Energy Conservation Program: Energy Conservation Standards for Room Air Conditioners
Federal RegisterApr 7, 2022
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DEPARTMENT OF ENERGY
10 CFR Parts 429 and 430
[EERE-2014-BT-STD-0059]
RIN 1904-AD97
Energy Conservation Program: Energy Conservation Standards for Room Air Conditioners
AGENCY:
Office of Energy Efficiency and Renewable Energy, Department of Energy.
ACTION:
Notice of proposed rulemaking and announcement of a webinar.
SUMMARY:
The Energy Policy and Conservation Act, as amended (“EPCA”), prescribes energy conservation standards for various consumer products and certain commercial and industrial equipment, including room air conditioners. EPCA also requires the U.S. Department of Energy (“DOE”) to periodically determine whether more-stringent standards would be technologically feasible and economically justified, and would result in significant energy savings. In this notice of proposed rulemaking (“NOPR”), DOE proposes amended energy conservation standards for room air conditioners, and also announces a webinar to receive comment on these proposed standards and associated analyses and results.
DATES:
DOE will hold a webinar on Tuesday, May 3, 2022, from 12:30 p.m. to 4:30 p.m. See section VIII, “Public Participation,” for webinar registration information, participant instructions, and information about the capabilities available to webinar participants.
Comments:
DOE will accept comments, data, and information regarding this NOPR no later than June 6, 2022.
Comments regarding the likely competitive impact of the proposed standard should be sent to the Department of Justice contact listed in the
ADDRESSES
section on or before May 9, 2022.
ADDRESSES:
Interested persons are encouraged to submit comments using the Federal eRulemaking Portal at
www.regulations.gov.
Follow the instructions for submitting comments. Alternatively, interested persons may submit comments, identified by docket number EERE-2014-BT-STD-0059, by any of the following methods:
(1)
Federal eRulemaking Portal: www.regulations.gov.
Follow the instructions for submitting comments.
(2)
Email: RoomAC2014STD0059@ee.doe.gov.
Include the docket number EERE-2014-BT-STD-0059 in the subject line of the message.
No telefacsimilies (“faxes”) will be accepted. For detailed instructions on submitting comments and additional information on this process, see section IV of this document.
Although DOE has routinely accepted public comment submissions through a variety of mechanisms, including postal mail and hand delivery/courier, the Department has found it necessary to make temporary modifications to the comment submission process in light of the ongoing Covid-19 pandemic. DOE is currently suspending receipt of public comments via postal mail and hand delivery/courier. If a commenter finds that this change poses an undue hardship, please contact Appliance Standards Program staff at (202) 586-1445 to discuss the need for alternative arrangements. Once the COVID-19 pandemic health emergency is resolved, DOE anticipates resuming all of its regular options for public comment submission, including postal mail and hand delivery/courier.
Docket:
The docket for this activity, which includes
Federal Register
notices, comments, and other supporting documents/materials, is available for review at
www.regulations.gov.
All documents in the docket are listed in the
www.regulations.gov
index. However, not all documents listed in the index may be publicly available, such as information that is exempt from public disclosure.
The docket web page can be found at
www.regulations.gov/docket?D=EERE-2014-BT-STD-0059.
The docket web page contains instructions on how to access all documents, including public comments, in the docket. See section VIII of this document for information on how to submit comments through
www.regulations.gov.
Written comments regarding the burden-hour estimates or other aspects of the collection-of-information requirements contained in this proposed rule may be submitted to Office of Energy Efficiency and Renewable Energy following the instructions at
RegInfo.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
on or before the date specified in the
DATES
section. Please indicate in the “Subject” line of your email the title and
Docket
number of this proposed rulemaking.
FOR FURTHER INFORMATION CONTACT:
Mr. Bryan Berringer, 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) 586-0371. Email:
ApplianceStandardsQuestions@ee.doe.gov.
Ms. Sarah Butler, U.S. Department of Energy, Office of the General Counsel, GC-33, 1000 Independence Avenue SW, Washington, DC 20585-0121. Telephone: (202) 586-1777. Email:
Sarah.Butler@hq.doe.gov.
For further information on how to submit a comment, review other public comments and the docket, or participate in the webinar, contact the Appliance and Equipment Standards Program staff at (202) 287-1445 or by email:
ApplianceStandardsQuestions@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 Room ACs
C. Deviation From Appendix A
III. General Discussion
A. Product Classes and Scope of Coverage
B. Test Procedure
C. Technological Feasibility
1. General
2. Maximum Technologically Feasible Levels
D. Energy Savings
1. Significance of Savings
E. Economic Justification
1. Specific Criteria
a. Economic Impact on Manufacturers and Consumers
b. Savings in Operating Costs Compared To Increase in Price (LCC and PBP)
c. Energy Savings
d. Lessening of Utility or Performance of Products
e. Impact of Any Lessening of Competition
f. Need for National Energy Conservation
g. Other Factors
2. Rebuttable Presumption
IV. Methodology and Discussion of Related Comments
A. Market and Technology Assessment
1. Scope of Coverage and Product Classes
2. Technology Options
a. Reduced Evaporator Air Recirculation
b. Compressors
c. Significant New Alternatives Policy (SNAP)-Approved Refrigerants
B. Screening Analysis
1. Screened-Out Technologies
2. Remaining Technologies
C. Engineering Analysis
1. Efficiency Analysis
a. Baseline Efficiency
b. Higher Efficiency Levels
2. Cost Analysis
3. Cost-Efficiency Results
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
a. Rebound Effect
4. Energy Prices
5. Maintenance and Repair Costs
6. Product Lifetime
7. Discount Rates
8. Energy Efficiency Distribution in the No-New-Standards Case
9. Payback Period Analysis
G. Shipments Analysis
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. Government Regulatory Impact Model and Key Inputs
a. Manufacturer Production Costs
b. Shipments Projections
c. Product and Capital Conversion Costs
d. Manufacturer Markup Scenarios
3. Manufacturer Interviews
4. Discussion of MIA Comments
K. Emissions Analysis
1. Air Quality Regulations Incorporated in DOE's Analysis
L. Monetizing Emissions Impacts
1. Monetization of Greenhouse Gas Emissions
a. Social Cost of Carbon
b. Social Cost of Methane and Nitrous Oxide
2. Monetization of Other Air Pollutants
M. Utility Impact Analysis
N. Employment Impact Analysis
V. Analytical Results and Conclusions
A. Trial Standard Levels
B. Economic Justification and Energy Savings
1. Economic Impacts on Individual Consumers
a. Life-Cycle Cost and Payback Period
b. Consumer Subgroup Analysis
c. Rebuttable Presumption Payback
2. Economic Impacts on Manufacturers
a. Industry Cash Flow Analysis Results
b. Direct Impacts on Employment
c. Impacts on Manufacturing Capacity
d. Impacts on Subgroups of Manufacturers
e. Cumulative Regulatory Burden
3. National Impact Analysis
a. Significance of Energy Savings
b. Net Present Value of Consumer Costs and Benefits
c. Indirect Impacts on Employment
4. Impact on Utility or Performance of Products
5. Impact of Any Lessening of Competition
6. Need of the Nation To Conserve Energy
7. Other Factors
8. Summary of National Economic Impacts
C. Conclusion
1. Benefits and Burdens of TSLs Considered for Room AC Standards
2. Annualized Benefits and Costs of the Proposed Standards
VI. Cooling Capacity Verification
VII. Procedural Issues and Regulatory Review
A. Review Under Executive Orders 12866 and 13563
B. Review Under the Regulatory Flexibility Act
C. Review Under the Paperwork Reduction Act
D. Review Under the National Environmental Policy Act of 1969
E. Review Under Executive Order 13132
F. Review Under Executive Order 12988
G. Review Under the Unfunded Mandates Reform Act of 1995
H. Review Under the Treasury and General Government Appropriations Act, 1999
I. Review Under Executive Order 12630
J. Review Under the Treasury and General Government Appropriations Act, 2001
K. Review Under Executive Order 13211
L. Information Quality
VIII. Public Participation
A. Attendance at the Webinar
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
IX. Approval of the Office of the Secretary
I. Synopsis of the Proposed Rule
Title III, Part B
1
of EPCA,
2
established the Energy Conservation Program for Consumer Products Other Than Automobiles. (42 U.S.C. 6291-6309) These products include room air conditioners (“room ACs”), the subject of this proposed rulemaking.
1
For editorial reasons, upon codification in the U.S. Code, Part B was redesignated Part A.
2
All references to EPCA in this document refer to the statute as amended through the Infrastructure Investment and Jobs Act, Public Law 117-58 (Nov. 15, 2021).
Pursuant to EPCA, any new or amended energy conservation standard must be designed to achieve the maximum improvement in energy efficiency that DOE determines is technologically feasible and economically justified. (42 U.S.C. 6295(o)(2)(A)) Furthermore, the new or amended standard must result in 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))
In accordance with these and other statutory provisions discussed in this document, DOE proposes amended energy conservation standards for room ACs. The proposed standards, which are expressed in the amount of cooling provided per amount of energy consumed, measured in British thermal units per watt-hour (Btu/Wh) are shown in Table I.1. These proposed standards, if adopted, would apply to all room ACs listed in Table I.1 manufactured in, or imported into, the United States starting on the date 3 years after the publication of the final rule for this proposed rulemaking.
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A. Benefits and Costs to Consumers
Table I.2 presents DOE's evaluation of the economic impacts of the proposed standards on consumers of room ACs, as measured by the average life-cycle cost (“LCC”) savings and the simple payback period (“PBP”).
3
The average LCC savings are positive for all product classes, and the PBP is less than the average lifetime of a room AC, which is estimated to be 9 years (see section IV.F.6 of this document).
3
The average LCC savings refer to consumers that are affected by a standard and are measured relative to the efficiency distribution in the no-new-standards case, which depicts the market in the compliance year in the absence of new or amended standards (see section IV.F.8 of this document). The simple PBP, which is designed to compare specific efficiency levels, is measured relative to the baseline product (see section IV.F.9 of this document).
EP07AP22.012
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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 base year through the end of the analysis period (2021-2055). Using a real discount rate of 7.2 percent, DOE estimates that the INPV for manufacturers of room ACs in the case without amended standards is $1.08 billion in 2020$. Under the proposed standards, the change in INPV is estimated to range from −6.0 percent to 7.8 percent, which is approximately −$64.5 million to $84.1 million. In order to bring products into compliance with amended standards, DOE estimated that the industry would incur total conversion costs of $22.8 million.
DOE's analysis of the impacts of the proposed standards on manufacturers is described in section IV.J of this document. The analytic results of the manufacturer impact analysis (“MIA”) are presented in section V.B.2 of this document.
C. National Benefits and Costs
4
4
All monetary values in this document are expressed in 2020 dollars.
DOE's analyses indicate that the proposed energy conservation standards for room ACs would save a significant amount of energy. Relative to the case without amended standards, the lifetime energy savings for room ACs purchased in the 30-year period that begins in the anticipated year of compliance with the amended standards (2026-2055) amount to 1.40 quadrillion British thermal units (“Btu”), or quads.
5
This represents a savings of 12 percent relative to the energy use of these products in the case without amended standards (referred to as the “no-new-standards case”).
5
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 of this document.
The cumulative net present value (“NPV”) of total consumer benefits of the proposed standards for room ACs are $4.83 billion (at a 7-percent discount rate) and $10.56 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 room ACs purchased in 2026-2055.
In addition, the proposed standards for room ACs 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 49.5 million metric tons (“Mt”)
6
of carbon dioxide (“CO
2
”), 19.1 thousand tons of sulfur dioxide (“SO
2
”), 69.4 thousand tons of nitrogen oxides (“NO
X
”), 339.3 thousand tons of methane (“CH
4
”), 0.5 thousand tons of nitrous oxide (“N
2
O”), and 0.1 tons of mercury (“Hg”).
7
6
A metric ton is equivalent to 1.1 short tons. Results for emissions other than CO
2
are presented in short tons.
7
DOE calculated emissions reductions relative to the no-new-standards case, which reflects key assumptions in the
Annual Energy Outlook 2021
(“
AEO 2021”
).
AEO 2021
represents current Federal and State legislation and final implementation of regulations as of the time of its preparation. See section IV.K of this document for further discussion of
AEO 2021
assumptions that effect air pollutant emissions.
DOE estimates the value of climate benefits from a reduction in greenhouse gases using four different estimates of the social cost of CO
2
(“SC-CO
2
”), the social cost of methane (“SC-CH
4
”), and the social cost of nitrous oxide (“SC-N
2
O”). Together these represent the
social cost of greenhouse gases (“SC-GHG”). DOE used interim SC-GHG values developed by an Interagency Working Group on the Social Cost of Greenhouse Gases (“IWG”).
8
The derivation of these values is discussed in section IV.L of this document. For presentational purposes, the climate benefits associated with the average SC-GHG at a 3-percent discount rate is $2.39 billion. DOE does not have a single central SC-GHG point estimate and it emphasizes the importance and value of considering the benefits calculated using all four SC-GHG estimates.
8
See
Interagency Working Group on Social Cost of Greenhouse Gases,
Technical Support Document: Social Cost of Carbon, Methane, and Nitrous Oxide. Interim Estimates Under Executive Order 13990,
Washington, DC, February 2021,
available at www.whitehouse.gov/wp-content/uploads/2021/02/TechnicalSupportDocument_SocialCostofCarbonMethaneNitrousOxide.pdf?source=email
.
DOE also estimates health benefits from SO
2
and NO
X
emissions reductions.
9
DOE estimates the present value of the health benefits would be $1.82 billion using a 7-percent discount rate, and $4.14 billion using a 3-percent discount rate.
10
DOE is currently only monetizing (for SO
2
and NO
X
) PM
2.5
precursor health benefits and (for NO
X
) ozone precursor health benefits, but will continue to assess the ability to monetize other effects such as health benefits from reductions in direct PM
2.5
emissions.
11
9
DOE estimated the monetized value of NO
X
and SO
2
emissions reductions associated with electricity savings using benefit per ton estimates from the scientific literature. See section IV.L.2 of this document for further discussion.
10
DOE estimates the economic value of these emissions reductions resulting from the considered TSLs for the purpose of complying with the requirements of Executive Order 12866.
11
On March 16, 2022, the Fifth Circuit Court of Appeals (No. 22-30087) granted the federal government's emergency motion for stay pending appeal of the February 11, 2022, preliminary injunction issued in
Louisiana
v.
