Energy Conservation Program: Energy Conservation Standards for Uninterruptible Power Supplies

Federal RegisterAug 5, 2016

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DEPARTMENT OF ENERGY

10 CFR Part 430

[Docket Number EERE-2016-BT-STD-0022]

RIN 1904-AD69

Energy Conservation Program: Energy Conservation Standards for Uninterruptible Power Supplies

AGENCY:

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

ACTION:

Notice of proposed rulemaking (NOPR) and announcement of public meeting.

SUMMARY:

The Energy Policy and Conservation Act of 1975 (EPCA), as amended, prescribes energy conservation standards for various consumer products and certain commercial and industrial equipment, including battery chargers. In this notice, the U.S. Department of Energy (DOE) proposes new energy conservation standards for uninterruptible power supplies, a class of battery chargers, and also announces a public meeting to receive comment on these proposed standards and associated analyses and results.

DATES:

Comments:

DOE will accept comments, data, and information regarding this notice of proposed rulemaking (NOPR) before and after the public meeting, but no later than October 4, 2016. See section VII, “Public Participation,” 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 before September 6, 2016.

Meeting:

DOE will hold a public meeting on Friday, September 9, 2016, from 9:30 a.m. to 2:00 p.m., in Washington, DC. The meeting will also be broadcast as a webinar. See section VII, “Public Participation,” for webinar registration information, participant instructions, and information about the capabilities available to webinar participants.

ADDRESSES:

The public meeting will be held at the U.S. Department of Energy, Forrestal Building, Room 6E-069, 1000 Independence Avenue SW., Washington, DC 20585.

Instructions:

Any comments submitted must identify the NOPR on Energy Conservation Standards for Battery Chargers, and provide docket number EERE-2016-BT-STD-0022 and/or regulatory information number (RIN) 1904-AD69. Comments may be submitted using any of the following methods:

(1)

Federal eRulemaking Portal: www.regulations.gov

. Follow the instructions for submitting comments.

(2)

Email: BatteryChargersUPS2016STD0022@ee.doe.gov

. Include the docket number and/or RIN in the subject line of the message. Submit electronic comments in WordPerfect, Microsoft Word, PDF, or ASCII file format, and avoid the use of special characters or any form of encryption.

(3)

Postal Mail:

Mr. Jeremy Dommu, U.S. Department of Energy, Building Technologies Office, Mailstop EE-5B, 1000 Independence Avenue SW., Washington, DC 20585-0121. If possible, please submit all items on a compact disc (CD), in which case it is not necessary to include printed copies.

(4)

Hand Delivery/Courier:

Mr. Jeremy Dommu, U.S. Department of Energy, Building Technologies Office, 950 L'Enfant Plaza SW., Washington, DC 20024. Telephone: (202) 586-2945. If possible, please submit all items on a CD, in which case it is not necessary to include printed copies.

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”).

Written comments regarding the burden-hour estimates or other aspects of the collection-of-information requirements contained in this proposed rule may be submitted to Office of Energy Efficiency and Renewable Energy through the methods listed above and by email to

Chad_S_Whiteman@omb.eop.gov

EPCA requires the Attorney General to provide DOE a written determination of whether the proposed standard is likely to lessen competition. The U.S. Department of Justice 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 Division at

energy.standards@usdoj.gov

before September 6, 2016. Please indicate in the “Subject” line of your email the title and Docket Number of this proposed rulemaking.

Docket:

The docket, which includes

Federal Register

notices, public meeting attendee lists and transcripts, comments, and other supporting documents/materials, is available for review at

www.regulations.gov

. All documents in the docket are listed in the

www.regulations.gov

index. However, some documents listed in the index may not be publicly available, such as those containing information that is exempt from public disclosure.

The docket Web page can be found at:

http://www.regulations.gov/#!docketDetail;D=EERE-2016-BT-STD-0022

. This Web page contains a link to the docket for this notice on the

www.regulations.gov

site. The

www.regulations.gov

Web page contains simple instructions on how to access all documents, including public comments, in the docket. See section VII, “Public Participation,” for further information on how to submit comments through

www.regulations.gov

FOR FURTHER INFORMATION CONTACT:

Jeremy Dommu, U.S. Department of Energy, Office of Energy Efficiency and Renewable Energy, Building Technologies Office, EE-5B, 1000 Independence Avenue SW., Washington, DC 20585-0121. Telephone: (202) 586-9870. Email:

battery_chargers_and_external_power_supplies@ee.doe.gov

Celia Sher, U.S. Department of Energy, Office of the General Counsel, GC-33, 1000 Independence Avenue SW., Washington, DC 20585-0121. Telephone: (202) 287-6122. Email:

Celia.Sher@hq.doe.gov

For further information on how to submit a comment, review other public comments and the docket, or participate in the public meeting, contact Appliance and Equipment Standards Program staff at (202) 586-6636 or by email:

battery_chargers_and_external_power_supplies@ee.doe.gov

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Synopsis of the Proposed Rule

A. Benefits and Costs to Consumers

B. Impact on Manufacturers

C. National Benefits and Costs

D. Conclusion

II. Introduction

A. Authority

B. Background

1. Current Standards

2. History of Standards Rulemaking for Battery Chargers

III. General Discussion

A. Test Procedure

B. Technological Feasibility

1. General

2. Maximum Technologically Feasible Levels

C. Energy Savings

1. Determination of Savings

2. Significance of Savings

D. Economic Justification

1. Specific Criteria

a. Economic Impact on Manufacturers and Consumers

b. Savings in Operating Costs Compared To Increase in Price

c. Energy Savings

d. Lessening of Utility or Performance of Products

e. Impact of Any Lessening of Competition

f. Need for National Energy Conservation

g. Other Factors

2. Rebuttable Presumption

IV. Methodology and Discussion of Related Comments

A. Market and Technology Assessment

1. Scope of Coverage and Product Classes

2. Technology Options

B. Screening Analysis

1. Screened-Out Technologies

2. Remaining Technologies

C. Engineering Analysis

1. Testing

2. Cost Analysis

3. Representative Units and Efficiency Levels

D. Markups Analysis

E. Energy Use Analysis

F. Life-Cycle Cost and Payback Period Analysis

1. Product Cost

2. Installation Cost

3. Annual Energy Consumption

4. Energy Prices

5. Maintenance and Repair Costs

6. Product Lifetime

7. Discount Rates

8. Efficiency Distribution in the No-Standards Case

9. Payback Period Analysis

G. Shipments Analysis

1. Shipment Projections in the No-standards Case

2. Shipment Projections in the Standards Case

H. National Impact Analysis

1. Product Efficiency Trends

2. National Energy Savings

3. Net Present Value Analysis

I. Consumer Subgroup Analysis

J. Manufacturer Impact Analysis

1. Overview

2. GRIM Analysis and Key Inputs

a. Capital and Product Conversion Costs

b. Manufacturer Production Costs

c. Shipment Scenarios

d. Markup Scenarios

3. Discussion of Comments

4. Manufacturer Interviews

K. Emissions Analysis

L. Monetizing Carbon Dioxide and Other Emissions Impacts

1. Social Cost of Carbon

a. Monetizing Carbon Dioxide Emissions

b. Development of Social Cost of Carbon Values

c. Current Approach and Key Assumptions

2. Social Cost of Other Air Pollutants

M. Utility Impact Analysis

N. Employment Impact Analysis

V. Analytical Results and Conclusions

A. Trial Standard Levels

B. Economic Justification and Energy Savings

1. Economic Impacts on Individual Consumers

a. Life-Cycle Cost and Payback Period

b. Consumer Subgroup Analysis

c. Rebuttable Presumption Payback

2. Economic Impacts on Manufacturers

a. Industry Cash Flow Analysis Results

b. 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 UPS Standards

2. Summary of Annualized 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 and 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

5. Identification of Duplication, Overlap, and Conflict With Other Rules and Regulations

6. A Description of Significant Alternatives to the Rule

C. Review Under the Paperwork Reduction Act

D. Review Under the National Environmental Policy Act of 1969

E. Review Under Executive Order 13132

F. Review Under Executive Order 12988

G. Review Under the Unfunded Mandates Reform Act of 1995

H. Review Under the Treasury and General Government Appropriations Act, 1999

I. Review Under Executive Order 12630

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

K. Review Under Executive Order 13211

L. Review Under the Information Quality Bulletin for Peer Review

VII. Public Participation

A. Attendance at the Public Meeting

B. Procedure for Submitting Prepared General Statements for Distribution

C. Conduct of the Public Meeting

D. Submission of Comments

E. Issues on Which DOE Seeks Comment

VIII. Approval of the Office of the Secretary

I. Synopsis of the Proposed Rule

Title III, Part B

of the Energy Policy and Conservation Act of 1975 (EPCA or the Act), Public Law 94-163 (42 U.S.C. 6291-6309, as codified), established the Energy Conservation Program for Consumer Products Other Than Automobiles.

These products include battery chargers, the subject of this rulemaking.

For editorial reasons, upon codification in the U.S. Code, Part B was redesignated Part A.

All references to EPCA in this document refer to the statute as amended through the Energy Efficiency Improvement Act of 2015, Public Law 114-11 (Apr. 30, 2015).

Pursuant to EPCA, any new or amended energy conservation standard must be designed to achieve the maximum improvement in energy efficiency that is technologically feasible and economically justified. (42 U.S.C. 6295(o)(2)(A)) Furthermore, the new or amended standard must result in a significant conservation of energy. (42 U.S.C. 6295(o)(3)(B)) EPCA also provides 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 including new proposed energy conservation standards (proceeding to a final rule, as appropriate). (42 U.S.C. 6295(m)(1))

In accordance with these and other statutory provisions discussed in this document, DOE proposes new energy conservation standards for uninterruptible power supplies (hereafter referred to as “UPSs”), a class of battery chargers. The proposed standards, which are expressed in average load adjusted efficiency, are shown in Table I.1.

These proposed standards, if adopted, would apply to all UPSs listed in Table I.1 and manufactured in, or imported into, the United States starting on and after the date two years after the publication of the final rule for this rulemaking.

EP05AU16.019

A. Benefits and Costs to Consumers

Table I.2 presents DOE's evaluation of the economic impacts of the proposed standards on consumers of UPSs, as measured by the average life-cycle cost (LCC) savings and the simple payback period (PBP).

The average LCC savings are positive for all product classes, and the PBP is less than the average lifetime of UPSs, which is estimated to be between 5 and 10 years, depending on product class (see section IV.F.6).

The average LCC savings are measured relative to the efficiency distribution in the no-standards case, which depicts the market in the compliance year in the absence of standards (see section IV.F.8). The simple PBP, which is designed to compare specific efficiency levels, is measured relative to the baseline model (see section IV.F.9).

Table I.2—Impacts of Proposed Energy Conservation Standards on Consumers of UPSs

Product class

Description

Average LCC

savings [

2015$

]

Simple payback period

years

10a

VFD UPS

$33.1

0.0

10b

VI UPS

6.09

4.6

10c

VFI UPS

34.7

4.7

DOE's analysis of the 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 the discounted cash flows to the industry from the reference year through the end of the analysis period (2016 to 2048). Using a real discount rate of 6.1 percent, DOE estimates that the INPV for manufacturers of UPSs in the case without standards is $2,555 million in 2015$. Under the proposed standards, DOE expects that manufacturers may lose up to 23.4 percent of this INPV, which is approximately $598 million. Additionally, based on DOE's interviews with the manufacturers of UPSs, DOE does not expect significant impacts on manufacturing capacity or loss of employment for the industry as a whole to result from the proposed standards for UPSs.

DOE's analysis of the impacts of the proposed standards on manufacturers is described in section IV.J of this document.

C. National Benefits and Costs

All monetary values in this document are expressed in 2015 dollars and, where appropriate, are discounted to 2016 unless explicitly stated otherwise.

DOE's analyses indicate that the proposed energy conservation standards for UPSs would save a significant amount of energy. Relative to the case without new standards, the lifetime energy savings for UPSs purchased in the 30-year period that begins in the anticipated year of compliance with the new standards (2019-2048) amount to 1.18 quadrillion British thermal units (Btu), or quads.

This represents a savings of 22.6 percent relative to the energy use of these products in the case without new standards (referred to as the “no-standards case”).

The quantity refers to full-fuel-cycle (FFC) energy savings. FFC energy savings includes the energy consumed in extracting, processing, and transporting primary fuels (

i.e.,

coal, natural gas, petroleum fuels), and, thus, presents a more complete picture of the impacts of energy efficiency standards. For more information on the FFC metric, see section IV.H.2.

The cumulative net present value (NPV) of total consumer costs and savings of the proposed standards for UPSs ranges from $1.87 billion (at a7-percent discount rate) to $4.40 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 UPSs purchased in 2019-2048.

In addition, the proposed standards for UPSs 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 72.0 million metric tons (Mt)

of carbon dioxide (CO

), 40.9 thousand tons of sulfur dioxide (SO

), 130 thousand tons of nitrogen oxides (NO

), 306 thousand tons of methane

(CH

), 0.850 thousand tons of nitrous oxide (N

O), and 0.151 tons of mercury (Hg).

The cumulative reduction in CO

emissions through 2030 amounts to 19.1 Mt, which is equivalent to the emissions resulting from the annual electricity use of 2.63 million homes.

A metric ton is equivalent to 1.1 short tons. Results for emissions other than CO

are presented in short tons.

DOE calculated emissions reductions relative to the no-standards case, which reflects key assumptions in the

Annual Energy Outlook 2015

(

AEO 2015

) Reference case, which generally represents current legislation and environmental regulations for which implementing regulations were available as of October 31, 2014.

The value of the CO

reductions is calculated using a range of values per metric ton (t) of CO

(otherwise known as the “Social Cost of Carbon”, or SCC) developed by a Federal interagency working group.

