Energy Conservation Program: Energy Conservation Standards for Room Air Conditioners

Federal RegisterMay 26, 2023

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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:

Final rule.

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 final rule, DOE is adopting amended energy conservation standards for room air conditioners. It has determined that the amended energy conservation standards for these products would result in significant conservation of energy, and are technologically feasible and economically justified.

DATES:

The effective date of this rule is July 25, 2023. Compliance with the amended standards established for room air conditioners in this final rule is required on and after May 26, 2026.

ADDRESSES:

The docket for this rulemaking, which includes

Federal Register

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

www.regulations.gov.

All documents in the docket are listed in the

www.regulations.gov

index. However, 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.

For further information on how to review the docket, contact the Appliance and Equipment Standards Program staff at (202) 287-1445 or by email:

ApplianceStandardsQuestions@ee.doe.gov.

FOR FURTHER INFORMATION CONTACT:

Mr. Lucas Adin, 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) 287-5904. 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.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Synopsis of the Final Rule

A. Benefits and Costs to Consumers

B. Impact on Manufacturers

C. National Benefits and Costs

D. Conclusion

II. Introduction

A. Authority

B. Background

1. Current Standards

2. History of Standards Rulemaking for Room Air Conditioners

III. General Discussion

A. Product Classes and Scope of Coverage

B. Test Procedure

C. Technological Feasibility

1. General

2. Maximum Technologically Feasible Levels

D. Energy Savings

1. Determination of Savings

2. Significance of Savings

E. Economic Justification

1. Specific Criteria

a. Economic Impact on Manufacturers and Consumers

b. Savings in Operating Costs Compared to Increase in Price (LCC and PBP)

c. Energy Savings

d. Lessening of Utility or Performance of Products

e. Impact of Any Lessening of Competition

f. Need for National Energy Conservation

g. Other Factors

2. Rebuttable Presumption

IV. Methodology and Discussion of Related Comments

A. Market and Technology Assessment

1. Scope of Coverage and Product Classes

2. Technology Options

a. Alternative Refrigerants

b. Product Weight

B. Screening Analysis

1. Screened-Out Technologies

2. Remaining Technologies

C. Engineering Analysis

1. Efficiency Analysis

a. Baseline Efficiency/Energy Use

b. Higher Efficiency Levels

2. Cost Analysis

3. Cost-Efficiency Relationship

4. Consumer Utility

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. 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 Emissions Impacts

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 Economic Impacts

C. Conclusion

1. Benefits and Burdens of TSLs Considered for Room Air Conditioner Standards

2. Annualized Benefits and Costs of the Adopted 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

M. Congressional Notification

VIII. Approval of the Office of the Secretary

I. Synopsis of the Final Rule

The Energy Policy and Conservation Act, Public Law 94-163, as amended (“EPCA”),

authorizes DOE to regulate the energy efficiency of a number of consumer products and certain industrial equipment. (42 U.S.C. 6291-6317) Title III, Part B of EPCA

established the Energy Conservation Program for Consumer Products Other Than Automobiles. (42 U.S.C. 6291-6309) These products include room air conditioners, the subject of this final rule.

All references to EPCA in this document refer to the statute as amended through the Energy Act of 2020, Public Law. 116-260 (Dec. 27, 2020), which reflect the last statutory amendments that impact Parts A and A-1 of EPCA.

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

Pursuant to EPCA, any new or amended energy conservation standard must be designed to achieve the maximum improvement in energy efficiency that DOE determines is technologically feasible and economically justified. (42 U.S.C. 6295(o)(2)(A)) Furthermore, the new or amended standard must result in significant conservation of energy. (42 U.S.C. 6295(o)(3)(B)) EPCA 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 is adopting amended energy conservation standards for room air conditioners. The adopted 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 standards apply to all room air conditioners listed in Table I.1 and manufactured in, or imported into, the United States starting on May 26, 2026.

Table I.1—Energy Conservation Standards for Room Air Conditioners

[Compliance starting May 26, 2026]

Equipment class

Combined energy

efficiency ratio

(CEER)

(Btu/Wh)

1. Without reverse cycle, with louvered sides, and less than 6,000 British thermal units per hour (“Btu/h”)

13.1

2. Without reverse cycle, with louvered sides and 6,000 to 7,900 Btu/h

13.7

3. Without reverse cycle, with louvered sides and 8,000 to 13,900 Btu/h

16.0

4. Without reverse cycle, with louvered sides and 14,000 to 19,900 Btu/h

16.0

5a. Without reverse cycle, with louvered sides and 20,000 to 27,900 Btu/h

13.8

5b. Without reverse cycle, with louvered sides and 28,000 Btu/h or more

13.2

6. Without reverse cycle, without louvered sides, and less than 6,000 Btu/h

12.8

7. Without reverse cycle, without louvered sides and 6,000 to 7,900 Btu/h

12.8

8a. Without reverse cycle, without louvered sides and 8,000 to 10,900 Btu/h

14.1

8b. Without reverse cycle, without louvered sides and 11,000 to 13,900 Btu/h

13.9

9. Without reverse cycle, without louvered sides and 14,000 to 19,900 Btu/h

13.7

10. Without reverse cycle, without louvered sides and 20,000 Btu/h or more

13.8

11. With reverse cycle, with louvered sides, and less than 20,000 Btu/h

14.4

12. With reverse cycle, without louvered sides, and less than 14,000 Btu/h

13.7

13. With reverse cycle, with louvered sides, and 20,000 Btu/h or more

13.7

14. With reverse cycle, without louvered sides, and 14,000 Btu/h or more

12.8

15. Casement-Only

13.9

16. Casement-Slider

15.3

A. Benefits and Costs to Consumers

Table I.2 summarizes DOE's evaluation of the economic impacts of the adopted standards on consumers of room air conditioners, as measured by the average life-cycle cost (“LCC”) savings and the simple payback period (“PBP”).

The average LCC savings are positive for all product classes, and the PBP is less than the average lifetime of room air conditioners, which is estimated to be 9.3 years (see section IV.F of this document).

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.9 of this document). The simple PBP, which is designed to compare specific efficiency levels, is measured relative to the baseline product (see section IV.C of this document).

Table I.2—Impacts of Adopted Energy Conservation Standards on Consumers of Room Air Conditioners

Room air conditioner product class

Average LCC

savings

(2021$)

Simple payback

period

(years)

1. Without reverse cycle, with louvered sides, and less than 6,000 Btu/h

0.8

2. Without reverse cycle, with louvered sides and 6,000 to 7,900 Btu/h

1.5

3. Without reverse cycle, with louvered sides and 8,000 to 13,900 Btu/h

100

2.9

4. Without reverse cycle, with louvered sides and 14,000 to 19,900 Btu/h

3.0

5a. Without reverse cycle, with louvered sides and 20,000 Btu/h to 27,900 Btu/h

148

2.5

5b. Without reverse cycle, with louvered sides and 28,000 Btu/h or more

284

2.3

8a. Without reverse cycle, without louvered sides and 8,000 to 10,900 Btu/h

3.2

8b. Without reverse cycle, without louvered sides and 11,000 to 13,900 Btu/h

119

2.4

9. Without reverse cycle, without louvered sides and 14,000 to 19,900 Btu/h

165

2.9

11. With reverse cycle, with louvered sides, and less than 20,000 Btu/h

134

3.2

12. With reverse cycle, without louvered sides, and less than 14,000 Btu/h

124

2.6

16. Casement-Slider

4.0

DOE's analysis of the impacts of the adopted 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 announcement of the standard through the end of the analysis period (2023-2055). Using a real discount rate of 7.2 percent, DOE estimates that the INPV for manufacturers of room air conditioners in the case without amended standards is $1.20 billion.

Under the adopted standards, DOE estimates the change in INPV to range from −4.8 percent to 7.1 percent, which is approximately −$57.7 million to $85.6 million. In order to bring products into compliance with amended standards, it is estimated that industry will incur total conversion costs of $24.8 million.

All monetary values in this document are expressed in 2021 dollars.

DOE's analysis of the impacts of the adopted standards on manufacturers is described in sections IV.J and V.B.2 of this document.

C. National Benefits and Costs

DOE's analyses indicate that the adopted energy conservation standards for room air conditioners would save a significant amount of energy. Relative to the case without amended standards, the lifetime energy savings for room air conditioners purchased in the 30-year period that begins in the anticipated year of compliance with the amended standards (2026-2055), amount to 1.41 quadrillion British thermal units (“Btu”), or quads.

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”).

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.1 of this document.

The cumulative net present value (“NPV”) of total consumer benefits of the standards for room air conditioners ranges from $5.39 billion (at a 7-percent discount rate) to $11.46 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 air conditioners purchased in 2026-2055.

In addition, the adopted standards for room air conditioners are projected to yield significant environmental benefits. DOE estimates that the standards will result in cumulative emission reductions (over the same period as for energy savings) of 48.5 million metric tons (“Mt”)

of carbon dioxide (“CO

”), 20.1 thousand tons of sulfur dioxide (“SO

”), 74.2 thousand tons of nitrogen oxides (“NO

”), 325.6 thousand tons of methane (“CH

”), 0.5 thousand tons of nitrous oxide (“N

O”), and 0.1 tons of mercury (“Hg”).

The estimated cumulative reduction in CO

emissions through 2030 amounts to 4.4 Mt, which is equivalent to the emissions resulting from the annual electricity use of more than 856,000 homes.

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

are presented in short tons.

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

Annual Energy Outlook 2022

(“

AEO2022

”).

AEO2022

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

AEO2022

assumptions that effect air pollutant emissions.

DOE estimates the value of climate benefits from a reduction in greenhouse gases (GHG) using four different estimates of the social cost of CO

(“SC-CO

”), the social cost of methane (“SC-CH

”), and the social cost of nitrous oxide (“SC-N

O”). Together these represent the social cost of GHG (SC-GHG).

DOE used interim SC-GHG values developed by an Interagency Working Group on the Social Cost of Greenhouse Gases (IWG).

The derivation of these values is discussed in section IV.L.1 of this document. For presentational purposes, the climate benefits associated with the average SC-GHG at a 3-percent discount rate are estimated to be $2.51 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 sets of SC-GHG estimates.

On March 16, 2022, the Fifth Circuit Court of Appeals (No. 22-30087) granted the Federal Government's emergency motion for stay pending appeal of the February 11, 2022, preliminary injunction issued in

Louisiana

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. As reflected in this rule, DOE has reverted to its approach prior to the injunction and presents monetized greenhouse gas abatement benefits where appropriate and permissible under law.

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 (“February 2021 SC-GHG TSD”).

www.whitehouse.gov/wp-content/uploads/2021/02/TechnicalSupportDocument_SocialCostofCarbonMethaneNitrousOxide.pdf.

