficiency NWGF can be vented 
either horizontally or vertically (whichever is most cost-
effective), and, therefore, a vertical buildout with roof 
penetration is not required. See appendix 8D of the TSD for this 
NOPR for more details regarding new construction installation costs.
---------------------------------------------------------------------------

(i) New Construction or New Owner Installations
    It is common practice in new construction, when possible, to avoid 
vertical venting in order to limit roof penetrations and reduce 
potential liability issues (e.g., water leakage through new roof 
penetrations).\118\ Condensing furnaces have the flexibility of being 
vented either horizontally or vertically. When presented with this 
option in new construction, it is reasonable to conclude that most

[[Page 40633]]

designers, architects, builders, contractors, and/or homeowners would 
opt for the most cost-effective installation. Current building 
practices are likely to evolve as the market changes in response to any 
amended energy conservation standards for the subject furnaces.
---------------------------------------------------------------------------

    \118\ Lekov A., V. Franco, G. Wong-Parodi, J. McMahon, P. Chan, 
Economics of residential gas furnaces and water heaters in US new 
construction market,. Energy Efficiency (September 2010) Volume 3, 
Issue 3, pp 203-222 (Available at: link.springer.com/article/10.1007/s12053-009-9061-y) (Last accessed Feb. 15, 2022).
---------------------------------------------------------------------------

    For new owner and new construction installations, DOE applied an 
incremental venting cost if the owner/builder had been planning to 
install a commonly-vented non-condensing furnace and water heater.
c. Additional Installation Costs for Mobile Home Gas Furnaces
    DOE included the same basic installation costs for MHGFs as 
described previously for NWGFs. DOE also included costs for venting and 
condensate removal. Protection from freezing (heat tape), a condensate 
pipe, condensate neutralizer, and an additional electrical connection 
are accounted for in the cost of condensate removal, where applicable.
    DOE notes that MHGFs are usually installed in tight spaces and 
often require space modifications if the replacement furnace dimensions 
are different from those of the existing furnace. DOE notes that most 
of the MHGF models at the proposed standard level of 95-percent AFUE 
are similar in size to the existing non-condensing MHGFs. However, some 
condensing furnaces in the manufacturer literature are wider and 
shorter than existing non-condensing furnaces. Accordingly, DOE 
increased the installation costs for a fraction of installations to 
address the impacts related to space constraints or condensate 
withdrawal that may be encountered when a condensing MHGF replaces an 
older mobile-home-specific furnace. DOE also adjusted the installation 
cost for the dedicated vent system for condensing MHGFs by including an 
additional cost to remove the old venting system. Mobile homes must be 
approved, as required by the U.S. Department of Housing and Urban 
Development, to ensure compliance with the HUD Code (24 CFR 3282.203), 
which requires special sealed combustion venting for MHGFs that cannot 
be commonly vented with other gas-fired equipment (such as a gas-fired 
water heater). DOE also adjusted the condensate withdrawal installation 
costs to account for a fraction of installations that encounter 
difficulty installing the condensate drain.
d. Contractor Survey and DOE's Sources
    AHRI and Carrier commented that DOE dismissed industry survey data 
(the ACCA/AHR/PHCC contractor survey), and that such dismissal is 
unreasonable, arbitrary and capricious. These commenters stated that 
DOE was unreasonable to rely on eight websites in lieu of over 700 
contractors with experience in the field, and that the websites relied 
upon, in fact, indicate that the cost of a new furnace installation is 
much higher than DOE estimates. These commenters stated that a survey 
seeking average installation costs for the purposes of information 
collection, rather than lead-generation, is implicitly more reliable 
that what amounts to online advertisements. AHRI and Carrier also 
stated that the estimated costs presented by these websites suggest 
that furnace installation is far more expensive that DOE estimates, 
with incremental costs potentially ranging from $800 to $4,500. (AHRI, 
No. 303 at p. 12; Carrier, No. 302 at pp. 6-7) Lennox also criticized 
DOE for failing to consider data from the contractor survey and 
commented that the sources DOE quotes in its analysis actually support 
much higher installation costs and require further review and analysis. 
(Lennox, No. 299 at pp. 13-14, 30)
    AHRI continues to object to the methodology used by DOE to 
determine installation costs, which it asserts is disassociated from 
actual costs. AHRI also stated that the differences between the 
installation costs developed by DOE and those from the marketplace as 
measured by the ACCA/AHRI/PHCC contractor survey are huge. (AHRI, No. 
303 at p. 41) Spire suggested that DOE should rely on actual field 
installation costs rather than estimating the installation cost. 
(Spire, September 2016 SNOPR Public Meeting Transcript, No. 243 at p. 
88) Spire stated that there is nothing in the record to show what input 
DOE's consultants actually sought or obtained on installation costs, 
and that the only manufacturer input that is available on the record is 
comments from manufacturers stating that DOE's installed cost estimates 
are gross underestimates of actual installed costs. (Spire, No. 309-1 
at p. 92) HARDI stated that DOE should not rely on installation 
information available on the internet, but rather should speak with 
installing contractors across diverse sections of the country, in 
addition to contractor organizations, to assess and verify the 
information obtained online. HARDI also stated that the online lead 
generation and price quoting mechanisms cited by DOE are responsible 
for less than five percent of sales amongst HARDI's customers and are 
not reflective of industry norms, and the quality and reliability of 
participants are unknown. Instead, HARDI urged DOE to consult the 
comments by PHCC, ACCA, and AHRI to assess true installation costs. 
(HARDI, No. 271 at p. 3)
    Rheem asserted that the installation cost data referenced by DOE in 
the September 2016 SNOPR were incomplete and vague, that the data did 
not always differentiate between condensing and non-condensing NWGFs, 
and that the cited costs ranged wildly. Rheem also stated that 
applications were mixed between furnace only and furnace and central 
air conditioners (``CAC'') combinations. (Rheem, No. 307 at pp. 7-8)
    In response, DOE notes that its focus for installation costs is to 
estimate the incremental cost between different efficiency levels. 
However, DOE used the results of the contractor survey to validate its 
estimates of the average total installed cost for condensing furnaces 
in replacement applications, as well as the average incremental 
installation cost. DOE examined the ACCA/AHRI/PHCC survey of 
contractors but was unable to use the data directly in the LCC analysis 
because only aggregate values were reported. The ACCA/AHRI/PHCC survey 
results are binned in wide bins of $250, and the sample is heavily 
weighted towards the north (339 responses in the North and 181 in the 
South). As noted previously, installation costs vary widely for 
different contractors and areas of the country. The installation costs 
in the Northern region will tend to be much higher than those reported 
in the Rest of the Country (as defined in the LCC analysis). For this 
NOPR, DOE revised its installation cost methodology to account for 
various factors affecting both non-condensing and condensing NWGFs, 
such as: the cost of ductwork upgrades; baseline electrical 
installation costs; additional labor required for baseline 
installations; the cost of relining, resizing, and/or other adjustments 
of metal venting for baseline installations; premium installation costs 
for emergency replacements; and other premium installation costs for 
comfort-related features (e.g., advanced thermostats, zoning, 
hypoallergenic filters, humidity controls). For this NOPR, DOE also 
compared its average estimates to the AHRI/ACCA/PHCC contractor survey 
report and other sources such as Home Advisor,\119\ ImproveNet,\120\ 
Angie's

[[Page 40634]]

List,\121\ HomeWyse,\122\ Cost Helper,\123\ Fixr,\124\ CostOwl,\125\ 
and Gas Furnace Guide,\126\ and also consulted with RS Means staff. In 
addition, DOE was able to obtain installation costs disaggregated for 
households installing only a furnace versus installing both a furnace 
and air conditioner from the 2016 AHCS. For this NOPR, the average 
incremental installation cost for a condensing NWGF in a retrofit 
installation was $644 (in 2020$), which is consistent with the AHRI/
ACCA/PHCC contractor survey and data provided by SoCalGas, as well as 
the other sources listed above. Therefore, DOE concludes that the 
industry-supplied data support its installation cost methodology.
---------------------------------------------------------------------------

    \119\ Home Advisor, How Much Does a New Gas Furnace Cost? 
(Available at: www.homeadvisor.com/cost/heating-and-cooling/gas-furnace-prices/) (Last accessed February 15, 2022).
    \120\ www.improvenet.com/ (Last accessed Feb. 15, 2022).
    \121\ Angie's List, How Much Does it Cost to Install a New 
Furnace (Available at: www.angieslist.com/articles/how-much-does-it-cost-install-new-furnace.htm) (Last accessed Feb. 15, 2022).
    \122\ HomeWyse, Cost to Install a Furnace (Available at: 
www.homewyse.com/services/cost_to_install_furnace.html) (Last 
accessed Feb. 15, 2022).
    \123\ Cost Helper, How Much Does a Furnace Cost? (Available at: 
home.costhelper.com/furnace.html) (Last accessed Feb. 15, 2022).
    \124\ FIXr, Gas Central Heating Installation Cost (Available at: 
www.fixr.com/costs/gas-central-heating-installation) (Last accessed 
Feb. 15, 2022).
    \125\ CostOwl.com, How much Does a New Furnace Cost? (Available 
at: www.costowl.com/home-improvement/hvac-furnace-replacement-cost.html) (Last accessed Feb. 15, 2022).
    \126\ Gas Furnace Guide, Gas Furnace Prices and Installation 
Cost Comparison (Available at: www.gasfurnaceguide.com/compare/) 
(Last accessed Feb. 15, 2022).
---------------------------------------------------------------------------

e. Summary of Installation Costs
    Table IV.12 shows the fraction of installations impacted and the 
average cost for each of the installation cost adders in replacement 
applications (not including new owners). The estimates of the fraction 
of installations impacted were based on the furnace location (primarily 
derived from information in RECS 2015) and a number of other sources 
that are described in chapter 8 of this NOPR TSD.

   Table IV.12--Additional Installation Costs for Non-Weatherized Gas Furnaces and Mobile Home Gas Furnaces in
                                            Replacement Applications
----------------------------------------------------------------------------------------------------------------
                                                               NWGFs                           MHGFs
                                                 ---------------------------------------------------------------
                                                    Replacement                     Replacement
             Installation cost adder               installations   Average cost    installations   Average cost
                                                     impacted         (2020$)        impacted         (2020$)
                                                     (percent)                       (percent)
----------------------------------------------------------------------------------------------------------------
                                             Non-Condensing Furnaces
----------------------------------------------------------------------------------------------------------------
Updating Vent Connector.........................              24             284  ..............  ..............
Updating Flue Vent *............................               5             751             100             195
----------------------------------------------------------------------------------------------------------------
                                               Condensing Furnaces
----------------------------------------------------------------------------------------------------------------
New Flue Venting (PVC)..........................             100             301             100              47
Combustion Air Venting (PVC)....................              57             298             100              47
Concealing Vent Pipes...........................               7             551  ..............  ..............
Orphaned Water Heater...........................              18             747  ..............  ..............
Condensate Removal..............................             100              95             100             201
Multi-Family Adder..............................               4             248  ..............  ..............
Mobile Home Adder...............................  ..............  ..............              25             236
----------------------------------------------------------------------------------------------------------------
* For a fraction of installations, this cost includes the commonly-vented water heater vent connector, chimney
  relining, and vent resizing. For mobile home gas furnaces, DOE assumed that flue venting has to be upgraded
  for all replacement installations.

    Table IV.13 shows the estimated fraction of new home installations 
impacted and the average cost for each of the adders.

 Table IV.13--Additional Installation Costs for Non-Weatherized Gas Furnaces and Mobile Home Gas Furnaces in New
                                     Construction and New Owner Applications
----------------------------------------------------------------------------------------------------------------
                                                               NWGFs                           MHGFs
                                                 ---------------------------------------------------------------
                                                        New                             New
             Installation cost adder               installations   Average cost    installations   Average cost
                                                     impacted         (2020$)        impacted         (2020$)
                                                     (percent)                       (percent)
----------------------------------------------------------------------------------------------------------------
                                             Non-Condensing Furnaces
----------------------------------------------------------------------------------------------------------------
New Flue Vent (Metal) *.........................             100          $1,520             100            $259
----------------------------------------------------------------------------------------------------------------
                                               Condensing Furnaces
----------------------------------------------------------------------------------------------------------------
New Flue Venting (PVC)..........................             100             167             100              23
Combustion Air Venting (PVC)....................              57             162             100              23
Concealing Vent Pipes *.........................               2             209  ..............  ..............
Orphaned Water Heater...........................              47           1,150  ..............  ..............
Condensate Removal..............................             100              66             100             111
----------------------------------------------------------------------------------------------------------------
* Applied to new owner installations only.


[[Page 40635]]

4. Annual Energy Consumption
    For each sampled residential furnace installation, DOE determined 
the energy consumption for a NWGF or MHGF at different efficiency 
levels using the approach described above in section IV.E of this 
document.
    Higher-efficiency furnaces reduce the operating costs for a 
consumer, which can lead to greater use of the furnace. A direct 
rebound effect occurs when a product that is made more efficient is 
used more intensively, such that the expected energy savings from the 
efficiency improvement may not fully materialize. At the same time, 
consumers benefit from increased utilization of products due to 
rebound. Overall consumer surplus (taking into account additional costs 
and benefits) is generally understood to increase from rebound. DOE 
examined a 2009 review of empirical estimates of the rebound effect for 
various energy-using products.\127\ This review concluded that the 
econometric and quasi-experimental studies suggest a mean value for the 
direct rebound effect for household heating of around 20 percent. DOE 
also examined a 2012 ACEEE paper \128\ and a 2013 paper by Thomas and 
Azevedo.\129\ Both of these publications examined the same studies that 
were reviewed by Sorrell, as well as Greening et al.,\130\ and 
identified methodological problems with some of the studies. The 
studies believed to be most reliable by Thomas and Azevedo show a 
direct rebound effect for heating products in the 1-percent to 15-
percent range, while Nadel concludes that a more likely range is 1 to 
12 percent, with rebound effects sometimes higher for low-income 
households who could not afford to adequately heat their homes prior to 
weatherization. Based on DOE's review of these recent assessments, DOE 
used a 15-percent rebound effect for NWGFs and MHGFs. This rebound is 
the same as assumed in EIA's National Energy Modeling System (``NEMS'') 
for residential space heating.\131\ However, for commercial 
applications DOE applied no rebound effect, consistent with other 
recent energy conservation standards rulemakings.132 133 134
---------------------------------------------------------------------------

    \127\ Steven Sorrell, et al., Empirical Estimates of the Direct 
Rebound Effect: A Review, 37 Energy Policy 1356-71 (2009) (Available 
at www.sciencedirect.com/science/article/pii/S0301421508007131) 
(Last accessed Feb. 15, 2022).
    \128\ Steven Nadel, ``The Rebound Effect: Large or Small?'' 
ACEEE White Paper (August 2012) (Available at www.aceee.org/files/pdf/white-paper/rebound-large-and-small.pdf) (Last accessed Feb. 15, 
2022).
    \129\ Brinda Thomas and Ines Azevedo, Estimating Direct and 
Indirect Rebound Effects for U.S. Households with Input-Output 
Analysis, Part 1: Theoretical Framework, 86 Ecological Econ. 199-201 
(2013) (Available at www.sciencedirect.com/science/article/pii/S0921800912004764) (Last accessed Feb. 15, 2022).
    \130\ Lorna A. Greening, et al., Energy Efficiency and 
Consumption--The Rebound Effect--A Survey, 28 Energy Policy 389-401 
(2002) (Available at www.sciencedirect.com/science/article/pii/S0301421500000215) (Last accessed Feb. 15, 2022).
    \131\ See: www.eia.gov/outlooks/aeo/nems/documentation/residential/pdf/m067(2020).pdf (Last accessed May 19, 2022).
    \132\ DOE. Energy Conservation Program for Certain Industrial 
Equipment: Energy Conservation Standards for Small, Large, and Very 
Large Air-Cooled Commercial Package Air Conditioning and Heating 
Equipment and Commercial Warm Air Furnaces; Direct final rule. 81 FR 
2419 (Jan. 15, 2016) (Available at www.regulations.gov/document/EERE-2013-BT-STD-0021-0055) (Last accessed Feb. 15, 2022).
    \133\ DOE. Energy Conservation Program: Energy Conservation 
Standards for Residential Boilers; Final rule. 81 FR 2319 (Jan. 15, 
2016) (Available at www.regulations.gov/document/EERE-2012-BT-STD-0047-0078) (Last accessed Feb. 15, 2022).
    \134\ DOE. Energy Conservation Program: Energy Conservation 
Standards for Commercial Packaged Boilers; Final Rule. 85 FR 1592 
(Jan. 10, 2020) (Available at www.regulations.gov/document/EERE-2013-BT-STD-0030-0099) (Last accessed Feb. 15, 2022).
---------------------------------------------------------------------------

    The LCC analysis is an analysis that does not account for consumer 
behavior; as a result, DOE does not include the rebound effect in the 
LCC. Some households may increase their furnace use in response to 
increased efficiency, and as a result, not all households will realize 
the LCC savings represented in section V.B of this document. DOE does 
include rebound in the NIA for a conservative estimate of national 
energy savings and the corresponding impact to consumer NPV. See 
section IV.H of this document.
    EPCA requires that in its evaluation of proposed energy 
conservation standards, DOE must 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 products 
which are likely to result from the imposition of the standard. (42 
U.S.C. 6295(o)(2)(B)(i)(II)) That is, DOE must consider the savings 
resulting from operating a covered product that the consumer would 
purchase under the proposed standard and the costs that the consumer 
would realize from operating such a product, as compared to the costs 
that the consumer would realize from operating a product under the 
current standard. This consideration is to inform the determination of 
whether an amended standard would be economically justified. EPCA does 
not prohibit this consideration from monetizing additional benefits 
that the consumer may receive from a covered product that complies with 
a proposed improvement in efficiency.
    EPCA directs DOE to consider ``savings in operating costs'' with no 
reference as to how DOE is to consider any potential increase in value 
provided to the consumer under a proposed standard. (See, 42 U.S.C. 
6295(o)(2)(B)(i)(II)) In evaluating potential changes in the operating 
costs, DOE has considered the useful output of a furnace provided to 
the consumer. The rebound effect does not capture an external benefit, 
but reflects a benefit directly realized by the consumer in the form of 
increased comfort. Were DOE to adopt an approach that did not include a 
value for the additional comfort provided by a more-efficient furnace, 
the economic benefits from the proposed standard would have been 
underestimated. DOE's evaluation of the economic impact of a proposed 
standard would include the cost of additional fuel consumption 
resulting from the rebound effect, but would fail to recognize the 
additional welfare provided directly to the consumer from a NWGF or 
MHGF that complies at the proposed efficiency level.
    In addition to the consideration required by 42 U.S.C. 
6295(o)(2)(B)(i)(II), EPCA directs DOE to consider the economic impact 
of the standard on manufacturers and on the consumers of the products 
subject such standard. (42 U.S.C. 6295(o)(2)(B)(i)(I)) The economic 
impact is not narrowly defined to include only costs related to energy 
consumption. The occurrence of a rebound effect demonstrates that 
consumers value the additional output (i.e., heat) as they are paying 
for the additional heat, and resulting increase in comfort, reflected 
in their energy bills. To quantify the effects of rebound, DOE 
estimates the economic and energy savings impact in the NIA. See 
chapter 10 of the NOPR TSD for more details.
5. Energy Prices
    A marginal energy price reflects the cost or benefit of adding or 
subtracting one additional unit of energy consumption. Marginal 
electricity prices more accurately capture the incremental savings 
associated with a change in energy use by higher-efficiency products 
and provide a better representation of incremental change in consumer 
costs than average electricity prices. Therefore, DOE applied average 
electricity prices for the energy use of the product purchased in the 
no-new-standards case and marginal electricity prices for the 
incremental change in energy use associated with the other efficiency 
levels considered.

[[Page 40636]]

    DOE derived average monthly marginal residential and commercial 
electricity, natural gas, and LPG prices for each state using data from 
EIA.135 136 137 DOE calculated marginal monthly regional 
energy prices by: (1) first estimating an average annual price for each 
region; (2) multiplying by monthly energy price factors, and (3) 
multiplying by seasonal marginal price factors for electricity, natural 
gas, and LPG. The analysis used historical data up to 2020 for 
residential and commercial natural gas and electricity prices and 
historical data up to 2019 for LPG prices. Further details may be found 
in chapter 8 of the NOPR TSD.
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    \135\ U.S. Department of Energy-Energy Information 
Administration, Form EIA-861M (formerly EIA-826) detailed data 
(2020) (Available at: www.eia.gov/electricity/data/eia861m/) (Last 
accessed Feb. 15, 2022).
    \136\ U.S. Department of Energy-Energy Information 
Administration, Natural Gas Navigator (2020) (Available at: 
www.eia.gov/naturalgas/data.php) (Last accessed Feb. 15, 2022).
    \137\ U.S. Department of Energy-Energy Information 
Administration, 2019 State Energy Data System (``SEDS'') (2019) 
(Available at: www.eia.gov/state/seds/) (Last accessed Feb. 15, 
2022).
---------------------------------------------------------------------------

    DOE compared marginal price factors developed by DOE from the EIA 
data to develop seasonal marginal price factors for 23 gas tariffs 
provided by the Gas Technology Institute for the 2016 residential 
boilers energy conservation standards rulemaking.\138\ DOE found that 
the winter price factors used by DOE are generally comparable to those 
computed from the tariff data, indicating that DOE's marginal price 
estimates are reasonable at average usage levels. The summer price 
factors are also generally comparable. Of the 23 tariffs analyzed, 
eight have multiple tiers, and of these eight, six have ascending rates 
and two have descending rates. The tariff-based marginal factors use an 
average of the two tiers as the commodity price. A full tariff-based 
analysis would require information about the household's total baseline 
gas usage (to establish which tier the consumer is in), and a weight 
factor for each tariff that determines how many customers are served by 
that utility on that tariff. These data are generally not available in 
the public domain. DOE's use of EIA State-level data effectively 
averages overall consumer sales in each State, and so incorporates 
information from all utilities. DOE's approach is, therefore, more 
representative of a large group of consumers with diverse baseline gas 
usage levels than an approach that uses only tariffs.
---------------------------------------------------------------------------

    \138\ GTI provided a reference located in the docket of DOE's 
2016 rulemaking to develop energy conservation standards for 
residential boilers. (Docket No. EERE-2012-BT-STD-0047-0068) 
(Available at: www.regulations.gov/document/EERE-2012-BT-STD-0047-0068) (Last accessed Feb. 15, 2022).
---------------------------------------------------------------------------

    DOE notes that within a State, there could be significant variation 
in the marginal price factors, including differences between rural and 
urban rates. In order to take this to account, DOE developed marginal 
price factors for each individual household using RECS 2015 billing 
data. These data are then normalized to match the average State 
marginal price factors, which are equivalent to a consumption-weighted 
average marginal price across all households in the State. For more 
details on the comparative analysis and updated marginal price 
analysis, see appendix 8D of this NOPR TSD.
    To estimate energy prices in future years, DOE multiplied the 2020 
energy prices by the projection of annual average price changes for 
each of the nine Census Divisions from the Reference case in AEO2021, 
which has an end year of 2050.\139\ To estimate price trends after 
2050, DOE used the average annual rate of change in prices from 2045 
through 2050. DOE also conducted sensitivity analyses using lower and 
higher energy price projections. The impact of these alternative 
scenarios is shown in appendix 8K of the NOPR TSD.
---------------------------------------------------------------------------

    \139\ U.S. Department of Energy-Energy Information 
Administration, Annual Energy Outlook 2021 (Available at: 
www.eia.gov/outlooks/aeo/) (Last accessed Feb. 15, 2022).
---------------------------------------------------------------------------

6. Maintenance and Repair Costs
    Maintenance costs are associated with maintaining the operation of 
the product, while repair costs are associated with repairing or 
replacing product components that have failed in an appliance.
    DOE estimated maintenance costs for residential furnaces at each 
considered efficiency level using a variety of sources, including 2021 
RS Means,\140\ manufacturer literature, and information from expert 
consultants. DOE estimated the frequency of annual maintenance using 
data from RECS 2015 and the 2019 American Home Comfort Study.\141\ DOE 
accounted for the likelihood that condensing furnaces require more 
maintenance and repair than non-condensing furnaces by adding costs to 
check the secondary heat exchanger and condensate system (including 
regular replacement of the condensate neutralizer). For repair costs, 
DOE included repair of the ignition, gas valve, controls, and inducer 
fan, as well as the furnace fan blower. For condensing repair costs, 
DOE assumed higher material repair costs for the ignition, gas valve, 
controls, and inducer fan, as well as a higher fraction of BPM furnace 
fans compared to non-condensing furnaces. To determine the service 
lifetime of various components, DOE used a Gas Research Institute 
(``GRI'') study.\142\ For the considered standby mode and off mode 
standards, DOE assumed that no additional maintenance or repair is 
required.
---------------------------------------------------------------------------

    \140\ RS Means Company Inc., RS Means Facilities Maintenance & 
Repair Cost Data (2021) (Available at: www.rsmeans.com/) (Last 
accessed Feb. 15, 2022).
    \141\ Decision Analysts, 2019 American Home Comfort Study: 
Online Database Tool (Available at: www.decisionanalyst.com/
Syndicated/HomeComfort/) (Last accessed Feb. 15, 2022).
    \142\ Jakob, F.E., J.J. Crisafulli, J.R. Menkedick, R.D. 
Fischer, D.B. Philips, R.L. Osbone, J.C. Cross, G.R. Whitacre, J.G. 
Murray, W.J. Sheppard, D.W. DeWirth, and W.H. Thrasher, Assessment 
of Technology for Improving the Efficiency of Residential Gas 
Furnaces and Boilers, Volume I and II--Appendices (September 1994) 
Gas Research Institute, Report No. GRI-94/0175 (Available at: 
www.gti.energy/software-and-reports/) (Last accessed Feb. 15, 2022).
---------------------------------------------------------------------------

    In order to validate DOE's approach, DOE did a review of 
maintenance and repair costs available from a variety of sources, 
including online resources. Overall, DOE found that the maintenance and 
repair cost estimates applied in its analysis fall within the typical 
range of published maintenance and repair charges.
    For more details on DOE's methodology for calculating repair costs, 
including all online resources reviewed, see appendix 8F of the TSD for 
this NOPR.
7. Product Lifetime
    Product lifetime is the age at which an appliance is retired from 
service. DOE conducted an analysis of furnace lifetimes based on the 
methodology described in a recent journal paper.\143\ For this 
analysis, DOE relied on RECS 1990, 1993, 2001, 2005, 2009, and 
2015.\144\ DOE also used the U.S. Census's biennial American Housing 
Survey (``AHS''), from 1974-2019, which surveys all housing, noting the 
presence of a range of appliances.\145\

[[Page 40637]]

DOE used the appliance age data from these surveys, as well as the 
historical furnace shipments, to generate an estimate of the survival 
function. The survival function provides a lifetime range from minimum 
to maximum, as well as an average lifetime. DOE estimates the average 
product lifetime to be 21.4 years for NWGFs and MHGFs. This estimate is 
consistent with the range of values identified in a literature review, 
which included values from 16 years to 23.6 years.
---------------------------------------------------------------------------

    \143\ Lutz, J., A. Hopkins, V. Letschert, V. Franco, and A. 
Sturges, Using national survey data to estimate lifetimes of 
residential appliances, HVAC&R Research (2011) 17(5): pp. 28 
(Available at: www.tandfonline.com/doi/abs/10.1080/10789669.2011.558166) (Last accessed Feb. 15, 2022).
    \144\ U.S. Department of Energy: Energy Information 
Administration, Residential Energy Consumption Survey (``RECS''), 
Multiple Years (1990, 1993, 1997, 2001, 2005, 2009, and 2015) 
(Available at: www.eia.gov/consumption/residential/) (Last accessed 
Feb. 15, 2022).
    \145\ U.S. Census Bureau: Housing and Household Economic 
Statistics Division, American Housing Survey, Multiple Years (1974, 
1975, 1976, 1977, 1978, 1979, 1980, 1981, 1983, 1985, 1987, 1989, 
1991, 1993, 1995, 1997, 1999, 2001, 2003, 2005, 2007, 2009, 2011, 
2013, 2015, 2017, and 2019) (Available at: www.census.gov/programs-surveys/ahs/) (Last accessed Feb. 15, 2022).
---------------------------------------------------------------------------

    To better account for differences in lifetime due to furnace 
utilization, DOE determined separate lifetimes for the North and Rest 
of Country (as identified in the shipments analysis) but only based on 
the difference in operating hours in the two regions. DOE assumed that 
equipment operated for fewer hours will have a longer service lifetime. 
DOE developed regional lifetime estimates by using regional shipments, 
RECS survey data, and AHS survey data and applying the methodology 
described above. More specifically, these data include AHRI shipments 
in the North and Rest of Country regions from 2010-2015,\146\ 2015 RECS 
data,\147\ and 2015-2019 AHS data survey data.\148\ DOE also 
incorporated lifetime data from Decision Analyst's AHCS from 2006, 
2008, 2010, 2013, 2016, and 2019.\149\ The average lifetime used in 
this NOPR is 22.5 years in the North and 20.2 years in the Rest of 
Country for both NWGFs and MHGFs (national average is 21.4 years). 
Consumer furnaces located in the North are generally higher capacity to 
meet the higher heating load, and thus can have lower operating hours. 
Additionally, furnace replacements in the Rest of Country are more 
likely to be linked to a paired central air conditioner. For these 
reasons, the consumer furnace lifetimes in the two regions differ 
slightly. DOE also conducted sensitivity analyses using a median 
lifetime of 16 years (low lifetime scenario) and 27 years (high 
lifetime scenario) for NWGFs and MHGFs (see appendix 8G in the TSD for 
this NOPR).
---------------------------------------------------------------------------

    \146\ Air-Conditioning, Heating, and Refrigeration Institute, 
Non-Condensing and Condensing Regional Gas Furnace Shipments for 
2010-2015, Confidential Data Provided to Navigant Consulting (Nov. 
26, 2016).
    \147\ U.S. Department of Energy: Energy Information 
Administration, Residential Energy Consumption Survey (``RECS'') 
(2015) (Available at: www.eia.gov/consumption/residential/) (Last 
accessed Feb. 15, 2022).
    \148\ U.S. Census Bureau: Housing and Household Economic 
Statistics Division, American Housing Survey, Multiple Years (2015-
2019) (Available at: www.census.gov/programs-surveys/ahs/) (Last 
accessed Feb. 15, 2022).
    \149\ Decision Analysts, 2006, 2008, 2010, 2013, 2016, and 2019 
American Home Comfort Studies (Available at: 
www.decisionanalyst.com/Syndicated/HomeComfort/) (Last accessed Feb. 
15, 2022).
---------------------------------------------------------------------------

    There is significant variation in the distribution of furnace 
lifetime and DOE uses a Weibull distribution to account for this 
distribution of product failure. DOE accounts for this variation by 
projecting energy cost savings and health benefits through the final 
year of furnace lifetime for all products shipped in 2058 (i.e., 
through 2113). Given the length of time horizon needed to account for 
the furnaces shipped in the 30-year analysis, DOE seeks comment on its 
analysis of benefits that accrue beyond the year 2070.
    Chapter 8 of the TSD for this NOPR provides further details on the 
methodology and sources DOE used to develop furnace lifetimes.
8. Discount Rates
    In the calculation of LCC, DOE applies discount rates appropriate 
to households to estimate the present value of future operating costs. 
The discount rate used in the LCC analysis represents the rate from an 
individual consumer's perspective. DOE estimated a distribution of 
residential discount rates for NWGFs and MHGFs based on consumer 
financing costs and the opportunity cost of consumer funds.
    DOE applies weighted average discount rates calculated from 
consumer debt and asset data, rather than marginal or implicit discount 
rates.\150\ DOE notes that the LCC does not analyze the appliance 
purchase decision, so the implicit discount rate is not relevant in 
this model. The LCC estimates net present value over the lifetime of 
the product, and, therefore, the appropriate discount rate will reflect 
the general opportunity cost of household funds, taking into account 
the time scale of the product lifetime. Given the long time horizon 
modeled in the LCC, the application of a marginal interest rate 
associated with an initial source of funds is inaccurate. Regardless of 
the method of purchase, consumers are expected to continue to rebalance 
their debt and asset holdings over the LCC analysis period, based on 
the restrictions consumers face in their debt payment requirements and 
the relative magnitude of the interest rates available for debts and 
assets. DOE estimates the aggregate impact of this rebalancing using 
the historical distribution of debts and assets.
---------------------------------------------------------------------------

    \150\ The implicit discount rate is inferred from a consumer 
purchase decision between two otherwise identical goods with 
different first cost and operating cost. It is the interest rate 
that equates the increment of first cost to the difference in net 
present value of lifetime operating cost, incorporating the 
influence of several factors: transaction costs; risk premiums and 
response to uncertainty; time preferences; and interest rates at 
which a consumer is able to borrow or lend.
---------------------------------------------------------------------------

    To establish residential discount rates for the LCC analysis, DOE 
identified all relevant household debt or asset classes in order to 
approximate a consumer's opportunity cost of funds related to appliance 
energy cost savings. DOE estimated the average percentage shares of the 
various types of debt and equity by household income group using data 
from the Federal Reserve Board's Survey of Consumer Finances (``SCF'') 
for 1995, 1998, 2001, 2004, 2007, 2010, 2013, 2016, and 2019.\151\ 
Using the SCF and other sources, DOE developed a distribution of rates 
for each type of debt and asset by income group to represent the rates 
that may apply in the year in which amended or new standards would take 
effect. DOE assigned each sample household a specific discount rate 
drawn from one of the distributions.
---------------------------------------------------------------------------

    \151\ The Federal Reserve Board, Survey of Consumer Finances 
(1995, 1998, 2001, 2004, 2007, 2010, 2013, 2016, and 2019) 
(Available at: www.federalreserve.gov/econres/scfindex.htm) (last 
accessed Feb. 15, 2022).
---------------------------------------------------------------------------

    DOE notes that the interest rate associated with the specific 
source of funds used to purchase a furnace (i.e., the marginal rate) is 
not the appropriate metric to measure the discount rate as defined for 
the LCC analysis. The marginal interest rate alone would only be the 
relevant discount rate if the consumer were restricted from re-
balancing their debt and asset holdings (by redistributing debts and 
assets based on the relative interest rates available) over the entire 
time period modeled in the LCC analysis. The LCC is not analyzing a 
marginal decision; rather, it estimates net present value over the 
lifetime of the product, so, therefore, the discount rate needs to 
reflect the opportunity cost of both the money flowing in (through 
operating cost savings) and out (through upfront cost expenditures) of 
the net present value calculation. In the context of the LCC analysis, 
the consumer is not only discounting based on their opportunity cost of 
money spent today, but instead, they are additionally discounting the 
stream of future benefits. A consumer might pay for an appliance with 
cash, thereby forgoing investment of those funds into one of the 
interest earning assets to which they might have access.\152\ 
Alternatively, a consumer

[[Page 40638]]

might pay for the initial purchase by going into debt, subject to the 
cost of capital at the interest rate relevant for that purchase. 
However, a consumer will also receive a stream of future benefits in 
terms of annual operating cost savings that they could either put 
towards paying off that or other debts, or towards assets, depending on 
the restrictions they face in their debt payment requirements and the 
relative size of the interest rates on their debts and assets. All of 
these interest rates are relevant in the context of the LCC analysis, 
as they all reflect direct costs of borrowing, or opportunity costs of 
money either now or in the future. Additionally, while a furnace itself 
is not a readily tradable commodity, the money used to purchase it and 
the annual operating cost savings accruing to it over time flow from 
and to a household's pool of debt and assets, including mortgages, 
mutual funds, money market accounts, etc. Therefore, the weighted-
average interest rate on debts and assets provides a reasonable 
estimate for a household's opportunity cost (and discount rate) 
relevant to future costs and savings. The best proxy for this re-
optimization of debt and asset holdings over the lifetime of the LCC 
analysis is to assume that the distribution of debts and assets in the 
future will be proportional to the distribution of debts and assets 
historically. Given the long time horizon modeled in the LCC, the 
application of a marginal rate alone would be inaccurate. DOE's 
methodology for deriving residential discount rates is in line with the 
weighted-average cost of capital used to estimate commercial discount 
rates. The average rate in this NOPR analysis across all types of 
household debt and equity and across all income groups, weighted by the 
shares of each type, is 4.2 percent for NWGFs and 4.7 percent for 
MHGFs.
---------------------------------------------------------------------------

    \152\ Decision Analyst's 2019 American Home Comfort Study 
(Available at: www.decisionanalyst.com/syndicated/homecomfort/) 
(Last accessed Feb. 15, 2022) shows that for HVAC purchases, 
consumers used cash or debit cards 58 percent of the time, a credit 
card 23 percent of the time, and other financing options the 
remaining 18 percent of the time.
---------------------------------------------------------------------------

    To establish commercial discount rates for the small fraction of 
NWGFs installed in commercial buildings, DOE estimated the weighted-
average cost of capital using data from Damodaran Online.\153\ The 
weighted-average cost of capital is commonly used to estimate the 
present value of cash flows to be derived from a typical company 
project or investment. Most companies use both debt and equity capital 
to fund investments, so their cost of capital is the weighted average 
of the cost to the firm of equity and debt financing. DOE estimated the 
cost of equity using the capital asset pricing model, which assumes 
that the cost of equity for a particular company is proportional to the 
systematic risk faced by that company. DOE's commercial discount rate 
approach is based on the methodology described in a LBNL report, and 
the distribution varies by business activity.\154\ The average rate for 
NWGFs used in commercial applications in this NOPR analysis, across all 
business activity, is 6.7 percent.
---------------------------------------------------------------------------

    \153\ Damodaran Online, Data Page: Costs of Capital by Industry 
Sector (2021) (Available at: pages.stern.nyu.edu/~adamodar/) (Last 
accessed Feb. 15, 2022).
    \154\ Fujita, S., Commercial, Industrial, and Institutional 
Discount Rate Estimation for Efficiency Standards Analysis: Sector-
Level Data 1998-2018 (Available at: ees.lbl.gov/publications/commercial-industrial-and) (Last accessed Feb. 15, 2022).
---------------------------------------------------------------------------

    See chapter 8 of this NOPR TSD for further details on the 
development of consumer and commercial discount rates.
9. Energy Efficiency Distribution in the No-New-Standards Case
    To accurately estimate the share of consumers that would be 
affected by a potential energy conservation standard at a particular 
efficiency level, DOE's LCC analysis considered the projected 
distribution (i.e., market shares) of product efficiencies under the 
no-new-standards case (i.e., the case without amended or new energy 
conservation standards). This approach reflects the fact that some 
consumers may purchase products with efficiencies greater than the 
baseline levels.
a. Condensing Furnace Market Share in Compliance Year
    To estimate the efficiency distribution of NWGFs and MHGFs in 2029, 
DOE considered the market trends regarding increased sales of high-
efficiency furnaces (including any available incentives). DOE relied on 
data provided by AHRI on historical shipments for each product class. 
DOE reviewed AHRI data from 1992 and 1994-2003 (which includes both 
NWGF and MHGF shipments data), detailing the market shares of non-
condensing \155\ and condensing (90-percent AFUE and greater) furnaces 
by State.\156\ AHRI also provided data for non-condensing and 
condensing furnace shipments by region for 2004-2009 \157\ and 
nationally for 2010-2014.\158\ AHRI additionally submitted proprietary 
data including shipments of condensing and non-condensing furnaces in 
the North and Rest of Country regions from 2010 to 2015.\159\ DOE also 
obtained 2013-2020 HARDI shipments data by efficiency for most 
States.\160\ AHRI and HARDI data capture different fractions of the 
market. Using the shipments data from AHRI and HARDI, DOE derived 
historical trends for each State. DOE used the HARDI State-level data 
(2013-2020) to project the trends and estimate the condensing furnace 
market share in 2029. This excludes years with a Federal tax incentive 
161 162 in order to better reflect the trends of the current 
market. The maximum share of condensing furnace shipments for each 
region was assumed to be 95 percent, in order to reflect a small 
fraction of the market that would continue to install non-condensing 
furnaces. The national average condensing NWGFs market share in 2029 
was estimated to be 58.0 percent, with an anticipated market share of 
75.6 percent in the North and 34.3 percent in the Rest of Country. The 
national average condensing market share for MHGFs in 2029 was 
estimated to be 31.4 percent, with an anticipated market share of 37.8 
percent in the North and 21.1 percent in the Rest of

[[Page 40639]]

Country, overall about half the fraction of NWGFs.
---------------------------------------------------------------------------

    \155\ The market share of furnaces with AFUE between 80 and 90 
percent is well below 1 percent due to the very high installed cost 
of 81-percent AFUE furnaces, compared with condensing designs, and 
concerns about safety of operation. AHRI also provided national 
shipments data (not disaggregated by region) by efficiency for 1975, 
1978, 1980, 1983-1991, and 1993.
    \156\ Air-Conditioning, Heating, and Refrigeration Institute 
(formerly Gas Appliance Manufacturers Association), Updated 
Shipments Data for Residential Furnaces and Boilers (April 25, 2005) 
(Available at: www.regulations.gov/document/EERE-2006-STD-0102-0138) 
(Last accessed Feb. 15, 2022).
    \157\ Air-Conditioning, Heating, and Refrigeration Institute, 
Non-Condensing and Condensing Regional Gas Furnace Shipments for 
2004-2009 Data Provided to DOE (July 20, 2010).
    \158\ Air-Conditioning, Heating, and Refrigeration Institute, 
Non-Condensing and Condensing Gas Furnace Shipments for 2010-2014 
(Available at: www.regulations.gov/document/EERE-2014-BT-STD-0031-0052) (Last accessed Feb. 15, 2022).
    \159\ Air-Conditioning, Heating, and Refrigeration Institute, 
Non-Condensing and Condensing Regional Gas Furnace Shipments for 
2010-2015, Confidential Data Provided to Navigant Consulting (Nov. 
26, 2016).
    \160\ Heating, Air-conditioning and Refrigeration Distributors 
International (HARDI), DRIVE portal (HARDI Visualization Tool 
managed by D+R International), Gas Furnace Shipments Data from 2013-
2020 (Available at: www.drintldata.com) (Last accessed Feb. 15, 
2022).
    \161\ DOE did not use the data for 2008-2011 because these data 
appear to be influenced by incentives. AHRI also stated the period 
from 2008 through 2011 was an outlier. (AHRI, No. 303 at pp. 23-25)
    \162\ The Energy Policy Act of 2005 established the tax credit 
for energy improvements to existing homes. The credit was originally 
limited to purchases made in 2006 and 2007, with an aggregate cap of 
$500 for all qualifying purchases made in these two years combined. 
For improvements made in 2009 and 2010, the cap was increased to 
$1,500. This coincides with a sharp increase in condensing furnace 
shipments. This credit has since been renewed several times, but the 
credit was reduced to its original form and original cap of $500 
starting in 2011. More information is available at www.energy.gov/savings/dsire-page (Last accessed Feb. 15, 2022).
---------------------------------------------------------------------------

    Additionally, DOE developed a sensitivity analysis incorporating a 
higher and lower market share for condensing NWGFs and MHGFs. See 
appendix 8I of the TSD for this NOPR for further information on the 
derivation of the efficiency distribution projections and sensitivity 
analysis results.
b. Market Shares of Different Condensing Furnace Efficiency Levels
    DOE used data on the shipments by efficiency from the 2013-2020 
HARDI shipments to disaggregate the condensing furnace shipments among 
the different condensing efficiency levels. Based on stakeholder input, 
DOE assumed that the fraction of furnace shipments of 95-percent or 
higher AFUE in the replacement market would be double the fraction in 
the new construction market. DOE also assumed that the fraction of 
furnace shipments of 95-percent or higher AFUE would be higher in the 
North compared to the South, because the threshold for ENERGY STAR 
designation in the North is 95-percent AFUE compared to 90-percent AFUE 
in the South. The resulting distributions were then used to assign the 
new furnace AFUE for each sampled household or building in the no-new-
standards case, both in the replacement and new construction markets, 
and in each of the 30 RECS regions and 9 CBECS Census Divisions. The 
resulting national distribution for condensing NWGFs in 2029 is 
expected to be 0.3 percent for 90-percent AFUE, 16.5 percent for 92-
percent AFUE, 40.3 percent for 95-percent AFUE, and 0.9 percent for 98-
percent AFUE. For condensing MHGFs in 2029, the national distribution 
is expected to be 8.9 percent for 92-percent AFUE, 21.3 percent for 95-
percent AFUE, and 1.3 percent for 96-percent AFUE. See appendix 8I of 
the TSD for this NOPR for further details.
c. Assignment of Furnace Efficiency to Sampled Households
    For the September 2016 SNOPR (since withdrawn), the assignment of 
furnace efficiency to each household or building was random within each 
of the disaggregated distributions (i.e., in each of the 30 RECS 
regions and 9 CBECS Census Division regions, and in the new 
construction and replacement markets).
    A number of stakeholders objected to DOE's approach to assigning 
furnace efficiency in the no-new-standards case. AHRI stated that DOE's 
decision model assumes that consumers ignore economic factors such as 
climate when choosing a non-condensing or condensing NWGF. (AHRI, No. 
303 at pp. 9-10) AHRI stated that DOE is assuming that consumers behave 
randomly in their consideration of energy efficiency absent new 
standards, a position that AHRI believes is arbitrary and capricious. 
AHRI commented that none of the studies cited by DOE support the 
proposition that consumer behavior is completely irrational. AHRI 
stated that most of the academic studies cited by DOE are based on home 
appliances (e.g., refrigerators), or they focus on information gaps in 
consumer knowledge. AHRI stated that none of these have any relevance 
to furnaces because furnace selection is heavily influenced by 
installing contractors, who have the knowledge and experience to 
present consumers with accurate economic analyses of their potential 
choices. (AHRI, No. 303 at pp. 31-34)
    APGA contended that DOE offers the unsupported proposition that 
random assignment, while admittedly not based on economics, ``may 
simulate actual behavior as well as assigning furnace efficiency based 
solely on imputed cost-effectiveness.'' APGA contended that DOE relies 
on working papers for the proposition that consumers do not always act 
in a perfectly economically rational fashion, but the fact that there 
are market failures does not undermine reliance on economic decision-
making as the best representation of consumer behavior. APGA stated 
that rejecting economic decision-making demonstrates agency bias to 
reach a preordained outcome. (APGA, No. 292-1 at pp. 23-25) AGA stated 
that DOE's methodology lacks any regard to consumer costs and 
benefits--even to consumers for whom the first cost of the more-
efficient condensing furnace is lower than the first cost of the non-
condensing furnace. (AGA, No. 306-1 at p. 11) Lennox, Carrier, and 
Spire commented that DOE's analysis ignores the logical behavior of 
consumers when purchasing residential furnace products. (Lennox, No. 
299 at p. 5; Carrier, No. 302 at p. 4; Spire, No. 309-1 at pp. 5-6) 
Additionally, Lennox commented that based on U.S. contractor survey 
data, factors such as installation difficulty, high first cost, or the 
diminishment of air conditioning performance in regions with milder 
climates drive consumers to the most economical decision, which in many 
cases is an 80-percent AFUE NWGF. (Lennox, No. 299 at p. 6) SoCalGas 
expressed concern that DOE did not revise its model for assigning 
furnace efficiency in the no-new-standards case in accordance with 
stakeholder comments on the NOPR and NODA. (SoCalGas, No. 304-3 at p. 
5) The City of Rocky Mount, Austin Utilities, Gas Authority, Dickson 
Gas, and the Jefferson Cocke Utility District stated that the random 
assignment of furnace efficiency in the no-new-standards case, rather 
than relying on economic decision making, produces irrational outcomes. 
(City of Rocky Mount, No. 254 at p. 2; Austin Utilities, No. 255 at p. 
1; Gas Authority, No. 256 at pp. 1-2; Dickson Gas, No. 276 at p. 2; 
Jefferson Cocke Utility District, No. 289 at p. 2)
    The GTI report on the (since withdrawn) September 2016 SNOPR 
submitted by APGA stated that the random assignment of furnace 
efficiency in the no-new-standards case does not consider any 
individual building's characteristics in a given region. (APGA, No. 
292-2 at pp. 60-61) APGA argued that despite a disaggregation by 
region, there is still a misallocation of furnaces within a region on a 
building-specific basis as a result of DOE's failure to use economic 
decision-making to assign furnaces. (APGA, No. 292-1 at p. 21) Spire 
stated that despite randomly assigning the right percentage of 
condensing and non-condensing furnaces to each region, there remains a 
break in the link between consumer decision-making and individual 
economics. Spire stated that consumer behavior can be modeled in a way 
that reflects a degree of economic decision-making that would be 
reasonably consistent with observed consumer behavior, which GTI did in 
its analysis of the September 2016 SNOPR. (Spire, No. 309-1 at pp. 60-
61) The GTI report on the September 2016 SNOPR submitted by APGA stated 
that the shipment projections only affect the number of impacted 
buildings on a per region and per building type basis, not the LCC 
savings per impacted building within a certain region and building 
type. For a given region and building type, the LCC savings per 
impacted building will be the same regardless of the condensing NWGF 
shipment projections. The report stated that the inherent result of the 
random assignment methodology is a finding of LCC savings in any region 
where LCC savings are present on average, whether or not the shipment 
projections include a very high or very low condensing NWGF market 
share in the no-new-standards case. (APGA, No. 292-2 at p. 61) APGA and 
AGA noted that the GTI report on the September 2016 SNOPR shows that it 
is possible to monetize non-economic factors to consumer decision 
making, including product