The derivation of the SCC values is discussed in section IV.L. Using discount rates appropriate for each set of SCC values (see Table I.3), DOE estimates the present monetary value of the CO

emissions reduction (not including CO

equivalent emissions of other gases with global warming potential) is between $0.559 billion and $7.49 billion, with a value of $2.46 billion using the central SCC case represented by $40.6/t in 2015. DOE also estimates the present monetary value of the NO

emissions reduction to be $126 million at a 7-percent discount rate and $274 million at a 3-percent discount rate.

DOE is investigating appropriate valuation of the reduction in methane and other emissions, and did not include any values in this rulemaking.

United States Government—Interagency Working Group on Social Cost of Carbon. Technical Support Document: Technical Update of the Social Cost of Carbon for Regulatory Impact Analysis Under Executive Order 12866, May 2013). Revised July 2015. Available at

https://www.whitehouse.gov/sites/default/files/omb/inforeg/scc-tsd-final-july-2015.pdf

DOE estimated the monetized value of NO

emissions reductions associated with electricity savings using benefit per ton estimates from the

Regulatory Impact Analysis for the Clean Power Plan Final Rule,

published in August 2015 by EPA's Office of Air Quality Planning and Standards. Available at

www.epa.gov/cleanpowerplan/clean-power-plan-final-rule-regulatory-impact-analysis.

See section IV.L for further discussion. The U.S. Supreme Court has stayed the rule implementing the Clean Power Plan until the current litigation against it concludes. Chamber of Commerce, et al. v. EPA, et al., Order in Pending Case, 577 U.S. __ (2016). However, the benefit-per-ton estimates established in the Regulatory Impact Analysis for the Clean Power Plan are based on scientific studies that remain valid irrespective of the legal status of the Clean Power Plan. DOE is primarily using a national benefit-per-ton estimate for NO

emitted from the Electricity Generating Unit sector based on an estimate of premature mortality derived from the ACS study (Krewski et al. 2009). If the benefit-per-ton estimates were based on the Six Cities study (Lepuele et al. 2011), the values would be nearly two-and-a-half times larger.

Table I.3 summarizes the national economic benefits and costs expected to result from the proposed standards for UPSs.

Table I.3—Summary of National Economic Benefits and Costs of Proposed Energy Conservation Standards for UPSs

[TSL 2] *

Category

Present value

billion 2015$

Discount rate

(percent)

Benefits

Consumer Operating Cost Savings

4.40

9.02

Reduction Monetized Value ($12.4/t case) **

0.559

Reduction Monetized Value ($40.6/t case) **

2.46

Reduction Monetized Value ($63.2/t case) **

3.87

2.5

Reduction Monetized Value ($118/t case) **

7.49

Reduction Monetized Value†

0.126

0.274

Total Benefits ‡

6.99

11.8

Costs

Consumer Incremental Installed Costs

2.53

4.62

Total Net Benefits

Including CO

and NO

Reduction Monetized Value †

4.46

7.14

* This table presents the costs and benefits associated with UPSs shipped in 2019-2048. These results include benefits to consumers which accrue after 2048 from the products purchased in 2019-2048. The costs account for the incremental variable and fixed costs incurred by manufacturers due to the standard, some of which may be incurred in preparation for the rule. Note that the Benefits and Costs may not sum to the Net Benefits due to rounding.

** The CO

values represent global monetized values of the SCC, in 2015$ per metric ton (t), in 2015 under several scenarios of the updated SCC values. The first three cases use the averages of SCC distributions calculated using 5-percent, 3-percent, and 2.5-percent discount rates, respectively. The fourth case represents the 95th percentile of the SCC distribution calculated using a 3% discount rate. The SCC time series incorporate an escalation factor.

† DOE estimated the monetized value of NO

emissions reductions associated with electricity savings using benefit per ton estimates from the “Regulatory Impact Analysis for the Clean Power Plan Final Rule,” published in August 2015 by EPA's Office of Air Quality Planning and Standards. (Available at

www.epa.gov/cleanpowerplan/clean-power-plan-final-rule-regulatory-impact-analysis

See section IV.L for further discussion.

DOE is primarily using a national benefit-per-ton estimate for NO

‡ Total Benefits for both the 3% and 7% cases are derived using the series corresponding to average SCC with 3-percent discount rate ($40.6/t case).

The benefits and costs of the proposed standards, for UPSs sold in 2019-2048, can also be expressed in terms of annualized values. The monetary values for the total annualized net benefits are the sum of (1) the national economic value of the benefits in reduced consumer operating costs, minus (2) the increase in product purchase prices and installation costs, plus (3) the value of the benefits of CO

and NO

emission reductions, all annualized.

To convert the time-series of costs and benefits into annualized values, DOE calculated a present value in 2016, the year used for discounting the NPV of total consumer costs and savings. For the benefits, DOE calculated a present value associated with each year's shipments in the year in which the shipments occur (

e.g.,

2020 or 2030), and then discounted the present value from each year to 2016. The calculation uses discount rates of 3 and 7 percent for all costs and benefits except for the value of CO

reductions, for which DOE used case-specific discount rates, as shown in Table I.3. 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.

Although the values of operating cost savings and CO

emission reductions are both important, two issues are relevant. First, the national operating savings are domestic U.S. consumer monetary savings that occur as a result of market transactions, whereas the value of CO

reductions is based on a global value. Second, the assessments of operating cost savings and CO

savings are performed with different methods that use different time frames for analysis. The national operating cost savings is measured for the lifetime of UPSs shipped in 2019-2048. Because CO

emissions have a very long residence time in the atmosphere,

the SCC values in future years reflect future CO

-emissions impacts that continue beyond 2100.

The atmospheric lifetime of CO

is estimated on the order of 30-95 years. Jacobson, M. Z. Correction to “Control of fossil-fuel particulate black carbon and organic matter, possibly the most effective method of slowing global warming.”

J. Geophys. Res.

2005. 110: D14105. doi:10.1029/2005JD005888

Estimates of annualized benefits and costs of the proposed standards are shown in Table I.4. The results under the primary estimate are as follows. Using a 7-percent discount rate for benefits and costs other than CO

reduction (for which DOE used a 3-percent discount rate along with the average SCC series that has a value of $40.6/t in 2015),

the estimated cost of the standards proposed in this rule is $234 million per year in increased equipment costs, while the estimated annual benefits are $406 million in reduced equipment operating costs, $133 million in CO

reductions, and $11.6 million in reduced NO

emissions. In this case, the net benefit amounts to $317 million per year. Using a 3-percent discount rate for all benefits and costs and the average SCC series that has a value of $40.6/t in 2015, the estimated cost of the proposed standards is $250 million per year in increased equipment costs, while the estimated annual benefits are $488 million in reduced operating costs, $133 million in CO

reductions, and $14.8 million in reduced NO

emissions. In this case, the net benefit amounts to $386 million per year.

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

Table I.4—Annualized Benefits and Costs of Proposed Energy Conservation Standards for UPSs

[TSL 2]

Discount rate

Million 2015$/year

Primary

estimate *

Low net benefits estimate *

High net benefits estimate *

Benefits

Consumer Operating Cost Savings

406

488

348

413

462.

565.

Reduction Monetized Value ($12.4/t case) **

40.1

35.5

44.4.

Reduction Monetized Value ($40.6/t case) **

133

117

148.

Reduction Monetized Value ($63.2/t case) **

2.5%

194

171

216.

Reduction Monetized Value ($118/t case) **

405

357

451.

Reduction Monetized Value †

11.6

14.8

10.4

13.1

28.6.

37.5.

Total Benefits ‡

7% plus CO

range

458 to 823

394 to 716

535 to 941.

551

476

638.

3% plus CO

range

543 to 908

462 to 783

647 to 1,050.

636

544

751.

Costs

Consumer Incremental Product Costs

234

250

209

221

256.

277.

Net Benefits

Total ‡

7% plus CO

range

224 to 589

185 to 507

278 to 685.

317

267

382.

3% plus CO

range

293 to 658

241 to 563

369 to 776.

386

323

473.

* This table presents the annualized costs and benefits associated with UPSs shipped in 2019−2048. These results include benefits to consumers which accrue after 2048 from the products purchased in 2019−2048. The results account for the incremental variable and fixed costs incurred by manufacturers due to the standard, some of which may be incurred in preparation for the rule. The Primary, Low Net Benefits, and High Net Benefits Estimates utilize projections of energy prices from the

AEO 2015

Reference case, Low Economic Growth case, and High Economic Growth case, respectively. .Note that the Benefits and Costs may not sum to the Net Benefits due to rounding.

** The CO

values represent global monetized values of the SCC, in 2015$ per metric ton (t), in 2015 under several scenarios of the updated SCC values. The first three cases use the averages of SCC distributions calculated using 5-percent, 3-percent, and 2.5-percent discount rates, respectively. The fourth case represents the 95th percentile of the SCC distribution calculated using a 3-percent discount rate. The SCC time series incorporate an escalation factor.

† DOE estimated the monetized value of NO

www.epa.gov/cleanpowerplan/clean-power-plan-final-rule-regulatory-impact-analysis

.) See section IV.L for further discussion. For the Primary Estimate and Low Net Benefits Estimate, DOE used a national benefit-per-ton estimate for NO

emitted from the Electric Generating Unit sector based on an estimate of premature mortality derived from the ACS study (Krewski et al. 2009). For DOE's High Net Benefits Estimate, the benefit-per-ton estimates were based on the Six Cities study (Lepuele et al. 2011), which are nearly two-and-a-half times larger than those from the ACS study.

‡ Total Benefits for both the 3% and 7% cases are derived using the series corresponding to the average SCC with a 3-percent discount rate ($40.6/t case). In the rows labeled “7% plus CO

range” and “3% plus CO

range,” the operating cost and NO

benefits are calculated using the labeled discount rate, and those values are added to the full range of CO

values.

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

D. Conclusion

DOE has tentatively concluded that the proposed standards represent the maximum improvement in energy efficiency that is technologically feasible and economically justified, and would result in the significant conservation of energy. DOE further notes that UPSs achieving these standard levels are already commercially available for all product classes covered by this proposal. Based on the analyses described above, DOE has tentatively concluded that the benefits of the proposed standards to the Nation (energy savings, positive NPV of consumer benefits, consumer LCC savings, and emission reductions) would outweigh the burdens (loss of INPV for manufacturers and LCC increases for some consumers).

DOE also considered more-stringent energy efficiency levels as potential standards, and is still considering them in this rulemaking. However, DOE has tentatively concluded that the potential burdens of the more-stringent energy efficiency levels would outweigh the projected benefits. Based on consideration of the public comments DOE receives in response to this notice and related information collected and analyzed during the course of this rulemaking effort, DOE may adopt energy efficiency levels presented in this notice that are either higher or lower than the proposed standards, or some combination of level(s) that incorporate the proposed standards in part.

II. Introduction

The following section briefly discusses the statutory authority underlying this proposed rule, as well as some of the relevant historical background related to the establishment of standards for battery chargers. DOE's regulations define “battery charger” as a device that charges batteries for consumer products, including battery chargers embedded in other consumer products. 10 CFR 430.2.

A. Authority

Title III, Part B of the Energy Policy and Conservation Act of 1975 (EPCA or the Act), Public Law 94-163 (codified as 42 U.S.C. 6291-6309) established the Energy Conservation Program for Consumer Products Other Than Automobiles, a program covering most major household appliances (collectively referred to as “covered products”), which includes battery chargers.

Section 309 of the Energy Independence and Security Act of 2007 (“EISA 2007”) amended EPCA by directing DOE to prescribe, by rule, definitions and test procedure for the power use of battery chargers (42 U.S.C. 6295(u)(1)), and to issue a final rule that prescribes energy conservation standards for battery chargers or classes of battery chargers or determine that no energy conservation standard is technologically feasible and economically justified. (42 U.S.C. 6295(u)(1)(E)).

Pursuant to EPCA, DOE's energy conservation program for covered products consists essentially of four parts: (1) Testing, (2) labeling, (3) the establishment of Federal energy conservation standards, and (4) certification and enforcement procedures. The Federal Trade Commission (FTC) is primarily responsible for labeling, and DOE implements the remainder of the program. Subject to certain criteria and conditions, DOE is required to develop test procedures to measure the energy efficiency, energy use, or estimated annual operating cost of each covered product. (42 U.S.C. 6295(o)(3)(A) and (r)) Manufacturers of covered products must use the prescribed DOE test procedure as the basis for certifying to DOE that their products comply with the applicable energy conservation standards adopted under EPCA and when making representations to the public regarding the energy use or efficiency of those products. (42 U.S.C. 6293(c) and 6295(s)) Similarly, DOE must use these test procedures to determine whether the products comply with standards adopted pursuant to EPCA. (42 U.S.C. 6295(s)) The DOE test procedure for battery chargers appears at title 10 of the Code of Federal Regulations (CFR) part 430, subpart B, appendix Y.

DOE must follow specific statutory criteria for prescribing new or amended standards for covered products, including battery chargers. Any new or amended standard for a covered product must be designed to achieve the maximum improvement in energy efficiency that is technologically feasible and economically justified. (42 U.S.C. 6295(o)(2)(A) and (3)(B)) Furthermore, DOE may not adopt any standard that would not result in the significant conservation of energy. (42 U.S.C. 6295(o)(3)) Moreover, DOE may not prescribe a standard: (1) For certain products, including battery chargers, 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)and (B)) In deciding whether a proposed standard is economically justified, DOE must determine whether the benefits of the standard exceed its burdens. (42 U.S.C. 6295(o)(2)(B)(i)) DOE must make this determination after receiving comments on the proposed standard, and by considering, to the greatest extent practicable, the following seven statutory factors:

(1) The economic impact of the standard on manufacturers and consumers of the products subject to the standard;

(2) The savings in operating costs throughout the estimated average life of the covered products in the type (or class) compared to any increase in the price, initial charges, or maintenance expenses for the covered products that are likely to result from the standard;

(3) The total projected amount of energy (or as applicable, water) savings likely to result directly from the standard;

(4) Any lessening of the utility or the performance of the covered products likely to result from the standard;

(5) The impact of any lessening of competition, as determined in writing by the Attorney General, that is likely to result from the standard;

(6) The need for national energy and water conservation; and

(7) Other factors the Secretary of Energy (Secretary) considers relevant.