Biden,
No. 21-cv-1074-JDC-KK (W.D. La.). As a result of the Fifth Circuit's order, the preliminary injunction is no longer in effect, pending resolution of the federal government's appeal of that injunction or a further court order. Among other things, the preliminary injunction enjoined the defendants in that case from “adopting, employing, treating as binding, or relying upon” the interim estimates of the social cost of greenhouse gases—which were issued by the Interagency Working Group on the Social Cost of Greenhouse Gases on February 26, 2021—to monetize the benefits of reducing greenhouse gas emissions. In the absence of further intervening court orders, DOE will revert to its approach prior to the injunction and present monetized benefits where appropriate and permissible under law.
Table I.3 summarizes the economic benefits and costs expected to result from the proposed standards for room ACs. In the table, total benefits for both the 3-percent and 7-percent cases are presented using the average GHG social costs with 3-percent discount rate. DOE does not have a single central SC-GHG point estimate and it emphasizes the importance and value of considering the benefits calculated using all four SC-GHG estimates. The estimated total net benefits using each of the four SC-GHG estimates are presented in section V.B.8 of this document.
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The benefits and costs of the proposed standards, for room ACs sold in 2026-2055, can also be expressed in terms of annualized values. The monetary values for the total annualized net benefits are (1) the reduced consumer operating costs, minus (2) the increase in product purchase prices and installation costs, plus (3) the value of the benefits of GHG, NO
X,
and SO
2
emission reductions, all annualized.
12
12
To convert the time-series of costs and benefits into annualized values, DOE calculated a present value in 2021, the year used for discounting the NPV of total consumer costs and savings. For the benefits, DOE calculated a present value associated with each year's shipments in the year in which the shipments occur (
e.g.,
2030), and then discounted the present value from each year to 2021. The calculation uses discount rates of 3 and 7 percent for all costs and benefits. Using the present value, DOE then calculated the fixed annual payment over a 30-year period, starting in the compliance year, that yields the same present value.
The national operating savings are domestic private U.S. consumer monetary savings that occur as a result of purchasing the covered products and are measured for the lifetime of room ACs shipped in 2026-2055. The climate benefits associated with reduced GHG emissions achieved as a result of the proposed standards are also calculated based on the lifetime of room ACs shipped in 2026-2055.
Estimates of annualized benefits and costs of the proposed standards are shown in Table I.4 of this document. The results under the primary estimate are as follows.
Using a 7-percent discount rate for consumer benefits and costs and health benefits from reduced SO
2
and NO
X
emissions, and the 3-percent discount rate case for climate benefits from reduced GHG emissions, the estimated cost of the standards proposed in this rule is $216.9 million per year in increased equipment costs, while the estimated annual benefits are $727.5 million in reduced equipment operating costs, $137.5 million in climate benefits, $192.1 million in health benefits. In this case, the net benefit would amount to $840.2 million per year.
Using a 3-percent discount rate for all benefits and costs, the estimated cost of the proposed standards is $190.1 million per year in increased equipment costs, while the estimated annual benefits are $796.7 million in reduced operating costs, $137.5 million in climate benefits, and $237.9 million in health benefits. In this case, the net benefit would amount to $982.0 million per year.
EP07AP22.014
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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. Based on the analyses described previously, 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 document and related information collected and analyzed during the course of this rulemaking effort, DOE may adopt energy efficiency levels presented in this document that are either higher or lower than the proposed standards, or some combination of level(s) that incorporate the proposed standards in part.
II. Introduction
The following section briefly discusses the statutory authority underlying this proposed rule, as well as some of the relevant historical background related to the establishment of standards for room ACs.
A. Authority
EPCA authorizes DOE to regulate the energy efficiency of a number of consumer products and certain industrial equipment. Title III, Part B of EPCA established the Energy Conservation Program for Consumer Products Other Than Automobiles. These products include room ACs, the subject of this document. (42 U.S.C. 6292(a)(2)) EPCA prescribed energy conservation standards for these products (42 U.S.C. 6295(c)(1)), and directs DOE to conduct future rulemakings to determine whether to amend these standards. (42 U.S.C. 6295(c)(2)) EPCA further provides that, not later than 6 years after the issuance of any final rule establishing or amending a standard, DOE must publish either a notice of determination that standards for the product do not need to be amended, or a NOPR including new proposed energy conservation standards (proceeding to a final rule, as appropriate). (42 U.S.C. 6295(m)(1))
The energy conservation program under EPCA consists essentially of four parts: (1) Testing, (2) labeling, (3) the establishment of Federal energy conservation standards, and (4) certification and enforcement procedures. Relevant provisions of EPCA specifically include definitions (42 U.S.C. 6291), test procedures (42 U.S.C. 6293), labeling provisions (42 U.S.C. 6294), energy conservation standards (42 U.S.C. 6295), and the authority to require information and reports from manufacturers (42 U.S.C. 6296).
Federal energy efficiency requirements for covered products established under EPCA generally supersede State laws and regulations concerning energy conservation testing, labeling, and standards. (42 U.S.C. 6297(a)-(c)) DOE may, however, grant waivers of Federal preemption for particular State laws or regulations, in accordance with the procedures and other provisions set forth under EPCA. (
See
42 U.S.C. 6297(d))
Subject to certain criteria and conditions, DOE is required to develop test procedures to measure the energy efficiency, energy use, or estimated annual operating cost of each covered product. (42 U.S.C. 6295(o)(3)(A) and 42 U.S.C. 6295(r)) Manufacturers of covered products must use the prescribed DOE test procedure as the basis for certifying to DOE that their 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 42 U.S.C. 6295(s)) Similarly, DOE must use these test procedures to determine whether the products comply with standards adopted pursuant to EPCA. (42 U.S.C. 6295(s)) The DOE test procedures for room ACs appear at title 10 of the Code of Federal Regulations (“CFR”) part 430, subpart B, appendix F.
DOE must follow specific statutory criteria for prescribing new or amended standards for covered products, including room ACs. Any new or amended standard for a covered product must be designed to achieve the maximum improvement in energy efficiency that the Secretary of Energy (“Secretary”) determines is technologically feasible and economically justified. (42 U.S.C. 6295(o)(2)(A) Furthermore, DOE may not adopt any standard that would not result in the significant conservation of energy. (42 U.S.C. 6295(o)(3))
Moreover, DOE may not prescribe a standard: (1) For certain products, including room ACs, if no test procedure has been established for the product, or (2) if DOE determines by rule that the standard is not technologically feasible or economically justified. (42 U.S.C. 6295(o)(3)(A)-(B)) In deciding whether a proposed standard is economically justified, DOE must determine whether the benefits of the standard exceed its burdens. (42 U.S.C. 6295(o)(2)(B)(i)) DOE must make this determination after receiving comments on the proposed standard, and by considering, to the greatest extent practicable, the following seven statutory factors:
(1) The economic impact of the standard on manufacturers and consumers of the products subject to the standard;
(2) The savings in operating costs throughout the estimated average life of the covered products in the type (or class) compared to any increase in the price, initial charges, or maintenance expenses for the covered products that are likely to result from the standard;
(3) The total projected amount of energy (or as applicable, water) savings likely to result directly from the standard;
(4) Any lessening of the utility or the performance of the covered products likely to result from the standard;
(5) The impact of any lessening of competition, as determined in writing by the Attorney General, that is likely to result from the standard;
(6) The need for national energy and water conservation; and
(7) Other factors the Secretary considers relevant.
(42 U.S.C. 6295(o)(2)(B)(i)(I)-(VII))
Further, EPCA establishes a rebuttable presumption that a standard is economically justified if the Secretary finds that the additional cost to the consumer of purchasing a product complying with an energy conservation standard level will be less than three times the value of the energy savings during the first year that the consumer will receive as a result of the standard, as calculated under the applicable test procedure. (42 U.S.C. 6295(o)(2)(B)(iii))
EPCA also contains what is known as an “anti-backsliding” provision, which prevents the Secretary from prescribing any amended standard that either increases the maximum allowable energy use or decreases the minimum required energy efficiency of a covered product. (42 U.S.C. 6295(o)(1)) Also, the Secretary may not prescribe an amended or new standard if 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))
Finally, pursuant to the amendments contained in the Energy Independence and Security Act of 2007 (“EISA 2007”), Public Law 110-140, any final rule for new or amended energy conservation standards promulgated after July 1, 2010, is required to address standby mode and off mode energy use. (42 U.S.C. 6295(gg)(3)) Specifically, when DOE adopts a standard for a covered product after that date, it must, if justified by the criteria for adoption of standards under EPCA (42 U.S.C. 6295(o)), incorporate standby mode and off mode energy use into a single standard, or, if that is not feasible, adopt a separate standard for such energy use for that product. (42 U.S.C. 6295(gg)(3)(A)-(B)) DOE's current test procedures for room ACs address standby mode and off mode energy use. In this rulemaking, DOE intends to incorporate such energy use into any amended energy conservation standards that it may adopt.
B. Background
1. Current Standards
In a direct final rule published on April 21, 2011 (“April 2011 Direct Final Rule”), DOE prescribed the current energy conservation standards for room ACs. 76 FR 22454. These standards are set forth in DOE's regulations at 10 CFR 430.32(b) and are repeated in Table II.1 where CEER stands for “Combined Energy Efficiency Rating.”
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2. History of Standards Rulemaking for Room ACs
EPCA prescribed initial energy conservation standards for room ACs and further directed DOE to conduct two cycles of rulemakings to determine whether to amend these standards. (42 U.S.C. 6295(c)(1)-(2)) DOE completed the first of these rulemaking cycles on September 24, 1997, by adopting amended performance standards for room ACs manufactured on or after October 1, 2000. 62 FR 50122. Additionally, DOE completed a second rulemaking cycle to amend the standards for room ACs by issuing the April 2011 Direct Final Rule, in which DOE prescribed the current energy conservation standards for room ACs manufactured on or after April 21, 2014. 76 FR 22454 (April 21, 2011). DOE subsequently published a final rule amending the compliance date for the
current room AC standards to June 1, 2014. 76 FR 52852 (Aug. 24, 2011). In a separate notice, also published on August 24, 2011, DOE confirmed the adoption of these energy conservation standards in a notice of effective date and compliance dates for the April 2011 Direct Final Rule. 76 FR 52854.
As part of the current analysis, on June 18, 2015, DOE prepared a Request for Information (“June 2015 RFI”), which solicited information from the public to help DOE determine whether amended standards for room ACs would result in a significant amount of additional energy savings and whether those standards would be technologically feasible and economically justified.
13
80 FR 34843.
13
Pursuant to amendments to appendix A to 10 CFR part 430, subpart C (“Appendix A”) DOE generally will issue an early assessment request for information announcing that DOE is considering initiating a rulemaking proceeding. Section 6(a)(1) of Appendix A;
see also
85 FR 8626, 8637 (Feb. 14, 2020) and 86 FR 70892 (December 13, 2021). Section 6(a)(2) of Appendix A provides that if the DOE determines it is appropriate to proceed with a rulemaking, the preliminary stages of a rulemaking to issue or amend an energy conservation standard that DOE will undertake will be a Framework Document and Preliminary Analysis, or an Advance Notice of Proposed Rulemaking. Because this proposed rulemaking was already in progress at the time the relevant amendments to the Process Rule were published, DOE did not reinitiate the entire rulemaking process. Additionally, the June 2015 RFI presented the issues, analyses, and processes relevant to consideration of amended standards for room ACs.
Comments received following the publication of the June 2015 RFI helped DOE identify and resolve issues related to the subsequent preliminary analysis.
14
DOE published a notice of public meeting and availability of the preliminary technical support document (“TSD”) on June 17, 2020 (“June 2020 Preliminary Analysis”). 85 FR 36512.
14
Comments are available at
www.regulations.gov/document/EERE-2014-BT-STD-0059-0001/comment
.
DOE subsequently held a public meeting on August 5, 2020, to discuss and receive comments on the preliminary TSD. The preliminary TSD that presented the methodology and results of the preliminary analysis is available at:
www.regulations.gov/document/EERE-2014-BT-STD-0059-0013.
DOE received comments in response to the June 2020 Preliminary Analysis from the interested parties listed in Table II.2.
EP07AP22.016
A parenthetical reference at the end of a comment quotation or paraphrase provides the location of the item in the public record.
15
15
The parenthetical reference provides a reference for information located in the docket of DOE's rulemaking to develop energy conservation standards for room ACs. (Docket No. EERE-2014-BT-STD-0059, which is maintained at
www.regulations.gov/docket?D=EERE-2014-BT-STD-0059).
The references are arranged as follows: (commenter name, comment docket ID number, page of that document).
C. Deviation From Appendix A
In accordance with section 3(a) of 10 CFR part 430, subpart C, appendix A (“appendix A”), DOE notes that it is deviating from the provision in appendix A regarding the pre-NOPR stages for an energy conservation standards rulemaking. Section 6(d)(2) of appendix A specifies that the length of the public comment period for a NOPR will vary depending upon the circumstances of the particular rulemaking, but will not be less than 75 calendar days. For this NOPR, DOE has opted to instead provide a 60-day comment period. As stated, DOE requested comment in the June 2015 RFI on the technical and economic analyses and provided stakeholders a 76-day comment period. 80 FR 34843, 80 FR 44301. Additionally, DOE provided a 74-day comment period for the June 2020 preliminary analysis. 85 FR 36512, 85 FR 52280. DOE has relied on many of the same analytical assumptions and approaches as used in the preliminary assessment and has determined that a 60-day comment period, in conjunction
with the prior comment periods, provides sufficient time for interested parties to review the proposed rule and develop comments.
III. General Discussion
DOE developed this proposal after considering oral 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. Product Classes and Scope of Coverage
When evaluating and establishing energy conservation standards, DOE divides covered products into product classes by the type of energy used or by capacity or other performance-related features that justify differing standards. In making a determination whether a performance-related feature justifies a different standard, DOE must consider such factors as the utility of the feature to the consumer and other factors DOE determines are appropriate. (42 U.S.C. 6295(q)) DOE's preliminary analysis indicated that the current room AC product classes are still appropriate.
B. Test Procedure
EPCA sets forth generally applicable criteria and procedures for DOE's adoption and amendment of test procedures. (42 U.S.C. 6293) Manufacturers of covered products must use these test procedures to certify to DOE that their product complies with energy conservation standards and to quantify the efficiency of their product. In addition, consistent with section 8(d)(1)(i) of appendix A, DOE will finalize amended test procedures that impact measured energy use or efficiency at least 180 days prior to the close of the comment period for a NOPR proposing new or amended energy conservation standards. DOE published a test procedure final rule on March 29, 2021, retaining the CEER metric used to express DOE's current energy conservation standards for room ACs in Btu/Wh. 86 FR 16446. DOE's test procedures for room ACs appear at appendix F to 10 CFR part 430, subpart B.