[[Page 40640]]

performance or reliability, manufacturer reputation, intangible 
societal benefits, and perceived risks and rewards associated with the 
decision. (APGA, No. 292-1 at pp. 25-26; AGA, No. 306-1 at pp. 23-24) 
SoCalGas recommended that the DOE use building-specific data (e.g., 
heating load) when assigning furnace efficiency to improve accuracy. 
(SoCalGas, No. 304-3 at p. 4) AHRI stated that survey data are widely 
recognized in consumer research as significantly overstating actual 
consumer behavior, in this case their willingness to pay a premium for 
more energy-efficient products. (AHRI, No. 303 at pp. 31-34)
    In contrast to the preceding comments, the Efficiency Advocates 
stated that, given the lack of data to incorporate economic and non-
economic factors, DOE's current approach for assigning efficiency in 
the no-new-standards case is reasonable because DOE's approach is more 
likely to capture actual consumer behavior than a model that assumes 
all consumers are strictly rational economic actors. (Efficiency 
Advocates, No. 285 at p. 5)
    Several stakeholders contended that DOE's decision to not use 
economic criteria in assigning furnace efficiency is at odds with its 
use of economic criteria in other parts of the analysis. AGA stated 
that DOE's assumption that, in the absence of a new standard, consumers 
will make random rather than at least somewhat rational economic 
decisions is in conflict with DOE's assumptions used for other LCC 
analysis and decision making algorithms. (AGA, No. 306-1 at p. 27) 
Spire stated that despite DOE's assumption that consumers never 
consider economics when purchasing NWGFs, DOE assumes for the purposes 
of its product switching analysis that consumers always consider both 
initial cost and payback economics in deciding whether to switch from a 
NWGF to an electric alternative. (Spire, No. 309-1 at p. 31) AHRI noted 
that DOE relies on a pure theory of competition, which is related to 
economically rational choice theory, to justify its use of incremental 
mark-ups; according to the commenter, DOE does not explain why it is 
appropriate to consider rational choice in this context but not when 
considering consumer behavior. (AHRI, No. 303 at p. 31) APGA stated 
that unavailability of perfect information on consumer behavior is not 
a valid reason for not using the available data to assign furnace 
efficiency, noting by contrast that DOE used available data in the 
consumer choice model underlying the product switching analysis. (APGA, 
No. 292-1 at p. 27) Lennox questioned what it understood as DOE's 
contradictory characterization of consumers--assuming when determining 
the appropriate discount rate that consumers have sufficient 
understanding to rebalance debt, yet when projecting consumer purchases 
of furnaces, assuming consumers do not include economic considerations. 
Lennox commented that DOE must articulate the basis for its seemingly 
contradictory assumptions regarding consumer behavior. (Lennox, No. 299 
at p. 11) The GTI report on the September 2016 SNOPR submitted by APGA 
argued that DOE's assertion that a random approach to furnace 
efficiency assignment is as accurate as a methodology based solely on 
estimated cost-effectiveness is inconsistent with other parts of the 
LCC model that incorporate rational economic decisions by various 
stakeholders. (APGA, No. 292-2 at p. 67) APGA and AGA commented that 
even though DOE does not have site-specific information regarding 
product switching and downsizing, it still relied on ``consumer 
choice'' models that do not account for the potential illogical 
consumer behavior. (APGA, No. 292-1 at p. 26; AGA, No. 306-1 at pp. 23-
24)
    In response, for this NOPR, DOE continued to assign furnace 
efficiency to households in the no-new-standards case in two steps, 
first at the state level, then at the building-specific level. However, 
DOE's approach was modified to include other household characteristics. 
The market share of each efficiency level at the State level is based 
on historical shipments data (from the 2013-2020 HARDI data) and an 
estimated projection of trends between 2020 and the compliance year. 
The furnace efficiency distribution is then allocated to specific RECS 
households or CBECS, according to the market shares generated for each 
State. If a household is assigned a condensing furnace in the no-new-
standards case, the replacement furnace is assumed to be condensing as 
well.
    To assign the efficiency at the building-specific level, DOE 
carefully considered any available data that might improve assignment 
of furnace efficiency in the LCC analysis. First, DOE examined the 
2013-2020 HARDI data of gas furnace input capacity by efficiency level 
and region. DOE did not find a significant correlation between input 
capacity and condensing furnace market share in a given region, a 
correlation which might be expected a priori since buildings with 
larger furnace input capacity are more likely to be larger and have 
greater energy consumption. DOE next considered the GTI data for 21 
Illinois households, which included the efficiency of the furnace 
(AFUE), size of the furnace (input capacity), square footage of the 
house, and annual energy use.\163\ Recognizing the relatively small 
sample size, DOE notes that these data exhibit no significant 
correlations between furnace efficiency and other household 
characteristics (with most furnace installations in this sample being 
non-condensing furnaces with high energy use). DOE also considered 
other data of furnace efficiency compared to household characteristics 
for other parts of the country, including the NEEA Database and permit 
data (see appendix 8I of the TSD for this NOPR for more details). These 
data also suggest fairly weak correlation between furnace efficiency 
and household characteristics or economic factors. Finally, DOE 
considered the 2019 AHCS survey data.\164\ This survey includes 
questions to recent purchasers of HVAC equipment regarding the 
perceived efficiency of their equipment (Standard, High, and Super High 
Efficiency), as well as questions related to various household and 
demographic characteristics. From these data, DOE did find a 
statistically significant correlation: Households with larger square 
footage exhibited a higher fraction of High- or Super-High efficiency 
equipment installed. DOE used the AHCS data to adjust its furnace 
efficiency distributions as follows: (1) the market share of condensing 
equipment for households under 1,500 sq. ft. was decreased by 5 
percentage points; and (2) the market share of condensing equipment for 
households above 2,500 sq. ft. was increased by 5 percentage points.
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    \163\ Gas Technology Institute (``GTI''), Empirical Analysis of 
Natural Gas Furnace Sizing and Operation, GTI-16/0003 (Nov. 2016) 
(Available at: www.regulations.gov/document/EERE-2014-BT-STD-0031-0309) (Last accessed Feb. 15, 2022).
    \164\ Decision Analysts, 2019 American Home Comfort Studies 
(Available at: www.decisionanalyst.com/Syndicated/HomeComfort/) 
(Last accessed Feb. 15, 2022).
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    While DOE acknowledges that economic factors may play a role when 
consumers, commercial building owners, or builders decide on what type 
of furnace to install, assignment of furnace efficiency for a given 
installation, based solely on economic measures such as life-cycle cost 
or simple payback period most likely would not fully and accurately 
reflect actual real-world installations. There are a number of market 
failures discussed in the economics literature that illustrate how 
purchasing decisions with respect

[[Page 40641]]

to energy efficiency are unlikely to be perfectly correlated with 
energy use, as described further down. DOE maintains that the method of 
assignment, which is in part random, is a reasonable approach, one that 
simulates behavior in the furnace market, where market failures result 
in purchasing decisions not being perfectly aligned with economic 
interests, more realistically than relying only on apparent cost-
effectiveness criteria derived from the limited information in CBECS or 
RECS. DOE further emphasizes that its approach does not assume that all 
purchasers of furnaces make economically irrational decisions (i.e., 
the lack of a correlation is not the same as a negative correlation). 
As part of the random assignment, some homes or buildings with large 
heating loads will be assigned higher efficiency furnaces, and some 
homes or buildings with particularly low heating loads will be assigned 
baseline furnaces, which aligns with the available data. By using this 
approach, DOE acknowledges the uncertainty inherent in the data and 
minimizes any bias in the analysis by using random assignment, as 
opposed to assuming certain market conditions that are unsupported 
given the available evidence.
    First, consumers are motivated by more than simple financial trade-
offs. There are consumers who are willing to pay a premium for more 
energy-efficient products because they are environmentally 
conscious.\165\ There are also several behavioral factors that can 
influence the purchasing decisions of complicated multi-attribute 
products, such as furnaces. For example, consumers (or decision makers 
in an organization) are highly influenced by choice architecture, 
defined as the framing of the decision, the surrounding circumstances 
of the purchase, the alternatives available, and how they're presented 
for any given choice scenario.\166\ The same consumer or decision maker 
may make different choices depending on the characteristics of the 
decision context (e.g., the timing of the purchase, competing demands 
for funds), which have nothing to do with the characteristics of the 
alternatives themselves or their prices. Consumers or decision makers 
also face a variety of other behavioral phenomena including loss 
aversion, sensitivity to information salience, and other forms of 
bounded rationality.\167\ Thaler, who won the Nobel Prize in Economics 
in 2017 for his contributions to behavioral economics, and Sunstein 
point out that these behavioral factors are strongest when the 
decisions are complex and infrequent, when feedback on the decision is 
muted and slow, and when there is a high degree of information 
asymmetry.\168\ These characteristics describe almost all purchasing 
situations of appliances and equipment, including furnaces. The 
installation of a new or replacement furnace is done very infrequently, 
as evidenced by the mean lifetime of 21.4 years for NWGFs and MHGFs. 
Additionally, it would take at least one full heating season for any 
impacts on operating costs to be fully apparent. Further, if the 
purchaser of the furnace is not the entity paying the energy costs 
(e.g., a building owner and tenant), there may be little to no feedback 
on the purchase. Additionally, there are systematic market failures 
that are likely to contribute further complexity to how products are 
chosen by consumers, as explained in the following paragraphs.
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    \165\ Ward, D.O., Clark, C.D., Jensen, K.L., Yen, S.T., & 
Russell, C.S. (2011): ``Factors influencing willingness-to pay for 
the ENERGY STAR[supreg] label,'' Energy Policy, 39(3), 1450-1458. 
(Available at: www.sciencedirect.com/science/article/abs/pii/S0301421510009171) (Last accessed Feb. 15, 2022).
    \166\ Thaler, R.H., Sunstein, C.R., and Balz, J.P. (2014). 
``Choice Architecture'' in The Behavioral Foundations of Public 
Policy, Eldar Shafir (ed).
    \167\ Thaler, R.H., and Bernartzi, S. (2004). ``Save More 
Tomorrow: Using Behavioral Economics in Increase Employee Savings,'' 
Journal of Political Economy 112(1), S164-S187. See also Klemick, 
H., et al. (2015) ``Heavy-Duty Trucking and the Energy Efficiency 
Paradox: Evidence from Focus Groups and Interviews,'' Transportation 
Research Part A: Policy & Practice, 77, 154-166. (providing evidence 
that loss aversion and other market failures can affect otherwise 
profit-maximizing firms).
    \168\ Thaler, R.H., and Sunstein, C.R. (2008). Nudge: Improving 
Decisions on Health, Wealth, and Happiness. New Haven, CT: Yale 
University Press.
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    The first of these market failures--the split-incentive or 
principal-agent problem--is likely to affect furnaces more than many 
other types of appliances. The principal-agent problem is a market 
failure that results when the consumer that purchases the equipment 
does not internalize all of the costs associated with operating the 
equipment. Instead, the user of the product, who has no control over 
the purchase decision, pays the operating costs. There is a high 
likelihood of split incentive problems in the case of rental properties 
where the landlord makes the choice of what furnace to install, whereas 
the renter is responsible for paying energy bills. In the LCC sample, 
25.7 percent of households with a NWGF and 26.5 percent of households 
with a MHGF are renters. These fractions are significantly higher for 
low-income households (see section IV.I.1 of this document). In new 
construction, builders influence the type of furnace used in many homes 
but do not pay operating costs. Finally, contractors install a large 
share of furnaces in replacement situations, and they can exert a high 
degree of influence over the type of furnace purchased.
    In addition to the split-incentive problem, there are other market 
failures that are likely to affect the choice of furnace efficiency 
made by consumers. Davis and Metcalf \169\ conducted an experiment 
demonstrating that the nature of the information available to consumers 
from EnergyGuide labels posted on air conditioning equipment results in 
an inefficient allocation of energy efficiency across households with 
different usage levels. Their findings indicate that households are 
likely to make decisions regarding the efficiency of the climate 
control equipment of their homes that do not result in the highest net 
present value for their specific usage pattern (i.e., their decision is 
based on imperfect information and, therefore, is not necessarily 
optimal).
---------------------------------------------------------------------------

    \169\ Davis, L.W., and G.E. Metcalf (2016): ``Does better 
information lead to better choices? Evidence from energy-efficiency 
labels,'' Journal of the Association of Environmental and Resource 
Economists, 3(3), 589-625. (Available at: www.journals.uchicago.edu/doi/full/10.1086/686252) (Last accessed Feb. 15, 2022).
---------------------------------------------------------------------------

    In part because of the way information is presented, and in part 
because of the way consumers process information, there is also a 
market failure consisting of a systematic bias in the perception of 
equipment energy usage, which can affect consumer choices. Attari, 
Krantz, and Weber \170\ show that consumers tend to underestimate the 
energy use of large energy-intensive appliances, but overestimate the 
energy use of small appliances. Therefore, it is likely that consumers 
systematically underestimate the energy use associated with furnaces, 
resulting in less cost-effective furnace purchases.
---------------------------------------------------------------------------

    \170\ Attari, S.Z., M.L. DeKay, C.I. Davidson, and W. Bruine de 
Bruin (2010): ``Public perceptions of energy consumption and 
savings.'' Proceedings of the National Academy of Sciences 107(37), 
16054-16059 (Available at: www.pnas.org/content/107/37/16054) (Last 
accessed Feb. 15, 2022).
---------------------------------------------------------------------------

    These market failures affect a sizeable share of the consumer 
population. A study by Houde \171\ indicates that there is a 
significant subset of consumers that appear to purchase appliances 
without taking into account their energy efficiency and operating costs 
at all.
---------------------------------------------------------------------------

    \171\ Houde, S. (2018): ``How Consumers Respond to Environmental 
Certification and the Value of Energy Information,'' The RAND 
Journal of Economics, 49 (2), 453-477 (Available at: 
onlinelibrary.wiley.com/doi/full/10.1111/1756-2171.12231) (Last 
accessed Feb. 15, 2022).
---------------------------------------------------------------------------

    There are market failures relevant to furnaces installed in 
commercial

[[Page 40642]]

applications as well. It is often assumed that because commercial and 
industrial customers are businesses that have trained or experienced 
individuals making decisions regarding investments in cost-saving 
measures, some of the commonly observed market failures present in the 
general population of residential customers should not be as prevalent 
in a commercial setting. However, there are many characteristics of 
organizational structure and historic circumstance in commercial 
settings that can lead to underinvestment in energy efficiency.
    First, a recognized problem in commercial settings is the 
principal-agent problem, where the building owner (or building 
developer) selects the equipment and the tenant (or subsequent building 
owner) pays for energy costs.172 173 Indeed, more than a 
quarter of commercial buildings in the CBECS 2012 sample are occupied 
at least in part by a tenant, not the building owner (indicating that, 
in DOE's experience, the building owner likely is not responsible for 
paying energy costs). Additionally, some commercial buildings have 
multiple tenants. There are other similar misaligned incentives 
embedded in the organizational structure within a given firm or 
business that can impact the choice of a furnace. For example, if one 
department or individual within an organization is responsible for 
capital expenditures (and therefore equipment selection) while a 
separate department or individual is responsible for paying the energy 
bills, a market failure similar to the principal-agent problem can 
result.\174\ Additionally, managers may have other responsibilities and 
often have other incentives besides operating cost minimization, such 
as satisfying shareholder expectations, which can sometimes be focused 
on short-term returns.\175\ Decision-making related to commercial 
buildings is highly complex and involves gathering information from and 
for a variety of different market actors. It is common to see 
conflicting goals across various actors within the same organization as 
well as information asymmetries between market actors in the energy 
efficiency context in commercial building construction.\176\
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    \172\ Vernon, D., and Meier, A. (2012). ``Identification and 
quantification of principal-agent problems affecting energy 
efficiency investments and use decisions in the trucking industry,'' 
Energy Policy, 49, 266-273.
    \173\ Blum, H. and Sathaye, J. (2010). ``Quantitative Analysis 
of the Principal-Agent Problem in Commercial Buildings in the U.S.: 
Focus on Central Space Heating and Cooling,'' Lawrence Berkeley 
National Laboratory, LBNL-3557E. (Available at: escholarship.org/uc/item/6p1525mg) (Last accessed January 20, 2022).
    \174\ Prindle, B., Sathaye, J., Murtishaw, S., Crossley, D., 
Watt, G., Hughes, J., and de Visser, E. (2007). ``Quantifying the 
effects of market failures in the end-use of energy,'' Final Draft 
Report Prepared for International Energy Agency. (Available from 
International Energy Agency, Head of Publications Service, 9 rue de 
la Federation, 75739 Paris, Cedex 15 France).
    \175\ Bushee, B.J. (1998). ``The influence of institutional 
investors on myopic R&D investment behavior,'' Accounting Review, 
305-333. DeCanio, S.J. (1993). ``Barriers Within Firms to Energy 
Efficient Investments,'' Energy Policy, 21(9), 906-914. (explaining 
the connection between short-termism and underinvestment in energy 
efficiency).
    \176\ International Energy Agency (IEA). (2007). Mind the Gap: 
Quantifying Principal-Agent Problems in Energy Efficiency. OECD Pub. 
(Available at: www.iea.org/reports/mind-the-gap) (Last accessed Jan. 
20, 2022)
---------------------------------------------------------------------------

    Second, the nature of the organizational structure and design can 
influence priorities for capital budgeting, resulting in choices that 
do not necessarily maximize profitability.\177\ Even factors as simple 
as unmotivated staff or lack of priority-setting and/or a lack of a 
long-term energy strategy can have a sizable effect on the likelihood 
that an energy efficient investment will be undertaken.\178\ U.S. tax 
rules for commercial buildings may incentivize lower capital 
expenditures, since capital costs must be depreciated over many years, 
whereas operating costs can be fully deducted from taxable income or 
passed through directly to building tenants.\179\
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    \177\ DeCanio, S.J. (1994). ``Agency and control problems in US 
corporations: the case of energy-efficient investment projects,'' 
Journal of the Economics of Business, 1(1), 105-124.
    Stole, L.A., and Zwiebel, J. (1996). ``Organizational design and 
technology choice under intrafirm bargaining,'' The American 
Economic Review, 195-222.
    \178\ Rohdin, P., and Thollander, P. (2006). ``Barriers to and 
driving forces for energy efficiency in the non-energy intensive 
manufacturing industry in Sweden,'' Energy, 31(12), 1836-1844.
    Takahashi, M. and Asano, H. (2007). ``Energy Use Affected by 
Principal-Agent Problem in Japanese Commercial Office Space 
Leasing,'' In Quantifying the Effects of Market Failures in the End-
Use of Energy. American Council for an Energy-Efficient Economy. 
February 2007.
    Visser, E. and Harmelink, M. (2007). ``The Case of Energy Use in 
Commercial Offices in the Netherlands,'' In Quantifying the Effects 
of Market Failures in the End-Use of Energy. American Council for an 
Energy-Efficient Economy. February 2007.
    Bjorndalen, J. and Bugge, J. (2007). ``Market Barriers Related 
to Commercial Office Space Leasing in Norway,'' In Quantifying the 
Effects of Market Failures in the End-Use of Energy. American 
Council for an Energy-Efficient Economy. February 2007.
    Schleich, J. (2009). ``Barriers to energy efficiency: A 
comparison across the German commercial and services sector,'' 
Ecological Economics, 68(7), 2150-2159.
    Muthulingam, S., et al. (2013). ``Energy Efficiency in Small and 
Medium-Sized Manufacturing Firms,'' Manufacturing & Service 
Operations Management, 15(4), 596-612. (Finding that manager 
inattention contributed to the non-adoption of energy efficiency 
initiatives).
    Boyd, G.A., Curtis, E.M. (2014). ``Evidence of an `energy 
management gap' in US manufacturing: Spillovers from firm management 
practices to energy efficiency,'' Journal of Environmental Economics 
and Management, 68(3), 463-479.
    \179\ Lovins, A. (1992). Energy-Efficient Buildings: 
Institutional Barriers and Opportunities. (Available at: rmi.org/insight/energy-efficient-buildings-institutional-barriers-and-opportunities/) (Last accessed January 20, 2022).
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    Third, there are asymmetric information and other potential market 
failures in financial markets in general, which can affect decisions by 
firms with regard to their choice among alternative investment options, 
with energy efficiency being one such option.\180\ Asymmetric 
information in financial markets is particularly pronounced with regard 
to energy efficiency investments.\181\ There is a dearth of information 
about risk and volatility related to energy efficiency investments, and 
energy efficiency investment metrics may not be as visible to 
investment managers,\182\ which can bias firms towards more certain or 
familiar options. This market failure results not because the returns 
from energy efficiency as an investment are inherently riskier, but 
because information about the risk itself tends not to be available in 
the same way it is for other types of investment, like stocks or bonds. 
In some cases energy efficiency is not a formal investment category 
used by financial managers, and if there is a formal category for 
energy efficiency within the investment

[[Page 40643]]

portfolio options assessed by financial managers, they are seen as 
weakly strategic and not seen as likely to increase competitive 
advantage.\183\ This information asymmetry extends to commercial 
investors, lenders, and real-estate financing, which is biased against 
new and perhaps unfamiliar technology (even though it may be 
economically beneficial).\184\ Another market failure known as the 
first-mover disadvantage can exacerbate this bias against adopting new 
technologies, as the successful integration of new technology in a 
particular context by one actor generates information about cost-
savings, and other actors in the market can then benefit from that 
information by following suit; yet because the first to adopt a new 
technology bears the risk but cannot keep to themselves all the 
informational benefits, firms may inefficiently underinvest in new 
technologies.\185\
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    \180\ Fazzari, S.M., Hubbard, R.G., Petersen, B.C., Blinder, 
A.S., and Poterba, J.M. (1988). ``Financing constraints and 
corporate investment,'' Brookings Papers on Economic Activity, 
1988(1), 141-206.
    Cummins, J.G., Hassett, K.A., Hubbard, R.G., Hall, R.E., and 
Caballero, R.J. (1994). ``A reconsideration of investment behavior 
using tax reforms as natural experiments,'' Brookings Papers on 
Economic Activity, 1994(2), 1-74.
    DeCanio, S.J., and Watkins, W.E. (1998). ``Investment in energy 
efficiency: do the characteristics of firms matter?'' Review of 
Economics and Statistics, 80(1), 95-107.
    Hubbard R.G. and Kashyap A. (1992). ``Internal Net Worth and the 
Investment Process: An Application to U.S. Agriculture,'' Journal of 
Political Economy, 100, 506-534.
    \181\ Mills, E., Kromer, S., Weiss, G., and Mathew, P.A. (2006). 
``From volatility to value: analysing and managing financial and 
performance risk in energy savings projects,'' Energy Policy, 34(2), 
188-199.
    Jollands, N., Waide, P., Ellis, M., Onoda, T., Laustsen, J., 
Tanaka, K., and Meier, A. (2010). ``The 25 IEA energy efficiency 
policy recommendations to the G8 Gleneagles Plan of Action,'' Energy 
Policy, 38(11), 6409-6418.
    \182\ Reed, J.H., Johnson, K., Riggert, J., and Oh, A.D. (2004). 
``Who plays and who decides: The structure and operation of the 
commercial building market,'' U.S. Department of Energy Office of 
Building Technology, State and Community Programs. (Available at: 
www1.eere.energy.gov/buildings/publications/pdfs/commercial_initiative/who_plays_who_decides.pdf) (Last accessed 
January 20, 2022).
    \183\ Cooremans, C. (2012). ``Investment in energy efficiency: 
do the characteristics of investments matter?'' Energy Efficiency, 
5(4), 497-518.
    \184\ Lovins 1992, op. cit. The Atmospheric Fund. (2017). Money 
on the table: Why investors miss out on the energy efficiency 
market. (Available at: taf.ca/publications/money-table-investors-
energy-efficiency-market/) (Last accessed January 20, 2022).
    \185\ Blumstein, C. and Taylor, M. (2013). Rethinking the 
Energy-Efficiency Gap: Producers, Intermediaries, and Innovation. 
Energy Institute at Haas Working Paper 243. (Available at: 
haas.berkeley.edu/wp-content/uploads/WP243.pdf) (Last accessed April 
6, 2022).
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    In sum, the commercial and industrial sectors face many market 
failures that can result in an under-investment in energy efficiency. 
This means that discount rates implied by hurdle rates \186\ and 
required payback periods of many firms are higher than the appropriate 
cost of capital for the investment.\187\ The preceding arguments for 
the existence of market failures in the commercial and industrial 
sectors are corroborated by empirical evidence. One study in particular 
showed evidence of substantial gains in energy efficiency that could 
have been achieved without negative repercussions on profitability, but 
the investments had not been undertaken by firms.\188\ The study found 
that multiple organizational and institutional factors caused firms to 
require shorter payback periods and higher returns than the cost of 
capital for alternative investments of similar risk. Another study 
demonstrated similar results with firms requiring very short payback 
periods of 1-2 years in order to adopt energy-saving projects, implying 
hurdle rates of 50 to 100 percent, despite the potential economic 
benefits.\189\ A number of other case studies similarly demonstrate the 
existence of market failures preventing the adoption of energy-
efficient technologies in a variety of commercial sectors around the 
world, including office buildings,\190\ supermarkets,\191\ and the 
electric motor market.\192\
---------------------------------------------------------------------------

    \186\ A hurdle rate is the minimum rate of return on a project 
or investment required by an organization or investor. It is 
determined by assessing capital costs, operating costs, and an 
estimate of risks and opportunities.
    \187\ DeCanio 1994, op. cit.
    \188\ DeCanio, S.J. (1998). ``The Efficiency Paradox: 
Bureaucratic and Organizational Barriers to Profitable Energy-Saving 
Investments,'' Energy Policy, 26(5), 441-454.
    \189\ Andersen, S.T., and Newell, R.G. (2004). ``Information 
programs for technology adoption: the case of energy-efficiency 
audits,'' Resource and Energy Economics, 26, 27-50.
    \190\ Prindle 2007, op. cit. Howarth, R.B., Haddad, B.M., and 
Paton, B. (2000). ``The economics of energy efficiency: insights 
from voluntary participation programs,'' Energy Policy, 28, 477-486.
    \191\ Klemick, H., Kopits, E., Wolverton, A. (2017). ``Potential 
Barriers to Improving Energy Efficiency in Commercial Buildings: The 
Case of Supermarket Refrigeration,'' Journal of Benefit-Cost 
Analysis, 8(1), 115-145.
    \192\ de Almeida, E.L.F. (1998). ``Energy efficiency and the 
limits of market forces: The example of the electric motor market in 
France'', Energy Policy, 26(8), 643-653. Xenergy, Inc. (1998). 
United States Industrial Electric Motor Systems Market Opportunity 
Assessment. (Available at: www.energy.gov/sites/default/files/2014/04/f15/mtrmkt.pdf) (Last accessed January 20, 2022).
---------------------------------------------------------------------------

    The existence of market failures in the residential and commercial 
sectors is well supported by the economics literature and by a number 
of case studies. If DOE developed an efficiency distribution that 
assigned furnace efficiency in the no-new-standards case solely 
according to energy use or economic considerations such as life-cycle 
cost or payback period, the resulting distribution of efficiencies 
within the building sample would not reflect any of the market failures 
or behavioral factors above. DOE thus concludes such a distribution 
would not be representative of the furnace market. Further, even if a 
specific household/building/organization is not subject to the market 
failures above, the purchasing decision of furnace efficiency can be 
highly complex and influenced by a number of factors not captured by 
the building characteristics available in the RECS or CBECS samples. 
These factors can lead to households or building owners choosing a 
furnace efficiency that deviates from the efficiency predicted using 
only energy use or economic considerations such as life-cycle cost or 
payback period (as calculated using the information from RECS 2015 or 
CBECS 2012). However, DOE intends to investigate this issue further, 
and it welcomes suggestions as to how it might improve its assignment 
of furnace efficiency in its analyses.
    The estimated market shares for the no-new-standards case for NWGFs 
and MHGFs in 2029 are shown in Table IV.14 and Table IV.15 of this 
document, respectively. See chapter 8 and appendix 8I of the NOPR TSD 
for further information on the derivation of the efficiency 
distributions.

     Table IV.14--AFUE Efficiency Distribution in the No-New-Standards Case for Non-Weatherized Gas Furnaces
----------------------------------------------------------------------------------------------------------------
                                                           2029 Market share in percent
   Efficiency, AFUE (percent)    -------------------------------------------------------------------------------
                                     National       North, repl     North, new      South, repl     South, new
----------------------------------------------------------------------------------------------------------------
                                               Residential Market
----------------------------------------------------------------------------------------------------------------
80..............................            40.0            23.7            13.1            73.0            33.5
90..............................             0.3             0.4             0.6             0.1             0.4
92..............................            16.5            18.5            20.8             9.5            27.2
95..............................            41.1            55.5            63.1            15.9            35.0
98..............................             2.0             1.9             2.5             1.6             3.9
----------------------------------------------------------------------------------------------------------------
                                                Commercial Market
----------------------------------------------------------------------------------------------------------------
80..............................            35.1            17.3            15.0            64.5            30.8
90..............................             0.0             0.0             0.0             0.0             0.0

[[Page 40644]]

 
92..............................            16.6            14.4            21.7            10.9            30.8
95..............................            45.7            64.4            61.7            22.7            35.9
98..............................             2.6             3.8             1.7             1.8             2.6
----------------------------------------------------------------------------------------------------------------
                                                       All
----------------------------------------------------------------------------------------------------------------
80..............................            39.9            23.6            13.2            72.7            33.4
90..............................             0.3             0.4             0.5             0.1             0.4
92..............................            16.5            18.4            20.9             9.5            27.3
95..............................            41.2            55.7            63.0            16.1            35.0
98..............................             2.1             1.9             2.4             1.6             3.9
----------------------------------------------------------------------------------------------------------------
``Repl'' means ``replacement.''


       Table IV.15--AFUE Efficiency Distribution in the No-New-Standards Case for Mobile Home Gas Furnaces
----------------------------------------------------------------------------------------------------------------
                                                           2029 Market share in percent
   Efficiency, AFUE (percent)    -------------------------------------------------------------------------------
                                     National       North, repl     North, new      South, repl     South, new
----------------------------------------------------------------------------------------------------------------
80..............................            70.4            61.7            62.9            79.0            78.9
90..............................             0.0             0.0             0.0             0.0             0.0
92..............................             8.4            10.5            11.3             6.0             5.7
95..............................            19.7            27.4            25.3            12.5            12.6
96..............................             1.5             0.4             0.4             2.6             2.7
----------------------------------------------------------------------------------------------------------------
``Repl'' means ``replacement.''

    DOE also estimated no-new-standards case efficiency distributions 
for furnace standby mode and off mode power. As shown in Table IV.16 of 
this document, DOE estimated that 66 percent of the affected market for 
NWGFs and 32 percent of the affected market for MHGFs would be at the 
baseline level in 2029, according to data from 18 furnace models from a 
field study conducted in Wisconsin \193\ and data from DOE laboratory 
tests (see appendix 8I of the NOPR TSD).
---------------------------------------------------------------------------

    \193\ Scott Pigg, Electricity Use by New Furnaces: A Wisconsin 
Field Study, Seventh Wave (formerly Energy Center of Wisconsin) 
(2003) (Available at: www.proctoreng.com/dnld/WIDOE2013.pdf) (Last 
accessed Feb. 15, 2022).

Table IV.16--Standby Mode and Off Mode No-New-Standards Case Efficiency Distribution in 2029 for Non-Weatherized
                                    Gas Furnaces and Mobile Home Gas Furnaces
----------------------------------------------------------------------------------------------------------------
                                                                   Standby mode/    NWGF market     MHGF market
                        Efficiency level                           off mode  in      share in        share in
                                                                       watts          percent         percent
----------------------------------------------------------------------------------------------------------------
Baseline........................................................            11.0            61.6            31.5
1...............................................................             9.5             0.0             0.0
2...............................................................             9.2            16.6             8.9
3...............................................................             8.5            21.8            59.6
----------------------------------------------------------------------------------------------------------------

10. Alternative Size Thresholds for Small Consumer Gas Furnaces
    DOE analyzed potential separate energy conservation standards for 
small and large NWGFs and MHGFs, with varying capacity thresholds for a 
small NWGF or MHGF. The examined thresholds had a maximum input rate 
that ranged from less than or equal to 40 kBtu/h to 100 kBtu/h, which 
were assessed in 5 kBtu/h increments.
    DOE assigned an input capacity to existing furnaces based on data 
from RECS 2015 and CBECS 2012. It is common industry practice to 
oversize furnaces to ensure that they can meet the house heating load 
in extreme temperature conditions. Under a scenario which envisions a 
separate energy conservation standard for small NWGFs and MHGFs set at 
a level which does not require condensing technology, DOE expects that 
some consumers who would otherwise install a typically-oversized 
furnace \194\ may choose to downsize in order to be able to purchase a 
less-expensive non-condensing furnace.
---------------------------------------------------------------------------

    \194\ By typical oversizing, DOE refers to a value of 1.7, as 
specified in ASHRAE 103, ``Method of Testing for Annual Fuel 
Utilization Efficiency of Residential Central Furnaces and 
Boilers'', which is incorporated by reference in the DOE residential 
furnace and boiler test procedure at 10 CFR part 430, subpart B, 
appendix N.
---------------------------------------------------------------------------

    DOE identified households from the NWGF and MHGF sample that might 
downsize at each of the considered standard levels. In identifying 
these households, DOE first determined whether a household would 
install a non-condensing furnace with an input

[[Page 40645]]

capacity greater than the small furnace size limit in the no-new-
standards case, based on the assigned input capacity (which reflects 
historical oversizing) and efficiency. DOE relied on the ASHRAE 103-
1993 test procedure, ``Method of Testing for Annual Fuel Utilization 
Efficiency of Residential Central Furnaces and Boilers,'' (incorporated 
by referenced in the DOE residential furnace and boiler test procedure) 
\195\ to estimate that the typical oversize factor used to size 
furnaces was 70 percent (i.e., the furnace capacity is 70 percent 
greater than required to heat the home under heating outdoor design 
temperature (``ODT'') conditions). DOE assumed that if the input 
capacity of the furnace using a reduced oversize factor of 35 percent 
(half of the 70-percent oversize factor) is less than or equal to the 
input capacity limit for small furnaces, the consumer would downsize 
the furnace accordingly. DOE has tentatively concluded that an oversize 
factor of 35 percent is realistic, given that ACCA recommends a maximum 
oversize factor of 40 percent.\196\
---------------------------------------------------------------------------

    \195\ 10 CFR part 430, subpart B, appendix N.
    \196\ ACCA recommends oversizing by a maximum of 40 percent. 
ACCA. See Manual S--Residential Equipment Selection (2nd Edition) 
(Available at: www.acca.org/) (Last accessed Feb. 15, 2022).
---------------------------------------------------------------------------

    DOE has found that the available data regarding oversizing of 
furnaces in the existing stock indicate that an average oversizing in 
past installations of 70 percent is likewise 
reasonable.197 198 199 200 201 202 203 DOE acknowledges that 
the oversizing varies among furnace installations. For this NOPR, DOE 
assigned an oversizing factor for each household, which varied from 0 
percent to 180 percent (76 percent on average).
---------------------------------------------------------------------------

    \197\ City of Fort Collins, Evaluation of New Home Energy 
Efficiency: Summary Report (June 2002) (Available at: www.fcgov.com/utilities/img/site_specific/uploads/newhome-eval.pdf) (Last accessed 
Feb. 15, 2022).
    \198\ Pigg, Scott, What you need to know about residential 
furnaces, air conditioners and heat pumps if you're NOT an HVAC 
professional (Feb. 2017) (Available at: www.duluthenergydesign.com/Content/Documents/GeneralInfo/PresentationMaterials/2017/Day2/What-You-Need-Pigg.pdf) (Last accessed Feb. 15, 2022).
    \199\ Energy Center of Wisconsin, Electricity Use by New 
Furnaces: A Wisconsin Field Study (2003) (Available at: 
www.proctoreng.com/dnld/WIDOE2013.pdf) (Last accessed Feb. 15, 
2022).
    \200\ Burdick, Arlan, Strategy Guideline: Accurate Heating and 
Cooling Load Calculations. Ibacos, Inc. (June 2011) (Available at: 
www.nrel.gov/docs/fy11osti/51603.pdf) (Last accessed Feb. 15, 2022).
    \201\ Ecovent, When Bigger is not Better (August 2014) 
(Available at: docplayer.net/13225631-When-bigger-isn-t-better.html) 
(Last accessed Feb. 15, 2022).
    \202\ Energy Center of Wisconsin, Central Air Conditioning in 
Wisconsin (May 2008) (Available at: www.focusonenergy.com/sites/default/files/centralairconditioning_report.pdf) (Last accessed Feb. 
15, 2022).
    \203\ Washington State University, Efficient Home Cooling (2003) 
(Available at: www.energy.wsu.edu/documents/AHT_Energy%20Efficient%20Home%20Cooling.pdf) (Last accessed Feb. 15, 
2022).
---------------------------------------------------------------------------

    AHRI stated that DOE severely overestimated the number of consumers 
who would downsize their NWGF to avoid the higher cost of a condensing 
NWGF. AHRI argued that DOE's downsizing estimate is speculation, 
unsupported by historical shipment data or any documented field study. 
(AHRI, No. 303 at p. 16) Consequently, AHRI urged DOE to be much more 
conservative in its downsizing analysis because if the downsizing 
estimates are incorrect, the proposed rule will harm many more 
consumers and negatively affect the industry. (AHRI, September 2016 
SNOPR Public Meeting Transcript, No. 243 at pp. 145-146) Ingersoll Rand 
likewise argued that the oversizing factor is limited in practice to 40 
percent and, therefore, that DOE's downsizing approach substantially 
overestimates the number of consumers that would be able to install a 
lower capacity furnace, resulting in an underestimation of the 
percentage of consumers who would experience an increased cost due to 
the new standard. (Ingersoll Rand, No. 297 at p. 10) Rheem similarly 
stated that it is not reasonable to assume that the primary heating 
source will be downsized. In Rheem's experience, consumers and 
installers are reluctant to risk an investment in a replacement NWGF 
that may not provide adequate heat in extreme weather conditions or 
allow for quick recovery from their thermostat setback (i.e., raising 
the thermostat from a lowered temperature to the desired temperature). 
(Rheem, No. 307 at pp. 9-10)
    Lennox strongly disagreed with DOE's assumption that a significant 
shift in furnace sizing would occur with an 80-percent AFUE standard 
for small NWGFs. Lennox stated that NWGFs are sized to meet the heat 
load of the home according to local climate conditions; therefore, 
consumers and contractors are not expected to shift their sizing 
practices, as downsizing equipment creates the risk of not providing 
adequate heat to the dwelling. (Lennox, No. 299 at p. 30) Lennox stated 
that DOE used a flawed downsizing methodology without any market data 
to support the agency's assumption. Lennox stated that DOE failed to 
mention the negative impacts of downsizing, such as a loss of utility, 
consumer comfort, and a shortened life of the furnace due to an 
increase in operating time, as well as the need for consumers to 
supplement their heating needs in extreme conditions with less-
efficient options than the use of a properly-sized NWGF. (Lennox, No. 
299 at p. 18) Along these same lines, Goodman stated that downsizing 
would occur for only a small percentage of applications. (Goodman, No. 
308 at p. 10) The GTI report on the September 2016 SNOPR submitted by 
APGA stated that DOE's downsizing decision approach ignores other 
utility functions of a furnace and the range of consumer risk 
tolerances regarding known variability in design calculations and 
accommodation of their own behavior. (APGA, No. 292-2 at p. 68) Spire 
stated that NWGFs must be oversized to be able to satisfy peak heating 
demands; encouraging downsizing would leave many low-income consumers 
desperate to minimize initial costs with NWGFs that are inadequate to 
meet their peak heating needs. Spire commented that DOE has not 
analyzed the loss of utility downsizing would impose on consumers. 
(Spire, No. 309-1 at pp. 46-47)
    In contrast, the Efficiency Advocates stated that data from RECS 
2009 imply that a 55,000 Btu/h or even a 50,000 Btu/h NWGF would be 
sufficient for many households. Based on this analysis, the Efficiency 
Advocates stated that DOE's assumption of downsizing to an oversize 
factor of 35 percent is reasonable and might even be too conservative, 
as they would expect some furnaces to be downsized even more to take 
advantage of the 80-percent AFUE standard for small NGWFs. (Efficiency 
Advocates, No. 285 at p. 3) NEAA stated that downsizing as a result of 
a separate standard for small NWGFs is logical. (NEEA, September 2016 
SNOPR Public Meeting Transcript, No. 243 at p. 158)
    In response to these comments, DOE continues to expect that in the 
case of an energy conservation standard that allows small furnaces to 
use non-condensing technology, some consumers would have a financial 
incentive to downsize their furnace. Even without oversizing, a furnace 
installation should be designed to handle dry-bulb temperatures that 
will occur 99 percent of the time. Therefore, handling nearly all 
extreme conditions is already accounted for when selecting the unit, so 
a 35-percent oversizing should provide ample allowance for the most 
extreme conditions that might occur. Thus, DOE reasons that there would 
be no loss of utility or comfort under DOE's proposed approach. DOE 
acknowledges that there could be cases where downsizing might not be 
advantageous. Therefore, for this NOPR, DOE assumed that not all 
consumers

[[Page 40646]]

would downsize when the oversize factor of 35 percent is less than or 
equal to the assumed input capacity limit for small furnaces. In 
addition, DOE conducted several sensitivity analyses of its downsizing 
methodology, assuming no downsizing as well as higher and lower levels 
of downsizing. See appendix 8M of this NOPR TSD for further details.
    AHRI requested that DOE analyze the alternative concept of separate 
standard levels for small and large mobile home gas furnaces for the 
same purpose of minimizing these potential negative outcomes, as was 
done for NWGFs. (AHRI, No. 202, p. 18) For this NOPR, DOE analyzed the 
potential for similar separate energy conservation standards for small 
and large MHGFs, as it did for NWGFs.
    Goodman stated that the rational downsizing methodology is 
inconsistent with the random furnace sizing methodology and furnace 
efficiency assignment in the no-new-standards case. (Goodman, No. 308 
at p. 10) In response, DOE notes that the furnace efficiency assignment 
in the no-new-standards case methodology has been revised for this NOPR 
to include some economic criteria (see section IV.F.9.c of this 
document).
a. Accounting for Impacts of Downsized Equipment
    The estimated degree of downsizing anticipated in the case of a 
non-condensing standard for small NWGFs and MHGFs is presented in Table 
IV.17 under the criteria of various ``small furnace'' definitions. For 
further details regarding this downsizing methodology, see appendix 8M 
of the TSD for this NOPR. This appendix also presents sensitivity 
analysis results.

              Table IV.17--Share of LCC Sample Households Meeting Small Furnace Definition in 2029
----------------------------------------------------------------------------------------------------------------
                                                               NWGFs                           MHGFs
                                                 ---------------------------------------------------------------
                                                                   With separate                   With separate
                                                      Without      small furnace      Without      small furnace
            Small furnace definition                  amended      standard and       amended      standard and
                                                     standards         with          standards         with
                                                     (percent)      downsizing       (percent)      downsizing
                                                                     (percent)                       (percent)
----------------------------------------------------------------------------------------------------------------
<=40 kBtu/h.....................................             4.3            11.3             8.3            23.9
<=45 kBtu/h.....................................             6.6            15.9            16.8            32.6
<=50 kBtu/h.....................................             9.3            19.3            21.7            36.5
<=55 kBtu/h.....................................            11.3            21.6            21.7            38.8
<=60 kBtu/h.....................................            23.6            31.4            46.7            57.1
<=65 kBtu/h.....................................            25.4            34.3            46.7            57.7
<=70 kBtu/h.....................................            35.3            42.7            60.3            67.5
<=75 kBtu/h.....................................            44.9            50.9            72.1            76.3
<=80 kBtu/h.....................................            59.2            62.9            89.3            91.0
<=85 kBtu/h.....................................            60.6            64.4            90.1            91.8
<=90 kBtu/h.....................................            67.2            70.4            91.8            94.7
<=95 kBtu/h.....................................            67.2            70.7            91.8            94.8
<=100 kBtu/h....................................            83.0            84.3            99.3            99.4
----------------------------------------------------------------------------------------------------------------

11. Accounting for Product Switching Under Potential Standards
    DOE considered the potential for a standard level to impact the 
choice between various types of heating products, for residential new 
construction, new owners, and the replacement of existing products. 
Because home builders are sensitive to the initial cost of heating 
equipment, a standard level that significantly increases purchase price 
may induce some builders to switch to a different heating product than 
they would have otherwise installed in the no-new-standards case. Such 
an amended standard level may also induce some homeowners to replace 
their existing furnace at the end of its useful life with a different 
type of heating product.
a. Product Switching Resulting From Standards for Non-Weatherized Gas 
Furnaces
    DOE developed a consumer choice model to estimate the switching 
response of builders and homeowners in residential installations to 
potential amended AFUE standards for NWGFs. DOE analyzed product 
switching scenarios that represent the most common combinations of 
space conditioning and water heating products. The model considers 
three options available for each sample home when installing a heating 
product: (1) a NWGF that meets a particular standard level, (2) a heat 
pump, or (3) an electric furnace. In addition, for situations in which 
installation of a condensing furnace would leave an ``orphaned'' gas 
water heater requiring costly re-venting, the model allows for the 
option to purchase an electric water heater as an alternative. For 
option 2, DOE took into consideration the age of the existing central 
air conditioner, if one exists. If the existing air conditioner is not 
very old, it is unlikely that the consumer would opt to install a heat 
pump, which can also provide cooling.
    The consumer choice model calculates the PBP between the higher-
efficiency NWGF in each standards case compared to the electric heating 
options using the total installed cost and first-year operating cost 
for each sample household or building. The operating costs take into 
account the space heating load and the water heating load for each 
household, as well as the energy prices over the lifetime of the 
available product options.\204\ DOE accounted for any additional 
installation costs to accommodate a new product. DOE also accounted for 
the cooling load of each relevant household that might switch from a 
NWGF and CAC to a heat pump. For switching to occur, the total 
installed cost of the electric option must be less than the NWGF 
standards case option.
---------------------------------------------------------------------------

    \204\ Electric furnaces are estimated to have the same lifetime 
as NWGFs (21.4 years); however, heat pumps have an estimated average 
lifetime of 19 years. To ensure comparable accounting, DOE 
annualized the installed cost of a second heat pump and multiplied 
the annualized cost by the difference in lifetime between the heat 
pump and a NWGF.
---------------------------------------------------------------------------

    DOE used updated CAC and heat pump prices from the 2016 CAC and 
heat pump final rule,\205\ assuming

[[Page 40647]]

implementation of the CAC/HP minimum standards scheduled to take effect 
in 2023. 82 FR 1786 (Jan. 6, 2017). These heat pump prices include the 
manufacturer production costs, shipping costs, markups, and 
installation costs determined in the 2016 final rule. These costs were 
updated to 2020$ and the installation costs were updated using the same 
labor costs as discussed in section IV.F.3 of this document. DOE 
additionally updated the decreasing price trend for heat pumps derived 
in the 2016 final rule with the latest price data available. This trend 
suppresses the cost of heat pumps over time for the analysis period in 
this rulemaking. The consumer choice model assumes that if a consumer 
switches to a heat pump, it is to a minimally compliant heat pump (SEER 
14). DOE requests comment on DOE's heat pump cost estimates, including 
any decreases in price likely to be experienced during the analysis 
period as a result of increased heat pump shipments and scale in the 
market due to decarbonization policies and increased domestic supply of 
heat pumps. DOE estimated the price of electric furnaces in the 
engineering analysis (see section IV.C.3 of this document). For water 
heaters, DOE used efficiency and consumer prices for models that meet 
the amended energy conservation standards that took effect on April 16, 
2015. (10 CFR 430.32(d); 75 FR 20112 (April 16, 2010).) DOE estimated 
the price of gas and electric storage water heaters based on the 2010 
heating products final rule. 75 FR 20112 (April 16, 2010).\206\ For 
situations where a household with a NWGF might switch to an electric 
space heating appliance, DOE determined the total installed cost of the 
electric heating options, including a separate circuit up to 100 amps 
that would need to be installed to power the electric resistance heater 
within an electric furnace or heat pump, as well as the cost of 
upgrading the electrical service panel for a fraction of households.
---------------------------------------------------------------------------

    \205\ U.S. Department of Energy-Office of Energy Efficiency and 
Renewable Energy, Residential Central Air Conditioners and Heat 
Pumps Technical Support Document (Available at: www.regulations.gov/document/EERE-2014-BT-STD-0048-0098) (Last accessed Feb. 15, 2022).
    \206\ U.S. Department of Energy-Office of Energy Efficiency and 
Renewable Energy, Heating Products Final Rule (Available at: 
www.regulations.gov/document?D=EERE-2006-STD-0129-0005) (Last 
accessed Feb. 15, 2022).
---------------------------------------------------------------------------

    The decision criterion in DOE's model was based on proprietary 
survey data from Decision Analyst, collected from four separate surveys 
conducted between 2006 and 2019.\207\ Each survey involved 
approximately 30,000 homeowners. For a representative sample of 
consumers, the surveys identified consumers' willingness to purchase 
more-efficient space-conditioning systems. The surveys asked 
respondents the maximum price they would be willing to pay for a 
product that was 25 percent more efficient than their existing product, 
which DOE assumed is equivalent to a 25-percent decrease in annual 
energy costs. From these data, as well as RECS billing data to 
determine average annual space heating energy costs, DOE determined 
that consumers considering replacing their gas furnace would require, 
on average, a payback period of 3.5 years or less in order to purchase 
a condensing furnace rather than switch to an electric space heating 
option.
---------------------------------------------------------------------------

    \207\ Decision Analysts, 2006, 2008, 2010, 2013, 2016, and 2019 
American Home Comfort Studies (Available at: 
www.decisionanalyst.com/Syndicated/HomeComfort/) (Last accessed Feb. 
15, 2022). Non-proprietary data of a similar nature were not 
available.
---------------------------------------------------------------------------

    The consumer choice model calculates the PBP between the condensing 
NWGF in each standards case compared to the electric heating options 
using the total installed cost and first-year operating cost as 
estimated for each sample household or building. For switching to 
occur, the total installed cost of the electric option must be less 
than the NWGF standards case option. The model assumes that a consumer 
will switch to an electric heating option if the PBP of the condensing 
NWGF relative to the electric heating option is greater than 3.5 years 
or the PBP relative to the electric heating option is negative.\208\ In 
the case of switching to an electric heating option, the model selects 
the most economically beneficial product. DOE requests comment on the 
consumer's willingness to switch heating options, especially for heat 
pumps.
---------------------------------------------------------------------------

    \208\ The PBP is negative when the electric heating option has 
lower operating cost compared to the condensing NWGF option.
---------------------------------------------------------------------------

    DOE acknowledges that the consumer survey data it used to determine 
the switching criterion do not directly address the consumer choice to 
switch heating fuels, but because the data reflect a trade-off between 
first cost and ongoing savings, it is reasonable to expect that the 
payback criterion is broadly reflective of the potential consumer 
behavior regarding switching. Furthermore, the fuel switching results 
from DOE's analysis match the overall findings from the GTI Fuel 
Switching Study \209\ (see appendix 8J of this NOPR TSD), which 
surveyed both contractors and home builders. In addition to the primary 
estimate, DOE conducted sensitivity analyses using higher and lower 
levels of switching, as well as a scenario with no switching. The 
sensitivity analyses use payback periods that are one year higher or 
lower than 3.5 years (i.e., 2.5 years and 4.5 years).
---------------------------------------------------------------------------

    \209\ Gas Technology Institute (``GTI''), Fuel Switching Study 
(Available at: www.aga.org/research/reports/gas-technology-institute--fuel-switching-study/) (Last accessed Feb. 15, 2022).
---------------------------------------------------------------------------

    DOE's analysis also takes into account propane NWGFs when 
considering product switching. For the proposed standard, the switching 
fraction of propane NWGF consumers is 15.1 percent, and the switching 
fraction of propane MHGF consumers is 17.6 percent.
    The GTI report on the 2016 SNOPR submitted by APGA stated that the 
DOE product switching model should exclude product switching in cases 
where there is a first-cost advantage for the electric technology when 
comparing to an 80-percent AFUE NWGF, as well as when there is an 
operating cost advantage for the electric technology compared to the 
proposed TSL for NWGFs. According to the comment, these cases would 
likely cause product switching without an amended rule and would be 
considered as ``No Impact'' cases when using Consumer Economic Decision 
criteria proposed by GTI. GTI contends that DOE's approach results in 
overstated LCC savings compared to rational product switching under a 
Consumer Economic Decision framework methodology. (APGA, No. 292-2 at 
p. 25) In response, for the 2016 September SNOPR, DOE's product 
switching methodology was primarily dependent on a first-cost 
comparison between an alternative electric option and the standards-
compliant NWGF option. As a result, DOE estimated that switching could 
occur when the first cost of an alternative electric option is lower 
than the baseline NWGF (80 percent AFUE) and the operating cost of the 
alternative electric option is less than the standards-compliant NWGF 
option. For this NOPR, DOE adopted a more conservative approach and 
excluded these households from the product switching methodology.
b. Switching Resulting From Standards for Mobile Home Gas Furnaces
    For the September 2016 SNOPR (since withdrawn), DOE concluded that 
fuel switching would be unlikely for MHGFs. 81 FR 65720, 65793 (Sept. 
23, 2016).
    Nortek and MHI stated that DOE must consider product switching in 
the MHGF market. (Nortek, No. 300 at p. 3; MHI, No. 282 at p. 1) Nortek 
and MHI stated that the proposed rule will lead to increased switching 
from MHGFs to less-efficient electric heating options

[[Page 40648]]

because in many instances, it is impractical, if not impossible, to 
install a condensing furnace due to a manufactured home's structural 
framework. MHI cited a survey from AGA showing that 20 percent of 
mobile homes utilizing non-condensing MHGFs would not be able to 
install a condensing furnace because of the home's framework or other 
issues. MHI argued that these consumers would switch to less-efficient 
electric heating equipment. (MHI, No. 282 at p. 5) Nortek and MHI 
stated that 68 percent of the 8.5 million existing manufactured homes 
are located in the South, where condensing MHGFs are not cost-effective 
for the consumer, adding that these homeowners would likely switch to 
alternative forms of energy for heating. (Nortek, No. 300 at pp. 7-8; 
MHI, No. 282 at p. 5) The GTI report on the September 2016 SNOPR 
submitted by APGA stated that MHGF consumers tend to have lower incomes 
and are even more sensitive to first cost than NWGF consumers. The GTI 
report noted that it would be simple to switch to electric resistance 
heaters, including low-cost space heaters. The GTI report stated that 
the installed cost difference is high enough for MHGFs that in only 20 
percent of the cases is the simple payback period for a 92-percent AFUE 
MHGF less than 3.5 years, which indicates a high probability of product 
switching in the MHGF market. (APGA, No. 292-2 at pp. A-31--A-33)
    For this NOPR, DOE added product switching in its analysis for 
MHGFs. The MHGF product switching methodology is similar to the product 
switching methodology for NWGFs, except that there is no switching from 
gas storage water heaters to electric storage water heaters, since 
MHGFs and gas storage water heaters do not share common vents. See 
appendix 8J of the TSD for this NOPR for more details regarding the 
product switching model for MHGFs.
12. Accounting for Furnace Repair as an Alternative to Replacement 
Under Potential Standards
    Several stakeholders commented that when facing the costly 
installation of a condensing furnace, consumers will likely delay the 
replacement of their existing furnace by repairing it to extend the 
lifetime. (ACCA, No. 265 at p. 2; HARDI, No. 271 at p. 3; Carrier, No. 
302 at pp. 4-6; PGW, No. 273 at p. 4; SoCalGas, No. 304-3 at p. 5; 
Rheem, No. 307 at pp. 14, 15; Goodman, No. 308 at pp. 11-12; AHRI, No. 
303 at pp. 7-9; Lennox, No. 299 at pp. 16-17, Multifamily Associations, 
No. 260 at p. 2) AHRI stated that DOE has not provided a reasoned basis 
for excluding the repair option, other than the difficulty of including 
the potential for repair in the consumer choice model DOE is currently 
using. AHRI characterized this as an arbitrary and unsupported 
decision, particularly since in other rulemakings, DOE has taken a very 
different approach. (AHRI, No. 303 at pp. 7-9) Lennox offered a similar 
comment. (Lennox, No. 299 at pp. 16-17) Carrier stated that DOE did not 
analyze the repair vs. replace option, disregarding stakeholders' 
comments that increased product and installation costs will drive up 
the frequency of both product switching and repair. (Carrier, No. 302 
at pp. 4-6) SoCalGas recommended that DOE should account for extended 
repairs, as this may be the most economical option for some retrofit 
consumers who need a NWGF with a capacity above the small NWGF 
threshold but for whom switching to electric products would be 
expensive. (SoCalGas, No. 304-3 at p. 5) Goodman stated that the 
majority of respondents to an HVAC survey conducted by Parks Associates 
would replace a system if the repair cost is half the total cost of new 
equipment. (Goodman, No. 308 at pp. 11-12) Rheem commented that 
homeowners will most likely repair an old furnace and replace 
components for as long as possible before switching products. (Rheem, 
No. 307 at p. 15) Spire stated that according to informal interviews it 
conducted with Canadian gas utilities, many homeowners have continued 
repairing their older, lower-efficiency NWGFs to avoid having to 
replace them with condensing NWGFs. (Spire, No. 309-1 at p. 17) The 
Multifamily Associations stated that rather than replace an aging, 
inefficient NWGF with a new, efficient model, multifamily property 
owners will typically repair the existing NWGF. (Multifamily 
Associations, No. 260 at p. 2)
    In contrast, the Efficiency Advocates stated that few contractors 
will repair major malfunctions, such as a failed heat exchanger or 
failed air handler, because the repair costs are a large percentage of 
the purchase price of a new unit. They also commented that very few 
consumers will make a major investment in a repair when such repair 
cost is a large percentage of a new unit's cost. The Efficiency 
Advocates noted that Canada has had a condensing furnace standard for 
several years without reporting a substantial increase in repairs. 
(Efficiency Advocates, No. 285 at p. 4)
    For this NOPR, DOE added a repair option into its consumer choice 
model. Because repair is likely to be considered first by consumers 
facing furnace replacement, DOE evaluated this option before the 
product switching options.
    To estimate the fraction of consumers in a standards case that 
would choose to repair their existing furnace rather than replace it or 
switch to an alternative product, DOE used a price elasticity 
parameter, which relates the incremental total installed cost to total 
gas furnace shipments, and an efficiency elasticity parameter, which 
relates the change in the operating cost to gas furnace shipments. Both 
types of elasticity relate changes in demand to changes in the 
corresponding characteristic (price or efficiency). A regression 
analysis estimated these terms separately from each other and found 
that the price elasticity of demand for several appliances is on 
average -0.45.\210\ Thus, for example, a price increase of 10 percent 
would result in a shipments decrease of 4.5 percent, all other factors 
held constant. The same regression analysis found that the efficiency 
elasticity is estimated to be on average 0.2 (i.e., a 10-percent 
efficiency improvement, equivalent to a 10-percent decrease in 
operating costs, would result in a shipments increase of 2 percent, all 
else being equal). From these two parameters, DOE derived a probability 
that a given household will not purchase a furnace, which is 
interpreted as the household repairing rather than replacing the 
furnace. The regression analysis included a range for the elasticity 
parameters. The price elasticity parameter was adjusted by income such 
that the higher elasticity was assigned to lower-income households and 
the lower elasticity assigned to higher-income households, resulting in 
a greater probability of repairing existing equipment for lower-income 
households. Households that are designated as doing a repair rather 
than replacement are not considered in the subsequent switching 
analysis. DOE also conducted sensitivity analyses using higher and 
lower rates of repair. See appendix 8J of the TSD for this NOPR for 
more details on the repair vs. replace consumer choice model for NWGFs 
and MHGFs.
---------------------------------------------------------------------------

    \210\ Fujita, S., Estimating Price Elasticity using Market-Level 
Appliance Data. LBNL-188289 (August 2015) (Available at: eta-publications.lbl.gov/sites/default/files/lbnl-188289.pdf) (Last 
accessed Feb. 15, 2022).
---------------------------------------------------------------------------

13. 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. Payback 
periods are expressed in years.