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

Further, EPCA, as codified, establishes a rebuttable presumption that a standard is economically justified if the Secretary finds that the additional cost to the consumer of purchasing a product complying with an energy conservation standard level will be less than three times the value of the energy savings during the first year that the consumer will receive as a result of the standard, as calculated under the applicable test procedure. (42 U.S.C. 6295(o)(2)(B)(iii))

EPCA, as codified, also contains what is known as an “anti-backsliding” provision, which prevents the Secretary from prescribing any amended standard that either increases the maximum allowable energy use or decreases the minimum required energy efficiency of a covered product. (42 U.S.C. 6295(o)(1)) Also, the Secretary may not prescribe an amended or new standard if interested persons have established by a preponderance of the evidence that the standard is likely to result in the unavailability in the United States in any covered product type (or class) of performance characteristics (including reliability), features, sizes, capacities, and volumes that are substantially the same as those generally available in the United States. (42 U.S.C. 6295(o)(4))

Additionally, EPCA specifies requirements when promulgating an energy conservation standard for a covered product that has two or more subcategories. DOE must specify a different standard level for a type or class of product that has the same function or intended use, if DOE determines that products within such group: (A) Consume a different kind of energy from that consumed by other covered products within such type (or class); or (B) have a capacity or other performance-related feature which other products within such type (or class) do not have and such feature justifies a higher or lower standard. (42 U.S.C. 6295(q)(1)) In determining whether a performance-related feature justifies a different standard for a group of products, DOE must consider such factors as the utility to the consumer of the feature and other factors DOE deems appropriate.

Id.

Any rule prescribing such a standard must include an explanation of the basis on which such higher or lower level was established. (42 U.S.C. 6295(q)(2))

Federal energy conservation requirements generally supersede State laws or regulations concerning energy conservation testing, labeling, and standards. (42 U.S.C. 6297(a) through (c)) DOE may, however, grant waivers of Federal preemption for particular State laws or regulations, in accordance with the procedures and other provisions set forth under 42 U.S.C. 6297(d)).

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)and (B))

B. Background

1. Current Standards

In a final rule published on June 13, 2016, DOE prescribed the current energy conservation standards for battery chargers manufactured on and after June 13, 2018. 81 FR 38266. These standards, which do not cover UPSs, are set forth in DOE's regulations at 10 CFR 430.32 and are repeated in Table II.1.

EP05AU16.020

2. History of Standards Rulemaking for UPSs

DOE originally proposed energy conservation standards for battery chargers including UPSs in the battery charger energy conservation standards NOPR published on March 27, 2012 (March 2012 NOPR). In this NOPR, DOE proposed to test all covered battery chargers, including UPSs, using the battery charger test procedure finalized on June 1, 2011 and to regulate them using a unit energy consumption (“UEC”) metric. See 77 FR 18478.

DOE issued a battery charger energy conservation standards supplemental notice of proposed rulemaking (“SNOPR”) to propose revised energy standards for battery chargers on September 1, 2015. See 80 FR 52850. This notice did not propose standards for UPSs because of DOE's intention to regulate UPS as part of the separate rulemaking for computer and battery backup systems. DOE also issued a battery charger test procedure NOPR on August 6, 2015, which proposed to exclude backup battery chargers, including UPSs, from the scope of the battery charger test procedure. See 80 FR 46855. DOE held a public meeting on September 15, 2015 to discuss both of these notices.

During 2014, DOE explored whether to regulate UPSs as “computer systems.” See,

e.g.,

79 FR 11345 (Feb. 28, 2014) (proposed coverage determination); 79 FR 41656 (July 17, 2014) (computer systems framework document). DOE received a number of comments in response to those documents (and the related public meetings) regarding testing of UPSs and the appropriate venue to address these devices.

Additionally, DOE received a number of stakeholder comments on the August 2015 battery charger test procedure NOPR and the September 2015 battery charger energy conservation standard SNOPR regarding regulation of UPSs. After considering these comments, DOE reconsidered its position and found that since a UPS meets the definition of a battery charger, it is more appropriate to regulate UPSs as part of the battery charger rulemaking, rather than the computers rulemaking. While the changes proposed in the August 2015 battery charger test procedure NOPR and the September 2015 energy conservation standard SNOPR were finalized on May 20, 2016 (81 FR 31827) and June 13, 2016 (81 FR 38266), respectively, DOE continues to conduct rulemaking activities to consider test procedures and energy conservations standards for UPSs as part of ongoing and future battery charger rulemaking proceedings. To that end, DOE published a notice of proposed rulemaking on May 19, 2016 to amend the battery charger test procedure to include specific testing requirements for UPSs (“UPS test procedure NOPR”). See 81 FR 31542. DOE is now proposing energy conservation standards for UPSs as part of the battery charger regulations in this NOPR.

III. General Discussion

DOE developed this proposal after considering verbal and written comments, data, and information from interested parties that represent a variety of interests. The following discussion addresses issues raised by these commenters.

A. Test Procedure

DOE recently published the UPS test procedure NOPR on May 19, 2016. See 81 FR 31542. DOE advises all stakeholders to review that proposal.

B. Technological Feasibility

1. General

In each energy conservation standards rulemaking, DOE conducts a screening analysis based on information gathered on all current technology options and prototype designs that could improve the efficiency of the products or equipment that are the subject of the rulemaking. As the first step in such an analysis, DOE develops a list of technology options for consideration in consultation with manufacturers, design engineers, and other interested parties. 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. 10 CFR part 430, subpart C, appendix A, section 4(a)(4)(i)

After DOE has determined that particular technology options are technologically feasible, it further evaluates each technology option in light of the following additional screening criteria: (1) Practicability to manufacture, install, and service; (2) adverse impacts on product utility or availability; and (3) adverse impacts on health or safety. 10 CFR part 430, subpart C, appendix A, section 4(a)(4)(ii)-(iv). Additionally, it is DOE policy not to include in its analysis any proprietary technology that is a unique pathway to achieving a certain efficiency level. Section IV.B of this notice discusses the results of the screening analysis for UPSs, particularly the designs DOE considered, those it screened out, and those that are the basis for the standards considered in this rulemaking. For further details on the screening analysis for this rulemaking, see chapter 4 of the NOPR 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 UPSs, 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 of this proposed rule and in chapter 5 of the NOPR TSD.

C. Energy Savings

1. Determination of Savings

For each trial standard level (TSL), DOE projected energy savings from application of the TSL to UPSs purchased in the 30-year period that begins in the year of compliance with the proposed standards (2019-2048).

The savings are measured over the entire lifetime of UPSs purchased in the above 30-year period. DOE quantified the energy savings attributable to each TSL as the difference in energy consumption between each standards case and the no-standards case. The no-standards case represents a projection of energy consumption that reflects how the market for a product would likely evolve in the absence of new energy conservation standards.

Each TSL is composed of specific efficiency levels for each product class. The TSLs considered for this NOPR are described in section V.A. DOE conducted a sensitivity analysis that considers impacts for products shipped in a 9-year period.

DOE used its national impact analysis (NIA) spreadsheet model to estimate national energy savings (NES) from potential amended or new standards for UPSs. The NIA spreadsheet model (described in section IV.H of this notice) calculates energy savings in terms of site energy, which is the energy directly consumed by products at the locations where they are used. Based on the site energy, DOE calculates NES in terms of primary energy savings at the site or at power plants, and also 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.

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

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

2. Significance of Savings

To adopt any new or amended standards for a covered product, DOE must determine that such action would result in significant energy savings. (42 U.S.C. 6295(o)(3)(B)) Although the term “significant” is not defined in the Act, the U.S. Court of Appeals for the District of Columbia Circuit, in

Natural Resources Defense Council

Herrington,

768 F.2d 1355, 1373 (D.C. Cir. 1985), opined that Congress intended “significant” energy savings in the context of EPCA to be savings that are not “genuinely trivial.” The energy savings for all of the TSLs considered in this rulemaking, including the proposed standards (presented in section V.B.3.a), are nontrivial, and, therefore, DOE considers them “significant” within the meaning of section 325 of EPCA.

D. Economic Justification

1. Specific Criteria

As noted above, 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) through (VII)) The following sections discuss how DOE has addressed each of those seven factors in this rulemaking.

a. Economic Impact on Manufacturers and Consumers

In determining the impacts of a potential amended standard on manufacturers, DOE conducts a manufacturer impact analysis (MIA), as discussed in section IV.J. DOE first uses an annual cash-flow approach to determine the quantitative impacts. This step includes both a short-term assessment—based on the cost and capital requirements during the period between when a regulation is issued and when entities must comply with the regulation—and a long-term assessment over a 30-year period. The industry-wide impacts analyzed include (1) industry net present value (INPV), which values the industry on the basis of expected future cash flows, (2) cash flows by year, (3) changes in revenue and income, and (4) other measures of impact, as appropriate. Second, DOE analyzes and reports the impacts on different types of manufacturers, including impacts on small manufacturers. Third, DOE considers the impact of standards on domestic manufacturer employment and manufacturing capacity, as well as the potential for standards to result in plant closures and loss of capital investment. Finally, DOE takes into account cumulative impacts of various DOE regulations and other regulatory requirements on manufacturers.

For individual consumers, measures of economic impact include the changes in LCC and payback period (PBP) associated with new 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 impacts of potential standards on identifiable subgroups of consumers that may be disproportionately affected by a standard.

b. Savings in Operating Costs Compared to Increase in Price

EPCA requires DOE to consider the savings in operating costs throughout the estimated average life of the covered product in the type (or class) compared to any increase in the price of, or in the initial charges for, or maintenance expenses of, the covered product that are likely to result from a standard. (42 U.S.C. 6295(o)(2)(B)(i)(II)) DOE conducts this comparison in its LCC and PBP analysis.

The LCC is the sum of the purchase price of a product (including its installation) and the operating 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. DOE calculates the PBP by dividing the change in purchase cost due to a more-stringent standard by the change in annual operating cost for the year that standards are assumed to take effect.

For its LCC and PBP analysis, DOE assumes that consumers will purchase the covered products in the first year of compliance with new 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 standards. DOE's LCC and PBP analysis is discussed in further detail in section IV.F.

c. Energy Savings

Although significant conservation of energy is a separate statutory requirement for adopting an energy conservation standard, EPCA requires DOE, in determining the economic justification of a standard, to consider the total projected energy savings that are expected to result directly from the standard. (42 U.S.C. 6295(o)(2)(B)(i)(III)) As discussed in section III.C, DOE uses the NIA spreadsheet models to project national energy savings.

d. Lessening of Utility or Performance of Products

In establishing product classes and in evaluating design options and the impact of potential standard levels, DOE evaluates potential standards that would not lessen the utility or performance of the considered products. (42 U.S.C. 6295(o)(2)(B)(i)(IV)) Based on data available to DOE, the standards proposed in this NOPR 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 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 standards may affect the nation's needed power generation capacity, as discussed in section IV.M.

The proposed standards also are likely to result in environmental benefits in the form of reduced emissions of air pollutants and greenhouse gases (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; the emissions impacts are reported in section V.B.6 of this NOPR. DOE also estimates the economic value of emissions reductions resulting from the considered TSLs, as discussed in section IV.L.

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 interested parties submit any relevant information regarding economic justification that does not fit into the other categories described above, DOE could consider such information under “other factors.”

2. Rebuttable Presumption

As set forth in 42 U.S.C. 6295(o)(2)(B)(iii), EPCA creates a rebuttable presumption that an energy conservation standard is economically justified if the additional cost to the consumer of a product that meets the standard is less than three times the value of the first year's energy savings resulting from the standard, as calculated under the applicable DOE test procedure. DOE's LCC and PBP analyses generate values used to calculate the effects that proposed energy conservation standards would have on the payback period for consumers. These analyses include, but are not limited to, the 3-year payback period contemplated under the rebuttable-presumption test. In addition, DOE routinely conducts an economic analysis that considers the full range of impacts to consumers, manufacturers, the Nation, and the environment, 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.9 of this proposed rule.

IV. Methodology and Discussion of Related Comments

This section addresses the analyses DOE has performed for this rulemaking with regard to UPSs. Separate subsections address each component of DOE's analyses.

DOE used several analytical tools to estimate the impact of the standards proposed 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 forecasts 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 Web site for this rulemaking:

https://www1.eere.energy.gov/buildings/appliance_standards/standards.aspx?productid=26

. Additionally, DOE used output from the latest version of EIA's

Annual Energy Outlook

(

AEO),

a widely known energy forecast for the United States, for the emissions and utility impact analyses.

A. Market and Technology Assessment

DOE develops information in the market and technology assessment that provides an overall picture of the market for the products concerned, including the purpose of the products, the industry structure, manufacturers, market characteristics, and technologies used in the products. This activity includes both quantitative and qualitative assessments, based primarily on publicly-available information. The subjects addressed in the market and technology assessment for this rulemaking include: (1) A determination of the scope of the rulemaking and product classes, (2) manufacturers and industry structure, (3) existing efficiency programs, (4) shipments information, (5) market and industry trends, and (6) technologies or design options that could improve the energy efficiency of UPSs. The key findings of DOE's market assessment are summarized below. See chapter 3 of the NOPR TSD for further discussion of the market and technology assessment.

1. Scope of Coverage and Product Classes

In the May 2016 UPS test procedure NOPR, DOE proposed the definition of UPS from section 3.1.1 of IEC 62040-3 Edition. 2.0, “Uninterruptible power systems (UPS)—Method of specifying the performance and test requirements”, March 2011 (IEC 62040-3 Ed. 2.0). See 81 FR 31542.

DOE also proposed to include definitions for voltage and frequency dependent (VFD), voltage independent (VI), and voltage and frequency independent (VFI) UPS architectures based on the definitions from section 1.0 of ENERGY STAR UPS Version 1.0, “ENERGY STAR Program Requirements for Uninterruptible Power Supplies,” Rev. July 2012 (ENERGY STAR UPS V. 1.0) to differentiate between different UPS load ratings. The proposed definitions are as follows:

“Uninterruptible power supply or UPS means a combination of convertors, switches and energy storage devices (such as batteries), constituting a power system for maintaining continuity of load power in case of input power failure.”

