Energy Conservation Program: Energy Conservation Standards for Consumer Gas-fired Instantaneous Water Heaters

Federal RegisterDec 26, 2024

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DEPARTMENT OF ENERGY

10 CFR Part 430

[EERE-2017-BT-STD-0019]

RIN 1904-AF65

Energy Conservation Program: Energy Conservation Standards for Consumer Gas-fired Instantaneous Water Heaters

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 gas-fired instantaneous water heaters, which are a type of consumer water heater. EPCA also requires the U.S. Department of Energy (“DOE” or the “Department”) to periodically review its existing standards to 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 gas-fired instantaneous water heaters. 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 March 11, 2025. Compliance with the amended standards established for gas-fired instantaneous water heaters in this final rule is required on and after December 26, 2029.

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/EERE-2017-BT-STD-0019.

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:

Ms. Julia Hegarty, U.S. Department of Energy, Office of Energy Efficiency and Renewable Energy, Building Technologies Office, EE-5B, 1000 Independence Avenue SW, Washington, DC, 20585-0121. Telephone: (202) 586-0729. Email:

ApplianceStandardsQuestions@ee.doe.gov.

Mr. Uchechukwu “Emeka” Eze, U.S. Department of Energy, Office of the General Counsel, GC-33, 1000 Independence Avenue SW, Washington, DC, 20585-0121. Telephone: (240) 961-8879. Email:

uchechukwu.eze@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 Gas-fired Instantaneous Water Heaters

III. General Discussion

A. General Comments

1. General Support

2. Support for Updated Analysis and Standards at EL 2

3. General Opposition

4. Comments on Higher Standards Than Proposed in the NOPR

B. Scope of Coverage

C. Test Procedure

D. Technological Feasibility

1. General

2. Maximum Technologically Feasible Levels

E. Energy Savings

1. Determination of Savings

2. Significance of Savings

F. 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. Product Classes

2. Technology Options

B. Screening Analysis

1. Screened-Out Technologies

2. Remaining Technologies

C. Engineering Analysis

1. Products With Current UEF-Based Standards

a. Efficiency Levels

b. Design Options

c. Cost Analysis

d. Shipping Costs and Manufacturer Selling Price

e. Cost-Efficiency Results

2. Products Without Current UEF-Based Standards

a. Crosswalk to Equivalent-Stringency UEF-Based Standards

b. Consideration of More Stringent Standards

D. Markups Analysis

E. Energy Use Analysis

1. Building Sample

2. Hot Water Use Determination

3. Energy Use Determination

F. Life-Cycle Cost and Payback Period Analysis

1. Product Cost

2. Installation Cost

a. Basic Installation Costs

b. Venting Costs

c. Condensate Management Costs

3. Annual Energy Consumption

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

10. Accounting for Product Switching

11. Analytical Results

G. Shipments Analysis

1. Impact of Repair vs. Replace

H. National Impact Analysis

1. Product Efficiency Trends

2. National Energy Savings

3. Net Present Value Analysis

I. Consumer Subgroup Analysis

1. Low-Income Households

2. Senior-Only Households

3. Small Business Subgroup

J. Manufacturer Impact Analysis

1. Overview

2. Government Regulatory Impact Model and Key Inputs

a. Manufacturer Production Costs

b. Shipments Projections

c. Capital and Product Conversion Costs

d. Manufacturer 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. National 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 Gas-fired Instantaneous Water Heater Standards

2. Annualized Benefits and Costs of the Adopted Standards

3. Compliance Dates

VI. Procedural Issues and Regulatory Review

A. Review Under Executive Orders 12866, 13563, and 14094

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

VII. 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, as codified) 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 gas-fired instantaneous water heaters, the subject of this document. (42 U.S.C. 6292(a)(4))

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, DOE is required to review its existing energy conservation standards for covered consumer products no later than six years after issuance of any final rule establishing or amending a standard. (42 U.S.C. 6295(m)(1)) Pursuant to that statutory provision, DOE must publish either a notification of determination that standards for the product do not need to be amended, or a notice of proposed rulemaking (“NOPR”) including new proposed energy conservation standards (proceeding to a final rule, as appropriate). (

Id.

) 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)) DOE has conducted this review of the energy conservation standards for gas-fired instantaneous water heaters under EPCA's six-year-lookback authority described herein. Additionally, for gas-fired instantaneous water heaters with 2 or more gallons of storage volume and gas-fired instantaneous water heaters with less than or equal to 50,000 British thermal units per hour (“Btu/h”) of input, DOE is following the provisions in EPCA to translate the current energy factor (“EF”)-based standards to the uniform energy factor (“UEF”) metric. (42 U.S.C. 6295(e)(5))

In accordance with these and other statutory provisions discussed in this document, DOE analyzed the benefits and burdens of four trial standard levels (“TSLs”) for gas-fired instantaneous water heaters with less than 2 gallons of effective storage volume and rated inputs greater than 50,000 Btu/h. The TSLs and their associated benefits and burdens are discussed in detail in sections V.A through V.C of this document. As discussed in section V.C of this document, DOE has determined that TSL 2 represents the maximum improvement in energy efficiency that is technologically feasible and economically justified. The adopted standards, which are expressed in UEF are shown in table I.1. These standards apply to products with effective storage volumes less than 2 gallons and input ratings greater than 50,000 Btu/h (as listed in table I.1) and manufactured in, or imported into, the United States starting on December 26, 2029.

For all other gas-fired instantaneous water heaters, DOE is adopting new standards that do not constitute an increase to stringency, but simply a change in rating metric to the UEF descriptor. These standards apply to all remaining products listed in table I.1 and manufactured in, or imported into, the United States starting on December 26, 2029.

Table I.1—Energy Conservation Standards for Gas-Fired Instantaneous Water Heaters

Product class

Effective storage volume (V

eff

) * and input rating

Draw pattern

UEF

Gas-fired Instantaneous Water Heater

<2 gallons (“gal”) and ≤50,000 Btu/h

Very Small

0.64

Low

0.64

Medium

0.64

High

0.64

<2 gal and >50,000 Btu/h

Very Small

0.89

Low

0.91

Medium

0.91

High

0.93

≥2 gal and ≤200,000 Btu/h

Very Small

0.2534−(0.0018 × V

eff

)

Low

0.5226−(0.0022 × V

eff

)

Medium

0.5919−(0.0020 × V

eff

)

High

0.6540−(0.0017 × V

eff

)

* V

eff

is the Effective Storage Volume (in gallons), as determined pursuant to 10 CFR 429.17.

The following sections of this synopsis summarize the findings of the analysis carried out for gas-fired instantaneous water heaters with less than 2 gallons of effective storage volume and rated inputs greater than 50,000 Btu/h.

A. Benefits and Costs to Consumers

All monetary values in this document are expressed in 2023 dollars unless indicated otherwise. For purposes of discounting future monetary values, the present year in the analysis was 2024.

The average life-cycle cost (“LCC”) savings are $112, and the simple payback period (“PBP”),

8.9 years, is less than the 20-year average lifetime of a gas-fired instantaneous water heater (

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).

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 base year through the end of the analysis period (2024-2059). Using a real discount rate of 9.6 percent, DOE estimates that the INPV for manufacturers of gas-fired instantaneous water heaters in the case without amended standards is $1,193.9 million in 2023$. Under the adopted standards, DOE estimates the change in INPV to range from −2.8 percent to 3.4 percent, which is approximately −$33.7 million to $40.5 million. In order to bring products into compliance with amended standards, it is estimated that industry will incur total conversion costs of $20.4 million.

DOE's analysis of the impacts of the adopted standards on manufacturers is described in section IV.J of this document. The analytic results of the manufacturer impact analysis (“MIA”) are presented in section V.B.2 of this document.

C. National Benefits and Costs

DOE's analyses indicate that the adopted energy conservation standards for gas-fired instantaneous water heaters would save a significant amount of energy. Relative to the case without amended standards, the lifetime energy savings for gas-fired instantaneous water heaters purchased during the 30-year period that begins in the anticipated year of compliance with the amended standards (2030-2059), amount to 0.58 quadrillion British thermal units (“Btu”), or quads.

This represents a savings of 1.9 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.2 of this document.

The cumulative net present value (“NPV”) of total consumer benefits of the standards for gas-fired instantaneous water heaters ranges from $0.87 billion (at a 7-percent discount rate) to $3.06 billion (at a 3-percent discount rate). This NPV expresses the estimated total value of future operating-cost savings minus the estimated increased product and installation costs for gas-fired instantaneous water heaters purchased during the period 2030-2059.

In addition, the adopted standards for gas-fired instantaneous water heaters 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 32 million metric tons (“Mt”)

of carbon dioxide (“CO

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

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

”), 398 thousand tons of methane (“CH

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

O”), and an increase of 0.0004 tons of mercury (“Hg”) due to a small increase in electricity use at the adopted standards.

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 2023

(

“AEO2023”

AEO2023

reflects, to the extent possible, laws and regulations adopted through mid-November 2022, including the Inflation Reduction Act.

See

section IV.K of this document for further discussion of

AEO2023

assumptions that affect air pollutant emissions.

DOE estimates the value of climate benefits from a reduction in greenhouse gases (“GHG”) using 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 an updated set of SC-GHG estimates published in 2023 by the Environmental Protection Agency (“EPA”) (“2023 SC-GHG”), as well as the interim SC-GHG values (in terms of benefit per ton of GHG avoided) developed by an Interagency Working Group on the Social Cost of Greenhouse Gases (“IWG”) in 2021 (“2021 Interim SC-GHG”), which DOE used in the notice of proposed rulemaking for this rule before the updated values were available.

These values is discussed in section IV.L of this document. The climate benefits associated with the average SC-GHG at a 2-percent near-term Ramsey discount rate using the 2023 SC-GHG estimates are estimated to be $7.1 billion, and the climate benefits associated with the average 2021 Interim SC-GHG estimates at a 3-percent discount rate are estimated to be $1.7 billion. DOE notes, however, that the adopted standards would be economically justified even without inclusion of the estimated monetized benefits of reduced GHG emissions.

Estimated climate-related benefits are provided in compliance with Executive Order 12866.

Technical Support Document: Social Cost of Carbon, Methane, and Nitrous Oxide Interim Estimates Under Executive Order 13990

published in February 2021 by the IWG. (“February 2021 SC-GHG TSD”).

www.whitehouse.gov/wp-content/uploads/2021/02/TechnicalSupportDocument_SocialCostofCarbonMethaneNitrousOxide.pdf. https://www.epa.gov/system/files/documents/2023-12/eo12866_oil-and-gas-nsps-eg-climate-review-2060-av16-final-rule-20231130.pdf; https://www.epa.gov/system/files/documents/2023-12/epa_scghg_2023_report_final.pdf

(last accessed July 3, 2024).

DOE estimated the monetary health benefits of SO

and NO

emissions reductions using benefit per ton estimates from the EPA's Benefits Mapping and Analysis Program,

as discussed in section IV.L of this document. DOE did not monetize the change in mercury emissions because the quantity is very small. DOE estimated the present value of the health benefits would be $0.9 billion using a 7-percent discount rate, and $2.7 billion using a 3-percent discount rate.

DOE is currently only monetizing health benefits from changes in ambient fine particulate matter (“PM

2.5

”) concentrations from two precursors (SO

and NO

), and from changes in ambient ozone from one precursor (NO

), but will continue to assess the ability to monetize other effects such as health benefits from reductions in direct PM

2.5

emissions.

U.S. EPA. Estimating the Benefit per Ton of Reducing Directly-Emitted PM

2.5

, PM

2.5

Precursors and Ozone Precursors from 21 Sectors. Available at:

www.epa.gov/benmap/estimating-benefit-ton-reducing-pm25-precursors-21-sectors.

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.2 summarizes the monetized benefits and costs expected to result from the amended standards for gas-

fired instantaneous water heaters. 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.2—Summary of Monetized Benefits and Costs of the Adopted Energy Conservation Standards for Gas-fired Instantaneous Water Heaters at TSL 2 Shipped During the Period 2030-2059

eff

< 2 gal, Rated Input > 50,000 Btu/h]

Billion 2023$

3% discount rate

Consumer Operating Cost Savings

4.5

Climate Benefits * (2023 SC-GHG estimates)

7.1

Climate Benefits * (2021 interim SC-GHG estimates)

1.7

Health Benefits **

2.7

Total Benefits † (2023 SC-GHG estimates)

14.3

Total Benefits † (2021 interim SC-GHG estimates)

8.9

Consumer Incremental Product Costs ‡

1.5

Net Benefits † (2023 SC-GHG estimates)

12.8

Net Benefits † (2021 interim SC-GHG estimates)

7.4

Change in Producer Cashflow (INPV)

‡‡

(0.03)-0.04

7% discount rate

Consumer Operating Cost Savings

1.7

Climate Benefits * (2023 SC-GHG estimates)

7.1

Climate Benefits * (2021 interim SC-GHG estimates)

1.7

Health Benefits **

0.9

Total Benefits † (2023 SC-GHG estimates)

9.6

Total Benefits † (2021 interim SC-GHG estimates)

4.2

Consumer Incremental Product Costs ‡

0.8

Net Benefits † (2023 SC-GHG estimates)

8.9

Net Benefits † (2021 interim SC-GHG estimates)

3.4

Change in Producer Cashflow (INPV)

‡‡

(0.03)-0.04

Note:

These results include consumer, climate, and health benefits that accrue after 2030 from the products shipped during the period 2030-2059.