[[Page 40649]]

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 for each efficiency level are the 
change in total installed cost of the product and the change in the 
first-year annual operating expenditures relative to the baseline. The 
PBP calculation uses the same inputs as the LCC analysis, except that 
discount rates are not needed.
    As noted previously in section III.E.2 of this document, EPCA 
establishes a rebuttable presumption that a standard is economically 
justified if the Secretary finds that the additional cost to the 
consumer of purchasing a product complying with an energy conservation 
standard level will be less than three times the value of the first 
year's energy savings resulting from the standard, as calculated under 
the applicable test procedure. (42 U.S.C. 6295(o)(2)(B)(iii)) For each 
considered efficiency level, DOE determined the value of the first 
year's energy savings by calculating the energy savings in accordance 
with the applicable DOE test procedure, and multiplying those savings 
by the average energy price projection for the year in which compliance 
with the amended or new standards would be required.

G. Shipments Analysis

1. Shipments Model and Inputs
    DOE uses projections of annual product shipments to calculate the 
national impacts of potential amended or new energy conservation 
standards on energy use, net present value (``NPV''), and future 
manufacturer cash flows.\211\ The shipments model takes an accounting 
approach, tracking market shares of each product class and the vintage 
of units in the stock. Stock accounting uses product shipments as 
inputs to estimate the age distribution of in-service product stocks 
for all years. The age distribution of in-service product stocks is a 
key input to calculations of both the NES and NPV, because operating 
costs for any year depend on the age distribution of the stock.
---------------------------------------------------------------------------

    \211\ DOE uses data on manufacturer shipments as a proxy for 
national sales, as aggregate data on sales are lacking. In general 
one would expect a close correspondence between shipments and sales.
---------------------------------------------------------------------------

    DOE developed shipment projections based on historical data and an 
analysis of key market drivers for each product. DOE estimated NWGF and 
MHGF shipments by projecting shipments in three market segments: (1) 
replacement of existing consumer furnaces; (2) new housing; and (3) new 
owners in buildings that did not previously have a NWGF or MHGF or 
existing NWGF or MHGF owners that are adding an additional consumer 
furnace.\212\ DOE also considered whether standards that require more-
efficient consumer furnaces would have an impact on consumer furnace 
shipments, as discussed in section IV.G.2 of this NOPR.
---------------------------------------------------------------------------

    \212\ The new owners primarily consist of households that add or 
switch to NWGFs or MHGFs during a major remodel. Because DOE 
calculates new owners as the residual between its shipments model 
compared to historical shipments, new owners also include shipments 
that switch away from NWGFs or MHGFs.
---------------------------------------------------------------------------

a. Historical Shipments Data
    DOE assembled historical shipments data for NWGFs and MHGFs from 
Appliance Magazine for 1954-2012,\213\ AHRI from 1996-2020,\214\ HARDI 
from 2013-2020,\215\ and BRG from 2007-2019.\216\ DOE also used the 
1992 and 1994-2003 shipments data by state provided by AHRI \217\ and 
2004-2009 and 2010-2015 shipments data by North and Rest of Country 
regions provided by AHRI \218\ as well as HARDI shipments data that is 
disaggregated by region and most states to disaggregate shipments by 
region. DOE also used CBECS 2012 data and BRG shipments data to 
estimate the commercial fraction of shipments.\219\ Disaggregated 
shipments for MHGFs are not available, so DOE disaggregated MHGF 
shipments from the total by using a combination of data from the U.S. 
Census,\220\ \221\ American Housing Survey (AHS),\222\ RECS,\223\ and a 
2014 MHGF shipments estimate by Mortex.\224\
---------------------------------------------------------------------------

    \213\ Appliance Magazine. Appliance Historical Statistical 
Review: 1954-2012 (2014).
    \214\ Air-Conditioning, Heating, & Refrigeration Institute, 
Furnace Historical Shipments Data. (1996-2020) (Available at: 
www.ahrinet.org/resources/statistics/historical-data/furnaces-historical-data) (Last accessed Feb. 15, 2022).
    \215\ Heating, Air-conditioning and Refrigeration Distributors 
International (``HARDI''). DRIVE portal (HARDI Visualization Tool 
managed by D+R International), Gas Furnace Shipments Data from 2013-
2020 (Available at: www.drintldata.com) (Last accessed Feb. 15, 
2022).
    \216\ BRG Building Solutions. The North American Heating & 
Cooling Product Markets (2020 Edition) (Available at: 
www.brgbuildingsolutions.com/reports-insights) (last accessed Feb. 
15, 2022).
    \217\ Air-Conditioning, Heating, and Refrigeration Institute 
(formerly Gas Appliance Manufacturers Association). Updated 
Shipments Data for Residential Furnaces and Boilers, April 25, 2005 
(Available at: www.regulations.gov/document/EERE-2006-STD-0102-0138) 
(Last accessed Feb. 15, 2022).
    \218\ Air-Conditioning, Heating, and Refrigeration Institute. 
Non-Condensing and Condensing Regional Gas Furnace Shipments for 
2004-2009 and 2010-2015 Data Provided to DOE contractors, July 20, 
2010 and November 26, 2016.
    \219\ The results derived from RECS 2015 and CBECS 2012 in this 
NOPR show there are 45.0 and 1.5 million NWGFs in residential and 
commercial buildings (excluding weatherized gas furnaces and MHGFs), 
respectively. DOE assumed that the share of shipments is similar to 
the share in the stock. BRG shipments data shows a similar fraction. 
See chapter 9 for further details.
    \220\ U.S. Census Bureau, Manufactured Homes Survey: Annual 
Shipments to States from 1994-2020 (Available at: www.census.gov/data/tables/time-series/econ/mhs/shipments.html) (Last accessed Feb. 
15, 2022).
    \221\ U.S. Census Bureau, Manufactured Homes Survey: Historical 
Annual Placements by State from 1980-2013 (Available at: 
www.census.gov/data/tables/time-series/econ/mhs/historical-annual-placements.html) (Last accessed Feb. 15, 2022).
    \222\ U.S. Census Bureau--Housing and Household Economic 
Statistics Division, American Housing Survey, multiple years from 
1973-2019 (Available at: www.census.gov/programs-surveys/ahs/data.html) (Last accessed Feb. 15, 2022).
    \223\ Energy Information Administration (``EIA''). Residential 
Energy Consumption Survey (RECS), multiple years from 1979-2015 
(Available at: www.eia.gov/consumption/residential/) (last accessed 
Feb. 15, 2022).
    \224\ Mortex estimated that the total number of MHGFs 
manufactured in 2014 was about 54,000, and about two-thirds were 
sold to the replacement market. Mortex also stated that MHGF sales 
have not been growing. (Mortex, No. 0157 at p. 3) (Available at: 
www.regulations.gov/document/EERE-2014-BT-STD-0031-0157) (Last 
accessed Feb. 15, 2022).
---------------------------------------------------------------------------

b. Shipment Projections in No-New Standards Case
    As stated previously, DOE estimated NWGF and MHGF shipments by 
projecting shipments in three market segments: (1) replacement of 
existing furnaces; (2) new housing; and (3) new owners in buildings 
that did not previously have a NWGF or MHGF or existing NWGF or MHGF 
owners that are adding an additional consumer furnace. These 
projections reflect equipment switching that is occurring without 
standards and additions to homes without central heating.
    To project furnace replacement shipments, DOE developed retirement 
functions from furnace lifetime estimates and applied them to the 
existing products in the housing stock, which are tracked by vintage. 
DOE calculated replacement shipments using historical shipments and the 
lifetime estimates (average 21.4 years). In addition, DOE adjusted 
replacement shipments by taking into account demolitions, using the 
estimated changes to the housing stock from AEO2021.
    To project shipments to the new housing market, DOE utilized a 
forecast of new housing construction and historic saturation rates of 
furnaces in new housing. DOE used the AEO2021 housing starts and 
commercial building floor space projections and data from U.S. Census 
Characteristics of New

[[Page 40650]]

Housing,\225\ \226\ Home Innovation Research Labs Annual Builder 
Practices Survey,\227\ RECS 2015, AHS 2019, and CBECS 2012 to estimate 
new construction saturations. DOE also estimated future furnace 
saturation rates in new single-family housing based on a weighted-
average of values from the U.S. Census Bureau's Characteristics of New 
Housing from 1990 through 2020.\228\
---------------------------------------------------------------------------

    \225\ U.S. Census. Characteristics of New Housing from 1999-2020 
(Available at: www.census.gov/construction/chars/) (Last accessed 
Feb. 15, 2022).
    \226\ U.S. Census. Characteristics of New Housing (Multi-Family 
Units) from 1973-2020 (Available at: www.census.gov/construction/chars/mfu.html) (Last accessed Feb. 15, 2022).
    \227\ Home Innovation Research Labs (independent subsidiary of 
the National Association of Home Builders (``NAHB''). Annual Builder 
Practices Survey (2015-2019) (Available at: www.homeinnovation.com/trends_and_reports/data/new_construction) (Last accessed Feb. 15, 
2022).
    \228\ U.S. Census Bureau, Characteristics of New Housing 
(Available at: www.census.gov/construction/chars/) (Last accessed 
Feb. 15, 2022).
---------------------------------------------------------------------------

    To project shipments to the new owners market, DOE estimated the 
new owners based on the residual shipments from the calculated 
replacement and new construction shipments compared to historical 
shipments in the last 5 years (2016-2020 for this NOPR). DOE compared 
this with data from Decision Analysts' 2002 to 2019 American Home 
Comfort Study,\229\ 2019 BRG data, and AHRI's estimated shipments in 
2000,\230\ which showed similar historical fractions of new owners. DOE 
assumed that the new owner fraction would be the 10-year average in 
2029 and then decrease to zero by the end of the analysis period 
(2058). If the resulting fraction of new owners is negative, DOE 
assumed that it was primarily due to equipment switching or non-
replacement and added this number to replacements (thus reducing the 
replacements value).
---------------------------------------------------------------------------

    \229\ Decision Analysts, 2002, 2004, 2006, 2008, 2010, 2013, 
2016, and 2019 American Home Comfort Study (Available at: 
www.decisionanalyst.com/Syndicated/HomeComfort/) (Last accessed Feb. 
15, 2022).
    \230\ AHRI (formerly GAMA), Furnace and Boiler Shipments data 
provided to DOE for Furnace and Boiler ANOPR (Jan. 23, 2002).
---------------------------------------------------------------------------

    Table IV.18 shows the fraction of shipments for the replacement, 
new construction, and new owner markets. See chapter 9 for more details 
on the shipments analysis.

       Table IV.18--Total and Fraction of Non-Weatherized Gas Furnaces and Mobile Home Gas Furnaces Shipments by Market Segment (Replacements, New
                                                          Construction, and New Owners) in 2029
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                       North                      Rest of country                      Total
           Product class               Market segment    -----------------------------------------------------------------------------------------------
                                                              Million       Percentage        Million       Percentage        Million       Percentage
--------------------------------------------------------------------------------------------------------------------------------------------------------
NWGF (Residential)................  Replacements *......           1.565              84           1.059              77           2.624              81
                                    New Construction....           0.293              16           0.319              23           0.611              19
                                                         -----------------------------------------------------------------------------------------------
                                       Total............           1.857             100           1.378             100           3.235             100
--------------------------------------------------------------------------------------------------------------------------------------------------------
NWGF (Commercial).................  Replacements *......           0.043              68           0.031              68           0.074              68
                                    New Construction....           0.020              32           0.014              32           0.035              32
                                                         -----------------------------------------------------------------------------------------------
                                       Total............           0.064             100           0.045             100           0.109             100
--------------------------------------------------------------------------------------------------------------------------------------------------------
MHGF..............................  Replacements *......           0.026              62           0.012              48           0.038              57
                                    New Construction....           0.015              38           0.013              52           0.029              43
                                                         -----------------------------------------------------------------------------------------------
                                       Total............           0.041             100           0.025             100           0.066             100
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Includes new owners.
Notice: percentages may not add up to 100% due to rounding.

    Assumptions regarding future policies encouraging electrification 
of households (such as in the states of California, Maryland, 
Washington, New York) or electric heating that decrease furnace 
shipments are speculative at this time, so such policies were not 
incorporated into the shipments projection. In regards to the proposed 
California 2016 AQMP,\231\ which targets the ozone depleting 
NOX emissions, DOE notes that the proposed control measure 
has two components: (1) implementing the existing Rule 1111 emission 
limit of NOX for residential space heaters; and (2) 
incentivizing the replacement of older space heaters with more 
efficient low NOX products, and/or ``green technologies'' 
such as solar heating or heat pumps. Incentivizing heat pumps is only 
one of the proposed approaches to reduce NOX emissions that 
were offered in the plan, but it is unclear how this would trigger 
actual market and/or policy changes in the future. Current requirements 
in many parts of California for low NOX and ultra low 
NOX furnaces could also increase the cost of these furnaces, 
but it is currently unclear if it will be enough to drive shipments 
towards other heating options (including heat pumps). Thus, it is very 
uncertain to what extent installations of heat pumps would increase.
---------------------------------------------------------------------------

    \231\ South Coast Air Quality Management District. 2016 Air 
Quality Management Plan (``AQMP'') (Available at: www.aqmd.gov/home/air-quality/clean-air-plans/air-quality-mgt-plan/final-2016-aqmp) 
(Last accessed Feb. 15, 2022).
---------------------------------------------------------------------------

2. Impact of Potential Standards on Shipments
a. Impact of Equipment Switching
    DOE applied the consumer choice model described in section IV.F.12 
of this document to estimate the impact on NWGF shipments of product 
switching that may be incentivized by potential standards. The options 
available to each sample household or building are to purchase and 
install: (1) the NWGF that meets a particular standard level, (2) a 
heat pump, or (3) an electric furnace.\232\
---------------------------------------------------------------------------

    \232\ DOE also accounted for situations when installing a 
condensing furnace could leave an ``orphaned'' gas water heater that 
would require expensive re-sizing of the vent system. Rather than 
incurring this cost, the consumer could choose to purchase an 
electric water heater along with a new furnace.
---------------------------------------------------------------------------

    As applied in the LCC and PBP analyses, the consumer choice model 
considers product prices in the compliance year and energy prices over 
the lifetime of products installed in that year. The shipments model 
considers the switching that might occur in each year of the analysis 
period (2029-2058). To do so, DOE estimated the switching in the first 
year of the analysis period (2029) and derived trends from 2029 to 
2058. First, DOE applied the NWGF product price trend described in 
section IV.F.2 of this document to project prices in 2058. DOE used the 
appropriate energy prices over the lifetime of products installed in 
each year.

[[Page 40651]]

Although the inputs vary, the decision criteria were the same in each 
year. For each considered standard level, the number of NWGFs shipped 
in each year is equal to the base shipments in the no-new-standards 
case minus the number of NWGF buyers who switch to either a heat pump 
or an electric furnace. The shipments model also tracks the number of 
additional heat pumps and electric furnaces shipped in each year.
b. Impact of Repair vs. Replace
    In the September 2016 SNOPR, DOE did not include the option of 
repairing rather than replacing the furnace or switching to a heat pump 
or electric furnace in the consumer choice model described in section 
IV.F.12 of this document.
    Ingersoll Rand stated that not considering the option of consumers 
repairing rather than replacing a failed NWGF leads to overestimating 
the NES and NPV impacts of the proposed standards. (Ingersoll Rand, No. 
297 at pp. 6, 12)
    As discussed in IV.F.12, for this NOPR, DOE estimated a fraction of 
both NWGF and MHGF replacement installations that choose to repair 
their equipment, rather than replace their equipment or switch to a 
heat pump or electric furnace, in the new standards case. The approach 
captures not only a decrease in NWGF and MHGF replacement shipments, 
but also the energy use from continuing to use the existing furnace and 
the cost of the repair. DOE assumes that the demand for space heating 
is inelastic and, therefore, that no household or commercial building 
will forgo either repairing or replacing their equipment (either with a 
new NWGF of MHGF or a suitable space-heating alternative).
    Because measures to limit standby mode and off mode energy use have 
a very small impact on the total installed cost and do not impact 
consumer utility, and thus have a minimal effect on consumer purchase 
decisions, DOE assumed that NWGF and MHGF shipments in the no-new-
standards case would be unaffected by new standby mode and off mode 
standards.
    For details on DOE's shipments analysis, product and fuel 
switching, and the repair option, see chapter 9 of the NOPR TSD.

H. National Impact Analysis

    The NIA assesses NES and the national NPV from a national 
perspective of total consumer costs and savings that would be expected 
to result from new or amended standards at specific efficiency 
levels.\233\ (``Consumer'' in this context refers to consumers of the 
product being regulated.) DOE calculates the NES and NPV for the 
potential standard levels considered based on projections of annual 
product shipments, along with the annual energy consumption and total 
installed cost data from the energy use and LCC analyses.\234\ For the 
present analysis, DOE projected the energy savings, operating cost 
savings, product costs, and NPV of consumer benefits over the lifetime 
of NWGFs and MHGFs sold from 2029 through 2058.
---------------------------------------------------------------------------

    \233\ The NIA accounts for impacts in the 50 States and U.S. 
territories.
    \234\ For the NIA, DOE adjusts the installed cost data from the 
LCC analysis to exclude sales tax, which is a transfer.
---------------------------------------------------------------------------

    DOE evaluates the impacts of new or amended standards by comparing 
a case without such standards with standards-case projections. The no-
new-standards case characterizes energy use and consumer costs for each 
product class in the absence of new or amended energy conservation 
standards. For this projection, DOE considers historical trends in 
efficiency and various forces that are likely to affect the mix of 
efficiencies over time. DOE compares the no-new-standards case with 
projections characterizing the market for each product class if DOE 
adopted new or amended standards at specific energy efficiency levels 
(i.e., the TSLs or standards cases) for that class. For the standards 
cases, DOE considers how a given standard would likely affect the 
market shares of products with efficiencies greater than the standard. 
In the standards cases, a small fraction of households will replace the 
furnace a second time within the 30-year analytical period of the NIA. 
For these households, the additional installation cost adders for going 
from a non-condensing furnace to a condensing furnace are not applied 
in the standards cases for the second replacement, as the household 
already has a condensing furnace.
    DOE uses a spreadsheet model to calculate the energy savings and 
the national consumer costs and savings from each TSL. AEO2021 is the 
source of the energy price trends as well as other inputs to the NIA 
such as projected housing starts and new commercial building floor 
space, heating and cooling degree day projections, and building shell 
efficiency projections. Interested parties can review DOE's analyses by 
changing various input quantities within the spreadsheet. The NIA 
spreadsheet model uses typical values (as opposed to probability 
distributions) as inputs.
    Table IV.19 summarizes the inputs and methods DOE used for the NIA 
analysis for this NOPR. Discussion of these inputs and methods follows 
the table. See chapter 10 of the TSD for this NOPR for further details.

   Table IV.19--Summary of Inputs and Methods for the National Impact
                                Analysis
------------------------------------------------------------------------
              Inputs                               Method
------------------------------------------------------------------------
Shipments.........................  Annual shipments from shipments
                                     model.
Compliance Date of Standard.......  2029.
Efficiency Trends.................  No-New-Standards case: Based on
                                     historical data. Standard cases:
                                     Roll-up in the compliance year
                                     (except for EL 1, 90 percent AFUE
                                     for NWGFs as described below) and
                                     then DOE estimated growth in
                                     shipment-weighted efficiency in all
                                     the standards cases, except max-
                                     tech.
Annual Energy Consumption per Unit  Annual weighted-average values are a
                                     function of energy use at each TSL.
                                     Incorporates projection of future
                                     energy use based on AEO2021
                                     projections for HDD/CDD and
                                     building shell efficiency index.

[[Page 40652]]

 
Total Installed Cost per Unit.....  Annual weighted-average values are a
                                     function of cost at each TSL.
                                     Incorporates projection of future
                                     product prices based on historical
                                     data.
Repair and Maintenance Cost per     Annual weighted-average values vary
 Unit.                               by efficiency level.
Energy Prices.....................  AEO2021 projections (to 2050) and
                                     extrapolation thereafter. Natural
                                     gas and electricity marginal prices
                                     based on EIA and RECS 2015 billing
                                     data.
Energy Site-to-Primary and FFC      A time-series conversion factor
 Conversion.                         based on AEO2021.
Discount Rate.....................  Three and seven percent.
Present Year......................  2021.
------------------------------------------------------------------------

1. Product Efficiency Trends
    A key component of the NIA is the trend in energy efficiency 
projected for the no-new-standards case and each of the standards 
cases. Section IV.F.10 of this document describes how DOE developed an 
energy efficiency distribution for the no-new-standards case for each 
of the considered product classes for the year of anticipated 
compliance with an amended or new standard (2029). To project the trend 
in efficiency absent amended standards for NWGFs and MHGFs over the 
entire shipments projection period, DOE extrapolated the historical 
trends in efficiency that were described in section IV.F.10 of this 
document. These trends are based on industry shipment data from AHRI 
and HARDI and include a near 100 percent saturation of condensing 
furnaces in the North region. For this NOPR, DOE estimated that the 
national market share of condensing products would grow from 58 percent 
in 2029 to 62 percent by 2058 for NWGFs, and from 31 percent to 43 
percent for MHGFs. The market shares of the different condensing 
efficiency levels (i.e., 90-, 92-, 95-, and 98-percent AFUE for NWGFs 
and 92-, 95-, and 97-percent AFUE for MHGFs) are maintained in the same 
proportional relationship as in 2029. For standby mode and off mode 
energy use, DOE estimated that the efficiency distribution would remain 
the same throughout the forecast period. The approach is further 
described in appendix 8I and chapter 10 of the TSD for this NOPR.
    Lennox stated that DOE underestimated the market share of 
condensing NWGFs in the absence of standards, which results in the 
energy savings of the proposed rule being overstated by taking credit 
for energy savings from condensing NWGFs that would already be 
purchased without amended standards. (Lennox, No. 299 at p. 7)
    DOE agrees that there is some uncertainty associated with 
estimating of condensing furnace shipments in the future. As stated in 
section IV.F.10 of this document, DOE's methodology is based on the 
latest available data. DOE developed for this NOPR a sensitivity 
analysis that captures some of this uncertainty. The scenario resulting 
in significant lower condensing shipment projections does not change 
the conclusion that the proposed standards are economically justified 
(see appendix 10E of the TSD for this NOPR for the condensing shipments 
projection comparison, NES, and NPV results).
    To reduce the uncertainty associated with shipment projections for 
this product class, DOE requests data for shipments of condensing 
furnaces.
    For the standards cases, DOE used a ``roll-up'' scenario to 
establish the shipment-weighted efficiency for the year that standards 
are assumed to become effective (2029). In this scenario, the market 
shares of products in the no-new-standards case that do not meet the 
standard under consideration would ``roll up'' to meet the new standard 
level, and the market share of products above the standard would remain 
unchanged. In the standards case with a 90-percent AFUE national 
standard, DOE estimated that many consumers will purchase a 92-percent 
AFUE NWGF rather than a 90-percent AFUE furnace because the extra 
installed cost is minimal, and the market has already moved 
significantly toward the 92-percent level. To develop standards case 
efficiency trends after 2029, DOE estimated growth in shipment-weighted 
efficiency in the standards cases, except in the max-tech standards 
case.
    DOE did not have a basis on which to predict a change in efficiency 
trend for standby mode and off mode energy use, so DOE assumed that the 
efficiency distribution would not change after the first year of 
compliance.
2. National Energy Savings
    The national energy savings analysis involves a comparison of 
national energy consumption of the considered products between each 
potential trial standards case (``TSL'') and the case with no new or 
amended energy conservation standards. DOE calculated the national 
energy consumption by multiplying the number of units (stock) of each 
product (by vintage or age) by the unit energy consumption (also by 
vintage). DOE calculated annual NES based on the difference in national 
energy consumption for the no-new-standards case and for each higher 
efficiency standard case. DOE estimated energy consumption and savings 
based on site energy and converted the electricity consumption and 
savings to primary energy (i.e., the energy consumed by power plants to 
generate site electricity) using annual conversion factors derived from 
AEO2021. For natural gas and LPG, DOE assumed that site energy 
consumption is the same as primary energy consumption.
    The per-unit annual energy use is adjusted with the building shell 
improvement index, which results in a decline of 3 percent in the 
heating load from 2029 to 2058, and the climate index, which results in 
a decline of 9 percent in the heating load. Cumulative energy savings 
are the sum of the NES for each year over the timeframe of the 
analysis.
    DOE incorporated a rebound effect for NWGFs and MHGFs by reducing 
the site energy savings (and the associated FFC energy savings) in each 
year by 15 percent. However, for commercial applications DOE applied no 
rebound effect in order to be consistent with other recent standards 
rulemakings (see section IV.F.4 of this document).
    In the standards cases, there are fewer shipments of NWGFs or MHGFs 
compared to the no-new-standards case because of product switching and 
repair vs. replaced, but there are additional shipments of heat pumps, 
electric furnaces, and electric water heaters. DOE incorporated the 
per-unit annual energy use of the heat pumps and electric furnaces that 
was calculated in

[[Page 40653]]

the LCC and PBP analyses (based on the specific sample households that 
switch to these products) into the NIA model.
    In 2011, in response to the recommendations of a committee on 
``Point-of-Use and Full-Fuel-Cycle Measurement Approaches to Energy 
Efficiency Standards'' appointed by the National Academy of Sciences, 
DOE announced its intention to use FFC measures of energy use and 
greenhouse gas and other emissions in the national impact analyses and 
emissions analyses included in future energy conservation standards 
rulemakings. 76 FR 51281 (Aug. 18, 2011). After evaluating the 
approaches discussed in the August 18, 2011 notice, DOE published a 
statement of amended policy in which DOE explained its determination 
that EIA's NEMS is the most appropriate tool for its FFC analysis and 
its intention to use NEMS for that purpose. 77 FR 49701 (Aug. 17, 
2012). NEMS is a public domain, multi-sector, partial equilibrium model 
of the U.S. energy sector \235\ that EIA uses to prepare its Annual 
Energy Outlook. The FFC factors incorporate losses in production and 
delivery in the case of natural gas (including fugitive emissions) and 
additional energy used to produce and deliver the various fuels used by 
power plants. The approach used for deriving FFC measures of energy use 
and emissions is described in appendix 10A of TSD for this NOPR.
---------------------------------------------------------------------------

    \235\ For more information on NEMS, refer to The National Energy 
Modeling System: An Overview 2009, DOE/EIA-0581(2009). (Available 
at: www.eia.gov/outlooks/aeo/nems/overview/pdf/0581(2018).pdf) (Last 
accessed Feb. 15, 2022).
---------------------------------------------------------------------------

3. Net Present Value Analysis
    The inputs for determining the NPV of the total costs and benefits 
experienced by consumers are: (1) total annual installed cost, (2) 
total annual operating costs (energy costs and repair and maintenance 
costs), and (3) a discount factor to calculate the present value of 
costs and savings. DOE calculates net savings each year as the 
difference between the no-new-standards case and each standards case in 
terms of total savings in operating costs versus total increases in 
installed costs. DOE calculates operating cost savings over the 
lifetime of each product shipped during the projection period.
    As discussed in section IV.F.2 of this document, DOE developed NWGF 
and MHGF price trends based on historical PPI data. DOE applied the 
same trends to project prices for each product class at each considered 
efficiency level. DOE's projection of product prices is described in 
appendix 10C of the NOPR TSD.
    To evaluate the effect of uncertainty regarding the price trend 
estimates, DOE investigated the impact of different product price 
projections on the consumer NPV for the considered TSLs for NWGFs and 
MHGFs. In addition to the default price trend, DOE considered two 
product price sensitivity cases: (1) a high price decline case based on 
PPI data from 2015-2020 and (2) a constant price trend case. The 
derivation of these price trends and the results of these sensitivity 
cases are described in appendix 10C of the NOPR TSD.
    As described in section IV.H.2 of this document, DOE assumed a 15-
percent rebound from an increase in utilization of the product arising 
from the increase in efficiency (i.e., the direct rebound effect). In 
considering the economic impact on consumers due to the direct rebound 
effect, DOE accounted for change in consumer surplus attributed to 
additional heating/comfort from the purchase of a more-efficient unit. 
Overall consumer surplus is generally understood to be enhanced from 
rebound. The net consumer impact of the rebound effect is included in 
the calculation of operating cost savings in the consumer NPV results. 
See appendix 10G of the NOPR TSD for details on DOE's treatment of the 
monetary valuation of the rebound effect. DOE requests comments on its 
approach to monetizing the impact of the rebound effect in both the NIA 
and the LCC analysis.
    The operating cost savings are energy cost savings, which are 
calculated using the estimated energy savings in each year and the 
projected price of the appropriate form of energy. To estimate energy 
prices in future years, DOE multiplied the average regional energy 
prices by the projection of annual national-average residential energy 
price changes in the Reference case from AEO2021, which has an end year 
of 2050. To estimate price trends after 2050, DOE used the average 
annual rate of change in prices from 2045 through 2050. As part of the 
NIA, DOE also analyzed scenarios that used inputs from variants of the 
AEO2021 Reference case that have lower and higher economic growth. 
Those cases have lower and higher energy price trends compared to the 
Reference case. NIA results based on these cases are presented in 
appendix 10D of the NOPR TSD.
    In calculating the NPV, DOE multiplies the net savings in future 
years by a discount factor to determine their present value. For this 
NOPR, DOE estimated the NPV of consumer benefits using both a 3-percent 
and a 7-percent real discount rate. DOE uses these discount rates in 
accordance with guidance provided by the Office of Management and 
Budget (``OMB'') to Federal agencies on the development of regulatory 
analysis.\236\ The discount rates for the determination of NPV are in 
contrast to the discount rates used in the LCC analysis, which are 
designed to reflect a consumer's perspective. The 7-percent real value 
is an estimate of the average before-tax rate of return to private 
capital in the U.S. economy. The 3-percent real value represents the 
``social rate of time preference,'' which is the rate at which society 
discounts future consumption flows to their present value.
---------------------------------------------------------------------------

    \236\ United States Office of Management and Budget, Circular A-
4: Regulatory Analysis (Sept. 17, 2003) Section E (Available at: 
www.whitehouse.gov/wp-content/uploads/legacy_drupal_files/omb/circulars/A4/a-4.pdf) (Last accessed Feb. 15, 2022).
---------------------------------------------------------------------------

I. Consumer Subgroup Analysis

    In analyzing the potential impact of new or amended energy 
conservation standards on consumers, DOE evaluates the impact on 
identifiable subgroups of consumers that may be disproportionately 
affected by a new or amended national standard. The purpose of a 
subgroup analysis is to determine the extent of any such 
disproportional impacts. DOE evaluates impacts on particular subgroups 
of consumers by analyzing the LCC impacts and PBP for those particular 
consumers from alternative standard levels. For this NOPR, DOE analyzed 
the impacts of the considered standard levels on two subgroups: (1) 
low-income households and (2) senior-only households. The analysis used 
subsets of the RECS 2015 sample composed of households that meet the 
criteria for the considered subgroups. DOE used the LCC and PBP 
spreadsheet model to estimate the impacts of the considered efficiency 
levels on these subgroups. Chapter 11 in the NOPR TSD describes the 
consumer subgroup analysis.
1. Low-Income Households
    Low-income households are significantly more likely to be renters 
or live in subsidized housing units, compared to home owners. DOE notes 
that in these cases the landlord purchases the equipment and may pay 
the gas bill as well. RECS 2015 includes data on whether a household 
pays for the gas bill, allowing DOE to categorize households 
appropriately in the analysis.\237\ For this consumer subgroup

[[Page 40654]]

analysis, DOE considers the impact on the low-income household 
narrowly, excluding any costs or benefits that are accrued by either a 
landlord or subsidized housing agency. This allows DOE to determine 
whether low-income households are disproportionately affected by an 
amended energy conservation standard in a more representative manner. 
DOE takes into account a fraction of renters that face product 
switching (when landlords switch to products that have lower upfront 
costs but higher operating costs, which will be incurred by tenants). 
Table IV.1920 summarizes the low-income statistics and potential 
impacts compared to DOE's LCC analysis results.
---------------------------------------------------------------------------

    \237\ RECS 2015 includes a category for households that pay only 
some of the gas bill. For the low-income consumer subgroup analysis, 
DOE assumes that these households pay 50 percent of the gas bill, 
and, therefore, would receive 50 percent of operating cost benefits 
of an amended energy conservation standard.

 Table IV.19--Summarized Low-Income Statistics and Potential Net Benefits Compared to DOE's LCC Analysis Results
----------------------------------------------------------------------------------------------------------------
                                       Percentage of low-income
Type of household * (pay for gas?)             sample *
                **                 -------------------------------- Impact on energy bill   Impact of first cost
                                         NWGF            MHGF
----------------------------------------------------------------------------------------------------------------
Renters (Pay for Gas Bill)........            52.2            46.9  Full/Partial savings.  None. ***
Renters (Do Not Pay for Gas Bill).             9.9             0.0  None.................  None. ***
Owners (Pay for Gas Bill).........            37.4            49.6  Full/Partial savings.  Full.
Owners (Do Not Pay for Gas Bill)..             0.5             3.5  None.................  Full.
----------------------------------------------------------------------------------------------------------------
* RECS 2015 lists three categories: (1) Owned or being bought by someone in your household (here classified as
  ``Owners'' in this table); (2) Rented (here classified as ``Renters'' in this table); (3) Occupied without
  payment of rent (also classified as ``Renters'' in this table). Therefore, renters include occupants in
  subsidized housing including public housing, subsidized housing in private properties, and other households
  that do not pay rent RECS 2015 does not distinguish homes in subsidized or public housing.
** RECS 2015 lists four categories: (1) Household is responsible for paying for all used in this home; (2) All
  used in this home is included in the rent or condo fee; (3) Some is paid by the household, some is included in
  the rent or condo fee; and (4) Paid for some other way. ``Pay for Gas Bill'' includes only category (1), all
  other categories are included in ``Don't Pay for Gas Bill''.
*** For occupants in public housing and other households that do not pay rent the impact of first cost would be
  none.

    The majority of low-income households that experience a net cost at 
TSL 8 are homeowner households, as opposed to renters. These households 
either have a smaller capacity NWGF or MHGF, or a lower building 
heating load due to the local climate, such that the reduction in 
operating costs does not offset the higher total installed cost of a 
higher-efficiency furnace. Unlike renters, homeowners would bear the 
full cost of installing a new furnace. For these households, a 
potential rebate program to reduce the total installed costs would be 
effective in lowering the percentage of low-income consumers with a net 
cost. DOE understands that the landscape of low-income consumers with a 
furnace may change before the compliance date of amended energy 
conservation standards, if finalized. For example, point-of-sale rebate 
programs are being considered that may moderate the impact on low-
income consumers to help offset the total installed cost of a 
condensing furnace, particularly given the lower total installed cost 
of smaller capacity NWGFs and MHGFs, or offset the costs of switching 
to an electric heating systems. Currently, DOE is noticing State or 
utility program rebates in the Northeast, for example, that support 
additional heat pump deployment as a result of decarbonization policy 
goals. Point-of-sale rebates or weatherization programs could also 
reduce the total number of low-income consumers that would be impacted 
because the household no longer has a furnace to upgrade. DOE is 
particularly interested in seeking comment around the landscape of 
heating replacements leading up to 2029, which may impact the low-
income consumer economics being presented and considered in this 
proposed rulemaking.
    Measures of energy insecurity provide another accounting of the 
number of households that are affected by cost changes due to rules for 
heating equipment energy efficiency in addition to the senior-only and 
low-income categories used by DOE in this analysis. Energy insecurity 
in the 2020 RECS quantifies the households reporting one or more of the 
metrics for energy insecurity, including that they that are foregoing 
basic necessities to pay for energy, and that they leave their home at 
an unhealthy temperature due to energy cost. The energy insecurity data 
are disaggregated by heating equipment type, income category, race, 
ethnicity, presence of children, presence of seniors, regional 
distribution, and ownership/rental status. DOE has determined that the 
energy insecure designation captures more households than the low-
income and seniors-only categories used for distributional analysis. 
Similar PBP and net savings/net cost analysis applied to energy 
insecure households could result in larger impacts than for the 
categories DOE chose to analyze and may be more directly interpreted in 
terms of welfare changes that can be disaggregated by the factors 
already listed. DOE seeks comment on conducting distributional analysis 
for energy insecure households in addition to, or instead of, the low-
income and seniors-only categories currently analyzed and described in 
the NOPR.

J. Manufacturer Impact Analysis

1. Overview
    DOE performed an MIA to determine the financial impact of proposed 
new and amended energy conservation standards on manufacturers of NWGFs 
and MHGFs and to estimate the potential impacts of such standards on 
domestic direct employment, manufacturing capacity, and cumulative 
regulatory burden for those manufacturers. The MIA has both 
quantitative and qualitative aspects. The quantitative part of the MIA 
includes analyses of forecasted industry cash flows to calculate the 
INPV, additional investments in research and development (``R&D'') and 
manufacturing capital necessary to comply with amended standards, and 
the potential impact on domestic manufacturing employment. 
Additionally, the MIA seeks to qualitatively determine how amended 
energy conservation standards might affect manufacturers' capacity and 
competition, as well as how standards contribute to manufacturers' 
overall regulatory burden. Finally, the MIA serves to identify any 
disproportionate

[[Page 40655]]

impacts on manufacturer subgroups, including small business 
manufacturers.
    The quantitative part of the MIA primarily relies on the GRIM,\238\ 
an industry cash flow model with inputs specific to this rulemaking. 
The key GRIM inputs include data on the industry cost structure, unit 
production costs, product shipments, manufacturer markups, and 
investments in R&D and manufacturing capital required to produce 
compliant products. The key GRIM outputs are INPV, which is the sum of 
industry annual cash flows throughout the analysis period discounted 
using the industry-weighted average cost of capital, and the impact on 
domestic manufacturing employment. The model uses standard accounting 
principles to estimate the impacts of amended energy conservation 
standards on the NWGF and MHGF manufacturing industry by comparing 
changes in INPV and domestic production employment between the no-new-
standards case and each of the standard levels (i.e., TSLs). To capture 
the uncertainty relating to manufacturer pricing strategy following 
amended standards, the GRIM estimates a range of possible impacts under 
different manufacturer markup scenarios.
---------------------------------------------------------------------------

    \238\ A copy of the GRIM spreadsheet tool is available on the 
DOE website for this rulemaking: www1.eere.energy.gov/buildings/appliance_standards/standards.aspx?productid=59&action=viewlive.
---------------------------------------------------------------------------

    The qualitative part of the MIA addresses manufacturer 
characteristics and market trends. Specifically, the MIA considers such 
factors as manufacturing capacity, competition within the industry, the 
cumulative regulatory burden of other Federal product-specific 
regulations, and impacts on manufacturer subgroups. The complete MIA is 
outlined in chapter 12 of the NOPR TSD.
    DOE conducted the MIA for this rulemaking in three phases. In the 
first phase of the MIA, DOE prepared a profile of the NWGF and MHGF 
manufacturing industry based on the market and technology assessment 
and publicly available information. This included a top-down cost 
analysis of NWGF and MHGF manufacturers in order to derive preliminary 
financial inputs for the GRIM (e.g., selling, general, and 
administration (``SG&A'') expenses; R&D expenses; and tax rates). DOE 
used public sources of information, including company SEC 10-K 
filings,\239\ corporate annual reports, the U.S. Census Bureau's Annual 
Survey of Manufactures (``ASM''),\240\ and prior NWGF and MHGF 
rulemakings, as well as subscription-based market research tools, to 
conduct this analysis.
---------------------------------------------------------------------------

    \239\ U.S. Securities and Exchange Commission's Electronic Data 
Gathering, Analysis, and Retrieval system (``EDGAR'') database 
(Available at: www.sec.gov/edgar/search/) (Last accessed Feb. 4, 
2022).
    \240\ U.S. Census Bureau's Annual Survey of Manufactures: 2018-
2019 (Available at www.census.gov/programs-surveys/asm/data/tables.html) (Last accessed Oct. 19, 2021).
---------------------------------------------------------------------------

    In the second phase of the MIA, DOE prepared a framework industry 
cash-flow analysis to quantify the potential impacts of new energy 
conservation standards. The GRIM uses several factors to determine a 
series of annual cash flows starting with the announcement of the 
standards and extending over a 30-year period following the compliance 
date of the standards. These factors include annual expected revenues, 
costs of sales, SG&A and R&D expenses, taxes, and capital expenditures. 
In general, energy conservation standards can affect manufacturer cash 
flow in three distinct ways: (1) create a need for increased 
investment; (2) raise production costs per unit; and (3) alter revenue 
due to higher per-unit prices and changes in sales volumes.
    In addition, during the second phase, DOE developed interview 
guides to distribute to NWGF and MHGF manufacturers in order to develop 
other key GRIM inputs, including product and capital conversion costs, 
and to gather additional information on the potential impacts of 
amended energy conservation standards on revenue, direct employment, 
capital assets, industry competitiveness, and manufacturer subgroup 
impacts.
    In the third phase of the MIA, DOE's contractor conducted 
structured, detailed interviews with NWGF and MHGF manufacturers. These 
interviews covered engineering, manufacturing, procurement, and 
financial topics to validate assumptions used in the GRIM. The 
interviews also solicited information about manufacturers' views of the 
industry as a whole and their key concerns regarding this rulemaking. 
DOE's contractor conducted manufacturer interviews for the withdrawn 
March 2015 NOPR. DOE's contractor conducted additional abridged 
interviews in October 2021 for the purposes of updating analyses.
    Additionally, in the third phase, DOE evaluated subgroups of 
manufacturers that may be disproportionately impacted by amended 
standards or that may not be accurately represented by the average cost 
assumptions used to develop the industry cash-flow analysis. For 
example, small manufacturers, niche players, or manufacturers 
exhibiting a cost structure that largely differs from the industry 
average could be more negatively affected by amended energy 
conservation standards. The small business subgroup is discussed in 
section VI.B of this document, ``Review under the Regulatory 
Flexibility Act'' and in chapter 12 of the NOPR TSD.
2. Government Regulatory Impact Model and Key Inputs
    DOE uses the GRIM to quantify the changes in cash flows over time 
due to amended energy conservation standards. These changes in cash 
flows result in either a higher or lower INPV for the standards cases 
compared to the no-new-standards case. The GRIM analysis uses a 
standard annual cash flow analysis that incorporates manufacturer 
costs, manufacturer markups, shipments, and industry financial 
information as inputs. It then models changes in costs, investments, 
and manufacturer margins that result from new energy conservation 
standards. The GRIM calculates a series of annual cash flows beginning 
with the reference year of the analysis, 2022, and continuing to the 
terminal year of the analysis, 2058. DOE calculates INPV by summing the 
stream of annual discounted cash flows throughout the analysis period.
    DOE used a real discount rate of 6.4 percent for NWGF and MHGF 
manufacturers. The discount rate estimate was derived from industry 
corporate annual reports to the Securities and Exchange Commission 
(``SEC 10-Ks'') and then modified according to feedback received during 
manufacturer interviews. More information on the derivation of the 
manufacturers' discount rate can be found in chapter 12 of the NOPR 
TSD.
    Many GRIM inputs came from the engineering analysis, the NIA, 
manufacturer interviews, and other research conducted during the MIA. 
The major GRIM inputs are described in detail in the following 
sections.
    For consideration of standby mode and off mode regulations, DOE 
modeled the impacts of the technology options for reducing electricity 
usage discussed in the engineering analysis (chapter 5 of the NOPR 
TSD). The GRIM analysis incorporates the increases in MPCs and changes 
in manufacturer markups into the results from the standby mode and off 
mode requirements. Due to the small cost of standby mode and off mode 
components relative to the overall cost of a NWGF or MHGF, DOE assumed 
that standby mode and off mode standards alone would not significantly 
impact product shipment numbers. DOE determined that the impacts of the

[[Page 40656]]

standby mode and off mode standard are substantially smaller than the 
impacts of the AFUE standard.
    The GRIM results for both the AFUE standards and the standby mode 
and off mode standards are discussed in section V.B.2 of this document. 
Additional details about the GRIM, discount rate, and other financial 
parameters can be found in chapter 12 of the NOPR TSD.
a. Manufacturer Production Costs
    Manufacturing a higher-efficiency product is typically more 
expensive than manufacturing a baseline product due to the use of more 
complex components, which are typically more expensive than baseline 
components. The higher MPCs of more efficient products can affect 
revenue and gross margin, which will then affect the total volume of 
future shipments, and cash flows of NWGF and MHGF manufacturers. To 
calculate the MPCs for NWGFs and MHGFs at and above the baseline, DOE 
performed teardowns for representative units. The data generated from 
these analyses were then used to estimate the incremental materials, 
labor, depreciation, and overhead costs for products at each efficiency 
level. For a complete description of the MPCs, see chapter 5 of the 
NOPR TSD.
b. Shipments Projections
    DOE used the GRIM to estimate industry revenues based on total unit 
shipment forecasts and the distribution of these values by efficiency 
level and product class. Changes in sales volumes and efficiency 
distribution can significantly affect manufacturer finances over the 
course of the analysis period. For this analysis, DOE used the NIA's 
annual shipment forecasts from 2022 (the reference year) to 2058 (the 
terminal year of the analysis period). In the shipments analysis, DOE 
estimates the distribution of efficiencies in the no-new-standards case 
and standards cases for all product classes. To account for a regional 
standard at TSL 4, shipment values in the GRIM are broken down by 
region, North and Rest of Country, for the NWGF and MHGF product 
classes.
    The NIA assumes that product efficiencies in the no-new-standards 
case that do not meet the energy conservation standard in the standards 
case either ``roll up'' to meet the amended standard or switch to 
another product, such as a heat pump or electric furnace. In other 
words, the market share of products that are below the energy 
conservation standard is added to the market share of products at the 
minimum energy efficiency level allowed under each standard case. The 
market share of products above the energy conservation standard is 
assumed to be unaffected by the standard in the compliance year. For a 
complete description of the shipments analysis see section IV.G of this 
document and chapter 9 of the NOPR TSD.
c. Capital and Product Conversion Costs
    Amended energy conservation standards could cause manufacturers to 
incur one-time conversion costs to bring their production facilities 
and product designs into compliance. DOE evaluated the level of 
conversion-related expenditures that would be required to comply with 
each analyzed efficiency level in each product class. For the MIA, DOE 
classified these conversion costs into two major groups: (1) capital 
conversion costs; and (2) product conversion costs. Capital conversion 
costs are one-time investments in property, plant, and equipment 
necessary to adapt or change existing production facilities such that 
new compliant product designs can be fabricated and assembled. Product 
conversion costs are one-time investments in research, development, 
testing, marketing, and other non-capitalized costs necessary to make 
product designs comply with amended energy conservation standards.
    To evaluate the level of capital conversion expenditures 
manufacturers could incur to comply with amended AFUE energy 
conservation standards, DOE used manufacturer interviews to gather data 
on the anticipated level of capital investment that would be required 
at each efficiency level. Manufacturer data was aggregated to better 
reflect the industry as a whole and to protect confidential 
information. DOE then scaled up the capital conversion cost feedback 
from interviews to estimate total industry capital conversion costs.
    DOE assessed the product conversion costs at each considered AFUE 
efficiency level by integrating data from quantitative and qualitative 
sources. DOE considered market-share weighted feedback regarding the 
potential costs at each efficiency level from multiple manufacturers to 
estimate product conversion costs. Manufacturer data was aggregated to 
better reflect the industry as a whole and to protect confidential 
information.
    Industry conversion costs for the proposed AFUE standard total 
$149.0 million. It consists of $107.8 million in capital conversion 
costs and $41.2 in product conversion costs.
    DOE calculated the conversion costs for the standby mode and off 
mode standards separately from the AFUE conversion costs. DOE 
anticipated that manufacturers would incur minimal capital conversion 
costs to comply with standby and off mode standards, as the engineering 
analysis indicates that all the design options that improve standby and 
off mode performance are component swaps which would not require new 
investments in production lines. However, the standby and off mode 
standards may require product conversion costs related to testing new 
components and component configurations as well as one-time updates to 
marketing materials. DOE estimated these product conversion costs based 
on the engineering analysis and feedback collected during manufacturer 
interviews. In general, DOE assumed that all conversion-related 
investments occur between the year of publication of a final rule and 
the compliance year. The conversion cost figures used in the GRIM for 
the proposed standby and off mode standard total $1.6 million. For 
additional information on the estimated capital and product conversion 
costs, see chapter 12 of the NOPR TSD.
d. Manufacturer Mark-Up Scenarios
    As discussed in section IV.C.2.e of this document, MSPs include 
manufacturer production costs and all non-production costs (i.e., SG&A, 
R&D, and interest), along with profit. To calculate the MSPs in the 
GRIM, DOE applied manufacturer markups to the MPCs estimated in the 
engineering analysis for each product class and efficiency level. For 
the MIA, DOE modeled three standards-case scenarios to represent the 
uncertainty regarding the potential impacts on prices and profitability 
for manufacturers following the implementation of amended energy 
conservation standards: (1) a preservation of gross margin percentage 
scenario; (2) a preservation of per-unit operating profit scenario; and 
(3) a tiered scenario. These scenarios lead to different markup values 
that, when applied to the MPCs, result in varying revenue and cash-flow 
impacts. The industry cash flow analysis results in section V.B.2 of 
this document present the impacts of the upper and lower bound markup 
scenarios on INPV. For the proposed AFUE standards, the preservation of 
gross margin percentage scenario represents the upper bound scenario, 
and the tiered scenario represents the lower bound scenario for INPV 
impacts. For the proposed standby and off mode standards, preservation 
of gross margin percentage scenario represents the upper bound 
scenario, and the per-unit preservation of

[[Page 40657]]

operating profit scenario represents the lower bound scenario for INPV 
impacts.
    Under the preservation of gross margin percentage scenario, DOE 
applied a single uniform ``gross margin percentage'' across all 
efficiency levels, which assumes that following amended standards, 
manufacturers would be able to maintain the same amount of profit as a 
percentage of revenue at all efficiency levels within a product class. 
As production costs increase with efficiency, this scenario implies 
that the per-unit dollar profit will increase. Based on publicly-
available financial information for NWGF and MHGF manufacturers, as 
well as comments from manufacturer interviews, DOE assumed average 
gross margin percentages of 25.3% for NWGFs and 21.3% for MHGF.\241\ 
Manufacturers noted that this scenario represents the upper bound of 
the NWGF and MHGF industry's profitability in the standards case 
because manufacturers can fully pass on additional costs due to 
standards to consumers.
---------------------------------------------------------------------------

    \241\ The gross margin percentages correspond to manufacturer 
markups of 1.34 for NWGFs and 1.27 for MHGFs.
---------------------------------------------------------------------------

    In the preservation of operating profit scenario, as the cost of 
production increases in the standards case, manufacturers reduce their 
manufacturer markups to a level that maintains per-unit operating 
profit in the year after the standard goes into effect. In this 
scenario, the industry maintains its operating profit in absolute 
dollars but not on a percentage basis. Manufacturer markups are set so 
that operating profit in the standards case is the same as in the no-
new-standards case one year after the compliance date of the amended 
energy conservation standards. As a result, manufacturers are not able 
to earn additional operating profit from the increased production costs 
and the investments that are required to comply with amended standards. 
In percentage terms, the operating margin is reduced between the no-
new-standards case and the standards cases. This scenario is the lower 
bound of the proposed standby mode and off mode standards.
    DOE also modeled a tiered scenario, which reflects the industry's 
``good, better, best'' pricing structure. DOE implemented the tiered 
markup scenario because several manufacturers stated in interviews that 
they offer multiple tiers of product lines that are differentiated, in 
part, by efficiency level. Manufacturers further noted that tiered 
pricing encompasses additional differentiators such as comfort 
features, brand, and warranty. To account for this nuance in the GRIM, 
DOE's tiered mark-up structure incorporates both AFUE and combustion 
systems (e.g., single-stage, two-stage, and modulating combustion 
systems) into its ``good, better, best'' markup analysis.
    Multiple manufacturers suggested that amended standards could lead 
to a compression of overall mark-ups and reduce the profitability of 
higher-efficiency products. During interviews, manufacturers provided 
information on the range of typical manufacturer mark-ups in the 
``good, better, best'' tiers. DOE used this information to estimate 
manufacturer mark-ups for NWGFs and MHGFs under a tiered pricing 
strategy in the no-new-standards case. In the standards cases, DOE 
modeled the situation in which amended standards result in a reduction 
of product differentiation, compression of the mark-up tiers, and an 
overall reduction in profitability.
3. Manufacturer Interviews
    DOE contractors interviewed manufacturers representing 
approximately 65 percent of industry shipments. The information 
gathered during interviews enabled DOE to tailor the GRIM to reflect 
the unique characteristics of the gas-fired consumer furnace industry.
    In interviews, DOE asked manufacturers to describe their major 
concerns regarding this rulemaking. The following section highlights 
manufacturer concerns that helped inform the projected potential 
impacts of an amended standard on the industry. Manufacturer interviews 
are conducted under non-disclosure agreements (``NDAs''), so DOE does 
not document these discussions in the same way that it does public 
comments.
a. Product Switching
    Several manufacturers stated that, depending on the level of the 
amended energy conservation standard, gas-fired consumer furnaces may 
not be economically justified for certain consumers. These consumers 
may be forced to seek alternatives with lower up-front costs. 
Manufacturers expressed concern that consumers may opt to buy 
alternative products, such as heat pumps, water heater systems, or 
electric space heaters. Such substitutions could decrease shipments of 
gas-fired furnaces, which in turn would reduce industry revenue.
b. High Installation Costs for Some Consumers
    Multiple manufacturers noted that an energy conservation standard 
set above 80-percent AFUE would make it difficult for substantial 
portions of the install base to replace their existing consumer 
furnaces. They noted the potential for significant installation and 
home renovation costs when replacing non-condensing furnaces with 
condensing furnaces due to the challenges of managing condensate from 
furnaces with efficiencies above 80 percent AFUE.
c. Negative Impacts on Industry Profitability
    During interviews, manufacturers agreed that if DOE set amended 
energy conservation standards too high, increased standards could limit 
their ability to differentiate consumer furnace products based on 
efficiency. As the standard approaches max-tech, manufacturers stated 
that there would be fewer performance differences and operating cost 
savings between baseline and premium products. They were concerned the 
drop in differentiation would lead to an erosion of manufacturer mark-
ups (and profitability).