“Voltage and frequency dependent UPS or VFD UPS means a UPS that produces an AC output where the output voltage and frequency are dependent on the input voltage and frequency. This UPS architecture does not provide corrective functions like those in voltage independent and voltage and frequency independent systems.”

“Voltage independent UPS or VI UPS means a UPS that produces an AC output within a specific tolerance band that is independent of under-voltage or over-voltage variations in the input voltage. The output frequency of a VI

UPS is dependent on the input frequency, similar to a voltage and frequency dependent system.”

“Voltage and frequency independent UPS or VFI UPS means a UPS that produces an AC output voltage and frequency that is independent of input voltage and frequency variations and protects the load against adverse effects from such variations without depleting the stored energy source. The input voltage and frequency variations through which the UPS must remain in Normal Mode are as follows:

i. ±10% of the rated input voltage or the tolerance range specified by the manufacturer, whichever is greater

ii. ±2% of the rated input frequency or the tolerance range specified by the manufacturer, whichever is greater.”

DOE also specified in the May 2016 UPS test procedure NOPR that only the devices that meet the definition of a UPS as outlined above and have an AC output will be subject to the testing requirements proposed in the battery charger test procedure NOPR. See 81 FR 31542. For this rulemaking, DOE proposes to maintain the scope of coverage as defined by its current proposal for the battery charger test procedure.

When evaluating and establishing energy conservation standards, DOE often divides covered products into classes by the type of energy used, the capacity of the product, or any other performance-related feature that justifies different standard levels, such as features affecting consumer utility. (42 U.S.C. 6295(q)) DOE then conducts its analysis and considers establishing or amending standards to provide separate standard levels for each product class. DOE has created three product classes to analyze UPSs as follows: Product Class 10a (VFD UPSs), Product Class 10b (VI UPSs), and Product Class 10c (VFI UPSs). UPSs are tested at different load ratings and a normal mode average efficiency rating is calculated. This is based on ENERGY STAR UPSs. Within UPSs, VFD, VI, and VFI UPSs are different product classes based on the UPS's ability to filter and correct the incoming power against faults such as over and under-voltage conditions, noise, harmonic distortions and instability in the mains frequency. These product classes are VFD for units that do not provide any corrective functions, VI for units capable of correcting only the voltage and VFI for units that can correct the voltage as well as the frequency when they are outside specifications. In addition to providing such corrective functions, devices in these three product classes offer greater utility to sensitive loads by reducing the transfer time from utility power to the internal battery in the event of a power disruption. DOE recognizes that these additional utilities as well as increasing device capacity come at the cost of efficiency. DOE therefore proposes individual standards for each product class that scale with rated output power. This is consistent with ENERGY STAR Version 1.0, “ENERGY STAR Program Requirements for Uninterruptible Power Supplies,” Rev. July 2012 (ENERGY STAR UPS V. 1.0) and IEC 62040-3 Edition 2.0. Additional details on DOE's assessment of UPS technologies can be found in chapter 3 of the NOPR TSD.

2. Technology Options

In the July 2014 computer and battery backup systems (computer systems) framework document, DOE identified three technology options for UPSs that would be expected to improve the efficiency of UPSs. These technology options are: Semiconductor improvements, digital signal processing and space vector modulation, and transformer-less UPS topologies.

Since the July 2014 framework document for computer systems, DOE has identified the following additional technology options from stakeholder comments and manufacturer interviews for UPSs: Use of core materials with high magnetic permeability such as Sendust and Litz wiring in inductor design, wide band gap semiconductors such as silicon carbide and gallium arsenide, capacitors with low equivalent series resistance (ESR), printed circuit boards (PCBs) with higher copper content, and variable speed fan control.

See

July 2014 computer and battery backup systems framework document, pp. 48-49.

DOE's further research into space vector modulation technology for UPSs has shown that it may have limited advantage in the scope of this rule and is intended primarily for higher power applications. Therefore, DOE did not consider this technology.

DOE requests comment on the potential technology options identified for improving the efficiency of UPSs (see section VII.E).

After identifying all potential technology options for improving the efficiency of UPSs, DOE performed the screening analysis (see section IV.B of this document and chapter 4 of the NOPR TSD) on these technologies to determine which to consider further in the analysis and which to eliminate.

B. Screening Analysis

DOE uses the following four screening criteria to determine which technology options are suitable for further consideration in an energy conservation standards rulemaking:

(1)

Technological feasibility.

Technologies that are 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 impact on the utility of the product to significant subgroups of consumers or would result in the unavailability of any covered product type with performance characteristics (including reliability), features, sizes, capacities, and volumes that are substantially the same as products generally available in the United States at the time, 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.

10 CFR part 430, subpart C, appendix A, 4(a)(4) and 5(b)

If DOE determines that a technology, or a combination of technologies, fails to meet one or more of the above four criteria, it will be excluded from further consideration in the engineering analysis. The reasons for eliminating any technology in this rulemaking are discussed below.

1. Screened-Out Technologies

Transformer-Less UPS Designs

Transformer-less UPS designs offer some of the highest efficiencies in the industry with lowered weight, wider input voltage tolerance, near unity input power factor, reduced harmonic distortion and need for components that mitigate electromagnetic interference (EMI) generated by the device. However, interviews with manufacturers have shown this to be a limited access technology with select manufacturers holding the intellectual property required for effective implementation. DOE therefore does not intend to consider this technology for this rule.

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 met all four screening criteria to be examined further as design options in DOE's NOPR analysis. In summary, DOE did not screen out the following technology options: Use of materials with high magnetic permeability such as Sendust for the inductor core and Litz wiring in inductor coils, silicon carbide, gallium arsenide and other wide band gap semiconductors, capacitors with low ESR, PCBs with higher copper content and variable speed fan control.

DOE determined that these technology options are technologically feasible because they are being used or have previously been used in commercially-available products or working prototypes. DOE also finds that all of the remaining technology options meet the other screening criteria. For additional details, see chapter 4 of the NOPR TSD.

DOE requests comment on its screening analysis used to select the most viable options for consideration in setting this proposed standards (see section VII.E).

C. Engineering Analysis

In the engineering analysis, DOE establishes the relationship between the manufacturer production cost (MPC) and improved UPS efficiency. This relationship serves as the basis for cost-benefit calculations for individual consumers, manufacturers, and the Nation. DOE typically structures the engineering analysis using one of three approaches: (1) Design option, (2) efficiency level, or (3) reverse engineering (cost assessment). The design-option approach involves adding the estimated cost and associated efficiency of various efficiency-improving design changes to the baseline product to model different levels of efficiency. The efficiency-level approach uses estimates of costs and efficiencies of products available on the market at distinct efficiency levels to develop the cost-efficiency relationship. The reverse-engineering approach involves testing products for efficiency and determining cost from a detailed bill of materials (BOM) derived from reverse engineering representative products. The efficiency ranges from that of the least-efficient UPS sold today (

i.e.,

the baseline) to the maximum technologically feasible efficiency level. At each efficiency level examined, DOE determines the MPC; this relationship is referred to as a cost-efficiency curve.

DOE used a combination of the design-option and efficiency-level approach when determining the efficiency curves for UPSs. UPSs are composed of a single highly integrated PCB consisting of control and power conversion circuitry without any interchangeable components. The efficiency-level approach therefore is more suited to creating the cost-efficiency relationship since components cannot be removed to understand their impact on overall power consumption. However, DOE did use the design-option approach to determine the maximum technologically feasible EL because these products are not available on the market currently.

DOE began its analysis by completing a comprehensive study of the market for units that are in scope. A review of retail sales data, the ENERGY STAR qualified product list of compliant devices and manufacturer interviews aided DOE in identifying the most prevalent units in the market as well as those that are the least and most expensive and efficient. DOE then purchased units for in-house efficiency testing according to the May 2016 UPS test procedure NOPR. This testing allowed DOE to choose representative units and create multiple ELs for each product class.

1. Testing

In taking the hybrid efficiency-level and design option approach, DOE tested multiple units of the same product class striving to ensure variations between successive units (

e.g.

LCDs, communication ports, etc.) were removed. The resultant efficiency values and data obtained from manufacturers were then curve-fitted and extrapolated to the entire power range (defined by the scope) to create multiple ELs. For example, DOE tested several VFD representative units in the 300-500 W range to create four ELs for VFD UPSs, which when compared against the device's MPC demonstrated a direct positive correlation.

2. Representative Units and Efficiency Levels

Individual ELs for a UPS product class were created by curve-fitting and extrapolating the efficiency values of a single test unit known as the representative unit for that particular EL. Each of the ELs are labeled EL 0 through EL 3 and reflect increasing efficiency due to technological advances. EL 0 represents baseline performance, EL 1 is the minimum required efficiency to be ENERGY STAR compliant, EL 2 is the best technology currently available in the market and EL 3 is the maximum efficiency theoretically achievable. As such, the representative unit for EL 0 was the least efficient unit tested by DOE with EL 1 and EL 2 being represented by the least and most efficient ENERGY STAR unit respectively. While DOE derived EL 0 through EL 2 via testing, DOE created EL 3 from data obtained during manufacturer interviews.

The proposed standard for UPSs varies based on its maximum output power rating. The standard is a set of curve-fit equations. Figure IV.1 through Figure IV.3 are graphical representations of the ELs for VFD UPS, VI UPS and VFI UPS types respectively. Each EL is subdivided into power ranges for simplicity and is a piecewise approximation of the units overall efficiency across the entire power range as shown in the figures. Chapter 5 of the NOPR TSD has additional detail on the curve-fit equations for each EL and UPS product class.

EP05AU16.021

DOE requests comment on the ELs selected for each product class for its analysis (see section VII.E).

EP05AU16.022

3. Cost Analysis

For UPSs, DOE developed an average manufacturer and distribution markups for ELs by examining the annual Securities and Exchange Commission (SEC) 10-K reports filed by publicly-traded UPS manufacturers and distribution chains and further verified during stakeholder interviews. DOE used these validated markups to convert consumer prices into manufacturer selling prices (MSPs) and then into MPCs.

Table I.3 summarizes national economic costs expected to result from the proposed standards.

In general, DOE's cost analysis of representative units demonstrated a direct correlation between MPC and average load adjusted efficiency (see Figure 5.5.1 through 5.5.3 in chapter 5 of the Technical Support Document). However, the one exception to this correlation was the EL 1 representative unit for VFD UPSs. This representative unit has a higher output power rating and average load adjusted efficiency, but a lower MPC compared to the EL 0 representative unit of the same product class, resulting in a negative total incremental installed cost of $139 million and $253 million at seven and three percent discount rates, respectively.

In addition to the two representative units discussed here, DOE has found other VFD UPSs that demonstrate this negative correlation between MPC and average load adjusted efficiency between EL 0 and EL 1.

DOE believes that this exception to the otherwise direct correlation between MPC and average load adjusted efficiency of UPSs has several possible explanations. For the VFD UPSs in scope of this rulemaking, DOE believes consumers may typically be more concerned with the reliability of the protection the product provides, than its energy efficiency. Despite the presence of less expensive and more efficient units, DOE believes less efficient legacy units continue to be sold in the marketplace because consumers are familiar with these models and trust the level of protection and safety they offer even if more energy efficient UPS models with similar functionality and dependability are available at lower prices. Additionally, an unproven model that is more efficient yet less expensive may be perceived by consumers as less reliable. Therefore, UPS manufacturers may not have an incentive to improve the design of UPS models that have established a reputation of being reliable. It is also worth noting that the difference in MSP between the VFD UPS EL 0 and EL 1 representative units is $5.10 and while this can be significant on its own, it may only be a small fraction of the cost of the connected equipment that it is protecting or the potential loss in productivity if said connected equipment were to lose power. DOE believes this is one of the reasons why devices at EL 0 continue to exist in the market place at a price higher than more efficient EL 1 models.

However, negative compliance costs are unexpected in an economic theory that assumes a perfect capital market with perfect rationality of agents having complete information. In such a market, because more efficient UPSs save consumers money on operating costs compared to the baseline product, consumers would have an incentive to purchase them even in the absence of standards. For these reasons, DOE requests comment on its understanding of why less efficient UPSs continue to exist in the market place at a price higher than more efficient units and the impact that energy conservation standards for UPSs will have on the costs and efficiencies of existing UPS models, including various aspects of the inputs to the installed cost analysis, such as assumptions about consumers' response to first cost versus long-term operating cost, assumptions for manufacturer capital and product conversion costs, and other factors.

D. Markups Analysis

The markups analysis develops appropriate markups (

e.g.,

retailer markups, distributor markups, contractor markups) in the distribution chain and sales taxes to convert the consumer prices, derived in the engineering analysis, into the MSPs for each product class and EL. The MSPs calculated in the markups analysis are then used as inputs to the MIA. The prices derived in the engineering analysis are marked up to reflect the distribution chain of UPSs. At each step

in the distribution channel, companies mark up the price of the product to cover business costs and profit margin. For UPSs, the main parties in the distribution chain are retailers. The final prices, which also include sales taxes, are then used in the LCC and PBP analyses.

For retailers, DOE developed separate markups for baseline products (baseline markups) and for the incremental cost of more-efficient products (incremental markups). Incremental markups are coefficients that relate the change in the MSP of higher-efficiency models to the change in the retailer sales price. DOE relied on economic data from the U.S. Census Bureau

to estimate average baseline and incremental markups.

U.S. Census Bureau. Annual Retail Trade Survey, Electronics and Appliance Stores. 2012.

www.census.gov/retail/arts/historic_releases.html

The manufacturer markups, which convert MSPs to MPCs are calculated as part of the MIA and are not presented in the markups analysis. DOE developed average manufacturer markups by examining the annual SEC 10-K reports filed by publicly traded UPS manufacturers then refining these estimates based on manufacturer feedback.