DOE estimated the monetary health benefits of SO

and NO

emissions reductions, using benefit per ton estimates from the scientific literature, as discussed in section IV.L of this document. DOE estimated the present value of the health benefits would be $2.02 billion using a 7-percent discount rate, and $4.39 billion using a 3-percent

discount rate.

DOE is currently only monetizing (for SO

and NO

) fine particulate matter (“PM

2.5

”) precursor health benefits and (for NO

) 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.

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.

Table I.3 summarizes the economic benefits and costs expected to result from the adopted standards for room air conditioners. There are other important unquantified effects, including certain unquantified climate benefits, unquantified public health benefits from the reduction of toxic air pollutants and other emissions, unquantified energy security benefits, and distributional effects, among others.

Table I.3—Summary of Economic Benefits and Costs of Adopted Energy Conservation Standards for Room Air Conditioners

Billion $2021

3% discount rate

Consumer Operating Cost Savings

14.63

Climate Benefits *

2.51

Health Benefits **

4.39

Total Benefits †

21.54

Consumer Incremental Product Costs ‡

3.17

Net Benefits

18.37

7% discount rate

Consumer Operating Cost Savings

7.46

Climate Benefits * (3% discount rate)

2.51

Health Benefits **

2.02

Total Benefits †

12.00

Consumer Incremental Product Costs ‡

2.08

Net Benefits

9.92

Note:

This table presents the costs and benefits associated with room air conditioners shipped in 2026-2055. These results include benefits to consumers which accrue after 2055 from the products shipped in 2026-2055.

* Climate benefits are calculated using four different estimates of the social cost of carbon (SC-CO

), methane (SC-CH

), and nitrous oxide (SC-N

O) (model average at 2.5 percent, 3 percent, and 5 percent discount rates; 95th percentile at 3 percent discount rate) (see section IV.L of this document). Together these represent the global SC-GHG. For presentational purposes of this table, the climate benefits associated with the average SC-GHG at a 3 percent discount rate are shown, but DOE does not have a single central SC-GHG point estimate. 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

Biden,

** Health benefits are calculated using benefit-per-ton values for NO

and SO

. DOE is currently only monetizing (for SO

and NO

) PM

2.5

precursor health benefits and (for NO

) 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. See section IV.L of this document for more details.

† Total and net benefits include those consumer, climate, and health benefits that can be quantified and monetized. For presentation purposes, total and net benefits for both the 3-percent and 7-percent cases are presented using the average SC-GHG with 3-percent discount rate, but DOE does not have a single central SC-GHG point estimate. DOE emphasizes the importance and value of considering the benefits calculated using all four sets of SC-GHG estimates.

‡ Costs include incremental equipment costs as well as installation costs.

The benefits and costs of the standards 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 climate and health benefits of emission reductions, all annualized.

To convert the time-series of costs and benefits into annualized values, DOE calculated a present value in 2022, the year used for discounting the NPV of total consumer costs and savings. For the benefits, DOE calculated a present value associated with each year's shipments in the year in which the shipments occur (

e.g.,

2020 or 2030), and then discounted the present value from each year to 2022. Using the present value, DOE then calculated the fixed annual payment over a 30-year period, starting in the compliance year, that yields the same present value.

The national operating cost savings are domestic private U.S. consumer monetary savings that occur as a result of purchasing the covered products and are measured for the lifetime of room air conditioners shipped in 2026-2055. The benefits associated with reduced emissions achieved as a result of the adopted standards are also calculated based on the lifetime of room air conditioners shipped in 2026-2055. Total benefits for both the 3-percent and 7-percent cases are presented using the average GHG social costs with 3-percent discount rate. Estimates of SC-GHG values are presented for all four discount rates in section V.B.6 of this document.

Table I.4 presents the total estimated monetized benefits and costs associated with the standard, expressed in terms of

annualized values. The results under the primary estimate are as follows.

Using a 7-percent discount rate for consumer benefits and costs and health benefits from reduced NO

and SO

emissions, and the 3-percent discount rate case for climate benefits from reduced GHG emissions, the estimated cost of the standards adopted in this rule is $205.2 million per year in increased equipment costs, while the estimated annual benefits are $736.9 million in reduced equipment operating costs, $140.1 million in climate benefits, and $199.9 million in health benefits. In this case, the net benefit would amount to $871.7 million per year.

Using a 3-percent discount rate for all benefits and costs, the estimated cost of the standards is $176.8 million per year in increased equipment costs, while the estimated annual benefits are $815.8 million in reduced operating costs, $140.1 million in climate benefits, and $244.8 million in health benefits. In this case, the net benefit would amount to $1,023.9 million per year.

Table I.4—Annualized Benefits and Costs of Adopted Standards for Room Air Conditioners

Million 2021$/year

Primary

estimate

Low-net-

benefits

estimate

High-net-

benefits

estimate

3% discount rate

Consumer Operating Cost Savings

815.8

784.9

851.9

Climate Benefits *

140.1

137.6

142.5

Health Benefits **

244.8

240.6

248.9

Total Benefits †

1,200.6

1,163.2

1,243.3

Consumer Incremental Product Costs ‡

176.8

199.0

152.2

Net Benefits

1,023.9

964.1

1,091.1

7% discount rate

Consumer Operating Cost Savings

736.9

712.3

765.4

Climate Benefits * (3% discount rate)

140.1

137.6

142.5

Health Benefits **

199.9

196.8

203.0

Total Benefits †

1,076.9

1,046.7

1,111.0

Consumer Incremental Product Costs ‡

205.2

227.0

181.0

Net Benefits

871.7

819.7

930.0

Note:

This table presents the costs and benefits associated with room air conditioners shipped in 2026-2055. These results include benefits to consumers which accrue after 2057 from the products shipped in 2028-2057. The Primary, Low Net Benefits, and High Net Benefits Estimates utilize projections of energy prices from the

AEO2022

Reference case, Low Economic Growth case, and High Economic Growth case, respectively. In addition, incremental equipment costs reflect a medium decline rate in the Primary Estimate, a low decline rate in the Low Net Benefits Estimate, and a high decline rate in the High Net Benefits Estimate. The methods used to derive projected price trends are explained in sections IV.F.1 and IV.H.3 of this document. Note that the Benefits and Costs may not sum to the Net Benefits due to rounding.

* Climate benefits are calculated using four different estimates of the global SC-GHG (see section IV.L of this document). For presentational purposes of this table, the climate benefits associated with the average SC-GHG at a 3 percent discount rate are shown, but the Department does not have a single central SC-GHG point estimate, and it emphasizes the importance and value of considering the benefits calculated using all four sets of SC-GHG estimates. On March 16, 2022, the Fifth Circuit Court of Appeals (No. 22-30087) granted the Federal Government's emergency motion for stay pending appeal of the February 11, 2022, preliminary injunction issued in

Louisiana

Biden,

** Health benefits are calculated using benefit-per-ton values for NO

and SO

. DOE is currently only monetizing (for SO

and NO

) PM

2.5

precursor health benefits and (for NO

) 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. The health benefits are presented at real discount rates of 3 and 7 percent. See section IV.L of this document for more details.

† Total and net benefits include consumer, climate, and health benefits. For presentation purposes, total and net benefits for both the 3-percent and 7-percent cases are presented using the average SC-GHG with 3-percent discount rate, but the Department does not have a single central SC-GHG point estimate.

‡ Costs include incremental equipment costs as well as installation costs.

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

D. Conclusion

DOE concludes that the standards adopted in this final rule represent the maximum improvement in energy efficiency that is technologically feasible and economically justified, and would result in the significant conservation of energy. Specifically, with regards to technological feasibility products achieving these standard levels are already commercially available for all product classes covered by this rule. As for economic justification, DOE's analysis shows that the benefits of the standards exceed, to a great extent, the burdens of the standards.

Using a 7-percent discount rate for consumer benefits and costs and NO

and SO

reduction benefits, and a 3-percent discount rate case for GHG social costs, the estimated cost of the standards for room air conditioners is

$205.2 million per year in increased product costs, while the estimated annual benefits are $736.9 million in reduced product operating costs, $140.1 million in climate benefits, and $199.9 million in health benefits. The net benefit amounts to $871.7 million per year.

The significance of energy savings offered by a new or amended energy conservation standard cannot be determined without knowledge of the specific circumstances surrounding a given rulemaking.

For example, some covered products and equipment have most of their energy consumption occur during periods of peak energy demand. The impacts of these products on the energy infrastructure can be more pronounced than products with relatively constant demand. Accordingly, DOE evaluates the significance of energy savings on a case-by-case basis.

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

As previously mentioned, the standards are projected to result in estimated national energy savings of 1.41 quad FFC, the equivalent of the primary annual energy use of 15 million homes. In addition, they are projected to reduce CO

emissions by 48.5 Mt. Based on these findings, DOE has determined the energy savings from the standard levels adopted in this final rule are “significant” within the meaning of 42 U.S.C. 6295(o)(3)(B). A more detailed discussion of the basis for these conclusions is contained in the remainder of this document and the accompanying TSD.

II. Introduction

The following section briefly discusses the statutory authority underlying this final rule, as well as some of the relevant historical background related to the establishment of standards for room air conditioners.

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 air conditioners, 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 in limited instances 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 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 air conditioners 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 air conditioners. Any new or amended standard for a covered product must be designed to achieve the maximum improvement in energy efficiency that the Secretary of Energy determines is technologically feasible and economically justified. (42 U.S.C. 6295(o)(2)(A) and (o)(3)(B)) Furthermore, DOE may not adopt any standard that would not result in the significant conservation of energy. (42 U.S.C. 6295(o)(3)) Moreover, DOE may not prescribe a standard (1) for certain products, including room air conditioners, 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 of Energy (“Secretary”) considers relevant.

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

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

EPCA, as codified, also contains what is known as an “anti-backsliding” provision, which prevents the Secretary from prescribing any amended standard

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

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

Id.

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

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 and standards for room air conditioners address standby mode and off mode energy use, as do the amended standards adopted in this final rule.

B. Background

1. Current Standards

DOE prescribed the current energy conservation standards in a direct final rule published on April 21, 2011 (“April 2011 Direct Final Rule”), which apply to room air conditioners manufactured on and after April 21, 2014. 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.