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 other gases 
due to ``upstream'' activities in the fuel production chain. These 
upstream activities comprise extraction, processing, and transporting 
fuels to the site of combustion.
    The analysis of electric power sector emissions of CO2, 
NOX, SO2, and Hg uses emissions factors intended 
to represent the marginal impacts of the change in electricity 
consumption associated with amended or new standards. The methodology 
is based on results published for the AEO, including a set of side 
cases that implement a variety of efficiency-related policies. The 
methodology is described in appendix 13A in the NOPR TSD. The analysis 
presented in this notice uses projections from AEO2021.
    Power sector emissions of CH4 and N2O from 
fuel combustion are estimated using Emission Factors for Greenhouse Gas 
Inventories published by the

[[Page 40658]]

Environmental Protection Agency (``EPA'').\242\
---------------------------------------------------------------------------

    \242\ Available at: www.epa.gov/sites/production/files/2021-04/documents/emission-factors_apr2021.pdf (Last accessed Feb. 15, 
2022).
---------------------------------------------------------------------------

    The on-site operation of certain consumer furnaces requires 
combustion of fossil fuels and results in emissions of CO2, 
NOX, SO2, CH4, and N2O 
where these products are used. Site emissions of these gases were 
estimated using Emission Factors for Greenhouse Gas Inventories and, 
for NOX and SO2, emissions intensity factors from 
an EPA publication.\243\
---------------------------------------------------------------------------

    \243\ U.S. Environmental Protection Agency, External Combustion 
Sources, In Compilation of Air Pollutant Emission Factors. AP-42. 
Fifth Edition. Volume I: Stationary Point and Area Sources. Chapter 
1 (Available at www.epa.gov/air-emissions-factors-and-quantification/ap-42-compilation-air-emissions-factors) (Last 
accessed Feb. 15, 2022).
---------------------------------------------------------------------------

    FFC upstream emissions, which include emissions from fuel 
combustion during extraction, processing, and transportation of fuels, 
and ``fugitive'' emissions (direct leakage to the atmosphere) of 
CH4 and CO2, are estimated based on the 
methodology described in chapter 15 of the NOPR TSD.
    The emissions intensity factors are expressed in terms of physical 
units per megawatt-hour (``MWh'') or million British thermal units 
(``MMBtu'') of site energy savings. For power sector emissions, 
specific emissions intensity factors are calculated by sector and end 
use. Total emissions reductions are estimated using the energy savings 
calculated in the national impact analysis.
1. Air Quality Regulations Incorporated in DOE's Analysis
    DOE's no-new-standards case for the electric power sector reflects 
the AEO2021, which incorporates the projected impacts of existing air 
quality regulations on emissions. AEO2021 generally represents current 
legislation and environmental regulations, including recent government 
actions, that were in place at the time of preparation of AEO2021, 
including the emissions control programs discussed in the following 
paragraphs.\244\
---------------------------------------------------------------------------

    \244\ For further information, see the Assumptions to AEO2021 
report that sets forth the major assumptions used to generate the 
projections in the Annual Energy Outlook. (Available at: 
www.eia.gov/outlooks/aeo/assumptions/) (Last accessed Feb. 15, 
2022).
---------------------------------------------------------------------------

    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 numerous States in the eastern half of 
the United States are also limited under the Cross-State Air Pollution 
Rule (``CSAPR''). 76 FR 48208 (Aug. 8, 2011). CSAPR requires these 
States to reduce certain emissions, including annual SO2 
emissions, and went into effect as of January 1, 2015.\245\ AEO2021 
incorporates implementation of CSAPR, including the update to the CSAPR 
ozone season program emission budgets and target dates issued in 2016, 
81 FR 74504 (Oct. 26, 2016).\246\ Compliance with CSAPR is flexible 
among EGUs and is enforced through the use of tradable emissions 
allowances. Under existing EPA regulations, for States subject to 
SO2 emissions limits under CSAPR, excess SO2 
emissions allowances resulting from the lower electricity demand caused 
by the adoption of an efficiency standard could be used to permit 
offsetting increases in SO2 emissions by another regulated 
EGU.
---------------------------------------------------------------------------

    \245\ CSAPR requires states to address annual emissions of 
SO2 and NOX, precursors to the formation of 
fine particulate matter (``PM2.5'') pollution, in order 
to address the interstate transport of pollution with respect to the 
1997 and 2006 PM2.5 National Ambient Air Quality 
Standards (``NAAQS''). CSAPR also requires certain states to address 
the ozone season (May-September) emissions of NOX, a 
precursor to the formation of ozone pollution, in order to address 
the interstate transport of ozone pollution with respect to the 1997 
ozone NAAQS. 76 FR 48208 (August 8, 2011). EPA subsequently issued a 
supplemental rule that included an additional five states in the 
CSAPR ozone season program; 76 FR 80760 (Dec. 27, 2011) 
(Supplemental Rule), and EPA issued the CSAPR Update for the 2008 
ozone NAAQS. 81 FR 74504 (Oct. 26, 2016).
    \246\ In Sept. 2019, the DC Court of Appeals remanded the 2016 
CSAPR Update to EPA. In April 2021, EPA finalized the 2021 CSAPR 
Update which resolved the interstate transport obligations of 21 
states for the 2008 ozone NAAQS. 86 FR 23054 (April 30, 2021); see 
also, 86 FR 29948 (June 4, 2021) (correction to preamble). The 2021 
CSAPR Update became effective on June 29, 2021. The release of AEO 
2021 in February 2021 predated the 2021 CSAPR Update. On April 6, 
2022, EPA issued a Proposed Rule that seeks to resolve the 
interstate transport obligations of 26 states under the Clean Air 
Act's ``good neighbor provision'' for the 2015 ozone NAAQS, by 
issuing federal implementation plan (``FIP'') requirements for these 
states. 87 FR 20036, 20038. EPA proposes to establish NOx emission 
budgets that will require fossil fuel-fired power plants in 25 
states to participate in an ``allowance-based ozone season trading 
program beginning in 2023'' and NOX emissions limits 
``for certain other industrial stationary sources in 23 states with 
an earliest possible compliance date of 2026.'' Id. at 87 FR 20036.
---------------------------------------------------------------------------

    However, beginning in 2016, SO2 emissions began to fall 
as a result of the Mercury and Air Toxics Standards (``MATS'') for 
power plants. 77 FR 9304 (Feb. 16, 2012). In the MATS final 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 are 
being reduced as a result of the control technologies installed on 
coal-fired power plants to comply with the MATS requirements for acid 
gas. To continue operating, coal power plants must have either flue gas 
desulfurization or dry sorbent injection systems installed. Both 
technologies, which are used to reduce acid gas emissions, also reduce 
SO2 emissions. Because of the emissions reductions under the 
MATS, it is unlikely that excess SO2 emissions allowances 
resulting from the lower electricity demand would be needed or used to 
permit offsetting increases in SO2 emissions by another 
regulated EGU. Therefore, energy conservation standards that decrease 
electricity generation would generally reduce SO2 emissions. 
DOE estimated SO2 emissions reduction using emissions 
factors based on AEO2021.
    CSAPR also established limits on NOX emissions for 
numerous States in the eastern half of the United States. Energy 
conservation standards would have little effect on NOX 
emissions in those States covered by CSAPR emissions limits if excess 
NOX emissions allowances resulting from the lower 
electricity demand could be used to permit offsetting increases in 
NOX emissions from other EGUs. In such case, NOx emissions 
would remain near the limit even if electricity generation goes down. A 
different case could possibly result, depending on the configuration of 
the power sector in the different regions and the need for allowances, 
such that NOX emissions might not remain at the limit in the 
case of lower electricity demand. In this case, energy conservation 
standards might reduce NOx emissions in covered States. Despite this 
possibility, DOE has chosen to be conservative in its analysis and has 
maintained the assumption that standards will not reduce NOX 
emissions in States covered by CSAPR. Energy conservation standards 
would be expected to reduce NOX emissions in the States not 
covered by CSAPR.\247\
---------------------------------------------------------------------------

    \247\ See footnote 245.
---------------------------------------------------------------------------

    The MATS limit mercury emissions from power plants, but they do not 
include emissions caps and, as such, DOE's energy conservation 
standards would be expected to slightly reduce Hg emissions. DOE 
estimated mercury emissions reduction using emissions factors based on 
AEO2021, which incorporates the MATS.
    DOE welcomes any additional comments on the approach for

[[Page 40659]]

conducting the emissions analysis for furnaces.

L. Monetizing Emissions Impacts

    As part of the development of this proposed rule, for the purpose 
of complying with the requirements of Executive Order 12866, DOE 
considered the estimated monetary benefits from the reduced emissions 
of CO2, CH4, N2O, NOX, and 
SO2 that are expected to result from each of the TSLs 
considered. In order to make this calculation analogous to the 
calculation of the NPV of consumer benefit, DOE considered the reduced 
emissions expected to result over the lifetime of products shipped in 
the projection period for each TSL. This section summarizes the basis 
for the values used for monetizing the emissions benefits and presents 
the values considered in this NOPR.
    On March 16, 2022, the Fifth Circuit Court of Appeals (No. 22-
30087) granted the Federal government's emergency motion for stay 
pending appeal of the February 11, 2022, preliminary injunction issued 
in Louisiana v. Biden, No. 21-cv-1074-JDC-KK (W.D. La.). As a result of 
the Fifth Circuit's order, the preliminary injunction is no longer in 
effect, pending resolution of the Federal government's appeal of that 
injunction or a further court order. Among other things, the 
preliminary injunction enjoined the defendants in that case from 
``adopting, employing, treating as binding, or relying upon'' the 
interim estimates of the social cost of greenhouse gases--which were 
issued by the Interagency Working Group on the Social Cost of 
Greenhouse Gases on February 26, 2021--to monetize the benefits of 
reducing greenhouse gas emissions. In the absence of further 
intervening court orders, DOE will revert to its approach prior to the 
injunction and present monetized benefits where appropriate and 
permissible under law. DOE requests comment on how to address the 
climate benefits of the proposal.
1. Monetization of Greenhouse Gas Emissions
    DOE estimates the monetized benefits of the reductions in emissions 
of CO2, CH4, and N2O by using a 
measure of the SC of each pollutant (e.g., SC-CO2). These 
estimates represent the monetary value of the net harm to society 
associated with a marginal increase in emissions of these pollutants in 
a given year, or the benefit of avoiding that increase. These estimates 
are intended to include (but are not limited to) climate-change-related 
changes in net agricultural productivity, human health, property 
damages from increased flood risk, disruption of energy systems, risk 
of conflict, environmental migration, and the value of ecosystem 
services. DOE exercises its own judgment in presenting monetized 
climate benefits as recommended by applicable Executive Orders, and DOE 
would reach the same conclusion presented in this notice in the absence 
of the social cost of greenhouse gases, including the February 2021 
Interim Estimates presented by the Interagency Working Group on the 
Social Cost of Greenhouse Gases.
    DOE estimated the global social benefits of CO2, 
CH4, and N2O reductions (i.e., SC-GHGs) using the 
estimates presented in the Technical Support Document: Social Cost of 
Carbon, Methane, and Nitrous Oxide Interim Estimates under Executive 
Order 13990 published in February 2021 by the IWG.\248\ The SC-GHGs is 
the monetary value of the net harm to society associated with a 
marginal increase in emissions in a given year, or the benefit of 
avoiding that increase. In principle, SC-GHGs includes the value of all 
climate change impacts, including (but not limited to) changes in net 
agricultural productivity, human health effects, property damage from 
increased flood risk and natural disasters, disruption of energy 
systems, risk of conflict, environmental migration, and the value of 
ecosystem services. The SC-GHGs therefore, reflects the societal value 
of reducing emissions of the gas in question by one metric ton. The SC-
GHGs is the theoretically appropriate value to use in conducting 
benefit-cost analyses of policies that affect CO2, 
N2O and CH4 emissions. As a member of the IWG 
involved in the development of the February 2021 SC-GHG TSD), the DOE 
agrees that the interim SC-GHG estimates represent the most appropriate 
estimate of the SC-GHG until revised estimates have been developed 
reflecting the latest, peer-reviewed science.
---------------------------------------------------------------------------

    \248\ See Interagency Working Group on Social Cost of Greenhouse 
Gases, Technical Support Document: Social Cost of Carbon, Methane, 
and Nitrous Oxide. Interim Estimates Under Executive Order 13990, 
Washington, DC, February 2021 (Available at: www.whitehouse.gov/wp-content/uploads/2021/02/TechnicalSupportDocument_SocialCostofCarbonMethaneNitrousOxide.pdf) 
(Last accessed Jan. 18, 2022).
---------------------------------------------------------------------------

    The SC-GHGs estimates presented here were developed over many 
years, using transparent process, peer-reviewed methodologies, the best 
science available at the time of that process, and with input from the 
public. Specifically, in 2009, the IWG, that included the DOE and other 
executive branch agencies and offices was established to ensure that 
agencies were using the best available science and to promote 
consistency in the social cost of carbon (SC-CO2) values 
used across agencies. The IWG published SC-CO2 estimates in 
2010 that were developed from an ensemble of three widely cited 
integrated assessment models (IAMs) that estimate global climate 
damages using highly aggregated representations of climate processes 
and the global economy combined into a single modeling framework. The 
three IAMs were run using a common set of input assumptions in each 
model for future population, economic, and CO2 emissions 
growth, as well as equilibrium climate sensitivity--a measure of the 
globally averaged temperature response to increased atmospheric 
CO2 concentrations. These estimates were updated in 2013 
based on new versions of each IAM. In August 2016 the IWG published 
estimates of the social cost of methane (SC-CH4) and nitrous 
oxide (SC-N2O) using methodologies that are consistent with 
the methodology underlying the SC-CO2 estimates. The 
modeling approach that extends the IWG SC-CO2 methodology to 
non-CO2 GHGs has undergone multiple stages of peer review. 
The SC-CH4 and SC-N2O estimates were developed by 
Marten et al.\249\ and underwent a standard double-blind peer review 
process prior to journal publication. In 2015, as part of the response 
to public comments received to a 2013 solicitation for comments on the 
SC-CO2 estimates, the IWG announced a National Academies of 
Sciences, Engineering, and Medicine review of the SC-CO2 
estimates to offer advice on how to approach future updates to ensure 
that the estimates continue to reflect the best available science and 
methodologies. In January 2017, the National Academies released their 
final report, Valuing Climate Damages: Updating Estimation of the 
Social Cost of Carbon Dioxide, and recommended specific criteria for 
future updates to the SC-CO2 estimates, a modeling framework 
to satisfy the specified criteria, and both near-term updates and 
longer-term research needs pertaining to various components of the 
estimation process (National Academies, 2017).\250\ Shortly thereafter,

[[Page 40660]]

in March 2017, President Trump issued Executive Order 13783, which 
disbanded the IWG, withdrew the previous TSDs, and directed agencies to 
ensure SC-CO2 estimates used in regulatory analyses are 
consistent with the guidance contained in OMB's Circular A-4, 
``including with respect to the consideration of domestic versus 
international impacts and the consideration of appropriate discount 
rates'' (E.O. 13783, Section 5(c)). Benefit-cost analyses following 
E.O. 13783 used SC-GHG estimates that attempted to focus on the U.S.-
specific share of climate change damages as estimated by the models and 
were calculated using two discount rates recommended by Circular A-4, 3 
percent and 7 percent. All other methodological decisions and model 
versions used in SC-GHG calculations remained the same as those used by 
the IWG in 2010 and 2013, respectively.
---------------------------------------------------------------------------

    \249\ Marten, A.L., E.A. Kopits, C.W. Griffiths, S.C. Newbold, 
and A. Wolverton. Incremental CH4 and N2O mitigation benefits 
consistent with the US Government's SC-CO2 estimates. Climate 
Policy. 2015. 15(2): pp. 272-298.
    \250\ National Academies of Sciences, Engineering, and Medicine. 
Valuing Climate Damages: Updating Estimation of the Social Cost of 
Carbon Dioxide. 2017. The National Academies Press: Washington, DC.
---------------------------------------------------------------------------

    On January 20, 2021, President Biden issued Executive Order 13990, 
which re-established the IWG and directed it to ensure that the U.S. 
Government's estimates of the social cost of carbon and other 
greenhouse gases reflect the best available science and the 
recommendations of the National Academies (2017). The IWG was tasked 
with first reviewing the SC-GHG estimates currently used in Federal 
analyses and publishing interim estimates within 30 days of the E.O. 
that reflect the full impact of GHG emissions, including by taking 
global damages into account. The interim SC-GHG estimates published in 
February 2021 are used here to estimate the climate benefits for this 
proposed rulemaking. The E.O. instructs the IWG to undertake a fuller 
update of the SC-GHG estimates by January 2022 that takes into 
consideration the advice of the National Academies (2017) and other 
recent scientific literature.
    The February 2021 SC-GHG TSD provides a complete discussion of the 
IWG's initial review conducted under E.O. 13990. In particular, the IWG 
found that the SC-GHG estimates used under E.O. 13783 fail to reflect 
the full impact of GHG emissions in multiple ways. First, the IWG found 
that the SC-GHG estimates used under E.O. 13783 fail to fully capture 
many climate impacts that affect the welfare of U.S. citizens and 
residents, and those impacts are better reflected by global measures of 
the SC-GHG. Examples of effects omitted from the E.O. 13783 estimates 
include direct effects on U.S. citizens, assets, and investments 
located abroad, supply chains, U.S. military assets and interests 
abroad, and tourism, and spillover pathways such as economic and 
political destabilization and global migration that can lead to adverse 
impacts on U.S. national security, public health, and humanitarian 
concerns. In addition, assessing the benefits of U.S. GHG mitigation 
activities requires consideration of how those actions may affect 
mitigation activities by other countries, as those international 
mitigation actions will provide a benefit to U.S. citizens and 
residents by mitigating climate impacts that affect U.S. citizens and 
residents. A wide range of scientific and economic experts have 
emphasized the issue of reciprocity as support for considering global 
damages of GHG emissions. If the United States does not consider 
impacts on other countries, it is difficult to convince other countries 
to consider the impacts of their emissions on the United States. The 
only way to achieve an efficient allocation of resources for emissions 
reduction on a global basis--and so benefit the U.S. and its citizens--
is for all countries to base their policies on global estimates of 
damages. As a member of the IWG involved in the development of the 
February 2021 SC-GHG TSD, DOE agrees with this assessment and, 
therefore, in this proposed rule DOE centers attention on a global 
measure of SC-GHG. This approach is the same as that taken in DOE 
regulatory analyses from 2012 through 2016. A robust estimate of 
climate damages that accrue only to U.S. citizens and residents does 
not currently exist in the literature. As explained in the February 
2021 TSD, existing estimates are both incomplete and an underestimate 
of total damages that accrue to the citizens and residents of the U.S. 
because they do not fully capture the regional interactions and 
spillovers discussed above, nor do they include all of the important 
physical, ecological, and economic impacts of climate change recognized 
in the climate change literature. As noted in the February 2021 SC-GHG 
TSD, the IWG will continue to review developments in the literature, 
including more robust methodologies for estimating a U.S.-specific SC-
GHG value, and explore ways to better inform the public of the full 
range of carbon impacts. As a member of the IWG, DOE will continue to 
follow developments in the literature pertaining to this issue.
    Second, the IWG found that the use of the social rate of return on 
capital (7 percent under current OMB Circular A-4 guidance) to discount 
the future benefits of reducing GHG emissions inappropriately 
underestimates the impacts of climate change for the purposes of 
estimating the SC-GHG. Consistent with the findings of the National 
Academies (2017) and the economic literature, the IWG continued to 
conclude that the consumption rate of interest is the theoretically 
appropriate discount rate in an intergenerational context (IWG 2010, 
2013, 2016a, 2016b),\251\ and recommended that discount rate 
uncertainty and relevant aspects of intergenerational ethical 
considerations be accounted for in selecting future discount rates.
---------------------------------------------------------------------------

    \251\ Interagency Working Group on Social Cost of Carbon. Social 
Cost of Carbon for Regulatory Impact Analysis under Executive Order 
12866. 2010. United States Government. (Available at: www.epa.gov/sites/default/files/2016-12/documents/scc_tsd_2010.pdf) (Last 
accessed April 15, 2022.); Interagency Working Group on Social Cost 
of Carbon. Technical Update of the Social Cost of Carbon for 
Regulatory Impact Analysis Under Executive Order 12866. 2013. 
(Available at: www.federalregister.gov/documents/2013/11/26/2013-28242/technical-support-document-technical-update-of-the-social-cost-of-carbon-for-regulatory-impact) (Last accessed April 15, 
2022.); Interagency Working Group on Social Cost of Greenhouse 
Gases, United States Government. Technical Support Document: 
Technical Update on the Social Cost of Carbon for Regulatory Impact 
Analysis-Under Executive Order 12866. August 2016. (Available at: 
www.epa.gov/sites/default/files/2016-12/documents/sc_co2_tsd_august_2016.pdf) (Last accessed January 18, 2022.); 
Interagency Working Group on Social Cost of Greenhouse Gases, United 
States Government. Addendum to Technical Support Document on Social 
Cost of Carbon for Regulatory Impact Analysis under Executive Order 
12866: Application of the Methodology to Estimate the Social Cost of 
Methane and the Social Cost of Nitrous Oxide. August 2016. 
(Available at: www.epa.gov/sites/default/files/2016-12/documents/addendum_to_sc-ghg_tsd_august_2016.pdf) (Last accessed January 18, 
2022).
---------------------------------------------------------------------------

    Furthermore, the damage estimates developed for use in the SC-GHG 
are estimated in consumption-equivalent terms, and so an application of 
OMB Circular A-4's guidance for regulatory analysis would then use the 
consumption discount rate to calculate the SC-GHG. DOE agrees with this 
assessment and will continue to follow developments in the literature 
pertaining to this issue. DOE also notes that while OMB Circular A-4, 
as published in 2003, recommends using 3 percent and 7 percent discount 
rates as ``default'' values, Circular A-4 also reminds agencies that 
``different regulations may call for different emphases in the 
analysis, depending on the nature and complexity of the regulatory 
issues and the sensitivity of the benefit and cost estimates to the key 
assumptions.'' On discounting, Circular A-4 recognizes that ``special 
ethical considerations arise when comparing benefits and costs across 
generations,'' and Circular A-4 acknowledges that analyses may 
appropriately ``discount

[[Page 40661]]

future costs and consumption benefits . . . at a lower rate than for 
intragenerational analysis.'' In the 2015 Response to Comments on the 
Social Cost of Carbon for Regulatory Impact Analysis, OMB, DOE, and the 
other IWG members recognized that ``Circular A-4 is a living document'' 
and ``the use of 7 percent is not considered appropriate for 
intergenerational discounting. There is wide support for this view in 
the academic literature, and it is recognized in Circular A-4 itself.'' 
Thus, DOE concludes that a 7 percent discount rate is not appropriate 
to apply to value the social cost of greenhouse gases in the analysis 
presented in this analysis. In this analysis, to calculate the present 
and annualized values of climate benefits, DOE uses the same discount 
rate as the rate used to discount the value of damages from future GHG 
emissions, for internal consistency. That approach to discounting 
follows the same approach that the February 2021 TSD recommends ``to 
ensure internal consistency--i.e., future damages from climate change 
using the SC-GHG at 2.5 percent should be discounted to the base year 
of the analysis using the same 2.5 percent rate.'' DOE has also 
consulted the National Academies' 2017 recommendations on how SC-GHG 
estimates can ``be combined in RIAs with other cost and benefits 
estimates that may use different discount rates.'' The National 
Academies reviewed ``several options,'' including ``presenting all 
discount rate combinations of other costs and benefits with [SC-GHG] 
estimates.''
    As a member of the IWG involved in the development of the February 
2021 SC-GHG TSD, DOE agrees with this assessment and will continue to 
follow developments in the literature pertaining to this issue.
    While the IWG works to assess how best to incorporate the latest, 
peer reviewed science to develop an updated set of SC-GHG estimates, it 
set the interim estimates to be the most recent estimates developed by 
the IWG prior to the group being disbanded in 2017. The estimates rely 
on the same models and harmonized inputs and are calculated using a 
range of discount rates. As explained in the February 2021 SC-GHG TSD, 
the IWG has recommended that agencies revert to the same set of four 
values drawn from the SC-GHG distributions based on three discount 
rates as were used in regulatory analyses between 2010 and 2016 and 
subject to public comment. For each discount rate, the IWG combined the 
distributions across models and socioeconomic emissions scenarios 
(applying equal weight to each) and then selected a set of four values 
recommended for use in benefit-cost analyses: an average value 
resulting from the model runs for each of three discount rates (2.5 
percent, 3 percent, and 5 percent), plus a fourth value, selected as 
the 95th percentile of estimates based on a 3 percent discount rate. 
The fourth value was included to provide information on potentially 
higher-than-expected economic impacts from climate change. As explained 
in the February 2021 SC-GHG TSD, and DOE agrees, this update reflects 
the immediate need to have an operational SC-GHG for use in regulatory 
benefit-cost analyses and other applications that was developed using a 
transparent process, peer-reviewed methodologies, and the science 
available at the time of that process. Those estimates were subject to 
public comment in the context of dozens of proposed rulemakings as well 
as in a dedicated public comment period in 2013.
    There are a number of limitations and uncertainties associated with 
the SC-GHG estimates. First, the current scientific and economic 
understanding of discounting approaches suggests discount rates 
appropriate for intergenerational analysis in the context of climate 
change are likely to be less than 3 percent, near 2 percent or 
lower.\252\ Second, the IAMs used to produce these interim estimates do 
not include all of the important physical, ecological, and economic 
impacts of climate change recognized in the climate change literature 
and the science underlying their ``damage functions''--i.e., the core 
parts of the IAMs that map global mean temperature changes and other 
physical impacts of climate change into economic (both market and 
nonmarket) damages--lags behind the most recent research. For example, 
limitations include the incomplete treatment of catastrophic and non-
catastrophic impacts in the integrated assessment models, their 
incomplete treatment of adaptation and technological change, the 
incomplete way in which inter-regional and intersectoral linkages are 
modeled, uncertainty in the extrapolation of damages to high 
temperatures, and inadequate representation of the relationship between 
the discount rate and uncertainty in economic growth over long time 
horizons. Likewise, the socioeconomic and emissions scenarios used as 
inputs to the models do not reflect new information from the last 
decade of scenario generation or the full range of projections. The 
modeling limitations do not all work in the same direction in terms of 
their influence on the SC-CO2 estimates. However, as 
discussed in the February 2021 TSD, the IWG has recommended that, taken 
together, the limitations suggest that the interim SC-GHG estimates 
used in this final rule likely underestimate the damages from GHG 
emissions. DOE concurs with this assessment.
---------------------------------------------------------------------------

    \252\ Interagency Working Group on Social Cost of Greenhouse 
Gases (IWG). 2021. Technical Support Document: Social Cost of 
Carbon, Methane, and Nitrous Oxide Interim Estimates under Executive 
Order 13990. February. United States Government. (Available at: 
www.whitehouse.gov/briefing-room/blog/2021/02/26/a-return-to-science-evidence-based-estimates-of-the-benefits-of-reducing-climate-pollution/) (Last accessed Jan. 18, 2022).
---------------------------------------------------------------------------

    DOE's derivations of the SC-GHG (i.e., SC-CO2, SC-
N2O, and SC-CH4) values used for this NOPR are 
discussed in the following sections, and the results of DOE's analyses 
estimating the benefits of the reductions in emissions of these 
pollutants are presented in section V.B.6.
a. Social Cost of Carbon
    The SC-CO2 values used for this NOPR were generated 
using the values presented in the 2021 update from the IWG's February 
2021 TSD. Table IV.20 shows the updated sets of SC-CO2 
estimates from the latest interagency update in 5-year increments from 
2020 to 2050. The full set of annual values used is presented in 
appendix 14A of the NOPR TSD. For purposes of capturing the 
uncertainties involved in regulatory impact analysis, DOE has 
determined it is appropriate to include all four sets of SC-
CO2 values, as recommended by the IWG.\253\
---------------------------------------------------------------------------

    \253\ For example, the February 2021 TSD discusses how the 
understanding of discounting approaches suggests that discount rates 
appropriate for intergenerational analysis in the context of climate 
change may be lower than 3 percent.

[[Page 40662]]



                    Table IV.20--Annual SC-CO2 Values From 2021 Interagency Update, 2020-2050
                                           [2020$ per metric ton CO2]
----------------------------------------------------------------------------------------------------------------
                                                                           Discount rate
                                                 ---------------------------------------------------------------
                                                        5%              3%             2.5%             3%
                      Year                       ---------------------------------------------------------------
                                                                                                       95th
                                                      Average         Average         Average       percentile
----------------------------------------------------------------------------------------------------------------
2020............................................              14              51              76             152
2025............................................              17              56              83             169
2030............................................              19              62              89             187
2035............................................              22              67              96             206
2040............................................              25              73             103             225
2045............................................              28              79             110             242
2050............................................              32              85             116             260
----------------------------------------------------------------------------------------------------------------

    In calculating the potential global benefits resulting from reduced 
CO2 emissions, DOE used the values from the 2021 interagency 
report, adjusted to 2020$ using the implicit price deflator for gross 
domestic product (GDP) from the Bureau of Economic Analysis. For each 
of the four sets of SC-CO2 cases specified, the values for 
emissions in 2020 were $14, $51, $76, and $152 per metric ton avoided 
(values expressed in 2020$). DOE derived values from 2051 to 2070 based 
on estimates published by EPA.\254\ These estimates are based on 
methods, assumptions, and parameters identical to the 2020-2050 
estimates published by the IWG. DOE expects additional climate benefits 
to accrue for any longer-life furnaces post 2070, but a lack of 
available SC-CO2 estimates for emissions years beyond 2070 
prevents DOE from monetizing these potential benefits in this analysis. 
If further analysis of monetized climate benefits beyond 2070 becomes 
available prior to the publication of the final rule, DOE will include 
that analysis in the final rule.
---------------------------------------------------------------------------

    \254\ See EPA, Revised 2023 and Later Model Year Light-Duty 
Vehicle GHG Emissions Standards: Regulatory Impact Analysis, 
Washington, DC, December 2021 (Available at: www.epa.gov/system/files/documents/2021-12/420r21028.pdf) (Last accessed Jan. 13, 
2022).
---------------------------------------------------------------------------

    DOE multiplied the CO2 emissions reduction estimated for 
each year by the SC-CO2 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 SC-
CO2 values in each case. See chapter 13 for the annual 
emissions reduction. See appendix 14A for the annual SC-CO2 
values.
b. Social Cost of Methane and Nitrous Oxide
    The SC-CH4 and SC-N2O values used for this 
NOPR were generated using the values presented in the 2021 update from 
the IWG.\255\ Table IV.21 shows the updated sets of SC-CH4 
and SC-N2O estimates from the latest interagency update in 
5-year increments from 2020 to 2050. The full set of annual values used 
is presented in appendix 14A of the NOPR TSD. To capture the 
uncertainties involved in regulatory impact analysis, DOE has 
determined it is appropriate to include all four sets of SC-
CH4 and SC-N2O values, as recommended by the IWG. 
DOE derived values after 2050 using the approach described above for 
the SC-CO2.
---------------------------------------------------------------------------

    \255\ See Interagency Working Group on Social Cost of Greenhouse 
Gases, Technical Support Document: Social Cost of Carbon, Methane, 
and Nitrous Oxide. Interim Estimates Under Executive Order 13990, 
Washington, DC (February 2021) (Available at: www.whitehouse.gov/wp-content/uploads/2021/02/TechnicalSupportDocument_SocialCostofCarbonMethaneNitrousOxide.pdf) 
(Last accessed Jan. 18, 2022).

              Table IV.21--Annual SC-CH4 and SC-N2O Values From 2021 Interagency Update, 2020-2050
                                             [2020$ per metric ton]
----------------------------------------------------------------------------------------------------------------
                                               SC-CH4                                    SC-N2O
                             -----------------------------------------------------------------------------------
                                     Discount rate and statistic               Discount Rate and Statistic
                             -----------------------------------------------------------------------------------
            Year                 5%        3%       2.5%        3%         5%        3%       2.5%        3%
                             -----------------------------------------------------------------------------------
                                                               95th                                      95th
                               Average   Average   Average  percentile   Average   Average   Average  percentile
----------------------------------------------------------------------------------------------------------------
2020........................       670      1500      2000        3900      5800     18000     27000       48000
2025........................       800      1700      2200        4500      6800     21000     30000       54000
2030........................       940      2000      2500        5200      7800     23000     33000       60000
2035........................      1100      2200      2800        6000      9000     25000     36000       67000
2040........................      1300      2500      3100        6700     10000     28000     39000       74000
2045........................      1500      2800      3500        7500     12000     30000     42000       81000
2050........................      1700      3100      3800        8200     13000     33000     45000       88000
----------------------------------------------------------------------------------------------------------------

    DOE multiplied the CH4 and N2O emissions 
reduction estimated for each year by the SC-CH4 and SC-
N2O estimates for that year in each of the cases. To 
calculate a present value of the stream of monetary values, DOE 
discounted the values in each of the cases using the specific discount 
rate that had been used to obtain the SC-CH4 and SC-
N2O estimates in each case. See chapter 13 for the annual 
emissions reduction. See appendix 14A for the annual SC-CH4 
and SC-N2O values.

[[Page 40663]]

2. Monetization of Other Air Pollutants
    DOE estimated the monetized value of NOX and 
SO2 emissions reductions from electricity generation using 
the latest benefit-per-ton estimates for that sector from the EPA's 
Benefits Mapping and Analysis Program.\256\ DOE used EPA's values for 
PM2.5-related benefits associated with NOX and 
SO2 and for ozone-related benefits associated with 
NOX for 2025, 2030, 2035 and 2040, calculated with discount 
rates of 3 percent and 7 percent. DOE used linear interpolation to 
define values for the years not given in the 2025 to 2040 period; for 
years beyond 2040 the values are held constant. DOE derived values 
specific to the sector for consumer furnaces using a method described 
in appendix 14B of the NOPR TSD.
---------------------------------------------------------------------------

    \256\ Estimating the Benefit per Ton of Reducing 
PM2.5 Precursors from 21 Sectors. (Available at: 
www.epa.gov/benmap/estimating-benefit-ton-reducing-pm25-precursors-21-sectors) (Last accessed March 25, 2022).
---------------------------------------------------------------------------

    DOE also estimated the monetized value of NOX and 
SO2 emissions reductions from site use of natural gas in 
NWGFs and MHGFs using benefit-per-ton estimates from the EPA's Benefits 
Mapping and Analysis Program. Although none of the sectors covered by 
EPA refers specifically to residential and commercial buildings, the 
sector called ``area sources'' would be a reasonable proxy for 
residential and commercial buildings.\257\ The EPA document provides 
high and low estimates for 2025 and 2030 at 3- and 7-percent discount 
rates.\258\ DOE used the same linear interpolation and extrapolation as 
it did with the values for electricity generation.
---------------------------------------------------------------------------

    \257\ ``Area sources'' represents all emission sources for which 
states do not have exact (point) locations in their emissions 
inventories. Because exact locations would tend to be associated 
with larger sources, ``area sources'' would be fairly representative 
of small dispersed sources like homes and businesses.
    \258\ ``Area sources'' are a category in the 2018 document from 
EPA, but are not used in the 2021 document cited previously. See: 
www.epa.gov/sites/default/files/2018-02/documents/sourceapportionmentbpttsd_2018.pdf. (Last accessed March 25, 2022).
---------------------------------------------------------------------------

    DOE multiplied the site emissions reduction (in tons) in each year 
by the associated $/ton values, and then discounted each series using 
discount rates of 3 percent and 7 percent as appropriate.

M. Utility Impact Analysis

    The utility impact analysis estimates 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 AEO2021. 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. For 
the current analysis, impacts are quantified by comparing the levels of 
electricity sector generation, installed capacity, fuel consumption and 
emissions in the AEO2021 Reference case and various side cases. Details 
of the methodology are provided in the appendices to chapters 13 and 15 
of the NOPR TSD.
    The output of this analysis is a set of time-dependent coefficients 
that capture the change in electricity generation, primary fuel 
consumption, installed capacity and power sector emissions due to a 
unit reduction in demand for a given end use. These coefficients are 
multiplied by the stream of electricity savings calculated in the NIA 
to provide estimates of selected utility impacts of potential new or 
amended energy conservation standards.
    Energy efficiency can reduce utility fixed and variable costs 
(e.g., growth-related gas distribution infrastructure costs, fuel 
costs), the degree to which is highly variable and based on the 
particular utility's cost, operating, and regulatory characteristics. 
Energy efficiency can also reduce utility collected revenues through 
lower volumetric sales, the degree to which is dependent on rate design 
and proportion of customer bill that is volumetric. Utility financial 
impacts of energy efficiency, therefore, depend critically on the 
under-recovery of fixed costs when the decline in utility revenues is 
greater than the reduction in utility costs. To remedy the potential 
financial impacts of energy efficiency, regulators have approved 
regulatory and ratemaking mechanisms intended to make the utility 
financially harmless to the level of achieved energy savings. These 
mechanisms include revenue decoupling,\259\ lost revenue adjustment 
mechanisms, and straight-fixed variable rate design.
---------------------------------------------------------------------------

    \259\ Revenue decoupling is a regulatory approach ensuring 
natural gas utilities recover a defined amount of revenue sufficient 
to cover the utility's fixed and variable costs (including the 
authorized rate of return). Revenue decoupling mechanisms typically 
include a symmetrical ``true-up'' mechanism either charging 
customers additional revenues if actual utility collected revenues 
are below the fixed level due to a smaller volume of sales than 
expected. Conversely, if a utility's actual collected revenues are 
above the fixed level due to a larger volume of sales than expected, 
customers receive a credit from the utility for the difference. To 
this end, a utility's revenues are decoupled from its volume of 
sales because its revenues are fixed as sales fluctuate and 
utilities, therefore, are made indifferent to the level of energy 
efficiency (or other factors that may adversely affect their 
volumetric sales).
---------------------------------------------------------------------------

    As of February 2020, 26 states have approved revenue decoupling for 
one or more gas utilities. Several other states without revenue 
decoupling have approved lost revenue adjustment mechanisms (e.g., 
Montana) or straight-fixed variable rate design (e.g., Missouri) for at 
least one gas utility that function similar to revenue decoupling by 
addressing lost fixed cost recovery. Revenue decoupling mechanisms, in 
particular, are designed symmetrically with a ``true-up'' mechanism 
that either charge customers additional revenues in instances where 
collected revenues are less than authorized levels or refund customers 
when collected revenues are in excess of authorized levels. As a 
result, revenue decoupling does not result in higher costs to customers 
all the time.
    The specific design of revenue decoupling mechanism varies across 
states and utilities, but the mechanisms share many common design 
elements, including adjustments to authorized revenue to account for 
growth in customers and ``attrition.'' These design elements ensure the 
utility fully recovers its fixed costs in years between rate cases and 
does not suffer loss of revenue. It is true that revenue decoupling 
does not insulate utilities from loss of customers. However, revenue 
decoupling does not alter underlying retail rate design that can be 
adjusted to limit fuel switching. Furthermore, loss of customers due to 
fuel switching is also dependent on the price of electricity as a 
substitute product and electric service rate design, factors that 
cannot be directly influenced by gas utilities.
    The precise magnitude of impacts on utility revenues and customer 
retail rates, with or without revenue decoupling, lost revenue 
adjustment mechanisms, or straight-fixed variable rate design, depends 
on many factors. One of the most important drivers of financial impacts 
to utilities and ratepayers is the magnitude of energy savings, as the 
decline in retail sales drives both utility cost and revenue 
reductions. Similarly, the proportion of total utility costs that are 
fixed versus variable and the proportion of revenues that are based on 
volumetric sales also determine a significant portion of the magnitude 
of financial impacts. Given that many of these factors are utility-
specific, it is difficult to ascertain the precise financial impacts on 
specific gas utilities, with or without revenue

[[Page 40664]]

decoupling, lost revenue adjustment mechanisms, or straight-fixed 
variable rate design.
    DOE identified the States (or groups of States) where it estimated 
that more than 5 percent of customers installing a non-weatherized gas 
furnace in the compliance year would switch to electric heating as a 
result of the potential amended standard. Of these 14 States, five have 
approved revenue decoupling or a similar mechanism for one or more gas 
utilities as of February 2020 (see chapter 13 of the NOPR TSD for 
details). Based on its current understanding of revenue decoupling 
arrangements, DOE tentatively concludes that negative impacts on gas 
utilities in these States would be minimal. The States without revenue 
decoupling include Florida and Texas, States for which DOE estimates 
switching would affect approximately 15 percent of customers installing 
a gas furnace in the compliance year. For these and several other 
States,\260\ there would be a potential for negative financial impacts 
on gas utilities. The extent of impacts in a given State would depend 
on how much gas consumption would decline under the potential amended 
standards, relative to total utility gas sales. DOE evaluated the 
potential impacts for Texas, which has the largest estimated reduction 
in natural gas consumption due to both switching and installation of 
standard-compliant gas furnaces in the compliance year. For the 
proposed standards, the estimated reduction of 1.7 trillion Btu in 2029 
is approximately 0.7 percent of residential natural gas consumption in 
Texas in 2019, and approximately 0.4 percent of residential and 
commercial natural gas consumption.\261\ Although DOE has not been able 
to perform a financial analysis of potential impacts on specific gas 
utilities, based on the evaluation of Texas, it would appear that the 
impact of the standard would be minimal even where revenue decoupling 
is not in place.
---------------------------------------------------------------------------

    \260\ Other States without revenue decoupling for which 
estimated switching is 5 percent or greater are Alabama, Kentucky, 
Mississippi, Louisiana, Oklahoma, California, and New Mexico.
    \261\ Natural gas consumption is from EIA data (Available at: 
www.eia.gov/dnav/ng/ng_cons_sum_dcu_STX_a.htm) (Last accessed Feb. 
15, 2022).
---------------------------------------------------------------------------

N. Employment Impact Analysis

    DOE considers employment impacts in the domestic economy as one 
factor in selecting a standard. Employment impacts from new or amended 
energy conservation standards include both direct and indirect impacts. 
Direct employment impacts are any changes in the number of employees of 
manufacturers of the products subject to standards. The MIA addresses 
those impacts. Indirect employment impacts are changes in national 
employment that occur due to the shift in expenditures and capital 
investment caused by the purchase and operation of more-efficient 
appliances. Indirect employment impacts from standards consist of the 
net jobs created or eliminated in the national economy, other than in 
the manufacturing sector being regulated, caused by: (1) reduced 
spending by consumers on energy, (2) reduced spending on new energy 
supply by the utility industry, (3) increased consumer spending on the 
products to which the new standards apply and other goods and services, 
and (4) the effects of those three factors throughout the economy.
    One method for assessing the possible effects on the demand for 
labor of such shifts in economic activity is to compare sector 
employment statistics developed by the Labor Department's Bureau of 
Labor Statistics (``BLS''). BLS regularly publishes its estimates of 
the number of jobs per million dollars of economic activity in 
different sectors of the economy, as well as the jobs created elsewhere 
in the economy by this same economic activity. Data from BLS indicate 
that expenditures in the utility sector generally create fewer jobs 
(both directly and indirectly) than expenditures in other sectors of 
the economy.\262\ 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 due to shifts in 
economic activity resulting from energy conservation standards.
---------------------------------------------------------------------------

    \262\ See U.S. Department of Commerce--Bureau of Economic 
Analysis. Regional Multipliers: A User Handbook for the Regional 
Input-Output Modeling System (RIMS II) (1997) U.S. Government 
Printing Office: Washington, DC (Available at: apps.bea.gov/scb/pdf/regional/perinc/meth/rims2.pdf) (Last accessed Feb. 15, 2022).
---------------------------------------------------------------------------

    DOE estimated indirect national employment impacts for the standard 
levels considered in this NOPR using an input/output model of the U.S. 
economy called Impact of Sector Energy Technologies version 4 
(``ImSET'').\263\ 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 
187 sectors most relevant to industrial, commercial, and residential 
building energy use.
---------------------------------------------------------------------------

    \263\ Livingston, O.V., S.R. Bender, M.J. Scott, and R.W. 
Schultz. ImSET 4.0: Impact of Sector Energy Technologies Model 
Description and User's Guide. 2015. Pacific Northwest National 
Laboratory: Richland, WA. PNNL-24563 (Available at: www.pnnl.gov/main/publications/external/technical_reports/PNNL-24563.pdf) (Last 
accessed Feb. 15, 2022).
---------------------------------------------------------------------------

    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 proposed rule. Therefore, DOE used 
ImSET only to generate results for near-term timeframes (2029-2034), 
where these uncertainties are reduced. For more details on the 
employment impact analysis, see chapter 16 of the NOPR TSD.

V. Analytical Results and Conclusions

    The following section addresses the results from DOE's analyses 
with respect to the considered energy conservation standards for NWGFs 
and MHGFs. It addresses the TSLs examined by DOE, the projected impacts 
of each of these levels if adopted as energy conservation standards for 
NWGFs and MHGFs, and the standards levels that DOE is proposing in this 
NOPR. Additional details regarding DOE's analyses are contained in the 
TSD supporting this notice.