C. Technological Feasibility
1. General
In each energy conservation standards rulemaking, DOE conducts a screening analysis based on information gathered on all current technology options and prototype designs that could improve the efficiency of the products or equipment that are the subject of the rulemaking. As the first step in such an analysis, DOE develops a list of technology options for consideration in consultation with manufacturers, design engineers, and other interested parties. DOE then determines which of those means for improving efficiency are technologically feasible. DOE considers technologies incorporated in commercially-available products or in working prototypes to be technologically feasible. Sections 6(b)(3)(i) and 7(b)(1) of appendix A.
After DOE has determined that particular technology options are technologically feasible, it further evaluates each technology option in light of the following additional screening criteria: (1) Practicability to manufacture, install, and service; (2) adverse impacts on product utility or availability; (3) adverse impacts on health or safety, and (4) unique-pathway proprietary technologies. Sections 6(b)(3)(ii)-(v) and 7(b)(2)-(5) of appendix A. Section IV.B of this document discusses the results of the screening analysis for room ACs, particularly the designs DOE considered, those it screened out, and those that are the basis for the standards considered in this proposed rulemaking. For further details on the screening analysis for this proposed rulemaking, see chapter 4 of the NOPR 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 room ACs, 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 proposed rulemaking are described in section IV.C.1 of this document and in chapter 5 of the NOPR TSD.
D. Energy Savings
For each trial standard level (“TSL”), DOE projected energy savings from application of the TSL to room ACs purchased in the 30-year period that begins in the year of compliance with the proposed standards (2026-2055).
16
The savings are measured over the entire lifetime of a room AC purchased in the previous 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-new-standards case. The no-new-standards case represents a projection of energy consumption that reflects how the market for a product would likely evolve in the absence of amended energy conservation standards.
16
Each TSL is composed of specific efficiency levels for each product class. The TSLs considered for this NOPR are described in section V.A of this document. 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 room ACs. The NIA spreadsheet model (described in section IV.H of this document) calculates energy savings in terms of site energy, which is the energy directly consumed by products at the locations where they are used. For electricity, DOE reports national energy savings in terms of primary energy savings, which is the savings in the energy that is used to generate and transmit the site electricity. DOE also calculates NES in terms of full-fuel cycle (“FFC”) energy savings. The FFC metric includes the energy consumed in extracting, processing, and transporting primary fuels (
i.e.,
coal, natural gas, petroleum fuels), and thus presents a more complete picture of the impacts of energy conservation standards.
17
DOE's approach is based on the calculation of an FFC multiplier for each of the energy types used by covered products or equipment. For more information on FFC energy savings, see section IV.H.2 of this document.
17
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).
1. 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 EPCA, the U.S. Court of Appeals, for the District of Columbia Circuit in
Natural Resources Defense Council
v.
Herrington,
768 F.2d 1355, 1373 (D.C. Cir. 1985), opined that Congress intended “significant” energy savings in the context of EPCA to be savings that were not “genuinely trivial.”
The significance of energy savings offered by a new or amended energy conservation standard cannot be determined without knowledge of the specific circumstances surrounding a
given rulemaking.
18
For example, the United States recently rejoined the Paris Agreement and will exert leadership in confronting the climate crisis. These actions have placed an increased emphasis on the importance of energy savings that reduce greenhouse gas emissions and help mitigate the climate crisis. Additionally, some covered products and equipment, particularly those providing space cooling, such as room ACs, are likely to consume significant energy during periods of peak energy demand. The impacts of these products on the energy infrastructure can be more pronounced than products with relatively constant demand. Lastly, in evaluating the significance of energy savings, DOE considers differences in primary energy and FFC effects for different covered products and equipment when determining whether energy savings are significant. Primary energy and FFC effects include the energy consumed in electricity production (depending on load shape), in distribution and transmission, and in extracting, processing, and transporting primary fuels (
i.e.,
coal, natural gas, petroleum fuels), and thus present a more complete picture of the impacts of energy conservation standards.
18
The numeric threshold for determining the significance of energy savings established in a final rule published on February 14, 2020 (85 FR 8626, 8670), was subsequently eliminated in a final rule published on December 13, 2021 (86 FR 70892).
Accordingly, DOE is evaluating the significance of energy savings on a case-by-case basis. DOE has initially determined the energy savings for the TSL proposed in this rulemaking are nontrivial, and, therefore, DOE considers them “significant” within the meaning of 42 U.S.C. 6295(o)(3)(B).
E. Economic Justification
1. Specific Criteria
As noted previously, EPCA provides seven factors to be evaluated in determining whether a potential energy conservation standard is economically justified. (42 U.S.C. 6295(o)(2)(B)(i)(I)-(VII)) The following sections discuss how DOE has addressed each of those seven factors in this proposed rulemaking.
a. Economic Impact on Manufacturers and Consumers
In determining the impacts of a potential amended standard on manufacturers, DOE conducts an MIA, as discussed in section IV.J of this document. DOE first uses an annual cash-flow approach to determine the quantitative impacts. This step includes both a short-term assessment—based on the cost and capital requirements during the period between when a regulation is issued and when entities must comply with the regulation—and a long-term assessment over a 30-year period. The industry-wide impacts analyzed include (1) INPV, which values the industry on the basis of expected future cash flows, (2) cash flows by year, (3) changes in revenue and income, and (4) other measures of impact, as appropriate. Second, DOE analyzes and reports the impacts on different types of manufacturers, including impacts on small manufacturers. Third, DOE considers the impact of standards on domestic manufacturer employment and manufacturing capacity, as well as the potential for standards to result in plant closures and loss of capital investment. Finally, DOE takes into account cumulative impacts of various DOE regulations and other product-specific regulatory requirements on manufacturers.
For individual consumers, measures of economic impact include the changes in LCC and PBP associated with new or amended standards. These measures are discussed further in the following section. For consumers in the aggregate, DOE also calculates the national net present value of the consumer costs and benefits expected to result from particular standards. DOE also evaluates the impacts of potential standards on identifiable subgroups of consumers that may be affected disproportionately by a standard.
b. Savings in Operating Costs Compared to Increase in Price (LCC and PBP)
EPCA requires DOE to consider the savings in operating costs throughout the estimated average life of the covered product in the type (or class) compared to any increase in the price of, or in the initial charges for, or maintenance expenses of, the covered product that are likely to result from a standard. (42 U.S.C. 6295(o)(2)(B)(i)(II)) DOE conducts this comparison in its LCC and PBP analysis.
The LCC is the sum of the purchase price of a product (including its installation) and the operating 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 or amended standards. The LCC savings for the considered efficiency levels are calculated relative to the case that reflects projected market trends in the absence of new or amended standards. DOE's LCC and PBP analysis is discussed in further detail in section IV.F of this document.
c. Energy Savings
Although significant conservation of energy is a separate statutory requirement for adopting an energy conservation standard, EPCA requires DOE, in determining the economic justification of a standard, to consider the total projected energy savings that are expected to result directly from the standard. (42 U.S.C. 6295(o)(2)(B)(i)(III)) As discussed in section III.D of this document, 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 document would not reduce the utility or performance of the products under consideration in this rulemaking.
e. Impact of Any Lessening of Competition
EPCA directs DOE to consider the impact of any lessening of competition, as determined in writing by the Attorney General, that is likely to result from a proposed standard. (42 U.S.C. 6295(o)(2)(B)(i)(V)) It also directs the Attorney General to determine the impact, if any, of any lessening of competition likely to result from a proposed standard and to transmit such determination to the Secretary within 60
days of the publication of a proposed rule, together with an analysis of the nature and extent of the impact. (42 U.S.C. 6295(o)(2)(B)(ii)) DOE will transmit a copy of this proposed rule to the Attorney General with a request that the Department of Justice (“DOJ”) provide its determination on this issue. DOE will publish and respond to the Attorney General's determination in the final rule. DOE invites comment from the public regarding the competitive impacts that are likely to result from this proposed rule. In addition, stakeholders may also provide comments separately to DOJ regarding these potential impacts. See the
ADDRESSES
section for information to send comments to DOJ.
f. Need for National Energy Conservation
DOE also considers the need for national energy and water conservation in determining whether a new or amended standard is economically justified. (42 U.S.C. 6295(o)(2)(B)(i)(VI)) The energy savings from the proposed standards are likely to provide improvements to the security and reliability of the Nation's energy system. Reductions in the demand for electricity also may result in reduced costs for maintaining the reliability of the Nation's electricity system. DOE conducts a utility impact analysis to estimate how standards may affect the Nation's needed power generation capacity, as discussed in section IV.M of this document.
DOE maintains that environmental and public health benefits associated with the more efficient use of energy are important to take into account when considering the need for national energy conservation. The proposed standards are likely to result in environmental benefits in the form of reduced emissions of air pollutants and greenhouse gases (“GHGs”) associated with energy production and use. As part of the analysis of the need for national energy and water conservation, DOE conducts an emissions analysis to estimate how potential standards may affect these emissions, as discussed in section IV.K of this document; the estimated emissions impacts are reported in section V.B.6 of this document.
g. Other Factors
In determining whether an energy conservation standard is economically justified, DOE may consider other factors that the Secretary deems to be relevant. (42 U.S.C. 6295(o)(2)(B)(i)(VII)) To the extent DOE identifies any relevant information regarding economic justification that does not fit into the other categories described previously, DOE could consider such information under “other factors.”
2. Rebuttable Presumption
As set forth in 42 U.S.C. 6295(o)(2)(B)(iii), EPCA creates a rebuttable presumption that an energy conservation standard is economically justified if the additional cost to the consumer of a product that meets the standard is less than three times the value of the first year's energy savings resulting from the standard, as calculated under the applicable DOE test procedure. DOE's LCC and PBP analyses generate values used to calculate the 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 document.
IV. Methodology and Discussion of Related Comments
This section addresses the analyses DOE has performed for this proposed rulemaking with regard to room ACs. 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 projections and calculates national energy savings and net present value of total consumer costs and savings expected to result from potential energy conservation standards. DOE uses the third spreadsheet tool, the Government Regulatory Impact Model (“GRIM”), to assess manufacturer impacts of potential standards. These three spreadsheet tools are available on the DOE website for this proposed rulemaking:
www.regulations.gov/docket?D=EERE-2014-BT-STD-0059.
Additionally, DOE used output from the latest version of the Energy Information Administration's (“EIA's”)
Annual Energy Outlook
(“
AEO”
), a widely known energy projection 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 proposed 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 room ACs. The key findings of DOE's market assessment are summarized in the following sections. 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 June 2020 Preliminary Analysis, DOE did not identify any potential changes to the room AC scope of coverage or product classes. 85 FR 36512.
The Joint Commenters expressed concerns regarding DOE's current set of room AC product classes. (Joint Commenters, No. 20 at p. 1
19
) The Joint Commenters disagreed with DOE's explanation that Product Classes 1 and 6 are necessary, despite having the same efficiency requirements as Product Classes 2 and 7, respectively, to recognize the value to certain consumer segments of a low-cost, low-cooling capacity room AC in Product Classes 1 and 6. They did not object to maintaining these product class distinctions based on cooling capacity, but suggested that cost must not be a rationale for maintaining the
distinctions because cost is not a “performance-related feature.”
Id.
19
A notation in the form “Joint Commenters, No. 20 at p. 1” identifies a written comment: (1) Made by the Joint Commenters; (2) recorded in document number 20 that is filed in the docket of this energy conservation standards rulemaking (Docket No. EERE-2014-BT-STD-0059) and available for review at
www.regulations.gov;
and (3) which appears on page 1 of document number 20.
DOE understands the Joint Commenters' concerns about cost being a rationale for distinguishing product classes. However, the cost is substantively related to the performance-related features used to distinguish between the product classes, namely product size and weight. The NOPR analysis, based on models currently on the market, identified different efficiency levels above the ENERGY STAR® qualification levels for Product Classes 1 and 2, showing that these product classes have performance-related distinctions between them.
While DOE is not proposing to combine product classes at this time, DOE is proposing a clarifying modification to the cooling capacity descriptors delineating the product classes, specifying that the capacity used to determine the product class of a basic model is the certified cooling capacity and expressing the capacity ranges to the nearest hundred British thermal units per hour (“Btu/h”) in accordance with the rounding instruction in 10 CFR 429.15(a)(3). For example, Product Class 2 currently specifies it includes room ACs with capacities ranging from 6,000 to 7,999 Btu/h; however, DOE recognizes that based on the rounding instruction in 10 CFR 429.15(a)(3), the upper range of this product class is, in practice, 7,900 Btu/h. Accordingly, DOE proposes in this NOPR to revise the threshold values of cooling capacity in the product class descriptions to the nearest hundred Btu/h that would not exceed the existing thresholds. DOE believes this slight modification that is being proposed for product class delineation is what manufacturers are using today in practice due to the rounding instruction at 10 CFR 429.15(a)(3) and will not impact compliance with current energy conservation standards. DOE is simply proposing to add clarity and consistency amongst two existing regulatory provisions.
DOE requests comment on the proposal to make clarifying amendments to the product class descriptions, but otherwise not make any changes to room AC product classes.
For ease of reviewing this NOPR, DOE is presenting the results of its analysis using the existing product class descriptions. The proposed new labeling of the product class thresholds using the rounded cooling capacity values are included in the proposed standards in Table I.1 and Table V.58 of this document.
2. Technology Options
In the preliminary market analysis and technology assessment, DOE identified 22 technology options that would likely improve the efficiency of room ACs, as measured by the DOE test procedure:
EP07AP22.017
Several commenters provided feedback on some of these technology options. These comments are summarized below, along with DOE's responses.
a. Reduced Evaporator Air Recirculation
The Joint Commenters referenced a 2013 National Renewable Energy Laboratory (“NREL”) study in which room AC performance was found to degrade with evaporator air recirculation, with the cooling coefficient of performance (“COP”) decreasing by 7 percent on average.
20 21
The Joint Commenters emphasized NREL's conclusion that the room AC energy efficiency ratio (“EER”) could be improved by at least 1 Btu/Wh using simple and low-cost methods such as supplying air from the bottom rather than the top of the interior face, or providing an attachment fin to separate supply and return airflows. The Joint Commenters noted that DOE mentioned the results of this NREL study in the preliminary TSD but did not consider reduced evaporator air recirculation in the engineering analysis. Thus, given the large potential energy savings, the Joint Commenters urged DOE to investigate how to model the efficiency improvement associated with reduced evaporator air recirculation. (Joint Commenters, No. 20 at p. 2)
20
As determined using experimental infrared camera imaging techniques applied to units outside of controlled calorimeter chamber conditions.