Table II.1—Federal Energy Efficiency Standards for Room Air Conditioners

Room air conditioner product class

Minimum CEER

(Btu/Wh)

1. Without reverse cycle, with louvered sides, and less than 6,000 Btu/h

11.0

2. Without reverse cycle, with louvered sides and 6,000 to 7,999 Btu/h

11.0

3. Without reverse cycle, with louvered sides and 8,000 to 13,999 Btu/h

10.9

4. Without reverse cycle, with louvered sides and 14,000 to 19,999 Btu/h

10.7

5a. Without reverse cycle, with louvered sides and 20,000 Btu/h to 27,999 Btu/h

9.4

5b. Without reverse cycle, with louvered sides and 28,000 Btu/h or more

9.0

6. Without reverse cycle, without louvered sides, and less than 6,000 Btu/h

10.0

7. Without reverse cycle, without louvered sides and 6,000 to 7,999 Btu/h

10.0

8a. Without reverse cycle, without louvered sides and 8,000 to 10,999 Btu/h

9.6

8b. Without reverse cycle, without louvered sides and 11,000 to 13,999 Btu/h

9.5

9. Without reverse cycle, without louvered sides and 14,000 to 19,999 Btu/h

9.3

10. Without reverse cycle, without louvered sides and 20,000 Btu/h or more

9.4

11. With reverse cycle, with louvered sides, and less than 20,000 Btu/h

9.8

12. With reverse cycle, without louvered sides, and less than 14,000 Btu/h

9.3

13. With reverse cycle, with louvered sides, and 20,000 Btu/h or more

9.3

14. With reverse cycle, without louvered sides, and 14,000 Btu/h or more

8.7

15. Casement-Only

9.5

16. Casement-Slider

10.4

2. History of Standards Rulemaking for Room Air Conditioners

EPCA prescribed initial energy conservation standards for room air conditioners 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 air conditioners manufactured on or after October 1, 2000. 62 FR 50122. Additionally, DOE completed a second rulemaking cycle to amend the standards for room air conditioners by issuing the April 2011 Direct Final Rule, in which DOE prescribed the current energy conservation standards for room air conditioners 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 air conditioner standards to June 1, 2014. 76 FR 52852 (Aug. 24, 2011). In a separate document, 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 air conditioners would result in a significant amount of additional energy savings and whether those standards would be technologically feasible and economically justified.

80 FR 34843.

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 (Dec. 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 rulemaking was already in progress at the time the relevant amendments to appendix A 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 air conditioners.

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.

Comments received following the publication of the June 2020 Preliminary Analysis helped DOE identify and resolve issues related to the subsequent NOPR analysis.

DOE published a notice of proposed rulemaking on April 7, 2022 (“April 2022 NOPR”). 87 FR 20608. DOE subsequently held a public meeting on May 3, 2022, to discuss and receive comments on the NOPR. The NOPR TSD that presented the methodology and results of the NOPR analysis is available at:

www.regulations.gov/document/EERE-2014-BT-STD-0059-0030.

Comments are available at

www.regulations.gov/document/EERE-2014-BT-STD-0059-0031/comment.

DOE received 17 written comments in response to the April 2022 NOPR from the interested parties listed in Table II.2.

Table II.2—April 2022 NOPR Written Comments

Commenter(s)

Abbreviation

Comment No. in the docket

Commenter type

A. Krishna

Krishna

Individual.

Anonymous Individual

University of Massachusetts Amherst Student

Individual.

L. Adelman

University of Massachusetts Amherst Student

Individual.

G. Larsen

University of Massachusetts Amherst Student

Individual.

People's Republic of China

P.R. China

Government.

Treua Inc. (DBA Gradient)

Gradient

Manufacturer.

New York State Energy Research and Development Authority

NYSERDA

Efficiency Organization.

Center for Law and Social Policy

CLASP

Efficiency Organization.

Association of Home Appliance Manufacturers

AHAM

Trade Association.

Friedrich Air Conditioning

Friedrich

Manufacturer.

Appliance Standards Awareness Project (ASAP), American Council for an Energy-Efficient Economy (ACEEE), CLASP, Consumer Federation of America (CFA), National Consumer Law Center (NCLC)

Joint Commenters

Efficiency Organizations.

Consumer Federation of America (CFA), National Consumer Law Center (NCLC)

CFA and NCLC

Efficiency Organizations.

Pacific Gas and Electric Company (PG&E), San Diego Gas and Electric (SDG&E), Southern California Edison (SCE)

California IOUs

Utilities.

Keith Rice

Rice

Individual.

GE Appliances

GEA

Manufacturer.

Northwest Energy Efficiency Alliance (NEEA), Northwest Power and Conservation Council (NWPCC)

NEEA and NWPCC

Efficiency Advocates.

Center for Climate and Energy Solutions (C2ES), Institute for Policy Integrity (IPI), Natural Resources Defense Council (NRDC), Sierra Club, Union of Concerned Scientists

Climate Commenters.

Efficiency Advocate Group.

The comment submitted by this individual did not pertain to room air conditioners.

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

The parenthetical reference provides a reference for information located in the docket of DOE's rulemaking to develop energy conservation standards for room air conditioners. (Docket No. EERE-2014-BT-STD-0059, which is maintained at

www.regulations.gov

) The references are arranged as follows: (commenter name, comment docket ID number, page of that document).

III. General Discussion

DOE developed this final rule 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 NOPR analysis indicated that the current room air conditioner products classes are still appropriate. For further discussion and responses to comments received regarding product classes see section IV.A.1 of this document.

B. Test Procedure

EPCA sets forth generally applicable criteria and procedures for DOE's adoption and amendment of test procedures. (42 U.S.C. 6293) Manufacturers of covered products must use these test procedures to certify to DOE that their product complies with energy conservation standards and to quantify the efficiency of their product. DOE's current energy conservation standards for room air conditioners are expressed in terms of combined energy efficiency ratio (CEER), in Btu/Wh. (

See

10 CFR 430.32(b) and 10 CFR part 430, subpart B, appendix F.)

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 to 10 CFR part 430, subpart C (“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. Section 7(b)(2)-(5) of appendix A. Section IV.B of this document discusses the results of the screening analysis for room air conditioners, particularly the designs DOE considered, those it screened out, and those that are the basis for the standards considered in this final rule. For further details on the screening analysis for this rulemaking, see chapter 4 of the final rule technical support document (“TSD”).

2. Maximum Technologically Feasible Levels

When DOE proposes to adopt an amended standard for a type or class of covered product, it must determine the maximum improvement in energy efficiency or maximum reduction in energy use that is technologically feasible for such product. (42 U.S.C. 6295(p)(1)) Accordingly, in the engineering analysis, DOE determined the maximum technologically feasible (“max-tech”) improvements in energy efficiency for room air conditioners, using the design parameters for the most efficient products available on the market or in working prototypes. The max-tech levels that DOE determined for this rulemaking are described in section IV.C of this final rule and in chapter 5 of the final rule TSD.

D. Energy Savings

1. Determination of Savings

For each trial standard level (“TSL”), DOE projected energy savings from application of the TSL to room air conditioners purchased in the 30-year period that begins in the year of compliance with the amended standards (2026-2055).

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

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

DOE used its national impact analysis (“NIA”) spreadsheet models to estimate national energy savings (“NES”) from potential amended standards for room air conditioners. 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. For natural gas, the primary energy savings are considered to be equal to the site energy savings. DOE also calculates NES in terms of FFC energy savings. The FFC metric includes the energy consumed in extracting, processing, and transporting primary fuels (

i.e.,

coal, natural gas, petroleum fuels), and thus presents a more complete picture of the impacts of energy conservation standards.

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

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

2. Significance of Savings

To adopt any new or amended standards for a covered product, DOE must determine that such action would result in significant energy savings. (42 U.S.C. 6295(o)(3)(B))

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. For example, the United States has now rejoined the Paris Agreement on February 19, 2021. As part of that agreement, the United States has committed to reducing GHG emissions in order to limit the rise in mean global temperature.

As such, energy savings that reduce GHG emission have taken on greater importance. Additionally, some covered products and equipment have most of their energy consumption occur during periods of peak energy demand. The impacts of these products on the energy infrastructure can be more pronounced than products with relatively constant demand. In evaluating the significance of energy savings, DOE considers differences in primary energy and FFC effects for different covered products and equipment when determining whether energy savings are significant. 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. Accordingly, DOE evaluates the significance of energy savings on a case-by-case basis, taking into account the significance of cumulative FFC national energy savings, the cumulative FFC emissions reductions, and the need to confront the global climate crisis, among other factors.

See

E.O. 14008, 86 FR 7619 (Feb. 1, 2021) (“Tackling the Climate Crisis at Home and Abroad”).

As stated, the standard levels adopted in this final rule are projected to result in national energy savings of 1.41 quad, the equivalent of the electricity use of 15 million homes in one year. They are projected to reduce CO

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 final rule.

a. Economic Impact on Manufacturers and Consumers

In determining the impacts of potential amended standards on manufacturers, DOE conducts a manufacturer impact analysis (“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 regulatory requirements on manufacturers.

For individual consumers, measures of economic impact include the changes in LCC and payback period (“PBP”) associated with new or amended standards. These measures are discussed further in the following section. For consumers in the aggregate, DOE also calculates the national net present value of the consumer costs and benefits expected to result from particular standards. DOE also evaluates the 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 cost (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 (“EL”) 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 IV.H 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 adopted 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 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 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)) To assist the Department of Justice (“DOJ”) in making such a determination, DOE transmitted copies of its proposed rule and the NOPR TSD to the Attorney General for review, with a request that the DOJ provide its determination on this issue. In its assessment letter responding to DOE, DOJ concluded that the proposed energy conservation standards for room air conditioners are unlikely to have a significant adverse impact on competition. DOE is publishing the Attorney General's assessment at the end of this final rule.

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 adopted 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 adopted 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. DOE conducts an emissions analysis to estimate how potential standards may affect these emissions, as discussed in section IV.J.3 of this document; the estimated emissions impacts are reported in section V.B.6 of this document. DOE also estimates the economic value of emissions reductions resulting from the considered TSLs, as discussed in section IV.L of this document.

g. Other Factors

In determining whether an energy conservation standard is economically justified, DOE may consider any other factors that the Secretary deems to be relevant. (42 U.S.C. 6295(o)(2)(B)(i)(VII)) To the extent DOE identifies any relevant information regarding economic justification that does not fit into the other categories described 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 effect potential amended energy conservation standards would have on the payback period for consumers. These analyses include, but are not limited to, the 3-year payback period contemplated under the rebuttable-presumption test. In addition, DOE routinely conducts an economic analysis that considers the full range of impacts to consumers, manufacturers, the Nation, and the environment, as required under 42 U.S.C. 6295(o)(2)(B)(i). The results of this analysis serve as the basis for DOE's evaluation of the economic justification for a potential standard level (thereby supporting or rebutting the results of any preliminary determination of economic justification). The rebuttable presumption payback calculation is discussed in section IV.F of this final rule.