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

), methane (SC-CH

), and nitrous oxide (SC-N

O). Climate benefits are estimated using two separate sets of estimates of the social cost for each greenhouse gas, an updated set published in 2023 by the Environmental Protection Agency (EPA) (“2023 SC-GHG”) and the interim set of estimates used in the NOPR which were published in 2021 by the Interagency Working Group on the SC-GHG (IWG) (“2021 Interim 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 2 percent near-term Ramsey discount rate are shown for the 2023 SC-GHG estimates, and the climate benefits associated with the average SC-GHG at a 3 percent discount rate are shown for the 2021 interim SC-GHG estimates.

** 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. Table 5 of the EPA's

Estimating the Benefit per Ton of Reducing PM

2.5

Precursors from 21 Sectors

TSD provides a summary of the health impact endpoints quantified in the analysis.

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 2-percent near-term Ramsey discount rate for the 2023 estimate and the average SC-GHG with 3-percent discount rate for the 2021 interim SC-GHG estimate.

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

‡‡ Operating Cost Savings are calculated based on the life-cycle costs analysis and national impact analysis as discussed in detail below.

See

sections IV.F and IV.H of this document. DOE's national impacts analysis includes all impacts (both costs and benefits) along the distribution chain beginning with the increased costs to the manufacturer to manufacture the product and ending with the increase in price experienced by the consumer. DOE also separately conducts a detailed analysis on the impacts on manufacturers (

i.e.,

manufacturer impact analysis, or “MIA”).

See

section IV.J of this document. In the detailed MIA, DOE models manufacturers' pricing decisions based on assumptions regarding investments, conversion costs, cashflow, and margins. The MIA produces a range of impacts, which is the rule's expected impact on the INPV. The change in INPV is the present value of all changes in industry cash flow, including changes in production costs, capital expenditures, and manufacturer profit margins. Change in INPV is calculated using the industry weighted average cost of capital value of 9.6 percent that is estimated in the MIA (

see

chapter 12 of the final rule technical support document (“TSD”) for a complete description of the industry weighted average cost of capital). For gas-fired instantaneous water heaters, the change in INPV ranges from −$34 million to $41 million. DOE accounts for that range of likely impacts in analyzing whether a TSL is economically justified.

See

section V.C of this document. DOE is presenting the range of impacts to the INPV under two manufacturer markup scenarios: the Preservation of Gross Margin scenario, which is the manufacturer markup scenario used in the calculation of Consumer Operating Cost Savings in this table; and the Preservation of Operating Profit scenario, where DOE assumed manufacturers would not be able to increase per-unit operating profit in proportion to increases in manufacturer production costs. DOE includes the range of estimated INPV in the above table, drawing on the MIA explained further in section IV.J of this document to provide additional context for assessing the estimated impacts of this final rule to society, including potential changes in production and consumption, which is consistent with OMB's Circular A-4 and E.O. 12866. If DOE were to include the INPV into the net benefit calculation (2023 SC-GHG estimates) for this final rule, the net benefits would be $12.8 billion at 3-percent discount rate and $8.9 billion at 7-percent discount rate. Parentheses indicate negative ( ) values.

The benefits and costs of the adopted 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 2024, 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 2024. 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 gas-fired instantaneous water heaters shipped during the period 2030-2059. The benefits associated with reduced emissions achieved as a result of the adopted standards are also calculated based on the lifetime of gas-fired instantaneous water heaters shipped during the period 2030-2059. Total benefits for both the 3-percent and 7-percent cases are presented using the average SC-GHG with a 2 percent near-term Ramsey discount rate for the 2023 SC-GHG estimates and the average SC-GHG with 3-percent discount rate for the 2021 interim SC-GHG estimates.

DOE notes that using consumption-based discount rates (

e.g.,

2 or 3 percent) is appropriate when discounting the value of climate impacts. Combining climate effects discounted at an appropriate consumption-based discount rate with other costs and benefits discounted at a capital-based rate (

i.e.,

7 percent) is reasonable because of the different nature of the types of benefits being measured.

Table I.3 presents the total estimated monetized benefits and costs associated with the adopted 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 2-percent near-term Ramsey discount rate case or the 3-percent discount rate case for climate benefits from reduced GHG emissions, the estimated cost of the standards adopted in this rule is $88 million per year in increased equipment costs, while the estimated annual benefits are $187 million in reduced equipment operating costs, $349 million in climate benefits (using the 2023 SC-GHG estimates) or $98 million in climate benefits (using the 2021 interim SC-GHG estimates), and $101 million in health benefits. In this case, the net benefit would amount to $549 million per year (using the 2023 SC-GHG estimates) or $297 million per year (using the 2021 interim SC-GHG estimates).

Using a 3-percent discount rate for consumer benefits and costs and health benefits from reduced NO

and SO

emissions, and the 2-percent near-term Ramsey discount rate case or the 3-percent discount rate case for climate benefits from reduced GHG emissions, the estimated cost of the standards is $87 million per year in increased equipment costs, while the estimated annual benefits are $268 million in reduced operating costs, $349 million in climate benefits (using the 2023 SC-GHG estimates) or $98 million in climate benefits (using the 2021 interim SC-GHG estimates), and $158 million in health benefits. In this case, the net benefit would amount to $689 million per year (using the 2023 SC-GHG estimates) or $437 million per year (using the 2021 interim SC-GHG estimates).

Table I.3—Annualized Benefits and Costs of the Adopted Energy Conservation Standards for Gas-Fired Instantaneous Water Heaters at TSL 2 Shipped During the Period 2030-2059

eff

<2 gal, rated input >50,000 Btu/h]

Million 2023$/year

Primary

estimate

Low-net-

benefits

estimate

High-net-

benefits

estimate

3% discount rate

Consumer Operating Cost Savings

268

249

288

Climate Benefits * (2023 SC-GHG estimates)

349

344

355

Climate Benefits * (2021 interim SC-GHG estimates)

100

Health Benefits **

158

156

161

Total Benefits † (2023 SC-GHG estimates)

776

749

804

Total Benefits † (2021 interim SC-GHG estimates)

525

502

548

Consumer Incremental Product Costs ‡

Net Benefits † (2023 SC-GHG estimates)

689

663

715

Net Benefits † (2021 interim SC-GHG estimates)

437

416

459

Change in Producer Cashflow (INPV) ‡‡

(3)-4

7% discount rate

Consumer Operating Cost Savings

187

174

200

Climate Benefits * (2023 SC-GHG estimates)

349

344

355

Climate Benefits * (2021 interim SC-GHG estimates)

100

Health Benefits **

101

102

Total Benefits † (2023 SC-GHG estimates)

637

616

658

Total Benefits † (2021 interim SC-GHG estimates)

386

369

402

Consumer Incremental Product Costs ‡

Net Benefits † (2023 SC-GHG estimates)

549

530

568

Net Benefits † (2021 interim SC-GHG estimates)

297

283

312

Change in Producer Cashflow (INPV) ‡‡

(3)-4

Note:

These results include consumer, climate, and health benefits that accrue after 2059 from the products shipped during the period 2030-2059. The Primary, Low Net Benefits, and High Net Benefits Estimates utilize projections of energy prices from the

AEO2023

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 different estimates of the global SC-GHG (

see

section IV.L of this document). Climate benefits are estimated using two separate sets of estimates of the social cost for each greenhouse gas, an updated set published in 2023 by the Environmental Protection Agency (EPA) (“2023 SC-GHG”) and the interim set of estimates used in the NOPR which were published in 2021 by the Interagency Working Group on the SC-GHG (IWG) (“2021 Interim 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 2 percent near-term Ramsey discount rate are shown for the 2023 SC-GHG estimates, and the climate benefits associated with the average SC-GHG at a 3 percent discount rate are shown for the 2021 interim SC-GHG estimates.

** 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. Table 5 of the EPA's

Estimating the Benefit per Ton of Reducing PM2.5 Precursors from 21 Sectors

TSD provides a summary of the health impact endpoints quantified in the analysis.

See

section IV.L of this document for more details.

† Total benefits for both the 3-percent and 7-percent cases are presented using the average SC-GHG with 2-percent near-term Ramsey discount rate for the 2023 estimate and the average SC-GHG with 3-percent discount rate for the 2021 interim SC-GHG estimate.

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

‡‡ Operating Cost Savings are calculated based on the life-cycle costs analysis and national impact analysis as discussed in detail below.

See

i.e.,

MIA).

See

section IV.J of this document. In the detailed MIA, DOE models manufacturers' pricing decisions based on assumptions regarding investments, conversion costs, cashflow, and margins. The MIA produces a range of impacts, which is the rule's expected impact on the INPV. The change in INPV is the present value of all changes in industry cash flow, including changes in production costs, capital expenditures, and manufacturer profit margins. The annualized change in INPV is calculated using the industry weighted average cost of capital value of 9.6 percent that is estimated in the MIA (

see

chapter 12 of the final rule TSD for a complete description of the industry weighted average cost of capital). For gas-fired instantaneous water heaters, the annualized change in INPV ranges from −$3 million to $4 million. DOE accounts for that range of likely impacts in analyzing whether a TSL is economically justified.

See

section V.C of this document. DOE is presenting the range of impacts to the INPV under two manufacturer markup scenarios: the Preservation of Gross Margin scenario, which is the manufacturer markup scenario used in the calculation of Consumer Operating Cost Savings in this table; and the Preservation of Operating Profit scenario, where DOE assumed manufacturers would not be able to increase per-unit operating profit in proportion to increases in manufacturer production costs. DOE includes the range of estimated annualized change in INPV in the above table, drawing on the MIA explained further in section IV.J of this document to provide additional context for assessing the estimated impacts of this final rule to society, including potential changes in production and consumption, which is consistent with OMB's Circular A-4 and E.O. 12866. If DOE were to include the INPV into the annualized net benefit calculation (2023 SC-GHG estimates) for this final rule, the annualized net benefits would range from $686 million to $693 million at 3-percent discount rate and would range from $546 million to $553 million at 7-percent discount rate. Parentheses indicate negative ( ) values.

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. 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 2-percent near-term Ramsey discount rate case or the 3-percent discount rate case for GHG social costs, the estimated cost of the standards for gas-fired instantaneous water heaters is $88 million per year in increased product costs, while the estimated annual benefits are $187 million in reduced product operating costs, $349 million in climate benefits (using the 2023 SC-GHG estimates) or $98 million in climate benefits (using the 2021 interim SC-GHG estimates), and $101 million in health benefits. The net benefit amounts to $549 million per year (using the 2023 SC-GHG estimates) or $297 million per year (using the 2021 interim SC-GHG estimates). DOE notes that the net benefits are substantial even in the absence of the climate benefits,

and DOE would adopt the same standards in the absence of such benefits.

The information on climate benefits is provided in compliance with Executive Order 12866.

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.

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 (“NES”) of 0.58 quads full-fuel-cycle (“FFC”), the equivalent of the primary annual energy use of 4 million homes. 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 gas-fired instantaneous water heaters, which, as discussed in section III.B of this document, are a subset of consumer water heaters. Gas-fired instantaneous water heaters are defined at 10 CFR 430.2 as a water heater that uses gas as the main energy source, has a nameplate input rating less than 200,000 Btu/h, and contains no more than one gallon of water per 4,000 Btu per hour of input.

A. Authority

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

As noted previously, for editorial reasons, upon codification in the U.S. Code, Part B was redesignated Part A.

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 circumstances for particular State laws or regulations, in accordance with the procedures and other provisions set forth under EPCA. (42 U.S.C. 6297(d))

Subject to certain 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 product complies with the applicable energy conservation standards and as the basis for any representations regarding the energy use or energy efficiency of the product. (42 U.S.C. 6295(s) and 42 U.S.C. 6293(c)). Similarly, DOE must use these test procedures to evaluate whether a basic model complies with the applicable energy conservation standard(s). (42 U.S.C. 6295(s)) The DOE test procedures for gas-fired instantaneous water heaters appear at title 10 of the Code of Federal Regulations (“CFR”) part 430, subpart B, appendix E (“appendix E”).

EPCA prescribed energy conservation standards for gas-fired instantaneous water heaters (42 U.S.C. 6295(e)(1)) and directed DOE to conduct future rulemakings to determine whether to amend these standards. (42 U.S.C. 6295(e)(4)) Not later than six years after the issuance of any final rule establishing or amending a standard, DOE must publish either a notice of determination (“NOPD”) 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)) DOE must make the analysis on which a NOPD or NOPR is based publicly available and provide an opportunity for written comment. (42 U.S.C. 6295(m)(2)) Not later than two years after a NOPR is issued, DOE must publish a final rule amending the energy conservation standard for the product. (42 U.S.C. 6295(m)(3)(A))

DOE must follow specific statutory criteria for prescribing new or amended standards for covered products, including gas-fired instantaneous water heaters. Any new or amended standard for a covered product must be designed to achieve the maximum improvement in energy efficiency that the Secretary of Energy (“Secretary”) determines is technologically feasible and economically justified. (42 U.S.C. 6295(o)(2)(A)) Furthermore, DOE may not adopt any standard that would not result in the significant conservation of energy. (42 U.S.C. 6295(o)(3)(B))

Moreover, DOE may not prescribe a standard if: (1) for certain products, including gas-fired instantaneous water heaters, no test procedure has been established for the product; or (2) DOE determines by rule that the establishment of such standard will not result in significant conservation of energy (or, for certain products, water), or is not technologically feasible or economically justified. (42 U.S.C. 6295(o)(3)(A)-(B)) In deciding whether a proposed standard is economically justified, DOE must determine whether the benefits of the standard exceed its burdens. (42 U.S.C. 6295(o)(2)(B)(i)) DOE must make this determination after receiving comments on the proposed standard, and by considering, to the greatest extent practicable, the following seven statutory factors:

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

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

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

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

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

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

(7) Other factors the Secretary considers relevant.