21
s3.amazonaws.com/szmanuals/f50601c1a4960b3d7627df44cc951d28.
DOE is aware of, and has reviewed the 2013 NREL study cited by the Joint Commenters, and notes that that study had a limited sample of four room ACs from only two different manufacturers (Frigidaire and GE/Haier), and found a wide range of COP degradation due to evaporator air recirculation, from losses as low as 2 percent to as high as 19 percent. Without intensive airflow modeling of each unit analyzed in the DOE teardown sample, more data on evaporator air recirculation in the market as a whole, and test data from a unit incorporating the sort of airflow changes suggested by NREL (DOE is not aware of such a unit on the market), DOE is unable to properly assess the impacts, both positive and negative of evaporator air recirculation reduction as a technology. Therefore, DOE is not incorporating this technology into its engineering analysis. DOE seeks
additional comment on whether evaporator air recirculation should be included in the engineering analysis.
b. Compressors
AHAM and GEA stated that their data do not support DOE's assumptions regarding the efficiency of single-speed compressors. (AHAM, No. 19 at p. 12; GEA, No. 26 at pp. 1-2)
Feedback given to DOE by manufacturers during interviews supported the commenters' assertion that the efficiency of the most efficient single-speed compressor available was overestimated in the June 2020 Preliminary Analysis. Upon further analysis, DOE has reduced its estimate for the efficiency of the most efficient single-speed R-410a compressor available, from 13.1 to 10.9 Btu/Wh, based on a comprehensive survey of compressor catalogues and information provided by manufacturers, as discussed further in chapter 3 of the NOPR TSD. However, as discussed below, DOE also implemented a changeover from R-410A to R-32 refrigerant, resulting in the most efficient available single-speed compressor being 12.7 Btu/Wh. DOE requests comment on the updated single-speed compressor maximum efficiency estimates.
c. Significant New Alternatives Policy (SNAP)—Approved Refrigerants
In the June 2020 Preliminary Analysis, DOE discussed the potential for alternative refrigerants, restricted to the Significant New Alternatives Policy (“SNAP”)—approved refrigerants (
i.e.,
R-32, R-441A, R-290),
22
but decided to forgo implementing them in the engineering analysis because they either did not significantly improve unit efficiency or DOE lacked sufficient technical and economic data to assess the costs and benefits of a changeover. AHAM, the California IOUs, Joint Commenters, and NEEA disagreed with DOE's decision not to consider these alternative refrigerants in the engineering analysis. They stated that alternative refrigerants are already in use for some product classes to meet current energy conservation standards (baseline) and ENERGY STAR (Efficiency Level (“EL 2”)) levels. (AHAM, No. 19 at pp. 10-11; California IOUs, No. 23 at p. 3; Joint Commenters, No. 20 at p. 2; NEEA, No. 24 at pp. 4-5; NEEA, Public Meeting Transcript, No. 18 at pp. 59-60)
23
AHAM emphasized the significant costs associated with changing refrigerant type. (AHAM, No. 19 at pp. 10-11) The California IOUs, Joint Commenters, and NEEA specifically noted that room ACs using R-32 are now widely available in the United States, suggesting that the use of alternative refrigerants is not cost prohibitive to manufacturers, as DOE stated in the preliminary TSD. NEEA stated that manufacturers using R-32 in air conditioning systems have generally found energy savings ranging from 8 to 11 percent. AHAM, the California IOUs, and NEEA noted that there is currently a proposed rule from the California Air Resource Board (“CARB”) that would ban all refrigerants with global warming potential (“GWP”) equal to or greater than 750 in new residential and commercial AC systems beginning in 2023 and would likely push additional manufacturers to explore alternative refrigerants.
24
(AHAM, No. 19 at pp. 10-11; California IOUs, No. 23 at p. 3; Joint Commenters, No. 20 at p. 2; NEEA, No. 24 at pp. 4-5; NEEA, Public Meeting Transcript, No. 18 at pp. 59-60) The Joint Commenters referenced a study performed by the Oak Ridge National Laboratory (“ORNL”) in which ORNL developed a high-efficiency room AC to determine the viability of a window AC unit with an EER over 13.0 Btu/Wh and found that using a “drop-in” 85-percent R-32 mixture as the refrigerant in place of R-410A boosted efficiency by about 3 percent and, thus, that pure R-32 would offer an additional efficiency gain. The Joint Commenters referenced another ORNL study in which a room AC unit was modified to use propane (R-290) and demonstrated an increase in EER of 17 percent. The Joint Commenters also stated that, while any cost impacts to consumers and/or manufacturers should be considered as part of the economic analysis, cost cannot be a consideration in determining what is technologically feasible. (Joint Commenters, No. 20 at p. 2) Thus, AHAM, the California IOUs, Joint Commenters, and NEEA urged DOE to further investigate alternative refrigerants as a technology option. (AHAM, No. 19 at pp. 10-11; California IOUs, No. 23 at p. 3; Joint Commenters, No. 20 at p. 2; NEEA, No. 24 at pp. 4-5) NEEA specifically urged DOE to consider R-32. (NEEA, No. 24 at pp. 4-5) The California IOUs encouraged DOE to work closely with CARB, the American Society of Heating, Refrigerating and Air-Conditioning Engineers (“ASHRAE”) Standing Standard Project Committee 15—Safety Standard for Refrigeration Systems, and the Air-Conditioning, Heating, and Refrigeration Institute (“AHRI”) Low-GWP Alternative Refrigeration Evaluation Program to address in this rulemaking the efficiency benefits from using low-GWP refrigerants in room ACs. (California IOUs, No. 23 at p. 3)
22
For the latest information on EPA SNAP regulations, visit:
www.epa.gov/snap/snap-regulations.
23
A notation in the form “NEEA, Public Meeting Transcript, No. 18 at pp. 59-60” identifies an oral comment that DOE received on August 25, 2020 during the public meeting, and was recorded in the public meeting transcript in the docket for this energy conservation standards rulemaking (Docket No. EERE-2014-BT-STD-0059). This particular notation refers to a comment (1) made by the Northwest Energy Efficiency Alliance during the public meeting; (2) recorded in document number 18, which is the public meeting transcript that is filed in the docket of this energy conservation standards rulemaking; and (3) which appears on pages 59 through 60 of document number 18.
24
See
https://ww2.arb.ca.gov/rulemaking/2020/hfc2020
for more information on the CARB refrigerant rulemaking.
DOE is aware that R-32 refrigerant is currently in use in the room AC market and that adoption of the refrigerant in room ACs is increasing, in part due to the CARB regulation regarding low-GWP refrigerants. R-32 has a GWP of 675, just under a third of the GWP of R-410a, which is 2,090. However, the research findings on efficiency impacts due to the transition from R-410A to R-32 are inconsistent, ranging from a 2-percent decrease in efficiency to the 8- to 11-percent increase cited by NEEA. Due to these inconsistent data, DOE did not consider efficiency gains due to R-32 implementation alone. However, as discussed previously, DOE found that the most efficient single-speed compressors available on the market use R-32 refrigerant, so DOE did incorporate a changeover to R-32 in the engineering analysis to capture the compressor efficiency gains that are technologically feasible by implementing improved-efficiency single-speed compressors (which use R-32 refrigerant) in place of existing baseline-efficiency single-speed compressors (which use R-410A refrigerant). DOE requests comment on the approach to addressing alternative refrigerants in this engineering analysis.
B. Screening Analysis
DOE uses the following five screening criteria to determine which technology options are suitable for further consideration in an energy conservation standards rulemaking:
(1)
Technological feasibility.
Technologies that are not incorporated in commercial products or in working prototypes will not be considered further.
(2)
Practicability to manufacture, install, and service.
If it is determined that mass production and reliable installation and servicing of a technology in commercial products could not be achieved on the scale
necessary to serve the relevant market at the time of the projected compliance date of the standard, then that technology will not be considered further.
(3)
Impacts on product utility or product availability.
If it is determined that a technology would have significant adverse 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.
(5)
Unique-Pathway Proprietary Technologies.
If a design option utilizes proprietary technology that represents a unique pathway to achieving a given efficiency level, that technology will not be considered further due to the potential for monopolistic concerns.
Sections 6(b)(3) and 7(b) of appendix A.
In summary, if DOE determines that a technology, or a combination of technologies, fails to meet one or more of the listed five criteria, it will be excluded from further consideration in the engineering analysis. The subsequent sections include comments from interested parties pertinent to the screening criteria, DOE's evaluation of each technology option against the screening analysis criteria, and whether DOE determined that a technology option should be excluded (“screened out”) based on the screening criteria.
1. Screened-Out Technologies
In the June 2020 Preliminary Analysis, DOE considered screening out air and water economizers and suction-line heat exchangers in the screening analysis, based on their negative impacts on product utility to consumers and on manufacturing impracticality.
AHAM agreed with DOE screening out these technologies. AHAM stated, as DOE noted, air and water economizers and suction line heat exchangers would increase the size and weight of room ACs, which would negatively impact consumer utility and require retooling. AHAM further stated that suction line heat exchangers could also decrease compressor lifetime. (AHAM, No. 19 at p. 10)
DOE agrees with the comments made by AHAM and proposes to screen out the same technologies in this NOPR analysis. For additional details, see chapter 4 of the NOPR TSD. DOE requests comment on the technologies screened out in the NOPR screening analysis.
2. Remaining Technologies
Through a review of each technology, DOE tentatively concludes that all of the other identified technologies listed in section IV.A.2 of this document met all five screening criteria to be examined further as design options in DOE's NOPR analysis. In summary, DOE did not screen out the following technology options:
EP07AP22.018
DOE determined that these technology options are technologically feasible because they are being used or have previously been used in commercially available products or working prototypes. DOE also finds that all of the remaining technology options meet the other screening criteria (
i.e.,
practicable to manufacture, install, and service; do not result in adverse impacts on consumer utility, product availability, health, or safety; and do not represent unique-pathway proprietary technologies). For additional details, see chapter 4 of the NOPR TSD.
C. Engineering Analysis
The purpose of the engineering analysis is to establish the relationship between the efficiency and cost of room ACs. There are two elements to consider in the engineering analysis; the selection of efficiency levels to analyze (
i.e.,
the “efficiency analysis”) and the determination of product cost at each efficiency level (
i.e.,
the “cost analysis”). In determining the performance of higher-efficiency products, DOE considers technologies and design option combinations not eliminated by the screening analysis. For each product class, DOE estimates the baseline cost, as well as the incremental cost for the product at efficiency levels above the baseline. The output of the engineering analysis is a set of cost-efficiency “curves” that are used in downstream analyses (
i.e.,
the LCC and PBP analyses and the NIA).
1. Efficiency Analysis
DOE typically uses one of two approaches to develop energy efficiency levels for the engineering analysis: (1) Relying on observed efficiency levels in the market (
i.e.,
the efficiency-level approach), or (2) determining the incremental efficiency improvements associated with incorporating specific design options to a baseline model (
i.e.,
the design-option approach). Using the efficiency-level approach, the efficiency levels established for the analysis are determined based on the market distribution of existing products (in other words, based on the range of efficiencies and efficiency level “clusters” that already exist on the market). Using the design option approach, the efficiency levels established for the analysis are determined through detailed engineering calculations and/or computer simulations of the efficiency improvements from implementing specific design options that have been identified in the technology assessment. DOE may also rely on a combination of these two approaches. For example, the efficiency-level approach (based on actual products on the market) may be extended using the design option approach to “gap fill” levels (to bridge large gaps between other identified efficiency levels) and/or to extrapolate to the max-tech level (particularly in cases where the max-tech level exceeds
the maximum efficiency level currently available on the market).
In this proposed rulemaking, DOE relies on a combination of these two approaches. For each product class, DOE analyzed a few units from different manufacturers to ensure the analysis was representative of various designs on the market. The analysis involved physically disassembling commercially available products, reviewing publicly available cost information, and modeling equipment cost. From this information, DOE estimated the manufacturer production costs (“MPCs”) for a range of products currently available on the market. DOE then considered the design options manufacturers would likely rely on to improve product efficiencies. From this information, DOE estimated the cost and efficiency impacts of incorporating specific design options at each efficiency level.
DOE analyzed six efficiency levels as part of the engineering analysis: (1) The current DOE standard (baseline); (2) an intermediate level above the baseline but below the ENERGY STAR level, either halfway between the two or at a level where a number of models were certified (EL 1); (3) the ENERGY STAR efficiency criterion (EL 2); (4) the efficiency attainable by a unit with the most efficient R-32 single-speed compressor on the market (EL 3); (5) an intermediate level representing the efficiency of variable-speed units on the market, as tested by DOE using the recently amended test procedure (EL 4); and (6) the maximum technologically feasible (max-tech) efficiency (EL 5).
In evaluating the technologies manufacturers could use to achieve the analyzed efficiency levels, DOE considered design options which made the largest impact on unit efficiency and for which the cost-efficiency relationship was well defined. Accordingly, DOE implemented increased heat exchanger area, condenser coil subcoolers, improved blower motor efficiency, improved compressor efficiency, variable-speed compressors, and low standby-power electronic controls as design options, some or all of which were used to estimate the cost required to reach each efficiently level. DOE did not consider for analysis certain technologies that met the screening criteria but were unable to be evaluated for one or more of the following reasons: (1) Data are not available to evaluate the energy efficiency characteristics of the technology, (2) available data suggest that the efficiency benefits of the technology are negligible, and (3) certain technologies cannot be measured according to the conditions and methods specified in the existing test procedure. Further information on how the design options were chosen and implemented in the engineering analysis is available in chapter 5 of the NOPR TSD.
a. Baseline Efficiency
For each product class, DOE generally selects a baseline model as a reference point for each class, and measures changes resulting from potential energy conservation standards against the baseline. The baseline model in each product class represents the characteristics of a product typical of that class (
e.g.,
capacity, physical size). Generally, a baseline model is one that just meets current energy conservation standards, or, if no standards are in place, the baseline is typically the most common or least efficient unit on the market.