Chapter 6 of the NOPR TSD provides details on DOE's development of markups for UPSs.

E. Energy Use Analysis

The purpose of the energy use analysis is to determine the annual energy consumption of UPSs at different efficiencies in representative U.S. single-family homes, multi-family residences, and commercial buildings, and to assess the energy savings potential of increased UPS efficiency. The energy use analysis estimates the range of energy use of UPSs 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.

To develop energy use estimates, DOE multiplied UPS power loss as a function of rated output power, as derived in the engineering analysis, by annual operating hours. DOE assumed that UPSs are operated for 24 hours per day, 365 days per year, at a typical load specific to each product class. In early 2015, UPS manufacturers indicated that a majority of in-scope products were used to back up and condition power to servers and desktop computers, with most VFD and low-end VI products attached to desktop computers and workstations. The average loading assumptions from ENERGY STAR UPS V. 1.0 with input power less than or equal to 1500 W are 67.5 percent for VFD and 75 percent for VI and VFI UPSs.

However, the devices to which UPSs provide power may not always be on, especially in the case of desktop computers. Thus there is some uncertainty about how many hours per year UPSs are typically operated at various load points.

These were calculated by multiplying the proportion of time spent at each specified proportion of the reference test load in Table 1 of the following reference. ENERGY STAR.

ENERGY STAR Program Requirements: Product Specification for Uninterruptible Power Supplies (UPSs), Version 1.0.

2012.

The responses to manufacturer interviews conducted in early 2015 suggest that most VFD products are used with personal computers, around three quarters of low-end VI products are used with computers and workstations, and around three quarters of higher-end VI and VFI products are used with servers. To account for the typical power draw of desktop computers, and because such computers spend some time in off or standby modes, DOE assumed average loading for VFD UPSs to be 25 percent. DOE further assumed average loading for VI products, which are operated in conjunction with both computers and servers, to be 50 percent, and average loading for VFI products to be 75 percent, in line with ENERGY STAR UPS V. 1.0. DOE requests further comment on the average loading conditions for these product classes (see section VII.E).

To capture the diversity of products available to consumers, DOE collected data on the distribution of UPS output power rating from product specifications listed on online retail Web sites. DOE then developed product samples for each UPS product class based on a market-weighted distribution of product features found to impact efficiency as determined by the engineering analysis.

Chapter 7 of the NOPR TSD provides details on DOE's energy use analysis for UPSs.

F. Life-Cycle Cost and Payback Period Analysis

DOE conducted LCC and PBP analyses to evaluate the economic impacts on individual consumers of potential energy conservation standards for UPSs. The effect of new or amended energy conservation standards on individual consumers usually involves a reduction in operating cost and an increase in purchase cost. DOE used the following two metrics to measure consumer impacts:

The LCC (life-cycle cost) 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 markups, sales tax, and installation costs) plus operating costs (expenses for energy use, maintenance, and repair). To compute the operating costs, DOE discounts future operating costs to the time of purchase and sums them over the lifetime of the product.

The PBP (payback period) 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-standards case, which reflects the estimated efficiency distribution of UPSs in the absence of new or amended energy conservation standards. In contrast, the PBP for a given efficiency level is measured relative to the baseline product.

For each considered efficiency level in each product class, DOE calculated the LCC and PBP for a nationally representative set of housing units, as well as one for commercial buildings. For each sample household and commercial building, DOE determined the energy consumption for the UPS and the appropriate electricity price. By developing a representative sample of households and commercial buildings, the analysis captured the variability in energy consumption and energy prices associated with the use of UPSs.

DOE was unable to locate a survey sample specific to UPS users for either the residential or commercial sector. However, as mentioned in the previous section, manufacturer interviews indicate that most VFD products are used with personal computers, around three quarters of low-end VI products are used with computers and workstations, and around three quarters of higher-end VI and VFI products are used with servers. DOE thus created residential and commercial samples for desktop computers as a proxy for the sample of VFD and VI UPS owners, and a sample for servers as a proxy for the sample of VFI UPS owners.

DOE developed its residential sample from the set of individual responses to

the Consumer Electronics Association's (CEA's)

16th Annual CE Ownership and Market Potential Study.

CEA administered the survey to a random, nationally representative sample of more than 2,000 U.S. adults in January and February 2014. The individual-level survey data that CEA provided to DOE were weighted to reflect the known demographics of the sample population; weighting by geographic region, gender, age, and race were used to make the data generalizable to the entire U.S. adult population. From this dataset, DOE constructed its household sample for UPSs by considering the number of desktop computers per household in conjunction with 2013 household income and state of residence.

Available for purchase at

http://store.ce.org/Default.aspx?TabID=251&productId=782583

To create a commercial building sample, DOE relied on EIA's Commercial Buildings Energy Consumption Survey (CBECS), a nationally representative survey with a rich dataset of energy-related characteristics of the nation's stock of commercial buildings.

Individual survey responses from the most recent survey in 2012 allowed DOE to consider how the commercial penetration of servers and desktop computers varies by principal building activity and by Census Division. DOE used these microdata to construct the commercial sample of UPSs, which are assumed to back up and condition power for servers and desktop computers.

U.S. Department of Energy—U.S. Energy Information Administration. Commercial Buildings Energy Consumption Survey (CBECS). 2012 Public Use Microdata File. 2015. Washington, DC.

http://www.eia.gov/consumption/commercial/data/2012/index.cfm?view=microdata

Inputs to the calculation of total installed cost include the cost of the product—which includes MPCs, manufacturer markups, retailer and distributor markups, and sales taxes—and installation costs. Inputs to the calculation of operating expenses include annual energy consumption, energy prices and price projections, repair and maintenance costs, product lifetimes, and discount rates. DOE created distributions of values for product lifetime, discount rates, and sales taxes, with probabilities attached to each value, to account for their uncertainty and variability.

The computer model DOE uses to calculate the LCC and PBP relies on a Monte Carlo simulation to incorporate uncertainty and variability into the analysis. The Monte Carlo simulations randomly sample input values from the probability distributions and UPS user samples. The model calculated the LCC and PBP for products at each efficiency level for 10,000 housing units and 10,000 commercial buildings per simulation run.

DOE calculated the LCC and PBP for all consumers of UPSs as if each were to purchase a new product in the expected year of required compliance with new standards. Any new standards would apply to UPSs manufactured two years after the date on which any new standard is published. At this time, DOE estimates publication of a final rule in 2017. Therefore, for purposes of its analysis, DOE used 2019 as the first year of compliance with any new standards for UPSs.

Table IV.1 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 NOPR TSD and its appendices.

Table IV.1—Summary of Inputs and Methods for the LCC and PBP Analysis *

Inputs

Source/method

Product Cost

Derived by multiplying MPCs by manufacturer and retailer markups and sales tax, as appropriate. Used historical data to derive a price scaling index to forecast product costs.

Installation Costs

Assumed no change with efficiency level.

Annual Energy Use

Power loss (a function of rated output power) multiplied by annual operating hours. Average number of hours at a typical load based on manufacturer input.

Variability: Distribution of rated power from online retail websites.

Energy Prices

Electricity: Based on 2014 marginal electricity price data from the Edison Electric Institute.

Variability: Electricity prices vary by season, U.S. region, and baseline electricity consumption level.

Energy Price Trends

Based on

AEO 2015

price forecasts.

Repair and Maintenance Costs

Assumed no change with efficiency level.

Product Lifetime

Based on literature review and manufacturer interviews.

Variability: Based on a Weibull distribution.

Discount Rates

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.

Compliance Date

2019.

* References for the data sources mentioned in this table are provided in the sections following the table or in chapter 8 of the NOPR TSD.

1. Product Cost

To calculate consumer product costs, DOE multiplied the MPCs developed in the engineering analysis by the markups described above (along with sales taxes). DOE used different markups for baseline products and higher-efficiency products, because DOE applies an incremental markup to the increase in MSP associated with higher-efficiency products. The prices used in the LCC and PBP analysis are MPC in the compliance year, as described in chapter 5 of the TSD.

Examination of historical price trends for a number of appliances that have been subject to energy conservation standards indicates that an assumption of constant real prices and costs may overestimate long-term trends in appliance prices. Economic literature and historical data suggest that the real costs of these products may in fact trend downward over time according to “learning” or “experience” curves. On February 22, 2011, DOE published a notice of data availability (NODA) stating that DOE may consider refining its analysis by addressing equipment price trends. 76 FR 9696. It also raised the possibility that once sufficient long-term data are available on the cost or price trends for a given product subject to energy conservation standards, DOE would consider these data to forecast future trends. However, DOE found no data or manufacturer input to suggest

appreciable price trends for UPSs, and thus assumed no price trend for UPSs.

2. Installation Cost

Installation cost includes labor, overhead, and any miscellaneous materials and parts needed to install the product. DOE found no evidence that installation costs would be impacted with increased efficiency levels for UPSs.

3. Annual Energy Consumption

For each sampled household and commercial building, DOE determined the energy consumption for a UPS at different efficiency levels using the approach described in section IV.E of this document.

4. Energy Prices

DOE used marginal electricity prices to characterize the incremental savings associated with ELs above the baseline. The marginal electricity prices vary by season, region, and baseline household electricity consumption level for the LCC. DOE estimated these prices using data published with the Edison Electric Institute (EEI) Typical Bills and Average Rates reports for summer and winter 2014.

DOE assigned seasonal marginal prices to each household or commercial building in the LCC sample based on its location and its baseline monthly electricity consumption for an average summer or winter month. For a detailed discussion of the development of electricity prices, see appendix 8B of the NOPR TSD.

Edison Electric Institute.

Typical Bills and Average Rates Report.

Winter 2014 published April 2014, Summer 2014 published October 2014.

http://www.eei.org/resourcesandmedia/products/Pages/Products.aspx.

The Information Technology Industry Council (ITI) suggested that EIA's

Annual Energy Outlook (AEO)

be used for estimating current and forecasted energy prices. (ITI, No. 0010 at p. 18) Available information suggests that marginal electricity prices more accurately represent savings associated with a new standard, and therefore DOE relied on EEI data instead of

AEO

data for current prices. However, to estimate energy prices in future years, DOE multiplied the average regional energy prices by the forecast of annual change in national-average residential energy price in the Reference case from

AEO 2015,

which has an end year of 2040.

To estimate price trends after 2040, DOE used the average annual rate of change in prices from 2020 to 2040.

U.S. Department of Energy—Energy Information Administration.

Annual Energy Outlook 2015 with Projections to 2040.

2015.

http://www.eia.gov/forecasts/aeo/.

5. Maintenance and Repair Costs

Repair costs are associated with repairing or replacing product components that have failed in an appliance; maintenance costs are associated with maintaining the operation of the product. For UPSs, DOE assumed that small incremental increases in product efficiency produce no changes in repair and maintenance costs compared to baseline efficiency products. This assumption is supported by the National Electrical Manufacturers Association (NEMA's) comment that no increased maintenance, repair, or installation costs are associated with more efficient UPS designs. (NEMA, No. 0015 at p. 7)

6. Product Lifetime

For UPSs, DOE performed a search of the published literature to identify minimum and maximum average lifetimes from a variety of sources. DOE also considered input from manufacturer interviews conducted in early 2015. ITI commented that UPS products have lifetimes of up to 20 years. (ITI, No. 0010 at p. 19) Table IV.2 summarizes the UPS lifetimes that DOE compiled from the literature and manufacture interviews. Where a range for lifetime was given, DOE noted the minimum and maximum values; where there was only one figure, DOE recorded this figure as both the minimum and maximum value. DOE computed mean lifetime by averaging these values across the product class.

Table IV.2—UPS Product Lifetimes From Literature and Manufacturer Input

Product class

Description

Lifetimes

(years)

Minimum

Mean

Median

Maximum

10a

VFD UPS

10b

VI UPS

6.3

10c

VFI UPS

Using these minimum, maximum, and mean lifetimes, DOE constructed survival functions for the various UPS product classes. No more than 10 percent of units were assumed to fail before the minimum lifetime, and no more than 90 percent of units were assumed to fail before the maximum lifetime. DOE assumed these survival functions have the form of a cumulative Weibull distribution, a probability distribution commonly used to model appliance lifetimes. Its form is similar to that of an exponential distribution, which models a fixed failure rate, except a Weibull distribution allows for a failure rate that can increase over time as appliances age. For additional discussion of UPS lifetimes, refer to chapter 8 of the NOPR TSD.

7. Discount Rates

In the calculation of LCC, DOE applies discount rates appropriate to households to estimate the present value of future operating costs. DOE estimated a distribution of residential discount rates for UPSs based on consumer financing costs and opportunity cost of funds related to appliance energy cost savings and maintenance costs.

To establish residential discount rates for the LCC analysis, DOE identified all relevant household debt or asset classes in order to approximate a consumer's opportunity cost of funds related to appliance energy cost savings. It estimated the average percentage shares of the various types of debt and equity by household income group using data from the Federal Reserve Board's Survey of Consumer Finances

(SCF) for 1995, 1998, 2001, 2004, 2007, and 2010. Using the SCF and other sources, DOE developed a distribution of rates for each type of debt and asset by income group to represent the rates that may apply in the year in which amended standards would take effect. DOE assigned each sample household a specific discount rate drawn from one of the distributions. The average rate across all types of household debt and

equity and income groups, weighted by the shares of each type, is 4.4 percent. See chapter 8 of the NOPR TSD for further details on the development of consumer discount rates.

Board of Governors of the Federal Reserve System.

Survey of Consumer Finances.

Various dates. Washington, DC.

http://www.federalreserve.gov/pubs/oss/oss2/scfindex.html

To establish commercial discount rates for the LCC analysis, DOE estimated the cost of capital for companies that purchase a UPS. 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, as estimated from financial data for publicly traded firms in the sectors that purchase UPSs. For this analysis, DOE used Damodaran online

as the source of information about company debt and equity financing. The average rate across all types of companies, weighted by the shares of each type, is 5.2 percent. See chapter 8 of the NOPR TSD for further details on the development of commercial discount rates.