A. Trial Standard Levels

    In general, DOE typically evaluates potential amended standards for 
products and equipment at the product class level and by grouping 
select individual efficiency levels for each class into TSLs. Use of 
TSLs allows DOE to identify and consider industry-level manufacturer 
cost interactions between the product classes, to the extent that there 
are such interactions, and national-level market cross-elasticity from 
consumer purchasing decisions that may change when different

[[Page 40665]]

standard levels are set. For consumer furnaces, it is particularly 
important to look at the aggregated impacts as characterized by TSLs 
due to the changes in consumer purchasing decisions as a result of the 
increased product and installation costs that impact the shipments 
model. The changes to the shipments model will drive differential 
national impacts both on the consumer and manufacturer side that are 
more realistic of how the market may change in response to amended DOE 
standards.
    For this NOPR, DOE analyzed the consumer impacts of four efficiency 
levels for NWGFs, four efficiency levels for MHGFs, and the national 
impacts of nine TSLs for NWGFs and MHGFs. Table V.1 presents the TSLs 
and the corresponding efficiency levels that DOE has identified for 
potential amended energy conservation standards for NWGFs and MHGFs. It 
is noted that because the impact of a potential standard on different 
consumers can depend on the input capacity of the NWGF or MHGF, DOE 
considered certain TSLs (six cases) with an input capacity threshold, 
below which the proposed standard would remain at the current 
efficiency level of 80-percent AFUE. For other TSLs (three cases), DOE 
examined a national standard level for NWGFs and MHGFs not 
differentiated by input capacity. Also, because the impact of a 
potential standard on different consumers can depend on the region of 
the country, DOE considered a regional TSL such that the proposed 
standard would remain at an efficiency level of 80-percent AFUE outside 
the Northern region. Next, DOE presents the results for the TSLs and 
corresponding ELs in Table V.47 and Table V.48 of this document. 
Results for all efficiency levels that DOE analyzed are in the NOPR 
TSD.
    The following provides a brief overview of the TSLs considered. 
Each TSL consists of similar efficiency levels for both NWGFs and 
MHGFs. TSL 9 represents the maximum technologically feasible (``max-
tech'') energy efficiency for both NWGFs and MHGFs and represents the 
maximum energy savings possible among the specific efficiency levels 
analyzed by DOE (see section III.C.2 of this NOPR). TSL 8 consists of a 
national standard at an efficiency level of 95-percent AFUE for both 
NWGFs and MHGFs, which reflects a high degree of energy savings second 
only to the max-tech efficiency levels. TSL 7 consists of an efficiency 
level at 80-percent AFUE for small NWGFs and MHGFs at or below an input 
capacity of 55 kBtu/h and an efficiency level at 95-percent AFUE for 
large NWGFs and MHGFs. The threshold of 55 kBtu/h generally separates 
the market into larger capacity furnaces typically installed in larger 
single-family detached homes versus smaller capacity furnaces more 
likely to be installed in multi-family buildings and other households 
with higher potential installation costs. TSL 6 consists of the next 
highest efficiency levels, which would set a national standard at 92-
percent AFUE for both NWGFs and MHGFs, regardless of input capacity. 
Similarly to TSL 7, TSL 5 is constructed with an input capacity 
threshold. TSL 5 consists of an efficiency level at 80-percent AFUE for 
small NWGFs and MHGFs at or below an input capacity of 55 kBtu/h and an 
efficiency level at 92-percent AFUE for large NWGFs and MHGFs. TSL 4 
consists of the efficiency levels that represent 95-percent AFUE for 
the Northern region for both NWGFs and MHGFs, but retains the baseline 
efficiency level (80-percent AFUE) for the Rest of Country. TSLs 3, 2, 
and 1 are similar to TSL 5, except with an increasingly higher input 
capacity threshold (and a correspondingly smaller fraction of the 
market subject to more-stringent standards). TSL 3 consists of the 
efficiency level that represents 80-percent AFUE for small NWGFs and 
MHGFs at or below an input capacity of 60 kBtu/h and the efficiency 
level that represents 92-percent AFUE for large NWGFs and MHGFs. TSL 2 
consists of the efficiency level that represents 80-percent AFUE for 
small NWGFs and MHGFs at or below an input capacity of 70 kBtu/h and 
the efficiency level that represents 92-percent AFUE for large NWGFs 
and MHGFs. TSL 1 consists of the efficiency level that represents 80-
percent AFUE for small NWGFs and MHGFs at or below an input capacity of 
80 kBtu/h and the efficiency level that represents 92-percent AFUE for 
large NWGFs and MHGFs.

  Table V.1--Trial Standard Levels for Non-Weatherized Gas Furnaces and
                        Mobile Home Gas Furnaces
------------------------------------------------------------------------
                                            AFUE (percent)
                             -------------------------------------------
             TSL               Non-weatherized gas     Mobile home gas
                                     furnace               furnace
------------------------------------------------------------------------
1...........................  92% (>80 kBtu/h)....  92% (>80 kBtu/h).
                              80% (<=80 kBtu/h)...  80% (<=80 kBtu/h).
2...........................  92% (>70 kBtu/h)....  92% (>70 kBtu/h).
                              80% (<=70 kBtu/h)...  80% (<=70 kBtu/h).
3...........................  92% (>60 kBtu/h)....  92% (>60 kBtu/h).
                              80% (<=60 kBtu/h)...  80% (<=60 kBtu/h).
4...........................  95% (North).........  95% (North).
                              80% (Rest of          80% (Rest of
                               Country).             Country).
5...........................  92% (>55 kBtu/h)....  92% (>55 kBtu/h).
                              80% (<=55 kBtu/h)...  80% (<=55 kBtu/h).
6...........................  92%.................  92%.
7...........................  95% (>55 kBtu/h)....  95% (>55 kBtu/h).
                              80% (<=55 kBtu/h)...  80% (<=55 kBtu/h).
8...........................  95%.................  95%.
9...........................  98%.................  96%.
------------------------------------------------------------------------

    Table V.2 presents the standby mode and off mode TSLs and the 
corresponding efficiency levels (values expressed in watts) that DOE 
considered for NWGFs and MHGFs. DOE considered three efficiency levels. 
TSL 3 represents the maximum technologically feasible (``max-tech'') 
energy efficiency for both NWGFs and MHGFs and represents the maximum 
energy savings possible among the specific efficiency levels analyzed 
by DOE (see section III.C.2 of this NOPR). TSL 2 represents efficiency 
levels below max-tech and represents the maximum

[[Page 40666]]

energy savings excluding max-tech efficiency levels. TSL 1 represents 
efficiency level 1 for both NWGFs and MHGFs.

  Table V.2--Trial Standard Levels for Non-Weatherized Gas Furnace and
       Mobile Home Gas Furnace Standby Mode and Off Mode Standards
------------------------------------------------------------------------
                                       Standby and off mode energy use
                                                   (watts)
                TSL                -------------------------------------
                                     Non-weatherized    Mobile home gas
                                       gas furnace          furnace
------------------------------------------------------------------------
1.................................                9.5                9.5
2.................................                9.2                9.2
3.................................                8.5                8.5
------------------------------------------------------------------------

B. Economic Justification and Energy Savings

1. Economic Impacts on Individual Consumers
    DOE analyzed the economic impacts on NWGF and MHGF consumers by 
looking at the effects that potential new and amended standards at each 
TSL would have on the LCC and PBP. DOE also examined the impacts of 
potential standards on selected consumer subgroups. These analyses are 
discussed in the following sections.
a. Life-Cycle Cost and Payback Period
    In general, higher-efficiency products affect consumers in two 
ways: (1) purchase price increases and (2) annual operating costs 
decrease. In addition, for NWGFs, some consumers may choose to switch 
to an alternative heating system rather than purchase and install a 
NWGF if they judge the economics to be favorable. DOE estimated the 
extent of switching at each TSL using the consumer choice model 
discussed in section IV.F.11.
    Inputs used for calculating the LCC and PBP include total installed 
costs (i.e., product price plus installation costs), and operating 
costs (i.e., annual energy use, energy prices, energy price trends, 
repair costs, and maintenance costs). The LCC calculation also uses 
product lifetime and a discount rate. In cases where consumers are 
predicted to switch, the inputs include the total installed costs, 
operating costs, and product lifetime for the chosen heating system. 
Chapter 8 of the NOPR TSD provides detailed information on the LCC and 
PBP analyses.
    For NWGFs, the LCC and PBP results at each efficiency level include 
consumers that would purchase and install a NWGF at that level, and 
also consumers that would choose to switch to an alternative heating 
product rather than purchase and install a NWGF at that level. The 
impacts for consumers that switch depend on the product that they 
choose (heat pump or electric furnace) and the NWGF that they would 
purchase in the no-new-standards case. The extent of projected product/
fuel switching (in 2029) is shown in Table V.3 and Table V.4 for each 
TSL for NWGFs and MHGFs, respectively. The degree of switching 
increases at higher-efficiency TSLs where the installed cost of a NWGF 
is very high for some consumers, making the alternative option 
competitive. As discussed in section IV.F.12, DOE also conducted 
sensitivity analysis using no-switching, high, and low switching 
estimates. See appendix 8J of the NOPR TSD for more details. . For the 
proposed standards (TSL 8), the total switching and repair vs. replace 
is 11.1 percent for NWGFs and 10.3 percent for MHGFs.

                                 Table V.3--Results of Fuel Switching Analysis for Non-Weatherized Gas Furnaces in 2029
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                              Trial standard level
                   Consumer option                    --------------------------------------------------------------------------------------------------
                                                           1          2          3          4          5          6          7          8          9
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                 % of consumers
--------------------------------------------------------------------------------------------------------------------------------------------------------
Purchase NWGF at Standard Level......................       98.4       97.7       96.3       98.5       95.4       88.8       95.5       88.9       86.4
Switch to Heat Pump *................................        0.8        1.1        2.2        0.6        2.9        7.3        2.8        7.3        8.9
Switch to Electric Furnace *.........................        0.2        0.3        0.5        0.2        0.6        1.6        0.5        1.6        2.0
Repair vs. Replacing.................................        0.6        0.9        1.0        0.8        1.2        2.4        1.2        2.3        2.8
                                                      --------------------------------------------------------------------------------------------------
    Total............................................      100.0      100.0      100.0      100.0      100.0      100.0      100.0      100.0      100.0
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Includes switching from a gas water heater to an electric water heater.
Note: Components may not sum due to rounding.


                                   Table V.4--Results of Fuel Switching Analysis for Mobile Home Gas Furnaces in 2029
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                              Trial standard level
                   Consumer option                    --------------------------------------------------------------------------------------------------
                                                           1          2          3          4          5          6          7          8          9
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                 % of consumers
--------------------------------------------------------------------------------------------------------------------------------------------------------
Purchase MHGF at Standard Level......................       99.9       99.8       99.2       96.9       97.8       89.9       97.8       89.7       85.0
Switch to Heat Pump..................................        0.0        0.0       0.58        1.5        0.6        4.8        0.6        4.9        4.7
Switch to Electric Furnace...........................        0.0        0.0        0.0        0.6        1.0        3.0        1.1        3.1        3.2

[[Page 40667]]

 
Repair vs. Replacing.................................        0.1        0.2        0.3        1.1        0.6        2.3        0.5        2.3        7.2
                                                      --------------------------------------------------------------------------------------------------
    Total............................................      100.0      100.0      100.0      100.0      100.0      100.0      100.0      100.0      100.0
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: Components may not sum due to rounding.

    Table V.5 through Table V.8 show the LCC and PBP results for the 
TSLs considered for each product class. Table V.9 through Table V.12 
show the LCC and PBP results for the TSLs considered for each product 
class for standby mode and off mode standards. In the first of each 
pair of tables, the simple payback is measured relative to the baseline 
product. In the second table, the impacts are measured relative to the 
efficiency distribution in the in the no-new-standards case in the 
compliance year (see section IV.F.10 of this document). The LCC and PBP 
results for NWGFs include both residential and commercial users. The 
LCC and PBP results are shipment-weighted and averaged over all 
capacities and regions. Results for all efficiency levels are reported 
in chapter 8 of the NOPR TSD. LCC Results for the alternative product 
switching scenarios are reported in appendix 8J of the NOPR TSD.
    Because some consumers purchase products with higher efficiency in 
the no-new-standards case, the average savings are less than the 
difference between the average LCC of the baseline product and the 
average LCC at each TSL. The savings refer only to consumers who are 
affected by a standard at a given TSL. Those who already purchase a 
product with efficiency at or above a given TSL are not affected. 
Consumers for whom the LCC increases at a given TSL experience a net 
cost.

                                  Table V.5--Average LCC and PBP Results for Non-Weatherized Gas Furnace AFUE Standards
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                Average costs 2020$
                                                         ---------------------------------------------------------------- Simple payback      Average
              TSL                        AFUE %                            First year's      Lifetime                          years      lifetime years
                                                          Installed cost  operating cost  operating cost        LCC
--------------------------------------------------------------------------------------------------------------------------------------------------------
1.............................  92/80 *.................           3,475             640          10,141          13,616             6.8            21.4
2.............................  92/80 *.................           3,547             628           9,942          13,490             6.6            21.4
3.............................  92/80 *.................           3,585             623           9,860          13,445             6.7            21.4
4.............................  95/80 **................           3,620             625           9,870          13,490             8.0            21.4
5.............................  92/80 *.................           3,624             620           9,788          13,412             7.1            21.4
6.............................  92 [dagger].............           3,720             618           9,671          13,391             8.9            21.4
7.............................  95/80 *.................           3,629             609           9,619          13,249             5.8            21.4
8.............................  95 [dagger].............           3,727             606           9,490          13,217             7.2            21.4
9.............................  98 (Max-Tech) [dagger]..           3,879             602           9,352          13,231             9.1            21.4
--------------------------------------------------------------------------------------------------------------------------------------------------------
* The first number refers to the standard for large NWGFs; the second refers to the standard for small NWGFs. The input capacity threshold definitions
  for small NWGFs are as follows:
TSL 1: 80 kBtu/h
TSL 2: 70 kBtu/h
TSL 3: 60 kBtu/h
TSL 5: 55 kBtu/h
TSL 7: 55 kBtu/h.
** The first number refers to the efficiency level for the North; the second number refers to the efficiency level for the Rest of Country.
[dagger] Refers to national standards.
Note: The results for each TSL are calculated assuming that all consumers use products at that efficiency level. The PBP is measured relative to the
  baseline product.


    Table V.6--Average LCC Savings Relative to the No-New-Standards Case for Non-Weatherized Gas Furnace AFUE
                                                    Standards
----------------------------------------------------------------------------------------------------------------
                                                                                      Life-cycle cost savings
                                                                                 -------------------------------
                                                                                                   Percentage of
                      TSL                                    AFUE %                 Average LCC   consumers that
                                                                                   savings 2020$  experience net
                                                                                                      cost, %
----------------------------------------------------------------------------------------------------------------
1.............................................  92/80 *.........................             663             3.7
2.............................................  92/80 *.........................             603             6.0
3.............................................  92/80 *.........................             575             7.9
4.............................................  95/80 **........................             350             5.2
5.............................................  92/80*..........................             625             9.1
6.............................................  92 [dagger].....................             470            17.7

[[Page 40668]]

 
7.............................................  95/80 *.........................             563             8.3
8.............................................  95 [dagger].....................             464            16.6
9.............................................  98 (Max-Tech) [dagger]..........             254            52.4
----------------------------------------------------------------------------------------------------------------
* The first number refers to the standard for large NWGFs; the second refers to the standard for small NWGFs.
  The input capacity threshold definitions for small NWGFs are as follows:
TSL 1: 80 kBtu/h
TSL 2: 70 kBtu/h
TSL 3: 60 kBtu/h
TSL 5: 55 kBtu/h
TSL 7: 55 kBtu/h
** The first number refers to the efficiency level for the North; the second number refers to the efficiency
  level for the Rest of Country.
[dagger] Refers to national standards.
Note: The savings represent the average LCC for affected consumers.


                                    Table V.7--Average LCC and PBP Results for Mobile Home Gas Furnace AFUE Standards
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                Average costs 2020$
                                                         ---------------------------------------------------------------- Simple payback      Average
                TSL                        AFUE %                          First year's      Lifetime                          years      lifetime years
                                                          Installed cost  operating cost  operating cost        LCC
--------------------------------------------------------------------------------------------------------------------------------------------------------
1.................................  92/80 *.............           2,114             517           8,372          10,486             6.5            21.4
2.................................  92/80 *.............           2,183             504           8,181          10,364             5.6            21.4
3.................................  92/80 *.............           2,208             500           8,123          10,331             5.7            21.4
4.................................  95/80 **............           2,264             498           8,011          10,275             7.7            21.4
5.................................  92/80 *.............           2,256             491           7,967          10,223             5.7            21.4
6.................................  92 [dagger].........           2,389             485           7,702          10,091             8.5            21.4
7.................................  95/80 *.............           2,262             486           7,888          10,150             5.1            21.4
8.................................  95 [dagger].........           2,399             479           7,601          10,000             7.5            21.4
9.................................  96 (Max-Tech)                  2,406             496           7,601          10,007            12.6            21.4
                                     [dagger].
--------------------------------------------------------------------------------------------------------------------------------------------------------
* The first number refers to the standard for large MHGFs; the second refers to the standard for small MHGFs. The input capacity threshold definitions
  for small MHGFs are as follows:
TSL 1: 80 kBtu/h
TSL 2: 70 kBtu/h
TSL 3: 60 kBtu/h
TSL 5: 55 kBtu/h
TSL 7: 55 kBtu/h.
** The first number refers to the efficiency level for the North; the second number refers to the efficiency level for the Rest of Country.
[dagger] Refers to national standards.
Note: The results for each TSL are calculated assuming that all consumers use products at that efficiency level. The PBP is measured relative to the
  baseline product.


 Table V.8--Average LCC Savings Relative to the No-New-Standards Case for Mobile Home Gas Furnace AFUE Standards
----------------------------------------------------------------------------------------------------------------
                                                                                      Life-cycle cost savings
                                                                                 -------------------------------
                                                                                                   Percentage of
                      TSL                                    AFUE %                 Average LCC   consumers that
                                                                                   savings 2020$  experience net
                                                                                                      cost, %
----------------------------------------------------------------------------------------------------------------
1.............................................  92/80 *.........................             406             1.9
2.............................................  92/80 *.........................             516             3.2
3.............................................  92/80 *.........................             501             3.9
4.............................................  95/80 **........................             446            10.4
5.............................................  92/80*..........................             569             4.8
6.............................................  92 [dagger].....................             493            21.8
7.............................................  95/80 *.........................             603             4.6
8.............................................  95 [dagger].....................             526            21.5
9.............................................  96 (Max-Tech) [dagger]..........             414            38.0
----------------------------------------------------------------------------------------------------------------
* The first number refers to the standard for large NWGFs; the second refers to the standard for small NWGFs.
  The input capacity threshold definitions for small NWGFs are as follows:
TSL 1: 80 kBtu/h
TSL 2: 70 kBtu/h
TSL 3: 60 kBtu/h
TSL 5: 55 kBtu/h

[[Page 40669]]

 
TSL 7: 55 kBtu/h
** The first number refers to the efficiency level for the North; the second number refers to the efficiency
  level for the Rest of Country.
[dagger] Refers to national standards.
Note: The savings represent the average LCC for affected consumers.


                       Table V.9--Average LCC and PBP Results for Non-Weatherized Gas Furnace Standby Mode and Off Mode Standards
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                Average costs 2020$
                                                         ---------------------------------------------------------------- Simple payback      Average
                TSL                         Watts                          First year's      Lifetime                          years      lifetime years
                                                          Installed cost  operating cost  operating cost        LCC
--------------------------------------------------------------------------------------------------------------------------------------------------------
1.................................  9.5.................               1              20             293             294             0.7            21.4
2.................................  9.2.................               3              20             289             292             1.5            21.4
3.................................  8.5 (Max-Tech)......               5              19             279             284             2.0            21.4
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: The results for each TSL are calculated assuming that all consumers use products at that efficiency level. The PBP is measured relative to the
  baseline product.


  Table V.10--Average LCC Savings Relative to the No-New-Standards Case for Non-Weatherized Gas Furnace Standby
                                           Mode and Off Mode Standards
----------------------------------------------------------------------------------------------------------------
                                                                                      Life-cycle cost savings
                                                                                 -------------------------------
                                                                                                   Percentage of
                      TSL                                     Watts                 Average LCC   consumers that
                                                                                   savings 2020$  experience net
                                                                                                       cost
----------------------------------------------------------------------------------------------------------------
1.............................................  9.5.............................              21             2.5
2.............................................  9.2.............................              23             2.5
3.............................................  8.5 (Max-Tech)..................              26             3.5
----------------------------------------------------------------------------------------------------------------
* The savings represent the average LCC for affected consumers.


                         Table V.11--Average LCC and PBP Results for Mobile Home Gas Furnace Standby Mode and Off Mode Standards
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                Average costs 2020$
                                                         ---------------------------------------------------------------- Simple payback      Average
                TSL                         Watts                          First year's      Lifetime                          years      lifetime years
                                                          Installed cost  operating cost  operating cost        LCC
--------------------------------------------------------------------------------------------------------------------------------------------------------
1.................................  9.5.................               1              22             317             318             0.6            21.4
2.................................  9.2.................               3              22             312             315             1.3            21.4
3.................................  8.5 (Max-Tech)......               5              21             301             306             1.7            21.4
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: The results for each TSL are calculated assuming that all consumers use products at that efficiency level. The PBP is measured relative to the
  baseline product.


 Table V.12--Average LCC Savings Relative to the No-New-Standards Case for Mobile Home Gas Furnace Standby Mode
                                             and Off Mode Standards
----------------------------------------------------------------------------------------------------------------
                                                                                      Life-cycle cost savings
                                                                                 -------------------------------
                                                                                                   Percentage of
                      TSL                                     Watts                 Average LCC   consumers that
                                                                                     savings *    experience net
                                                                                       2020$           cost
----------------------------------------------------------------------------------------------------------------
1.............................................  9.5.............................              22             1.2
2.............................................  9.2.............................              24             1.2
3.............................................  8.5 (Max-Tech)..................              27             1.6
----------------------------------------------------------------------------------------------------------------
* The savings represent the average LCC for affected consumers.

b. Consumer Subgroup Analysis
    In the consumer subgroup analysis, DOE estimated the impact of the 
considered AFUE TSLs on low-income households and senior-only 
households.\264\ Table V.13 and Table V.14 compare the average LCC 
savings

[[Page 40670]]

and PBP at each efficiency level for the consumer subgroups, along with 
the average LCC savings for the entire consumer sample. Because the 
small NWGF and MHGF efficiency levels at TSLs 1, 2, 3, 5, and 7 and the 
Rest of Country efficiency level at TSL 4 are at the baseline (i.e., 
the current standard), these tables only include results for large 
NWGFs and MHGFs or the Northern region for these TSLs. The percent of 
low-income NWGF and MHGF consumers experiencing a net cost is smaller 
than the full LCC sample in all cases, largely due to the high 
proportion of renter households. The percentage of senior-only NWGF and 
MHGF households experiencing a net cost is either very similar to or 
smaller than the full LCC sample. Chapter 11 of the NOPR TSD presents 
the complete LCC and PBP results for the subgroups.
---------------------------------------------------------------------------

    \264\ DOE did not perform a subgroup analysis for the 
residential furnace standby mode and off mode efficiency levels. The 
standby mode and off mode analysis relied on the test procedure to 
assess energy savings for the considered standby mode and off mode 
efficiency levels. Because the analysis used the same test procedure 
parameters for all sample households, there is no difference in 
energy savings between the consumer subgroups and the full sample.

[[Page 40671]]



                                                 Table V.13--Comparison of LCC Savings and PBP for Consumer Subgroups and All Households for Non-Weatherized Gas Furnace AFUE Standards
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                        Average LCC savings                            Simple payback period                   % of Consumers experiencing net cost           % of Consumers experiencing net benefit
                                         -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                   TSL                                         2020$                                           Years                                             %                                               %
                                         -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                            Low- income    Senior- only         All         Low- income    Senior- only         All         Low- income    Senior- only         All         Low- income    Senior- only         All
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1 *.....................................             384             190             663             3.1             6.6             6.8             2.0             3.9             3.7             4.3             6.4             6.8
2 *.....................................             427             257             603             2.8             7.1             6.6             2.8             6.0             6.0             6.2            10.4            11.0
3 *.....................................             307             293             575             2.4             6.9             6.7             4.2             7.5             7.9            11.0            13.2            13.8
4 **....................................             314             173             350             1.2             5.7             8.0             3.6             3.9             5.2            19.8            20.7            18.1
5 *.....................................             359             430             625             2.5             7.2             7.1             5.0             9.1             9.1            14.2            16.0            15.9
6 [dagger]..............................             266             402             470             2.6             7.8             8.9            14.0            17.4            17.7            31.7            23.2            22.5
7 *.....................................             376             328             563             2.0             5.8             5.8             5.0             7.4             8.3            24.7            31.7            31.1
8 [dagger]..............................             292             327             464             2.1             6.3             7.2            13.7            15.1            16.6            46.1            41.2            40.1
9 [dagger]..............................             160             329             254             2.8             8.2             9.1            34.8            43.4            52.4            58.2            52.0            45.6
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
* Refers to TSLs with separate standards for small and large NWGFs. The input capacity threshold definitions for small NWGFs are as follows:
TSL 1: 80 kBtu/h
TSL 2: 70 kBtu/h
TSL 3: 60 kBtu/h
TSL 5: 55 kBtu/h
TSL 7: 55 kBtu/h
** Regional standards.
[dagger] Refers to national standards.
Note: The savings represent the average LCC for affected consumers. The PBP is measured relative to the baseline product.


                                                   Table V.14--Comparison of LCC Savings and PBP for Consumer Subgroups and All Households for Mobile Home Gas Furnace AFUE Standards
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                    Average LCC savings (2020$)                    Simple payback period (Years)               % of Consumers experiencing net cost           % of Consumers experiencing net benefit
                   TSL                   -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                            Low-income      Senior-only         All         Low-income      Senior-only         All         Low-income      Senior-only         All         Low-income      Senior-only         All
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1 *.....................................           1,118             632             406             3.6             4.4             6.5             0.1             0.3             1.9             1.6             8.4             3.0
2 *.....................................             965             480             516             3.1             5.0             5.6             0.5             3.5             3.2            16.0            24.0            16.2
3 *.....................................             876             488             501             3.2             5.3             5.7             0.9             4.1             3.9            19.1            29.9            21.6
4 **....................................             779             401             298             2.3             3.6            12.1             5.3             7.2            22.6            31.7            17.8            28.0
5 *.....................................             992             463             569             3.2             5.4             5.7             1.4             4.3             4.8            41.6            31.1            32.6
6 [dagger]..............................             745             796             493             4.7             4.5             8.5            11.8            17.0            21.8            61.5            49.5            48.7
7 *.....................................            1024             411             603             2.8             4.6             5.1             1.5             3.7             4.6            47.4            40.6            39.0
8 [dagger]..............................             782             701             526             4.2             4.0             7.5            12.6            14.8            21.5            69.6            61.1            57.3
9 [dagger]..............................             663           1,648             414             7.0             5.3            12.6            23.3            32.0            38.0            75.4            65.4            60.5
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
* Refers to TSLs with separate standards for small and large MHGFs. The input capacity threshold definitions for small MHGFs are as follows:
* TSL 1: 80 kBtu/h
* TSL 2: 70 kBtu/h
* TSL 3: 60 kBtu/h
* TSL 5: 55 kBtu/h
* TSL 7: 55 kBtu/h
** Regional standards.
[dagger] Refers to national standards.
Note: The savings represent the average LCC for affected consumers. The PBP is measured relative to the baseline product.


[[Page 40672]]

c. Rebuttable Presumption Payback
    As discussed in section III.E.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, and, as required by EPCA, based the energy use 
calculation on the DOE test procedures for residential furnaces and 
boilers. 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.15 and Table V.16 present the rebuttable-presumption 
payback periods for the considered AFUE and standby mode/off mode TSLs, 
respectively, for NWGFs and MHGFs. The payback periods for most NWGF 
and MHGF AFUE TSLs do not meet the rebuttable-presumption criterion. 
The payback periods for all NWGF and MHGF standby mode and off mode 
TSLs meet the rebuttable-presumption criterion. 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.15--Rebuttable-Presumption Payback Periods (Years) for Non-
   Weatherized Gas Furnace and Mobile Home Gas Furnace AFUE Standards
------------------------------------------------------------------------
                                               Non-
                   TSL                      weatherized     Mobile home
                                           gas  furnaces   gas furnaces
------------------------------------------------------------------------
1 *.....................................            3.24            3.17
2 *.....................................            3.52            3.44
3 *.....................................            3.64            3.64
4 **....................................            2.70            2.45
5 *.....................................            3.79            3.66
6 [dagger]..............................            3.96            3.92
7 *.....................................            3.47            3.11
8 [dagger]..............................            3.63            3.29
9 [dagger]..............................            3.98            3.26
------------------------------------------------------------------------
* Refers to TSLs with separate standards for small and large MHGFs. The
  input capacity threshold definitions for small MHGFs are as follows:
* TSL 1: 80 kBtu/h
* TSL 2: 70 kBtu/h
* TSL 3: 60 kBtu/h
* TSL 5: 55 kBtu/h
* TSL 7: 55 kBtu/h
** Regional standards.
[dagger] Refers to national standards.


 Table V.16--Rebuttable-Presumption Payback Periods (Years) for Non-Weatherized Gas Furnace and Mobile Home Gas
                                   Furnace Standby Mode and Off Mode Standards
----------------------------------------------------------------------------------------------------------------
                                                                    Standby and
                                                                     off mMode         Non-         Mobile home
                               TSL                                  energy use      weatherized    gas furnaces
                                                                      (watts)      gas furnaces
----------------------------------------------------------------------------------------------------------------
1...............................................................             9.5            0.62            0.64
2...............................................................             9.2            1.43            1.48
3...............................................................             8.5            1.89            1.96
----------------------------------------------------------------------------------------------------------------

2. Economic Impacts on Manufacturers
    DOE performed an MIA to estimate the impact of amended energy 
conservation standards on manufacturers of NWGFs and MHGFs. The next 
section describes the expected impacts on manufacturers at each 
considered TSL. Chapter 12 of the NOPR TSD explains the analysis in 
further detail.
a. Industry Cash Flow Analysis Results
    In this section, DOE provides GRIM results from the analysis, which 
examines changes in the industry that could result from a standard. 
Table V.17 presents the financial impacts of analyzed standards on NWGF 
and MHGF manufacturers represented by changes in INPV and free cash 
flow in the year before the standard would take effect as well by the 
conversion costs that DOE estimates NWGF and MHGF manufacturers would 
incur at each TSL. To evaluate the range of cash-flow impacts on the 
NWGF and MHGF industry, DOE modeled three markup scenarios that 
correspond to the range of anticipated market responses to amended 
standards. For AFUE standards, DOE modeled a preservation of gross 
margin percentage markup scenario and a tiered markup scenario. For 
standby mode and off mode standards, DOE modeled a preservation of 
gross margin percentage markup scenario and a per-unit preservation of 
operating profit markup scenario. Each scenario 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 INPV between the no-new-standards case and the standards 
cases, calculated by summing discounted cash flows from the reference 
year (2022) through the end of the analysis period (2058).

[[Page 40673]]

Changes in INPV reflect the potential impacts on the value of the 
industry over the course of the analysis period as a result of 
implementing a particular TSL. The results also discuss the difference 
in cash flows between the no-new-standards case and the standards cases 
in the year before the compliance date for analyzed standards (2028). 
This difference in cash flow represents the size of the required 
conversion costs relative to the cash flow generated by the NWGF and 
MHGF industry in the absence of amended energy conservation standards.
    To assess the upper (less severe) bound of the range of potential 
impacts on NWGF and MHGF manufacturers, DOE modeled a preservation of 
gross margin percentage scenario. This scenario assumes industry would 
be able to maintain its average no-new-standards case gross margin 
percentage in the standard case, even as MPCs increase and companies 
make upfront investments to bring products into compliance with amended 
standards. DOE assumed gross margin percentages of 25.3% for NWGFs and 
21.3% for MHGF.\265\ Manufacturers noted in interviews that it is 
optimistic to assume that as their production costs increase in 
response to an amended energy conservation standard, they would be able 
to maintain the same gross margin percentage markup. DOE understands 
this scenario to be an upper bound to industry profitability under an 
energy conservation standard.
---------------------------------------------------------------------------

    \265\ The gross margin percentage values correspond to 
manufacturer markups of 1.34 for NWGFs and 1.27 for MHGFs.
---------------------------------------------------------------------------

    To assess the lower (more severe) bound of the range of potential 
impacts of AFUE standards on NWGF and MHGF manufacturers, DOE modeled a 
tiered scenario. DOE implemented the tiered scenario because multiple 
manufacturers stated in interviews that they offer multiple tiers of 
product lines that are differentiated, in part, by efficiency level. 
Manufacturers further noted that pricing tiers encompass additional 
differentiators, such as the combustion system (e.g., single-stage, 
two-stage, and modulating combustion systems). To account for this 
nuance, the tiered markup in the GRIM incorporates both efficiency and 
combustion system technology into the ``good, better, best'' 
manufacturer markup scenario.
    Several manufacturers suggested that amended standards would lead 
to a reduction in premium markups and would reduce the profitability of 
higher efficiency products. During the MIA interviews, manufacturers 
provided information on the range of typical efficiency levels in those 
tiers and the change in profitability at each level. DOE used this 
information to estimate manufacturer markups for NWGFs and MHGFs under 
a tiered pricing strategy in the no-new-standards case. In the 
standards cases, DOE modeled the situation in which standards result in 
less product differentiation, compression of the markup tiers, and an 
overall reduction in profitability.
    To assess the lower (more severe) bound of the range of potential 
impacts of standby mode and off mode standards on NWGF and MHGF 
manufacturers, DOE modeled a per-unit preservation of operating profit 
scenario. In this scenario, manufacturer markups are set so that 
operating profit one year after the compliance date of amended energy 
conservation standards (2030) is the same as in the no-new-standards 
case on a per-unit basis. Under this scenario, manufactures do not earn 
additional operating profit from increased manufacturer production 
costs and conversion costs incurred as a result of standards.
Cash-Flow Analysis Results for Non-Weatherized Gas Furnaces and Mobile 
Home Gas Furnaces AFUE Standards
    Table V.17 presents the financial impacts of the analyzed AFUE 
standards on NWGF and MHGF manufacturers. These impacts are represented 
by changes in INPV summed over the analysis period and free cash flow 
in the year before the standard (2028), as well as by the conversion 
costs that DOE estimates NWGF and MHGF manufacturers would incur at 
each TSL. The range of results reflect the two manufacturer markup 
scenarios that were modeled.

                                 Table V.17--Manufacturer Impact Analysis: AFUE Standards Results for Non-Weatherized Gas Furnaces and Mobile Home Gas Furnaces
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                      No-new                                          Trial standard level
                                                               Units                standards --------------------------------------------------------------------------------------------------
                                                                                       case      TSL 1      TSL 2      TSL 3      TSL 4      TSL 5      TSL 6      TSL 7      TSL 8      TSL 9
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
INPV..........................................  2020$ millions....................    1,411.8    1,316.7    1,280.4    1,260.0    1,126.6    1,250.7    1,237.4    1,067.5    1,031.5   728.0 to
                                                                                                      to         to         to         to         to         to         to         to    1,420.8
                                                                                                 1,394.6    1,395.0    1,387.8    1,395.7    1,394.2    1,377.4    1,396.8    1,381.4
Change in INPV................................  2020$ millions....................  .........  (95.2) to    (131.5)    (151.9)    (285.2)    (161.2)    (174.4)    (344.4)    (380.3)    (683.8)
                                                                                                  (17.3)  to (16.8)  to (24.1)  to (16.2)  to (17.6)  to (34.5)  to (15.0)  to (30.5)     to 9.0
                                                %.................................  .........   (6.7) to   (9.3) to  (10.8) to  (20.2) to  (11.4) to  (12.4) to  (24.4) to  (26.9) to  (48.4) to
                                                                                                   (1.2)      (1.2)      (1.7)      (1.1)      (1.2)      (2.4)      (1.1)      (2.2)        0.6
Free Cash Flow (2028).........................  2020$ millions....................       85.8       65.0       58.6       55.3       45.1       52.2       44.9       34.0       22.8     (42.1)
Change in Free Cash Flow (2028)...............  %.................................  .........     (24.2)     (31.7)     (35.6)     (47.5)     (39.2)     (47.7)     (60.4)     (73.4)    (149.0)
Product Conversion Costs......................  2020$ millions....................  .........       26.6       26.6       26.6       41.2       26.6       26.6       41.2       41.2       79.9
Capital Conversion Costs......................  2020$ millions....................  .........       25.4       39.6       47.1       58.3       53.9       70.2       82.9      107.8      221.6
    Total Investment Required.................  2020$ millions....................  .........       51.9       66.1       73.6       99.6       80.5       96.8      124.1      149.0      301.6
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Note: Parentheses indicate negative values.

    The following cash flow results discussion refers to the AFUE 
efficiency levels and capacity threshold cutoffs detailed in section 
V.A of this document. Table V.18 and Table V.19 present the percentage 
of NWGF and MHGF shipments in 2028 that are considered to be large or 
small, based on the input capacity threshold for each TSL. See section 
IV.G of this document for additional details on the shipments analysis.

[[Page 40674]]



             Table V.18--Shipments Breakdowns (2028) Representing Large and Small Non-Weatherized Gas Furnaces at Each Trial Standard Level
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                              Trial standard level and capacity threshold
                                             -----------------------------------------------------------------------------------------------------------
                    Size                       TSL 1 80    TSL 2 70    TSL 3 60    TSL 4 no    TSL 5 55    TSL 6 no    TSL 7 55    TSL 8 no    TSL 9 no
                                              kBtu/h (%)  kBtu/h (%)  kBtu/h (%)  cutoff (%)  kBtu/h (%)  cutoff (%)  kBtu/h (%)  cutoff (%)  cutoff (%)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Large.......................................        41.2        65.0        76.7       100.0        88.8       100.0        88.8       100.0       100.0
Small.......................................        58.8        35.0        23.3         0.0        11.2         0.0        11.2         0.0         0.0
--------------------------------------------------------------------------------------------------------------------------------------------------------


               Table V.19--Shipments Breakdowns (2028) Representing Large and Small Mobile Home Gas Furnaces at Each Trial Standard Level
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                              Trial standard level and capacity threshold
                                             -----------------------------------------------------------------------------------------------------------
                    Size                       TSL 1 80    TSL 2 70    TSL 3 60    TSL 4 no    TSL 5 55    TSL 6 no    TSL 7 55    TSL 8 no    TSL 9 no
                                              kBtu/h (%)  kBtu/h (%)  kBtu/h (%)  cutoff (%)  kBtu/h (%)  cutoff (%)  kBtu/h (%)  cutoff (%)  cutoff (%)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Large.......................................        11.6        40.2        53.3       100.0        78.2       100.0        78.2       100.0       100.0
Small.......................................        88.4        59.8        46.7         0.0        21.8         0.0        21.8         0.0         0.0
--------------------------------------------------------------------------------------------------------------------------------------------------------

    TSLs 1, 2, 3, and 5 all represent national standards set at 92-
percent AFUE for large furnaces, while small furnaces remain at the 
current Federal minimum of 80-percent AFUE. However, the capacity 
threshold used to classify small furnaces is different at each TSL. 
Small NWGFs and MHGFs are defined as units having an input capacity of 
80 kBtu/h or less at TSL 1, 70 kBtu/h or less at TSL 2, 60 kBtu/h or 
less at TSL 3, and 55 kBtu/h or less at TSL 5. As the capacity 
threshold decreases from 80 kBtu/h at TSL 1 down to 55 kBtu/h at TSL 5, 
the number of furnace shipments classified as large gas-fired consumer 
furnaces, and subsequently the portion of shipments that must be 
condensing after the standard year, increases. Capital conversion costs 
increase as manufacturers add additional capacity to their secondary 
heat exchanger production lines. Manufacturers would also incur product 
conversion costs as they invest resources to develop cost-optimized 92-
percent AFUE models that are competitive at lower price points. 
Manufacturers are expected to incur $26.6 million in product conversion 
costs to develop such models at each of TSLs 1, 2, 3, and 5.
    In addition to conversion costs, a national standard of 92-percent 
AFUE for large NWGFs and MHGFs could lead to a slight compression of 
manufacturer markups. In its manufacturer markup scenarios, DOE 
includes a scenario which models the industry maintaining three tiers 
of markups, with efficiency as one differentiating attribute. In a 
market where the national standard is 92-percent AFUE, DOE 
characterizes these markups as ``good,'' ``better,'' and ``best,'' and 
they correspond to 92-percent AFUE, 95-percent AFUE, and max-tech 
levels (98-percent for NWGFs and 96-percent for MHGFs), respectively.
    TSL 1 represents a national standard set at 92-percent AFUE for 
large NWGFs and MHGFs, while small NWGFs and MHGFs remain at the 
current Federal minimum of 80-percent AFUE. At TSL 1, small furnaces 
are defined as NWGFs and MHGFs with input capacities of 80 kBtu/h or 
less. DOE estimates the change in INPV to range from -$95.2 million to 
-$17.3 million, or a change of -6.7 percent to -1.2 percent. At this 
level, industry free cash flow in 2028 (the year before the compliance 
date) is estimated to decrease to $65.0 million, or a decrease of 24.2 
percent compared to the no-new-standards case value of $85.8 million.
    Small furnaces with input capacities of 80 kBtu/h or less account 
for approximately 58.8 percent of NWGF shipments and 88.4 percent of 
MHGF shipments in 2028, a year before the standard goes into effect. In 
the no-new-standards case, approximately 59.1 percent of NWGF shipments 
and 30.4 percent of MHGF shipments are expected to be sold at 
condensing levels in the year before the standard goes into effect. At 
TSL 1, once the standard goes into effect, DOE expects 70.5 percent of 
NWGF shipments and 36.5 percent of MHGF shipments to be sold at 
condensing levels, requiring the industry to expand its production of 
secondary heat exchangers. Manufacturers will incur an estimated $25.4 
million in capital conversion costs as manufacturers increase secondary 
heat exchanger production line capacity. Manufacturers would also incur 
product conversion costs driven by the development necessary to create 
compliant, cost-competitive products. Total industry conversion costs 
are expected to reach $51.9 million at TSL 1.
    TSL 2 represents a national standard at 92-percent AFUE for large 
furnaces, while small furnaces remain at the current Federal minimum of 
80-percent AFUE. Small furnaces are defined as NWGFs and MHGFS with 
input capacities of 70 kBtu/h or less. At TSL 2, DOE estimates the 
change in INPV to range from -$131.5 million to -$16.8 million, or a 
change in INPV of -9.3 percent to -1.2 percent. At this level, free 
cash flow in 2028 is estimated to decrease to $58.6 million, or a 
decrease of 31.7 percent compared to the no-new-standards-case value of 
$85.8 million in the year 2028.
    Small furnaces with input capacities of 70 kBtu/h or less account 
for approximately 35.0 percent of NWGF shipments and 59.8 percent of 
MHGF shipments in the year before standards go into effect. At TSL 2, 
once the standard goes into effect, DOE expects 77.2 percent of NWGF 
shipments and 50.6 percent of MHGF shipments to be sold at condensing 
levels, requiring the industry to expand its production of secondary 
heat exchangers. Capital conversion costs increase from $25.4 million 
at TSL 1 to $39.6 million at TSL 2. Manufacturers would also incur 
product conversion costs driven by the development necessary to create 
compliant, cost-competitive products. Total industry conversion costs 
are expected to reach $66.1 million at TSL 2.
    TSL 3 represents a national standard at 92-percent AFUE for large 
furnaces, while small furnaces remain at the

[[Page 40675]]

current Federal minimum of 80-percent AFUE. Small furnaces are defined 
as NWGFs and MHGFs with input capacities of 60 kBtu/h or less. At TSL 
3, DOE estimates the change in INPV to range from -$151.9 million to -
$24.1 million, or a change in INPV of -10.8 percent to -1.7 percent. At 
this level, free cash flow is estimated to decrease to $55.3 million, 
or a decrease of 35.6 percent compared to the no-new-standards case 
value of $85.8 million in the year 2028.
    Small furnaces with input capacities of 60 kBtu/h or less account 
for approximately 23.3 percent of NWGF shipments and 46.7 percent of 
MHGF shipments in the year before standards take effect. At TSL 3, once 
standards go into effect, DOE expects 81.4 percent of NWGF shipments 
and 57.5 percent of MHGF shipments to be sold at condensing levels, 
requiring the industry to expand its production of secondary heat 
exchangers. Capital conversion costs would increase from $39.6 million 
at TSL 2 to $47.1 million at TSL 3 as manufacturers increase secondary 
heat exchanger production line capacity. Manufacturers would also incur 
product conversion costs driven by the development necessary to create 
compliant, cost-competitive products. Total industry conversion costs 
could reach $73.6 million at TSL 3.
    TSL 4 represents a regional standard set at 95-percent AFUE for 
products sold in the North and 80-percent AFUE for products sold in the 
Rest of Country. TSL 4 does not have a small furnace capacity 
threshold. At TSL 4, DOE estimates the change in INPV to range from -
$285.2 million to -$16.2 million, or a change in INPV of -20.2 percent 
to -1.1 percent. At this level, free cash flow is estimated to decrease 
to $45.1 million, or a decrease of 47.5 percent compared to the no-new-
standards case value of $85.8 million in the year 2028.
    In the year before the standard goes into effect, DOE expects that 
the North region will account for approximately 57.3 percent of 
consumer furnace shipments, with the remaining shipments attributable 
to the Rest of Country region. Once the standard goes into effect, 
consumer furnaces sold in the North must achieve 95-percent AFUE. At 
TSL 4, DOE expects 72.7 percent of NWGFs and 69.0 percent of MHGFs 
would be sold at condensing levels in 2029. Capital conversion costs 
are expected to reach $58.3 million as manufacturers increase secondary 
heat exchanger production line capacity. Product conversion costs reach 
$41.2 million, as manufacturers develop cost-optimized 95-percent AFUE 
furnaces that are competitive at reduced markups. Total industry 
conversion costs would be expected to reach $99.6 million at TSL 4.
    For products sold in the North that must achieve 95-percent AFUE, 
the industry faces a noticeable compression of markups. In the no-new-
standards case, 95-percent AFUE products garner a higher markup than 
baseline products. At TSL 4, 95-percent AFUE products become the 
minimum AFUE efficiency offering and would no longer command the same 
premium manufacturer markup in the North. However, at this level, 
manufacturers can still differentiate products and offer multiple 
markup tiers based on ``comfort'' features, such as two-stage or 
modulating combustion technology. DOE models the industry maintaining 
three manufacturer markup tiers (``good, better, best'') but at a 
compressed range of manufacturer markup values. This approach accounts 
for manufacturers' continued ability to differentiate products based on 
combustion system technology while recognizing that manufacturer 
markups (and profitability) for high-efficiency products in the North 
may be reduced due to the higher AFUE standard.
    TSL 5 represents a standard set at 92-percent AFUE for large 
furnaces, while small furnaces remain at the current Federal minimum of 
80-percent AFUE. Small furnaces are defined as NWGFs and MHGFs with 
input capacities of 55 kBtu/h or less. At TSL 5, DOE estimates the 
change in INPV to range from -$161.2 million to -$17.6 million, or a 
change in INPV of -11.4 percent to -1.2 percent. At this level, free 
cash flow is estimated to decrease to $52.2 million, or a decrease of 
39.2 percent compared to the no-new-standards case value of $85.8 
million in the year 2028.
    Small furnaces with input capacities of 55 kBtu/h or less account 
for approximately 11.2 percent of NWGFs and 21.8 percent of MHGFs in 
the year before the standard goes into effect. At TSL 5, 84.6 percent 
of NWGF shipments and 70.0 percent of MHGF shipments would be sold at 
condensing levels when the standard goes into effect, requiring the 
industry to expand its production of secondary heat exchangers. Capital 
conversion costs would increase from $47.1 million at TSL 3, the 
previous TSL with a separate standard level for small furnaces, to 
$53.9 million at TSL 5. Manufacturers will also incur product 
conversion costs driven by the development necessary to create 
compliant, cost-competitive products. DOE estimates total industry 
conversion costs could reach $80.5 million at TSL 5.
    TSLs 6, 8, and 9 represent national standards for all covered NWGFs 
and MHGFs. At these TSLs, there is no separate standard level based on 
furnace input capacity. As the TSL increases from 6 to 8 to 9, the 
national standard increases and DOE models a compression of markups in 
the tiered markup scenario. Compressed markups are a significant driver 
of negative impacts to INPV in the tiered markup scenario, particularly 
at TSL 9 for NWGFs, when neither efficiency nor combustion system 
technology (e.g., single-stage, two-stage, or modulating combustion) is 
a means for product differentiation.
    TSL 6 represents a national 92-percent AFUE standard for all 
covered NWGFs and MHGFs. TSL 6 does not have a small furnace capacity 
threshold. At this level, DOE estimates the change in INPV to range 
from -$174.4 million to -$34.5 million, or a change in INPV of -12.4 
percent to -2.4 percent. At this level, free cash flow is estimated to 
decrease to $44.9 million, or a decrease of 47.7 percent compared to 
the no-new-standards case value of $85.8 million in the year 2028.
    At TSL 6, all shipments of the covered product would be at a 
condensing level once the standard goes into effect. Manufacturer 
markups at TSL 6 are slightly reduced, but the industry is still able 
to maintain three tiers of markups. Manufacturers would incur product 
conversion costs of $26.6 million at TSL 6, as manufacturers develop 
92-percent AFUE furnaces that are competitive at reduced markups. 
Capital conversion costs would total $70.2 million, as manufacturers 
add production capacity to have secondary heat exchangers for all NWGF 
and MHGF shipments sold into the domestic market. Total conversion 
costs could reach $96.8 million for the industry.
    TSL 7 represents a 95-percent AFUE standard for large furnaces, 
while small furnaces remain at the current Federal minimum of 80-
percent AFUE. At TSL 7, small furnaces are defined as NWGFs and MHGFs 
with input capacities of 55 kBtu/h or less. DOE estimates the change in 
INPV to range from -$344.4 million to -$15.0 million, or a change in 
INPV of -24.4 percent to -1.1 percent. At this level, free cash flow is 
estimated to decrease to $34.0 million, or a decrease of 60.4 percent 
compared to the no-new-standards case value of $85.8 million in the 
year 2028.
    Small furnaces with input capacities of 55 kBtu/h or less account 
for approximately 11.2 percent of NWGF shipments and 21.8 percent of 
MHGF shipments before the standard goes into effect. At this level, 
84.6 percent of

[[Page 40676]]

NWGF shipments and 70.0 percent of MHGF shipments would be sold at 
condensing levels when the standard goes into effect, requiring the 
industry to expand its production of secondary heat exchangers. Capital 
conversion costs would total $82.9 million, as manufacturers add 
production capacity to have secondary heat exchangers for the majority 
of NWGF and MHGF shipments sold into the domestic market. Manufacturers 
would also incur product conversion costs of an estimated $41.2 
million, driven by the development necessary to create compliant, cost-
competitive products. Total conversion costs could reach $124.1 
million.
    For large NWGFs and MHGFs, industry faces a noticeable compression 
of markups due to their limited ability to differentiate products 
purely based on AFUE. However, as with TSL 4, manufacturers can still 
differentiate products subject to the 95-percent standard based on 
``comfort'' features, such as two-stage or modulating combustion 
technology. DOE models the industry as maintaining three markup tiers 
(``good, better, best'') but at a compressed range of tiers where max-
tech products do not command the same premium as they did in the no-
new-standards case. This approach accounts for manufacturers' continued 
ability to differentiate large NWGFs and MHGFs based on combustion 
systems while recognizing that markups (and profitability) for high-
efficiency products may be reduced for large furnaces due to the 95-
percent AFUE standard. While manufacturers would not experience a 
compression of markups for small capacity products, most shipments 
qualify as large furnaces at this capacity cutoff. The reduction in 
premium product offerings and deterioration of markups for the majority 
of furnace shipments coupled with increased conversion costs are 
expected to result in a negative change in INPV at TSL 7.
    TSL 8 represents a national 95-percent AFUE standard for all 
covered NWGFs and MHGFs. TSL 8 does not have a small capacity 
threshold. At TSL 8, DOE estimates the change in INPV to range from -
$380.3 million to -$30.5 million, or a change in INPV of -26.9 percent 
to -2.2 percent. At this level, free cash flow is estimated to decrease 
to $22.8 million, or a decrease of 73.4 percent compared to the no-new-
standards case value of $85.8 million in the year 2028.
    DOE estimates that approximately 39.3 percent of the annual NWGF 
shipments and approximately 14.9 percent of the annual MHGF shipments 
currently meet or exceed the efficiencies required at TSL 8. At TSL 8, 
all covered furnaces would be condensing after the standard goes into 
effect. DOE estimates capital conversion costs would increase to $107.8 
million at TSL 8, as manufacturers add production capacity to have 
secondary heat exchangers for all NWGF and MHGF shipments sold into the 
domestic market. Product conversion costs would total $41.2 million, as 
manufacturers develop cost-optimized 95-percent AFUE NWGF and MHGF 
models that are competitive at reduced markups. Total industry 
conversion costs could reach $149.0 million.
    With a national standard of 95-percent AFUE, industry faces a 
noticeable compression of markups due to their limited ability to 
differentiate products purely based on AFUE. As with TSL 4 and TSL 7, 
manufacturers can still differentiate products based on ``comfort'' 
features such as the combustion systems. At TSL 8, DOE models the 
industry as maintaining three markup tiers (``good, better, best'') but 
at a compressed range of manufacturer markup values where max-tech 
products do not command the same premium as they did in the no-new-
standards case. This approach accounts for manufacturers' continued 
ability to differentiate NWGFs and MHGFs based on combustion systems 
while recognizing that markups (and profitability) for high-efficiency 
products may be reduced due to the 95-percent AFUE standard. The 
compression of markups and a reduction in product offerings, coupled 
with increased conversion costs are expected to result in INPV losses 
at TSL 8.
    TSL 9 represents a national max-tech standard, where NWGF products 
must achieve 98-percent AFUE and MHGF products must achieve 96-percent 
AFUE. At TSL 9, DOE estimates the change in INPV to range from -$683.8 
million to $9.0 million, or a change in INPV of -48.4 percent to 0.6 
percent. At this level, the large conversion costs result in a free 
cash flow dropping below zero in the years before the standard year. 
The negative free cash flow calculation indicates manufacturers may 
need to access cash reserves or outside capital to finance conversion 
efforts.
    At TSL 9, approximately 1.8 percent of NWGFs and 0.8 percent of 
MHGFs are sold at this level today. Manufacturers would incur $79.9 
million in product conversion costs as they develop cost-optimized, 
high-efficiency NWGF models that can compete in a market where 
efficiency and combustion systems are no longer viable options for 
product differentiation and MHGF models that can compete in a market 
where efficiency is no longer a means for product differentiation. More 
than half of all NWGF and MHGF OEMs do not currently offer any models 
that meet the efficiency levels required by TSL 9. Manufacturers would 
also incur capital conversion costs of $221.6 million as manufacturers 
add the production capacity necessary to produce all NWGFs and MHGFs 
sold into the domestic market at 98-percent and 96-percent AFUE, 
respectively. Total conversion costs would be expected to reach $301.6 
million for the industry.
    Some manufacturers expressed great concern about the state of 
technology at max-tech. Specifically, those manufacturers' noted 
uncertainty about the ability to deliver cost-effective products for 
their customers. They also cited high conversion costs and large 
investments in R&D to produce all products at this level. Many OEMs do 
not currently manufacture any models that meet these efficiency levels. 
These OEMs would likely have more technical challenges in designing new 
models that meet max-tech levels. Furthermore, NWGF manufacturers would 
lose efficiency and combustion systems as differentiators between 
baseline and premium product offerings. The extent of conversion costs, 
the compression of markups, and the reduced ability to differentiate 
products would likely alter the consumer furnace competitive landscape.
    DOE seeks comments, information, and data on the capital conversion 
costs and product conversion costs estimated for each AFUE standard 
TSL.
Cash-Flow Analysis Results for Non-Weatherized Gas Furnaces and Mobile 
Home Gas Furnaces Standby Mode and Off Mode Standards
    Table V.20 presents the financial impacts of standby mode and off 
mode standards on NWGF and MHGF manufacturers. These impacts are 
represented by changes in INPV and free cash flow in the year before 
the standard (2028) as well as by the conversion costs that DOE 
estimates NWGF and MHGF manufacturers would incur at each TSL. The 
impacts of standby mode and off mode features were analyzed for the 
same product classes as the amended AFUE standards, but at different 
efficiency levels, which correspond to a different set of technology 
options for reducing standby mode and off mode energy consumption. 
Therefore, the TSLs in the standby mode and off mode

[[Page 40677]]

analysis do not correspond to the TSLs in the AFUE analysis.
    DOE considered the impacts of standby mode and off mode features 
under two markup scenarios to represent the upper and lower bounds of 
industry impacts: (1) a preservation of gross margin percentage 
scenario, and (2) a preservation of operating profit scenario. The 
preservation of gross margin percentage scenario represents the upper 
bound of impacts (less severe), while the preservation of operating 
profit scenario represents the lower bound of impacts (more severe).