For this NOPR, DOE selected 19 baseline units, of the 48 total units selected, that fell within 12 of the 16 room AC product classes as reference points for each analyzed product class, against which DOE measured changes that would result from amended energy conservation standards to support the engineering, LCC, and PBP analyses. The baseline units in each of the analyzed product classes represent the basic characteristics of equipment in that class
b. Higher Efficiency Levels
As part of DOE's analysis, the maximum available efficiency level is the highest efficiency unit currently available on the market. DOE also defines the “max-tech” efficiency level to represent the maximum possible efficiency for a given product. As discussed in chapter 5 of the NOPR TSD, for the max-tech level, DOE modeled replacing permanent split capacitor (“PSC”) fan motors with more efficient electronically commutated motors (“ECMs”), replacing single-speed compressors with the maximum efficiency variable-speed compressors available, reducing standby power to the minimum observed in DOE's teardown sample, and increasing the cabinet and heat exchanger to the largest feasible sizes to improve efficiency. For all product classes, the max-tech level identified for EL 5 exceeds any other regulatory or voluntary efficiency criteria currently in effect.
DOE notes that the max-tech level is based entirely on modeled combinations of design options that have not yet been combined in a commercially available product. Notably, the key design option, variable-speed compressors, are nascent in room ACs, and because there are no models on the market or prototypes that implement these highest efficiency variable-speed compressors, the efficiency level at max-tech for each product class is a numerical estimation. This is in contrast to the variable-speed compressors currently implemented in room ACs on the market today, for which performance has been characterized through testing. Furthermore, the room AC test procedure measures variable-speed unit performance differently than test procedures for other air conditioning products, so limited performance and efficiency data are available for the most efficient examples of this emergent technology for room ACs.
Additionally, the most efficient variable-speed compressors that were implemented in the analysis at the max-tech efficiency level are manufactured by one manufacturer and have rated EERs between 11.2 and 11.7 Btu/Wh, with a range of rated capacities between 4,705 Btu/h and 16,170 Btu/h. Given the lack of information regarding availability of these highest efficiency variable-speed compressors, and the limited number of variable-speed compressors rated at or near the compressors considered for the max-tech efficiency level, there may not be widespread availability of these high-efficiency variable-speed compressors.
The Joint Commenters and NEEA encouraged DOE to consider evaluating additional efficiency levels, particularly an intermediate level between EL 3 and EL 4. According to the Joint Commenters and NEEA, the most efficient products available today fall between these two efficiency levels. (Joint Commenters, No. 20 at pp. 2-3; NEEA, No. 24 at pp. 3 and 7) DOE agrees that the most efficient available units should be represented in the engineering analysis. In particular, variable-speed models, of which an increasing number of models are available, were not included in a separate efficiency level in the preliminary engineering analysis as a stand-alone design option. Therefore, DOE included a new efficiency level (EL 4) in the NOPR engineering analysis, between EL 3 and the max-tech level (EL 4 in the preliminary analysis, now EL 5 for this NOPR). This new EL 4 is an intermediate efficiency level that represents the efficiency of variable-speed units on the market, as tested by DOE using the recently amended test procedure. DOE modeled all teardown units to reach this efficiency level in the engineering analysis by replacing each single-speed compressor with a variable-speed compressor and
adjusting the rated efficiency of the modeled variable-speed compressor to achieve the target overall CEER value. DOE requests comment on the new efficiency level (EL 4) in the engineering analysis.
AHAM and GEA stated that any energy standard levels achievable only with variable-speed compressors should not be selected and asserted that EL 3 and above would require the use of variable-speed compressors. AHAM and GEA further stated that manufacturers would likely begin using variable-speed compressors to meet energy conservation standards at EL 3. GEA supported AHAM's position and noted that incorporating variable-speed compressors into existing room AC units requires platform-level changes to room AC designs and manufacturing facilities. GEA further stated that, while variable-speed compressors are becoming available in some products, the technology is not sufficiently cost-effective to use as the basis for setting an energy standard level for this proposed rulemaking. Thus, AHAM and GEA urged DOE to adjust its analysis to reflect the use of variable-speed compressors at EL 3. (AHAM, No. 19 at pp. 11-12; GEA, No. 26 at pp. 1-2)
As discussed in section IV.A.2.b of this document, DOE adjusted its estimated efficiency for the most efficient available single-speed compressors, thus slightly reducing the CEER level for EL 3, but along with the additional proposed changeover to more efficient compressors that use R-32 refrigerant, room ACs that implement single-speed compressors are still expected to meet EL 3. Therefore, DOE did not revise its analysis to assume that the use of variable-speed compressors would be necessary to achieve EL 3. DOE requests comment on the approach to design EL 3 as the level reached by the most efficient single-speed room ACs.
2. Cost Analysis
The cost analysis portion of the engineering analysis is conducted using one or a combination of cost approaches. The selection of cost approach depends on a suite of factors, including the availability and reliability of public information, characteristics of the regulated product, the availability and timeliness of purchasing the product on the market. The cost approaches are summarized as follows:
•
Physical teardowns:
Under this approach, DOE physically dismantles a commercially available product, component-by-component, to develop a detailed bill of materials for the product.
•
Catalog teardowns:
In lieu of physically deconstructing a product, DOE identifies each component using parts diagrams (available from manufacturer websites or appliance repair websites, for example) to develop the bill of materials (“BOM”) for the product.
•
Price surveys:
If neither a physical nor catalog teardown is feasible (for example, for tightly integrated products such as fluorescent lamps, which are infeasible to disassemble and for which parts diagrams are unavailable) or cost-prohibitive and otherwise impractical (
e.g.,
large commercial boilers), DOE conducts price surveys using publicly available pricing data published on major online retailer websites and/or by soliciting prices from distributors and other commercial channels.
In the present case, DOE conducted the analysis using physical teardowns. The resulting BOM provides the basis for the MPC estimates. DOE estimated the cost of the highest efficiency single-speed and variable-speed compressors implemented in EL 3 and EL 5, respectively, by extrapolating the costs from price surveys of other compressors. DOE used this approach because, as discussed previously, DOE is not aware of these most efficient single-speed and variable-speed compressors being implemented in any available room ACs to date.
3. Cost-Efficiency Results
The results of the engineering analysis are presented as cost-efficiency data for each of the efficiency levels for each of the product classes that were analyzed, as well as those extrapolated from a product class with similar cooling capacity and features. DOE developed estimates of MPCs for each unit in the teardown sample, and also performed additional modeling for each of the teardown samples, to develop a comprehensive set of MPCs at each efficiency level. DOE then consolidated the resulting MPCs for each of DOE's teardown units and modeled units using a weighted average for product classes in which DOE analyzed units from multiple manufacturers. DOE's weighting factors were based on a market penetration analysis for each of the manufacturers within each product class. The resulting weighted-average incremental MPCs (
i.e.,
the additional costs manufacturers would likely incur by producing room ACs at each efficiency level compared to the baseline) are provided in Tables 5.5.5 and 5.5.6 in chapter 5 of the NOPR TSD. See chapter 5 of the NOPR TSD for additional detail on the engineering analysis. DOE requests comment on the incremental MPCs from the NOPR engineering analysis.
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 MPC estimates derived in the engineering analysis to consumer prices, which are then used in the LCC and PBP analysis and in the manufacturer impact analysis. At each step in the distribution channel, companies mark up the price of the product to cover business costs and profit margin.
To account for manufacturers' non-production costs and profit margin, DOE applied a non-production cost multiplier (the manufacturer markup) to the MPC. The resulting manufacturer selling price (“MSP”) is the price at which the manufacturer distributes a unit into commerce. DOE developed an average manufacturer markup by examining the annual Securities and Exchange Commission (“SEC”) 10-K reports filed by publicly traded manufacturers primarily engaged in appliance manufacturing and whose combined product range includes room ACs.
For room ACs, DOE further developed baseline and incremental markups for each link in the distribution chain (after the product leaves the manufacturer). Baseline markups are applied to the price of products with baseline efficiency, while incremental markups are applied to the difference in price between baseline and higher-efficiency models (the incremental cost increase). The incremental markup is typically less than the baseline markup and is designed to maintain similar per-unit operating profit before and after new or amended standards.
25
25
Because the projected price of standards-compliant products is typically higher than the price of baseline products, using the same markup for the incremental cost and the baseline cost would result in higher per-unit operating profit. While such an outcome is possible, DOE maintains that in markets that are reasonably competitive it is unlikely that standards would lead to a sustainable increase in profitability in the long run.
DOE relied on economic data from the U.S. Census Bureau to estimate average baseline and incremental markups. Specifically, DOE used the 2017 Annual Retail Trade Survey for the “electronics and appliance stores” sector to develop retailer markups;
26
and the 2017 Annual Wholesale Trade Survey for the “household appliances, and electrical and electronic goods merchant
wholesalers” sector to estimate wholesaler markups.
27
26
U.S. Census Bureau,
Annual Retail Trade Survey.
2017.
www.census.gov/programs-surveys/arts.html.
27
U.S. Census Bureau,
Annual Wholesale Trade Survey.
2017.
www.census.gov/awts.
Chapter 12 of the NOPR TSD provides additional detail on the manufacturer markup and chapter 6 of this NOPR TSD provides additional detail on DOE's development of the baseline and incremental retail markups.
E. Energy Use Analysis
The purpose of the energy use analysis is to determine the annual energy consumption of room ACs at different efficiencies in representative U.S. single-family homes, multi-family residences, manufactured housing, and commercial buildings, and to assess the energy savings potential of increased room AC efficiency. The energy use analysis estimates the range of energy use of room ACs 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 monetary savings in consumer operating costs that could result from adoption of amended or new standards.
To estimate annual room AC use and energy consumption in the June 2020 Preliminary Analysis, DOE first calculated the number of operating hours in cooling mode for each room AC in the residential and commercial samples using the reported energy use for room air conditioning in the Residential Energy Consumption Survey (“RECS”) 2015
28
and Commercial Building Energy Consumption Survey (“CBECS”) 2012,
29
along with estimates of the EER of the room AC(s) in each sample home or building. DOE based the latter on the reported age (or simulated age) of the unit and historical data on shipment-weighted average EER. In the June 2020 Preliminary Analysis, the estimated mean number of cooling mode operating hours for the residential room AC sample is 912 hours for the 6,000 to 7,999 Btu/h product class, 636 hours for the 8,000 to 13,999 Btu/h product classes, 422 hours for the 14,999 to 19,999 Btu/h product class, and 261 hours for the ≥20,000 Btu/h product class. The estimated mean number of cooling mode operating hours for the commercial room AC sample is 746 hours for the 6,000 to 7,999 Btu/h product class, 868 hours for the 8,000 to 13,999 Btu/h product classes, 921 hours for the 14,999 to 19,999 Btu/h product class, and 1,073 hours for the ≥20,000 Btu/h product class. DOE assumed that units plugged in, but not in cooling mode, would be in standby mode and included the contribution of standby power consumption in its energy use model.
28
U.S. Department of Energy-Energy Information Administration, Residential Energy Consumption Survey, 2015 Public Use Microdata Files, 2015. Washington, DC. Available online at:
www.eia.doe.gov/emeu/recs/recspubuse15/pubuse15.html.
DOE will update all the 2015 RECS data to 2020 RECS if it is available prior to the final rule.
29
U.S. Department of Energy-Energy Information Administration, Commercial Buildings Energy Consumption Survey, 2012 Public Use Microdata Files, 2012. Washington, DC. Available online at:
www.eia.doe.gov/emeu/cbecs/cbecspubuse12/pubuse12.html.
DOE will update all 2012 CBECS data to 2018 CBECS when it becomes available.
AHAM agreed that, in the absence of field data on annual operating hours, DOE should use the most recent version of RECS and CBECS to establish the annual operating hours for residential room ACs. (AHAM, No. 19 at p. 15)
NEEA believes DOE has identified energy savings associated with room ACs, but contends that there are more energy savings achievable. NEEA encourages DOE to look at more of the efficiency technology options and how they perform the energy analysis in order to get more savings. (NEEA, Public Meeting Transcript, No. 18 at pp. 8-9) NEEA suggested modifying the energy use analysis to capture more of the benefits of other technologies in the market that are not necessarily captured in the current test procedure. (
Id.
at pp. 57-58)
DOE notes that the standards rulemaking must recommend efficiency levels that are both economically justified and technologically feasible. The availability of technologies used to achieve different efficiency levels are identified in the market and technology assessment (see chapter 3 of the NOPR TSD). DOE's engineering analysis analyzes technologies in currently available room AC units. The energy use analysis uses the efficiency levels and power consumption values from the engineering analysis. Estimates for energy consumption are based on available data of how room ACs are operated in the field. DOE welcomes information about additional technologies that can be analyzed in the rulemaking process.
NEEA recommended that DOE include fan-only hours in its analysis and take into account energy savings from variable-speed fans and motors. NEEA stated that fan-only operation is likely to account for a significant number of operating hours, resulting in a significant portion of overall energy use. (NEEA, No. 24 at p. 5) Rice suggested measuring the energy consumption of the fan-mode during cooling mode operation when the fan typically runs continuously while the compressor cycles. If it is not accounted for, Rice recommended, at a minimum, that the energy use information on the Energy Label indicate that the energy costs is based on the economy mode setting. (Rice, No. 25 at p. 3)
DOE is unaware of a data set that can be used to estimate the amount of time room ACs spend in fan-only mode. For this NOPR analysis, DOE included the impact of fan-only mode energy consumption to the total energy use consumption, based on available data for portable ACs. Based on field metering data of portable ACs, fan-only mode is estimated at 30 percent of cooling mode hours.
30
DOE assumed that models below ENERGY STAR efficiency level would operate in fan-only mode 30 percent of cooling mode hours. For ELs that meet or exceed the ENERGY STAR level, DOE assumed a reduction in the amount of time the unit spent in fan-only mode based on the ENERGY STAR Version 4.2 for room ACs criterion requiring that the unit run in off-cycle fan mode less than 17 percent of the time spent in off-cycle mode. Thus, for ELs that meet or exceed the ENERGY STAR efficiency level, DOE assumed units would operate in fan-only mode 5 percent of cooling mode hours. DOE welcomes feedback on its approach and any additional data that can be provided to estimate the amount of time spent in fan-only mode.
30
Burke
et al.,
2014. “Using Field-Metered Data to Quantify Annual Energy Use of Residential Portable Air Conditioners.” LBNL, Berkeley, CA. LBNL Report LBNL-6469E. September 2014.
DOE notes that the Federal Trade Commission is responsible for the information included on the yellow EnergyGuide labels.