Damodaran, A.

Cost of Capital by Sector.

January 2014. (Last accessed September 25, 2014.) New York, NY.

http://people.stern.nyu.edu/adamodar/New_Home_Page/datafile/wacc.htm.

8. Efficiency Distribution in the No-Standards Case

To accurately estimate the share of consumers that would be affected by a potential energy conservation standard at a particular efficiency level, DOE's LCC analysis considered the projected distribution (market shares) of product efficiencies under the no-standards case (

i.e.,

the case without amended or new energy conservation standards). To estimate the efficiency distribution of UPSs for 2019, DOE examined a recent ENERGY STAR qualified product list. Although these model lists are not sales-weighted, DOE assumed they were a reasonable representation of the market.

The estimated market penetration of ENERGY STAR-qualified UPSs was 78 percent in 2013, the most recent year for which data were available.

DOE assumed market penetration to be 78 percent for all three UPS product classes, as the 2013 Unit Shipment Data report does not distinguish between UPS architectures. In order to assess how qualified products fit into proposed efficiency levels, DOE analyzed a qualified product list downloaded on February 16, 2016, after cross-checking inconsistencies in reported UPS product type with product specifications on retail Web sites. For the 266 qualified in-scope models, DOE compared average efficiency to the efficiency required for each EL, as determined in the engineering analysis. Finally, DOE assumed that the market share represented by non-ENERGY STAR-qualified products would belong to the least-efficient efficiency level analyzed. The estimated market shares for the no-standards case for UPSs are shown in Table IV.3. See chapter 8 of the NOPR TSD for further information on the derivation of the efficiency distributions.

Environmental Protection Agency—ENERGY STAR Program.

Certification Year 2013 Unit Shipment Data.

2014. Washington, DC.

https://www.energystar.gov/index.cfm?c=partners.unit_shipment_data.

Table IV.3—Estimated Market Shares (%) in Each Efficiency Level for No-Standards Case

Product class

Description

Efficiency level

EL 0

(baseline)

EL 1

EL 2

EL 3

10a

VFD UPS

1.5

10b

VI UPS

3.9

10c

VFI UPS

5.8

9. 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. Payback periods that exceed the life of the product mean that the increased total installed cost is not recovered in reduced operating expenses.

The inputs to the PBP calculation for each efficiency level are the change in total installed cost of the product and the change in the first-year annual operating expenditures relative to the baseline. The PBP calculation uses the same inputs as the LCC analysis, except that discount rates are not needed.

As noted in this preamble, EPCA, as amended, 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 forecast for the year in which compliance with the new standards would be required.

G. Shipments Analysis

DOE uses forecasts of annual product shipments to calculate the national impacts of potential amended energy conservation standards on energy use, NPV, and future manufacturer cash flows.

Because UPSs back up and condition power for electronics, whose technology evolves more rapidly than many other appliances, DOE did not rely on a stock accounting approach common to other appliances. Instead, DOE largely elected to extrapolate forecasted trends from market research data. Data from Frost & Sullivan

and ENERGY STAR unit shipments

provided the foundation for DOE's shipments analysis for UPSs. DOE calculated shipment values for 30 years, from 2019, the first year of compliance, through 2048, the last year of the analysis period.

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.

Cherian, A.

Analysis of the Global Uninterruptible Power Supplies Market: Need for Greater Power Reliability Driving Growth.

Frost & Sullivan. 2013. San Antonio, TX.

http://www.frost.com/c/10077/sublib/display-report.do?id=NC62-01-00-00-00.

Environmental Protection Agency—ENERGY STAR Program.

Certification Year 2013 UPS Unit Shipment Data.

2013. Washington, DC.

https://www.energystar.gov/index.cfm?c=partners.unit_shipment_data.

1. Shipment Projections in the No-Standards Case

DOE relied on data from Frost & Sullivan and ENERGY STAR to develop the shipments in the no-standards case for UPSs.

Frost & Sullivan provide global UPS unit shipments from 2009 to 2019 for the relevant output range <1000 W. Because the next power range for which shipments are provided is 1-5 kilo-watts (kW), and only UPSs with rated output power ≤1500 W are in scope, DOE excluded this power range from the shipments analysis. For <1000 W, Frost & Sullivan supply North American revenue as a percent of global revenue 2009 to 2019, so DOE assumed that percent of revenue is a reasonable proxy for percent of shipments. Multiplying global shipments by the North American percentage of revenue, and then by 0.9 under the assumption that the United States makes up 90 percent of the North American market, yielded U.S. UPS shipments.

Cherian, A.

Analysis of the Global Uninterruptible Power Supplies Market: Need for Greater Power Reliability Driving Growth.

Frost & Sullivan. 2013. San Antonio, TX.

http://www.frost.com/c/10077/sublib/display-report.do?id=NC62-01-00-00-00.

Frost & Sullivan provided no classification by type of UPS within the relevant power range. However, the 2013 ENERGY STAR unit shipment data collection process

provides such a breakdown; in that year, market penetration of UPSs was 78 percent,

so DOE assumed these data are representative of the market. DOE used these data to determine how <1000 W UPSs are apportioned among different topologies for 2013 to 2019, assuming this allocation stays constant: 50 percent VFD, 39 percent VI, and 12 percent VFI. The Frost & Sullivan data indicate that the commercial sector dominates UPS revenue in the <1000 W market segment; therefore, DOE assumed a split of 90 percent commercial and 10 percent residential shipments.

Environmental Protection Agency—ENERGY STAR Program.

Certification Year 2013 UPS Unit Shipment Data.

2013. Washington, DC.

https://www.energystar.gov/index.cfm?c=partners.unit_shipment_data.

Ibid.

To project UPS shipments from 2020-2048, DOE extrapolated the linear trends forecasted by Frost & Sullivan from 2014 to 2019. In conjunction with the 2013 fixed split between topologies and a fixed portion of 0.9 for the United States relative to North American shipments, DOE projected the increasing linear trend in global UPS shipments <1 kW and the decreasing linear share of North American revenue to forecast shipments from 2019 to 2048. DOE requests additional information on UPS shipments and projections (see section VII.E).

2. Shipment Projections in the Standards Case

Increases in product prices resulting from standards may affect shipment volumes. To DOE's knowledge, price elasticity estimates are not readily available in existing literature for UPSs, and hence DOE assumed a price elasticity of demand of zero. DOE requests comment on commercial and residential price elasticity data for UPS product classes (see section VII.E).

ITI commented that voluntary programs such as ENERGY STAR are what drive manufacturers to design products to be as efficient as possible and NEMA commented that because of the significant influence of ENERGY STAR on UPSs, little potential remains in product efficiency. (ITI, No. 0010 at p. 19) (NEMA, No. 0015 at p. 3)

DOE disagrees with the claim that little potential remains in product efficiency for UPSs. DOE's engineering analysis indicates that UPSs with higher efficiency than that required for ENERGY STAR designation are now or could be available, and the economic analysis indicates that some of these higher levels are economically justified. In the absence of standards, it is unlikely that the entire market would move to these levels. At present, approximately 20 percent of UPSs sold have efficiency below the ENERGY STAR level.

See chapter 9 of the NOPR TSD for further details on the development of shipments projections.

H. National Impact Analysis

The NIA assesses the national energy savings (NES) and the national net present value (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.

(“Consumer” in this context refers to consumers of the product being regulated.) DOE calculates the NES and NPV for the potential standard levels considered based on projections of annual product shipments, along with the annual energy consumption and total installed cost data from the energy use and LCC analyses.

For the present analysis, DOE forecasted the energy savings, operating cost savings, product costs, and NPV of consumer benefits over the lifetime of UPSs sold from 2019 through 2048.

The NIA accounts for impacts in the 50 states and U.S. territories.

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 and amended standards by comparing a case without such standards with standards-case projections. The no-standards case characterizes energy use and consumer costs for each product class in the absence of new 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-standards case with projections characterizing the market for each product class if DOE adopted new standards at specific energy efficiency levels (

i.e.,

the TSLs or standards cases) for that class. For the standards cases, DOE considers how a given standard would likely affect the market shares of products with efficiencies greater than the standard.

DOE uses a spreadsheet model to calculate the energy savings and the national consumer costs and savings from each TSL. Interested parties can review DOE's analyses by changing various input quantities within the spreadsheet. The NIA spreadsheet model uses typical values (as opposed to probability distributions) as inputs.

Table IV.4 summarizes the inputs and methods DOE used for the NIA analysis for the NOPR. Discussion of these inputs and methods follows the table. See chapter 10 of the NOPR TSD for further details.

Table IV.4—Summary of Inputs and Methods for the National Impact Analysis

Inputs

Method

Shipments

Annual shipments from shipments model.

Compliance Date of Standard

2019.

Efficiency Trends

No-standards case: No efficiency trend.

Standards cases: “roll-up” scenario.

Annual Energy Consumption per Unit

Annual weighted-average values are a function of energy use at each TSL.

Total Installed Cost per Unit

Annual weighted-average values are a function of cost at each TSL.

Incorporates projection of future product prices based on historical data.

Annual Energy Cost per Unit

Annual weighted-average values as a function of the annual energy consumption per unit and energy prices.

Repair and Maintenance Cost per Unit

Annual values do not change with efficiency level.

Energy Prices

AEO 2015

forecasts (to 2040) and extrapolation through 2048.

Energy Site-to-Primary and FFC Conversion

A time-series conversion factor based on

AEO 2015.

Discount Rate

3 percent and 7 percent.

Present Year

2016.

1. Product Efficiency Trends

A key component of the NIA is the trend in energy efficiency projected for the no-standards case and each of the standards cases. Section IV.F.8 of this NOPR describes how DOE developed an energy efficiency distribution for the no-standards case (which yields a shipment-weighted average efficiency) for each of the considered product classes for the year of anticipated compliance with a new standard. To project the trend in efficiency for UPSs over the entire shipments projection period, DOE examined past improvements in efficiency over time. Little data exists to suggest that UPS efficiencies would improve in the 30 years following 2019 in the no-standards case. The approach is further described in chapter 10 of the NOPR TSD. DOE requests further comment on relevant efficiency trends for UPSs (see section VII.E).

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 (2019). In this scenario, the market shares of products in the no-standards case that do not meet the standard under consideration would “roll up” to meet the new standard level, and the market share of products above the standard would remain unchanged. To develop standards case efficiency trends after 2019, DOE implemented the same trend as in the no-standards case: Zero percent for UPSs.

2. National Energy Savings

The national energy savings analysis involves a comparison of national energy consumption of the considered products between each potential standards case (TSL) and in the case with no 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-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

AEO 2015.

Cumulative energy savings are the sum of the NES for each year over the timeframe of the analysis.

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 full-fuel-cycle (FFC) measures of energy use and greenhouse gas and other emissions in the national impact analyses and emissions analyses included in future energy conservation standards rulemakings. 76 FR 51281 (Aug. 18, 2011). After evaluating the approaches discussed in the August 18, 2011 notice, DOE published a statement of amended policy in which DOE explained its determination that EIA's National Energy Modeling System (NEMS) is the most appropriate tool for its FFC analysis and its intention to use NEMS for that purpose. 77 FR 49701 (Aug. 17, 2012). NEMS is a public domain, multi-sector, partial equilibrium model of the U.S. energy sector

that EIA uses to prepare its

Annual Energy Outlook.

The approach used for deriving FFC measures of energy use and emissions is described in appendix 10A of the NOPR TSD.

For more information on NEMS, refer to

The National Energy Modeling System: An Overview,

DOE/EIA-0581(98), February 1998. Available at

www.eia.gov/forecasts/aeo/index.cfm

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 savings in operating 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-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 forecast period.

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 forecast of annual national-average residential energy price changes in the Reference case from

AEO 2015,

which has an end year of 2040. To estimate price trends after 2040, DOE used the average annual rate of change in prices from 2020 through 2040. As part of the NIA, DOE also analyzed scenarios that used inputs from the

AEO 2015

Low Economic Growth and High Economic Growth cases. Those cases have higher and lower energy price trends compared to the Reference case. NIA results based on these cases are presented in appendix 10B 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.

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.

United States Office of Management and Budget. Circular A-4: Regulatory Analysis. September 17, 2003. Section E. Available at

www.whitehouse.gov/omb/memoranda/m03-21.html

CEA commented that DOE should not use a 30-year projection to calculate national energy savings given the short product lifecycle of consumer electronics. (CEA, No. 0012 at p. 6) NEMA also disagreed with the 30-year projection and suggested a 6-year projection. (NEMA, No. 0015 at p. 2)

In performing the NIA for its energy conservation standards rulemakings, DOE has used a 30-year analysis period, beginning on the effective date of the standard, because it matches the lifetime of the longest-lived products among the products being considered for standards. Matching the lifetime of the longest-lived products allows for a full turnover of the stock. Because products have varying lifetimes, DOE uses a 30-year analysis period to maintain a consistent time frame to compare the energy savings and economic impacts from all the standards rulemakings. DOE acknowledges that using a 30-year period for shorter-lived products such as UPSs presents challenges with respect to projecting future trends. However, DOE also provides a 9-year sensitivity analysis that considers impacts for products shipped in a 9-year period. Further, with respect to the economic analysis, projected impacts for products shipped in the later part of the 30-year period play a relatively small role due to the effects of discounting.

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) small businesses. 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.

J. Manufacturer Impact Analysis

1. Overview

DOE performed an MIA to estimate the financial impacts of new energy conservation standards on manufacturers of UPSs and to estimate the potential impacts of such standards on domestic 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 create the INPV, as well as an analysis of the additional investments in research and development (R&D) and manufacturing capital necessary to comply with new standards, and the potential impact on domestic manufacturing employment. Additionally, the MIA seeks to qualitatively determine how new 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 impacts on manufacturer subgroups, including small business manufacturers.