  Table V.20--Manufacturer Impact Analysis: Standby Mode and Off Mode Standards Results for Non-Weatherized Gas
                                      Furnaces and Mobile Home Gas Furnaces
----------------------------------------------------------------------------------------------------------------
                                                                               Trial standard level
                                      Units           No-new-    -----------------------------------------------
                                                  standards case       TSL 1           TSL 2           TSL 3
----------------------------------------------------------------------------------------------------------------
INPV..........................  2020$ millions..         1,411.8      1,410.8 to      1,410.8 to      1,409.7 to
                                                                         1,412.7         1,412.8         1,416.8
Change in INPV................  2020$ millions..  ..............    (1.0) to 0.9    (1.1) to 1.0    (2.1) to 5.0
                                %...............  ..............    (0.1) to 0.1    (0.1) to 0.1    (0.1) to 0.4
Free Cash Flow (2028).........  2020$ millions..            85.8            85.4            85.4            85.3
Change in Free Cash Flow        %...............  ..............           (0.5)           (0.5)           (0.6)
 (2028).
Product Conversion Costs......  2020$ millions..  ..............             1.2             1.2             1.6
Capital Conversion Costs......  2020$ millions..  ..............  ..............  ..............  ..............
                                                 ---------------------------------------------------------------
    Total Investment Required.  2020$ millions..  ..............             1.2             1.2             1.6
----------------------------------------------------------------------------------------------------------------
Note: Parentheses indicate negative values.

    At TSL 1, DOE estimates the impacts on INPV for NWGF and MHGF 
manufacturers to change by less than 0.1 percent in both markup 
scenarios (preservation of gross margin percentage and preservation of 
operating profit). At this potential standard level, industry free cash 
flow is estimated to decrease by 0.5 percent compared to the no-new-
standards case value of $85.8 million in 2028. DOE expects industry 
conversion costs for standby mode and off mode to be $1.2 million.
    At TSL 2, DOE estimates the impacts on INPV for NWGF and MHGF 
manufacturers to change by less than 0.1 percent in both markup 
scenarios (preservation of gross margin percentage and preservation of 
operating profit). At this potential standard level, industry free cash 
flow is estimated to decrease by 0.5 percent compared to the no-new-
standards case value of $85.8 million in 2028. DOE expects industry 
conversion costs for standby mode and off mode to be $1.2 million.
    At TSL 3, DOE estimates the impacts on INPV for NWGF and MHGF 
manufacturers to range from a decrease of 0.1 percent to an increase of 
0.4 percent. At this potential standard level, industry free cash flow 
is estimated to decrease by 0.6 percent compared to the no-new-
standards case value of $85.8 million in 2028. DOE expects industry 
conversion costs for standby mode and off mode to be $1.6 million.
    DOE seeks comments, information, and data on the capital conversion 
costs and product conversion costs estimated for each standby mode and 
off mode TSL.
b. Direct Impacts on Employment
    To quantitatively assess the potential impacts of amended energy 
conservation standards on direct employment in the NWGF and MHGF 
industry, DOE used the GRIM to estimate the domestic labor expenditures 
and number of direct employees in the no-new-standards case and in each 
of the AFUE standards cases during the analysis period. DOE calculated 
these values using statistical data from the U.S. Census Bureau's 2019 
ASM,\266\ the U.S. Bureau of Labor Statistics' (``BLS'') employee 
compensation data,\267\ results of the engineering analysis, and 
manufacturer interviews.
---------------------------------------------------------------------------

    \266\ U.S. Census Bureau's Annual Survey of Manufactures: 2018-
2019 (Available at www.census.gov/programs-surveys/asm/data/tables.html) (Last accessed Oct. 19, 2021).
    \267\ U.S. Bureau of Labor Statistics, Employer Costs for 
Employee Compensation (June 17, 2021) (Available at: www.bls.gov/news.release/pdf/ecec.pdf) (Last accessed May 20, 2022).
---------------------------------------------------------------------------

    Labor expenditures related to product manufacturing depend on the 
labor intensity of the product, the sales volume, and an assumption 
that wages remain fixed in real terms over time. The total labor 
expenditures in each year are calculated by multiplying the total MPCs 
by the labor percentage of MPCs. The total labor expenditures in the 
GRIM were then converted to domestic production employment levels by 
dividing production labor expenditures by the average fully burdened 
wage multiplied by the average number of hours worked per year per 
production worker. To do this, DOE relied on the ASM inputs Production 
Workers Annual Wages, Production Workers Annual Hours, Production 
Workers Average for Year, and Number of Employees. DOE also relied on 
the BLS employee compensation data to determine the fully burdened wage 
ratio. The fully burdened wage ratio factors in paid leave, 
supplemental pay, insurance, retirement and savings, and legally 
required benefits.
    Total production employees is then multiplied by the U.S. labor 
percentage to convert total production employment to total domestic 
production employment. The U.S. labor percentage represents the 
industry fraction of domestic manufacturing production capacity for the 
covered product. This value is derived from manufacturer interviews, 
product database analysis, and publicly available information. DOE 
estimates that 45 percent of gas-fired consumer furnaces are produced 
domestically.
    The domestic production employees estimate covers production line 
workers, including line supervisors, who are directly involved in 
fabricating, processing, or assembling products within the OEM 
facility. Workers performing services that are closely associated with 
production operations, such as handling materials using forklifts, are 
also included as production labor.\268\ DOE's estimates only account 
for production workers who

[[Page 40678]]

manufacture the specific equipment covered by this rulemaking.
---------------------------------------------------------------------------

    \268\ The comprehensive description of production and non-
production workers is available online at: www.census.gov/programs-surveys/asm/information.html, ``Definitions and Instructions for the 
Annual Survey of Manufacturers, MA-10000.'' (pp. 13-14).
---------------------------------------------------------------------------

    Non-production workers account for the remainder of the direct 
employment figure. The non-production employees covers domestic workers 
who are not directly involved in the production process, such as sales, 
engineering, human resources, management, etc. Using the amount of 
domestic production workers calculated above, non-production domestic 
employees are extrapolated by multiplying the ratio of non-production 
workers in the industry compared to production employees. DOE assumes 
that this employee distribution ratio remains constant between the no-
standards case and standards cases.

  Table V.21--Potential Changes in the Total Number of Non-Weatherized Gas Furnace and Mobile Home Gas Furnace
                                  Production and Non-Production Workers in 2029
----------------------------------------------------------------------------------------------------------------
                                                               Trial standard level
                                 -------------------------------------------------------------------------------
                                      No-new-
                                  standards case       TSL 1           TSL 2           TSL 3           TSL 4
----------------------------------------------------------------------------------------------------------------
Direct Employment in 2029                  1,718           1,761           1,789           1,778           1,829
 (Production workers + Non-
 Production Workers)............
Potential Changes in Direct       ..............   (1,274) to 43   (1,274) to 71   (1,274) to 60  (1,274) to 111
 Employment Workers in 2029 *...
----------------------------------------------------------------------------------------------------------------
                                                               Trial standard level
                                 -------------------------------------------------------------------------------
                                           TSL 5           TSL 6           TSL 7           TSL 8           TSL 9
----------------------------------------------------------------------------------------------------------------
Direct employment estimate in              1,803           1,755           1,898           1,875           1,812
 2029 (Production Workers + Non-
 Production Workers)............
----------------------------------------------------------------------------------------------------------------
Potential Changes in Direct        (1,274) to 85   (1,274) to 37  (1,274) to 180  (1,274) to 157   (1,274) to 94
 Employment Workers in 2029 *...
----------------------------------------------------------------------------------------------------------------
* DOE presents a range of potential employment impacts. Numbers in parentheses indicate negative values.

    The direct employment impacts shown in Table V.23 represent the 
potential domestic employment changes that could result following the 
compliance date for the NWGF and MHGF product classes in this proposal. 
The upper end of the range estimates an increase in the number of 
domestic workers producing NWGFs and MHGFs after implementation of an 
amended energy conservation standard at each TSL. This upper bound 
assumes manufacturers would continue to produce the same scope of 
covered products within the United States and would require additional 
labor to produce more-efficient products. The lower bound of the range 
represents the estimated maximum decrease in the total number of U.S. 
domestic workers if production moved to lower labor-cost countries or 
manufacturers left the market. Some large manufacturers are currently 
producing covered products in countries with lower labor costs, and an 
amended standard that necessitates large increases in labor content or 
large expenditures to re-tool facilities could cause manufacturers to 
re-evaluate domestic production siting options.
    The impacts in the direct employment analysis are based on the 
analysis of amended AFUE energy conservation standards only. Standby 
mode and off mode technology options considered in the engineering 
analysis would result in component swaps, which would not make the 
product significantly more complex. While some product development 
effort would be required, the standby mode and off mode standard would 
not significantly affect the amount of labor required in production. 
Therefore, DOE did not conduct a quantitative domestic manufacturing 
employment impact analysis for the proposed standby mode and off mode 
standards.
    Additional detail on the analysis of direct employment can be found 
in chapter 12 of the NOPR TSD. Additionally, the employment impacts 
discussed in this section are independent of the employment impacts 
from the broader U.S. economy, which are documented in chapter 15 of 
the NOPR TSD.
c. Impacts on Manufacturing Capacity
    According to manufacturer feedback, production facilities are not 
currently equipped to supply the entire NWGF and MHGF market with 
condensing products. However, most manufacturers would be able to add 
capacity and adjust product designs in the 5-year period between the 
announcement year of the standard and the compliance year of the 
standard. DOE interviewed manufacturers representing over 65 percent of 
industry shipments. None of the interviewed manufacturers expressed 
concern over the industry's ability increase the capacity of production 
lines that meet required efficiency levels at TSLs 1 through 8 to meet 
consumer demand. At TSL 9, technical uncertainty was expressed by 
manufacturers that do not offer max-tech efficiency products today, as 
they were unsure of what production lines changes would be needed to 
meet an amended standard set at max-tech.
d. Impacts on Subgroups of Manufacturers
    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 substantially 
from the industry average could be affected disproportionately. DOE 
used the results of the industry characterization to group 
manufacturers exhibiting similar characteristics. Specifically, DOE 
identified small businesses as a manufacturer subgroup that it believes 
could be disproportionally impacted by energy conservation standards 
and would require a separate analysis in the MIA. DOE did not identify 
any other adversely impacted manufacturer subgroups for this rulemaking 
based on the results of the industry characterization.
    DOE analyzes the impacts on small businesses in a separate analysis 
in

[[Page 40679]]

section VI.B of this NOPR as part of the Regulatory Flexibility 
Analysis. In summary, the SBA defines a ``small business'' as having 
1,250 employees or less for NAICS 333415, ``Air-Conditioning and Warm 
Air Heating Equipment and Commercial and Industrial Refrigeration 
Equipment Manufacturing.'' Based on this classification, DOE identified 
four domestic OEMs that certify NWGFs and/or MHGFs in DOE's Compliance 
Certification Management System database (``CCMS'') \269\ that qualify 
as a small business. For a discussion of the impacts on the small 
business manufacturer subgroup, see the Regulatory Flexibility Analysis 
in section VI.B of this NOPR and chapter 12 of the NOPR TSD.
---------------------------------------------------------------------------

    \269\ U.S. Department of Energy Compliance Certification 
Management System (``CCMS''). (Available at: 
www.regulations.doe.gov/certification-data/) (Last accessed July 7, 
2021).
---------------------------------------------------------------------------

e. Cumulative Regulatory Burden
    One aspect of assessing manufacturer burden involves examining the 
cumulative impact of multiple DOE standards and the product-specific 
regulatory actions of other Federal agencies that affect the 
manufacturers of a covered product or equipment. While any one 
regulation may not impose a significant burden on manufacturers, the 
combined effects of several recent or impending regulations may have 
serious consequences for some manufacturers, groups of manufacturers, 
or an entire industry. Assessing the impact of a single regulation may 
overlook this cumulative regulatory burden. In addition to energy 
conservation standards, other regulations can significantly affect 
manufacturers' financial operations. 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 examines 
Federal, product-specific regulations that could affect NWGF and MHGF 
manufacturers that take effect approximately three years before or 
after the 2029 compliance date. Table V.22 presents the DOE energy 
conservation standards that would impact manufacturers of NWGF and MHGF 
products in the 2026 to 2032 timeframe.

Table V.22--Compliance Dates and Expected Conversion Expenses of Federal Energy Conservation Standards Affecting
                           Gas-Fired Consumer Furnace Original Equipment Manufacturers
----------------------------------------------------------------------------------------------------------------
                                                                                                     Industry
                                                  Number of OEMs                     Industry       conversion
   Federal energy conservation    Number of OEMs   affected from      Approx.       conversion     costs/product
            standard                     *         today's rule   standards year       costs        revenue ***
                                                        **                         (millions $)         (%)
----------------------------------------------------------------------------------------------------------------
Room Air Conditioners [dagger]                 8               2            2026           $22.8            0. 5
 87 FR 20608 (April 7, 2022)....
Consumer Pool Heaters [dagger]                21               1            2028            38.8             1.9
 87 FR 22640 (April 15, 2022)...
Commercial Water Heating                      15               3            2026            34.6            4.7
 Equipment [dagger] 87 FR 30610
 (May 19, 2022).................
----------------------------------------------------------------------------------------------------------------
* This column presents the total number of OEMs identified in the energy conservation standard rule contributing
  to cumulative regulatory burden.
** This column presents the number of OEMs producing consumer furnaces that are also listed as OEMs in the
  identified energy conservation standard contributing to cumulative regulatory burden.
*** This column presents industry conversion costs as a percentage of product revenue during the conversion
  period. Industry conversion costs are the upfront investments manufacturers must make to sell compliant
  products/equipment. The revenue used for this calculation is the revenue from just the covered product/
  equipment associated with each row. The conversion period is the time frame over which conversion costs are
  made and lasts from the publication year of the final rule to the compliance year of the final rule. The
  conversion period typically ranges from 3 to 5 years, depending on the energy conservation standard.
 [dagger] The Room Air Conditioners, Consumer Pool Heaters, and Commercial Water Heating Equipment rulemakings
  are in the NOPR stage and all values are subject to change until finalized.

3. National Impact Analysis
    This section presents DOE's estimates of the national energy 
savings and the NPV of consumer benefits that would result from each of 
the TSLs considered as potential amended AFUE standards and new standby 
mode and off mode standards.
a. Significance of Energy Savings
    To estimate the energy savings attributable to potential amended 
and new standards for NWGFs and MHGFs, DOE compared their energy 
consumption under the no-new-standards case to their anticipated energy 
consumption under each TSL. The savings are measured over the entire 
lifetime of products purchased in the 30-year period that begins in the 
year of anticipated compliance with amended standards (2029-2058). 
Table V.23 presents DOE's projections of the national energy savings 
for each AFUE TSL considered for NWGFs and MHGFs. The savings were 
calculated using the approach described in section IV.H.2 of this 
document.

 Table V.23--Cumulative National Energy Savings for Non-Weatherized Gas Furnace and Mobile Home Gas Furnace AFUE Standards; 30 Years of Shipments (2029-
                                                                          2058)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                       Trial standard level
             Energy savings                       Product class         --------------------------------------------------------------------------------
                                                                            1        2        3        4        5        6        7        8        9
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                              quads
--------------------------------------------------------------------------------------------------------------------------------------------------------
Primary energy..........................  NWGF.........................     1.60     2.45     2.82     2.92     3.01     3.49     4.15     4.70     6.45
                                          MHGF.........................     0.01     0.03     0.05     0.08     0.06     0.09     0.07     0.10     0.09
                                          Total........................     1.61     2.49     2.86     3.00     3.07     3.58     4.22     4.81     6.54
FFC energy..............................  NWGF.........................     1.77     2.72     3.14     3.26     3.37     4.03     4.63     5.37     7.38
                                          MHGF.........................     0.01     0.04     0.05     0.09     0.06     0.10     0.08     0.12     0.11

[[Page 40680]]

 
                                          Total........................     1.78     2.76     3.19     3.35     3.44     4.12     4.70     5.48     7.48
--------------------------------------------------------------------------------------------------------------------------------------------------------

    For the proposed standards (TSL 8), the FFC energy savings of 5.48 
quads are the FFC natural gas savings minus the increase in FFC energy 
use associated with higher electricity use due primarily to switching 
to electric heating.
    The previously results reflect the use of the reference product 
switching scenario and repair vs. replace trend for NWGFs and MHGFs (as 
described in section IV.F.12 of this document). DOE also conducted a 
sensitivity analysis that considered scenarios with lower and higher 
rates of product switching, as compared to the default case. The 
results of these alternative cases are presented in appendix 10E of the 
NOPR TSD.
    Table V.24 presents DOE's projections of the primary and FFC 
national energy savings for each standby mode and off mode TSL 
considered for NWGFs and MHGFs. National energy savings were calculated 
using the approach described in section IV.H.2 of this NOPR.

   Table V.24--Cumulative National Energy Savings for Non-Weatherized Gas Furnace and Mobile Home Gas Furnace
                     Standby Mode and Off Mode Standards; 30 Years of Shipments (2029-2058)
----------------------------------------------------------------------------------------------------------------
                                                                               Trial standard level
           Energy savings                    Product class       -----------------------------------------------
                                                                         1               2               3
----------------------------------------------------------------------------------------------------------------
                                                                                       quads
----------------------------------------------------------------------------------------------------------------
Primary energy......................  NWGF......................            0.15            0.18            0.26
                                      MHGF......................           0.002           0.002           0.003
                                      Total.....................            0.15            0.18            0.27
FFC energy..........................  NWGF......................            0.15            0.18            0.27
                                      MHGF......................           0.002           0.002           0.003
                                      Total.....................            0.16            0.19            0.28
----------------------------------------------------------------------------------------------------------------

    OMB Circular A-4 \270\ requires agencies to present analytical 
results, including separate schedules of the monetized benefits and 
costs that show the type and timing of benefits and costs. Circular A-4 
also directs agencies to consider the variability of key elements 
underlying the estimates of benefits and costs. For this rulemaking, 
DOE undertook a sensitivity analysis using 9 years, rather than 30 
years, of product shipments. The choice of a 9-year period is a proxy 
for the timeline in EPCA for the review of certain energy conservation 
standards and potential revision of and compliance with such revised 
standards.\271\ The review timeframe established in EPCA is generally 
not synchronized with the product lifetime, product manufacturing 
cycles, or other factors specific to NWGFs and MHGFs. Thus, such 
results are presented for informational purposes only and are not 
indicative of any change in DOE's analytical methodology. The NES 
sensitivity analysis results based on a 9-year analytical period are 
presented in Table V.25 for AFUE standards and Table V.26 for standby 
and off mode standards.\272\ The impacts are counted over the lifetime 
of NWGFs and MHGFs purchased in 2029-2037.
---------------------------------------------------------------------------

    \270\ U.S. Office of Management and Budget, Circular A-4: 
Regulatory Analysis (September 17, 2003) (Available at: 
www.whitehouse.gov/sites/whitehouse.gov/files/omb/circulars/A4/a-4.pdf) (Last accessed Sept. 9, 2021).
    \271\ 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 
products, the compliance period is 5 years rather than 3 years.
    \272\ DOE presents results based on a 9-year analytical period 
only for the AFUE TSLs; the percentage difference between nine-year 
and 30-year results for the standby mode and off mode TSLs is the 
same as for the AFUE TSLs.

Table V.25--Cumulative National Energy Savings for Non-Weatherized Gas Furnaces and Mobile Home Gas Furnaces AFUE Standards; 9 Years of Shipments (2029-
                                                                          2037)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                       Trial standard level
             Energy savings                       Product class         --------------------------------------------------------------------------------
                                                                            1        2        3        4        5        6        7        8        9
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                              quads
--------------------------------------------------------------------------------------------------------------------------------------------------------
Primary energy..........................  NWGF.........................     0.45     0.69     0.79     0.78     0.85     0.98     1.17     1.33     1.94
                                          MHGF.........................     0.00     0.01     0.01     0.02     0.02     0.02     0.02     0.03     0.03
                                          Total........................     0.45     0.70     0.80     0.81     0.86     1.01     1.19     1.36     1.96
FFC energy..............................  NWGF.........................     0.50     0.76     0.88     0.88     0.95     1.15     1.30     1.53     2.23
                                          MHGF.........................     0.00     0.01     0.02     0.03     0.02     0.03     0.02     0.03     0.03

[[Page 40681]]

 
                                          Total........................     0.50     0.77     0.90     0.90     0.97     1.17     1.33     1.56     2.26
--------------------------------------------------------------------------------------------------------------------------------------------------------


   Table V.26--Cumulative National Energy Savings for Non-Weatherized Gas Furnace and Mobile Home Gas Furnace
                      Standby Mode and Off Mode Standards; 9 Years of Shipments (2029-2037)
----------------------------------------------------------------------------------------------------------------
                                                                               Trial standard level
           Energy savings                    Product class       -----------------------------------------------
                                                                         1               2               3
----------------------------------------------------------------------------------------------------------------
                                                                                       quads
----------------------------------------------------------------------------------------------------------------
Primary energy......................  NWGF......................            0.04            0.05            0.07
                                      MHGF......................           0.000           0.001           0.001
                                      Total.....................            0.04            0.05            0.07
FFC energy..........................  NWGF......................            0.04            0.05            0.08
                                      MHGF......................           0.000           0.001           0.001
                                      Total.....................            0.04            0.05            0.08
----------------------------------------------------------------------------------------------------------------

b. Net Present Value of Consumer Costs and Benefits
    DOE estimated the cumulative NPV of the total costs and savings for 
consumers that would result from the TSLs considered for NWGFs and 
MHGFs. In accordance with OMB's guidelines on regulatory analysis,\273\ 
DOE calculated NPV using both a 7-percent and a 3-percent real discount 
rate. Table V.27 E;shows the consumer NPV results for AFUE standards 
with impacts counted over the lifetime of products purchased in 2029-
2058.
---------------------------------------------------------------------------

    \273\ U.S. Office of Management and Budget, Circular A-4: 
Regulatory Analysis (September 17, 2003) (Available at: 
www.whitehouse.gov/sites/whitehouse.gov/files/omb/circulars/A4/a-4.pdf) (Last accessed September 9, 2021).

  Table V.27--Cumulative Net Present Value of Consumer Benefits for Non-Weatherized Gas Furnace and Mobile Home Gas Furnace AFUE Standards; 30 Years of
                                                                  Shipments (2029-2058)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                       Trial standard level
              Discount rate                       Product class         --------------------------------------------------------------------------------
                                                                            1        2        3        4        5        6        7        8        9
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                          billion 2017$
--------------------------------------------------------------------------------------------------------------------------------------------------------
7 percent...............................  NWGF.........................     1.44     2.35     2.87     2.60     3.10     4.11     4.79     5.92     6.48
                                          MHGF.........................     0.02     0.06     0.10     0.19     0.12     0.18     0.16     0.23     0.23
                                          Total........................     1.45     2.41     2.97     2.79     3.22     4.28     4.95     6.15     6.71
3 percent...............................  NWGF.........................     5.42     8.68    10.52     9.79    11.41    15.35    16.51    20.79    24.82
                                          MHGF.........................     0.06     0.20     0.31     0.61     0.39     0.60     0.50     0.77     0.77
                                          Total........................     5.48     8.88    10.83    10.40    11.79    15.94    17.01    21.56    25.59
--------------------------------------------------------------------------------------------------------------------------------------------------------

    The above results reflect the use of the default product switching 
trend for NWGFs (as described in section IV.F.12 of this document). As 
previously discussed, DOE conducted a sensitivity analysis assuming 
higher and lower levels of product switching for NWGFs. The results of 
these alternative cases are presented in appendix 10 E of the NOPR TSD.
    Table V.28 shows the consumer NPV results for standby mode and off 
mode standards with impacts counted over the lifetime of products 
purchased in 2029-2058.

  Table V.28--Cumulative Net Present Value of Consumer Benefits for Non-Weatherized Gas Furnace and Mobile Home
               Gas Furnace Standby Mode and Off Mode Standards; 30 Years of Shipments (2029-2058)
----------------------------------------------------------------------------------------------------------------
                                                                               Trial standard level
             Discount rate                    Product class      -----------------------------------------------
                                                                         1               2               3
----------------------------------------------------------------------------------------------------------------
                                                                                   billion 2020$
----------------------------------------------------------------------------------------------------------------
7 percent.............................  NWGF....................            0.67            0.77            1.13
                                        MHGF....................            0.01            0.01            0.01
                                        Total...................            0.67            0.78            1.14
3 percent.............................  NWGF....................            1.94            2.27            3.34
                                        MHGF....................            0.02            0.03            0.04

[[Page 40682]]

 
                                        Total...................            1.96            2.30            3.38
----------------------------------------------------------------------------------------------------------------

    The NPV results for AFUE standards based on the aforementioned 9-
year analytical period are presented in Table V.29 for AFUE standards 
and Table V.30 for standby and off mode standards.\274\ The impacts are 
counted over the lifetime of products purchased in 2029-2037. As 
mentioned previously, such results are presented for informational 
purposes only and are not indicative of any change in DOE's analytical 
methodology or decision criteria.
---------------------------------------------------------------------------

    \274\ DOE presents results based on a 9-year analytical period 
only for the AFUE TSLs; the percentage difference between nine-year 
and 30-year results for the standby mode and off mode TSLs is the 
same as for the AFUE TSLs.

  Table V.29--Cumulative Net Present Value of Consumer Benefits for Non-Weatherized Gas Furnace and Mobile Home Gas Furnace AFUE Standards; 9 Years of
                                                                  Shipments (2029-2037)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                       Trial standard level
              Discount rate                        Product class        --------------------------------------------------------------------------------
                                                                            1        2        3        4        5        6        7        8        9
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                          billion 2020$
--------------------------------------------------------------------------------------------------------------------------------------------------------
7 percent................................  NWGF........................      0.7      1.1      1.4      1.3      1.5      2.1      2.5      3.2      3.6
                                           MHGF........................      0.0      0.0      0.1      0.1      0.1      0.1      0.1      0.1      0.1
                                           Total.......................      0.7      1.1      1.4      1.4      1.6      2.2      2.6      3.3      3.7
3 percent................................  NWGF........................      1.8      3.0      3.7      3.6      4.1      5.5      6.3      8.0      9.9
                                           MHGF........................      0.0      0.1      0.1      0.2      0.2      0.2      0.2      0.3      0.3
                                           Total.......................      1.9      3.1      3.8      3.8      4.2      5.8      6.4      8.2     10.2
--------------------------------------------------------------------------------------------------------------------------------------------------------


  Table V.30--Cumulative Net Present Value of Consumer Benefits for Non-Weatherized Gas Furnace and Mobile Home
                Gas Furnace Standby Mode and Off Mode Standards; 9 Years of Shipments (2029-2037)
----------------------------------------------------------------------------------------------------------------
                                                                               Trial standard level
             Discount rate                    Product class      -----------------------------------------------
                                                                         1               2               3
----------------------------------------------------------------------------------------------------------------
                                                                                   billion 2020$
----------------------------------------------------------------------------------------------------------------
7 percent.............................  NWGF....................             0.3             0.4             0.6
                                        MHGF....................            0.00            0.00            0.01
                                        Total...................             0.3             0.4             0.6
3 percent.............................  NWGF....................             0.7             0.9             1.3
                                        MHGF....................            0.01            0.01            0.01
                                        Total...................             0.8             0.9             1.3
----------------------------------------------------------------------------------------------------------------

    The previous results reflect the use of a default trend to estimate 
the change in price for NWGFs and MHGFs over the analysis period (see 
section IV.F.2 of this document). DOE also conducted a sensitivity 
analysis that considered one scenario with a lower rate of price 
decline than the reference case and one scenario with a higher rate of 
price decline than the reference case. The results of these alternative 
cases are presented in appendix 10C of the NOPR TSD. In the high-price-
decline case, the NPV of consumer benefits is higher than in the 
default case. In the low-price-decline case, the NPV of consumer 
benefits is lower than in the default case.
c. Indirect Impacts on Employment
    It is estimated that amended energy conservation standards for 
NWGFs and MHGFs will reduce energy expenditures for consumers of those 
products, with the resulting net savings being redirected to other 
forms of economic activity. These expected shifts in spending and 
economic activity could affect the demand for labor. As described in 
section IV.N of this document, DOE used an input/output model of the 
U.S. economy to estimate indirect employment impacts of the TSLs that 
DOE considered. There are uncertainties involved in projecting 
employment impacts, especially changes in the later years of the 
analysis. Therefore, DOE generated results for near-term timeframes 
(2029-2034), where these uncertainties are reduced.
    The results suggest that the proposed 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 NOPR TSD presents detailed results 
regarding anticipated indirect employment impacts.

[[Page 40683]]

4. Impact on Utility or Performance of Products
    As discussed in section III.E.1.d of this document, DOE has 
initially concluded that the standards proposed in this NOPR would not 
lessen the utility or performance of the NWGFs and MHGFs under 
consideration in this rulemaking. Manufacturers of these products 
currently offer units that meet or exceed the proposed standards.
5. Impact of Any Lessening of Competition
    DOE considered any lessening of competition that would be likely to 
result from new or amended standards. As discussed in section III.E.1.e 
of this document, EPCA directs the Attorney General of the United 
States (``Attorney General'') to determine the impact, if any, of any 
lessening of competition likely to result from a proposed standard and 
to transmit such determination in writing to the Secretary within 60 
days of the publication of a proposed rule, together with an analysis 
of the nature and extent of the impact. DOE has also provided DOJ with 
copies of this NOPR and the accompanying TSD for review. DOE will 
consider DOJ's comments on the proposed rule in determining whether to 
proceed to a final rule. DOE will publish and respond to DOJ's comments 
in that document. DOE invites comment from the public regarding the 
competitive impacts that are likely to result from this proposed rule. 
In addition, stakeholders may also provide comments separately to DOJ 
regarding these potential impacts. See the ADDRESSES section for 
information to send comments to DOJ.
6. Need of the Nation to Conserve Energy
    Enhanced energy efficiency, where economically justified, improves 
the Nation's energy security, strengthens the economy, and reduces the 
environmental impacts (costs) of energy production. Chapter 15 in the 
NOPR TSD presents the estimated impacts on electricity generating 
capacity, relative to the no-new-standards case, for the TSLs that DOE 
considered in this rulemaking.
    Energy conservation resulting from potential energy conservation 
standards for NWGFs and MHGFs is expected to yield environmental 
benefits in the form of reduced emissions of certain air pollutants and 
greenhouse gases. Table V.31 provides DOE's estimate of cumulative 
emissions reductions expected to result from the AFUE TSLs considered 
in this rulemaking. The increase in emissions of SO2, Hg, 
and N2O is due to a fraction of NWGF consumers that are 
projected to switch from gas furnaces to electric heat pumps and 
electric furnaces in response to the potential standards. Table V.32 
provides DOE's estimate of cumulative emissions reductions expected to 
result from the standby mode and off mode TSLs considered in this 
rulemaking. The emissions were calculated using the multipliers 
discussed in section IV.K of this document. DOE reports annual 
emissions reductions for each TSL in chapter 13 of the NOPR TSD.

      Table V.31--AFUE Standards: Cumulative Emissions Reduction for Non-Weatherized Gas Furnaces and Mobile Home Gas Furnaces Shipped in 2029-2058
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                     Trial standard level
                                    --------------------------------------------------------------------------------------------------------------------
                                          1            2            3            4            5            6            7            8            9
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                 Power Sector Emissions
--------------------------------------------------------------------------------------------------------------------------------------------------------
CO2 (million metric tons)..........           89          140          166          176          182          251          245          318          440
SO2 (thousand tons)................          (3)          (6)         (11)         (13)         (15)         (50)         (16)         (52)         (77)
NOX (thousand tons)................           37           58           69           74           75          104          102          133          182
Hg (tons)..........................       (0.02)       (0.04)       (0.07)       (0.09)       (0.10)       (0.31)       (0.11)       (0.33)       (0.48)
CH4 (thousand tons)................          1.5          2.0          1.9          1.9          1.8        (1.3)          2.9        (0.1)        (0.8)
N2O (thousand tons)................         0.12         0.16         0.11         0.09         0.07       (0.48)         0.17       (0.38)       (0.62)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                   Upstream Emissions
--------------------------------------------------------------------------------------------------------------------------------------------------------
CO2 (million metric tons)..........           11           18           22           23           24           36           32           44           62
SO2 (thousand tons)................         0.02         0.01       (0.02)       (0.03)       (0.05)       (0.34)       (0.03)       (0.32)       (0.49)
NOX (thousand tons)................          172          275          332          353          367          555          489          686          957
Hg (tons)..........................       (0.00)       (0.00)       (0.00)       (0.00)       (0.00)       (0.00)       (0.00)       (0.00)       (0.00)
CH4 (thousand tons)................        1,258        2,009        2,435        2,588        2,694        4,113        3,583        5,068        7,071
N2O (thousand tons)................         0.02         0.03         0.03         0.03         0.03         0.03         0.04         0.05         0.06
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                   Total FFC Emissions
--------------------------------------------------------------------------------------------------------------------------------------------------------
CO2 (million metric tons)..........          100          158          188          199          205          286          277          363          502
SO2 (thousand tons)................          (3)          (6)         (11)         (13)         (15)         (51)         (16)         (52)         (77)
NOX (thousand tons)................          209          333          401          427          443          660          591          819        1,139
Hg (tons)..........................       (0.02)       (0.04)       (0.07)       (0.09)       (0.10)       (0.32)       (0.11)       (0.33)       (0.48)
CH4 (thousand tons)................        1,259        2,011        2,437        2,590        2,696        4,112        3,586        5,068        7,070
N2O (thousand tons)................         0.14         0.18         0.14         0.13         0.10       (0.45)         0.21       (0.33)       (0.56)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Negative values (shown in parentheses) refer to an increase in emissions.


Table V.32--Standby Mode and Off Mode Standards: Cumulative Emissions Reduction for Non-Weatherized Gas Furnaces
                                and Mobile Home Gas Furnaces Shipped in 2029-2058
----------------------------------------------------------------------------------------------------------------
                                                                               Trial standard level
                                                                 -----------------------------------------------
                                                                         1               2               3
----------------------------------------------------------------------------------------------------------------
                                             Power Sector Emissions
----------------------------------------------------------------------------------------------------------------
CO2 (million metric tons).......................................             5.0             6.0             9.0
SO2 (thousand tons).............................................             2.5             3.0             4.4
NOX (thousand tons).............................................             2.1             2.5             3.7

[[Page 40684]]

 
Hg (tons).......................................................            0.01            0.02            0.03
CH4 (thousand tons).............................................             0.4             0.5             0.7
N2O (thousand tons).............................................             0.1             0.1             0.1
----------------------------------------------------------------------------------------------------------------
                                               Upstream Emissions
----------------------------------------------------------------------------------------------------------------
CO2 (million metric tons).......................................             0.4             0.4             0.7
SO2 (thousand tons).............................................             0.0             0.0             0.0
NOX (thousand tons).............................................             5.4             6.5             9.8
Hg (tons).......................................................             0.0             0.0             0.0
CH4 (thousand tons).............................................            36.3            43.6            65.1
N2O (thousand tons).............................................             0.0             0.0             0.0
----------------------------------------------------------------------------------------------------------------
                                               Total FFC Emissions
----------------------------------------------------------------------------------------------------------------
CO2 (million metric tons).......................................             5.4             6.4             9.6
SO2 (thousand tons).............................................             2.5             3.0             4.5
NOX (thousand tons).............................................             7.5             9.0            13.5
Hg (tons).......................................................            0.01            0.02            0.03
CH4 (thousand tons).............................................            36.7            44.1            65.9
N2O (thousand tons).............................................             0.1             0.1             0.1
----------------------------------------------------------------------------------------------------------------

    As part of the analysis for this rulemaking, DOE estimated monetary 
benefits likely to result from the reduced emissions of CO2 
that DOE estimated for each of the considered TSLs for NWGFs and MHGFs. 
Section IV.L.1.a of this document discusses the SC-CO2 
values used.
    Table V.33 presents the present value of the CO2 
emissions reduction at each AFUE TSL. Table V.34 presents the present 
value of CO2 emissions reductions at each standby mode and 
off mode TSL.

 Table V.33--Potential AFUE Standards: Present Value of CO2 Emissions Reduction for Non-Weatherized Gas Furnaces
                                and Mobile Home Gas Furnaces Shipped in 2029-2058
----------------------------------------------------------------------------------------------------------------
                                                             SC-CO2 case discount rate and statistics
                                                 ---------------------------------------------------------------
                       TSL                                                                           3%, 95th
                                                    5%, Average     3%, Average    2.5%, Average    percentile
----------------------------------------------------------------------------------------------------------------
                                                                           million 2020$
----------------------------------------------------------------------------------------------------------------
1...............................................             648           3,038           4,868           9,191
2...............................................           1,021           4,788           7,673          14,486
3...............................................           1,217           5,701           9,134          17,249
4...............................................           1,250           5,886           9,445          17,800
5...............................................           1,332           6,240           9,998          18,882
6...............................................           1,867           8,733          13,984          26,427
7...............................................           1,789           8,389          13,442          25,380
8...............................................           2,360          11,047          17,695          33,429
9...............................................           3,307          15,441          24,714          46,740
----------------------------------------------------------------------------------------------------------------


  Table V.34--Potential Standby Mode and Off Mode Standards: Present Value of CO2 Emissions Reduction for Non-
                   Weatherized Gas Furnaces and Mobile Home Gas Furnaces Shipped in 2029-2058
----------------------------------------------------------------------------------------------------------------
                                                             SC-CO2 case discount rate and statistics
                                                 ---------------------------------------------------------------
                       TSL                                                                           3%, 95th
                                                    5%, Average     3%, Average    2.5%, Average    percentile
----------------------------------------------------------------------------------------------------------------
                                                                           million 2020$
----------------------------------------------------------------------------------------------------------------
1...............................................              35             165             264             499
2...............................................              42             198             317             599
3...............................................              63             296             473             895
----------------------------------------------------------------------------------------------------------------

    As discussed in section IV.L.1.b of this document, DOE estimated 
monetary benefits likely to result from the reduced emissions of 
methane and N2O that DOE estimated for each of the 
considered TSLs for furnaces. Table

[[Page 40685]]

V.35 and Table V.36 presents the value of the CH4 emissions 
reduction at each TSL, and Table V.37 and Table V.38 presents the value 
of the N2O emissions reduction at each TSL.

   Table V.35--Potential AFUE Standards: Present Value of Methane Emissions Reduction for Non-Weatherized Gas
                           Furnaces and Mobile Home Gas Furnaces Shipped in 2029-2058
----------------------------------------------------------------------------------------------------------------
                                                             SC-CH4 case discount rate and statistics
                                                 ---------------------------------------------------------------
                       TSL                                                                           3%, 95th
                                                    5%, Average     3%, Average    2.5%, Average    percentile
----------------------------------------------------------------------------------------------------------------
                                                                           million 2020$
----------------------------------------------------------------------------------------------------------------
1...............................................             386           1,270           1,814           3,360
2...............................................             616           2,027           2,894           5,361
3...............................................             749           2,460           3,512           6,507
4...............................................             773           2,557           3,656           6,763
5...............................................             829           2,724           3,887           7,204
6...............................................           1,276           4,173           5,950          11,040
7...............................................           1,099           3,615           5,161           9,561
8...............................................           1,566           5,133           7,322          13,578
9...............................................           2,210           7,218          10,289          19,096
----------------------------------------------------------------------------------------------------------------


Table V.36--Potential Standby Mode and Off Mode Standards: Present Value of Methane Emissions Reduction for Non-
                   Weatherized Gas Furnaces and Mobile Home Gas Furnaces Shipped in 2029-2058
----------------------------------------------------------------------------------------------------------------
                                                             SC-CH4 case discount rate and statistics
                                                 ---------------------------------------------------------------
                       TSL                                                                           3%, 95th
                                                    5%, Average     3%, Average    2.5%, Average    percentile
----------------------------------------------------------------------------------------------------------------
                                                                           million 2020$
----------------------------------------------------------------------------------------------------------------
1...............................................              11              37              53              98
2...............................................              14              45              64             118
3...............................................              20              67              95             176
----------------------------------------------------------------------------------------------------------------


Table V.37--Potential AFUE Standards: Present Value of Nitrous Oxide Emissions Reduction for Non-Weatherized Gas
                           Furnaces and Mobile Home Gas Furnaces Shipped in 2029-2058
----------------------------------------------------------------------------------------------------------------
                                                             SC-N2O case discount rate and statistics
                                                 ---------------------------------------------------------------
                       TSL                                                                           3%, 95th
                                                    5%, Average     3%, Average    2.5%, Average    percentile
----------------------------------------------------------------------------------------------------------------
                                                                           million 2020$
----------------------------------------------------------------------------------------------------------------
1...............................................             0.3             1.5             2.4             4.1
2...............................................             0.4             2.0             3.1             5.2
3...............................................             0.3             1.5             2.4             3.9
4...............................................             0.3             1.4             2.2             3.7
5...............................................             0.2             1.1             1.7             2.8
6...............................................           (1.2)           (5.2)           (8.1)          (13.8)
7...............................................             0.5             2.3             3.6             6.1
8...............................................           (0.9)           (3.9)           (6.0)          (10.3)
9...............................................           (1.5)           (6.4)          (10.0)          (17.0)
----------------------------------------------------------------------------------------------------------------


  Table V.38--Potential Standby Mode and Off Mode Standards: Present Value of Nitrous Oxide Emissions Reduction
               for Non-Weatherized Gas Furnaces and Mobile Home Gas Furnaces Shipped in 2029-2058
----------------------------------------------------------------------------------------------------------------
                                                             SC-N2O case discount rate and statistics
                                                 ---------------------------------------------------------------
                       TSL                                                                           3%, 95th
                                                    5%, Average     3%, Average    2.5%, Average    percentile
----------------------------------------------------------------------------------------------------------------
                                                                           million 2020$
----------------------------------------------------------------------------------------------------------------
1...............................................             0.2             0.7             1.0             1.8
2...............................................             0.2             0.8             1.3             2.1
3...............................................             0.3             1.2             1.9             3.2
----------------------------------------------------------------------------------------------------------------


[[Page 40686]]

    DOE is well aware that scientific and economic knowledge about the 
contribution of CO2 and other GHG emissions to changes in 
the future global climate and the potential resulting damages to the 
world economy continues to evolve rapidly. Thus, any value placed on 
reduced GHG emissions in this rulemaking is subject to change. That 
said, because of omitted damages, DOE agrees with the IWG that these 
estimates most likely underestimate the climate benefits of greenhouse 
gas reductions. 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. DOE notes that the proposed 
standards would be economically justified even without inclusion of 
monetized benefits of reduced GHG emissions.
    DOE also estimated the monetary value of the economic impacts 
associated with changes in SO2 emissions anticipated to 
result from the considered TSLs for NWGFs and MHGFs. The dollar-per-ton 
values that DOE used are discussed in section IV.L.2 of this document. 
Table V.39 presents the present value SO2 emission changes 
for each AFUE TSL calculated using 7-percent and 3-percent discount 
rates. Table V.40 presents the cumulative present values for 
SO2 emissions for each standby mode and off mode TSL 
calculated using 7-percent and 3-percent discount rates. These tables 
present results that use the low benefit-per-ton values, which reflect 
DOE's primary estimate.

   Table V.39--Potential AFUE Standards: Present Value of SO2 Emission
  Changes for Non-Weatherized Gas Furnaces and Mobile Home Gas Furnaces
                          Shipped in 2029-2058
------------------------------------------------------------------------
                                            7% discount     3% discount
                   TSL                         rate            rate
------------------------------------------------------------------------
                                                   million 2020$
------------------------------------------------------------------------
1.......................................            (39)           (125)
2.......................................            (91)           (288)
3.......................................           (165)           (517)
4.......................................           (173)           (570)
5.......................................           (218)           (680)
6.......................................           (745)         (2,296)
7.......................................           (229)           (737)
8.......................................           (756)         (2,357)
9.......................................         (1,122)         (3,490)
------------------------------------------------------------------------
Parentheses indicate negative (-) values.


Table V.40--Potential Standby Mode and Off Mode Standards: Present Value
 of SO2 Emissions Reduction for Non-Weatherized Gas Furnaces and Mobile
                 Home Gas Furnaces Shipped in 2029-2058
------------------------------------------------------------------------
                                            7% discount     3% discount
                   TSL                         rate            rate
------------------------------------------------------------------------
                                                   million 2020$
------------------------------------------------------------------------
1.......................................            33.3           108.3
2.......................................            40.0           129.9
3.......................................            59.7           194.1
------------------------------------------------------------------------

    DOE also estimated the monetary value of the economic benefits 
associated with NOX emissions reductions anticipated to 
result from the considered TSLs for NWGFs and MHGFs. The dollar-per-ton 
values that DOE used are discussed in section IV.L of this document. 
Table V.41 presents the present value for NOX emissions 
reduction for each AFUE TSL calculated using 7-percent and 3-percent 
discount rates. Table V.42 presents the cumulative present values for 
NOX emissions for each standby mode and off mode TSL 
calculated using 7-percent and 3-percent discount rates. These tables 
present results that use the low benefit-per-ton values, which reflect 
DOE's primary estimate.

  Table V.41--Potential AFUE Standards: Present Value of NOX Emissions
 Reduction for Non-Weatherized Gas Furnaces and Mobile Home Gas Furnaces
                          Shipped in 2029-2058
------------------------------------------------------------------------
                                            7% discount     3% discount
                   TSL                         rate            rate
------------------------------------------------------------------------
                                                   million 2020$
------------------------------------------------------------------------
1.......................................           1,720           5,682
2.......................................           2,726           9,008
3.......................................           3,284          10,820
4.......................................           3,327          11,233
5.......................................           3,620          11,907
6.......................................           5,344          17,393
7.......................................           4,815          15,903

[[Page 40687]]

 
8.......................................           6,631          21,695
9.......................................           9,390          30,407
------------------------------------------------------------------------
Note: Results are based on the low benefit-per-ton values.


Table V.42--Potential Standby Mode and Off Mode Standards: Present Value
 of NOX Emissions Reduction for Non-Weatherized Gas Furnaces and Mobile
                 Home Gas Furnaces Shipped in 2029-2058
------------------------------------------------------------------------
                                            7% discount     3% discount
                   TSL                         rate            rate
------------------------------------------------------------------------
                                                   million 2020$
------------------------------------------------------------------------
1.......................................            75.7           247.8
2.......................................            90.8           297.4
3.......................................           135.7           444.3
------------------------------------------------------------------------
Note: Results are based on the low benefit-per-ton values.

    The benefits of reduced CO2, CH4, and 
N2O emissions are collectively referred to as climate 
benefits. The net benefits of SO2 and NOX 
emission changes are collectively referred to as health benefits. For 
the time series of estimated monetary values of reduced emissions, see 
chapter 14 of the NOPR TSD.
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)(VII)) No 
other factors were considered in this analysis.
8. Summary of National Economic Impacts
    Table V.43 and Table V.44 present the NPV values that result from 
adding the monetized estimates of the potential economic, climate, and 
health net benefits resulting from GHG, SO2, and 
NOX emission changes to the NPV of consumer savings 
calculated for each TSL considered in this rulemaking. The consumer 
benefits are domestic U.S. monetary savings that occur as a result of 
purchasing the covered NWGFs and MHGFs, and are measured for the 
lifetime of products shipped in 2029-2058. The climate benefits 
associated with reduced GHG emissions resulting from the adopted 
standards are global benefits and are also calculated based on the 
lifetime of consumer furnaces shipped in 2029-2058. The climate 
benefits associated with four SC-GHG estimates are shown. DOE does not 
have a single central SC-GHG point estimate and it emphasizes the 
importance and value of considering the benefits calculated using all 
four SC-GHG estimates.