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

Further, EPCA, 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. A rule prescribing an energy conservation standard for a type (or class) of product 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 considers 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 to EPCA contained in the Energy Independence and Security Act of 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 is publishing this final rule pursuant to the six-year-lookback review requirement in EPCA described herein for gas-fired instantaneous water heaters with less than 2 gallons of effective storage volume and rated inputs greater than 50,000 Btu/h. (42 U.S.C. 6295(m)) DOE is also publishing this final rule pursuant to its authority to establish uniform efficiency descriptors for covered water heaters (42 U.S.C. 6295(e)(5))

B. Background

1. Current Standards

As directed by EPCA (42 U.S.C. 6295(e)(4)), DOE conducted two cycles of rulemakings to determine whether to amend the statutory standards for consumer water heaters found in 42 U.S.C. 6295(e)(1). The most recent rulemaking from April 2010 resulted in amended standards using the EF metric originally prescribed by EPCA with a requirement for compliance starting on April 16, 2015. 75 FR 20112 (Apr. 16, 2010) (the “April 2010 Final Rule”). Later amendments to EPCA directed DOE to establish a uniform efficiency metric for consumer water heaters (

see

42 U.S.C. 6295(e)(5)(B)).

The Federal test procedure was revised to use a new metric, UEF, in a final rule published on July 11, 2014 (the “July 2014 UEF TP Final Rule”). 79 FR 40542. In a final rule published in the

Federal Register

on December 29, 2016, the existing EF-based energy conservation standards were then translated from EF to UEF using a “conversion factor” method for water heater basic models that were in existence at the time. 81 FR 96204 (“December 2016 Conversion Factor Final Rule”).

The requirement for a consumer water heater test procedure using UEF as a metric, as well as the requirement for DOE to undertake a conversion factor rulemaking to translate existing consumer water heater standards denominated in terms of EF to ones denominated in terms of UEF, were part of the amendments to EPCA contained in the American Energy Manufacturing Technical Corrections Act (“AEMTCA”), Public Law 112-210 (Dec. 18, 2012).

The resulting standards for gas-fired instantaneous water heaters set forth in DOE's regulations at 10 CFR 430.32(d)(1) are shown in table II.1.

Table II.1—Federal Energy Efficiency Standards for Gas-Fired Instantaneous Water Heaters

Product class

Rated storage volume and input rating

Draw pattern *

Uniform

energy factor

Instantaneous Gas-fired Water Heater

<2 gal and >50,000 Btu/h

Very Small

0.80

Low

0.81

Medium

0.81

High

0.81

* The draw pattern dictates the frequency and duration of hot water draws during the 24-hour simulated use test, and is an indicator of delivery capacity of the water heater. Draw patterns are assigned based on the first hour rating (“FHR”), for non-flow-activated water heaters, or maximum GPM rating (“Max GPM”), for flow-activated water heaters. For the specific FHR and Max GPM ranges which correspond to each draw pattern, see section 5.4.1 of appendix E to subpart B of 10 CFR part 430.

In the December 2016 Conversion Factor Final Rule, DOE declined to develop conversion factors and UEF-based standards for consumer water heaters of certain sizes (by rated storage volume or input rating) and of certain types (

i.e.,

oil-fired instantaneous water heaters) where models did not exist on the market at the time to inform the analysis of the standards conversion. 81 FR 96204, 96210-96211. For consumer water heaters that did not receive converted UEF-based standards, DOE provided its interpretation that the original statutory standards—found at 42 U.S.C. 6295(e)(1) and expressed in terms of the EF metric—still applied; however, DOE would not enforce those statutorily-prescribed standards until such a time that conversion factors are developed for these products and they can be converted to UEF.

Id.

Thus, the EF-based standards specified by EPCA apply to any consumer water heaters which do not have UEF-based standards found at 10 CFR 430.32(d). The EF-based standards for gas-fired instantaneous water heaters which do not have UEF-based standards are set

forth at 42 U.S.C. 6295(e)(1) and are repeated in table II.2.

Table II.2—EF-Based Federal Energy Conservation Standards for Gas-Fired Consumer Water Heaters

Product class

Energy factor *

Gas water heaters

0.62−(0.0019 × V

)

* V

is the rated storage volume (in gallons), as determined pursuant to 10 CFR 429.17.

2. History of Standards Rulemaking for Gas-Fired Instantaneous Water Heaters

On May 21, 2020, DOE initiated the most recent rulemaking for consumer water heaters, including gas-fired instantaneous water heaters, by publishing in the

Federal Register

a request for information (“May 2020 RFI”), soliciting public comment on various aspects of DOE's planned analyses to help DOE determine whether to amend energy conservation standards for consumer water heaters. 85 FR 30853 (May 21, 2020). DOE subsequently published a notice requesting feedback on its preliminary analysis and technical support document (“preliminary TSD”) on March 1, 2022 (the “March 2022 Preliminary Analysis”) with a 60-day comment period. 87 FR 11327 (Mar. 1, 2022). The comment period was extended by 14 days in a notice published on May 4, 2022. 87 FR 26303.

On October 21, 2022, DOE received a set of recommendations on amended energy conservation standards for consumer water heaters from a coalition of seven public- and private-sector organizations, including two water heater manufacturers, three energy efficiency organizations, one environmental group, and one consumer organization—collectively the Joint Stakeholders—which, in part, addressed standards for gas-fired instantaneous water heaters. This coalition's submission has been referred to as the “Joint Stakeholder Recommendation.” (

See

Document No. 49 in Docket No. EERE-2017-BT-STD-0019.)

On July 28, 2023, DOE published in the

Federal Register

a notice of proposed rulemaking (“July 2023 NOPR”) and technical support document (“NOPR TSD”) with a 60-day comment period that proposed new and amended standards for consumer water heaters, including gas-fired instantaneous water heaters. 88 FR 49058 (Jul. 28, 2023). On September 13, 2023, DOE presented the proposed standards and accompanying analysis at a public meeting. The submissions DOE received in response to the July 2023 NOPR pertaining to gas-fired instantaneous water heaters are listed in table II.3.

Table II.3—List of Commenters With Written Submissions Specific to Gas-Fired Instantaneous Water Heaters in Response to the July 2023 NOPR

Commenter(s)

Abbreviation

Comment number in the docket

Commenter type

Individual

Hardy

0185

Individual.

NPGA, APGA, AGA, and Rinnai

0441

Trade Associations and Manufacturer.

Carolinas Natural Gas Coalition

CNGC

0648

Trade Association.

Jackson Energy Authority

JEA

0865

Utility.

Watertown Municipal Utilities

WMU

0872

Utility.

Philadelphia Gas Works

PGW

0886

Utility.

Southeast Gas

0887

Utility.

Consumer Energy Alliance

CEA

0914

Consumer Advocate.

American Society of Gas Engineers

ASGE

0976

Trade Association.

Chesapeake Utilities Corporation

CHPK

1008

Utility.

Georgia Office of the Attorney General

Attorney General of GA

1026

State Official/Agency.

Advanced Water Heating Initiative

AWHI

1036

Efficiency Organization.

Tennessee Attorney General's Office

Attorney General of TN

1149

State Official/Agency.

American Pipeline Contractors Association

APCA

1152

Trade Association.

Texas Public Policy Foundation

TPPF

1153

Academic Institute.

Midwest Energy Efficiency Alliance, Northeast Energy Efficiency Partnerships, Northwest Energy Efficiency Alliance, South-central Partnership for Energy Efficiency as a Resource, Southeast Energy Efficiency Alliance, Southwest Energy Efficiency Project

Joint Regional Advocacy Groups

1154

Efficiency Organizations.

American Council for an Energy-Efficient Economy, Natural Resources Defense Council, Appliance Standards Awareness Project, Northwest Energy Efficiency Alliance, Consumer Federation of America, Rheem Manufacturing

Joint Stakeholders

1156

Coalition.

Office of Governor Brian P. Kemp

Governor of GA

1157

State Official/Agency.

Bradford White Corporation

BWC

1164

Manufacturer.

Air-Conditioning, Heating, and Refrigeration Institute

AHRI

1167

Trade Association.

California Energy Commission

CEC

1173

State Official/Agency.

Pacific Gas and Electric Company; Southern California Edison; and San Diego Gas & Electric Company; collectively, the California Investor-owned Utilities

CA IOUs

1175

Utilities.

Huntsville Utilities

1176

Utility Association.

Rheem Manufacturing Company

Rheem

1177

Manufacturer.

AGA, APGA, NPGA, Spire

Gas Association Commenters

1181

Utility Association.

A.O. Smith Corporation

A.O. Smith

1182

Manufacturer.

Rinnai America Corporation

Rinnai

1186

Manufacturer.

Northwest Energy Efficiency Alliance

NEEA

1199

Efficiency Organization.

ONE Gas, Inc

ONE Gas

1200

Utility.

Noritz America Corporation

Noritz

1202

Efficiency Organization.

Robert Bosch LLC

Bosch

1204

Manufacturer.

U.S. House of Representatives (Nine members, all from Georgia)

U.S. House of Representatives

1205

Government Official/Agency.

Subsequent to the July 2023 NOPR, DOE determined it would continue to consider comments prior to finalizing standards for gas-fired instantaneous water heaters, although standards for all other consumer water heaters were finalized in a rule published on May 6, 2024 (“May 2024 Final Rule”). 89 FR 37778. Most recently, DOE published a notice of data availability in the

Federal Register

on July 23, 2024 (“July 2024 NODA”). 89 FR 59692. The purpose of the July 2024 NODA was to make publicly available a full set of analytical results specific to gas-fired instantaneous water heaters, including updates as compared to the analysis conducted for the July 2023 NOPR after considering the comments received. DOE received comments in response to the July 2024 NODA from the interested parties listed in table II.4.

In response to the July 2024 NODA, a larger coalition of stakeholders co-signed a joint comment recommending standards for gas-fired instantaneous water heaters. This coalition—consisting of AHRI (a trade association representing the views of multiple manufacturers), three energy efficiency organizations, one environmental group, and one consumer organization—submitted the previous Joint Stakeholder Recommendation for renewed consideration by DOE. Hence the submission by this larger, more recent coalition is still referred to as the Joint Stakeholder Recommendation throughout this final rule.

Table II.4—List of Commenters With Written Submissions in Response to the July 2024 NODA

Commenter(s)

Abbreviation

Comment number in the docket

Commenter type

Sophie Charlotte DuBard-Weis

DuBard-Weis

1430

Individual.

Lucy Anderson

Anderson

1431

Individual.

Anonymous

1432

Individual.

American Gas Association (AGA), American Public Gas Association (APGA), National Propane Gas Association (NPGA), and Rinnai America Corporation

Joint Requesters

1433

Utility Associations; Manufacturer.

Northwest Energy Efficiency Alliance

NEEA

1434

Efficiency Organization.

Rinnai America Corporation

Rinnai

1435, 1443

Manufacturer.

Rheem Manufacturing Company

Rheem

1436

Manufacturer.

Air-Conditioning, Heating, and Refrigeration Institute

AHRI

1437

Trade Association.

AHRI, ACEEE, ASAP, CFA, NRDC, and NEEA

AHRI and the Joint Stakeholders

1438

Trade Association.

American Gas Association (AGA), American Public Gas Association (APGA), and National Propane Gas Association (NPGA)

AGA

et al

1439

Utility Association.

A.O. Smith Corporation

A.O. Smith

1440

Manufacturer.

Bradford White Corporation

BWC

1441

Manufacturer.

Pacific Gas and Electric Company; Southern California Edison; and San Diego Gas & Electric Company; collectively, the California Investor-owned Utilities

CA IOUs

1442

Utility.

ASAP, ACEEE, CFA, NCLC, NRDC, NBI, and NEEA

Joint Advocates

1444

Efficiency Organization.

U.S. House of Representatives (Three members, all from Georgia)

U.S. House of Representatives

1445

Government Official/Agency.

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

To the extent that interested parties have provided written comments that are substantively consistent with any oral comments provided during the September 13, 2023, public meeting, DOE cites the written comments throughout this final rule. DOE did not identify any oral comments provided during the September 13, 2023, public meeting that are not substantively addressed by written comments.

The parenthetical reference provides a reference for information located in the docket of DOE's rulemaking to develop energy conservation standards for consumer water heaters. (Docket No. EERE-2017-BT-STD-0019, which is maintained at:

www.regulations.gov

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

III. General Discussion

DOE developed this final rule after a review of the market for the subject gas-fired instantaneous water heaters. DOE also considered comments, data, and information from interested parties that represent a variety of interests. This final rule addresses issues raised by these commenters.