IV. Methodology and Discussion of Related Comments

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

DOE used several analytical tools to estimate the impact of the standards considered in this document. The first tool is a spreadsheet that calculates the LCC savings and PBP of potential amended or new energy conservation standards. The national impacts analysis uses a second spreadsheet set that provides shipments projections and calculates national energy savings and net present value of total consumer costs and savings expected to result from potential energy conservation standards. DOE uses the third spreadsheet tool, the Government Regulatory Impact Model (GRIM), to assess manufacturer impacts of potential standards. These three spreadsheet tools are available on the DOE website for this rulemaking:

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”

) for the emissions and utility impact analyses.

A. Market and Technology Assessment

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

1. Scope of Coverage and Product Classes

In the April 2022 NOPR, DOE did not propose any substantive changes to the room air conditioner scope of coverage or product classes, but did propose making clarifying amendments to the product class descriptions. Specifically, DOE proposed 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, which is consistent with the cooling capacity delineation used in practice due to the rounding instruction at 10 CFR 429.15(a)(3) so would not impact compliance with current energy conservation standards. The proposed change to the product class delineation would add clarity and consistency amongst two existing regulatory provisions. 87 FR 20608. DOE requested comment on the room air conditioner scope of coverage and product classes.

Currently, reversible and one-way products are in separate product classes and are therefore not compared in any analysis conducted by DOE. However, according to the Center for Law and Social Policy (“CLASP”), taking the efficiency of alternate heating methods into account would allow DOE to treat the reverse cycle in both room and central air conditioners not as a feature meriting its own product class, but as a technology/design option to reduce energy consumption and high energy bills. In this manner, a one-way air conditioner would have the energy consumption of typical furnaces and boilers factored into its annual performance metric, while a reversible air conditioner could eliminate this energy consumption depending on its heating capacity and cold-climate performance potentially leading to energy conservation standards that require the use of reversing capabilities in all air conditioners. (CLASP, No. 42 at p. 2)

Room air conditioner energy conservation standards are currently based on the CEER metric, determined in accordance with the DOE test procedure for room air conditioners at appendix F to 10 CFR 430 (“appendix F”). Appendix F does not currently account for the energy consumption during heating operation, and therefore the CEER metric reflects the energy efficiency of a room air conditioner during cooling mode, and other low power modes. In order to account for the energy cost of alternate heating methods for non-reverse cycle room air conditioners, a test procedure amendment would be necessary to address heating mode performance, which is outside of the scope of this energy conservation standards rulemaking.

The Public Utilities recommended that DOE establish new product classes for room air conditioners with reverse cycle and <8,000 British thermal units per hour (“Btu/h”) and to consider less stringent standards for such product classes so as to not preclude the introduction of such equipment and deprive consumers of any potential consumer utility. The Public Utilities also provided options for potential standards in these suggested product classes, noting that generally efficiencies for room air conditioners with reverse cycle are lower than those without reverse cycle. (Public Utilities, No. 47 at pp. 2-4)

DOE is not aware of any room air conditioners currently sold on the market, or any prototypes in development, that meet the criteria outlined by the Public Utilities. DOE is unaware of any data suggesting that the current energy conservation standards preclude the introduction of room air conditioners with reverse cycle capabilities and capacity less than 8,000 Btu/h to the market. Furthermore, the lack of extant products that meet these criteria leaves DOE without the information needed to analyze whether a new product class is necessary. Therefore, DOE is not amending the product class structure at this time to

specifically address room air conditioners with reverse cycle capabilities and capacity less than 8,000 Btu/h. DOE is, however, adopting the clarifying amendments to the product class descriptions, originally proposed in the April 2022 NOPR, to align with the rounding instruction at 10 CFR 429.15(a)(3).

2. Technology Options

In the NOPR market analysis and technology assessment, DOE identified 22 technology options initially determined to improve the efficiency of room air conditioners, as measured by the DOE test procedure:

Table IV.1—Technology Options for Room Air Conditioners

Increased Heat Transfer Surface Area:

1. Increased heat exchanger surface area (frontal area, fin density and depth of coil).

2. Condenser coil subcooler.

3. Suction line heat exchanger.

Increased Heat Transfer Coefficient:

4. Improved fin and tube design.

5. Hydrophilic coating on fins.

6. Microchannel heat exchangers.

7. Spray condensate on condenser coil.

Component Improvements:

8. Improved indoor blower and outdoor fan blade design.

9. Improved blower/fan motor design.

10. Improved compressor efficiency.

Improved Installation, Insulation, and Airflow:

11. Improved installation materials.

12. Reduced evaporator air recirculation.

13. Reduced thermal bridging and internal air leakage.

Part-load Performance:

14. Variable-speed compressors.

15. Variable-speed drive fans and blowers.

16. Thermostatic or electronic expansion valves.

17. Thermostatic cyclic controls.

18. Air and water economizers.

Standby Power Improvements:

19. Low standby-power electronics.

20. High frequency switching power supply.

Alternative Refrigerants:

21. Significant New Alternatives Policy (“SNAP”)-approved refrigerants (R-32, R-441A, and R-290).

Other Improvements:

22. Washable air filters.

a. Alternative Refrigerants

In the April 2022 NOPR, DOE analyzed R-32 (difluoromethane or HFC-32), R-441A (hydrocarbon blend), and R-290 (propane or HC-290) as potential design options to replace R-410A to improve unit efficiency. DOE also analyzed the potential impact of implementing these alternative refrigerants on overall system cost and component efficiency. As discussed in chapter 3 of the NOPR TSD, while DOE did find efficiency benefits associated with R-441A and R-290 refrigerants relative to R410A, DOE did not rely upon those alternative refrigerants in the engineering analysis due to practical concerns regarding flammability and availability. DOE did not find reliable evidence of significant efficiency benefits from a change to R-32 refrigerant. However, based on DOE's expectation that manufacturers are likely to change the primary refrigerant used in room air conditioners to R-32 in response to recent California refrigerant regulations,

DOE analyzed the efficiency of compressors that use R-32 as part of the technology analysis and implemented these compressors in the engineering analysis in the April 2022 NOPR.

The California Air Resources Board (CARB) finalized its rulemaking on Prohibitions on Use of Certain Hydrofluorocarbons in Stationary Refrigeration, Chillers, Aerosols-Propellants, and Foam End-Uses Regulation. See

https://ww2.arb.ca.gov/rulemaking/2020/hfc2020.

This regulation prohibits the sale of new room air conditioners with refrigerants with a GWP of 750 or greater in California beginning on January 1, 2023. See chapter 3 of this final rule TSD for additional discussion.

NEEA and NWPCC supported the inclusion of R-32 in the engineering analysis because of the potential energy savings, the number of products already using R-32, and the new California refrigerant requirements. In particular, NEEA agreed with the approached used by DOE to incorporate R-32 compressors into the design options used to achieve EL 3. (NEEA and NWPCC, No. 50 at pp. 4-5) NYSERDA also supported DOE's incorporation of R-32 refrigerants and variable speed compressors across the analysis, and urged DOE to move swiftly toward finalizing this standard to lock in the beneficial impacts as soon as possible. (NYSERDA, No. 41 at p. 3)

In this final rule analysis, DOE has maintained its approach to incorporating R-32 from the NOPR analysis.

Larsen requested that DOE include calculations on the impacts of alternate refrigerants in room air conditioners in updating the standards of room air conditioners as well as changing DOE's priorities to include environmental impact and quality of life. Larsen referenced challenges to DOE's decision not to include refrigerants (R-32, R441A, R-290) approved by the Environmental Protection Agency (EPA) Significant New Alternatives Policy (“SNAP”) in its engineering analysis, and stated that technological feasibility, predicted costs in the wake of increased value in climate and health benefits, reduced global warming potential compared to the proposed refrigerant R-410A, and findings by the Oak Ridge National Laboratory that showed

increased efficiency by around 3 percent warrant the inclusion of these calculations of benefits associated with alternative refrigerants, specifically R-32. (G. Larsen, No. 37 at pp. 1-4)

EPCA requires that DOE focus on the efficiency impacts of various design options, rather than the overall environmental impact. (42 U.S.C. 6295(o)(2)(A)) DOE does consider adverse effects on consumer utility when evaluating technology options. As discussed in chapter 3 of the final rule TSD, DOE found varying reports of the efficiency benefits attributable from the change-over from R-410A to R-32, and as discussed in chapter 5 of the NOPR TSD, opted not to include R-32 specifically as an efficiency option but did include inherent efficiency differences between R-32 compressors and R-410A compressors in the analysis. Due to the varying reports of efficiency impacts and the limitation of scope for this energy conservations standards rulemaking, DOE maintains the same approach as the NOPR, to analyze a change over to R-32 refrigerant so as to utilize the compressor efficiency benefits of R-32 compressors relative to R-410A compressors, without considering specific efficiency benefits attributable to the refrigerant itself.

The Association of Home Appliance Manufacturers (AHAM) requested that DOE consider the recent safety testing challenges and safety concerns associated with the charge size of hydrocarbon refrigerants such as R-290 as, according to AHAM, DOE and the Electric Power Research Institute (“EPRI”) study projecting that use of R-290 would yield significant efficiency gains fail to take into account the practical considerations that prevent the use of R-290 in room air conditioners. AHAM stated that the safety standard UL 60335-2-40 will likely limit the charge size of hydrocarbon refrigerants such as R-290 to 114 grams due to lab safety concerns, significantly less than the 200-300 grams required for the smallest capacities of room air conditioners according to AHAM. Additionally, AHAM requested that DOE take the concerns of groups representing firefighters and fire services into account and should not rely on R-290 refrigerant to achieve efficiency gains in its analysis. (AHAM, No. 43 at p. 26)

In chapter 3 of the NOPR TSD, DOE noted that researchers have observed efficiency benefits associated with using R-290 as a refrigerant. However, DOE understands that this design option is still new to the room air conditioner industry and poses substantial design challenges to meet UL safety standards. DOE did not propose to rely on R-290 refrigerant as a design option in the NOPR analysis and maintained that approach in this final rule.