Edison Electric Institute (“EEI”) noted that, in northern climates, many consumers unplug their units or even take them out of the windows during the wintertime, meaning the 8,000 standby hours value used in the annual energy use calculation formula could be an overestimate. EEI suggested gathering more data on this. (EEI, Public Meeting Transcript, No. 18 at pp. 51-52)
DOE agrees that many consumers unplug their room AC units in the non-cooling seasons in northern climates. However, DOE is not aware of reliable, publicly available data for hours spent in standby and off modes in room ACs. DOE recognizes that a room AC may be unplugged for a certain percentage of time, and, therefore, will not be in either standby mode or off mode. For the purposes of this NOPR analysis, DOE estimates that approximately half of room ACs are unplugged for half of the year. The “unplugged” time associated
with these units is averaged over all units. DOE estimates active mode based on RECS inputs and time spent in fan-only mode based on available data for portable ACs. Standby hours comprise the remaining time. See chapter 7 of the NOPR TSD for further discussion.
The California IOUs noted that, in the LCC Excel spreadsheet downloaded from DOE's website, for product class (“PC”) 2, the cooling mode operating hours are 2,922 hours, but for PC 3, the cooling mode operating hours are only 217 hours.
31
The California IOUs expressed concern at the cooling mode operating hour difference between PC 2 and PC 3. (California IOUs, Public Meeting Transcript, No. 18 at pp. 55-56)
31
The Room Air Conditioning Life-Cycle Cost Analysis Spreadsheets (EERE-2014-BT-STD-0059-0010) can be found at
beta.regulations.gov/document/EERE-2014-BT-STD-0059-0010.
DOE's LCC spreadsheet model uses a Monte Carlo simulation in its LCC calculations. Operating hours vary for each house in the household sample and are used as an input into the LCC calculations. The hours mentioned in the California IOUs comment represent the operating hours for one household in the sample and are not representative of the full household sample, or an entire Monte Carlo simulation. The average hours of use for the full sample used for each product class can be found in chapter 7 of the NOPR TSD.
Appliance Standards Awareness Project (“ASAP”), Rice, California IOUs, NEEA, and the Joint Commenters encouraged DOE to investigate modifications to the energy use model to account for potential energy savings by variable-speed units. ASAP stated that variable-speed units would be able to reduce cycling losses in addition to providing additional part-load benefits. (ASAP, Public Meeting Transcript, No. 18 at p. 54) Rice noted that DOE's energy use methodology in the June 2020 Preliminary Analysis does not capture the benefits of part load operation and suggested applying a performance adjustment factor (“PAF”) for ELs with variable-speed compressors. (Rice, No. 25 at p. 2) NEEA and the California IOUs further stated the energy use model in the June 2020 Preliminary Analysis only used the full-load energy EER of the compressors to calculate energy savings, meaning the analysis does not capture any inefficiencies due to single-speed compressor cycling at part load. (California IOUs, No. 23 at p. 2; NEEA, No. 24 at p. 5) The Joint Commenters noted that in addition to significantly reducing cycling losses, variable-speed operation improves heat exchanger effectiveness at reduced cooling loads, resulting in additional energy savings. (Joint Commenters, No. 20 at pp. 3-4)
For this NOPR analysis, DOE modified its approach to calculating energy use for models that use a variable-speed compressor to account for the reduced energy consumption during part load operation. Unlike single-speed compressors, variable-speed compressors have the ability to operate at part load depending on the cooling load. The amount of the time spent in part load operation will depend on the local climate of the household or business operating the room AC. For example, room ACs in milder climates will spend more time in part load operation relative to a household in a hot climate where a compressor is likely to run at maximum load. DOE accounted for geographic-dependent climate variability by calculating U.S. State-dependent PAFs using historical climate data spanning the period from 2008-2016 from the National Oceanic and Atmospheric Administration.
32
For each state in the U.S., DOE performed a temperature bin analysis to calculate within the cooling season (June through August) the fraction of time the outdoor dry bulb temperature was in one of four temperature bins: 80-84 degrees Fahrenheit (“°F”), 85-89 °F, 90-94 °F, and 95-99 °F. DOE then calculated the corresponding PAF for each state using the methodology developed for variable-speed drive units in the test procedure and applied the PAF to the EER at full load. DOE requests feedback on its approach to calculating the energy-use of variable-speed compressors and would welcome field metered data to further investigate the varying amounts of energy use due to single-speed and variable-speed units.
32
National Oceanic and Atmospheric Administration.
Quality Controlled Local Climate Data. www.ncdc.noaa.gov/cdo-web/.
Rice stated that the off-cycle energy use term in the June 2020 Preliminary Analysis energy-use model is inappropriate for a variable-speed room AC. Rice stated that it should be modified to account for lower standby energy usage due to longer run times in the cooling season for variable-speed units in meeting the cooling season load. Rice notes that since DOE's calculation of energy use in cooling mode assumes operation at full rated cooling capacity, it is inappropriate for use in the standby energy use term for variable-speed room ACs. (Rice, No. 25 at p. 2)
DOE's test procedure requires that the low compressor speed at the low test condition achieve a capacity that is 47-57 percent of the “peak” rated capacity. Therefore, DOE would not expect a variable-speed compressor unit to enter off-cycle mode above loads 47 percent of the rated capacity, which is close to a representative of outdoor temperature conditions of 82 °F. In this NOPR analysis, DOE calculates the energy use of variable-speed units using a geographic-dependent performance adjustment factor to account for time the unit spends at partial load. DOE is unaware of a data-set that would allow for the estimation of the change in cooling run time of variable-speed units relative to a single-speed unit. DOE welcomes any available information or data that can be used to improve assumptions in the energy use model.
The California IOUs noted that DOE uses EER to estimate average annual energy use, however, only CEER is listed for each energy use results tables in chapter 7 of the preliminary TSD. To minimize confusion that CEER was used to calculate the average annual energy use, the California IOUs recommended that DOE add EER to energy use tables along with the corresponding CEER for each EL. (California IOUs, No. 23 at p. 3)
DOE has included both EER and CEER in the energy use results tables in the NOPR TSD.
Chapter 7 of the NOPR TSD provides details on DOE's energy use analysis for room ACs.
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 room ACs. The effect of new or amended energy conservation standards on individual consumers usually involves a reduction in operating cost and an increase in purchase cost. DOE used the following two metrics to measure consumer impacts:
☐ The LCC is the total consumer expense of an appliance or product over the life of that product, consisting of total installed cost (manufacturer selling price, distribution chain markups, sales tax, and installation costs) plus operating costs (expenses for energy use, maintenance, and repair). To compute the operating costs, DOE discounts future operating costs to the time of purchase and sums them over the lifetime of the product.
☐ The PBP is the estimated amount of time (in years) it takes consumers to recover the increased purchase cost (including installation) of a more-efficient product through lower operating costs. DOE calculates the PBP
by dividing the change in purchase cost at higher efficiency levels by the change in annual operating cost for the year that amended or new standards are assumed to take effect.
For any given efficiency level, DOE measures the change in LCC relative to the LCC in the no-new-standards case, which reflects the estimated efficiency distribution of room ACs 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 and commercial buildings. As stated previously, DOE developed household samples from the 2015 RECS
33
and commercial building samples from the 2012 CBECS. For each sample household or building, DOE determined the energy consumption for the room AC and the appropriate energy price. By developing a representative sample of households and commercial buildings, the analysis captured the variability in energy consumption and energy prices associated with the use of room ACs.
33
DOE will update all the 2015 RECS data to 2020 RECS if it is available prior to the final rule. Similarly, DOE will update all 2012 CBECS data to 2018 CBECS when it becomes available.
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 room AC user samples. For this rulemaking, the Monte Carlo approach is implemented in MS Excel together with the Crystal Ball
TM
add-on.
34
The model calculated the LCC and PBP for products at each efficiency level for 10,000 housing units or commercial buildings per simulation run. The analytical results include a distribution of 10,000 data points showing the range of LCC savings for a given efficiency level relative to the no-new-standards case efficiency distribution. In performing an iteration of the Monte Carlo simulation for a given consumer, product efficiency is chosen based on its probability. If the chosen product efficiency is greater than or equal to the efficiency of the standard level under consideration, the LCC and PBP calculation reveals that a consumer is not impacted by the standard level. By accounting for consumers who already purchase more-efficient products, DOE avoids overstating the potential benefits from increasing product efficiency.
34
Crystal Ball
TM
is commercially-available software tool to facilitate the creation of these types of models by generating probability distributions and summarizing results within Excel, available at
www.oracle.com/middleware/technologies/crystalball.html
(last accessed August 31, 2021).
DOE calculated the LCC and PBP for all consumers of room ACs as if each were to purchase a new product in the expected year of required compliance with new or amended standards. Amended standards would apply to room ACs manufactured 3 years after the date on which any new or amended standard is published. (42 U.S.C. (m)(4)(A)(i)) For purposes of its analysis, DOE used 2026 as the first year of compliance with any amended standards for room ACs.
Table IV.3 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.
EP07AP22.019
1. Product Cost
To calculate consumer product costs, DOE multiplied the MPCs developed in the engineering analysis by the markups described previously (along with sales taxes). DOE used different markups for baseline products and higher-efficiency products because DOE applies an incremental markup to the increase in MSP associated with higher-efficiency products.
Economic literature and historical data suggest that the real costs of many products may trend downward over time according to “learning” or “experience” curves. Experience curve analysis implicitly includes factors such as efficiencies in labor, capital investment, automation, materials prices, distribution, and economies of scale at an industry-wide level. To derive the learning rate parameter for room ACs that utilize single-speed compressors, DOE obtained historical Producer Price Index (“PPI”) data for room ACs from the Bureau of Labor Statistics (“BLS”). A PPI specific to “room air-conditioners and dehumidifiers, except portable dehumidifiers” was available for the time period between 1990 and 2009.
35
After 2009, PPI data was only available for the broader product family of “refrigeration and forced air heating equipment,” which includes room ACs, spanning the years 2010-2020.
36
Inflation-adjusted price indices were calculated by dividing the PPI series by the gross domestic product index from Bureau of Economic Analysis for the same years. Using data from 1990-2020, the estimated learning rate (defined as the fractional reduction in price expected from each doubling of cumulative production) is 25 percent.
35
Room air-conditioners and dehumidifiers, except portable dehumidifiers PPI series ID: PCU3334153334156;
www.bls.gov/ppi/.
36
Air-conditioning, refrigeration, and forced air heating equipment manufacturing, Primary Products PPI series ID: PCU333415333415P;
www.bls.gov/ppi/.
The Joint Commenters suggested an analysis with learning rates associated with specific technology options or components. (Joint Commenters, No. 20 at pp. 4-5)
DOE considered the inclusion of variable-speed compressors as a technology option in EL 4 and EL 5. To develop future prices specific for that technology, DOE applied a different price trend to the controls portion of the variable-speed compressors that contributes to the price increments moving from EL 3 (an efficiency level achieved with the highest efficiency single-speed compressor) to EL 4 and EL 5. DOE used PPI data on “semiconductors and related device manufacturing” between 1967 and 2020 to estimate the historic price trend of electronic components in the control.
37
The regression performed as an exponential trend line fit results in an R-square of 0.99, with an annual price decline rate of 6.3 percent. See chapter 8 of the NOPR TSD for further details on this topic.
37
Semiconductors and related device manufacturing PPI series ID: PCU334413334413;
www.bls.gov/ppi/.
The Joint Commenters noted that DOE's estimate of the learning rate for room ACs is likely a conservative estimate of how prices will decline over time. (Joint Commenters, No. 20 at pp. 4-5)
A retrospective analysis of the April 2011 Direct Final Rule for room ACs
38
compared the room AC average model-level price changes based on web-scraped retail price data from 2013 to 2017 (ex-post data) and the price factor index for the corresponding period derived in the April 2011 Direct Final Rule (ex-ante data). The result shows that the ex-ante data and ex-post data share similar price declining trends, and thus provide independent validation of the experience curve methodology adopted by DOE in the rulemaking analysis. To account for the uncertainties in the experience curve estimation, DOE also considered two alternative product price forecasts for room ACs (a high price decline and a low price decline scenarios and estimated their impacts on the consumer NPV for various standard levels (see section IV.H.3 of this document for details).
38
Ganeshalingam, M., Ni, C., and Yang, H-C. 2021. A Retrospective Analysis of the 2011 Direct Final Rule for Room Air Conditioners. Lawrence Berkeley National Laboratory. LBNL-2001413.
DOE requests comments on its assumption and methodology for determining equipment price trends.
2. Installation Cost
Installation cost includes labor, overhead, and any miscellaneous materials and parts needed to install the product. As in the June 2020 Preliminary Analysis, DOE found no evidence that installation costs would be impacted with increased efficiency levels and, thus, did not include installation costs in the LCC calculation.
3. Annual Energy Consumption
For each sampled household or business, DOE determined the energy consumption for a room AC at different efficiency levels using the approach described previously in section IV.E of this document.
a. Rebound Effect
Higher-efficiency room ACs reduce the operating costs for a consumer, which can lead to greater use of room ACs. A direct rebound effect occurs when a product that is made more efficient is used more intensively, such that the expected energy savings from the efficiency improvement may not fully materialize. At the same time, consumers benefit from increased utilization of products due to rebound. Overall consumer welfare (taking into account additional costs and benefits) is generally understood to increase from rebound. DOE did not find any data on the rebound effect that is specific to room ACs. In the April 2011 Direct Final Rule, DOE estimated a rebound of 15 percent for room ACs for the NIA but did not include rebound in the LCC analysis. 76 FR 22454, 22511. Given the uncertainty and lack of data specific to room ACs, DOE did not include the rebound effect in the LCC analysis for this NOPR. DOE does include rebound in the NIA for a conservative estimate of national energy savings and the corresponding impact to consumer NPV. As in the April 2011 Direct Final Rule, DOE used a rebound effect of 15 percent for room ACs. See sections IV.H.2 and IV.H.3 of this document for further details on how the rebound effect is applied in the NIA.
4. Energy Prices
Because marginal electricity price more accurately captures the incremental savings associated with a change in energy use from higher efficiency, it provides a better representation of incremental change in consumer costs than average electricity prices. Therefore, DOE applied average electricity prices for the energy use of the product purchased at baseline efficiency, and marginal electricity prices for the incremental change in energy use associated with the other efficiency levels considered.
DOE derived annual electricity prices in 2020 for each census division using data from EEI Typical Bills and Average Rates reports.
39
For the residential sector, DOE used the EEI data to define a marginal price as the ratio of the change in the bill to the change in energy consumption. For the commercial sector, marginal prices depend on both the change in electricity consumption and the change in monthly
peak-coincident demand. DOE used the EEI data to estimate both marginal energy charges and marginal demand charges.
39
Edison Electric Institute. Typical Bills and Average Rates Report. 2020. Winter 2020, Summer 2020: Washington, DC.
DOE calculated weighted-average values for average and marginal price for the nine census divisions for both the residential and commercial sectors. As the EEI data are published separately for summer and winter, DOE calculated seasonal prices for each division and sector. See chapter 8 of the NOPR TSD for details.