A. General Comments

This section summarizes general comments received from interested parties regarding rulemaking timing and process.

In response to the July 2024 NODA, the Joint Requesters recommended that DOE provide stakeholders with an additional 30 days (

i.e.,

for a total of 60 days) to comment. The Joint Requesters stated that the 30 days provided by DOE does not allow stakeholders to sufficiently analyze the NODA and the related documents, which appear to incorporate new data, use new methodologies, and reach different results from the July 2023 NOPR. The Joint Requesters further commented that their organizations had limited staff availability during the comment period. (Joint Requesters, No. 1433 at pp. 2-3)

DOE notes the limited scope of the NODA and reiterates that the July 2024 NODA updated only specific aspects of DOE's analysis of potential amended energy conservation standards for gas-fired instantaneous water heaters. The analysis from the July 2023 NOPR was updated to reflect the latest available versions of the data sources used. Overall, the cost-benefit analysis

methodology remains largely unchanged between the July 2024 NODA and the July 2023 NOPR (

see

89 FR 59692, 59693). Furthermore, this analysis has been subject to extensive stakeholder input and feedback throughout the course of this rulemaking. Commenters were provided a full 60-day comment period to review the July 2023 NOPR analysis, and the July 2024 NODA described in depth the specific areas where DOE's analysis was updated while providing the rationale for each update. As such, DOE believes a 30-day comment period was appropriate for stakeholders to review a limited set of revisions to a previously published analysis and provide meaningful comments on the notice. (

See

Document No. 1446 in Docket No. EERE-2017-BT-STD-0019.)

AGA

et al.

stated that due to the use of data designed for other natural gas appliances and not gas-fired instantaneous water heaters specifically, DOE should restart the rulemaking process for gas-fired instantaneous water heaters, or at a minimum issue a supplemental notice. (AGA

et al.,

No. 1439 at p. 1)

In response, DOE notes that it published the July 2024 NODA to inform stakeholders of newly available data and results with respect to potential amended standards for gas-fired instantaneous water heaters, a limited update to the July 2023 NOPR analysis.

1. General Support

In response to the July 2023 NOPR, DOE received 2,880

general comments (those which provided general remarks on the impact of the rulemaking)

with a significant number of commenters expressing support of the proposed standards—including those proposed for gas-fired instantaneous water heaters—and acknowledging the significant energy savings that would result from the adoption of the proposed standards.

The number of comments reflects the number of individual party submissions. Specifically, form letters with multiple submissions count each submission individually.

Commenters who are directly referenced in this final rule and appear in table II.3 are not counted in these statistics because these submitters typically expressed detailed views that could not be generalized as either clear support or clear opposition for all aspects of the proposal.

One comment in support of the proposed standards, including the proposal for gas-fired instantaneous water heaters, had 8,357 signatories.

AWHI expressed support for more stringent standards for gas-fired instantaneous water heaters. (AWHI, No. 1036 at pp. 3-4) The Joint Stakeholders stated that the proposed standards for gas-fired instantaneous water heaters are consistent with their recommendations. (Joint Stakeholders, No. 1156 at p. 2) NEEA, the Joint Regional Advocacy Groups (citing the estimated FFC and monetary savings), and Bosch supported the proposed standards for gas-fired instantaneous water heaters. (NEEA, No. 1199 at p. 9; Joint Regional Advocacy Groups, No. 1154 at p. 1; Bosch, No. 1204 at p. 2) Bosch commented that condensing gas-fired instantaneous water heaters are readily available and widely accepted in the market, and can create significant energy savings and emissions reductions. Bosch stated that nearly every gas-fired instantaneous water heater manufacturer sells a condensing-level product and, therefore, the required technology is well-understood and minimal research and development efforts would be required to achieve the proposed efficiency levels. (Bosch, No. 1204 at p. 2)

CEC and A.O. Smith also supported DOE's proposed standards for gas-fired instantaneous water heaters because they would result in significant savings, lower monthly energy bills for homeowners, and also provide emissions benefits. CEC urged DOE to finalize the proposed standards as soon as possible. (CEC, No. 1173 at p. 12; A.O. Smith, No. 1182 at p. 14)

Two individual commenters expressed support for the proposed rulemaking on the basis that clean energy is necessary for securing a peaceful and prosperous future and for the economic benefits that will result from the proposed rulemaking. (DuBard-Weis, No. 1430 at p. 1; Anderson, No. 1431 at p. 1) An anonymous commenter also expressed support for the proposed rulemaking on the basis of reducing emissions related to water heaters for the benefit of the planet. (Anonymous, No. 1432 at p. 2)

2. Support for Updated Analysis and Standards at EL 2

In response to the July 2024 NODA, DOE received the following comments in support of the updated analytical results and potential amended standards at efficiency level (“EL”) 2.

NEEA, AHRI, AHRI and the Joint Stakeholders, the Joint Advocates, Rheem, and BWC expressed support for the standards proposed at EL 2 for gas-fired instantaneous water heaters in the July 2023 NOPR, with NEEA, AHRI, AHRI and the Joint Stakeholders, the Joint Advocates, and BWC noting the significant national energy savings and LCC savings for consumers. NEEA, The Joint Advocates, and BWC stated that the proposed standard aligns with the Joint Stakeholder Recommendations made in 2022. AHRI and the Joint Stakeholders expressed concern that DOE had not yet adopted these standards and commented that the proposed levels would, enable a broad set of consumer options while meeting EPCA's directives of achieving significant national energy savings as well as cost effectiveness and technological feasibility for consumers who install these products. The Joint Advocates supported DOE's proposal to adopt EL 2 for gas-fired instantaneous water heaters because EL 2 represents an intermediate condensing level and reflects the Joint Stakeholder recommendations. The Joint Advocates further commented that DOE's updated analysis in the NODA reinforces the economic and energy benefits of adopting EL 2 for gas-fired instantaneous water heaters and, while similar to those in the July 2023 NOPR, the updates in the July 2024 NODA improve the analysis. (NEEA, No. 1434 at p. 1; Rheem, No. 1436 at p. 1; AHRI, No. 1437 at p. 2; AHRI and the Joint Stakeholders, No. 1438 at p. 1; BWC, No. 1441 at p. 1; Joint Advocates, No. 1444, at pp. 1-2)

NEEA commented that the July 2024 NODA effectively updates the analysis for gas-fired instantaneous water heaters to thoroughly represent the market and better account for manufacturer impacts of updating standards for gas-fired instantaneous water heaters by updating from Energy Information Administration's Residential Energy Consumption Survey (“RECS”) 2015 to RECS 2020 data, accounting for the use of concentric pipe venting for both condensing and non-condensing gas-fired instantaneous water heaters, and updating the analysis to include outdoor installations of gas-fired instantaneous water heaters that don't require venting or that require short through-the-wall vents. NEEA commented that according to DOE's analysis, impacts on manufacturers from a condensing-level standard would be modest and potentially beneficial to domestic production. NEEA recommended that DOE quickly issue a final rule for gas-fired instantaneous water heaters, as NEEA agreed with DOE that condensing-level standards at EL 2 would be cost effective and deliver significant energy savings while having minimal negative impacts. (NEEA, No. 1434 at pp. 1-3)

Rheem recommended that DOE amend standards for gas-fired instantaneous water heaters to EL 2, stating that DOE's analysis remains justified. (Rheem, No. 1436 at p. 1) BWC urged DOE to establish minimum energy

conservation standards for gas-fired instantaneous water heaters at EL 2 as originally proposed in the July 2023 NOPR and in accordance with the Joint Stakeholder Recommendation. BWC stated that establishing standards consistent with the Joint Stakeholder Recommendation would result in national energy savings of 0.8 quads and provide individual consumers average savings of $31 per year.

(BWC, No. 1441 at p. 1)

BWC cited analytical results provided in the original Joint Stakeholder Recommendation (Document No. 49 in this docket), which relied on DOE's results from the March 2022 Preliminary Analysis (see Joint Stakeholder, No. 49 at p. 5). DOE's most up-to-date analysis provided in this final rule indicates a potential for 0.58 quads of national energy savings, with an average consumer LCC savings of $112.

3. General Opposition

In response to the July 2023 NOPR, DOE received comments from several stakeholders raising concern over the impact of the proposed standards.

An individual commenter requested careful consideration of the impacts of the proposed levels for gas-fired instantaneous water heaters on the economy. The individual commenter noted that they work at a propane company whose installation and servicing of tankless

water heaters is a large part of its income, asserting that the proposals, if adopted, could be detrimental to the economy. (Hardy, No. 185 at p. 1)

“Tankless” models are instantaneous water heaters with very little storage volume. These designs comprise the majority of consumer gas-fired instantaneous water heaters on the market today.

Commenters from the U.S. House of Representatives indicated that the popularity of non-condensing gas-fired instantaneous water heaters among homeowners and small business owners across the United States reflects the efficiency and affordability of the products. Additionally, the Commenters from the U.S. House of Representatives stated that restricting consumer access to gas-fired instantaneous water heaters by adopting higher standards would reduce consumer choice and increase product prices. (U.S. House of Representatives, No. 1205 at p. 1) Then, in response to the July 2024 NODA, the Commenters from the U.S. House of Representatives stated that gas-fired instantaneous water heaters are projected to reach 11 percent of the U.S. market by 2028 and that sales of non-condensing tankless water heaters from 2005 to 2022 have saved 339 million MMBtus (0.34 quads) and 37.7 billion pounds (17 million metric tons) of carbon emissions. Commenters from the U.S. House of Representatives also stated that the July 2023 NOPR would eliminate the non-condensing gas-fired instantaneous water heaters while leaving costlier or higher emission profile products on the market. (U.S. House of Representatives, No. 1445 at p. 1)

Regarding stakeholders' comments that the standards proposed in the July 2023 NOPR would discourage adoption of gas-fired instantaneous water heaters, DOE notes that it expects the share of gas-fired instantaneous water heaters to continue to increase as a percentage of the overall U.S. market in both the no-new-standards case and standards cases.

See

section IV.F.10 for a discussion regarding why adoption of other types of water heaters in response to amended standards for gas-fired instantaneous water heaters is highly unlikely. Additionally, DOE notes that only one-third of gas-fired instantaneous water heaters shipped in 2024 were non-condensing models, with a market share that is projected to decrease even in the absence of amended standards.

See

section IV.G of this document and chapter 9 of the final rule TSD for additional information on DOE's shipments analysis.

In addition to emphasizing several of the points it made in response to the July 2023 NOPR, Rinnai claimed that, although the July 2024 NODA appears to make some adjustments for data provided by Rinnai as well as other inputs, methods and approaches, it does not sufficiently account for historic market data and trends, consumer decision making, product and installation costs, and concerns with modeling and methodology, nor does it suffice to meet statutory requirements relating to economic justification, significant energy savings, or product unavailability. Rinnai stated that the analysis in the July 2024 NODA does not change its conclusion that the proposed rule would limit the affordable, efficient options available to consumers, would impede a market-driven shift toward more efficient storage-type water heaters,

and would likely result in a net reduction in energy savings and an increase in carbon emissions. Rinnai therefore requested that DOE correct its claimed deficiencies and flaws in the July 2024 NODA, issue a supplemental notice of proposed rulemaking to address these changes and allow thorough stakeholder input, and reconsider the July 2023 NOPR's proposed rule. Rinnai suggested that DOE should either maintain the existing standard for gas-fired instantaneous water heaters, or alternatively promulgate separate standards for condensing and non-condensing gas-fired instantaneous water heaters. (Rinnai, No. 1443 at pp. 2-3)

The commenter used the phrase “tank water heaters” but did not clarify how amended standards for gas-fired instantaneous water heaters would impede a market transition towards more efficient types of storage water heaters; however, they later reiterate the concern regarding a shift towards gas-fired storage water heaters, which, in general, tend to have lower UEF ratings today compared to gas-fired instantaneous water heaters.

Rinnai raised concern with the condensing-level standards supported by the Joint Stakeholders, asserting that such standards would not adequately consider the gas-fired instantaneous water heater market and industry as a whole. Specifically, Rinnai expressed that it does not believe that non-condensing gas-fired instantaneous water heaters are “on the way out” of the market. According to Rinnai, the July 2024 NODA showed a projected 30 percent of gas-fired instantaneous water heater sales in 2030 would be non-condensing models, consistent with current trends. Rinnai stated that it would suffer the direct impacts of this rule, being not only one of the leading manufacturers of gas-fired instantaneous water heaters in general but also the market leader in sales of non-condensing models, producing approximately 60 percent of the market share of non-condensing models. (Rinnai, No. 1443 at pp. 23-24) Rinnai argued that DOE's consumer water heater rulemaking, and in particular its actions with regard to gas-fired instantaneous water heaters, depend heavily on DOE's interpretation of several statutory provisions in EPCA. According to Rinnai, DOE's interpretations of statutory provisions are not entitled to deference—for example, DOE's interpretation of the unavailability provision, section 6295(o)(4), the “significant conservation of energy” provision, section 6295(o)(3), the economic justification provision, section 6295(o)(2)(B), and the separate standards provision, section 6295(q). Rinnai expressed its concern that DOE's consumer water heater rulemaking, in conjunction with its rulemaking proceedings on furnaces and boilers, represent a significant overhaul of the appliance manufacturing industry. Rinnai commented that, in line with the outcome of

West Virginia

EPA,

EPCA was not intended to allow DOE to favor one fuel or type of appliance over another or to reshape the appliance industry. (Rinnai, No. 1443 at pp. 23-24)

West Virginia

EPA,

597 U.S. 697 (2022), the Court expounded on the major questions doctrine, and held that agencies could not adopt rules with, as Rinnai put it, “significant economic, industry and consumer choice impacts” without having clear congressional authorization to do so. (Rinnai, No. 1443 at p. 24)

DOE's rulemaking to amend energy conservation standards for gas-fired instantaneous water heaters does not disallow the production, import, or sale of water heaters using any specific fuel type. Moreover, gas-fired instantaneous water heaters will not be made unavailable as a result of this rulemaking. Stakeholders have not indicated that raising standards for gas-fired instantaneous water heaters would push consumers towards electric or oil-fired water heaters—and such a case would be highly improbable based on DOE's own analysis of consumer purchasing decisions. Instead, stakeholders such as Rinnai and the Gas Association Commenters appear to indicate that more-stringent standards for gas-fired instantaneous water heaters may impact shipments of other gas-fired water heaters, and these comments are discussed further in section IV.F.10 of this document. As such, there is no evidence to support Rinnai's suggestion that DOE's action “favors” one fuel type over another. Furthermore, since the statutory consumer water heater standards were established by EPCA at 42 U.S.C. 6295(e)(1), DOE has maintained separate product classes (

i.e.,

separate standards) for gas-fired, oil-fired, and electric water heaters.