Systemair requested clarification regarding whether R-454B was included in the analysis. (Systemair, Public Meeting Transcript, No. 38 at pp. 15-16)

AHAM disagreed with the potential use of R-454B as a refrigerant as mentioned by Systemair because of considerable cost increases as it is a more expensive refrigerant than R-32, lower efficiency than R-32 compressors, and lack of availability. AHAM recommended that DOE reject the use of R-454B as a technology option. (AHAM, No. 43 at p. 27) Additionally, UL stated that for any refrigerant considered in DOE's analysis, SNAP approval would be required. (UL, Public Meeting Transcript, No. 38 at pp. 16-17)

A notation in the form “Systemair, Public Meeting Transcript, No. 38 at pp. 15-16” identifies an oral comment that DOE received on May 3, 2022 during the public meeting, and was recorded in the public meeting transcript in the docket for this test procedure rulemaking (Docket No. EERE-2014-BT-STD-0059-0030). This particular notation refers to a comment (1) made by Systemair during the public meeting; (2) recorded in document number 38, which is the public meeting transcript that is filed in the docket of this energy conservations standards rulemaking; and (3) which appears on pages 15 through 16 of document number 38.

SNAP approved R-454B for use in residential air conditioning applications, subject to certain use conditions, in a final rule published on May 6, 2021. 86 FR 24444. Therefore, DOE investigated R-454B as a design option for this final rule analysis. DOE did find some efficiency benefit associated with implementation of R-454B but noted the additional costs associated with the technology and the design and supply challenges that AHAM discussed. The full design option analysis of R-454B can be found in the technology assessment in chapter 3 of the final rule TSD.

b. Product Weight

AHAM stated that DOE did not sufficiently evaluate the impact of its proposals with respect to product weight, and requested that DOE consider design parameters of 50 or 150 pound weight thresholds for one or two person lifts set by manufacturers for worker safety standards, consumer utility, and other distribution requirements. According to information collected by AHAM from members on their models' weight and dimension characteristics, AHAM stated that there is a strong relationship between product weight and cooling capacity and claimed that DOE is underestimating the change in weight associated with technology options and design required to meet DOE's proposed standards for a significant number of models in the market. According to AHAM member data, there will likely be significant increase to product weight that exceeds DOE's identified acceptable limits, and that by generalizing the increase in product weight by product class, DOE is overlooking a significant portion of the market. According to AHAM, this increase in product weight is an ongoing consideration as products are often removed from windows seasonally, and senior citizens who rely on these products will have more difficulty with heavier products. According to member data, AHAM estimated that product weight increases of up to 14.6 pounds for Product Classes 1-3 would be required to meet the proposed standards, with each estimated resulting product weight above the 51-pound threshold determined by DOE as a reasonable upper limit for single-person portability. For Product Class 1, AHAM predicted product weight increases between 21 and 56 percent, compared to DOE's estimate of 17 to 46 percent. AHAM further estimated weight increases between 7 and 22 percent for Product Classes 3, 4, 5a, 8a, and 16. (AHAM, No. 43 at pp. 19-21)

DOE understands that product weight is a concern to consumers, which is why DOE considered the effect on product weight when conducting the engineering analysis. DOE considered weight restrictions only for Product Class 1 because units in Product Class 2 already commonly exceed the 50-pound Occupational Safety and Health Administration (OSHA) recommendation for a single-person lift, implying that single-person lifts are not an important consumer attribute for Product Class 2 or for larger units. DOE modeled the potential increases in product weight due to more efficient compressors using compressor weight data from product teardowns. Based on this analysis, DOE expects that manufacturers will be able to preserve single-person lift capability for those products for which it is important to consumers (

i.e.,

units within Product Class 1), as DOE predicts a unit weight increase between 17 and 46 percent for the models in DOE's teardown sample to achieve the max-tech efficiency level, but in no instance would unit weight exceed 51 pounds. DOE's analysis indicates that unit weights resulting from higher efficiency level design options that exceed a 150-pound two-person carry threshold were limited to two product classes, PC 5b and PC 11,

where existing units either nearly or already exceed 150 pounds. DOE expects that these large units are already installed primarily with the assistance of professional installers, limiting the impact of increased weight on the consumer utility of these units.

B. Screening Analysis

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

(1)

Technological feasibility.

Technologies that are not incorporated in commercial products or in commercially viable, existing prototypes will not be considered further.

(2)

Practicability to manufacture, install, and service.

If it is determined that mass production of a technology in commerical products and reliable installation and servicing of the technology 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.

If a technology is determined to have a significant adverse impact on the utility of the product to significant subgroups of consumers or 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)

Safety of technologies.

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 technology has proprietary protection and 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 sum, 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 reasons for eliminating any technology are discussed in the following sections.

The subsequent sections include comments from interested parties pertinent to the screening criteria, DOE's evaluation of each technology option against the screening analysis criteria, and whether DOE determined that a technology option should be excluded (“screened out”) based on the screening criteria.

1. Screened-Out Technologies

In the April 2022 NOPR, DOE proposed 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 requested that DOE screen out installation materials like accordion side-curtains as there is no way to account for the energy savings according to the existing test procedure given that these features are not installed in the calorimeter during efficiency testing. AHAM also requested that DOE screen out the use of an extended polystyrene (EPS) panel as a technology option as the test procedure will not capture any efficiency gains given that calorimeters are balanced to avoid high differential pressure, which is the source of efficiency gains for this technology option. Additionally, AHAM stated that an EPS panel may conflict with the effectiveness of other technology options such as the condenser coil subcooler and increased heat transfer area. Further, AHAM stated that as most units on the market already use washable air filters, this technology option will not result in significant energy savings or efficiency gains. (AHAM, No. 43 at pp. 27-28)

While the DOE test procedure does not account for the efficiency effects of installation materials (

e.g.,

side-curtains, EPS panels, washable air filters), the technologies still meet the screening criteria, in that they are technically feasible, widely used and not a barrier to availability, manufacturing, installation, or service, do not pose a risk to health, and are not a proprietary technology. Therefore, DOE did not screen out installation materials at this stage. DOE notes that, as discussed in chapter 5 of the NOPR TSD, installation materials were not a design option used to construct efficiency levels for this analysis.

2. Remaining Technologies

Through a review of each technology, DOE concluded that all of the other identified technologies listed in section IV.B.2 of this document met all five screening criteria to be examined further as design options in DOE's final rule analysis. In summary, DOE did not screen out the following technology options:

Table IV.2 displays the design options retained for the engineering analysis.

Table IV.2—Retained Design Options

Increased Heat Transfer Surface Area:

1. Increased heat exchanger surface area (frontal area, fin density and depth of coil).

2. Condenser coil subcooler.

Increased Heat Transfer Coefficient:

3. Improved fin and tube design.

4. Hydrophilic coating on fins.

5. Microchannel heat exchangers.

6. Spray condensate on condenser coil.

Component Improvements:

7. Improved indoor blower and outdoor fan blade design.

8. Improved blower/fan motor design.

9. Improved compressor efficiency.

Improved Installation, Insulation, and Airflow:

10. Improved installation materials.

11. Reduced evaporator air recirculation.

12. Reduced thermal bridging and internal air leakage.

Part-load Performance:

13. Variable-speed compressors.

14. Variable-speed drive fans and blowers.

15. Thermostatic or electronic expansion valves.

16. Thermostatic cyclic controls.

Standby Power Improvements:

17. Low standby-power electronics.

18. High-frequency switching power supply.

Alternative Refrigerants:

19. SNAP-approved refrigerants (R-32, R-441A and R-290).

Other Improvements:

20. Washable air filters.

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 and do not result in adverse impacts on consumer utility, product availability, health, or safety). For additional details, see chapter 4 of the final rule TSD.

C. Engineering Analysis

The purpose of the engineering analysis is to establish the relationship between the efficiency and cost of room air conditioners. 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/equipment 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 interpolate to define “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 rulemaking, DOE relied 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 in its analysis certain technologies that met the screening criteria but that DOE was unable to evaluate for one or more of the following reasons: (1) Data were not available to evaluate the energy efficiency characteristics of the technology, (2) available data suggested 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 final rule TSD.

a. Baseline Efficiency/Energy Use

For each product/equipment 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/equipment class represents the characteristics of a product/equipment typical of that class (

e.g.,

capacity, physical size). Generally, a baseline model is one that just meets current energy conservation standards, or, if no standards are in place, the baseline is typically the most common or least efficient unit on the market.

Of the 48 total units DOE selected for analysis in this rulemaking, 19 of them were baseline units that fell within 12 of the 16 room air conditioner product classes and served as reference points for each analyzed product class. DOE used these reference points to assess the effects of amended energy conservation standards, which in turn 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

DOE considered five efficiency levels (“ELs”) above the baseline for this analysis. As discussed in chapter 5 of the final rule TSD, DOE modeled EL 1, EL 2, and EL 3 by analyzing the cost and efficiency impacts of implementing improved single-speed compressors. DOE also analyzed the impact of implementing tube-only or tube-and-fin subcoolers at EL 3 if the analyzed unit did not already have one. At EL 4, DOE considered the efficiency impacts of variable-speed compressors already available on the market and replacing permanent split capacitor (“PSC”) fan motors with more efficient electronically commutated motors (“ECMs”).

As part of DOE's analysis, the maximum available efficiency level is the highest efficiency unit currently available on the market. DOE also defines a “max-tech” efficiency level to represent the maximum possible efficiency for a given product. As discussed in chapter 5 of the final rule TSD, for the max-tech level, DOE modeled 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 in the United States.

The max-tech level is based entirely on modeled combinations of design options that have not yet been combined in a commercially available room air conditioner. Notably, while the key design option implemented at max-tech, variable-speed compressors, is also considered at EL 4, the significant difference between the two is the level of variable-speed compressor efficiency being considered. At EL 4, DOE considers the variable-speed compressors currently implemented in room air conditioners on the market today, for which performance has been characterized through testing. At EL 5, DOE is considering the highest efficiency variable-speed compressor identified in compressor catalogs, which are not currently implemented in room air conditioner models on the market today or in prototypes. Therefore, the efficiency level at max-tech, EL 5, for each product class is a numerical estimation for the theoretical implementation of the highest efficiency variable-speed compressors. Furthermore, the DOE room air conditioner 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 air conditioners.

Additionally, the most efficient variable-speed compressors that DOE identified in compressor catalogs that were implemented in the analysis at the max-tech efficiency level are manufactured by one manufacturer and have rated Energy Efficiency Ratios (“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.

Gradient stated that EL 4 accurately represents an intermediate efficiency level that represents the efficiency of variable-speed units on the market. According to Gradient, variable-speed compressors for room air conditioners with a capacity greater than 8,000 Btu/h are at this time a mature technology that is available from most manufacturers, and the technology needed for implementing variable-speed drives is no longer specialized. Therefore, Gradient strongly supported the proposal of EL 4 as the minimum efficiency level for room air conditioners with a capacity greater than 8,000 Btu/h. (Gradient, No. 40 at p. 2) NEEA and NWPCC also supported the new EL 4 level representing the efficiency of variable-speed units on the market below max tech. (NEEA and NWPCC, No. 50 at p. 5)

DOE agrees with Gradient that multiple units with cooling capacities greater than 8,000 Btu/h from several manufacturers employing variable-speed compressors are now available on the market. Further, DOE concludes that variable-speed compressors with efficiencies higher than those currently observed on the market are technically feasible, but there is uncertainty as to whether they would be available in the quantities that would be required to implement them on the necessary scale at the time that compliance with the standards being adopted in this final rule will be required.

