Building Energy Codes Cost Analysis, 56413-56425 [2011-23236]

Agencies

• DEPARTMENT OF ENERGY
• Office of Energy Efficiency and Renewable Energy
• Energy Efficiency and Renewable Energy Office

[Federal Register Volume 76, Number 177 (Tuesday, September 13, 2011)]
[Notices]
[Pages 56413-56425]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-23236]


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DEPARTMENT OF ENERGY

Office of Energy Efficiency and Renewable Energy

[Docket No. EERE-2011-BT-BC-0046]


Building Energy Codes Cost Analysis

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

ACTION: Request for information.

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SUMMARY: The U.S. Department of Energy (DOE) is soliciting public input 
on how it may improve the methodology DOE intends to use for assessing 
cost effectiveness (which includes an energy savings assessment) of 
changes to residential building energy codes. DOE supports the 
development of the International Code Council's (ICC) International 
Energy Conservation Code (IECC), the national model code adopted by or 
forming the basis of residential energy codes promulgated by a majority 
of U.S. states, as well as other voluntary building energy codes. DOE 
performs a cost effectiveness analysis of proposed modifications to the 
codes as part of that support. DOE also performs an analysis of cost 
effectiveness of new code versions. DOE is interested in public input 
on its methodology, preferred data sources, and parameter assumptions.
    DOE is publishing this request for information to allow interested 
parties to provide suggestions, comments, and other information. This 
notice identifies several areas in which DOE is particularly interested 
in receiving information; however, any input and suggestions considered 
relevant to the topic are welcome.

DATES: Written comments and information are requested by October 13, 
2011.

ADDRESSES: Interested persons may submit comments in writing, 
identified by docket number EERE-2011-BT-BC-0046, by any of the 
following methods:
    E-mail: Res-CEAM-2011-BC-0046@ee.doe.gov. Include EERE-2011-BT-BC-
0046 in the subject line of the message.
    Mail: Ms. Brenda Edwards, U.S. Department of Energy, Building 
Technologies Program, Mailstop EE-2J, Building Energy Codes, 1000 
Independence Avenue, SW., Washington, DC 20585-0121. Phone (202) 586-
2945. Please submit one signed paper original.
    Hand Delivery/Courier: Ms. Brenda Edwards, U.S. Department of 
Energy, Building Technologies Program, 6th Floor, 950 L'Enfant Plaza, 
SW., Washington, DC 20024. Phone: (202) 586-2945. Please submit one 
signed paper original.
    Internet: https://www.regulations.gov/#!docketDetail;dct=FR+PR+N+O+SR+PS;rpp=250;so=DESC;sb=postedDate;po=0;D=
EERE-2011-BT-BC-0046. Please use the input form and complete all 
required fields.
    Instructions: All submissions received must include the agency name 
and docket number.
    Docket: For access to the docket to read background documents, or 
comments received, visit the U.S. Department of Energy, Resource Room 
of the Building Technologies Program, 950 L'Enfant Plaza, SW., Suite 
600, Washington, DC 20024, (202) 586-2945, between 9 a.m. and 4 p.m., 
Monday through Friday, except Federal holidays. Please call Ms. Brenda 
Edwards at the above telephone number for additional information 
regarding visiting the Resource Room.

FOR FURTHER INFORMATION CONTACT: Mr. Robert Dewey, U.S. Department of 
Energy, Office of Energy Efficiency and Renewable Energy, Building 
Technologies Program, Mailstop EE-2J, 1000 Independence Avenue, SW., 
Washington, DC 20585-0121, Telephone: (202) 287-1354, E-mail: 
Robert.Dewey@ee.doe.gov.
    Ms. Kavita Vaidyanathan, U.S. Department of Energy, Office of the 
General Counsel, Forrestal Building, Mailstop GC-71, 1000 Independence 
Ave., SW., Washington, DC 20585, Telephone: (202) 586-0669, E-mail: 
kavita.vaidyanathan@hq.doe.gov.