See

10 CFR 430.32(d)(1)-(2). These separate product classes are consistent with the statutory provisions at 42 U.S.C. 6295(q).

DOE has statutory authority to routinely evaluate and address minimum efficiency levels for gas-fired instantaneous water heaters (and all other consumer water heaters).

See

section II.A of this document. As a general matter, energy conservation standards save energy by removing the least-efficient technologies and designs from the market. Discussed further in section IV.A.1 of this document, non-condensing gas-fired instantaneous water heaters use only one heat exchanger that operates at a higher temperature, whereas condensing gas-fired instantaneous water heaters make use of corrosion-resistant condensing heat exchangers that can extract far more energy from the flue gases exhausted by combustion—causing the exhaust flue gases to condense into liquid (hence, the term “condensing”). Because of this, condensing gas-fired instantaneous water heaters are a step up in efficiency from non-condensing products. The energy-saving purposes of EPCA would be frustrated if DOE were required to set standards that maintain less-energy-efficient covered products and equipment in the market based simply on the fact that they use a specific type of less-efficient design.

DOE has evaluated the statutory criteria—technological feasibility, significant energy savings, and economic justification—and considered the application of the statutory “unavailability provision” (

see

42 U.S.C. 6295(o)(4)) to determine the product class structure for gas-fired instantaneous water heaters;

see

section IV.A.1 of this document for further details. DOE has not sought to “reshape the appliance industry,” but rather to set standards in accordance with the statutory requirements of EPCA. Analytical results from multiple rulemakings indicate that certain segments of the space and water heating industries have made significant progress in transitioning the market towards more-efficient condensing products, and the analysis herein for gas-fired instantaneous water heaters also reflects this trend. As such, DOE is not setting condensing-level standards simply to increase the usage of condensing technology. Rather, DOE has found that condensing-level standards are justified for gas-fired instantaneous water heaters based on extensive analysis and review.

4. Comments on Higher Standards Than Proposed in the NOPR

EL 3 corresponds to the efficiency that would meet the current ENERGY STAR Specification version 5.0, and as such is an efficiency level that many manufacturers currently target. In the July 2023 NOPR, DOE tentatively determined that the additional benefits and savings from amended standards at EL 3 could be considered significant, but there was uncertainty as to whether manufacturing capacity of EL 3 models could be scaled up to meet national demand for gas-fired instantaneous water heaters. 88 FR 49058, 49161. While the July 2023 NOPR proposed standards at EL 2, DOE requested additional information on the benefits and burdens of a potential amended standard for gas-fired instantaneous water heaters at EL 3, especially with respect to manufacturers being able to scale their entire production to EL 3 in the compliance time frame being considered by this rulemaking.

Id.

In response, Bosch stated that EL 3 would be significantly more difficult to reach compared to EL 2, adding that though EL 3 is feasible with current technology, the technology comes with increased complexity. Specifically, Bosch stated that the most significant challenge in raising the efficiency of a gas-fired instantaneous water heater from a UEF of 0.93 to 0.95 for the high draw pattern is the need for significant burner modulation. Bosch recommended DOE retain the EL 2 proposal for gas-fired instantaneous water heaters. (Bosch, No. 1204 at pp. 4-5) Noritz stated that EL 3 is significantly more difficult to reach than EL 2, due to complexity related to the software, controls, fan, and gas valve, as well as higher material costs due to increased heat exchanger surface area. (Noritz, No. 1202 at p. 3) BWC recommended against adopting standards for gas-fired instantaneous water heaters at EL 3 because this would be inconsistent with the Joint Stakeholder Recommendation, and the proposed standards at EL 2 already amount to substantial increase in efficiency. (BWC, No. 1164 at p. 16) Rheem stated that it does not support EL 3 for gas-fired instantaneous water heaters as the costs to the manufacturer outweigh the benefit of the slight increase in UEF. Rheem further stated that EL 3 requires completely different condensing technology than EL 2 and will have significantly more impact on existing manufacturing facilities. (Rheem, No. 1177 at p. 13)

AHRI stated that gas-fired instantaneous water heaters would experience more difficulty achieving EL 3 compared to EL 2 due to increasing complexity, driven by designs incorporating full burner modulation. AHRI further stated that this would require substantial research and development and more expensive components. (AHRI, No. 1167 at pp. 12-13)

CEC stated that if DOE received data in response to the request for information in the July 2023 NOPR, DOE should consider finalizing a standard consistent with EL 3 for gas-fired instantaneous water heaters. (CEC, No. 1173 at p. 12)

In response to the July 2023 NOPR, the CA IOUs encouraged DOE to set more stringent standards for gas-fired instantaneous water heaters, recommending that DOE establish the standards proposed at TSL 6 in the July 2023 NOPR, equivalent to max-tech (

i.e.,

EL 4). According to the CA IOUs, more stringent standards for all gas-fired consumer water heater sub-classes, specifically at condensing efficiencies, would result in significant savings of natural gas in California and across the United States. Regarding statements from some stakeholders that significant installation barriers are associated with gas condensing water heaters, the CA IOUs referred DOE to a report docketed

in 2019 titled “Investigation of Installation Barriers and Costs for Condensing Gas Appliances.”

Key findings from this report indicate that these challenges impact less than 5 percent of condensing gas retrofit installations for residential and commercial applications, and that condensate management and chimney relining were minor concerns for installing gas condensing products. (CA IOUs, No. 1175 at p. 2) In response to the July 2024 NODA, the CA IOUs reiterated that more-stringent efficiency standards for gas-fired instantaneous water heaters would conserve natural gas, reduce emissions, and lower utility payments for Californians. The CA IOUs stated that while a standard based on EL 2 would generate between $0.13 billion ($2022, at a 7-percent discount rate) and $0.47 billion ($2022, at a 3-percent discount rate) in consumer benefits for all Californians over 30 years, a standard based on EL 3 would generate between $0.21 billion ($2022, at a 7-percent discount rate) and $0.75 billion ($2022, at a 3-percent discount rate) in consumer benefits for all Californians over the same time period. The CA IOUs stated that adoption of EL 3 would increase consumer benefits by 60 percent relative to EL 2 and reiterated that EL 3 has the shortest simple payback period of any gas-fired instantaneous water heater efficiency level. The CA IOUs urged DOE to adopt a standard for gas-fired instantaneous water heaters based on EL 3. (CA IOUs, No. 1442 at pp. 1-2)

EERE-2018-BT-ST-0018-0062. February 28, 2019. Available at:

www.regulations.gov/comment/EERE-2018-BT-STD-0018-0062

(last accessed: Oct. 1, 2024).

In this final rule analysis, DOE finds that although EL 3 would present many consumer benefits, the average estimated simple payback period for EL 3 is 8.3 years, whereas for EL 2 it is 8.9 years, which is not strikingly different in the context of the product's lifespan, which is estimated to be about 20 years. DOE acknowledges that setting standards at EL 3 for gas-fired instantaneous water heaters would require notably higher levels of investment compared to EL 2 for gas-fired instantaneous water heaters. In this final rule, DOE is adopting TSL 2, which corresponds to EL 2 for gas-fired instantaneous water heaters. DOE notes that industry would need to significantly scale up production of models that meet EL 3 given the lower quantity of shipments of these models today. Approximately 60 percent of gas-fired instantaneous water heater shipments currently meet the adopted level (

i.e.,

EL 2).

However, only 15 percent of gas-fired instantaneous water heater shipments currently meet EL 3. To meet EL 3, DOE expects manufacturers would implement a more efficient heat exchanger design (

e.g.,

replacing a tube condensing heat exchanger with a flat plate condensing heat exchanger) and increase the condensing heat exchanger area relative to EL 2. DOE understands that implementing the larger, improved condensing heat exchanger technology could increase the complexity of the manufacturing process compared to the tube design condensing heat exchanger technology analyzed at EL 1 and EL 2. Given the low shipments volumes and increased complexity of EL 3 models, DOE expects most manufacturers would need to add new production lines to maintain existing capacity at TSL 3. DOE does not expect most manufacturers would need to add new production lines or incur notable capital investments to meet TSL 2. DOE estimates that industry conversion costs at EL 2 would reach approximately $20 million whereas industry conversion costs would triple at EL 3 (approximately $60 million).

See

section V.B.2.a of this document for the estimated industry conversion costs at each TSL.

See

section V.C.1 of this document for the benefits and burdens of the TSLs considered in this rulemaking.

The term “current shipments” refers to no-new-standards shipments estimated to occur in 2024 (the reference year).

B. Scope of Coverage

Gas-fired instantaneous water heaters are a subset of consumer water heaters. Generally, DOE defines a “water heater,” consistent with EPCA's definition at 42 U.S.C. 6291(27) and codified at 10 CFR 430.2, as a product which utilizes oil, gas, or electricity to heat potable water for use outside the heater upon demand. An instantaneous-type water heater is one that heats water but contains no more than one gallon of water per 4,000 Btu per hour of input, and consumer gas-fired instantaneous water heaters are additionally defined as having an input rating less than 200,000 Btu per hour. 10 CFR 430.2; (42 U.S.C. 6291(27)).

This rulemaking does not cover gas-fired circulating water heaters, which must be used in combination with recirculation pump and a storage tank or recirculation loop, and therefore constitute storage-type water heaters. 10 CFR 430.2.

As stated in section I of this document, EPCA prescribed energy conservation standards for all consumer water heaters (

i.e.,

those that meet the definition of “water heater” above). For the purposes of this final rule, DOE is solely considering “gas-fired instantaneous water heaters,” including those for which there are no current UEF-based standards codified at 10 CFR 430.32(d)(1).

See

section IV.A.1 of this document for discussion of the product classes analyzed in this final rule.

C. 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 as the basis for certifying to DOE that their product complies with the applicable energy conservation standards and as the basis for any representations regarding the energy use or energy efficiency of the product. (42 U.S.C. 6295(s) and 42 U.S.C. 6293(c)). Similarly, DOE must use these test procedures to evaluate whether a basic model complies with the applicable energy conservation standard(s). 10 CFR 429.110(e). The current test procedure for consumer and residential-duty commercial water heaters is codified at 10 CFR part 430, subpart B, appendix E. Appendix E includes provisions for determining UEF, the metric on which current standards are based. 10 CFR 430.32(d)(1).

DOE most recently amended the test procedure for these products at appendix E in the consumer and residential-duty commercial water heater test procedure final rule published on June 21, 2023 (“June 2023 TP Final Rule”) pursuant to the 7-year review requirement as specified by EPCA. (42 U.S.C. 6293(b)(1)(A) and 42 U.S.C. 6314(a)(1)(A)) In that final rule, DOE established effective storage volume (“V

eff

”) as a metric to address how much hot water could be immediately delivered by the system, taking into account the temperature of the stored water and, in the case of circulating water heaters, the volume of the paired storage tank. 88 FR 40406. The amended test procedure established by the June 2023 TP Final Rule is mandatory for gas-fired instantaneous water heater testing starting December 18, 2023, 180 days after publication.

Id.