In their comments, NEEA and NWPCC expressed disappointment in the reduction of EL 3 CEER from the preliminary analysis to the NOPR analysis because of the significant cost-effective national energy savings achievable by using high efficiency single-speed compressors. However, they agreed with the methodology used to reach the change, as they recognize that the reduction in maximum single-speed compressor efficiency to 12.7 Btu/Wh was based on a comprehensive survey of available compressors and accounted for the changeover to R-32 refrigerant. (NEEA and NWPCC, No. 50 at p. 5)

DOE is not making any changes to EL 3 in this final rule analysis, retaining the reduction in maximum single-speed compressor efficiency to 12.7 Btu/Wh as discussed in the NOPR.

AHAM requested clarification regarding DOE's conclusion that some of the technology options would not result in changes to chassis size and weight. (AHAM, Public Meeting Transcript, No. 38 at pp. 26-27) P.R. China stated that the proposed increases to efficiency ranging from 20 to 50 percent depending on the product class are unreasonable due to size, weight, and cost concerns and instead recommended controlling the increase in standards of each product class to about 15 percent. According to P.R. China, the upgrading technology paths introduced in the April 2022 NOPR would lead to increased costs and size of chassis associated with the proposed energy efficiency levels, and can lead to increased burden on consumers, and increased carbon emissions in the production process. Therefore, P.R. China suggests optimizing the proposed standards to reduce potential impacts on the supply chain. (P.R. China, No. 39 at pp. 3-4) Friedrich also indicated that based on its industry experience, EL 3 would require room air conditioner chassis to be enlarged and become heavier, due, in substantial part, to increased heat exchanger cross-sectional area and compressor size. (Friedrich, No. 44 at p. 5)

According to AHAM, DOE underestimated the impacts that the considered technology options will have on chassis size, specifically with adoption of variable-speed compressors, feasible chassis width, and installation impacts/costs. AHAM stated that DOE should evaluate the space needed for compressor controls and transformers when considering the space needed for variable-speed compressors, as these additional components may not fit into existing sleeve sizes. Additionally, AHAM stated that at the proposed

amended standard levels, chassis sizes will increase significantly to greater than DOE's estimated maximum feasible chassis width and therefore DOE is underestimating a significant portion of the market. AHAM presented percent changes to product dimensions based on member data that ranged from 6 to 15 percent in height, 2 to 19 percent in width, and 2 to 21 percent in depth across Product Classes 1, 2, 3, 4, and 16. AHAM indicated that these increased dimensions would lead to more efficient room air conditioners that are potentially incompatible with older buildings, and would require either reinstallation, changes to the building's infrastructure, or purchase of second-hand less efficient products that do fit windows in these older buildings leading to negative health impacts for low income consumers and those in underserved communities. AHAM also stated that with increased chassis sizes and weight, there will be the potential for an increase in packaging and structural robustness costs to ensure the product is not damaged during transport and to ensure the product passes the drop tests requirement outlined in UL 60335-2-40, Annex GG. AHAM requested that DOE update its analysis according to the information provided. (AHAM, No. 43 at pp. 21-23)

Friedrich disputed the technological feasibility of increasing compressor efficiency to the levels DOE used to model EL 3 and EL 4. Friedrich stated that it was unable to source a single-speed compressor that would achieve EL 3 with an EER of 12.7 Btu/h and that the most efficient single-speed compressor it was able to source has an EER of 10.8 Btu/h. Friedrich added that it was also unable to source a variable-speed compressor with an EER of 13.2 Btu/h, though Friedrich did not provide any information about the variable-speed compressors that are available to them. (Friedrich, No. 52 at p. 2)

DOE identified the highly efficient compressors used in the design analysis in rotary compressor catalogues from companies that typically provide compressors for room air conditioners. The highest efficiency compressors available on the market used R-32 refrigerant. DOE incorporated only those compressors rated at American Society of Heating, Refrigerating, and Air-Conditioning Engineers (“ASHRAE”) test conditions in this analysis. On this basis, DOE concluded that these higher efficiency compressors would be an available option for increasing the efficiency of room air conditioners subject to the amended standards, including those discussed in Friedrich's comments.

DOE's analysis indicates that manufacturers should not need to increase chassis sizes in order to implement variable-speed compressors at EL 4. DOE has observed that compressor controls and transformers do not require additional chassis size; room air conditioners with variable-speed compressors currently on the market have similar or smaller chassis sizes compared to their equivalent single-speed counterparts, as discussed further in chapter 5 of the final rule TSD. With respect to more robust packaging, DOE agrees that as chassis sizes increase, additional packaging is needed. Therefore, DOE has altered the NOPR analysis to incorporate an incremental cost for packaging into its engineering analysis at max-tech, where DOE modeled chassis size increases.

As a part of the engineering analysis, DOE considered the weight increases associated with each design option for which a substantive weight impact was expected. Those design options included changes to the compressor efficiency, implementation of variable-speed compressors, and adjustments to the heat exchangers (including subcoolers) and resulting chassis size changes, which are discussed in detail both in this document and in chapters 3 and 5 of the final rule TSD. DOE determined that there is sufficient room in the chassis to swap a more efficient compressor of similar overall size and configuration, and therefore would not impact the overall size of the room air conditioner, unlike increases to the heat exchanger which would necessarily increase the model's overall size. In that way, DOE considered the changes to a model's overall size and weight resulting from implementing design options at each efficiency level. GEA indicated that, in order to meet the EL 3 requirements, either a variable-speed compressor or a large chassis size increase would be required, while DOE modeled the cost of meeting this efficiency level using only component replacements and a single-speed compressor. (GEA, No. 49 at pp.1-2)

While manufacturers may elect to either implement variable-speed compressors or increase chassis size as a means to reach EL 3, DOE's analysis shows that the most efficient single-speed compressor alone can allow room air conditioners to reach EL 3. As DOE's analysis estimates that manufacturers are likely to use the most cost-effective design options, DOE modeled EL 3 using the most efficient single-speed compressors instead of other possible design options.

Friedrich suggested that compressor data found in catalogues would be better if averaged rather than selecting the most efficient data for DOE's analysis, given that manufacturers may not always be able to implement the best compressors in their products. (Friedrich, Public Meeting Transcript, No. 38 at pp. 18-19)

EPCA requires DOE to adopt the maximum standards that are both technically justified and economically feasible. (42 U.S.C. 6295(o)(2)(A)) When assessing efficiency levels, and in particular the maximum technologically feasible room air conditioner efficiency level, DOE considered the compressor with the maximum available efficiency, based on product literature, to determine the limits of technical feasibility in room air conditioner compressors. Using an average would not provide DOE with the maximum technologically feasible result, though DOE notes that when considering efficiency levels above baseline and below max-tech, compressors of various efficiency were assessed and implemented in the analysis.

Gradient requested clarification regarding the evaporating and condensing temperature test conditions used to characterize compressor efficiency in catalogue data surveyed by DOE. (Gradient, Public Meeting Transcript, No. 38 at pp. 17-18)

In developing the engineering analysis, DOE considered compressors for which performance data were available in accordance with ASHRAE or Air Conditioning, Heating, & Refrigeration Institute test conditions, which use a condenser temperature of 54.4 °C and an evaporation temperature of 7.2 °C. These compressor test conditions are an industry standard, and are commonly used in characterizing and determining relative compressor efficiency improvements.

Friedrich stated that most of the technology options in DOE's analysis, such as a suction line heat exchanger, do not offer any benefit for the refrigerant used, or have already been used to maximize efficiency like with condenser coil subcoolers, and direct current (DC) fan and blower motors. Friedrich also stated that microchannel heat exchangers may not be appropriate for R-32 applications where minimizing leakage is paramount, as such heat exchangers have issues with galvanic corrosion. (Friedrich, No. 44 at p. 9)

As discussed in chapters 3 and 5 of the final rule TSD, DOE evaluates each technology option for its potential efficiency benefit. However, when developing the engineering analysis, DOE typically focuses on design options with substantial impact on efficiency that DOE expects manufacturers would

implement in their designs to improve efficiency. In the case of condenser coil subcoolers, while DOE did find that most units implemented some form of this technology, DOE identified different types of subcoolers with varying efficiency benefits, and therefore retained subcoolers as a design option for those units for which efficiency improvements using a subcooler or improved subcooler design were feasible. In the case of fan and blower motors, DOE identified ECM motor technology as a potential improvement over the commonly implemented PSC motors, and considered the improvement at the two highest efficiency levels. DOE did not consider the implementation of microchannel heat exchangers as a design option for the engineering analysis due to the high cost and lack of room air conditioner application-specific efficiency data.

NEEA and NWPCC stated that they could provide data on the cost-effectiveness of high efficiency models. (NEEA and NWPCC, No. 50 at p. 4)

DOE did not receive any additional information from NEEA and NWPCC on high efficiency models ahead of this final rule.

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 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 bill of materials (“BOM”) provides the basis for the MPC estimates. DOE estimated the cost of the highest efficiency single-speed and variable-speed compressors implemented in EL3 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 air conditioners to date.

To account for manufacturers' non-production costs and profit margin, DOE applies a 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 air conditioners. Chapter 12 of the final rule TSD provides additional information on the manufacturer markup.

U.S. Securities and Exchange Commission, Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system. Available at

www.sec.gov/edgar/search/

(last accessed September 7, 2022).

3. Cost-Efficiency Relationship

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 air conditioners at each efficiency level compared to the baseline) are provided in Tables 5.5.5 and 5.5.6 in chapter 5 of the final rule TSD. See chapter 5 of the final rule TSD for additional detail on the engineering analysis.

Gradient agreed with the incremental cost for Product Classes 1 through 5b including the expected trend of increased cost for higher capacity units, but stated that the incremental cost for variable-speed compressor technology should depend only on the capacity of the system, and as such, Gradient recommended applying the incremental costs for Product Classes 1 through 5b to systems of similar capacity in other product classes. (Gradient, No. 40 at p. 2)

DOE based its incremental costs for each product class on data derived from teardowns of units in that product class and a design option analysis. The differences in incremental costs observed between non-louvered and louvered units are not due to differences in cost estimates for the variable-speed compressor design option, but inherent differences in incremental cost estimates for a particular configuration. These inherent differences in incremental costs are driven by differences in design and component types, as shown by DOE's teardown analysis, as discussed in further detail in chapter 5 of the final rule TSD.