The quantitative part of the MIA primarily relies on the GRIM, an industry cash flow model with inputs specific to this rulemaking. The key GRIM inputs include data on the industry cost structure, unit production costs, product shipments, manufacturer markups, and investments in R&D and manufacturing capital required to produce compliant products. The key GRIM outputs are INPV, which is the sum of industry annual cash flows over 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 new energy conservation standards on the UPS manufacturing industry by comparing changes in INPV and domestic manufacturing employment between the no-standards case and each of the standards levels. To capture the uncertainty relating to manufacturer pricing strategies following potential new standards, the GRIM estimates a range of possible impacts under different markup scenarios.

The qualitative part of the MIA addresses manufacturer characteristics and market trends. Specifically, the MIA considers such factors as a potential standard's impact on manufacturing capacity, competition within the industry, the cumulative impact of other DOE and non-DOE regulations, and impacts on manufacturer subgroups. The complete MIA is outlined in chapter 12 of the 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 UPS manufacturing industry based on the market and technology assessment, preliminary manufacturer interviews, and publicly-available information. This included a top-down analysis of UPS manufacturers that DOE used to derive preliminary financial inputs for the GRIM (

e.g.,

revenues; materials, labor, overhead, and depreciation expenses; selling, general, and administrative expenses (SG&A); and R&D expenses). DOE also used public sources of information to further calibrate its initial characterization of the UPS manufacturing industry, including company filings of 10-K from the SEC,

corporate annual reports, and the U.S. Census Bureau's Economic Census.

http://www.sec.gov/edgar.shtml

http://factfinder.census.gov/faces/nav/jsf/pages/searchresults.xhtml

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) Creating a need for increased investment, (2) raising production costs per unit, and (3) altering revenue due to higher per-unit prices and changes in sales volumes.

In addition, during the second phase, DOE developed an interview guide to distribute to UPS manufacturers in order to develop other key GRIM inputs, including product and capital

conversion costs, and to gather additional information on the anticipated effects of new energy conservation standards on revenue, direct employment, capital assets, industry competition, and manufacturer subgroup impacts.

In the third phase of the MIA, DOE conducted structured, detailed interviews with representative UPS manufacturers. During these interviews, DOE discussed engineering, manufacturing, procurement, and financial topics to validate assumptions used in the GRIM and to identify key issues or concerns. See section IV.J.4 for a description of the key issues raised by manufacturers during the interviews. As part of the third phase, DOE also evaluated manufacturer subgroups that may be disproportionately impacted by new standards or that may not be accurately represented by the average cost assumptions used to develop the industry cash flow analysis. Such manufacturer subgroups may include small business manufacturers, low-volume manufacturers, niche players, and/or manufacturers exhibiting a cost structure that largely differs from the industry average.

DOE identified one manufacturer subgroup for a separate impact analysis—small business manufacturers—using the small business employee threshold of 500 total employees published by the Small Business Administration (SBA). This threshold includes all employees in a business' parent company and any other subsidiaries. The complete MIA is presented in chapter 12 and in sections V.B.2.d and VII.B, and the analysis required by the Regulatory Flexibility Act, 5 U.S.C. 601,

et. seq.

, is presented in section VI.B of this NOPR.

2. GRIM Analysis and Key Inputs

DOE uses the GRIM to quantify the changes in cash flows over time due to new energy conservation standards. These changes in cash flows result in either a higher or lower INPV for the standards cases compared to the no-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 uses these inputs to calculate a series of annual cash flows beginning with the reference year of the analysis, 2016, and continuing to 2048. DOE computes INPV by summing the stream of annual discounted cash flows during the analysis period.

DOE used a real discount rate of 6.1 percent for UPS manufacturers. The discount rate estimate was derived from industry corporate annual reports to the Securities and Exchange Commission (SEC 10-Ks). During manufacturer interviews, UPS manufacturers were asked to provide feedback on this specific discount rate. Based on this feedback, DOE determined that a discount rate of 6.1 percent was appropriate to use for the UPS industry. Many of the 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.

DOE seeks comment on its use of 6.1 percent as a discount rate for UPS manufacturers (see section VII.E).

a. Capital and Product Conversion Costs

DOE expects new energy conservation standards for UPSs to cause manufacturers to incur conversion costs to bring their production facilities and product designs into compliance with new standards. For the MIA, DOE classified these conversion costs into two major groups: (1) Capital conversion costs and (2) product conversion costs. Capital conversion costs are investments in property, plant, and equipment necessary to adapt or change existing production facilities such that new product designs can be fabricated and assembled. Product conversion costs are investments in research, development, testing, marketing, certification, and other non-capitalized costs necessary to make product designs comply with new standards.

Using feedback from manufacturer interviews, DOE conducted a bottom-up analysis of the conversion costs necessary to comply with new standards for all product classes at each analyzed EL. DOE used manufacturer input from manufacturer interviews regarding the types and dollar amounts of discrete capital and product expenditures that would be necessary to convert specific production lines for each product class at each EL.

DOE determined that UPS manufacturers would not incur any additional capital conversion costs in the standards cases that would not be incurred in the no-standards case. Manufacturers stated that any product redesigns required to meet the proposed ELs would represent changes in component configuration as opposed to changes in the tooling and equipment used to manufacture more efficient UPSs (DOE does capture the additional costs of the more efficient components in the MPCs). Additionally, manufacturers stated that product design cycles for the majority of covered UPSs would be three years or less. The potential standards proposed in this NOPR would have a three-year compliance timeframe between the announcement of the potential standards and the compliance year of those standards. Therefore, the majority of these product design cycles would coincide with or take place before the compliance year of any potential standards. For manufacturers that have product design cycles that do not coincide with or take place before the compliance year and would have to redesign their UPSs to comply with the proposed standards, DOE included the cost of product redesign in the product conversion costs.

DOE seeks comment on its determination that product redesigns necessary to meet the ELs required by the proposed standard would not require investments in equipment and tooling and on its determination that the majority of product design cycles would either take place before or coincide with the compliance period of the potential standards for UPSs (see section VII.E).

DOE also assumes that there would be no stranded capital assets for UPS manufacturers. Again, DOE made this determination based on manufacturer feedback stating that no investments in equipment and tooling are necessary to comply with proposed standards.

The two main types of product conversion costs for UPSs that manufacturers shared with DOE during manufacturer interviews were the engineering time and effort necessary to redesign their products to meet higher efficiency standards and the testing and certification costs necessary to comply with efficiency standards. Once DOE had compiled these product conversion costs, DOE then took average values for a UPS platform (

i.e.,

average number of hours or average dollar amounts) based on the range of responses given by manufacturers for the product conversion cost of each product class at each EL. Finally, DOE scaled the per platform costs by the estimated number of platforms that would need to be redesigned at each EL to calculate the total industry product conversion cost at each EL that was used in the MIA.

DOE seeks comment on its methodology used to calculate product conversion costs, including the assumption of no capital conversion costs or stranded assets for UPS manufacturers at analyzed ELs (see section VII.E).

See chapter 12 of the NOPR TSD for a complete description of DOE's assumptions for the product conversion costs.

b. Manufacturer Production Costs

Manufacturing more efficient UPSs is more expensive than manufacturing baseline products due to the need for more costly materials and components. The higher MPCs for these more efficient products can affect the revenue and gross margin, which will then affect total volume of future shipments, and the cash flows of UPS manufacturers. DOE developed MPCs for UPSs by using efficiency testing and market data to determine the cost-efficiency relationship for UPSs currently on the market that met each efficiency level in each product class. For more information about MPCs, see section IV.C of this NOPR.

For a complete description of the MPCs, see chapter 5 of this NOPR TSD.

c. Shipment Scenarios

INPV, the key GRIM output, depends on industry revenue, which depends on the quantity and prices of UPSs shipped in each year of the analysis period. Industry revenue calculations require forecasts of: (1) Total annual shipment volume of UPSs; (2) the distribution of shipments across product classes (because prices vary by product class); and, (3) the distribution of shipments across ELs (because prices vary by efficiency).

In the no-standards case shipment analysis, shipments of UPSs were based on market forecast data. Since UPS technology evolves more rapidly than other appliance technologies, DOE extrapolated forecasted trends from market research data instead of relying on a stock accounting approach. Market forecasts from Frost and Sullivan as well as ENERGY STAR were used as the basis for standards case UPS shipments.

In the standards cases, DOE modeled a roll-up shipment scenario for UPSs. In the roll-up shipment scenario, consumers who would have purchased UPSs that fail to meet the new standards in the no-standards case, purchase UPSs that just meet the new standards, but are not more efficient than those standards, in the standards cases. Those consumers that would have purchased compliant UPSs in the no-standards case continue to purchase the exact same UPSs in the standards cases.

DOE believes that consumers purchasing UPSs covered by this rulemaking are primarily driven by the first cost of the UPSs and, therefore, most consumers will continue to purchase the lowest-cost UPSs available. This behavior is best modeled by the roll-up shipment scenario.

For a complete description of the shipments see the shipments analysis discussion in section IV.G of this NOPR.

d. Markup Scenarios

As discussed in section IV.J.2.b, the MPCs for each of the UPS product classes are the UPS manufacturers' costs for those products. These costs include materials, direct labor, depreciation, and overhead, which are collectively referred to as the cost of goods sold (COGS). The MSP is the price received by UPS manufacturers from their customers, typically a distributor but could be the direct users, regardless of the downstream distribution channel through which the UPSs are ultimately sold. The MSP is not necessarily the cost the end-user pays for the UPS since there are typically multiple sales along the distribution chain and various markups applied to each sale. The MSP equals the MPC multiplied by the manufacturer markup. The manufacturer markup covers all the UPS manufacturer's non-production costs (

i.e.,

SG&A, R&D, and interest, etc.) as well as profit. Total industry revenue for UPS manufacturers equals the MSPs at each EL for each product class multiplied by the number of shipments at that EL.

Modifying these manufacturer markups in the standards cases yields a different set of impacts on UPS manufacturers than in the no-standards case. For the MIA, DOE modeled two standards case markup scenarios to represent the uncertainty regarding the potential impacts on prices and profitability for UPS manufacturers following the implementation of new energy conservation standards. The two markup scenarios are; (1) a preservation of gross margin, or flat, markup scenario and (2) a pass through markup scenario. Each scenario leads to different manufacturer markup values, which, when applied to the inputted MPCs, result in varying revenue and cash flow impacts on UPS manufacturers.

The preservation of gross margin markup scenario assumes that the MPC for each product is marked up by a flat percentage to cover SG&A expenses, R&D expenses, interest expenses, and profit. This allows manufacturers to preserve the same gross margin percentage in the standards cases as in the no-standards case. This markup scenario represents the upper bound of the UPS industry's profitability in the standards cases because UPS manufacturers are able to fully pass on additional costs due to standards to their consumers.

To derive the preservation of gross margin markup percentages for UPSs, DOE examined the SEC 10-Ks of all publicly traded UPS manufacturers to estimate the average UPS manufacturer markup. DOE analyzed manufacturer markups for each product class separately since, based on manufacturer interviews, manufacturers frequently apply different markups to different product classes. The manufacturer markup represents the markup manufacturers apply to their MPCs to arrive at their MSPs. Based on SEC 10-Ks, DOE found the typical manufacturer markup for manufacturers that produce UPSs was 1.57.

During manufacturer interviews, DOE asked UPS manufacturers if 1.57 was an appropriate manufacturer markup to use for all UPSs. While most manufacturers agreed that 1.57 was an appropriate average manufacturer markup for all VFI, VI and VFD UPSs, these manufacturers stated that their manufacturer markup tends to vary by product class. Therefore, based on manufacturer feedback, DOE increased the manufacturer markup for VFI UPSs to 1.76 and decreased the manufacturer markup for VFD UPSs to 1.55. DOE kept the manufacturer markup for VI UPSs at 1.57 based on manufacturer feedback.

DOE included an alternative markup scenario, the pass through markup, because UPS manufacturers stated they do not expect to be able to mark up the additional cost of production in the standards cases, given the highly competitive UPS market. The pass through markup scenario assumes that UPS manufacturers are able to pass through the incremental costs of more efficient UPSs to their consumers, but without earning any additional operating profit on those higher costs. This scenario results in overall manufacturer margin compression and adverse financial impacts as UPS costs increase due to new energy conservation standards.

The pass through markup scenario represents the lower bound of industry profitability in the standards cases. This is because manufacturers are not able to markup up the additional costs necessitated by UPS energy conservation standards, as they are able to do in the preservation of gross margin markup scenario. Therefore, manufacturers earn less revenue in the pass through markup scenario than they do in the preservation of gross margin markup scenario.

DOE seeks comment on its methodology used to calculate manufacturer markups, its use of different manufacturer markups for each product class, and the specific

manufacturer markups DOE estimated for each UPS product class (see section VII.E).

3. Discussion of Comments

Interested parties commented on the assumptions and results of the July 2014 framework document. NEMA stated that if DOE sets ELs at or above the current ENERGY STAR levels for UPSs, UPS manufacturers would lose investments previously made to meet these ENERGY STAR requirements. (NEMA, No. 0015 at p. 7) DOE acknowledges that UPS energy conservation standards set at or above ENERGY STAR levels for UPSs could render some product designs obsolete. This could cause manufactures to make additional investments in product redesign and testing. DOE accounts for the one-time conversion costs that UPS manufacturers would have to make at each potential standard level as part of the MIA. Additionally, because UPS technology evolves rapidly, DOE determined that all UPSs would be redesigned in the three year time period between the publication of any UPS final rule and the compliance year of that rulemaking, so manufactures would have to redesign those products even in the no-standards case. See section V.B.2.a of this NOPR for a complete discussion of the manufacturer investments necessary to comply with the analyzed energy conservation standards.

4. Manufacturer Interviews

DOE conducted interviews with manufacturers following the publication of the July 2014 framework document in preparation for the NOPR analysis. In these interviews, DOE asked manufacturers to describe their major concerns with this UPS rulemaking. UPS manufacturers identified one key issue during these interviews, the burden of testing and certification.