In response to the July 2023 NOPR, BWC reiterated its comments in response to the March 2022 Preliminary Analysis asserting that there is evidence to suggest that gas-fired instantaneous water heaters may gain an unfair advantage in the current test procedure

as compared to gas-fired storage water heaters. The commenter provided DOE with a study published by the Davis Energy Group, Inc. and requested that DOE elaborate on its disagreement with the outcome of that study. In particular, BWC pointed out that while gas-fired instantaneous water heaters are not subjected to standby losses like their storage-type counterparts, the number, timing, and frequency of draws required for these products causes the heat exchanger to be raised to temperature for each draw; and this, according to Davis Energy Group, Inc., can cause a bias toward higher efficiency ratings for gas-fired instantaneous water heaters. BWC requested further discussion on this topic to ensure that both types of gas-fired products are treated fairly. (BWC, No. 1164 at pp. 9-10)

In response, DOE notes that the current test procedure for consumer water heaters is designed to represent generally how consumer water heaters are used in-field. As such, if one type of water heater generally receives higher efficiency ratings than another, it would be the result of that water heater type having a more efficient design for actual consumer usage patterns than the other. This difference would therefore not be a bias, but a reflection of actual differences in operating efficiency being captured by the test result. The Davis Energy Group, Inc. study cited by BWC shows the efficiency of the gas-fired instantaneous water heater that was tested was more affected by the time between water draws than that of the gas-fired storage water heater that was tested. That is, the efficiency of the gas-fired instantaneous water heater degraded more when the time between water draws increased than did the gas-fired storage water heater. However, for these findings to have any significance, DOE would also need evidence to show that the water draw sequencing of the current test procedure at appendix E is unrepresentative. The draw sequence was developed as a representative test method in the 2014 test procedure rulemaking that established the UEF test method, and it considered factors such as standby loss periods, test stand capabilities, and water heater recovery rates (

see

79 FR 40542). In the absence of sufficient data provided by BWC or the Davis Energy Group, Inc. report demonstrating that the current test procedure is unrepresentative, DOE cannot conclude that the prescribed test method results in an unfair advantage for gas-fired instantaneous water heaters over gas-fired storage water heaters. In this standards analysis, DOE has relied on an efficiency-level approach to identify potential standards based on UEF ratings that are demonstrated (certified) for gas-fired instantaneous water heaters on the basis of testing under the DOE test procedure. Therefore, hypothetically, even if these products do benefit from factors in the test procedure that allow them to have higher UEF ratings, all gas-fired instantaneous water heaters would benefit equally, and the increase in UEF is reflected in product ratings and the efficiency levels selected for the analysis. By basing its analysis around commercially available products and their certified ratings in the product classes separately, DOE is ensuring that the standards it is setting for gas-fired instantaneous water heaters are reflective of these products' performance under the appendix E test procedure. DOE used a similar approach for all other types of consumer water heaters (

e.g.,

gas-fired storage water heaters) when it finalized amended standards in a May 6, 2024 final rule pertaining to those products. 89 FR 37778.

D. Technological Feasibility

1. General

As discussed, 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))

To determine whether potential amended standards would be technologically feasible, DOE first develops a list of all known technologies and design options that could improve the efficiency of the products or equipment that are the subject of the rulemaking. DOE considers technologies incorporated in commercially available products or in working prototypes to be “technologically feasible.” 10 CFR part 430, subpart C, appendix A, sections 6(a)(3)(iii)(A) and 7(b)(1). Section IV.A.2 of this document discusses the technology options identified by DOE for this analysis. For further details on the technology assessment conducted for this final rule,

see

chapter 3 of the final rule technical support document (“TSD”).

After DOE has determined which, if any, technologies and design options are technologically feasible, it further evaluates each technology and design 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. 10 CFR part 430, subpart C, appendix A, sections 6(a)(3)(iii)(B) through (E) and 7(b)(2) through (5). Those technology options that are “screened out” based on these criteria are not considered further. Those technology and design options that are not screened out are considered as the basis for higher efficiency levels that DOE could consider for potential amended standards. Section IV.B of this document discusses the results of this screening analysis conducted for this final rule. For further details on the screening analysis conducted for this final rule,

see

chapter 4 of the final rule TSD.

2. Maximum Technologically Feasible Levels

EPCA requires that for any proposed rule that prescribes an amended or new energy conservation standard, or prescribes no amendment or no new standard for a type (or class) of covered product, DOE must determine the maximum improvement in energy efficiency or maximum reduction in energy use that is technologically feasible for each type (or class) of covered products. (42 U.S.C. 6295(p)(1)) Accordingly, in the engineering analysis, DOE identifies the maximum efficiency level currently available on the market. DOE also defines a “max-tech” efficiency level, representing the maximum theoretical efficiency that can be achieved through the application of all available technology options retained from the screening analysis.

In many cases, the max-tech efficiency level is not commercially available because it is not currently economically feasible.

In applying these design options, DOE would only include those that are compatible with each other that when combined, would represent the theoretical maximum possible efficiency.

The max-tech levels that DOE determined for this analysis are described in section IV.C.1.a of this document and in chapter 5 of the final rule TSD.

E. Energy Savings

1. Determination of Savings

For each TSL, DOE projected energy savings from application of the TSL to gas-fired instantaneous water heaters purchased during the 30-year period that begins in the first year of compliance with the amended standards (2030-2059).

The savings are measured over the entire lifetime of products purchased during 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 NES from potential amended standards for gas-fired instantaneous water heaters. 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 NES 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, 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 the impacts of products with relatively constant demand. 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.

The numeric threshold for determining the significance of energy savings established in a final rule published on February 14, 2020 (85 FR 8626, 8670) was subsequently eliminated in a final rule published on December 13, 2021 (86 FR 70892).

As stated, the standard levels adopted in this final rule are projected to result in NES of 0.58 quad, the equivalent of the primary annual energy use of about 4 million homes. Based on the amount of FFC savings, the corresponding reduction in emissions, and the need to confront the global climate crisis, 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).

F. Economic Justification

1. Specific Criteria

As noted previously, EPCA provides seven factors to be evaluated in determining whether a potential energy conservation standard is economically justified. (42 U.S.C. 6295(o)(2)(B)(i)(I)(VII)) The following sections discuss how DOE has addressed each of those seven factors in this rulemaking.

a. Economic Impact on Manufacturers and Consumers

In determining the impacts of potential new or amended standards on manufacturers, DOE conducts a manufacturer impact analysis (“MIA”), as discussed in section IV.J of this document. First, DOE 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 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 NPV 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 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, DOE uses the NIA spreadsheet models to project NES.

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 gas-fired instantaneous water heaters 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 gas-fired instantaneous water heaters are unlikely to substantially lessen competition. DOE is publishing the Attorney General's assessment at the end of this final rule.

In response to the July 2023 NOPR, Rinnai asserted that eliminating non-condensing gas-fired instantaneous water heaters from the market would create detrimental effects on competition by limiting consumer choice, raising prices on more efficient products, eliminating consumers' option to make like-for-like product replacements, all of which would place Rinnai at a disadvantage as a smaller competitor in a concentrated water heater market. (Rinnai, No. 1186 at p. 7) In response to the July 2024 NODA, Rinnai commented that the consumer water heater market is already a highly concentrated market with three dominant players, and that moving to a standard for gas-fired instantaneous water heaters that requires condensing technology would impede competition. (Rinnai, No. 1443 at p. 22)

DOE recognizes the importance of competition in the marketplace. For this final rule, DOE reviewed its Compliance Certification Database,

Air-Conditioning, Heating, and Refrigeration Institute's Directory of Certified Product Performance,

California Energy Commission's Modernized Appliance Efficiency Database System,

and the ENERGY STAR Product Finder dataset

to ensure an up-to-date assessment of gas-fired instantaneous water heater manufacturers operating in the United States. Through its review, DOE identified 12 OEMs of gas-fired instantaneous water heaters subject to more stringent standards under this rulemaking. All 12 OEMs already manufacture condensing gas-fired instantaneous water heaters. Of these 12 manufacturers, 10 manufacturers, including Rinnai, manufacture products that meet the standards adopted in this final rule. Collectively, these 10 OEMs offer 71 basic models (accounting for 51 percent of model listings and 60 percent of shipments in 2024) that meet the adopted level (TSL 2). Thus, a variety of companies already participate in the condensing gas-fired instantaneous water heater market. Comparatively, only eight OEMs currently manufacture non-condensing gas-fired instantaneous water heaters.

See

chapter 3 of the final rule TSD for a complete list of manufacturers of gas-fired instantaneous water heaters. Based on Rinnai's comments in response to the July 2023 NOPR, DOE understands that Rinnai's market share of non-condensing gas-fired instantaneous water heaters is 60 percent and their market share of condensing gas-fired instantaneous water heater sales is 20 percent. (Rinnai No. 1186 at p. 1) Given that all 12 manufacturers already offer condensing gas-fired instantaneous water heater products, DOE does not anticipate lessening of competition in the gas-fired instantaneous water heater market; which is estimated to represent 14 percent of the total consumer water heater market in 2030. As previously discussed, this conclusion is also supported by the DOJ's assessment letter.

U.S. Department of Energy's Compliance Certification Database is available at

regulations.doe.gov/certification-data

(last accessed July 19, 2024).

Air-Conditioning, Heating and Refrigeration Institute's Directory of Certified Product Performance is available at

https://ahridirectory.org/search/searchhome?Returnurl=%2f

(last accessed July 23, 2024).

California Energy Commission's Modernized Appliance Efficiency Database System is available at

cacertappliances.energy.ca.gov/Pages/Search/AdvancedSearch.aspx

(last accessed July 19, 2024).

ENERGY STAR Product Finder is available at

www.energystar.gov/productfinder

(last accessed July 22, 2024).

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 GHGs associated with energy production and use. DOE conducts an emissions analysis to estimate how potential standards may affect these emissions, as discussed in section IV.K of this document; the estimated emissions impacts are reported in section V.B.6 of this document. DOE also estimates the 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 PBP for consumers. These analyses include, but are not limited to, the 3-year PBP 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 gas-fired instantaneous water heaters. 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 NIA uses a second spreadsheet set that provides shipments projections and calculates NES and NPV 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/EERE-2017-BT-STD-0019.

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 gas-fired instantaneous water heaters. 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. Product Classes

When evaluating and establishing or amending energy conservation standards, DOE establishes separate standards for a group of covered products (

i.e.,

establish a separate product class) based on the type of energy used, or if DOE determines that a product's capacity or other performance-related feature justifies a different standard. (42 U.S.C. 6295(q)) In making a determination whether a performance-related feature justifies a different standard, DOE considers such factors as the utility of the feature to the consumer and other factors DOE determines are appropriate. (

Id.

)

EPCA, as amended by the National Appliance Energy Act (NAECA; Pub. L. 100-12), established initial energy conservation standards for consumer water heaters, expressed in EF, that were based on three product classes differentiated by fuel type: (1) gas-fired, (2) oil-fired, and (3) electric. (42 U.S.C. 6295(e)(1)) These standards applied to consumer water heaters manufactured on or after January 1, 1990. Gas-fired instantaneous water heaters were, at the time, required to comply with the same EF standards as gas-fired storage water heaters because the standards were not differentiated by storage versus instantaneous water heaters.

DOE subsequently amended these EF standards twice, most recently in the April 2010 Final Rule, with which compliance was required starting on April 16, 2015. 75 FR 20112. By the April 2010 Final Rule, DOE had further divided gas-fired consumer water heaters into product classes based on demand type (storage, instantaneous), storage volume, and input rate. While the April 2010 Final Rule had separate standards for gas-fired instantaneous water heaters and gas-fired storage water heaters, DOE did not adopt standards for gas-fired instantaneous water heaters with less than 50,000 Btu/h of input because, at that time, there were no such low-input gas-fired instantaneous water heaters available on the market.

Id.

at 75 FR 20127.

Most recently, the December 2016 Conversion Factor Final Rule, published and effective on December 29, 2016, translated the EF-based standards to UEF-based standards. 81 FR 96204. In doing so, separate product classes were created for each of the four draw patterns (very small, low, medium, and high) in the UEF test procedure. However, due to concerns that the UEF test procedure would not apply to gas-fired instantaneous water heaters 2 gallons or larger at the time, DOE determined that the translated UEF-based standards would apply only to gas-fired instantaneous water heaters with less than 2 gallons of storage volume.

Id.

at 81 FR 96205. As a result, UEF-based standards were established only for gas-fired instantaneous water heaters with less than 2 gallons of storage volume and more than 50,000 Btu/h of input.

Id.

at 81 FR 96205. As discussed in the December 2016 Conversion Factor Final Rule, the standards established in EPCA do not define a minimum fuel input rate or maximum storage volume for gas-fired instantaneous water heaters; therefore, the original standards established by EPCA in terms of EF remained applicable to all gas-fired instantaneous water heaters without UEF-based standards.

Id.

at 81 FR 96209-96211. The four product classes for which DOE has currently established UEF-based standards are summarized in table IV.1. The product classes without UEF-based standards, for which EF-based standards from EPCA apply, are shown in table IV.2.

Table IV.1—Gas-Fired Instantaneous Water Heater Product Classes With Current UEF-Based Standards

Product type

Rated storage volume and input rating

Draw patterns

Instantaneous Gas-Fired Water Heater

<2 gal and >50,000 Btu/h

Very Small.

Low.

Medium.

High.

Table IV.2—Gas-Fired Instantaneous Water Heater Product Classes Without Current UEF-Based Standards

Product class

Rated storage volume and input rating

(if applicable)

Gas-fired Instantaneous

<2 gal and ≤50,000 Btu/h.

≥2 gal.