To estimate energy prices in future years, DOE multiplied the average regional energy prices by a projection of annual change in national-average residential and commercial energy price in
AEO 2021.
40
AEO 2021
has an end year of 2050. To estimate electricity price trends after 2050, DOE used the average annual rate of change in electricity price from 2035 through 2050.
40
Energy Information Administration.
Annual Energy Outlook 2021 with Projections to 2050.
Washington, DC. Available at
www.eia.gov/forecasts/aeo/.
Rice suggested that consideration be given to showing energy cost information for both economy and cool mode settings to account for units with higher efficiency blower motor/fan assemblies that would have lower energy costs relative to less efficient blowers/fans in off-cycle mode. (Rice, No. 25 at p. 3)
As described in section IV.E of this document, DOE includes the energy contribution of fan-mode including time spent in off-cycle mode. DOE determines energy costs for the full range of product classes and efficiency levels.
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. Typically, small incremental increases in product efficiency produce no, or only minor, changes in repair and maintenance costs compared to baseline efficiency products. In this NOPR analysis, DOE did not include maintenance costs in the LCC.
In the June 2020 Preliminary Analysis, DOE assumed that repair frequencies are low and increase for the higher-capacity units due to more expensive equipment costs. DOE assumed that 1 percent of small-sized units (below 8,000 Btu/h), 2 percent of medium-sized units (8,000 to 20,000 Btu/h), and 3 percent of large-sized units (above 20,000 Btu/h) are maintained or repaired each year. DOE assumed that an average service call and repair/maintenance takes about 1 hour for small and medium-sized units and 2 hours for large units, and that the average material cost is equal to one-half of the incremental equipment cost. DOE maintains these assumptions in the NOPR analysis.
6. Product Lifetime
For room ACs, DOE developed a distribution of lifetimes from which specific values are assigned to the appliances in the samples. DOE conducted an analysis of actual lifetime in the field using a combination of historical shipments data, the stock of the considered appliances in the
American Housing Survey,
and responses in RECS on the age of the appliances in the homes. The data allowed DOE to estimate a survival function, which provides an average appliance lifetime. This analysis yielded a lifetime probability distribution with an average lifetime for room ACs of approximately 9 years. See chapter 8 of the NOPR TSD for further details.
7. Discount Rates
In the calculation of the LCC, DOE applies discount rates appropriate to residential and commercial sectors to estimate the present value of future operating costs. DOE estimated a distribution of residential and commercial discount rates for room ACs based on consumer financing costs and the opportunity cost of consumer funds (for the residential sector) and cost of capital of publicly traded firms (for the commercial sector).
For households, DOE applies weighted-average discount rates calculated from consumer debt and asset data, rather than marginal or implicit discount rates.
41
DOE notes that the LCC does not analyze the appliance purchase decision, so the implicit discount rate is not relevant in this model. The LCC estimates net present value over the lifetime of the product, so the appropriate discount rate will reflect the general opportunity cost of household funds, taking this time scale into account. Given the long time horizon modeled in the LCC, the application of a marginal interest rate associated with an initial source of funds is inaccurate. Regardless of the method of purchase, consumers are expected to continue to rebalance their debt and asset holdings over the LCC analysis period, based on the restrictions consumers face in their debt payment requirements and the relative size of the interest rates available on debts and assets. DOE estimates the aggregate impact of this rebalancing using the historical distribution of debts and assets.
41
The implicit discount rate is inferred from a consumer purchase decision between two otherwise identical goods with different first cost and operating cost. It is the interest rate that equates the increment of first cost to the difference in net present value of lifetime operating cost, incorporating the influence of several factors: Transaction costs; risk premiums and response to uncertainty; time preferences; interest rates at which a consumer is able to borrow or lend.
To establish residential discount rates for the LCC analysis, DOE identified all relevant household debt or asset classes in order to approximate a consumer's opportunity cost of funds related to appliance energy cost savings. 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
42
(“SCF”) for 1995, 1998, 2001, 2004, 2007, 2010, 2013, 2016, and 2019. Using the SCF and other sources, DOE developed a distribution of rates for each type of debt and asset by income group to represent the rates that may apply in the year in which amended standards would take effect. 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 4.3 percent. See chapter 8 of the NOPR TSD for further details on the development of consumer discount rates.
42
U.S. Board of Governors of the Federal Reserve System. Survey of Consumer Finances. 1995, 1998, 2001, 2004, 2007, 2010, 2013, 2016, and 2019. (Last accessed August 20, 2021.)
www.federalreserve.gov/econresdata/scf/scfindex.htm
.
For commercial-sector room ACs, DOE used the cost of capital 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 the cost of capital is the weighted-average cost to the firm of equity and debt financing. This corporate finance approach is referred to as the weighted-average cost of capital. DOE used currently available economic data in developing discount rates.
8. Energy Efficiency Distribution in the No-New-Standards Case
To accurately estimate the share of consumers that would be affected by a potential energy conservation standard at a particular efficiency level, DOE's LCC analysis considered the projected distribution (market shares) of product efficiencies under the no-new-standards
case (
i.e.,
the case without amended or new energy conservation standards).
DOE utilized confidential 2019 shipments data disaggregated by product class and efficiency provided by AHAM in response to the June 2020 Preliminary Analysis to estimate the efficiency distribution in 2019. In the preliminary analysis, DOE assumed an annual 0.25 percent increase in shipment-weighted CEER to develop the efficiency distribution in 2026. The efficiency trend used in this NOPR is supported by a retrospective analysis of the April 2011 Direct Final Rule which used a similar efficiency trend.
43
For this NOPR, DOE assumed this trend applied to efficiency levels with single-speed compressors (EL 0, EL 1, EL 2, and EL 3). DOE assumed the adoption of variable-speed technologies (EL 4 and EL 5) would follow a Bass diffusion curve which describes how new technologies diffuse into the consumer market.
44
DOE assumed that shipments to variable-speed technologies would account for 5 percent of shipments in each product class by 2026. The estimated market shares for the no-new-standards case for room ACs in 2026 are shown in Table IV.4 through Table IV.6 of this document. See chapter 8 of the NOPR TSD for further information on the derivation of the efficiency distributions.
43
Ganeshalingam, M., Ni, C., and Yang, H-C. 2021. A Retrospective Analysis of the 2011 Direct Final Rule for Room Air Conditioners. Lawrence Berkeley National Laboratory. LBNL-2001413.
44
Bass, F. M. A New Product Growth Model for Consumer Durables.
Management Science.
1969. 15(5): pp. 215-227.
BILLING CODE 6450-01-P
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DOE requests feedback on its approach to projecting the efficiency distribution in 2026.
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 previously, EPCA establishes a rebuttable presumption that a standard is economically justified if the Secretary finds that the additional cost to the consumer of purchasing a product complying with an energy conservation standard level will be less than three times the value of the first year's energy savings resulting from the standard, as calculated under the applicable test procedure. (42 U.S.C. 6295(o)(2)(B)(iii)) For each considered efficiency level, DOE determined the value of the first year's energy savings by calculating the energy savings in accordance with the applicable DOE test procedure, and multiplying those savings by the average energy price projection for the year in which compliance with the amended standards would be required.
G. Shipments Analysis
DOE uses projections of annual product shipments to calculate the national impacts of potential amended or new energy conservation standards on energy use, NPV, and future manufacturer cash flows.
45
The shipments model takes an accounting approach, tracking market shares of each product class and the vintage of units in the stock. Stock accounting uses product shipments as inputs to estimate the age distribution of in-service product stocks for all years. The age distribution of in-service product stocks is a key input to calculations of both the NES and NPV, because operating costs for any year depend on the age distribution of the stock.
45
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.
Total shipments for room ACs are developed by considering the demand from replacements for units in stock that fail and the demand from first-time owners in existing households. DOE calculated shipments due to replacements using the retirement function developed for the LCC analysis. DOE calculated shipments due to first-time owners in existing households using estimates from room AC saturation in RECS 2015 and projections of housing stock from
AEO 2021.
See chapter 8 of the NOPR TSD for details.
DOE considers the impacts on shipments from changes in product purchase price and operating cost associated with higher energy efficiency levels using a price elasticity and an efficiency elasticity. As in the June 2020 Preliminary Analysis, DOE employs a 0.2-percent efficiency elasticity rate and a price elasticity of −0.45 in its shipments model. These values are based on analysis of aggregated data for five residential appliances including room ACs.
46
The market impact is defined as the difference between the product of price elasticity of demand and the change in price due to a standard level, and the product of the efficiency elasticity and the change in operating costs due to a standard level.
46
Fujita, K. (2015) Estimating Price Elasticity using Market-Level Appliance Data. Lawrence Berkeley National Laboratory, LBNL-188289.
ASAP and the Joint Commenters noted that the efficiency elasticity was omitted from chapter 9 of the preliminary TSD. (ASAP, Public Meeting Transcript, No. 18 at pp. 94-95; Joint Commenters, No. 20 at p. 5) ASAP and the Joint Commenters encouraged DOE to confirm and clarify whether the efficiency elasticity is considered in calculating the standards-case shipments. (Joint Commenters, No. 20 at p. 5)
Chapter 9 of the NOPR TSD has been updated to display the impact of the price and efficiency elasticity in calculating the standards-case shipments.
AHAM recommended that DOE do as it generally does and rely on shipment-weighted data in its analysis and provided DOE data for 2019 shipments by product class. (AHAM, No. 19 at p. 9)
DOE appreciates the 2019 shipments by product class and efficiency level provided by AHAM and has updated the NOPR to reflect the AHAM data.
NEEA noted that DOE's shipment projections are likely low and do not follow the market's historical trends—DOE's analysis showed a very small growth in annual shipments through 2052 to a peak of approximately 8.5 million units per year. NEEA stated that this slow growth trend does not match the historic growth seen in the room AC market. For the number of replacement units, NEEA recommended that DOE amend its analysis to consider early retirement of units driven by new features, such as increased efficiency and smart rooms ACs, which could increase the number of shipments. For new units, NEEA recommended that DOE consider an increasing market penetration factor to account for the growth of room AC use in climates where cooling has not been needed traditionally. (NEEA, No. 24 at pp. 5-6)
DOE notes that between 2014 and 2019, room AC shipments have been approximately 7 million units with no clear indication of steady growth over that period. DOE determines the replacement market from lifetime estimates of room ACs. Early retirement of units to purchase more efficient and/or units with additional features are currently accounted for in the lifetime distribution. A retrospective analysis of the April 2011 Direct Final Rule for room ACs,
47
which also accounted for shipments due to replacements and first-time owners, generally found that DOE projections matched with AHAM shipments data in 2017 and 2018. DOE acknowledges that a warming climate could increase purchase of room ACs in climates where cooling has not been needed traditionally, but it is not aware of any data that would facilitate an accurate estimate of this future demand. DOE welcomes shipments data that include markets in addition to replacement and first-time user markets.
47
Ganeshalingam, M., Ni, C., and Yang, H-C. 2021. A Retrospective Analysis of the 2011 Direct Final Rule for Room Air Conditioners. Lawrence Berkeley National Laboratory. LBNL-2001413.
Chapter 9 of the NOPR TSD provides additional details on the shipments analysis.
DOE requests comment on its general methodology for estimating shipments.
H. National Impact Analysis
The NIA assesses the NES and the NPV from a national perspective of total consumer costs and savings that would be expected to result from new or amended standards at specific efficiency levels.
48
(“Consumer” in this context refers to consumers of the product being regulated.) DOE calculates the NES and NPV for the potential standard levels considered based on projections of annual product shipments, along with the annual energy consumption and total installed cost data from the energy use and LCC analyses. For the present analysis, DOE projected the energy savings, operating cost savings, product costs, and NPV of consumer benefits over the lifetime of room ACs sold from 2026 through 2055.
48
The NIA accounts for impacts in the 50 states.
DOE evaluates the impacts of new or amended standards by comparing a case without such standards with standards-case projections. The no-new-standards case characterizes energy use and consumer costs for each product class in the absence of new or amended energy conservation standards. For this projection, DOE considers historical trends in efficiency and various forces that are likely to affect the mix of efficiencies over time. DOE compares the no-new-standards case with projections characterizing the market for each product class if DOE adopted new or amended standards at specific energy efficiency levels (
i.e.,
the TSLs or standards cases) for that class. For the standards cases, DOE considers how a given standard would likely affect the market shares of products with efficiencies greater than the standard.
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.7 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.
EP07AP22.023
1. Product Efficiency Trends
A key component of the NIA is the trend in energy efficiency projected for the no-new-standards case and each of the standards cases. Section IV.F.7 of this document describes how DOE developed an energy efficiency distribution for the no-new-standards case (which yields a shipment-weighted average efficiency) for each of the considered product classes for the year of anticipated compliance with an amended or new standard. To project the trend in efficiency absent amended standards for room ACs over the entire shipments projection period, DOE assumed that market share for ELs with variable-speed technologies would follow a Bass diffusion curve, while the shipment-weighted CEER for ELs with single-speed compressors would increase annually by 0.25 percent in CEER based on historical trends in shipment-weighted efficiency.
49
The approach is further described in chapter 10 of the NOPR TSD.
49
Ganeshalingam, M., Ni, C., and Yang, H-C. 2021. A Retrospective Analysis of the 2011 Direct Final Rule for Room Air Conditioners. Lawrence Berkeley National Laboratory. LBNL-2001413.
In its reference scenario, DOE assumed that variable-speed technologies would comprise 25 percent of the market by the end of the analysis period (2055). DOE also performed sensitivity scenarios assuming a low penetration of variable-speed technologies (10 percent of the market in 2055) and a high penetration of variable-speed technologies (50 percent of the market in 2055). The results of these scenarios can be found in appendix 10E of the NOPR TSD. DOE requests comment on its approach to projecting market share for variable-speed technologies over the course of the analysis period.
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 in 2026. In the year of compliance, the market shares of products in the no-new-standards case that do not meet the standard under consideration would “roll up” to the minimum EL that meets the standard, and the market share of products above the standard would remain unchanged. As in the no-new-standards case, DOE assumed an annual increase of 0.25 percent in CEER over the analysis period for ELs with single-speed technology.
The Joint Commenters noted that data on sales over the past decade suggest that the “roll-up” scenario considered by DOE may underestimate the savings from amended standards and suggested DOE consider reevaluating the use of the “roll-up” scenario for estimating the market distribution of each efficiency level following the adoption of a standard. (Joint Commenters, No. 20 at p. 5)
DOE acknowledges multiple drivers in the room AC market, one of which is the amended standard process. Although DOE uses a roll-up to allocate market share by efficiency level in the year a standard is enacted, an efficiency trend is applied in subsequent years in the standards case to account for the observed historical trends in efficiency. See chapter 10 of the NOPR TSD for details.