AHAM stated that reducing energy consumption in room air conditioners requires balancing multiple tradeoffs between cost, functional performance, and energy efficiency among numerous components, with different mixes of technology for each product platform. Accordingly, AHAM stated that manufacturers have therefore selected virtually all of the viable technologies across their product lines and requested that DOE recognize that there is limited new technology that would allow for significant per-unit reduction in energy consumption in room air conditioners and that the more radical or comprehensive the design change, the more likely that retooling is necessary and, thus, the greater the product cost increase and capital investment requirement. AHAM concluded that while there may be declining costs over time associated with energy efficient components, these are due to changes in productivity and/or value engineering that is independent of energy efficiency. (AHAM, No. 43 at pp. 18-19)

While DOE recognizes that manufacturers face tradeoffs regarding cost, performance, and efficiency, DOE identified several feasible technologies for improving product efficiency across product lines that have only been implemented in a few room air

conditioner models to date, such as variable-speed compressors and ECM fan motors. DOE's analysis in this final rule takes into account costs associated with retooling and capital investments when determining economic justification. See section IV.J.2.c of this document for a description of the conversion cost methodology.

4. Consumer Utility

According to AHAM, consumers may elect to use window units in wall sleeves because higher capacity through-the-wall room air conditioners are already more costly, larger, and heavier than their window counterparts, which may limit efficiency gains and even lead to safety concerns due to inadequate cooling of high-pressure components. AHAM requested that DOE avoid this result not only because it undercuts energy conservation savings goals, but also because it increases safety risks for consumers, with a disproportionate burden on lower income and underserved communities. (AHAM, No. 43 at pp. 22-23)

In its analyses, DOE assumes that consumers will install products according to manufacturer instructions and that they will not install units in an unsafe manner. DOE has no information from which to estimate the potential efficiency effects of the incorrect installation described.

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 MSP estimates derived in the engineering analysis to consumer prices, which are then used in the LCC and PBP analysis. At each step in the distribution channel, companies mark up the price of the product to cover business costs and profit margin.

In the April 2022 NOPR, DOE assumed the main party in the distribution chain after manufacturers was retailers.

Friedrich requested additional details regarding the assumption that 100 percent of room air conditioners sales occur through the retail distribution channel. (Friedrich, Public Meeting Transcript, No. 38 at p. 29)

Unlike other larger space cooling equipment that require additional ductwork or installation materials, DOE was unable to find data suggesting that room air conditioners require a general or mechanical contractor for installation. In the absence of data or additional comment provided by stakeholders, DOE maintains the assumption in this final rule that 100 percent of sales occur through the retail distribution channel.

DOE developed baseline and incremental markups for each actor in the distribution chain. 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.

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.

U.S. Census Bureau, Annual Retail Trade Survey. 2017.

www.census.gov/programs-surveys/arts.html.

Chapter 6 of the final rule TSD provides details on DOE's development of markups for room air conditioners.

E. Energy Use Analysis

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

i.e.,

as they are actually used by consumers). The energy use analysis provides the basis for other analyses DOE performed, particularly assessments of the energy savings and the savings in consumer operating costs that could result from adoption of amended or new standards.

To estimate annual room air conditioner usage and energy consumption in the April 2022 NOPR, DOE first calculated the number of operating hours in cooling mode for each room air conditioner in the residential and commercial samples using the reported energy use for room air conditioning in the EIA's Residential Energy Consumption Survey (“RECS”) 2015

and Commercial Building Energy Consumption Survey (“CBECS”) 2012,

along with historical estimates of the EER of the room air conditioner(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.

U.S. Department of Energy-Energy Information Administration. Residential Energy Consumption Survey. 2015.

www.eia.gov/consumption/residential/data/2015/.

U.S. Department of Energy-Energy Information Administration. Commercial Buildings Energy Consumption Survey. 2012.

www.eia.gov/consumption/commercial/data/2012/.

AHAM questioned the accuracy of the RECS data more generally, pointing to several sources of potential error or uncertainty within the dataset. (AHAM, No. 43 at pp. 8-10)

RECS represents the largest available data-set of installed residential appliance stock that is designed to be nationally representative.

Although there may be error or uncertainty in household responses, as in any survey, there is no evidence that responses to any of the questions regarding room air conditioners suffers from a systematic bias that would impact the energy use or LCC analysis. Additionally, the RECS end use energy consumption data, used is the energy use analysis, is derived from household energy bills provided by respondents and is an exact measurement that is not subject to response error from the household. The RECS end-use estimates are based on an engineering approach and calibrated based on the relative uncertainties of and correlations between the end uses.

A study comparing field-energy estimates from the Pecan Street Project

to end-use estimates from RECS found good agreement between the air conditioning, water heating, and refrigerator consumption estimates as a fraction of the whole-home energy.

Although the authors found that the total energy consumption by end use was higher in RECS households, the authors attribute the difference to selection bias associated with the volunteer households within the Pecan Street dataset. For this final rule, DOE maintains that the RECS dataset

provides the most reasonable, nationally representative estimate for room air conditioner energy consumption in the U.S.

www.eia.gov/consumption/residential/reports/2015/comparison/index.php.

Energy Information Administration. RECS 2015 Consumption and Expenditures Technical Documentation Summary.

www.eia.gov/consumption/residential/reports/2015/methodology/pdf/2015C&EMethodology.pdf

(last accessed September 12, 2022).

www.pecanstreet.org/dataport/.

Brock Glasgo, Chris Hendrickson, Inês M.L. Azevedo.

Using advanced metering infrastructure to characterize residential energy use.

The Electricity Journal, Volume 30, Issue 3, 2017, Pages 64-70.

AHAM and Friedrich stated that it appears highly likely that DOE has overestimated the cooling hours substantially based on end-use energy consumption estimates from RECS 2015, and thus the energy usage and related potential savings from more efficient room air conditioners. (AHAM, No. 43, at p. 8; Friedrich, No. 44 at pp. 7-8) According to AHAM, in many, if not most cases, room air conditioners are not thermostat-driven, load-following but, rather, are turned on and off by users as required, and assuming a load-following pattern substantially overstates the number of hours a room air conditioner is actually on.

AHAM believes it to be more common that room air conditioners are turned on and off by user choice such as when it is especially hot or when a room is occupied, and that the usage hours in that control mode are likely to be much lower than estimates based on load modeling. In support of this point, AHAM stated that in the RECS data, nearly half the respondents report turning on their room air conditioners only when needed and an additional 17 percent adjust the temperature manually, while only 30 percent report setting one temperature and leaving the unit as is.

RECS reports space cooling end-use energy consumption estimates based on calculated cooling load based on household characteristics and weather data.

DOE acknowledges that the statistical nature of the RECS end-use load analysis includes some uncertainty, but maintains that the RECS end-use energy consumption estimates remain the best available dataset for determining the hours of operation associated with room air conditioners. DOE notes that the responses within the household survey portion of RECS for room air conditioner usage do not necessarily imply higher or lower usage relative to DOE's estimates from RECS energy consumption data. For example, respondents that turn their unit on and off manually could potentially use their unit more than expected based only on cooling load-based operation.

DOE performed a sensitivity analysis to estimate the potential impact of overestimating operating hours for households that turn their unit on and off as needed. For this sensitivity analysis, DOE reduced the operating hours by half for households reported in RECS as turning their unit on and off as needed. Although energy savings are reduced due to the overall lower operating hours in this sensitivity analysis, the average LCC savings remains positive for all product classes at the adopted TSL with a majority of consumers receiving a net benefit. The average shipment-weighted LCC savings are $62 (relative to $85 in the reference case) and 25% of consumers are impacted negatively (relative to 17 percent in the reference case). As noted above, the assumption of reduced usage associated with household that manually turn their unit on or off is a conservative assumption given that these households could potentially use their unit more than estimated based cooling-load based operation. See appendix 8F of the final rule TSD for the full results of the analysis.

AHAM and Friedrich stated that portable air conditioners are a more appropriate analog for room air conditioner usage rather than assuming a cooling load-driven model, since both products are used as a last resort to meet a specific need and suggested DOE base operating hours on a field-metering study of portable air conditioners. (AHAM, No. 43 at p. 13; Friedrich, No. 44 at p. 8)

The portable air conditioner field-metering study referenced by AHAM and Friedrich analyzed only 19 units for less than a full cooling season.

As stated in the report itself, given the limited number of test sites in two locations in the Northeast, the study was not intended to be statistically representative of portable air conditioner (“AC”) users in the United States. Even if portable air conditioners were a good analog to room air conditioners, the limitations of this dataset in terms of sample size and representation of usage would preclude its application for the energy use analysis.

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.

In the April 2022 NOPR, DOE accounted for the reduction in energy use of models with a variable-speed compressor during part load operation based on the methodology developed for the DOE test procedure. DOE accounted for geographic-dependent climate variability by calculating U.S. State-dependent performance adjustment factors (“PAFs”) using historical climate data spanning the period from 2008-2016 from the National Oceanic and Atmospheric Administration. For each state in the United States, 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.

AHAM stated that before DOE assigns significant value to expensive variable speed/capacity compressors and related control and other systems in its engineering analysis, it needs to validate its assumptions about room air conditioner operating conditions, operating hours, and the likelihood of part load operation. (AHAM, No. 43 at p. 17)

The methodology used in the April 2022 NOPR to estimate the energy savings associated with part-load operation is based on the DOE test procedure, as well as available data regarding room air conditioner usage. The development of the test procedure involved testing the performance of variable-speed units relative to single-speed units in a laboratory setting and measuring the relative efficiency gained by part-load operation. DOE is unaware of additional data that can be utilized to estimate the performance of variable-speed units. DOE's application of PAFs for variable-speed units used in the energy use analysis is consistent with the methodology used in DOE test procedure and represents DOE's best estimates to capture the efficiency gains of part load operation based on available data.

Rice stated that the energy use analysis in the April 2022 NOPR does not use the correct weighting factors to calculate room air conditioner (“RAC”) CEERs and performance adjustment factors (“PAFs”). Rice states that the weighting factors used by DOE were the fractional time spent in each bin, while the correct approach would be to use fractional cooling delivered, as done in the RAC test procedure final rule. Rice suggested DOE modify its approach in the final rule to use weighting factors derived by the fractional cooling delivered. (Rice, No. 48 at p. 2)

DOE clarifies that the calculated State-dependent CEERs and PAFs in the April 2022 NOPR were estimated on the fractional cooling delivered, as suggested by Rice, which are derived from the fractional time spent in each temperature bin. The description of the analysis has been updated in the final rule TSD to reflect this clarification.