In response to the July 2024 NODA, A.O. Smith noted that the conversion factor rulemaking did not establish a product class for gas-fired instantaneous water heaters ≥2 gallons and ≤200,000 Btu/h. A.O. Smith noted that, while the intent of the December 2016 Conversion Factor Final Rule was to satisfy the requirements of AEMTCA, DOE is not statutorily required under EPCA to establish standards in terms of UEF for the entirety of this product class because some products meet the criteria for exclusion on account of being commercial equipment. (A.O. Smith, No. 1440 at p. 3) A.O. Smith claimed that the hot water delivery capacity, as a function of input capacity and storage volume, of a subset of products in the ≥2 gallon, ≤200,000 Btu/h proposed product class for gas-fired instantaneous water heaters includes equipment that would not be used or installed residentially and would only be suitable for commercial applications. A.O. Smith noted that equipment meeting the capacity ranges of the proposed product class already exist on the market and are exclusively used in commercial applications. (A.O. Smith, No. 1440 at pp. 3-4) A.O. Smith recommended that DOE re-evaluate the gas-instantaneous water heater product class structure and avoid prescribing a UEF test metric and standard for these water heaters where the UEF metric is inappropriate. A.O. Smith noted that EPCA's definition for commercial gas-fired instantaneous water heaters does not include a minimum input or volume limit and claimed that it does not prevent DOE from specifying a reasonable storage volume threshold for gas-fired instantaneous water heaters above which the product would be rated to commercial metrics and considered as commercial equipment. (A.O. Smith, No. 1440 at p. 4)

As stated earlier, in the December 2016 Conversion Factor Final Rule, DOE determined that the translated UEF-based standards would apply only to gas-fired instantaneous water heaters with less than 2 gallons of storage volume due to concerns at the time that the UEF test procedure would not apply to gas-fired instantaneous water heaters 2 gallons or larger. 81 FR 96204, 96205. However, after conducting the market assessment for this rulemaking, DOE is now aware of multiple gas-fired instantaneous water heaters with 2 or more gallons of storage volume presently on the market. These products are specifically marketed for residential applications in publicly available product listings and literature.

36 37

DOE is not aware of, nor has A.O. Smith provided, evidence suggesting that products in this product class are designed or marketed exclusively for commercial applications. As such, products in this size range have demonstrated residential use and therefore do not meet the requirement for exclusion from the UEF descriptor as specified at 42 U.S.C. 6295(e)(5)(F)(i).

American Water Heaters. See the ProLine® XE Polaris® PG10-34-150-2NV 34-gallon “Commercial-Grade Residential Gas Water Heater” with 150,000 Btu input rate. Information available online at

www.americanwaterheater.com/media/28107/nrgss03316.pdf

(Last accessed Aug. 29, 2024).

HTP. See the “High Efficiency Crossover Floor Water Heater,” with information provided to compare against typical residential 50-gallon gas-fired storage water heaters and tankless 199,000 Btu/h gas-fired instantaneous water heaters. Information available online at

www.htproducts.com/literature/mktlit-117.pdf

(Last accessed Aug. 27, 2024).

In response to the July 2023 NOPR, some stakeholders provided comments specific to the proposed standards for gas-fired instantaneous water heaters in reference to the “unavailability provision” found in EPCA, 42 U.S.C. 6295(o)(4). DOE indicated that these comments would not be addressed in the May 2024 Final Rule. 89 FR 37778, 37814. After further consideration of these comments DOE is addressing them in this final rule. Relatedly, DOE received a multitude of comments throughout this rulemaking pertaining to a potential product class structure that differentiates between non-condensing and condensing products.

Per 42 U.S.C. 6295(o)(4), which outlines certain criteria for prescribing new or amended standards, the Secretary may not prescribe an amended or new standard under this section if the Secretary finds (and publishes such finding) that interested persons have established by a preponderance of the evidence that the standard is likely to result in the unavailability in the United States in any covered product type (or class) of performance characteristics (including reliability), features, sizes, capacities, and volumes that are substantially the same as those generally available in the United States at the time of the Secretary's finding. The failure of some types (or classes) to meet this criterion shall not affect the Secretary's determination of whether to prescribe a standard for other types (or classes).

Briefly, condensing and non-condensing products differ in how efficiently they make use of flue gas heat. A baseline gas-fired instantaneous water heater relies on a single heat exchanger, which extracts heat energy from the flue gases and transfers it to the water being delivered to the consumer. However, these flue gases contain more heat energy than the baseline heat exchanger is able to extract and, as a result, much of the heat in the flue gases is lost as they are exhausted outdoors. Enhancements to the heat exchanger—including the use of a secondary heat exchanger—enable high-efficiency gas-fired instantaneous water heaters to extract much more of the energy available in the flue gases. When enough energy is extracted by the heat exchangers, the flue gases cool to the point where they begin to condense,

forming liquid condensate. This results in a significant rise in efficiency.

See

chapter 3 of the final rule TSD for further discussion of condensing heat exchangers.

As noted in the comments submitted by NPGA, APGA, AGA, and Rinnai in response to the July 2023 NOPR, the UEF requirements for gas-fired instantaneous water heaters as proposed in the July 2023 NOPR would require condensing technology. (NPGA, APGA, AGA, and Rinnai, No. 441 at pp. 2-3) Rinnai contended that the proposed rule exceeds DOE's authority because it is in conflict with statutory provisions in EPCA, most notably the unavailability provision. Rinnai added that if the proposed rule were adopted, it would eliminate non-condensing tankless water heaters, one of its product offerings. (Rinnai, No. 1186 at p. 2) Rinnai further argued that DOE may not make non-condensing gas-fired instantaneous water heaters unavailable pursuant to the section 6295(o)(4) of EPCA (the “unavailability provision”). Rinnai cited to DOE's interpretation of the unavailability provision in a recent rulemaking for residential furnaces and commercial water heaters and suggested that DOE's interpretation of the provision is unduly narrow and not supported by the provision's plain language.

(Rinnai, No. 1186 at p. 9) Rinnai noted that there is no reference to “consumer utility” in the unavailability provision detailed in section 6295(o)(4) of EPCA. Rinnai stated that, rather than relying on the plain language of section 6295(o)(4) itself, DOE's interpretation of the unavailability provision in section 6295(o)(4) of EPCA relies on reading section 6295(q) as a redundant companion provision to section 6295(o)(4) and suggested there is no basis to do so. Rinnai added that this misinterpretation constitutes an evasion of the limits placed on DOE's authority by section 6295(o)(4) of EPCA. (Rinnai, No. 1186 at p. 10)

DOE finds the better reading of the term “features” in the unavailability provision (

i.e.,

those features that cannot be eliminated by the establishment of a new or amended energy conservation standard) to be those features that provide a consumer unique utility during the operation of the appliance in performance of its major function(s). Stated another way, the “features” provision and the related utility of such features pertain to those aspects of the appliance with which the consumer interacts during the operation of the product (

i.e.,

when the product is providing its “useful output”) and the utility derived from those features during normal operation. 86 FR 73947, 73955.

Rinnai stated that even if DOE's interpretation of the unavailability provision in section 6295(o)(4) of EPCA is taken as correct, non-condensing gas-fired instantaneous water heaters still provide utility because the consumer's operation of, or interaction with, the appliance necessarily depends on whether or not the appliance can be installed. Rinnai added that installation costs should be considered under the unavailability provision in section 6295(o)(4) of EPCA, not just as part of determining whether or not a standard is economically justified. (Rinnai, No. 1186 at pp. 10-11) Similarly, ONE Gas claimed that DOE's proposed standards for gas-fired instantaneous water heaters violate section 6295(o)(4) of EPCA because the unavailability provision is not only limited to product classes and types, but also certain performance characteristics including, features, reliability, sizes, capacities, and volumes within those product classes and types. ONE Gas asserted that DOE's association of customer utility with understanding of, and interaction with, the covered appliance is incorrect and is an overreach in interpretation of section 6295 of EPCA. (ONE Gas, No. 1200 at pp. 4-5)

In response to the July 2024 NODA, Rinnai reiterated its position that non-condensing gas-fired instantaneous water heaters have useful and valuable features, including the ability to have like-for-like replacements, compatibility for easier and wider applications of installations, compatibility with non-condensing venting, smaller space requirements, and greater efficiency at lower cost than gas-fired storage water heaters. Rinnai claimed that there is no sound statutory basis for DOE's refusal to recognize that non-condensing gas-fired instantaneous water heaters have distinct features and characteristics from those of condensing gas-fired instantaneous water heaters that provide utility to consumers. Rinnai stated that DOE could instead establish separate standards for condensing and non-condensing gas-fired instantaneous water heaters to recognize the different functions, capabilities, and installation requirements while preserving consumer choice, and therefore retain the increased energy efficiency standard for condensing gas-fired instantaneous water heaters. Rinnai requested that DOE run an analysis of this proposal with product substitution and other factors taken properly into account. (Rinnai, No. 1443 at pp. 4-5)

Regarding Rinnai's request for further analysis on product substitution, see section IV.F.10 of this document for further details.

Regarding Rinnai's assertion that DOE's interpretation of the unavailability provision requires a redundant reading of 42 U.S.C. 6295(q) to 42 U.S.C. 6295(o)(4), DOE notes that while these provisions are related, they are not redundant. EPCA provides DOE authority to establish product classes with different standard levels under 42 U.S.C. 6295(q). Under this authority, DOE has to determine if a performance-related feature justifies a different standard,

i.e.,

is worth preserving in the market, by considering, among other things, utility to the consumer. In contrast, for the performance characteristics, features, sizes, capacities, and volumes protected under the unavailability provision, Congress has already made the determination that they should be preserved in the market. DOE uses its authority under the product class provision at 42 U.S.C. 6295(q) to then ensure that these performance characteristics, features, sizes, capacities, and volumes are preserved in the market. Without the product class authority, DOE would have to set one standard for a covered product that preserves every aspect of a covered product protected under the unavailability provision. For example, larger capacity gas-fired storage water heaters are generally less-efficient than smaller capacity units because standby losses are higher for larger capacity storage tanks. As a result, the lower efficiency of the largest capacity models could limit DOE's ability to set standards under 42 U.S.C. 6295(o)(4). But 42 U.S.C. 6295(q) lets DOE set a more-stringent standard for smaller capacity gas-fired storage water heaters that saves more energy and a less-stringent standard for larger capacity gas-fired storage water heaters that helps preserve their presence in the market. Finally, it is important to note that the product class provision is not just limited to implementing the unavailability provision. As the product class provision contemplates that the utility of some performance-related features to the consumer may not justify preservation in the market under a separate product class, it is clear that Congress intended this provision to apply to a larger set of performance-related features than would be protected under the unavailability provision.

As for Rinnai's statement that there is no reference to “consumer utility” in the unavailability provision detailed in section 6295(o)(4) of EPCA, Rinnai's own comment also cited a House of Representatives report that stated the purpose of the unavailability provision is to ensure that an amended standard does not deprive consumers of product choices and characteristics, features, sizes, etc., and that significant energy savings can be achieved without

sacrificing the utility of an appliance to a consumer. (Rinnai, No. 1186 at pp. 10). Performance characteristics, features, sizes, capacities, and volumes all offer some utility or benefit to the consumer. To the extent that Rinnai is suggesting that the protection of the unavailability provision in EPCA should be extended to aspects of a covered product that offer no utility to a consumer during operation, like the less-efficient heat exchanger design of a non-condensing gas-fired water heater, or whether the venting material is plastic or stainless steel, DOE strongly disagrees. Any interpretation of the unavailability provision not based on the assumption that Congress was concerned with preserving the utility of covered products, results in a regulatory framework where DOE is forced to create so many product classes that achieving any significant amount of energy savings is all but impossible.

DOE also disagrees with Rinnai's contention that the specific provisions of the unavailability provision—performance characteristics (including reliability), features, sizes, capacities, and volumes—should be read to also include, among other things, “installation costs” and “greater efficiency at lower cost than gas-fired storage water heaters.” Extending the unavailability provision to installation costs and efficiency is demonstrably an impossibly broad interpretation of what DOE is expected to preserve in the market under the unavailability provision. Efficiency is certainly a performance characteristic of a water heater as it measures how well a water heater performs its intended function. However, it would be nonsensical for efficiency to be a performance characteristic under the unavailability provision as the express purpose of the statute is to improve the energy efficiency of covered products and equipment,

i.e.,

eliminate less-efficient products and equipment from the market. Furthermore, cost is certainly a feature of a product. Arguably, it is one of the most important features of a product to a consumer. But again, the energy-saving purposes of EPCA would be frustrated if DOE were required to set standards under the unavailability provision that maintain less-energy-efficient covered products based solely on the fact that they cost less to install. Instead, EPCA expressly contemplates increases in the installed cost of a covered product or equipment in the economic justification analysis where DOE is directed to consider, among other things, the savings in operating costs compared to any increase in the initial and maintenance costs of a covered product. (42 U.S.C. 6295(o)(2)(B)(i)(II)). At bottom, Rinnai's argument is that DOE may not eliminate one water-heating option (non-condensing gas instantaneous water heaters) if that option is cheaper to install than another, different option (condensing gas-fired instantaneous water heaters). But, Congress made it clear that kind of comparative assessment is to be done as part of the economic analysis and has no role under the unavailability provision. As discussed at length elsewhere in this document, DOE's economic analysis considers the extent to which its standards for gas-fired instantaneous water heaters will affect the market.

Additionally, in determining whether a standard is economically justified under EPCA, DOE is directed, among other things, to consider any lessening of the utility or performance of the covered product likely to result from the standard. Thus, extending the unavailability provision to preserve any performance characteristic or feature would frustrate EPCA's purpose and statutory scheme. Simply put, EPCA requires DOE to adopt standards set at the maximum improvement in energy efficiency determined to be technologically feasible and economically justified. EPCA anticipates that new or amended energy conservation standards will result in the unavailability of certain inefficient technologies. An overly broad reading of the unavailability provision to include attributes of the covered product not addressed by the text of that provision (

i.e.,

efficiency, costs, installation costs,

etc.