2. National Energy Savings
The national energy savings analysis involves a comparison of national energy consumption of the considered products between each potential standards case (TSL) and the case with no new or amended energy conservation standards. DOE calculated the national energy consumption by multiplying the number of units (stock) of each product (by vintage or age) by the unit energy consumption (also by vintage). DOE calculated annual NES based on the difference in national energy consumption for the no-new standards case and for each higher efficiency standard case. DOE estimated energy consumption and savings based on site energy and converted the electricity consumption and savings to primary energy (
i.e.,
the energy consumed by power plants to generate site electricity) using annual conversion factors derived
from
AEO 2021.
Cumulative energy savings are the sum of the NES for each year over the timeframe of the analysis.
Use of higher-efficiency products is occasionally associated with a direct rebound effect, which refers to an increase in utilization of the product due to the reduction in operating cost induced by improved efficiency. A direct rebound effect occurs when a product that is made more efficient is used more intensively, reducing expected energy savings from the efficiency improvement. At the same time, consumers can benefit from increased utilization of products due to the direct rebound effect. DOE did not find any data on the rebound effect specific to room ACs, but it applied a rebound effect of 15 percent as suggested by Sorrell
et al.
50
and was done in the April 2011 Direct Final Rule. The calculated NES at each efficiency level is therefore reduced by 15 percent. DOE also included the rebound effect in the NPV analysis accounting for the additional net benefit from increased room AC usage as described in section IV.H.3 of this document.
50
Sorrell, S., J. Dimitropoulos, M. Sommerville. 2009. Empirical estimates of the direct rebound effect: A review. Energy Policy 37 (2009) 1356-1371.
In 2011, in response to the recommendations of a committee on “Point-of-Use and Full-Fuel-Cycle Measurement Approaches to Energy Efficiency Standards” appointed by the National Academy of Sciences, DOE announced its intention to use FFC measures of energy use and greenhouse gas and other emissions in the national impact analyses and emissions analyses included in future energy conservation standards rulemakings. 76 FR 51281 (Aug. 18, 2011). After evaluating the approaches discussed in the August 18, 2011 notice, DOE published a statement of amended policy in which DOE explained its determination that EIA's National Energy Modeling System (“NEMS”) is the most appropriate tool for its FFC analysis and its intention to use NEMS for that purpose. 77 FR 49701 (Aug. 17, 2012). NEMS is a public domain, multi-sector, partial equilibrium model of the U.S. energy sector
51
that EIA uses to prepare its
Annual Energy Outlook.
The FFC factors incorporate losses in production and delivery in the case of natural gas (including fugitive emissions) and additional energy used to produce and deliver the various fuels used by power plants. The approach used for deriving FFC measures of energy use and emissions is described in appendix 10B of the NOPR TSD.
51
For more information on NEMS, refer to
The National Energy Modeling System: An Overview 2009,
DOE/EIA-0581(2009), October 2009. Available at
www.eia.gov/forecasts/aeo/index.cfm.
EEI suggested incorporating the
AEO
full-fuel-cycle conversion for DOE's next update. (EEI, Public Meeting Transcript, No. 18 at pp. 83-84)
For this NOPR analysis, DOE reports the full-fuel-cycle energy savings in its NIA using inputs from
AEO 2021.
See chapter 10 of the NOPR TSD for a full description.
3. Net Present Value Analysis
The inputs for determining the NPV of the total costs and benefits experienced by consumers are (1) total annual installed cost, (2) total annual operating costs (energy costs and repair and maintenance costs), and (3) a discount factor to calculate the present value of costs and savings. DOE calculates net savings each year as the difference between the no-new-standards case and each standards case in terms of total savings in operating costs versus total increases in installed costs. DOE calculates operating cost savings over the lifetime of each product shipped during the projection period.
As discussed in section IV.F.6 of this document, DOE developed room AC price trends based on historical PPI data. DOE applied the same trends to project prices for each product class at each considered efficiency level. By 2055, the end date of the analysis period, the average single-speed compressor room AC price is projected to drop 23 percent and the variable-speed compressor room AC price is projected to drop about 37 percent relative to 2020. DOE's projection of product prices is described in appendix 10C of the NOPR TSD.
To evaluate the effect of uncertainty regarding the price trend estimates, DOE investigated the impact of alternate product price projections on the consumer NPV for the considered TSLs for room ACs. In addition to the default price trend, DOE considered high and low product price sensitivity cases. In the high price scenario, DOE based the price decline of the non-variable speed controls portion on room AC PPI data limited to the period between the period 1990-2009, which shows a faster price decline relative to the full time series. For the variable-speed controls portion, DOE used a faster price decline derived from the lower bound of the 95 percent confidence interval fitting PPI data for semiconductors. In the low price decline scenario, DOE assumed a constant price for the non-variable-speed controls portion of the price and a slower price decline estimate for the variable-speed controls portion derived from the upper bound of the 95 percent confidence interval fitting PPI data for semiconductors over the analysis period. The derivation of these price trends and the results of these sensitivity cases are described in appendix 10C of the NOPR TSD. The operating cost savings are energy cost savings, which are calculated using the estimated energy savings in each year and the projected price of electricity. To estimate energy prices in future years, DOE multiplied the average regional energy prices by the projection of annual national-average residential and commercial energy price changes in the Reference case from
AEO 2021,
which has an end year of 2050. For the years after 2050, DOE used the average annual rate of change in electricity price from 2035 through 2050. As part of the NIA, DOE also analyzed scenarios that used inputs from variants of the
AEO 2021
Reference case that have lower and higher economic growth. Those cases have lower and higher energy price trends compared to the Reference case. NIA results based on these cases are presented in appendix 10C of the NOPR TSD.
As described in section IV.H.2 of this document, DOE assumed a 15 percent rebound from an increase in utilization of the product arising from the increase in efficiency (
i.e.,
the direct rebound effect). In considering the consumer welfare gained due to the direct rebound effect, DOE accounted for change in consumer surplus attributed to additional cooling from the purchase of a more efficient unit. Overall consumer welfare is generally understood to be enhanced from rebound. The net consumer impact of the rebound effect is included in the calculation of operating cost savings in the consumer NPV results. See appendix 10F of the NOPR TSD for details on DOE's treatment of the monetary valuation of the rebound effect. DOE requests comments on its approach to monetizing the impact of the rebound effect.
In 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.
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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.
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United States Office of Management and Budget.
Circular A-4: Regulatory Analysis.
September 17, 2003. Section E. Available at
obamawhitehouse.archives.gov/omb/circulars_a004_a-4/
(last accessed June 15, 2021).
I. Consumer Subgroup Analysis
In analyzing the potential impact of new or amended energy conservation standards on consumers, DOE evaluates the impact on identifiable subgroups of consumers that may be disproportionately affected by a new or amended national standard. The purpose of a subgroup analysis is to determine the extent of any such disproportional impacts. DOE evaluates impacts on particular subgroups of consumers by analyzing the LCC impacts and PBP for those particular consumers from alternative standard levels. For this NOPR, DOE analyzed the impacts of the considered standard levels on two subgroups: (1) Low-income households and (2) senior-only households. The analysis used subsets of the 2015 RECS sample composed of households that meet the criteria for the two subgroups and shows the percentages of those both negatively and positively impacted. DOE used the LCC and PBP spreadsheet model to estimate the impacts of the considered efficiency levels on these subgroups for product classes with a sufficient sample size in 2015 RECS to perform a Monte Carlo analysis. Chapter 11 of the NOPR TSD describes the consumer subgroup analysis.
J. Manufacturer Impact Analysis
1. Overview
DOE performed a MIA to estimate the impacts of amended energy conservation standards on manufacturers of room ACs. The MIA has both quantitative and qualitative aspects and includes analyses of projected industry cash flows, the INPV, investments in research and development (“R&D”) and manufacturing capital, and domestic manufacturing employment. Additionally, the MIA seeks to determine how amended energy conservation standards might affect manufacturing capacity and competition, as well as how standards contribute to overall regulatory burden. Finally, the MIA serves to identify any disproportionate impacts on manufacturer subgroups, including small business manufacturers.
The quantitative part of the MIA primarily relies on the Government Regulatory Impact Model (“GRIM”), an industry cash flow model with inputs specific to this rulemaking. The key GRIM inputs include data on the industry cost structure, unit production costs, product shipments, manufacturer markups, and investments in R&D and manufacturing capital required to produce compliant products. The key GRIM outputs are the INPV, which is the sum of industry annual cash flows over the analysis period, discounted using the industry-weighted average cost of capital, and the impact to domestic manufacturing employment. The model uses standard accounting principles to estimate the impacts of more-stringent energy conservation standards on a given industry by comparing changes in INPV and domestic manufacturing employment between a no-new-standards case and the various standards cases (TSLs). To capture the uncertainty relating to manufacturer pricing strategies following amended standards, the GRIM estimates a range of possible impacts under different manufacturer markup scenarios.
The qualitative part of the MIA addresses manufacturer characteristics and market trends. Specifically, the MIA considers such factors as a potential standard's impact on manufacturing capacity, competition within the industry, the cumulative impact of other Federal product-specific regulations, and impacts on manufacturer subgroups. The complete MIA is outlined in chapter 12 of the NOPR TSD.
DOE conducted the MIA for this proposed rulemaking in three phases. In Phase 1 of the MIA, DOE prepared a profile of the room AC manufacturing industry based on publicly available data and information from its market and technology assessment, engineering analysis, and shipments analysis. This preparation included a top-down analysis of room AC manufacturers that DOE used to derive preliminary financial parameters for the GRIM (
e.g.,
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 room AC manufacturing industry, including company filings of form 10-K from the SEC,
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corporate annual reports, the April 2011 Direct Final Rule, and the U.S. Census Bureau's
Economic Census.
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DOE also relied on subscription-based resources such as reports from Dun & Bradstreet.
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www.sec.gov/edgar/searchedgar/companysearch.html
.
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www.census.gov/programs-surveys/qpc/data/tables.html
.
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app.dnbhoovers.com
.
In Phase 2 of the MIA, DOE prepared a framework industry cash-flow analysis to quantify the potential impacts of amended energy conservation standards. The GRIM uses several factors to determine a series of annual cash flows starting with the announcement of the standard and extending over a 30-year period following the compliance date of the standard. These factors include annual expected revenues, costs of sales, SG&A and R&D expenses, taxes, and capital expenditures. In general, energy conservation standards can affect manufacturer cash flow in three distinct ways: (1) Creating a need for increased investment, (2) raising production costs per unit, and (3) altering revenue due to higher per-unit prices and changes in sales volumes.
In addition, during Phase 2, DOE developed interview guides to distribute to manufacturers of room ACs in order to develop other key GRIM inputs, including product and capital conversion costs, and to gather additional information on the anticipated effects of energy conservation standards on revenues, direct employment, capital assets, industry competitiveness, and subgroup impacts.
In Phase 3 of the MIA, DOE conducted structured, detailed interviews with representative manufacturers. During these interviews, DOE discussed engineering, manufacturing, procurement, and financial topics to validate assumptions used in the GRIM and to identify key issues or concerns. See section IV.J.3 of this document for a description of the key issues raised by manufacturers during the interviews. As part of Phase 3, DOE also evaluated subgroups of manufacturers that may be disproportionately impacted by amended standards or that may not be accurately represented by the average cost assumptions used to develop the industry cash flow analysis. Such manufacturer subgroups may include small business manufacturers, low-volume manufacturers, niche players, and/or manufacturers exhibiting a cost structure that largely differs from the
industry average. DOE identified one subgroup for a separate impact analysis: Small business manufacturers. The small business subgroup is discussed in section VII.B of this document, “Review under the Regulatory Flexibility Act” and in chapter 12 of the NOPR TSD.
2. Government Regulatory Impact Model and Key Inputs
DOE uses the GRIM to quantify the changes in cash flow due to amended standards that result in a higher or lower industry value. The GRIM uses a standard, annual discounted cash-flow analysis that incorporates manufacturer costs, markups, shipments, and industry financial information as inputs. The GRIM models changes in costs, distribution of shipments, investments, and manufacturer margins that could result from an amended energy conservation standard. The GRIM spreadsheet uses the inputs to arrive at a series of annual cash flows, beginning in 2021 (the base year of the MIA analysis) and continuing to 2055. DOE calculated INPVs by summing the stream of annual discounted cash flows during this period. For manufacturers of room ACs, DOE used a real discount rate of 7.2 percent, which was derived from public financial data and then modified according to feedback received during manufacturer interviews.
The GRIM calculates cash flows using standard accounting principles and compares changes in INPV between the no-new-standards case and each standards case. The difference in INPV between the no-new-standards case and a standards case represents the financial impact of the amended energy conservation standard on manufacturers. As discussed previously, DOE developed critical GRIM inputs using a number of sources, including publicly available data, results of the engineering analysis, and information gathered during the course of manufacturer interviews. The GRIM results are presented in section V.B.2 of this document. Additional details about the GRIM, the discount rate, and other financial parameters can be found in chapter 12 of the NOPR TSD.
a. Manufacturer Production Costs
Manufacturing more efficient equipment is typically more expensive than manufacturing baseline equipment due to the use of more complex components, which are typically more costly than baseline components. The changes in the MPCs of covered products can affect the revenues, gross margins, and cash flow of the industry. DOE models the relationship between efficiency and MPCs as a part of its engineering analysis. For a complete description of the MPCs, see chapter 5 of the NOPR TSD.
b. Shipments Projections
The GRIM estimates manufacturer revenues based on total unit shipment projections and the distribution of those shipments by product class and by efficiency level. Changes in sales volumes and efficiency mix over time can significantly affect manufacturer finances. For this analysis, the GRIM uses the NIA's annual shipment projections derived from the shipments analysis. See chapter 9 of the NOPR TSD for additional details on DOE's shipments projections.
c. Product and Capital Conversion Costs
Amended energy conservation standards could cause manufacturers to incur conversion costs to bring their production facilities and equipment designs into compliance. DOE evaluated the level of conversion-related expenditures that would be needed to comply with each considered efficiency level in each product class. For the MIA, DOE classified these conversion costs into two major groups: (1) Product conversion costs, and (2) capital conversion costs. Product conversion costs are investments in research, development, testing, marketing, and other non-capitalized costs necessary to make product designs comply with amended energy conservation standards. Capital conversion costs are investments in property, plant, an
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