UPS manufacturers stated that the costs associated with testing and certifying all of their products covered by this rulemaking could be burdensome. UPS manufacturers commented that since efficient products do not typically earn a premium in the UPS market, manufacturers do not regularly conduct efficiency testing or pursue energy-efficient certifications for the majority of their product offerings. As a result, the testing and certification required for compliance with a potential standard represents additional costs to the typical product testing conducted by UPS manufacturers. Since a potential standard would require all UPS offerings to be tested and certified, UPS manufacturers explained that this process could become expensive. The UPS test procedure NOPR (81 FR 31542) analyzes the testing and certification costs manufacturers must make to comply with the analyzed energy conservation standards.

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 CO

, NO

, SO

, and Hg. The second component estimates the impacts of potential standards on emissions of two additional greenhouse gases, CH

and N

O, as well as the reductions to emissions of all species due to “upstream” activities in the fuel production chain. These upstream activities comprise extraction, processing, and transporting fuels to the site of combustion. The associated emissions are referred to as upstream emissions.

The analysis of power sector emissions uses marginal emissions factors that were derived from data in

AEO 2015,

as described in section IV.M. Details of the methodology are described in the appendices of chapters 13 and 15 of the NOPR TSD.

Combustion emissions of CH

and N

O are estimated using emissions intensity factors published by the EPA: GHG Emissions Factors Hub.

The FFC upstream emissions are estimated based on the methodology described in chapter 15 of the NOPR TSD. The upstream emissions include both emissions from fuel combustion during extraction, processing, and transportation of fuel, and “fugitive” emissions (direct leakage to the atmosphere) of CH

and CO

Available at

www.epa.gov/climateleadership/center-corporate-climate-leadership-ghg-emission-factors-hub

The emissions intensity factors are expressed in terms of physical units per MWh or MMBtu of site energy savings. Total emissions reductions are estimated using the energy savings calculated in the national impact analysis.

For CH

and N

O, DOE calculated emissions reduction in tons and also in terms of units of carbon dioxide equivalent (CO

eq). Gases are converted to CO

eq by multiplying each ton of gas by the gas's global warming potential (GWP) over a 100-year time horizon. Based on the Fifth Assessment Report of the Intergovernmental Panel on Climate Change,

DOE used GWP values of 28 for CH

and 265 for N

Intergovernmental Panel on Climate Change. Anthropogenic and Natural Radiative Forcing. In Climate Change 2013: The Physical Science Basis. Contribution of Working Group I to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change. Chapter 8. 2013. Stocker, T.F., D. Qin, G.-K. Plattner, M. Tignor, S.K. Allen, J. Boschung, A. Nauels, Y. Xia, V. Bex, and P.M. Midgley, Editors. Cambridge University Press: Cambridge, United Kingdom and New York, NY, USA.

The

AEO

incorporates the projected impacts of existing air quality regulations on emissions.

AEO 2015

generally represents current legislation and environmental regulations, including recent government actions, for which implementing regulations were available as of October 31, 2014. DOE's estimation of impacts accounts for the presence of the emissions control programs discussed in the following paragraphs.

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 SO

for affected EGUs in the 48 contiguous States and the District of Columbia (DC). (42 U.S.C. 7651

et seq.

) SO

emissions from 28 eastern States and DC were also limited under the Clean Air Interstate Rule (CAIR). 70 FR 25162 (May 12, 2005). CAIR created an allowance-based trading program that operates along with the Title IV program. In 2008, CAIR was remanded to EPA by the U.S. Court of Appeals for the District of Columbia Circuit, but it remained in effect.

In 2011, EPA issued a replacement for CAIR, the Cross-State Air Pollution Rule (CSAPR). 76 FR 48208 (Aug. 8, 2011). On August 21, 2012, the D.C. Circuit issued a decision to vacate CSAPR,

and the court ordered EPA to continue administering CAIR. On April 29, 2014, the U.S. Supreme Court reversed the judgment of the D.C. Circuit and remanded the case for further proceedings consistent with the Supreme Court's opinion.

On October 23, 2014, the D.C. Circuit lifted the stay of CSAPR.

Pursuant to this action, CSAPR went into effect (and CAIR

ceased to be in effect) as of January 1, 2015.

See

North Carolina

EPA,

550 F.3d 1176 (D.C. Cir. 2008);

North Carolina

EPA,

531 F.3d 896 (D.C. Cir. 2008).

See

EME Homer City Generation, LP

EPA,

696 F.3d 7, 38 (D.C. Cir. 2012),

cert. granted,

81 U.S.L.W. 3567, 81 U.S.L.W. 3696, 81 U.S.L.W. 3702 (U.S. June 24, 2013) (No. 12-1182).

See EPA

EME Homer City Generation,

134 S. Ct. 1584, 1610 (U.S. 2014). The Supreme Court held in part that EPA's methodology for quantifying emissions that must be eliminated in certain States due to their impacts in other downwind States was based on a permissible, workable, and equitable interpretation of the Clean Air Act provision that provides statutory authority for CSAPR.

See Georgia

EPA,

Order

(D.C. Cir. filed October 23, 2014) (No. 11-1302).

EIA was not able to incorporate CSAPR into

AEO 2015,

so it assumes implementation of CAIR. Although DOE's analysis used emissions factors that assume that CAIR, not CSAPR, is the regulation in force, the difference between CAIR and CSAPR is not significant for the purpose of DOE's analysis of emissions impacts from energy conservation standards.

The attainment of emissions caps is typically flexible among EGUs and is enforced through the use of emissions allowances and tradable permits. Under existing EPA regulations, any excess SO

emissions allowances resulting from the lower electricity demand caused by the adoption of an efficiency standard could be used to permit offsetting increases in SO

emissions by any regulated EGU. In past rulemakings, DOE recognized that there was uncertainty about the effects of efficiency standards on SO

emissions covered by the existing cap-and-trade system, but it concluded that negligible reductions in power sector SO

emissions would occur as a result of standards.

Beginning in 2016, however, SO

emissions will fall as a result of the Mercury and Air Toxics Standards (MATS) for power plants. 77 FR 9304 (Feb. 16, 2012). In the MATS rule, EPA established a standard for hydrogen chloride as a surrogate for acid gas hazardous air pollutants (HAP), and also established a standard for SO

(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, SO

emissions will be reduced as a result of the control technologies installed on coal-fired power plants to comply with the MATS requirements for acid gas.

AEO 2015

assumes that, in order to continue operating, coal plants must have either flue gas desulfurization or dry sorbent injection systems installed by 2016. Both technologies, which are used to reduce acid gas emissions, also reduce SO

emissions. Under the MATS, emissions will be far below the cap established by CAIR, so it is unlikely that excess SO

emissions allowances resulting from the lower electricity demand would be needed or used to permit offsetting increases in SO

emissions by any regulated EGU.

Therefore, DOE believes that energy conservation standards will generally reduce SO

emissions in 2016 and beyond.

DOE notes that the Supreme Court remanded EPA's 2012 rule regarding national emission standards for hazardous air pollutants from certain electric utility steam generating units. See

Michigan

EPA

(Case No. 14-46, 2015). DOE has tentatively determined that the remand of the MATS rule does not change the assumptions regarding the impact of energy efficiency standards on SO

emissions. Further, while the remand of the MATS rule may have an impact on the overall amount of mercury emitted by power plants, it does not change the impact of the energy efficiency standards on mercury emissions. DOE will continue to monitor developments related to this case and respond to them as appropriate.

CAIR established a cap on NO

emissions in 28 eastern States and the District of Columbia.

Energy conservation standards are expected to have little effect on NO

emissions in those States covered by CAIR because excess NO

emissions allowances resulting from the lower electricity demand could be used to permit offsetting increases in NO

emissions from other facilities. However, standards would be expected to reduce NO

emissions in the States not affected by the caps, so DOE estimated NO

emissions reductions from the standards considered in this NOPR for these States.

CSAPR also applies to NO

, and it supersedes the regulation of NO

under CAIR. As stated previously, the current analysis assumes that CAIR, not CSAPR, is the regulation in force. The difference between CAIR and CSAPR with regard to DOE's analysis of NO

emissions is slight.

The MATS limit mercury emissions from power plants, but they do not include emissions caps and, as such, DOE's energy conservation standards would likely reduce Hg emissions. DOE estimated mercury emissions reduction using emissions factors based on

AEO 2015,

which incorporates the MATS.

L. Monetizing Carbon Dioxide and Other Emissions Impacts

As part of the development of this proposed rule, DOE considered the estimated monetary benefits from the reduced emissions of CO

and NO

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 forecast period for each TSL. This section summarizes the basis for the monetary values used for CO

and NO

emissions and presents the values considered in this NOPR.

1. Social Cost of Carbon

The SCC is an estimate of the monetized damages associated with an incremental increase in carbon emissions in a given year. It is intended to include (but is not limited to) climate-change-related changes in net agricultural productivity, human health, property damages from increased flood risk, and the value of ecosystem services. Estimates of the SCC are provided in dollars per metric ton of CO

. A domestic SCC value is meant to reflect the value of damages in the United States resulting from a unit change in CO

emissions, while a global SCC value is meant to reflect the value of damages worldwide.

Under section 1(b)(6) of Executive Order 12866, “Regulatory Planning and Review,” 58 FR 51735 (Oct. 4, 1993), agencies must, to the extent permitted by law, “assess both the costs and the benefits of the intended regulation and, recognizing that some costs and benefits are difficult to quantify, propose or adopt a regulation only upon a reasoned determination that the benefits of the intended regulation justify its costs.” The purpose of the SCC estimates presented here is to allow agencies to incorporate the monetized social benefits of reducing CO

emissions into cost-benefit analyses of regulatory actions. The estimates are presented with an acknowledgement of the many uncertainties involved and with a clear understanding that they should be updated over time to reflect increasing knowledge of the science and economics of climate impacts.

As part of the interagency process that developed these SCC estimates, technical experts from numerous agencies met on a regular basis to consider public comments, explore the technical literature in relevant fields, and discuss key model inputs and assumptions. The main objective of this process was to develop a range of SCC values using a defensible set of input assumptions grounded in the existing scientific and economic literatures. In this way, key uncertainties and model differences transparently and consistently inform the range of SCC estimates used in the rulemaking process.

a. Monetizing Carbon Dioxide Emissions

When attempting to assess the incremental economic impacts of CO

emissions, the analyst faces a number of challenges. A report from the National Research Council

points out that any assessment will suffer from uncertainty, speculation, and lack of information about (1) future emissions of GHGs, (2) the effects of past and future emissions on the climate system, (3) the impact of changes in climate on the physical and biological environment, and (4) the

translation of these environmental impacts into economic damages. As a result, any effort to quantify and monetize the harms associated with climate change will raise questions of science, economics, and ethics and should be viewed as provisional.

National Research Council.

Hidden Costs of Energy: Unpriced Consequences of Energy Production and Use.

2009. National Academies Press: Washington, DC.

Despite the limits of both quantification and monetization, SCC estimates can be useful in estimating the social benefits of reducing CO

emissions. The agency can estimate the benefits from reduced (or costs from increased) emissions in any future year by multiplying the change in emissions in that year by the SCC values appropriate for that year. The NPV of the benefits can then be calculated by multiplying each of these future benefits by an appropriate discount factor and summing across all affected years.

It is important to emphasize that the interagency process is committed to updating these estimates as the science and economic understanding of climate change and its impacts on society improves over time. In the meantime, the interagency group will continue to explore the issues raised by this analysis and consider public comments as part of the ongoing interagency process.

b. Development of Social Cost of Carbon Values

In 2009, an interagency process was initiated to offer a preliminary assessment of how best to quantify the benefits from reducing carbon dioxide emissions. To ensure consistency in how benefits are evaluated across Federal agencies, the Administration sought to develop a transparent and defensible method, specifically designed for the rulemaking process, to quantify avoided climate change damages from reduced CO

emissions. The interagency group did not undertake any original analysis. Instead, it combined SCC estimates from the existing literature to use as interim values until a more comprehensive analysis could be conducted. The outcome of the preliminary assessment by the interagency group was a set of five interim values: Global SCC estimates for 2007 (in 2006$) of $55, $33, $19, $10, and $5 per metric ton of CO

. These interim values represented the first sustained interagency effort within the U.S. government to develop an SCC for use in regulatory analysis. The results of this preliminary effort were presented in several proposed and final rules.

c. Current Approach and Key Assumptions

After the release of the interim values, the interagency group reconvened on a regular basis to generate improved SCC estimates. Specially, the group considered public comments and further explored the technical literature in relevant fields. The interagency group relied on three integrated assessment models commonly used to estimate the SCC: The FUND, DICE, and PAGE models. These models are frequently cited in the peer-reviewed literature and were used in the last assessment of the Intergovernmental Panel on Climate Change (IPCC). Each model was given equal weight in the SCC values that were developed.

Each model takes a slightly different approach to model how changes in emissions result in changes in economic damages. A key objective of the interagency process was to enable a consistent exploration of the three models, while respecting the different approaches to quantifying damages taken by the key modelers in the field. An extensive review of the literature was conducted to select three sets of input parameters for these models: Climate sensitivity, socio-economic and emissions trajectories, and discount rates. A probability distribution for climate sensitivity was specified as an input into all three models. In addition, the interagency group used a range of scenarios for the socio-economic parameters and a range of values for the discount rate. All other model features were left unchanged, relying on the model developers' best estimates and judgments.

In 2010, the interagency group selected four sets of SCC values for use in regulatory analyses. Three sets of values are based on the average SCC from the three integrated assessment models, at discount rates of 2.5, 3, and 5 percent. The fourth set, which represents the 95th percentile SCC estimate across all three models at a 3-percent discount rate, was included to represent higher-than-expected impacts from climate change further out in the tails of the SCC distribution. The values grow in real terms over time. Additionally, the interagency group determined that a range of values from 7 percent to 23 percent should be used to adjust the global SCC to calculate domestic effects,

although preference is given to consideration of the global benefits of reducing CO

emissions. Table IV.5 presents the values in the 2010 interagency group report,

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