) would be at odds with the statute's energy-saving purposes. Similarly, DOE disagrees with reading other qualifiers into the unavailability provisions, including “like-for-like replacements, compatibility for easier and wider applications of installations, compatibility with non-condensing venting, smaller space requirements.” As discussed further below, an existing non-condensing gas-fired instantaneous water heater can always be replaced with a condensing gas-fired instantaneous water heater in the same place (

i.e.,

it is always technically feasible).

As discussed previously, DOE's interpretation of the unavailability provision does not require a redundant reading of 42 U.S.C. 6295(q). Instead, DOE interprets these two provisions as complementing one another. EPCA provides DOE some discretionary authority to establish product classes with different standard levels under 42 U.S.C. 6295(q). Under this authority, DOE has to determine if a performance-related feature justifies a different standard by considering, among other things, utility to the consumer. And based on DOE's own research as well as information presented in stakeholder comments, differences in cost or complexity of installation between different methods of venting (

e.g.,

a condensing water heater versus a non-condensing water heater) do not make specific methods of venting a performance-related feature under 42 U.S.C. 6295(q)(1)(B), so as to justify separating the products into different product classes. In reaching this determination, DOE considered Category III venting (for non-condensing designs) and Category IV venting (for condensing designs), which are associated but external to the covered product, and concluded that condensing gas-fired instantaneous water heaters can be installed in the same locations where non-condensing gas-fired water heaters are currently installed. As stated throughout this rulemaking, installation costs and considerations are very relevant to the establishment of energy conservation standards, and are accounted for in the LCC analysis to determine the economic justification of standards.

Unlike specific methods of venting, a covered product's capacity is addressed under the unavailability provision in 42 U.S.C. 6295(o)(4), and described under the product class provision in 42 U.S.C. 6295(q)(1)(B). DOE notes that a water heater's capacity provides utility to a consumer during use (unlike the type of venting or installation costs). For example, water heaters with higher capacities enable consumers to run multiple applications requiring hot water at the same time. Further, DOE is required to preserve the utility offered by larger capacity water heaters in the market under the unavailability provision in 42 U.S.C. 6295(o)(4). Unlike capacity, a lower installation cost has no effect on the performance of a water heater and offers no utility to a consumer during use. In addition to capacity, DOE has also established product classes for water heaters based on: volumes (

e.g.,

a division at 2 gallons), input rating (

e.g.,

a division at 50,000 Btu/h), delivery capacities (

e.g.,

divisions for the very small, low, medium, and high usage patterns), and demand type (

e.g.,

storage versus instantaneous); in addition to distinguishing by context and applications (

e.g.,

consumer product versus commercial equipment) as well as fuel types (

e.g.,

gas-fired, oil-fired, or

electric) as required under 42 U.S.C. 6295(q)(1)(A).

APCA opposed DOE's proposed standards for gas-fired instantaneous water heaters because these standards would require condensing operation. (APCA, No. 1152 at p. 1) The Governor of Georgia commented that the proposed standards would limit consumer choice by reducing the availability of many non-condensing tankless water heaters currently on the market, negatively impact consumers through increased product costs, and contradict EPCA requirements. (Governor of Georgia, No. 1157 at pp. 1-3)

ONE Gas indicated that non-condensing/positive vent pressure gas-fired instantaneous water heaters peak at approximately 0.82 UEF and that UEF ratings from 0.89 to 0.93 would be technologically infeasible for non-condensing products. (ONE Gas, No. 1200 at pp. 2-3) Huntsville Utilities expressed opposition to the proposed standards for gas-fired water heaters, adding that it is especially concerned with the proposed standards for gas-fired instantaneous water heaters that require an efficiency level over 91 percent, effectively eliminating the non-condensing option for this product class. (Huntsville Utilities, No. 1176 at p. 1) JEA, WMU, PGW, Southeast Gas, CEA, ASGE and ONE Gas stated that the proposed standard for gas-fired water heaters would effectively eliminate the option of a non-condensing instantaneous water heater and requested that DOE reassess the negative impacts on public gas utility customers and manufacturers of water heaters that would result from the proposed standard for gas-fired water heaters. (JEA, No. 865 at pp. 1-2; WMU, No. 872 at pp. 1-2; PGW, No. 886 at pp. 1-2; Southeast Gas, No. 887 at pp. 1-2; CEA, No. 914 at pp. 1-2; ASGE, No. 976 at pp. 1-2; ONE Gas, No. 1200 at p. 2)

The Gas Association Commenters expressed that the transition to condensing-level efficiencies for gas-fired instantaneous water heaters would result in the unavailability of products with what it considered to be performance characteristics and features provided by non-condensing products. This group of commenters cited comments submitted by Rinnai, stating that non-condensing gas-fired instantaneous water heaters can be installed and used in cases where condensing products cannot be (

e.g.,

in high-rise buildings, historically protected buildings, or any other building with complications to venting capabilities). According to EPCA, the Gas Association Commenters stated, DOE should decline to adopt the proposed standard for gas-fired instantaneous water heaters on the grounds that it would result in the unavailability of products with “performance characteristics” and “features” currently available to consumers in the United States. (Gas Association Commenters, No. 1181 at p. 7)

In response to these comments, DOE acknowledges that the standards for gas-fired instantaneous water heaters cannot be achieved by non-condensing designs. Nevertheless, in response to comments from ONE Gas suggesting that the amended standards are technologically infeasible, condensing-level standards are still technologically feasible because condensing designs are widely available on the market. DOE has determined that non-condensing technology does not provide any inherent performance benefit to consumers beyond what is provided by condensing designs. Instead, as discussed previously in this section of this document, DOE has determined that non-condensing technology does not constitute a performance-related feature for which a separate product class must be established under EPCA, nor does non-condensing technology warrant preservation under the unavailability provision. Condensing gas-fired instantaneous water heaters can be installed in the same locations where non-condensing gas-fired water heaters are currently installed with proper consideration for the venting requirements of condensing water heaters. As discussed in section IV.F.2 of this document, the venting requirements of each type of water heater are considered in the analysis of installation costs. Moreover, DOE has not identified, nor have commenters provided, any specific examples of buildings that currently use gas-fired water heaters that cannot be retrofitted to accommodate a condensing gas-fired water heater in place of an existing non-condensing gas-fired water heater. DOE research indicates that historically protected buildings can be renovated with appropriate permitting from local jurisdictions.

In the case of buildings preserved under the U.S. General Services Administration's stewardship program, HVAC renovations have increased energy and water efficiency.

When a chimney is not used to vent the flue gases (such as when sidewall venting is used), venting terminations on the exterior of a building are visually unobtrusive—far less prominent than outdoor units for air-conditioning systems that are often installed in privately-owned homes in historic districts. With respect to high-rise buildings, DOE has found that these buildings are uncommonly outfitted with consumer gas-fired instantaneous water heaters at present because these types of buildings more commonly rely on central domestic hot water production (

i.e.,

commercial water heaters). This is because if consumer gas-fired instantaneous water heaters are centrally located in a multi-family building, they could require multiple long vents for flue gases and for combustion air, which can be generally prohibitive for both non-condensing and condensing products alike. However, even if gas-fired instantaneous water heaters are located in some high-rise buildings, they can be located near exterior walls, and therefore each unit can have separate venting. If high-rise buildings rely on non-condensing gas-fired instantaneous water heaters that are installed in each individual dwelling rather than in a central location, the building would already have venting in place (which would need to be modified to accommodate a condensing product, resulting in added installation cost, just as any other case). In general, as any gas-fired instantaneous water heater would already require venting to the outside, the existing non-condensing venting can always be converted to condensing venting. These installation costs and considerations have been included in the quantitative factors of the analysis.

See

section IV.F.2 for details on how they are accounted for in the installation cost analysis and the development of LCC estimates. In summary, DOE has not found any cases where complications in venting cannot be overcome. As a result, DOE finds that interested persons have not established by a preponderance of the evidence that the standard is likely to result in the unavailability of gas-fired instantaneous water heaters in certain applications,

e.g.,

high-rise buildings, historically protected buildings, or any other building with complications to venting capabilities. So, any argument that non-condensing gas-fired instantaneous

water heaters should be preserved in the market under 42 U.S.C. 6295(o)(4) must be based on a performance characteristic (

e.g.,

reliability), feature, size, capacity, or volume that is unique to non-condensing gas-fired instantaneous water heaters.

For example, the Historic Beacon Hill District in Boston, Massachusetts has an architectural commission to review proposed alterations to exterior architectural features within the district that are open to view from a public way. Guidelines for this district are provided by the City of Boston, available at:

www.cityofboston.gov/images_documents/Beacon%20Hill%20Architectural%20Commission%20Guidelines_tcm3-17489.pdf

(last accessed August 6, 2024).

See, for example, the 2023 report by The Center for Historic Buildings, available at:

www.gsa.gov/system/files/Stewardship2023_0.pdf

(last accessed August 8, 2024).

First, regarding reliability, as discussed in the March 2022 preliminary analysis and the July 2023 NOPR, standards adopted at EL 2 would result in a transition towards condensing technology for gas-fired instantaneous water heaters (for those with less than 2 gallons of storage volume and more than 50,000 Btu/h of rated input) but would not result in the unavailability of reliably-performing products. (

See

chapter 2 of the preliminary analysis TSD; 88 FR 49058, 49079). Condensing gas-fired instantaneous water heaters have been on the market for many years. DOE has noted clusters of models at condensing efficiency levels as far back as the April 2010 Final Rule. (

See

table IV.11 at 75 FR 20112, 20145, which includes condensing technology at efficiency level 7). Over time, condensing models have only grown in popularity. Today, about two-thirds of gas-fired instantaneous water heater shipments are condensing products. Given this substantial market penetration, and the fact that a significant portion of these shipments are installed in replacement applications where the upfront cost is likely higher than for non-condensing products, and that DOE does not expect that consumers on a large scale would trade off efficiency for reliability, DOE concludes that condensing gas-fired instantaneous water heaters are likely to be just as reliable as non-condensing models—otherwise, they would not comprise more than half of nationwide shipments.

See

chapter 9 of the final rule TSD for more details on product shipments.

Regarding sizes, capacities and volumes, gas-fired instantaneous water heaters are typically described in terms of capacity,

i.e.,

Btu/hr. Based on DOE's market assessment, gas-fired instantaneous water heaters that meet the adopted EL 2 efficiency are available over the full range of capacities up to the maximum input that is allowable by statute (200,000 Btu/h), and models on the market also offer modulating burners to meet reduced demands. Therefore, no sizes, capacities or volumes

will be made unavailable as a result of DOE not separating product classes for non-condensing and condensing gas-fired instantaneous water heaters in this rule. As a result, DOE finds that interested persons have not established by a preponderance of the evidence that the standard is likely to result in the unavailability of any sizes, capacities, or volumes of gas-fired instantaneous water heaters that are substantially the same as those generally available in the market.

Consumer gas-fired instantaneous water heaters often have little to no storage volume (

i.e.,

can have 0 gallons of rated storage volume), however. These models are also referred to as “tankless.” Hence volume of the gas-fired instantaneous water heater is not typically a consideration for most consumers, nor does it substantially affect the model's ability to deliver hot water on-demand.

DOE has found no sound statutory basis for interpreting “size” to refer to the physical dimensions or total installation footprint of a covered product. As technology advances, many products get smaller. Computers used to be the size of rooms and now they can fit in a pocket. Similarly, televisions, which are covered products under 42 U.S.C. 6292(a)(12) and are typically referred to by screen size, have undergone significant technological advances over the past two decades as the market has shifted from cathode-ray-tube (CRT) televisions and rear-projection televisions to liquid-crystal-display (LCD) televisions. LCD televisions are a fraction of the physical size of a CRT television or rear-projection television for the same screen size. It would make little sense for the unavailability provision to require DOE to preserve CRT and rear-projection televisions in the market because they take up more space than an LCD television with the same screen size. As such, DOE views size, capacities, and volumes as product-specific terms that all refer to the same aspect of a covered product.

Nonetheless, even if a smaller installation footprint is considered a performance characteristic or feature, interested persons have not established by a preponderance of the evidence that the standard is likely to result in the unavailability of gas-fired instantaneous water heaters with smaller installation footprints. Gas-fired instantaneous water heaters that only just meet the current standards (“baseline” models) are designed with a combustion blower to help exhaust the flue gases and improve heat exchange. These designs use “category III”

venting, which is a type of vent made for pressurized flue gases (such as those generated by a baseline gas-fired instantaneous water heater with a combustion blower). While category III venting is for non-condensing appliances, it is similar to category IV venting (used for condensing appliances) because both types handle pressurized flue gases from appliances with blowers. Condensing gas-fired instantaneous water heaters also use combustion blowers. The primary difference in the venting for these designs is the material that the vent is made of: category III vents handle higher temperatures and are therefore made of metal, whereas category IV vents have to be able to withstand corrosion from condensate but can be made of less expensive plastics due to the lower temperatures produced by condensing appliances (condensing appliances do not exhaust as much heat as non-condensing appliances do because condensing appliances are more effective at transferring the heat to the

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