      Table V.43--Potential AFUE Standards: NPV of Consumer Benefits Combined With Monetized Climate and Health Benefits From Emissions Reductions
--------------------------------------------------------------------------------------------------------------------------------------------------------
              Category                  TSL 1        TSL 2        TSL 3        TSL 4        TSL 5        TSL 6        TSL 7        TSL 8        TSL 9
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                        3% discount rate for NPV of Consumer and Health Benefits (billion 2020$)
--------------------------------------------------------------------------------------------------------------------------------------------------------
5% d.r., Average SC-GHG case.......         12.1         19.2         23.1         23.1         25.2         34.2         35.1         44.8         58.0
3% d.r., Average SC-GHG case.......         15.3         24.4         29.3         29.5         32.0         43.9         44.2         57.1         75.2
2.5% d.r., Average SC-GHG case.....         17.7         28.2         33.8         34.2         36.9         51.0         50.8         65.9         87.5
3% d.r., 95th percentile SC-GHG             23.6         37.4         44.9         45.6         49.1         68.5         67.1         87.9        118.3
 case..............................
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                        7% discount rate for NPV of Consumer and Health Benefits (billion 2020$)
--------------------------------------------------------------------------------------------------------------------------------------------------------
5% d.r., Average SC-GHG case.......          4.2          6.7          8.1          8.0          8.8         12.0         12.4         16.0         20.5
3% d.r., Average SC-GHG case.......          7.4         11.9         14.2         14.4         15.6         21.8         21.5         28.2         37.6
2.5% d.r., Average SC-GHG case.....          9.8         15.6         18.7         19.0         20.5         28.8         28.1         37.0         50.0
3% d.r., 95th percentile SC-GHG             15.7         24.9         29.8         30.5         32.7         46.3         44.5         59.0         80.8
 case..............................
--------------------------------------------------------------------------------------------------------------------------------------------------------


[[Page 40688]]


   Table V.44--Potential Standby Mode and Off Mode Standards: NPV of Consumer Benefits Combined With Monetized
                              Climate and Health Benefits From Emissions Reductions
----------------------------------------------------------------------------------------------------------------
                            Category                                   TSL 1           TSL 2           TSL 3
----------------------------------------------------------------------------------------------------------------
                    3% discount rate for NPV of Consumer and Health Benefits (billion 2020$)
----------------------------------------------------------------------------------------------------------------
5% d.r., Average SC-GHG case....................................             2.4             2.8             4.1
3% d.r., Average SC-GHG case....................................             2.5             3.0             4.4
2.5% d.r., Average SC-GHG case..................................             2.6             3.1             4.6
3% d.r., 95th percentile SC-GHG case............................             2.9             3.4             5.1
----------------------------------------------------------------------------------------------------------------
                    7% discount rate for NPV of Consumer and Health Benefits (billion 2020$)
----------------------------------------------------------------------------------------------------------------
5% d.r., Average SC-GHG case....................................             0.8             1.0             1.4
3% d.r., Average SC-GHG case....................................             1.0             1.2             1.7
2.5% d.r., Average SC-GHG case..................................             1.1             1.3             1.9
3% d.r., 95th percentile SC-GHG case............................             1.4             1.6             2.4
----------------------------------------------------------------------------------------------------------------

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))
    In this NOPR, DOE considered the impacts of amended and new 
standards for NWGFs and MHGFs 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 as DOE discusses the benefits and/or burdens of 
each TSL, tables in this section present a summary of the results of 
DOE's quantitative analysis for each TSL. In addition to the 
quantitative results presented in the tables, DOE also considers other 
burdens and benefits that affect economic justification. These include 
the impacts on identifiable subgroups of consumers who may be 
disproportionately affected by a national standard and impacts on 
employment.
    DOE also notes that the economics literature provides a wide-
ranging discussion of how consumers trade off upfront costs and energy 
savings in the absence of government intervention. Much of this 
literature attempts to explain why consumers appear to undervalue 
energy efficiency improvements. There is evidence that consumers 
undervalue future energy savings as a result of (1) a lack of 
information; (2) a lack of sufficient salience of the long-term or 
aggregate benefits; (3) a lack of sufficient savings to warrant 
delaying or altering purchases; (4) excessive focus on the short term, 
in the form of inconsistent weighting of future energy cost savings 
relative to available returns on other investments; (5) computational 
or other difficulties associated with the evaluation of relevant 
tradeoffs; and (6) a divergence in incentives (for example, between 
renters and owners, or builders and purchasers). Having less than 
perfect foresight and a high degree of uncertainty about the future, 
consumers may trade off these types of investments at a higher than 
expected rate between current consumption and uncertain future energy 
cost savings.
    In DOE's current regulatory analysis, potential changes in the 
benefits and costs of a regulation due to changes in consumer purchase 
decisions are included in two ways. First, if consumers forego the 
purchase of a product in the standards case, this decreases sales for 
product manufacturers, and the impact on manufacturers attributed to 
lost revenue is included in the MIA. Second, DOE accounts for energy 
savings attributable only to products actually used by consumers in the 
standards case; if a standard decreases the number of products 
purchased by consumers, this decreases the potential energy savings 
from an energy conservation standard. DOE provides estimates of 
shipments and changes in the volume of product purchases in chapter 9 
of the SNOPR TSD. However, DOE's current analysis does not explicitly 
control for heterogeneity in consumer preferences, preferences across 
subcategories of products or specific features, or consumer price 
sensitivity variation according to household income.\275\
---------------------------------------------------------------------------

    \275\ P.C. Reiss and M.W. White (2005), Household Electricity 
Demand, Revisited. The Review of Economic Studies, 72 (3), 853-883 
(Available at: academic.oup.com/restud/article/72/3/853/1557538) 
(Last accessed Feb. 15, 2022).
---------------------------------------------------------------------------

1. Benefits and Burdens of TSLs Considered for Non-Weatherized Gas 
Furnace and Mobile Home Gas Furnace AFUE Standards
    Table V.45 and Table V.46 summarize the quantitative impacts 
estimated for each AFUE TSL for NWGFs and MHGFs. The national impacts 
are measured over the lifetime of NWGFs and MHGFs purchased in the 30-
year period that begins in the anticipated year of compliance with 
amended standards (2029-2058). The energy savings and emissions 
reductions refer to full-fuel-cycle results. The efficiency levels 
contained in each TSL are described further in section V.A of this 
document.

[[Page 40689]]



            Table V.45--Summary of Analytical Results for Non-Weatherized Gas Furnace and Mobile Home Gas Furnace AFUE TSLs: National Impacts
--------------------------------------------------------------------------------------------------------------------------------------------------------
              Category                  TSL 1        TSL 2        TSL 3        TSL 4        TSL 5        TSL 6        TSL 7        TSL 8        TSL 9
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                     Cumulative FFC National Energy Savings (quads)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Quads..............................         1.78         2.76         3.19         3.35         3.44         4.12         4.70         5.48         7.48
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                 Cumulative FFC Emissions Reduction (total FFC emission)
--------------------------------------------------------------------------------------------------------------------------------------------------------
CO2 (million metric tons)..........          100          158          188          199          205          286          277          363          502
SO2 (thousand tons)................        (2.6)        (6.2)       (11.3)       (13.1)       (14.9)       (50.6)       (16.4)       (52.3)       (77.1)
NOX (thousand tons)................          209          333          401          427          443          660          591          819        1,139
Hg (tons)..........................       (0.02)       (0.04)       (0.07)       (0.09)       (0.10)       (0.32)       (0.11)       (0.33)       (0.48)
CH4 (thousand tons)................        1,259        2,011        2,437        2,590        2,696        4,112        3,586        5,068        7,070
N2O (thousand tons)................         0.14         0.18         0.14         0.13         0.10       (0.45)         0.21       (0.33)       (0.56)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                          Present Value of Benefits and Costs (3% discount rate, billion 2020$)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Consumer Operating Cost Savings....          7.8         12.4         15.1         15.0         16.6         22.8         22.8         29.7         40.0
Climate Benefits *.................          4.3          6.8          8.2          8.4          9.0         12.9         12.0         16.2         22.7
Net Health Benefits **.............          5.6          8.7         10.3         10.7         11.2         15.1         15.2         19.3         26.9
                                    --------------------------------------------------------------------------------------------------------------------
    Total Benefits [dagger]........         17.6         27.9         33.6         34.1         36.8         50.8         50.0         65.2         89.6
Consumer Incremental Product Costs           2.3          3.6          4.3          4.6          4.9          6.9          5.9          8.2         14.4
 [Dagger]..........................
Consumer Net Benefits..............          5.5          8.9         10.8         10.4         11.8         15.9         17.0         21.6         25.6
    Total Net Benefits.............         15.3         24.4         29.3         29.5         32.0         43.9         44.2         57.1         75.2
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                         Present Value of Benefits and Costs (7% discount rate, billions 2020$)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Consumer Operating Cost Savings....          2.6          4.2          5.2          5.0          5.7          7.8          7.8         10.2         13.9
Climate Benefits *.................          4.3          6.8          8.2          8.4          9.0         12.9         12.0         16.2         22.7
Health Benefits **.................          1.7          2.6          3.1          3.2          3.4          4.6          4.6          5.9          8.3
                                    --------------------------------------------------------------------------------------------------------------------
    Total Benefits [dagger]........          8.6         13.7         16.4         16.6         18.1         25.3         24.4         32.2         44.8
Consumer Incremental Product Costs           1.2          1.8          2.2          2.2          2.5          3.5          2.9          4.0          7.2
 [Dagger]..........................
Consumer Net Benefits..............          1.5          2.4          3.0          2.8          3.2          4.3          4.9          6.2          6.7
                                    --------------------------------------------------------------------------------------------------------------------
        Total Net Benefits.........          7.4         11.9         14.2         14.4         15.6         21.8         21.5         28.2         37.6
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: This table presents the costs and benefits associated with consumer furnaces shipped in 2029-2058. These results include benefits to consumers
  which accrue after 2058 from the products shipped in 2029-2058. Parentheses indicate negative (-) values.
* Climate benefits are calculated using four different estimates of the social cost of carbon (SC-CO2), methane (SC-CH4), and nitrous oxide (SC-N2O)
  (model average at 2.5 percent, 3 percent, and 5 percent discount rates; 95th percentile at 3 percent discount rate). Together these represent the
  global social cost of greenhouse gases (SC-GHG). For presentational purposes of this table, the climate benefits associated with the average SC-GHG at
  a 3 percent discount rate are shown, but the Department does not have a single central SC-GHG point estimate. See section. IV.L of this document for
  more details. On March 16, 2022, the Fifth Circuit Court of Appeals (No. 22-30087) granted the Federal government's emergency motion for stay pending
  appeal of the February 11, 2022, preliminary injunction issued in Louisiana v. Biden, No. 21-cv-1074-JDC-KK (W.D. La.). As a result of the Fifth
  Circuit's order, the preliminary injunction is no longer in effect, pending resolution of the Federal government's appeal of that injunction or a
  further court order. Among other things, the preliminary injunction enjoined the defendants in that case from ``adopting, employing, treating as
  binding, or relying upon'' the interim estimates of the social cost of greenhouse gases--which were issued by the Interagency Working Group on the
  Social Cost of Greenhouse Gases on February 26, 2021--to monetize the benefits of reducing greenhouse gas emissions. In the absence of further
  intervening court orders, DOE will revert to its approach prior to the injunction and present monetized benefits where appropriate and permissible
  under law.
** Net health benefits are calculated using benefit-per-ton values for NOX and SO2. DOE is currently only monetizing (for SO2 and NOX) PM2.5 precursor
  health benefits and (for NOX) ozone precursor health benefits, but will continue to assess the ability to monetize other effects such as health
  benefits from reductions in direct PM2.5 emissions. See section IV.L of this document for more details.
[dagger] Total and net benefits include those consumer, climate, and health benefits that can be monetized. For presentation purposes, total and net
  benefits for both the 3-percent and 7-percent cases are presented using the average SC-GHG with 3-percent discount rate, but the Department does not
  have a single central SC-GHG point estimate. DOE emphasizes the importance and value of considering the benefits calculated using all four SC-GHG
  estimates.
[Dagger] Costs include incremental equipment costs as well as installation costs.


   Table V.46--Summary of Analytical Results for Non-Weatherized Gas Furnace and Mobile Home Gas Furnace AFUE TSLs: Manufacturer and Consumer Impacts
--------------------------------------------------------------------------------------------------------------------------------------------------------
              Category                  TSL 1        TSL 2        TSL 3        TSL 4        TSL 5        TSL 6        TSL 7        TSL 8        TSL 9
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                  Manufacturer Impacts
--------------------------------------------------------------------------------------------------------------------------------------------------------
Industry NPV (million 2020$) (No-     1,316.7 to   1,280.4 to   1,260.0 to   1,126.6 to   1,250.7 to   1,237.4 to   1,067.5 to   1,031.5 to        728.0
 new-standards case INPV = 1,411.8)      1,394.6      1,395.0      1,387.8      1,395.7      1,394.2      1,377.4      1,396.8      1,381.4   to 1,420.8
Industry NPV (% change)............     (6.7) to     (9.3) to    (10.8) to    (20.2) to    (11.4) to    (12.4) to    (24.4) to    (26.9) to    (48.4) to
                                           (1.2)        (1.2)        (1.7)        (1.1)        (1.2)        (2.4)        (1.1)        (2.2)          0.6
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                          Consumer Average LCC Savings (2020$)
--------------------------------------------------------------------------------------------------------------------------------------------------------
NWGF...............................          663          603          575          350          625          470          563          464          254
MHGF...............................          406          516          501          298          569          493          603          526          414
Shipment-Weighted Average *........          661          601          573          348          624          471          564          466          258
--------------------------------------------------------------------------------------------------------------------------------------------------------

[[Page 40690]]

 
                                                               Consumer Simple PBP (years)
--------------------------------------------------------------------------------------------------------------------------------------------------------
NWGF...............................          6.8          6.6          6.7          8.0          7.1          8.9          5.8          7.2          9.1
MHGF...............................          6.5          5.6          5.7         12.1          5.7          8.5          5.1          7.5         12.6
Shipment-Weighted Average *........          6.8          6.6          6.7          8.0          7.1          8.8          5.8          7.2          9.2
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                   Percentage of Consumers That Experience a Net Cost
--------------------------------------------------------------------------------------------------------------------------------------------------------
NWGF...............................          3.7          6.0          7.9          5.2          9.1         17.7          8.3         16.6         52.4
MHGF...............................          1.9          3.2          3.9         10.4          4.8         21.8          4.6         21.5         38.0
Shipment-Weighted Average *........          3.7          6.0          7.8          5.3          9.0         17.8          8.3         16.7         52.1
--------------------------------------------------------------------------------------------------------------------------------------------------------
Parentheses indicate negative (-) values.
* Weighted by shares of each product class in total projected shipments in 2029.

    DOE first considered the AFUE standards at TSL 9, which represents 
the max-tech efficiency levels and which includes the highest 
efficiency commercially available for both non-weatherized gas furnaces 
and mobile furnaces (i.e., 98-percent AFUE for NWGFs and 96-percent 
AFUE for MHGFs). TSL 9 would save 7.48 quads of energy, an amount DOE 
considers significant. Under TSL 9, the NPV of consumer benefit would 
be $6.7 billion using a discount rate of 7 percent, and $25.6 billion 
using a discount rate of 3 percent.
    The cumulative emissions reductions at TSL 9 are 502 Mt of 
CO2, 1.1 million tons of NOX, and 7.1 million 
tons of CH4. Projected emissions show an increase of 77 
thousand tons of SO2, 0.6 thousand tons of N2O, 
and 0.5 tons of Hg. The increase is due to projected switching from gas 
furnaces to electric heat pumps and electric furnaces under standards 
at TSL 9. The estimated monetary value of the climate benefits from 
reduced GHG emissions (associated with the average SC-GHG at a 3-
percent discount rate) at TSL 9 is $22.7 billion. The estimated 
monetary value of the health benefits from changes to SO2 
and NOX emissions at TSL 9 is $8.3 billion using a 7-percent 
discount rate and $26.9 billion using a 3-percent discount rate.
    Using a 7-percent discount rate for consumer benefits and costs, 
health benefits from SO2 and NOX emission 
changes, and the 3-percent discount rate case for climate benefits from 
reduced GHG emissions, the estimated total NPV at TSL 9 is $37.6 
billion. Using a 3-percent discount rate for all benefits and costs, 
the estimated total NPV at TSL 9 is $75.2 billion.
    At TSL 9, the average LCC impact on affected consumers is a savings 
of $254 for NWGFs and $414 for MHGFs. The simple payback period is 9.1 
years for NWGFs and 12.6 years for MHGFs. The fraction of consumers 
experiencing a net LCC cost is 52.4 percent for NWGFs and 38.0 percent 
for MHGFs. The fraction of low-income consumers experiencing a net LCC 
cost is 34.8 percent for NWGFs and 23.3 percent for MHGFs.
    At TSL 9, the projected changes in INPV range from a decrease of 
$683.8 million to an increase of 9.0 million. If the more severe end of 
this range is realized, TSL 9 could result in a net loss of 48.4 
percent in INPV. Industry conversion costs could reach $301.6 million 
at this TSL.
    At TSL 9, manufacturers would need to significantly restructure 
their product offerings. Currently, less than half of consumer furnace 
manufacturers offer a product that meets the max-tech efficiencies. The 
models available at these efficiencies are not produced in high 
volumes. DOE estimates that approximately 1.8 percent of NWGF shipments 
and 0.8 percent of MHGF shipments are currently sold at the max-tech 
levels, 98-percent AFUE and 96-percent AFUE, respectively. The NWGF 
industry would incur significant product conversion costs to develop 
cost-optimized NWGF models for a marketplace where efficiency and 
combustion system technology are no longer viable options for product 
differentiation. Similarly, the MHGF industry would incur significant 
product conversion costs to develop cost-optimized models for a 
marketplace where efficiency is no longer a means for product 
differentiation. As noted in section IV.J.2.d of this document, 
manufacturers currently maintain multiple tiers of product lines, which 
have varying levels of profitability. DOE models the industry operating 
with three manufacturer markup tiers (``good, better, best'') that are 
primarily differentiated on AFUE and combustion system technology 
(e.g., single-stage, two-stage, and modulating combustion systems). 
Generally, higher efficiency models and those with more advanced 
combustion system technology command a higher manufacturer markup than 
lower efficiency models. At max-tech, NWGF and MHGF manufacturers would 
lose the ability to charge a premium markup based on AFUE, which would 
lead to an overall reduction in profitability. At the NWGF max-tech 
level, manufacturers would also lose the ability to differentiate 
products based on combustion system technology as all models would need 
to integrate modulating combustion. Without these differentiators, 
manufacturers would have a more difficult time maintaining premium 
product lines that command higher manufacturer markups. The reduction 
in product differentiation leads to a reduction in profitability, which 
is a key driver of loss in INPV. Even as profitability of products are 
expected to decline, NWGF and MHGF manufacturers would need to invest 
in significant capital conversion costs to update manufacturing lines 
to produce max-tech designs at high volume. The reduced profitability 
due to limited product differentiation, large upfront investments to 
remain in the market, and negative impacts on INPV could alter the 
consumer furnaces competitive landscape. Manufacturers that have lower 
cash reserves, more difficulty raising capital, a greater portion of 
products that require redesign, or fewer technical resources would 
experience more business risk than their competitors in the industry.
    Based upon the above considerations, the Secretary tentatively 
concludes that at TSL 9 for NWGFs and MHGFs AFUE standards, the 
benefits of energy savings, positive NPV of consumer benefits, emission 
reductions, and the estimated monetary value of the health benefits of 
emissions reductions would be outweighed by the economic burden on many 
consumers, especially low-income consumers, as well as the impacts on 
manufacturers, including the large potential reduction in INPV. In

[[Page 40691]]

reaching this initial decision, DOE notes that a large fraction of both 
NWGF and MHGF consumers (52.4 percent and 38.0 percent, respectively), 
including low-income consumers, experience a net cost at TSL 9. This is 
due to the high incremental cost of NWGFs and MHGFs at the max-tech 
efficiency levels. This is particularly pronounced for NWGFs, where the 
incremental production cost above baseline is more than twice as large 
as the next highest efficiency level (see section IV.C.2 of this 
document). Consumers with existing furnaces above 90-percent AFUE but 
below 98-percent AFUE are more likely to experience a net cost at TSL 
9, given the relatively modest decrease in operating costs compared to 
the high incremental installed costs. At max-tech, most manufacturers 
would need to make significant upfront investments to update product 
lines and manufacturing facilities. Additionally, the companies must 
make those investments to remain in a less-profitable market where 
there is less product differentiation to maintain premium pricing tiers 
and where consumers are more likely to repair their existing furnaces 
or switch to alternative heating technologies. As result, there is risk 
that some manufacturers would choose to leave the market and risk that 
the standard would drive industry consolidation that would not 
otherwise have occurred. Consequently, the Secretary has tentatively 
concluded that TSL 9 is not economically justified.
    DOE then considered the AFUE standards at TSL 8, which consists of 
intermediate condensing efficiency levels at 95-percent AFUE for both 
NWGFs and MHGFs across the Nation. TSL 8 would save 5.48 quads of 
energy, an amount DOE considers significant. Under TSL 8, the NPV of 
consumer benefit would be $6.2 billion using a discount rate of 7 
percent, and $21.6 billion using a discount rate of 3 percent.
    The cumulative emissions reductions at TSL 8 would be expected to 
be 363 Mt of CO2, 0.8 million tons of NOX, and 
5.1 million tons of CH4. Projected emissions show an 
increase of 52 thousand tons of SO2, 0.3 thousand tons of 
N2O, and 0.3 tons of Hg. The increase is due to projected 
switching from gas furnaces to electric heat pumps and electric 
furnaces under standards at TSL 8. The estimated monetary value of the 
climate benefits from reduced GHG emissions (associated with the 
average SC-GHG at a 3-percent discount rate) at TSL 8 is $16.2 billion. 
The estimated monetary value of the health benefits from changes to 
SO2 and NOX emissions at TSL 8 is $5.9 billion 
using a 7-percent discount rate and $19.3 billion using a 3-percent 
discount rate.
    Using a 7-percent discount rate for consumer benefits and costs, 
health benefits from SO2 and NOX emission 
changes, and the 3-percent discount rate case for climate benefits from 
reduced GHG emissions, the estimated total NPV at TSL 8 is $28.2 
billion. Using a 3-percent discount rate for all benefits and costs, 
the estimated total NPV at TSL 8 is $57.1 billion.
    At TSL 8, the average LCC impact on affected consumers is a savings 
of $464 for NWGFs and $526 for MHGFs. The simple payback period is 7.2 
years for NWGFs and 7.5 years for MHGFs. The fraction of consumers 
experiencing a net LCC cost is 16.6 percent for NWGFs and 21.5 percent 
for MHGFs. The fraction of low-income consumers experiencing a net LCC 
cost is 13.7 percent for NWGFs and 12.6 percent for MHGFs.
    At TSL 8, the projected changes in INPV range from a decrease of 
$380.3 million to a decrease of $30.5 million. If the more severe end 
of this range is realized, TSL 8 could result in a net loss of 26.9 
percent in INPV. Industry conversion costs would reach $149.0 million 
as manufacturers expand secondary heat exchanger capacity and redesign 
products to meet the standard.
    At TSL 8, manufacturers would incur conversion costs to develop 
cost-optimized model offerings at the new minimum 95-percent AFUE and 
to expand secondary heat exchanger production capacity. However, the 
conversion costs at TSL 8 are substantially lower than those at TSL 9. 
Ninety percent of manufacturers currently have a range of compliant 
offerings at TSL 8. DOE estimates that approximately 39.3 percent of 
the annual NWGF shipments and approximately 14.9 percent of the annual 
MHGF shipments are already at this level. Furthermore, manufacturers 
would not be making the upfront investments with same level of 
profitability risk noted at TSL 9. With a national standard of 95-
percent AFUE, both NWGF and MHGF manufacturers would maintain the 
ability to differentiate products based on efficiency and combustion 
system technology. With these options available, industry can continue 
to operate with three markup tiers (``good, better, best'') that enable 
greater industry profitability. However, the range of manufacturer 
markups are compressed, as max-tech products would not be expected to 
command the same premium as they did in the no-new-standards case.
    After considering the analysis and weighing the benefits and 
burdens, the Secretary has tentatively concluded that an AFUE standard 
set at TSL 8 for NWGFs and MHGFs would be economically justified. At 
this TSL, the average LCC savings for both NWGF and MHGF consumers are 
positive. An estimated 16.6 percent of NWGF consumers and 21.5 percent 
of MHGF consumers experience a net cost. The reduction in the 
percentage of consumers experiencing a net cost at TSL 8 compared to 
TSL 9 is largely due to the market share of consumers already with a 
furnace at 95-percent AFUE (see section IV.F.9 of this document). These 
consumers are not impacted by a standard set at TSL 8. For the 
remaining consumers that are impacted, the lower incremental cost above 
baseline for a 95-percent AFUE furnace compared to a max-tech furnace 
(see section IV.C.2 of this document), particularly for NWGFs, results 
in fewer consumers experiencing a net cost as compared to TSL 9. The 
FFC national energy savings at TSL 8 are significant and the NPV of 
consumer benefits is positive using both a 3-percent and 7-percent 
discount rate. Notably, the benefits to consumers vastly outweigh the 
cost to manufacturers. At TSL 8, the NPV of consumer benefits, even 
measured at the more conservative discount rate of 7 percent is over 15 
times higher than the maximum estimated manufacturers' loss in INPV. 
The shipment-weighted average LCC savings are more than 80 percent 
larger than at TSL 9. The standard levels at TSL 8 are economically 
justified even without weighing the estimated monetary value of the 
health benefits of emissions reductions. When those emissions 
reductions are included--representing $16.2 billion in climate benefits 
(associated with the average SC-GHG at a 3-percent discount rate), and 
$19.3 billion (using a 3-percent discount rate) or $5.9 billion (using 
a 7-percent discount rate) in health benefits--the rationale becomes 
stronger still.
    DOE further notes that there have been regulations in Canada 
requiring condensing furnaces with at least 90-percent AFUE for over 
ten years and requiring at least 95-precent AFUE since July 2019 (see 
section II.B.3 of this NOPR). The proposed standard levels for NWGFs at 
TSL 8 align with the Canadian regulations. As discussed in the 2016 
SNOPR (since withdrawn), some stakeholders noted that Canada has 
required condensing furnaces for years and stated that neither Natural 
Resources Canada nor its mortgage agency found any significant 
implementation issues. 81 FR 65720,

[[Page 40692]]

65779 (Sept. 23, 2016). While DOE realizes that climate and fuel prices 
differ between the U.S. and Canada and will yield different results on 
costs and benefits of the standard, there are similarities in the 
equipment and venting materials used in both the U.S. and Canada with 
respect to NWGFs. Because the stock of buildings using NWGFs in Canada 
has many similarities to the stock using NWGFs in northern parts of the 
U.S., the Canadian experience in terms of installation of condensing 
furnaces may have relevance to the U.S.
    DOE acknowledges that an estimated 13.7 percent of low-income NWGF 
and 12.6 percent of low-income MHGF consumers experience a net cost at 
TSL 8, whereas an estimated 5.0 percent of low-income NWGF and 1.5 
percent of low-income MHGF consumers experience a net cost at TSL 7. 
(TSL 7 is an AFUE standard at the same level as TSL 8 but for NWGFs and 
MHGFs greater than 55 kBtu/h only.) The majority of negatively impacted 
low-income consumers at TSL 8 have smaller capacity NWGFs or MHGFs 
below 55 kBtu/h and, therefore, would not be impacted by a standard set 
at TSL 7, since the standards for NWGFs and MHGFs below 55 kBtu/h would 
remain at 80-percent AFUE. However, compared to TSL 7, it is estimated 
that TSL 8 would result in additional FFC national energy savings of 
0.78 quads and additional health benefits of $4.1 billion (using a 3-
percent discount rate) or $1.3 billion (using a 7-percent discount 
rate). The national consumer NPV similarly increases at TSL 8, compared 
to TSL 7, by $1.3 billion using a 7-percent discount rate and $4.6 
billion using a 3-percent discount rate. These additional savings and 
benefits at TSL 8 are significant. DOE considers these impacts to be, 
as a whole, economically justified at TSL 8, but will continue to 
evaluate the impacts on low-income consumers relative to all consumers. 
If DOE were to conclude that the costs of TSL 8 outweighed the benefits 
of TSL 8, then DOE could consider factors in TSL 7 such as the national 
energy savings of 4.70 quads, the NPV of consumer benefit of $4.9 
billion using a discount rate of 7 percent and $17.0 billion using a 
discount rate of 3 percent, and CO2 emission reductions of 
277 million metric tons over the analysis period. Accordingly, DOE 
seeks comment on the merits of adopting TSL 7 as an alternative 
consideration to mitigating the impacts on low-income consumers. DOE 
could consider TSL 7, among others, in the final rule based on comments 
received.
    Accordingly, the Secretary has tentatively concluded that TSL 8 
would offer the maximum improvement in efficiency that is 
technologically feasible and economically justified and would result in 
the significant conservation of energy. Although results are presented 
here in terms of TSLs, DOE analyzes and evaluates all possible ELs for 
each product class in its analysis. For both NWGFs and MHGFs, TSL 8 is 
comprised of the highest efficiency level below max-tech. For NWGFs and 
MHGFs, the max-tech efficiency level results in a large percentage of 
consumers that experience a net LCC cost, in addition to significant 
manufacturer impacts. The ELs one level below max-tech, representing 
the proposed standard levels, result in positive LCC savings for both 
classes, significantly reduce the number of consumers experiencing a 
net cost, and reduce the decrease in INPV and conversion costs to the 
point where DOE has tentatively concluded they are economically 
justified, as discussed for TSL 8 in the preceding paragraphs. However, 
DOE acknowledges the potential impacts to low-income consumers and 
seeks additional information for further consideration.
    Therefore, based on the above considerations, DOE proposes the AFUE 
energy conservation standards for NWGFs and MHGFs at TSL 8. The 
proposed energy conservation standards for NWGFs and MHGFs, which are 
expressed as AFUE, are shown in Table V.47.

    Table V.47--Proposed AFUE Energy Conservation Standards for Non-
          Weatherized Gas Furnaces and Mobile Home Gas Furnaces
                       [Compliance starting 2029]
------------------------------------------------------------------------
                      Product class                       AFUE (percent)
------------------------------------------------------------------------
Non-Weatherized Gas Furnaces............................              95
Mobile Home Gas Furnaces................................              95
------------------------------------------------------------------------

2. Benefits and Burdens of TSLs Considered for Non-Weatherized Gas 
Furnace and Mobile Home Gas Furnace Standby Mode and Off Mode Standards
    Table V.48 and Table V.49 summarize the quantitative impacts 
estimated for each standby mode and off mode TSL for NWGFs and MHGFs. 
The national impacts are measured over the lifetime of NWGFs and MHGFs 
purchased in the 30-year period that begins in the anticipated year of 
compliance with amended standards (2029-2058). The energy savings and 
emissions reductions refer to full-fuel-cycle results. The efficiency 
levels contained in each TSL are described in section V.A of this 
document.

  Table V.48--Summary of Analytical Results for Non-Weatherized Gas Furnace and Mobile Home Gas Furnace Standby
                                    Mode and Off Mode TSLs: National Impacts
----------------------------------------------------------------------------------------------------------------
                            Category                                   TSL 1           TSL 2           TSL 3
----------------------------------------------------------------------------------------------------------------
                                 Cumulative FFC National Energy Savings (quads)
----------------------------------------------------------------------------------------------------------------
Quads...........................................................            0.16            0.19            0.28
----------------------------------------------------------------------------------------------------------------
                             Cumulative FFC Emissions Reduction (Total FFC Emission)
----------------------------------------------------------------------------------------------------------------
CO2 (million metric tons).......................................             5.4             6.4             9.6
SO2 (thousand tons).............................................             2.5             3.0             4.5
NOX (thousand tons).............................................             7.5             9.0            13.5

[[Page 40693]]

 
Hg (tons).......................................................           0.015           0.018           0.027
CH4 (thousand tons).............................................            36.7            44.1            65.9
N2O (thousand tons).............................................            0.06            0.07            0.11
----------------------------------------------------------------------------------------------------------------
                      Present Value of Benefits and Costs (3% discount rate, billion 2020$)
----------------------------------------------------------------------------------------------------------------
Consumer Operating Cost Savings.................................             2.0             2.4             3.6
Climate Benefits *..............................................             0.2             0.2             0.4
Health Benefits **..............................................             0.4             0.4             0.6
Total Benefits [dagger].........................................             2.6             3.1             4.6
Consumer Incremental Product Costs[Dagger]......................             0.0             0.1             0.2
Consumer Net Benefits...........................................             2.0             2.3             3.4
Total Net Benefits..............................................             2.5             3.0             4.4
----------------------------------------------------------------------------------------------------------------
                     Present Value of Benefits and Costs (7% discount rate, billions 2020$)
----------------------------------------------------------------------------------------------------------------
Consumer Operating Cost Savings.................................             0.7             0.8             1.2
Climate Benefits *..............................................             0.2             0.2             0.4
Health Benefits **..............................................             0.1             0.1             0.2
Total Benefits [dagger].........................................             1.0             1.2             1.8
Consumer Incremental Product Costs [Dagger].....................             0.0             0.0             0.1
Consumer Net Benefits...........................................             0.7             0.8             1.1
Total Net Benefits..............................................             1.0             1.2             1.7
----------------------------------------------------------------------------------------------------------------
Note: This table presents the costs and benefits associated with consumer furnaces shipped in 2029-2058. These
  results include benefits to consumers which accrue after 2058 from the products shipped in 2029-2058.
  Parentheses indicate negative (-) values.
* Climate benefits are calculated using four different estimates of the social cost of carbon (SC-CO2), methane
  (SC-CH4), and nitrous oxide (SC-N2O) (model average at 2.5 percent, 3 percent, and 5 percent discount rates;
  95th percentile at 3 percent discount rate). Together these represent the global social cost of greenhouse
  gases (SC-GHG). For presentational purposes of this table, the climate benefits associated with the average SC-
  GHG at a 3 percent discount rate are shown, but the Department does not have a single central SC-GHG point
  estimate. See section. IV.L of this document for more details. On March 16, 2022, the Fifth Circuit Court of
  Appeals (No. 22-30087) granted the Federal government's emergency motion for stay pending appeal of the
  February 11, 2022, preliminary injunction issued in Louisiana v. Biden, No. 21-cv-1074-JDC-KK (W.D. La.). As a
  result of the Fifth Circuit's order, the preliminary injunction is no longer in effect, pending resolution of
  the Federal government's appeal of that injunction or a further court order. Among other things, the
  preliminary injunction enjoined the defendants in that case from ``adopting, employing, treating as binding,
  or relying upon'' the interim estimates of the social cost of greenhouse gases--which were issued by the
  Interagency Working Group on the Social Cost of Greenhouse Gases on February 26, 2021--to monetize the
  benefits of reducing greenhouse gas emissions. In the absence of further intervening court orders, DOE will
  revert to its approach prior to the injunction and present monetized benefits where appropriate and
  permissible under law.
* Health benefits are calculated using benefit-per-ton values for NOX and SO2. DOE is currently only monetizing
  (for SO2 and NOX) PM2.5 precursor health benefits and (for NOX) ozone precursor health benefits, but will
  continue to assess the ability to monetize other effects such as health benefits from reductions in direct
  PM2.5 emissions. See section IV.L of this document for more details.
[dagger] Total and net benefits include those consumer, climate, and health benefits that can be monetized. For
  presentation purposes, total and net benefits for both the 3-percent and 7-percent cases are presented using
  the average SC-GHG with 3-percent discount rate, but the Department does not have a single central SC-GHG
  point estimate. DOE emphasizes the importance and value of considering the benefits calculated using all four
  SC-GHG estimates.
[Dagger] Costs include incremental equipment costs as well as installation costs.


  Table V.49--Summary of Analytical Results for Non-Weatherized Gas Furnace and Mobile Home Gas Furnace Standby
                            Mode and Off Mode TSLs: Manufacturer and Consumer Impacts
----------------------------------------------------------------------------------------------------------------
                        Category                               TSL 1              TSL 2              TSL 3
----------------------------------------------------------------------------------------------------------------
                                              Manufacturer Impacts
----------------------------------------------------------------------------------------------------------------
Industry NPV (million 2020$) (No-new-standards case             1,410.8 to         1,410.8 to         1,409.7 to
 INPV = 1,411.8).......................................            1,412.7            1,412.8            1,416.8
Industry NPV (% change)................................       (0.1) to 0.1       (0.1) to 0.1       (0.1) to 0.4
----------------------------------------------------------------------------------------------------------------
                                      Consumer Average LCC Savings (2020$)
----------------------------------------------------------------------------------------------------------------
NWGF...................................................                 21                 23                 26
MHGF...................................................                 22                 24                 27
Shipment-Weighted Average *............................                 21                 23                 26
----------------------------------------------------------------------------------------------------------------
                                           Consumer Simple PBP (years)
----------------------------------------------------------------------------------------------------------------
NWGF...................................................                0.7                1.5                2.0
MHGF...................................................                0.6                1.3                1.7
Shipment-Weighted Average *............................                0.7                1.5                2.0
----------------------------------------------------------------------------------------------------------------
                                 Percent of Consumers that Experience a Net Cost
----------------------------------------------------------------------------------------------------------------
NWGF...................................................                2.5                2.5                3.5
MHGF...................................................                1.2                1.2                1.6

[[Page 40694]]

 
Shipment-Weighted Average *............................                2.5                2.5                3.4
----------------------------------------------------------------------------------------------------------------
Parentheses indicate negative (-) values.
* Weighted by shares of each product class in total projected shipments in 2029.

    DOE first considered TSL 3, which represents the max-tech 
efficiency levels. TSL 3 would save 0.28 quads of energy, an amount DOE 
considers significant. Under TSL 3, the NPV of consumer benefit would 
be $1.1 billion using a discount rate of 7 percent, and $3.4 billion 
using a discount rate of 3 percent.
    The cumulative emissions reductions at TSL 3 are 9.6 Mt of 
CO2, 4.5 thousand tons of SO2, 13.5 thousand tons 
of NOX, 0.03 tons of Hg, 65.9 thousand tons of 
CH4, and 0.1 thousand tons of N2O. The estimated 
monetary value of the climate benefits from reduced GHG emissions 
(associated with the average SC-GHG at a 3-percent discount rate) at 
TSL 3 is $0.4 billion. The estimated monetary value of the health 
benefits from reduced SO2 and NOX emissions at 
TSL 3 is $0.2 million using a 7-percent discount rate and $0.6 million 
using a 3-percent discount rate.
    Using a 7-percent discount rate for consumer benefits and costs, 
health benefits from reduced SO2 and NOX 
emissions, and the 3-percent discount rate case for climate benefits 
from reduced GHG emissions, the estimated total NPV at TSL 3 is $1.7 
billion. Using a 3-percent discount rate for all benefits and costs, 
the at TSL 3 is $4.4 billion.
    At TSL 3, the average LCC impact is a savings of $26 for NWGFs and 
$27 for MHGFs. The simple payback period is 2.0 years for NWGFs and 1.7 
years for MHGFs. The fraction of consumers experiencing a net LCC cost 
is 3.5 percent for NWGFs and 1.6 percent for MHGFs.
    At TSL 3, the change in INPV is projected to range from a decrease 
of $2.1 million to an increase of $5.0 million, which corresponds to a 
0.1 percent decrease and 0.4 percent increase, respectively. The more 
negative INPV results are driven by the conversion costs, which could 
reach $1.6 million, and the model's lower bound assumption that 
manufacturers would not be able to pass these costs onto consumers. 
These changes have less than a one percent impact on free cash flow in 
2028.
    After considering the analysis and weighing the benefits and 
burdens, the Secretary has tentatively concluded that standby and off 
mode standards set at TSL 3 for NWGFs and MHGFs would be economically 
justified. At this TSL, the average LCC savings for both NWGF and MHGF 
consumers are expected to be positive. Only an estimated 3.5 percent of 
NWGF consumers and 1.6 percent of MHGF consumers are expected to 
experience a net cost. The FFC national energy savings are significant 
and the NPV of consumer benefits is positive using both a 3-percent and 
7-percent discount rate. Notably, the national benefits vastly outweigh 
the costs. The positive LCC savings--a different way of quantifying 
consumer benefits--reinforces this conclusion. The shipment-weighted 
average LCC savings are largest at TSL 3. The standard levels at TSL 3 
are economically justified even without weighing the estimated monetary 
value of emissions reductions. When those emissions reductions are 
included--representing $0.4 billion in climate benefits (associated 
with the average SC-GHG at a 3-percent discount rate), and $0.6 billion 
(using a 3-percent discount rate) or $0.2 billion (using a 7-percent 
discount rate) in health benefits--the rationale becomes stronger 
still.
    Accordingly, the Secretary has tentatively concluded that TSL 3 
would offer the maximum improvement in efficiency that is 
technologically feasible and economically justified, and would result 
in the significant conservation of energy. Although results are 
presented here in terms of TSLs, DOE analyzes and evaluates all 
possible ELs for each product class in its analysis. For both NWGFs and 
MHGFs, TSL 3 is comprised of the max-tech efficiency level. The ELs 
representing the proposed standard levels result in positive LCC 
savings for both classes, a small percentage of consumers experiencing 
a net cost, and a small decrease in INPV to the point where DOE has 
tentatively concluded they are economically justified, as discussed for 
TSL 3 in the preceding paragraphs.
    Therefore, based on the above considerations, DOE proposes the 
standby mode and off mode energy conservation standards for NWGFs and 
MHGFs at TSL 3. The proposed energy conservation standards for NWGFs 
and MHGFs, which are expressed as watts, are shown in Table V.50.

   Table V.50--Proposed Standby Mode and Off Mode Energy Conservation
 Standards for Non-Weatherized Gas Furnaces and Mobile Home Gas Furnaces
                       (Compliance Starting 2029)
------------------------------------------------------------------------
                                           Standby mode      Off mode
                                             standard:       standard:
              Product class                PW,SB (watts)  PW,OFF (watts)
 
------------------------------------------------------------------------
Non-Weatherized Gas Furnaces............             8.5             8.5
Mobile Home Gas Furnaces................             8.5             8.5
------------------------------------------------------------------------

3. Benefits and Costs of the Proposed Standards
    The benefits and costs of the proposed standards can also be 
expressed in terms of annualized values. The annualized net benefit is 
(1) the annualized national economic value (expressed in 2020$) of the 
benefits from operating products that meet the proposed standards 
(consisting primarily of operating cost savings from using less energy, 
minus increases in product purchase costs), and (2) the annualized 
monetary value of the climate and health benefits from emission 
reductions.
    Table V.51 shows the annualized values for NWGFs and MHGFs AFUE 
standards under TSL 8, expressed in

[[Page 40695]]

2020$. The results under the primary estimate are as follows.
    Using a 7-percent discount rate for consumer benefits and costs and 
health benefits from SO2 and NOX emission 
changes, and the 3-percent discount rate case for climate benefits from 
reduced GHG emissions, the estimated cost of the proposed AFUE 
standards for NWGFs and MHGFs is $524 million per year in increased 
equipment costs, while the estimated annual benefits would be $1,320 
million in reduced equipment operating costs, $1,015 million in climate 
benefits, and $760 million in health benefits (accounting for reduced 
NOX emissions and increased SO2 emissions). In 
this case, the net benefit amounts to $2,571 million per year.
    Using a 3-percent discount rate for all benefits and costs, the 
estimated cost of the proposed AFUE standards for NWGFs and MHGFs is 
$511 million per year in increased equipment costs, while the estimated 
annual benefits would be $1,865 million in reduced operating costs, 
$1,015 million in climate benefits, and $1,213 million in health 
benefits (accounting for reduced NOX emissions and increased 
SO2 emissions). In this case, the net benefit amounts to 
$3,581 million per year.

 Table V.51--Annualized Monetized Benefits and Costs of Proposed AFUE Standards for Non-Weatherized Gas Furnaces
                                      and Mobile Home Gas Furnaces (TSL 8)
----------------------------------------------------------------------------------------------------------------
                                                                             Million 2020$/year
                                                           -----------------------------------------------------
                                                                                                    High-net-
                                                            Primary estimate  Low-net-benefits      benefits
                                                                                  estimate          estimate
----------------------------------------------------------------------------------------------------------------
                                                3% discount rate
----------------------------------------------------------------------------------------------------------------
Consumer Operating Cost Savings...........................             1,865             1,891             1,937
Climate Benefits *........................................             1,015             1,000             1,042
Net Health Benefits **....................................             1,213             1,197             1,251
                                                           -----------------------------------------------------
    Total Benefits [dagger]...............................             4,093             4,088             4,230
Consumer Incremental Product Costs [Dagger]...............               511               508               461
                                                           -----------------------------------------------------
    Net Benefits..........................................             3,581             3,580             3,769
----------------------------------------------------------------------------------------------------------------
                                                7% discount rate
----------------------------------------------------------------------------------------------------------------
Consumer Operating Cost Savings...........................             1,320             1,338             1,352
Climate Benefits *........................................             1,015             1,000             1,042
Health Benefits **........................................               760               751               780
                                                           -----------------------------------------------------
    Total Benefits [dagger]...............................             3,095             3,089             3,173
Consumer Incremental Product Costs [Dagger]...............               524               516               471
                                                           -----------------------------------------------------
    Net Benefits..........................................             2,571             2,573             2,702
----------------------------------------------------------------------------------------------------------------
Note: This table presents the costs and benefits associated with consumer furnaces shipped in 2029-2058. These
  results include benefits to consumers which accrue after 2058 from the products shipped in 2029-2058.
* Climate benefits are calculated using four different estimates of the social cost of carbon (SC-CO2), methane
  (SC-CH4), and nitrous oxide (SC-N2O) (model average at 2.5 percent, 3 percent, and 5 percent discount rates;
  95th percentile at 3 percent discount rate). Together these represent the global social cost of greenhouse
  gases (SC-GHG). For presentational purposes of this table, the climate benefits associated with the average SC-
  GHG at a 3 percent discount rate are shown, but the Department does not have a single central SC-GHG point
  estimate. See section. IV.L of this document for more details. On March 16, 2022, the Fifth Circuit Court of
  Appeals (No. 22-30087) granted the Federal government's emergency motion for stay pending appeal of the
  February 11, 2022, preliminary injunction issued in Louisiana v. Biden, No. 21-cv-1074-JDC-KK (W.D. La.). As a
  result of the Fifth Circuit's order, the preliminary injunction is no longer in effect, pending resolution of
  the Federal government's appeal of that injunction or a further court order. Among other things, the
  preliminary injunction enjoined the defendants in that case from ``adopting, employing, treating as binding,
  or relying upon'' the interim estimates of the social cost of greenhouse gases--which were issued by the
  Interagency Working Group on the Social Cost of Greenhouse Gases on February 26, 2021--to monetize the
  benefits of reducing greenhouse gas emissions. In the absence of further intervening court orders, DOE will
  revert to its approach prior to the injunction and present monetized benefits where appropriate and
  permissible under law.
** Health benefits are calculated using benefit-per-ton values for NOX and SO2. DOE is currently only monetizing
  (for SO2 and NOX) PM2.5 precursor health benefits and (for NOX) ozone precursor health benefits, but will
  continue to assess the ability to monetize other effects such as health benefits from reductions in direct
  PM2.5 emissions. See section IV.L of this document for more details.
[dagger] Total benefits for both the 3-percent and 7-percent cases are presented using the average SC-GHG with 3-
  percent discount rate, but the Department does not have a single central SC-GHG point estimate. DOE emphasizes
  the importance and value of considering the benefits calculated using all four SC-GHG estimates.
[Dagger] Costs include incremental equipment costs as well as installation costs.

    Table V.52 shows the annualized values for NWGFs and MHGFs standby 
mode and off mode standards under TSL 3, expressed in 2020$. The 
results under the primary estimate are as follows.
    Using a 7-percent discount rate for consumer benefits and costs and 
health benefits from reduced SO2 and NOX 
emissions, and the 3-percent discount rate case for climate benefits 
from reduced GHG emissions, the estimated cost of the proposed standby 
mode and off mode standards for NWGFs and MHGFs is $12.2 million per 
year in increased equipment costs, while the estimated annual benefits 
would be $160 million in reduced equipment operating costs, $23 million 
in climate benefits, and $25 million in health benefits. In this case, 
the net benefit would amount to $196 million per year.
    Using a 3-percent discount rate for all benefits and costs, the 
estimated cost of the proposed standby mode and off mode standards for 
NWGFs and MHGFs is $12.4 million per year in increased equipment costs, 
while the estimated annual benefits would be $224 million in reduced 
operating costs, $23 million in climate benefits, and $40 million in 
health benefits. In this case, the net

[[Page 40696]]

benefit would amount to $275 million per year.

  Table V.52--Annualized Monetized Benefits and Costs of Proposed Standby Mode and Off Mode Standards for Non-
                          Weatherized Gas Furnaces and Mobile Home Gas Furnaces (TSL 3)
----------------------------------------------------------------------------------------------------------------
                                                                             Million 2020$/year
                                                           -----------------------------------------------------
                                                                                                    High-net-
                                                            Primary estimate  Low-net-benefits      benefits
                                                                                  estimate          estimate
----------------------------------------------------------------------------------------------------------------
                                                3% discount rate
----------------------------------------------------------------------------------------------------------------
Consumer Operating Cost Savings...........................               224               214               251
Climate Benefits *........................................                23                23                24
Health Benefits **........................................                40                40                43
                                                           -----------------------------------------------------
    Total Benefits [dagger]...............................               287               276               318
Consumer Incremental Product Costs [Dagger]...............                12                12                13
                                                           -----------------------------------------------------
    Net Benefits..........................................               275               264               305
----------------------------------------------------------------------------------------------------------------
                                                7% discount rate
----------------------------------------------------------------------------------------------------------------
Consumer Operating Cost Savings...........................               160               155               176
Climate Benefits *........................................                23                23                24
Health Benefits **........................................                25                25                27
                                                           -----------------------------------------------------
    Total Benefits [dagger]...............................               208               203               227
Consumer Incremental Product Costs [Dagger]...............                12                12                13
                                                           -----------------------------------------------------
    Net Benefits..........................................               196               190               214
----------------------------------------------------------------------------------------------------------------
Note: This table presents the costs and benefits associated with consumer furnaces shipped in 2029-2058. These
  results include benefits to consumers which accrue after 2058 from the products shipped in 2029-2058.
* Climate benefits are calculated using four different estimates of the social cost of carbon (SC-CO2), methane
  (SC-CH4), and nitrous oxide (SC-N2O) (model average at 2.5 percent, 3 percent, and 5 percent discount rates;
  95th percentile at 3 percent discount rate). Together these represent the global social cost of greenhouse
  gases (SC-GHG). For presentational purposes of this table, the climate benefits associated with the average SC-
  GHG at a 3 percent discount rate are shown, but the Department does not have a single central SC-GHG point
  estimate. See section. IV.L of this document for more details. On March 16, 2022, the Fifth Circuit Court of
  Appeals (No. 22-30087) granted the Federal government's emergency motion for stay pending appeal of the
  February 11, 2022, preliminary injunction issued in Louisiana v. Biden, No. 21-cv-1074-JDC-KK (W.D. La.). As a
  result of the Fifth Circuit's order, the preliminary injunction is no longer in effect, pending resolution of
  the Federal government's appeal of that injunction or a further court order. Among other things, the
  preliminary injunction enjoined the defendants in that case from ``adopting, employing, treating as binding,
  or relying upon'' the interim estimates of the social cost of greenhouse gases--which were issued by the
  Interagency Working Group on the Social Cost of Greenhouse Gases on February 26, 2021--to monetize the
  benefits of reducing greenhouse gas emissions. In the absence of further intervening court orders, DOE will
  revert to its approach prior to the injunction and present monetized benefits where appropriate and
  permissible under law.
** Health benefits are calculated using benefit-per-ton values for NOX and SO2. DOE is currently only monetizing
  (for SO2 and NOX) PM2.5 precursor health benefits and (for NOX) ozone precursor health benefits, but will
  continue to assess the ability to monetize other effects such as health benefits from reductions in direct
  PM2.5 emissions. See section IV.L of this document for more details.
[dagger] Total benefits for both the 3-percent and 7-percent cases are presented using the average SC-GHG with 3-
  percent discount rate, but the Department does not have a single central SC-GHG point estimate. DOE emphasizes
  the importance and value of considering the benefits calculated using all four SC-GHG estimates.
[Dagger] Costs include incremental equipment costs as well as installation costs.