In the April 2022 NOPR analysis, DOE included the impact of fan-only mode energy consumption in the total energy

use, based on available data for portable ACs. Based on field metering data of portable air conditioners, fan-only mode is estimated at 30 percent of cooling mode hours. 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 estimated the amount of time the unit spent in fan-only mode based on the ENERGY STAR Version 4.2 criterion for room air conditioners 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.

Ibid.

NEEA and NWPCC stated that DOE's assumption of fan-only mode being 30 percent of cooling mode hours for models below ENERGY STAR efficiency level is a reasonable assumption. Additionally, NEEA and NWPCC agree that more efficient units (those meet or exceed the ENERGY STAR level) would be less likely to operate in fan-only mode given their variable-speed fans and motors and support the assumed operation of fan-only model to be 5 percent of cooling mode hours for these units. (NEEA and NWPCC, No. 50 at p. 5)

In the April 2022 NOPR, DOE assumed that approximately half of room air conditioners are unplugged for half of the year. The “unplugged” time associated with these units is averaged over all units.

The California IOUs provided data supporting DOE's assumption. In an online survey conducted on behalf of the California IOUs by Evergreen Economics, results show that 48 percent of households with a room air conditioner reported removing their unit and reinstalling their equipment each year. (California IOUs, No. 47 at pp. 4-5)

DOE appreciates the data provided by the California IOUs supporting its assumption. DOE maintains its assumption for this final rule.

P.R. China suggested DOE account for the degradation in energy efficiency over the lifetime of the product and in different operating environments in the energy use and LCC analyses. (P.R. China, No. 39 at p. 4)

DOE is unaware of data suggesting a decrease in product efficiency over the lifetime of room air conditioners. Moreover, there is no indication that the degradation would preferentially impact more efficient products over less efficient ones. As this effect would impact the energy use of units at various efficiency levels, it would likely have a small impact on the overall LCC savings results.

Chapter 7 of the final rule TSD provides details on DOE's energy use analysis for room air conditioners.

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 air conditioners. 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 air conditioners 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 and 2012 CBECS. For each sample household, DOE determined the energy consumption for room air conditioners and the appropriate energy price. By developing a representative sample of households, the analysis captured the variability in energy consumption and energy prices associated with the use of room air conditioners.

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 air conditioner user samples. For this rulemaking, the Monte Carlo approach is implemented in MS Excel together with the Crystal Ball

add-on.

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. DOE calculated the LCC and PBP for all consumers of room air conditioners as if each were to purchase a new product in the first year of required compliance with new or amended standards. Amended standards apply to room air conditioners manufactured 3 years after the date on which any new or amended standard is published. (42 U.S.C.

6925(m)(4)(A)(i)) Therefore, DOE used 2026 as the first year of compliance with any amended standards for room air conditioners.

Crystal Ball

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/technetwork/middleware/crystalball/overview/index.html

(last accessed September 6, 2022).

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 final rule TSD and its appendices.

Table IV.3—Summary of Inputs and Methods for the LCC and PBP Analysis *

Inputs

Source/method

Product Cost

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

Installation Costs

Baseline installation cost determined with data from RSMeans 2022.

Annual Energy Use

The total annual energy use by operating mode multiplied by the hours per year in each mode.

Variability:

Based on the 2015 RECS and 2012 CBECS.

Energy Prices

Electricity:

Based on Edison Electric Institute data for 2021.

Variability:

Regional energy prices determined for each Census Division.

Energy Price Trends

Based on

AEO2022

price projections by Census Division.

Repair and Maintenance Costs

Assumed no change with efficiency level for maintenance costs. Repair costs estimated for each product class and efficiency level.

Product Lifetime

Weibull probability distribution developed from historical shipments,

American Housing Survey,

and

RECS,

with an average lifetime of 9 years.

Discount Rates

Approach involves identifying all possible debt or asset classes that might be used to purchase the considered appliances, or might be affected indirectly. Primary data source was the Federal Reserve Board's Survey of Consumer Finances.

Compliance Date

2026.

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

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 air conditioners that utilize single-speed compressors, DOE obtained historical Producer Price Index (“PPI”) data for room air conditioners 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.

After 2009, DOE used the primary products series of “air-conditioning, refrigeration and forced air heating equipment”, which includes room air conditioners, spanning the years 2010-2021.

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 the combined data from 1990-2021, the estimated learning rate (defined as the fractional reduction in price expected from each doubling of cumulative production) is 24 percent. For efficiency levels that include variable-speed compressors, 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 2021 to estimate the historic price trend of electronic components in the control. 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 final rule TSD for further details on this topic.

Room air-conditioners and dehumidifiers, except portable dehumidifiers PPI series ID: PCU3334153334156;

www.bls.gov/ppi/.

Air-conditioning, refrigeration, and forced air heating equipment manufacturing, Primary Products PPI series ID: PCU333415333415P;

www.bls.gov/ppi/.

2. Installation Cost

Installation cost includes labor, overhead, and any miscellaneous materials and parts needed to install the product. In the April 2022 NOPR, DOE assumed that the installation cost would be constant for all efficiency levels and, thus, did not include installation costs in the LCC calculation.

AHAM stated that even with minimal size increases in smaller room air conditioners, different chassis sizes will necessitate different installation brackets that do not cover louvers. AHAM requested that DOE analyze costs of necessary retrofits if chassis size changes and the increased installation costs due to heavier products. (AHAM, No. 43 at p. 23)

DOE agrees that a standard that changes the chassis size or weight of units may increase installation costs. For the final rule, DOE used data from RSMeans 2022 to estimate the labor and material cost necessary for installing units at various capacities. DOE matched the RSMeans installation costs derived by capacity to the corresponding baseline level within each product class. To account for additional labor hours in higher efficiency equipment with significantly larger dimensions and/or weight, DOE based the labor hour estimates on labor hours for higher capacity room air conditioners with similar dimensions/weight. DOE notes that chassis size only increases at the max-tech level and does not project an increased cost due to retrofits at the adopted TSL.

3. Annual Energy Consumption

For each sampled household or business, DOE determined the energy consumption for room air conditioners at different efficiency levels using the approach described previously in section IV.E of this document.

a. Rebound Effect

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. Higher-efficiency room air conditioners reduce the operating costs for a consumer, which can lead to greater use of room air conditioners. Overall consumer welfare (taking into account additional costs and benefits of increased usage) is generally understood to increase from rebound. DOE did not find any data on the rebound effect that is specific to room air conditioners. In the April 2011 Direct Final Rule, DOE estimated a rebound of 15 percent for room air conditioners 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 air conditioners, DOE did not include the rebound effect in the LCC analysis for this final rule. DOE does include rebound in the NIA for a conservative estimate of national energy savings and the corresponding impact to consumer NPV. 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 in the no-new-standards case, and marginal electricity prices for the incremental change in energy use associated with the other efficiency levels considered.

DOE derived electricity prices in 2021 using data from Edison Electric Institute (“EEI”) Typical Bills and Average Rates reports. Based upon comprehensive, industry-wide surveys, this semi-annual report presents typical monthly electric bills and average kilowatt-hour costs to the customer as charged by investor-owned utilities. For the residential sector, DOE calculated electricity prices using the methodology described in Coughlin and Beraki (2018).

For the commercial sector, DOE calculated electricity prices using the methodology described in Coughlin and Beraki (2019).

Coughlin, K. and B. Beraki.2018. Residential Electricity Prices: A Review of Data Sources and Estimation Methods. Lawrence Berkeley National Lab. Berkeley, CA. Report No. LBNL-2001169.

https://ees.lbl.gov/publications/residential-electricity-prices-review.

Coughlin, K. and B. Beraki. 2019. Non-residential Electricity Prices: A Review of Data Sources and Estimation Methods. Lawrence Berkeley National Lab. Berkeley, CA. Report No. LBNL-2001203.

https://ees.lbl.gov/publications/non-residential-electricity-prices.

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 final rule TSD for details.

To estimate energy prices in future years, DOE multiplied the 2021 energy prices by the projection of annual average price changes for each of the nine census divisions from the Reference case in

AEO2022,

which has an end year of 2050.

To estimate price trends after 2050, DOE used a constant value based on the simple average between 2046 through 2050.

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

Annual Energy Outlook 2022 with Projections to 2050.

Washington, DC. Available at

www.eia.gov/forecasts/aeo/

(last accessed September 6, 2022).

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 final rule analysis, DOE did not include maintenance costs in the LCC.

In the April 2022 NOPR, 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.

Friedrich states that DOE failed to incorporate increased repairs costs to service room air conditioners with variable-speed compressors and increased heat exchanger sizes. According to Friedrich, the likelihood and repair cost will increase due to complexity of components with variable-speed compressors or additional braze joints for larger heat exchangers. (Friedrich, No. 44 at pp. 8-9)

DOE's analysis incorporates an increased repair cost due to the higher incremental costs associated with units with variable-speed compressors for more expensive components as suggested by Friedrich. DOE is unaware of any data indicating an increased likelihood of repair due to variable-speed compressors or increased heat exchanger sizes. A retrospective analysis of the April 2011 Direct Final Rule found that DOE's approach to estimating repair costs at each efficiency level based on the incremental equipment cost agreed with an analysis of consumer survey data.

DOE maintains its approach to estimating repair rates and costs for this final rule.

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.

6. Product Lifetime

For room air conditioners, 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 air conditioners of approximately 9 years.

Friedrich states that the increase in braze joints needed for larger heat exchangers may increase the potential for refrigerant leaks. Friedrich adds that in the event of a refrigerant leak, consumers are more likely to retire their unit early rather than repair the unit due to the high repair cost resulting in a short lifetime for efficiency levels with this technology. (Friedrich, No. 44 at p. 9)

As described in section IV.F.5, the April 2022 NOPR assumed a low repair rate (1-3 percent). Data was not provided by stakeholders during the rulemaking demonstrating the impact that larger heat exchangers would have on the repair rate or repair cost which

could potentially lead to shorter product lifetimes. For this final rule, DOE maintained the same lifetime distribution for all efficiency levels.

7. Discount Rates

In the calculation of LCC, DOE applies discount rates appropriate to households to estimate the present value of future operating cost savings. DOE estimated a distribution of discount rates for room air conditioners based on the opportunity cost of consumer funds.

DOE applies weighted average discount rates calculated from consumer debt and asset data, rather than marginal or implicit discount rates.

The LCC analysis 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.

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. The implicit discount rate is not appropriate for the LCC analysis because it reflects a range of factors that influence consumer purchase decisions, rather than the opportunity cost of the funds that are used in purchases.

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

(“SCF”) for 1995, 1998

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