    DOE considers and evaluates these standards independently under 
EPCA and the analytical process outlined in DOE's Process Rule (as 
amended). However, DOE is also presenting the combined effects of these 
standards for the benefit of the public and in compliance with E.O. 
12866. To provide a complete picture of the overall impacts of this 
NOPR, the following combines and summarizes the benefits and costs for 
both the amended AFUE standards and the proposed standby mode and off 
mode standards for NWGFs and MHGFs. Table V.53 shows the combined 
annualized benefit and cost values for the proposed AFUE standards and 
the standby mode and off mode standards for NWGFs and MHGFs.
    Using a 7-percent discount rate for consumer benefits and costs and 
health benefits from SO2 and NOX emission 
changes, and the 3-percent discount rate case for climate benefits from 
reduced GHG emissions, the estimated cost of the proposed standards in 
this rule is $536 million per year in increased equipment costs, while 
the estimated annual benefits would be $1,480 million in reduced 
equipment operating costs, $1,038 million in climate benefits, and $785 
million in health benefits (accounting for reduced NOX 
emissions and increased SO2 emissions). In this case, the 
net benefit amounts to $2,767 million per year.
    Using a 3-percent discount rate for all benefits and costs, the 
estimated cost of the proposed standards in this rule is $524 million 
per year in increased equipment costs, while the estimated annual 
benefits would be $2,089 million in reduced operating costs, $1,038 
million in climate benefits, and $1,253 million in health benefits 
(accounting for reduced NOX emissions and increased 
SO2 emissions). In this case, the net benefit would amount 
to $3,856 million per year.

[[Page 40697]]



  Table V.53--Monetized Benefits and Costs of Proposed AFUE (TSL 8) and
   Standby Mode and Off Mode (TSL 3) Standards for Non-Weatherized Gas
                  Furnaces and Mobile Home Gas Furnaces
------------------------------------------------------------------------
                                         Annualized       Total present
                                       (million 2020$/   value (billion
                                             yr)             2020$)
------------------------------------------------------------------------
                                   3%
------------------------------------------------------------------------
Consumer Operating Cost Savings.....             2,089              33.3
Climate Benefits *..................             1,038              16.5
Health Benefits **..................             1,253              20.0
                                     -----------------------------------
    Total Benefits [dagger].........             4,380              69.8
Consumer Incremental Product Costs                 524               8.3
 [Dagger]...........................
                                     -----------------------------------
    Net Benefits....................             3,856              61.5
------------------------------------------------------------------------
                                   7%
------------------------------------------------------------------------
Consumer Operating Cost Savings.....             1,480              11.4
Climate Benefits *..................             1,038              16.5
Health Benefits **..................               785               6.1
                                     -----------------------------------
    Total Benefits [dagger].........             3,303              34.0
Consumer Incremental Product Costs                 536               4.1
 [Dagger]...........................
                                     -----------------------------------
    Net Benefits....................             2,767              29.9
------------------------------------------------------------------------
Note: This table presents the costs and benefits associated with
  consumer furnaces shipped in 2029-2058. These results include benefits
  to consumers which accrue after 2058 from the products shipped in 2029-
  2058.
* Climate benefits are calculated using four different estimates of the
  social cost of carbon (SC-CO2), methane (SC-CH4), and nitrous oxide
  (SC-N2O) (model average at 2.5 percent, 3 percent, and 5 percent
  discount rates; 95th percentile at 3 percent discount rate). Together
  these represent the global social cost of greenhouse gases (SC-GHG).
  For presentational purposes of this table, the climate benefits
  associated with the average SC-GHG at a 3 percent discount rate are
  shown, but the Department does not have a single central SC-GHG point
  estimate. See section. IV.L of this document for more details. On
  March 16, 2022, the Fifth Circuit Court of Appeals (No. 22-30087)
  granted the Federal government's emergency motion for stay pending
  appeal of the February 11, 2022, preliminary injunction issued in
  Louisiana v. Biden, No. 21-cv-1074-JDC-KK (W.D. La.). As a result of
  the Fifth Circuit's order, the preliminary injunction is no longer in
  effect, pending resolution of the Federal government's appeal of that
  injunction or a further court order. Among other things, the
  preliminary injunction enjoined the defendants in that case from
  ``adopting, employing, treating as binding, or relying upon'' the
  interim estimates of the social cost of greenhouse gases--which were
  issued by the Interagency Working Group on the Social Cost of
  Greenhouse Gases on February 26, 2021--to monetize the benefits of
  reducing greenhouse gas emissions. In the absence of further
  intervening court orders, DOE will revert to its approach prior to the
  injunction and present monetized benefits where appropriate and
  permissible under law.
** Health benefits are calculated using benefit-per-ton values for NOX
  and SO2. DOE is currently only monetizing (for SO2 and NOX) PM2.5
  precursor health benefits and (for NOX) ozone precursor health
  benefits, but will continue to assess the ability to monetize other
  effects such as health benefits from reductions in direct PM2.5
  emissions. See section IV.L of this document for more details.
[dagger] Total benefits for both the 3-percent and 7-percent cases are
  presented using the average SC-GHG with 3-percent discount rate, but
  the Department does not have a single central SC-GHG point estimate.
  DOE emphasizes the importance and value of considering the benefits
  calculated using all four SC-GHG estimates.
[Dagger] Costs include incremental equipment costs as well as
  installation costs.

VI. Procedural Issues and Regulatory Review

A. Review Under Executive Orders 12866 and 13563
    Executive Order (``E.O.'') 12866, ``Regulatory Planning and 
Review,'' as supplemented and reaffirmed by E.O. 13563, ``Improving 
Regulation and Regulatory Review, 76 FR 3821 (Jan. 21, 2011), requires 
agencies, to the extent permitted by law, to (1) propose or adopt a 
regulation only upon a reasoned determination that its benefits justify 
its costs (recognizing that some benefits and costs are difficult to 
quantify); (2) tailor regulations to impose the least burden on 
society, consistent with obtaining regulatory objectives, taking into 
account, among other things, and to the extent practicable, the costs 
of cumulative regulations; (3) select, in choosing among alternative 
regulatory approaches, those approaches that maximize net benefits 
(including potential economic, environmental, public health and safety, 
and other advantages; distributive impacts; and equity); (4) to the 
extent feasible, specify performance objectives, rather than specifying 
the behavior or manner of compliance that regulated entities must 
adopt; and (5) identify and assess available alternatives to direct 
regulation, including providing economic incentives to encourage the 
desired behavior, such as user fees or marketable permits, or providing 
information upon which choices can be made by the public. DOE 
emphasizes as well that E.O. 13563 requires agencies to use the best 
available techniques to quantify anticipated present and future 
benefits and costs as accurately as possible. In its guidance, the 
Office of Information and Regulatory Affairs (``OIRA'') in the Office 
of Management and Budget (``OMB'') has emphasized that such techniques 
may include identifying changing future compliance costs that might 
result from technological innovation or anticipated behavioral changes. 
For the reasons stated in the preamble, this proposed regulatory action 
is consistent with these principles.
    Section 6(a) of E.O. 12866 also requires agencies to submit 
``significant regulatory actions'' to OIRA for review. OIRA has 
determined that this proposed regulatory action constitutes an 
economically significant regulatory action under section 3(f) of E.O. 
12866. Accordingly, pursuant to section 6(a)(3)(C) of E.O. 12866, DOE 
has provided to OIRA an assessment, including the underlying analysis, 
of benefits and costs anticipated from the proposed regulatory action, 
together with, to the extent feasible, a quantification of those costs; 
and an assessment, including the underlying

[[Page 40698]]

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. A summary of the potential costs and benefits of the 
combined regulatory actions are presented in Table VI.1.

Table VI.1--Monetized Benefits, Costs, and Net Benefits of Proposed AFUE
               and Standby and Mode and Off Mode Standards
------------------------------------------------------------------------
                                         Annualized       Total present
                                       (million 2020$/   value (billion
                                             yr)             2020$)
------------------------------------------------------------------------
                                   3%
------------------------------------------------------------------------
Consumer Operating Cost Savings.....             2,089              33.3
Climate Benefits *..................             1,038              16.5
Health Benefits **..................             1,253              20.0
                                     -----------------------------------
    Total Benefits [dagger].........             4,380              69.8
Consumer Incremental Product                       524               8.3
 Costs[Dagger]......................
                                     -----------------------------------
    Net Benefits....................             3,856              61.5
------------------------------------------------------------------------
                                   7%
------------------------------------------------------------------------
Consumer Operating Cost Savings.....             1,480              11.4
Climate Benefits *..................             1,038              16.5
Health Benefits **..................               785               6.1
                                     -----------------------------------
    Total Benefits [dagger].........             3,303              34.0
Consumer Incremental Product Costs                 536               4.1
 [Dagger]...........................
                                     -----------------------------------
    Net Benefits....................             2,767              29.9
------------------------------------------------------------------------
Note: This table presents the costs and benefits associated with
  consumer furnaces shipped in 2029-2058. These results include benefits
  to consumers which accrue after 2058 from the products shipped in 2029-
  2058.
* Climate benefits are calculated using four different estimates of the
  social cost of carbon (SC-CO2), methane (SC-CH4), and nitrous oxide
  (SC-N2O) (model average at 2.5 percent, 3 percent, and 5 percent
  discount rates; 95th percentile at 3 percent discount rate). Together
  these represent the global social cost of greenhouse gases (SC-GHG).
  For presentational purposes of this table, the climate benefits
  associated with the average SC-GHG at a 3 percent discount rate are
  shown, but the Department does not have a single central SC-GHG point
  estimate. See section. IV.L of this document for more details. On
  March 16, 2022, the Fifth Circuit Court of Appeals (No. 22-30087)
  granted the Federal government's emergency motion for stay pending
  appeal of the February 11, 2022, preliminary injunction issued in
  Louisiana v. Biden, No. 21-cv-1074-JDC-KK (W.D. La.). As a result of
  the Fifth Circuit's order, the preliminary injunction is no longer in
  effect, pending resolution of the Federal government's appeal of that
  injunction or a further court order. Among other things, the
  preliminary injunction enjoined the defendants in that case from
  ``adopting, employing, treating as binding, or relying upon'' the
  interim estimates of the social cost of greenhouse gases--which were
  issued by the Interagency Working Group on the Social Cost of
  Greenhouse Gases on February 26, 2021--to monetize the benefits of
  reducing greenhouse gas emissions. In the absence of further
  intervening court orders, DOE will revert to its approach prior to the
  injunction and present monetized benefits where appropriate and
  permissible under law.
** Health benefits are calculated using benefit-per-ton values for NOX
  and SO2. DOE is currently only monetizing (for SO2 and NOX) PM2.5
  precursor health benefits and (for NOX) ozone precursor health
  benefits, but will continue to assess the ability to monetize other
  effects such as health benefits from reductions in direct PM2.5
  emissions. See section IV.L of this document for more details.
[dagger] Total benefits for both the 3-percent and 7-percent cases are
  presented using the average SC-GHG with 3-percent discount rate, but
  the Department does not have a single central SC-GHG point estimate.
  DOE emphasizes the importance and value of considering the benefits
  calculated using all four SC-GHG estimates.
[Dagger] Costs include incremental equipment costs as well as
  installation costs.

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 E.O. 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 DOE rulemaking process. 68 FR 7990. DOE has made 
its procedures and policies available on the Office of the General 
Counsel's website (www.energy.gov/gc/office-general-counsel). DOE has 
prepared the following IRFA for the products that are the subject of 
this rulemaking.
    For manufacturers of NWGFs and MHGFs, the SBA has set a size 
threshold, which defines those entities classified as ``small 
businesses'' for the purposes of the statute. DOE used the SBA's small 
business size standards to determine whether any small entities would 
be subject to the requirements of the rule. (See 13 CFR part 121.) The 
size standards are listed by North American Industry Classification 
System (``NAICS'') code and industry description and are available at 
www.sba.gov/document/support--table-size-standards. Manufacturing of 
NWGFs and MHGFs 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 as a small 
business for this category.
1. Description of Reasons Why Action Is Being Considered
    DOE is proposing amended energy conservation standards and new 
standby mode and off mode energy standards for NWGFs and MHGFs. EPCA 
specifically provides that DOE must conduct two rounds of energy 
conservation standard rulemakings for

[[Page 40699]]

NWGFs and MHGFs. (42 U.S.C. 6295(f)(4)(B) and (C)) The statute also 
requires that not later than 6 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 NOPR including new proposed energy conservation 
standards. (42 U.S.C. 6295(m)(1)) This rulemaking is pursuant to the 
statutorily required second round of rulemaking for NWGFs and MHGFs, 
and the statutorily required 6-year review.
2. Objectives of, and Legal Basis for, Rule
    Amendments to EPCA in the National Appliance Energy Conservation 
Act of 1987 (NAECA; Pub. L. 100-12) established EPCA's original energy 
conservation standards for furnaces, consisting of the minimum AFUE 
levels described above for mobile home furnaces and for all other 
furnaces except ``small'' gas furnaces. (42 U.S.C. 6295(f)(1)-(2)) 
Pursuant to 42 U.S.C. 6295(f)(1)(B), in November 1989, DOE adopted a 
mandatory minimum AFUE level for ``small'' furnaces. 54 FR 47916 (Nov. 
17, 1989). The standards established by NAECA and the November 1989 
final rule for ``small'' gas furnaces are still in effect for mobile 
home oil-fired furnaces, weatherized oil-fired furnaces.
    Under EPCA, DOE was required to conduct two rounds of rulemaking to 
consider amended energy conservation standards for furnaces. (42 U.S.C. 
6295(f)(4)(B) and (C)) In satisfaction of this first round of amended 
standards rulemaking under 42 U.S.C. 6295(f)(4)(B), as noted 
previously, DOE published a final rule in the Federal Register on 
November 19, 2007, that revised these standards for most furnaces, but 
left them in place for two product classes (i.e., mobile home oil-fired 
furnaces and weatherized oil-fired furnaces). The standards amended in 
the November 2007 Rule were to apply to furnaces manufactured or 
imported on and after November 19, 2015. 72 FR 65136 (Nov. 19, 2007). 
The energy conservation standards in the November 2007 final rule 
consist of a minimum AFUE level for each of the six classes of 
furnaces. Id. at 72 FR 65169. As previously noted, based on the market 
analysis for the November 2007 final rule and the standards established 
under that rule, the November 2007 final rule eliminated the 
distinction between furnaces based on their certified input capacity, 
i.e., the standards applicable to ``small'' furnaces were established 
at the same level as the corresponding class of furnace generally.
    Following DOE's adoption of the November 2007 final rule, several 
parties jointly sued DOE in the United States Court of Appeals for the 
Second Circuit (Second Circuit), seeking to invalidate the rule. 
Petition for Review, State of New York, et al. v. Department of Energy, 
et al., Nos. 08-0311-ag(L); 08-0312-ag(con) (2d Cir. filed Jan. 17, 
2008). The petitioners asserted that the standards for residential 
furnaces promulgated in the November 2007 Rule did not reflect the 
``maximum improvement in energy efficiency'' that ``is technologically 
feasible and economically justified'' under 42 U.S.C. 6295(o)(2)(A). On 
April 16, 2009, DOE filed with the Court a motion for voluntary remand 
that the petitioners did not oppose. The motion did not state that the 
November 2007 rule would be vacated, but indicated that DOE would 
revisit its initial conclusions outlined in the November 2007 Rule in a 
subsequent rulemaking action. DOE also agreed that the final rule would 
address both regional standards for furnaces, as well as the effects of 
alternate standards on natural gas prices. The Second Circuit granted 
DOE's motion on April 21, 2009.
    On June 27, 2011, DOE published in the Federal Register a direct 
final rule (``June 2011 DFR'') revising the energy conservation 
standards for residential furnaces pursuant to the voluntary remand in 
State of New York, et al. v. Department of Energy, et al. 76 FR 37408. 
In the June 2011 DFR, DOE considered the amendment of the same six 
product classes considered in the November 2007 final rule analysis 
plus electric furnaces. The June 2011 DFR amended the existing energy 
conservation standards for NWGFs, MHGFs, and non-weatherized oil 
furnaces, and amended the compliance date (but left the existing 
standards in place) for weatherized gas furnaces. The June 2011 DFR 
also established electrical standby mode and off mode energy 
conservation standards for NWGFs, non-weatherized oil furnaces, and 
electric furnaces. DOE confirmed the standards and compliance dates 
promulgated in the June 2011 final rule in a notice of effective date 
and compliance dates published in the Federal Register on October 31, 
2011. 76 FR 67037.
    As noted earlier, following DOE's adoption of the June 2011 DFR, 
APGA filed a petition for review with the United States Court of 
Appeals for the District of Columbia Circuit, seeking to invalidate the 
DOE rule as it pertained to NWGFs. 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). On April 24, 2014, the Court granted a 
motion that allowed for the settlement agreement reached between DOE 
and APGA, in which DOE agreed to a remand of the NWGFs and MHGFs 
portions of the June 2011 DFR in order to conduct further notice-and-
comment rulemaking. 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. As part of the 
settlement, DOE agreed to use best efforts to issue a notice of 
proposed rulemaking within one year of the remand, and to issue a final 
rule within the later of two years of the issuance of remand, or one 
year of the issuance of the proposed rule, including at least a ninety-
day public comment period. As noted earlier in section II.B.2 of this 
document, in accordance with the settlement agreement, DOE issued a 
NOPR in March of 2015 and an SNOPR in September of 2016 to address 
NWGFs and MHGFs; however, in January of 2021, DOE published 
notification of withdrawal of the March 2015 NOPR and September 2016 
SNOPR. 86 FR 3873 (Jan. 15, 2021).
3. Description of Estimated Number of Small Entities Regulated
    DOE reviewed this proposed rule under the provisions of the 
Regulatory Flexibility Act and the procedures and policies published on 
February 19, 2003. 68 FR 7990. DOE conducted a market survey to 
identify potential small manufacturers of the covered products. DOE 
began its assessment by reviewing DOE's CCMS database,\276\ California 
Energy Commission's Modernized Appliance Efficiency Database System 
(``MAEDbS''),\277\ Air Conditioning, Heating, and Refrigeration 
Institute's (``AHRI'') Directory of Certified Product Performance 
database,\278\ individual retailer websites, and the withdrawn 
September 2016 SNOPR to identify manufacturers of the covered products. 
81 FR 65720. DOE then consulted publicly available data, such as 
manufacturer websites, manufacturer specifications and product 
literature, import/export logs, and basic

[[Page 40700]]

model numbers, to identify original equipment manufacturers (``OEMs'') 
of the products covered by this rulemaking. DOE further relied on 
public data and subscription-based market research tools (e.g., Dun & 
Bradstreet reports \279\) to determine company location, headcount, and 
annual revenue. DOE also asked industry representatives if they were 
aware of any other small manufacturers during manufacturer interviews. 
DOE screened out companies that do not offer products covered by this 
rulemaking, do not meet the SBA's definition of a ``small business,'' 
or are foreign-owned and operated.
---------------------------------------------------------------------------

    \276\ DOE's CCMS (Available at: www.regulations.doe.gov/certification-data/) (Last accessed July 7, 2021).
    \277\ California Energy Commission's MAEDbS (Available at: 
cacertappliances.energy.ca.gov/Pages/Search/AdvancedSearch.aspx) 
(Last accessed July 15, 2021).
    \278\ AHRI's Directory of Certified Product Performance 
(Available at: www.ahridirectory.org/Search/SearchHome) (last 
accessed July 15, 2021).
    \279\ D&B Hoovers [verbar] Company Information [verbar] Industry 
Information [verbar] Lists, app.dnbhoovers.com/) (Last accessed 
Sept. 22, 2021).
---------------------------------------------------------------------------

    DOE initially identified 15 OEMs that sell NWGFs and/or MHGFs in 
the United States. Of the 15 OEMs identified, DOE tentatively 
determined that four companies qualify as small businesses and are not 
foreign-owned or operated.
4. Description and Estimate of Compliance Requirements Including 
Differences in Cost, if Any, for Different Groups of Small Entities
    In response to the withdrawn September 2016 SNOPR IRFA, AHRI and 
Mortex Products, Inc. (``Mortex'') raised concerns that DOE's 
methodology of using model counts to scale industry-level conversion 
costs down to a company level do not fully characterize the impacts on 
small manufacturers. (AHRI, No. 303 at p. 12; Mortex, No. 305 at p. 4) 
They were concerned that this methodology understates the cost impact 
to small manufacturers, with particular concern about ``the small 
manufacturer whose primary product is marketed for manufactured homes 
does not make a single product that meets the lofty 92% AFUE.'' (AHRI, 
No. 303 at p. 12) As noted by Mortex, ``we do not manufacture 
condensing mobile home gas furnaces.'' (Mortex, No. 305 at p. 1)
    In response to these stakeholder comments, DOE updated its 
conversion cost methodology. Specifically, DOE updated its analysis to 
give special consideration to Mortex. In the withdrawn September 2016 
SNOPR IRFA, DOE's small business compliance costs were based on data 
collected during the 2014 manufacturer interviews. However, unlike the 
MHGF manufacturers that DOE interviewed, Mortex does not currently 
offer condensing products. As a result, Mortex's conversion cost were 
not well reflected in the withdrawn September 2016 SNOPR IRFA since 
Mortex would need to make a different set of investments than the rest 
of the MHGF industry. In this Notice's IRFA, DOE estimates the cost for 
Mortex to set up a production line capable of manufacturing condensing 
furnaces. Mortex's conversion costs are analyzed separately from the 
rest of the MHGF industry.
a. AFUE Standards
    Of the four small domestic OEMs identified, two manufacture NWGFs, 
one manufactures MHGFs, and one manufactures both NWGFs and MHGFs. DOE 
considered the impact of today's rule on the four manufacturers.
    One of the small NWGF manufacturers sells a niche product in the 
NWGF market. The company offers three basic models of a through-the-
wall furnace marketed for multi-family construction. The three models 
have identical dimensions and share many components. One model is rated 
at 80-percent AFUE, one model is rated at 93-percent AFUE, and the 
other model is rated at 95-percent AFUE. Given the product similarities 
and low volume of sales, DOE expects the manufacturer would likely 
discontinue the non-compliant models. DOE does not expect the small 
manufacturer would incur conversion costs due to the proposed standard, 
as the company currently offers their niche product at 95-percent AFUE.
    The other small NWGF manufacturer does not currently certify any 
models of the covered product in DOE's CCMS. DOE identified this small 
business through its review of the California Energy Commission's 
MAEDbS and the withdrawn September 2016 SNOPR. DOE reviewed the 
company's website and available product literature to determine the 
range of products offered by this small manufacturer. According to the 
company's website, they offer condensing and non-condensing NWGFs, 
including models that meet the 95-percent AFUE required by the proposed 
standard. However, detailed product information is scarce, and the 
company's 2021 Product Catalog does not include gas-fired consumer 
furnaces. The limited product information and lack of legally compliant 
products indicate that the company may no longer produce covered NWGFs. 
If the company still manufactures NWGFs, DOE expects the manufacturer 
would likely discontinue the non-compliant models given the low volume 
of sales. As with the other small NWGF manufacturer, DOE does not 
expect this company would incur conversion costs as they currently 
offer a product at 95-percent AFUE.
    The small MHGF manufacturer, Mortex, sells non-condensing furnaces 
into the manufactured housing replacement market. DOE identified this 
small business through its review of the withdrawn September 2016 
SNOPR. Of the seven MHGF OEMs identified, Mortex is the only company 
that does not offer a condensing product. DOE analyzed the conversion 
costs for Mortex separately from other MHGF manufacturers since Mortex 
would need to make a different set of investments than the rest of the 
MHGF industry.
    To offer condensing MHGFs, Mortex would need to either source 
secondary heat exchangers from a vendor or setup its own manufacturing 
line to produce secondary heat exchangers. Setting up in-house 
production is the significantly more capital-intensive option. For this 
IRFA, DOE estimated the investments required for the company to setup 
in-house production. Based on DOE's engineering analysis, the main 
driver of additional capital conversion costs would be the production 
of secondary heat exchangers. Including equipment, tooling, and 
conveyer, DOE estimates upfront capital investments of $4.1 million to 
setup manufacturing of condensing MHGFs. Additionally, the design and 
product development of condensing products could run as high as $1.4 
million. If the company has less than 15 percent market share in the 
MHGF market, as suggested by the percentage of industry model 
offerings, the cost recovery period for this investment would be in 
excess of 10 years. Unlike other MHGF manufacturers, which can leverage 
their investments in secondary heat exchanger production across other 
heating products, DOE is not aware of any other heating product from 
Mortex that could make use of the secondary heat exchanger production 
capacity. The total conversion costs of $5.5 million are approximately 
2 percent of company revenues over the 5-year conversion period and are 
considered significant.
    Given the high upfront investment and long cost recovery period, 
the small manufacturer would likely seek options other than investing 
in secondary heat exchanger production capabilities. The company could 
source the secondary heat exchanger, which would reduce the need for 
capital conversion costs but would also increase the per-unit cost of 
the final product. DOE estimates that the secondary heat exchanger 
accounts for approximately 14 percent of the total manufacturer 
production cost. Sourcing the heat exchanger could put the company at a 
pricing disadvantage relative to manufacturers that produce

[[Page 40701]]

their heat exchangers in-house. Depending on the business' ability to 
compete on factors other than price, its willingness to invest 
technical resources toward designing a condensing product, and the role 
of MHGFs in the company's business strategy, the small manufacturer 
could also choose to leave the MHGF business.
    The small domestic manufacturer of NWGFs and MHGFs is one of the 
six MHGF companies that offer condensing products. Of these six 
companies with condensing MHGFs, one manufacturer only offers products 
at or above the proposed AFUE standard and would, therefore, likely 
incur no conversion costs. The remaining five manufacturers, which 
includes the small manufacturer of NWGFs and MHGFs, have some products 
that do not meet the standard. All MHGF conversion costs that are not 
directly attributed to Mortex would be borne by these five 
manufacturers. The small domestic business has two MHGF models that 
would require redesign or retirement, which is an estimated 2.6 percent 
of the 76 MHGF models in CCMS with an AFUE below 95-percent.
    DOE estimated industry conversion costs of $2.8 million for the 
MHGF AFUE standard when excluding the conversion costs attributable to 
Mortex. For the purposes of this IRFA analysis, DOE assumes the $2.8 
million in conversion costs are evenly allocated across the five 
companies that may incur MHGF conversion costs. The MHGF-related 
conversion costs are approximately $0.6 million per company. DOE 
believes this even allocation of capital and product conversion costs 
avoids under-estimating the investment requirements on the small, 
domestic manufacturer, given that this manufacturer has a small market 
share. For the small manufacturer, total conversion costs are 
approximately 0.1 percent of company revenue over the 5-year conversion 
period.
    As noted earlier, this small domestic manufacturer also produces 
NWGFs. The company offers four NWGF models, out of over 2,200 NWGFs in 
CCMS. All four of their NWGF offerings are at or above the proposed 
AFUE standard and would not likely incur conversion costs due to the 
AFUE standard. Therefore, the small manufacturer that produces both 
MHGFs and NWGFs is expected to only incur conversion costs relating to 
their MHGF products at TSL 8, the proposed standard level.
b. Standby Mode and Off Mode Standards
    The engineering analysis suggests that the design paths required to 
meet the standby mode and off mode requirements consist of relatively 
straight-forward component swaps. Additionally, the INPV and short-term 
cash flow impacts of the standby mode and off mode requirements are 
dwarfed by the impacts of the AFUE standard. In general, the impacts of 
the standby and off mode standard are significantly smaller than the 
impacts of the AFUE standard. For this reason, the IRFA focuses on the 
impacts of the AFUE standard.
    DOE seeks comments, information, and data on the number of small 
businesses in the industry, the names of those small businesses, and 
their market shares by product class. DOE also requests comment on the 
potential impacts of the proposed AFUE standards and standby mode and 
off mode standards on small manufacturers.
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 proposed rule.
6. Significant Alternatives to the Rule
    The discussion in the previous section analyzes impacts on small 
businesses that would result from DOE's proposed rule, represented by 
TSL 8. In reviewing alternatives to the proposed rule, DOE examined a 
range of different efficiency levels and their respective impacts to 
both manufacturers and consumers. Representative of lower efficiency 
levels, TSL 1, 2, 3, 4, 5, 6, and 7 would reduce the impact on small 
business manufacturers but at the expense of a reduction in energy 
savings. TSL 9 was also analyzed, but it was determined those levels 
would lead to greater costs to manufacturers.
    Based on the presented discussion, DOE believes that TSL 8 would 
deliver the highest energy savings while mitigating the potential 
burdens placed on NWGF and MHGF manufacturers, including small business 
manufacturers. Accordingly, DOE does not propose one of the other TSLs 
considered in the analysis, or the other policy alternatives as part of 
the regulatory impact analysis and included in chapter 17 of the NOPR 
TSD.
    In reviewing alternatives to the proposed standards, DOE examined 
energy conservation standards set at both lower and higher efficiency 
levels than the proposed levels. At TSL 9, the conversion costs were 
higher for small businesses and for industry overall. At TSLs 1, 2, 3, 
4, 5, 6, and 7, the impacts on small manufacturers would have been 
potentially lower. Those changes would have would come at the expense 
of reduced consumer benefits and a reduction in energy savings. In 
general, the consumer benefits were an order of magnitude greater than 
the cost to industry, and multiple orders of magnitude greater than the 
conversion costs to small manufacturers. DOE believes that establishing 
standards at the proposed level, TSL 8, balances the benefits of energy 
savings with the potential burdens placed on manufacturers of covered 
products, including small business manufacturers.
    Additional compliance flexibilities may be available through other 
means. 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. (42 U.S.C. 6295(t)) Additionally, 
manufacturers subject to DOE's energy efficiency standards may apply to 
DOE's Office of Hearings and Appeals for exception relief under certain 
circumstances. Manufacturers should refer to 10 CFR part 430, subpart 
E, and 10 CFR part 1003 for additional details.

C. Review Under the Paperwork Reduction Act of 1995

    Manufacturers of NWGFs and MHGFs must certify to DOE that their 
products comply with any applicable energy conservation standards in 
terms of AFUE.
    In certifying compliance, manufacturers must test their products 
according to the DOE test procedures for NWGFs and MHGFs, 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 NWGFs 
and MHGFs. See generally 10 CFR part 429. The collection-of-information 
requirement for the certification and recordkeeping is subject to 
review and approval by OMB under the Paperwork Reduction Act (``PRA''), 
and has been approved by OMB under OMB control number 1910-1400. Public 
reporting burden for the certification is estimated to average 35 hours 
per response, including the time for reviewing instructions, searching 
existing data sources, gathering and maintaining the data needed, and

[[Page 40702]]

completing and reviewing the collection of information.
    Under EPCA, DOE's energy conservation program consists essentially 
of four parts: (1) testing, (2) labeling, (3) Federal energy 
conservation standards, and (4) certification and enforcement 
procedures. For covered equipment, relevant provisions of the Act 
include definitions (42 U.S.C. 6291), test procedures (42 U.S.C. 6293), 
labeling provisions (42 U.S.C. 6294), energy conservation standards (42 
U.S.C. 6295), and the authority to require information and reports from 
manufacturers (42 U.S.C. 6296).
    DOE's certification and compliance activities ensure accurate and 
comprehensive information about the energy and water use 
characteristics of covered products and covered equipment sold in the 
United States. Manufacturers of all covered products and covered 
equipment must submit a certification report before a basic model is 
distributed in commerce, annually thereafter, and if the basic model is 
redesigned in such a manner to increase the consumption or decrease the 
efficiency of the basic model such that the certified rating is no 
longer supported by the test data. Additionally, manufacturers must 
report when production of a basic model has ceased and is no longer 
offered for sale as part of the next annual certification report 
following such cessation. DOE requires the manufacturer of any covered 
product or covered equipment to establish, maintain, and retain the 
records of certification reports, of the underlying test data for all 
certification testing, and of any other testing conducted to satisfy 
the requirements of part 429, part and part 431. Certification reports 
provide DOE and consumers with comprehensive, up-to date efficiency 
information and support effective enforcement.
    DOE requires manufacturers or their party representatives to 
prepare and submit certification reports and compliance statements 
using DOE's electronic Web-based tool, the CCMS, which is the primary 
mechanism for submitting certification reports to DOE. CCMS currently 
has product and equipment specific templates which manufacturers are 
required to use when submitting certification data to DOE. DOE believes 
the availability of electronic filing through the CCMS system reduces 
reporting burdens, streamlines the process, and provides DOE with 
needed information in a standardized, more accessible form. This 
electronic filing system also ensures that records are recorded in a 
permanent, systematic way.
    DOE is not proposing to amend the existing reporting requirements 
or establish new DOE reporting requirements. Were DOE to establish 
amended and new energy conservation standards as proposed in this NOPR, 
DOE would consider associated reporting and certification requirements 
in a future rulemaking. Therefore, DOE has tentatively concluded that 
amended energy conservation standards for NWGFs and MHGFs would not 
impose additional costs for manufacturers related to reporting and 
certification.
    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

    DOE is analyzing this proposed regulation in accordance with the 
National Environmental Policy Act of 1969 (``NEPA'') and DOE's NEPA 
implementing regulations (10 CFR part 1021). DOE's regulations include 
a categorical exclusion for rulemakings that establish energy 
conservation standards for consumer products or industrial equipment. 
10 CFR part 1021, subpart D, appendix B5.1. DOE anticipates that this 
rulemaking qualifies for categorical exclusion B5.1 because it is a 
rulemaking that establishes amended energy conservation standards for 
consumer products or industrial equipment, none of the exceptions 
identified in categorical exclusion B5.1(b) apply, no extraordinary 
circumstances exist that require further environmental analysis, and it 
otherwise meets the requirements for application of a categorical 
exclusion. See 10 CFR 1021.410. DOE will complete its NEPA review 
before issuing the final rule.

E. Review Under Executive Order 13132

    E.O. 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 proposed 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 proposed rule. States can 
petition DOE for exemption from such preemption to the extent, and 
based on criteria, set forth in EPCA. (42 U.S.C. 6297(d)) Therefore, no 
further action is required by Executive Order 13132.

F. Review Under Executive Order 12988

    Regarding the review of existing regulations and the promulgation 
of new regulations, section 3(a) of Executive Order 12988, ``Civil 
Justice Reform,'' 61 FR 4729 (Feb. 7, 1996), 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. 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 sections 3(a) and 3(b) to determine 
whether they are met or it is unreasonable to meet one or more of them. 
DOE has completed the required review and determined that, to the 
extent permitted by law, this proposed rule meets the relevant 
standards of E.O. 12988.

[[Page 40703]]

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, section 201 (codified at 2 U.S.C. 
1531). For a proposed regulatory action likely to result in a rule that 
may cause the expenditure by State, local, and Tribal governments, in 
the aggregate, or by the private sector of $100 million or more in any 
one year (adjusted annually for inflation), section 202 of UMRA 
requires a Federal agency to publish a written statement that estimates 
the resulting costs, benefits, and other effects on the national 
economy. (2 U.S.C. 1532(a), (b)) The UMRA also requires a Federal 
agency to develop an effective process to permit timely input by 
elected officers of State, local, and Tribal governments on a 
``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 https://energy.gov/sites/prod/files/gcprod/documents/umra_97.pdf.
    This proposed rule does not contain a Federal intergovernmental 
mandate, nor is it expected to require expenditures of $100 million or 
more in any one year by the private sector. As a result, the analytical 
requirements of UMRA do not apply.

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 proposed 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 18, 1988), DOE has determined that this proposed rule would 
not result in any takings that might require compensation under the 
Fifth Amendment to the U.S. Constitution.

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

    Section 515 of the Treasury and General Government Appropriations 
Act, 2001 (44 U.S.C. 3516, note) provides for Federal agencies to 
review most disseminations of information to the public under 
information quality guidelines established by each agency pursuant to 
general guidelines issued by OMB. OMB's guidelines were published at 67 
FR 8452 (Feb. 22, 2002), and DOE's guidelines were published at 67 FR 
62446 (Oct. 7, 2002). Pursuant to OMB Memorandum M-19-15, ``Improving 
Implementation of the Information Quality Act'' (April 24, 2019), DOE 
published updated guidelines which are available at: www.energy.gov/sites/prod/files/2019/12/f70/DOE%20Final%20Updated%20IQA%20Guidelines%20Dec%202019.pdf. DOE has 
reviewed this NOPR under the OMB and DOE guidelines and has concluded 
that it is consistent with applicable policies in those guidelines.

K. Review Under Executive Order 13211

    Executive Order 13211, ``Actions Concerning Regulations That 
Significantly Affect Energy Supply, Distribution, or Use,'' 66 FR 28355 
(May 22, 2001), requires Federal agencies to prepare and submit to OIRA 
at OMB, a Statement of Energy Effects for any proposed significant 
energy action. A ``significant energy action'' is defined as any action 
by an agency that promulgates or is expected to lead to promulgation of 
a final rule, and that: (1) is a significant regulatory action under 
Executive Order 12866, or any successor order; and (2) is likely to 
have a significant adverse effect on the supply, distribution, or use 
of energy, or (3) is designated by the Administrator of OIRA as a 
significant energy action. For any proposed significant energy action, 
the agency must give a detailed statement of any adverse effects on 
energy supply, distribution, or use should the proposal be implemented, 
and of reasonable alternatives to the action and their expected 
benefits on energy supply, distribution, and use.
    DOE has tentatively concluded that this regulatory action, which 
proposes new and amended energy conservation standards for NWGFs and 
MHGFs, is not a significant energy action because the proposed 
standards are not likely to have a significant adverse effect on the 
supply, distribution, or use of energy, nor has it been designated as 
such by the Administrator at OIRA. Accordingly, DOE has not prepared a 
Statement of Energy Effects on this proposed rule.

L. Review Under the Information Quality Bulletin for Peer Review

    On December 16, 2004, OMB, in consultation with the Office of 
Science and Technology Policy (``OSTP''), issued its Final Information 
Quality Bulletin for Peer Review (``the Bulletin''). 70 FR 2664 (Jan. 
14, 2005). The Bulletin establishes that certain scientific information 
shall be peer reviewed by qualified specialists before it is 
disseminated by the Federal Government, including influential 
scientific information related to agency regulatory actions. The 
purpose of the Bulletin is to enhance the quality and credibility of 
the Government's scientific information. Under the Bulletin, the energy 
conservation standards rulemaking analyses are ``influential scientific 
information,'' which the Bulletin defines as ``scientific information 
the agency reasonably can determine will have, or does have, a clear 
and substantial impact on important public policies or private sector 
decisions.'' 70 FR 2664, 2667 (Jan. 14, 2005).
    In response to OMB's Bulletin, DOE conducted formal peer reviews of 
the energy conservation standards development process and the analyses 
that are typically used and prepared a report describing that peer 
review.\280\ Generation of this report involved a rigorous, formal, and 
documented evaluation using objective criteria and qualified and 
independent reviewers to make a judgment as to the technical/
scientific/business merit, the actual or anticipated results, and the 
productivity and management effectiveness of programs and/or projects. 
Because available data, models, and technological understanding have 
changed since 2007, DOE has engaged with the National Academy of 
Sciences to review DOE's analytical methodologies to ascertain whether 
modifications are needed to improve the Department's analyses. DOE is 
in the process of evaluating the resulting report.\281\
---------------------------------------------------------------------------

    \280\ The 2007 ``Energy Conservation Standards Rulemaking Peer 
Review Report'' is available at the following website: 
www.energy.gov/eere/buildings/downloads/energy-conservation-standards-rulemaking-peer-review-report-0.
    \281\ The report is available at www.nationalacademies.org/our-work/review-of-methods-for-setting-building-and-equipment-performance-standards (Last accessed Feb. 16, 2022).

---------------------------------------------------------------------------

[[Page 40704]]

VII. Public Participation

A. Participation in the Public Meeting Webinar

    The time and date of the webinar meeting are listed in the DATES 
section at the beginning of this document. Webinar registration 
information, participant instructions, and information about the 
capabilities available to webinar participants will be published on 
DOE's website: www1.eere.energy.gov/buildings/appliance_standards/standards.aspx?productid=59&action=viewlive. Participants are 
responsible for ensuring their systems are compatible with the webinar 
software.

B. Procedure for Submitting Prepared General Statements for 
Distribution

    Any person who has an interest in the topics addressed in this 
proposed rule, or who is representative of a group or class of persons 
that has an interest in these issues, may request an opportunity to 
make an oral presentation at the public meeting webinar. Such persons 
may submit requests to speak via email to the Appliance and Equipment 
Standards Program at: [email protected]. Persons 
who wish to speak should include with their request a computer file in 
WordPerfect, Microsoft Word, PDF, or text (ASCII) file format that 
briefly describes the nature of their interest in this rulemaking and 
the topics they wish to discuss. Such persons should also provide a 
daytime telephone number where they can be reached.
    Persons requesting to speak should briefly describe the nature of 
their interest in this rulemaking and provide a telephone number for 
contact. DOE requests persons selected to make an oral presentation to 
submit an advance copy of their statements at least two weeks before 
the public meeting webinar. At its discretion, DOE may permit persons 
who cannot supply an advance copy of their statement to participate, if 
those persons have made advance alternative arrangements with the 
Building Technologies Office. As necessary, requests to give an oral 
presentation should ask for such alternative arrangements.

C. Conduct of the Public Meeting Webinar

    DOE will designate a DOE official to preside at the webinar/public 
meeting and may also use a professional facilitator to aid discussion. 
The meeting will not be a judicial or evidentiary-type public hearing, 
but DOE will conduct it in accordance with section 336 of EPCA (42 
U.S.C. 6306). A court reporter will be present to record the 
proceedings and prepare a transcript. DOE reserves the right to 
schedule the order of presentations and to establish the procedures 
governing the conduct of the webinar/public meeting. There shall not be 
discussion of proprietary information, costs or prices, market share, 
or other commercial matters regulated by U.S. anti-trust laws. After 
the webinar/public meeting and until the end of the comment period, 
interested parties may submit further comments on the proceedings and 
any aspect of the rulemaking.
    The public meeting webinar will be conducted in an informal, 
conference style. DOE will present summaries of comments received 
before the webinar, allow time for prepared general statements by 
participants, and encourage all interested parties to share their views 
on issues affecting this rulemaking. Each participant will be allowed 
to make a general statement (within time limits determined by DOE), 
before the discussion of specific topics. DOE will allow, as time 
permits, other participants to comment briefly on any general 
statements.
    At the end of all prepared statements on a topic, DOE will permit 
participants to clarify their statements briefly and comment on 
statements made by others. Participants should be prepared to answer 
questions by DOE and by other participants concerning these issues. DOE 
representatives may also ask questions of participants concerning other 
matters relevant to this rulemaking. The official conducting the public 
meeting webinar will accept additional comments or questions from those 
attending, as time permits. The presiding official will announce any 
further procedural rules or modification of the above procedures that 
may be needed for the proper conduct of the public meeting webinar.
    A transcript of the public meeting webinar will be included in the 
docket, which can be viewed as described in the Docket section at the 
beginning of this NOPR. In addition, any person may buy a copy of the 
transcript from the transcribing reporter.

D. Submission of Comments

    DOE will accept comments, data, and information regarding this 
proposed rule before or after the public meeting webinar, but no later 
than the date provided in the DATES section at the beginning of this 
proposed rule. Interested parties may submit comments, data, and other 
information using any of the methods described in the ADDRESSES section 
at the beginning of this document.
    Submitting comments via www.regulations.gov. The 
www.regulations.gov web page will require you to provide your name and 
contact information. Your contact information will be viewable to DOE 
Building Technologies staff only. Your contact information will not be 
publicly viewable except for your first and last names, organization 
name (if any), and submitter representative name (if any). If your 
comment is not processed properly because of technical difficulties, 
DOE will use this information to contact you. If DOE cannot read your 
comment due to technical difficulties and cannot contact you for 
clarification, DOE may not be able to consider your comment.
    However, your contact information will be publicly viewable if you 
include it in the comment itself or in any documents attached to your 
comment. Any information that you do not want to be publicly viewable 
should not be included in your comment, nor in any document attached to 
your comment. If this instruction is followed, persons viewing comments 
will see only first and last names, organization names, correspondence 
containing comments, and any documents submitted with the comments.
    Do not submit to www.regulations.gov information for which 
disclosure is restricted by statute, such as trade secrets and 
commercial or financial information (hereinafter referred to as 
Confidential Business Information (``CBI'')). Comments submitted 
through www.regulations.gov cannot be claimed as CBI. Comments received 
through the website will waive any CBI claims for the information 
submitted. For information on submitting CBI, see the Confidential 
Business Information section.
    DOE processes submissions made through www.regulations.gov before 
posting. Normally, comments will be posted within a few days of being 
submitted. However, if large volumes of comments are being processed 
simultaneously, your comment may not be viewable for up to several 
weeks. Please keep the comment tracking number that www.regulations.gov 
provides after you have successfully uploaded your comment.
    Submitting comments via email. Comments and documents submitted via 
email also will be posted to www.regulations.gov. If you do not want 
your personal contact information to be

[[Page 40705]]

publicly viewable, do not include it in your comment or any 
accompanying documents. Instead, provide your contact information in a 
cover letter. Include your first and last names, email address, 
telephone number, and optional mailing address. The cover letter will 
not be publicly viewable as long as it does not include any comments.
    Include contact information each time you submit comments, data, 
documents, and other information to DOE. No telefacsimiles (``faxes'') 
will be accepted.
    Comments, data, and other information submitted to DOE 
electronically should be provided in PDF (preferred), Microsoft Word or 
Excel, WordPerfect, or text (ASCII) file format. Provide documents that 
are not secured, that are written in English, and that are free of any 
defects or viruses. Documents should not contain special characters or 
any form of encryption and, if possible, they should carry the 
electronic signature of the author.
    Campaign form letters. Please submit campaign form letters by the 
originating organization in batches of between 50 to 500 form letters 
per PDF or as one form letter with a list of supporters' names compiled 
into one or more PDFs. This reduces comment processing and posting 
time.
    Confidential Business Information. Pursuant to 10 CFR 1004.11, any 
person submitting information that he or she believes to be 
confidential and exempt by law from public disclosure should submit via 
email two well-marked copies: one copy of the document marked 
``confidential'' including all the information believed to be 
confidential, and one copy of the document marked ``non-confidential'' 
with the information believed to be confidential deleted. DOE will make 
its own determination about the confidential status of the information 
and treat it according to its determination.
    It is DOE's policy that all comments may be included in the public 
docket, without change and as received, including any personal 
information provided in the comments (except information deemed to be 
exempt from public disclosure).

E. Issues on Which DOE Seeks Comment

    Although DOE welcomes comments on any aspect of this proposal, DOE 
is particularly interested in receiving comments and views of 
interested parties concerning the following issues:
    (1) DOE requests data and information on the price trend for 
condensing NWGFs as compared to the trend for non-condensing NWGFs.
    (2) DOE seeks comments, information, and data on the number of 
small businesses in the industry, the names of those small businesses, 
and their market shares by product class. DOE also requests comment on 
the potential impacts of the proposed AFUE standards and standby mode 
and off mode standards on small manufacturers.
    (3) DOE seeks comment on the feasibility of integrating LL-LTX 
designs and whether significant changes would need to be made to 
integrate them.
    (4) DOE seeks further comment on its estimates for the MPC of 
consumer furnaces under each standards scenario.
    (5) DOE seeks further comment on the designs of the secondary heat 
exchanger, including on any recent design changes. DOE also seeks 
additional feedback on the cost of AL29-4C stainless steel.
    (6) DOE seeks comments, information, and data on the capital 
conversion costs and product conversion costs estimated for each AFUE 
standard TSL.
    (7) DOE seeks comments, information, and data on the capital 
conversion costs and product conversion costs estimated for each 
standby mode and off mode TSL.
    (8) DOE seeks comments, information, and data on the number of 
small businesses in the industry, the names of those small businesses, 
and their market shares by product class. DOE also requests comment on 
the potential impacts of the proposed AFUE standards and standby mode 
and off mode standards on small manufacturers.
    (9) DOE welcomes comments on how to more fully assess the potential 
impact of energy conservation standards on consumer choice and 
affordability and how to quantify this impact in its regulatory 
analysis in this and future rulemakings.
    (10) DOE requests data and information on the price trend for 
condensing NWGFs as compared to the trend for non-condensing NWGFs.
    (11) DOE requests comment on its approach to monetizing the impact 
of the rebound effect in standards cases.
    (12) DOE welcomes any additional comments on the approach for 
conducting the emissions analysis for furnaces.
    Additionally, DOE welcomes comments on other issues relevant to the 
conduct of this rulemaking that may not specifically be identified in 
this document.

VIII. Approval of the Office of the Secretary

    The Secretary of Energy has approved publication of this notice of 
proposed rulemaking and request for comment.

List of Subjects

10 CFR Part 430

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

Signing Authority

    This document of the Department of Energy was signed on June 10, 
2022, by Kelly J. Speakes-Backman, Principal Deputy Assistant Secretary 
for Energy Efficiency and Renewable Energy, pursuant to delegated 
authority from the Secretary of Energy. That document with the original 
signature and date is maintained by DOE. For administrative purposes 
only, and in compliance with requirements of the Office of the Federal 
Register, the undersigned DOE Federal Register Liaison Officer has been 
authorized to sign and submit the document in electronic format for 
publication, as an official document of the Department of Energy. This 
administrative process in no way alters the legal effect of this 
document upon publication in the Federal Register.

    Signed in Washington, DC, on June 14, 2022.
Treena V. Garrett,
Federal Register Liaison Officer, U.S. Department of Energy.

    For the reasons set forth in the preamble, DOE proposes to amend 
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:
0
a. Revising paragraph (e)(1)(ii);
0
b. Redesignating paragraph (e)(1)(iii) as (e)(1)(iv);
0
c. Adding a new paragraph (e)(1)(iii); and
0
d. Revising newly redesignated paragraph (e)(1)(iv).
    The additions and revisions read as follows:

[[Page 40706]]

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

* * * * *
    (e) * * *
    (1) * * *
    (ii) The AFUE for non-weatherized gas furnaces (not including 
mobile home gas furnaces) manufactured on or after November 19, 2015, 
but before [date 5 years after publication of the final rule]; mobile 
home gas furnaces manufactured on or after November 19, 2015, but 
before [date 5 years after publication of the final rule]; non-
weatherized oil-fired furnaces (not including mobile home furnaces) 
manufactured on or after May 1, 2013, mobile home oil-fired furnaces 
manufactured on or after September 1, 1990; weatherized gas-fired 
furnaces manufactured on or after January 1, 2015; weatherized oil-
fired furnaces manufactured on or after January 1, 1992; and electric 
furnaces manufactured on or after January 1, 1992; shall not be less 
than indicated in the table below:

------------------------------------------------------------------------
                                                          AFUE (percent)
                      Product class                             \1\
------------------------------------------------------------------------
(A) Non-weatherized gas furnaces (not including mobile              80.0
 home furnaces).........................................
(B) Mobile home gas furnaces............................            80.0
(C) Non-weatherized oil-fired furnaces (not including               83.0
 mobile home furnaces)..................................
(D) Mobile home oil-fired furnaces......................            75.0
(E) Weatherized gas furnaces............................            81.0
(F) Weatherized oil-fired furnaces......................            78.0
(G) Electric furnaces...................................            78.0
------------------------------------------------------------------------
\1\ Annual Fuel Utilization Efficiency, as determined in Sec.
  430.23(n)(2) of this part.

    (iii) The AFUE for non-weatherized gas (not including mobile home 
gas furnaces) manufactured on and after [date 5 years after publication 
of the final rule]; and mobile home gas furnaces manufactured on and 
after [date 5 years after publication of the final rule], shall not be 
less than indicated in the table below:

------------------------------------------------------------------------
                                                          AFUE (percent)
                      Product class                             \1\
------------------------------------------------------------------------
(A) Non-weatherized gas furnaces (not including mobile              95.0
 home gas furnaces).....................................
(B) Mobile home gas furnaces............................            95.0
------------------------------------------------------------------------
\1\ Annual Fuel Utilization Efficiency, as determined in Sec.
  430.23(n)(2) of this part.

    (iv) Furnaces manufactured on and after the compliance date listed 
in the table below shall have an electrical standby mode power 
consumption (``PW,SB'') and electrical off mode power 
consumption (PW,OFF'') not more than the following:

----------------------------------------------------------------------------------------------------------------
                                               Maximum standby    Maximum off
                                               mode electrical  mode electrical
                                                    power            power
                Product class                    consumption,     consumption,           Compliance date
                                               (PW,SB) (watts)      (PW,OFF)
                                                                    (watts)
----------------------------------------------------------------------------------------------------------------
(A) Non-weatherized oil-fired furnaces                    11.0             11.0  May 1, 2013.
 (including mobile home oil-fired furnaces).
(B) Electric furnaces........................             10.0             10.0  May 1, 2013.
(C) Non-weatherized gas furnaces (including                8.5              8.5  [date 5 years after the
 mobile home gas furnaces).                                                       publication of final rule]
----------------------------------------------------------------------------------------------------------------

* * * * *
[FR Doc. 2022-13108 Filed 7-6-22; 8:45 am]
BILLING CODE 6450-01-P