SUPPLEMENTARY INFORMATION: 

Authority and Background

    Section 307(b) of the Energy Conservation and Production Act (ECPA, 
Public Law 102-486), as amended, directs DOE to support voluntary 
building energy codes by periodically reviewing the technical and 
economic basis of the voluntary building energy codes and ``seek 
adoption of all technologically feasible and economically justified 
energy efficiency measures; and * * * otherwise participate in any 
industry process for review and modification of such codes.'' \1\
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    \1\ 42 U.S.C. 6836(b)(2) and (3).
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    This Request for Information (RFI) seeks public input on DOE's 
methodology for assessing the cost effectiveness of proposed changes to 
residential building energy codes and new editions of such codes. 
Historically, DOE's analyses have been conducted in an ad hoc manner, 
with the methodology selected based on the type of code change 
contemplated and the nature of ongoing stakeholder debates on the 
topic. Because residential energy codes lagged advances in residential 
efficiency measures, DOE relied on successes in relevant research, 
demonstration, and voluntary beyond-code programs (e.g., Building 
America, ENERGY STAR) rather than directly calculating the cost 
effectiveness of code changes. However, recent advances in the IECC and 
other voluntary building energy codes have improved the energy 
performance of buildings and building components to levels that in many 
cases rival those of the beyond-code programs. Consequently, for its 
future efforts advancing and promoting voluntary building energy codes, 
DOE sees the need for a consistent and transparent methodology for 
assessing the cost effectiveness of code change proposals and for 
assessing the cost effectiveness of new code versions.
    DOE intends to use the methodology described in this document to 
address DOE's legislative direction related to

[[Page 56414]]

building energy codes. DOE also intends to use this methodology to 
inform its participation in the update processes of the IECC and other 
building energy codes, both in developing code-change proposals and in 
assessing the proposals of others when necessary. DOE further intends 
to use this methodology in assessing the cost effectiveness of new code 
versions in lieu of prior versions or existing state energy efficiency 
codes.
    The focus of this RFI is residential buildings, which DOE defines 
in a manner consistent with the IECC--one- and two-family dwellings, 
townhouses, and low-rise (three stories or less above grade) 
multifamily residential buildings.
    The cost effectiveness methodology is separate from the statutory 
requirement that DOE issue a determination ``whether such revision 
would improve energy efficiency in residential buildings'' whenever the 
IECC (as successor to the 1992 Model Energy Code) is revised (42 U.S.C. 
6833(a)(5)). The determinations under 42 U.S.C. 6833 are required only 
for the IECC, not any other building energy codes; require analysis of 
only energy savings, not cost effectiveness; and may be based on 
qualitative assessments of energy efficiency improvements rather than 
quantitative analysis of energy savings.
    DOE's methodology is intended to assess cost effectiveness based on 
a 30-year period of analysis, assuming a home buyer takes out a 30-year 
mortgage to purchase the home. This approach is intended to represent 
the economic perspective of a typical home owner or sequence of owners 
who own the home over the 30-year analysis period. The perspective of a 
single 30-year owner allows consideration of economic impacts on home 
buyers as well as consideration of long-term energy savings.

Steps Included in Assessing Cost Effectiveness of Code Changes

    Assessing the cost effectiveness of a proposed code change or a 
newly revised code involves three primary steps:
    1. Estimating the energy savings of the changed code provision(s),
    2. Estimating the first cost of the changed provision(s), and
    3. Calculation of the corresponding economic impacts of the changed 
provision(s).
    These steps are the focus of this Request for Information and are 
described in the sections that follow.

Estimating Energy Savings of Code Changes

    The first step is estimating the energy savings of code changes. In 
estimating the energy impact of a code change DOE will usually employ 
computer simulation analysis (situations in which other analysis 
approaches might be preferred are discussed later). DOE may also rely 
on extant studies that directly address the building elements involved 
in a proposed change if such can be identified. When evaluating code 
changes proposed by entities other than DOE,\2\ DOE may rely on energy 
estimates provided by the proponent(s) if DOE deems the calculations 
credible. Where credible energy savings estimates are not available, 
DOE intends to conduct analysis using an appropriate building energy 
estimation tool. DOE intends to use the EnergyPlus \3\ software for its 
analyses unless the code change at hand involves a building component 
or strategy that is outside the scope of that software. Such code 
changes would be addressed case by case.
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    \2\ All code change proposals are publicly available and are 
published by the ICC months before the code hearings (open to the 
public) that determine whether the code changes are approved for 
addition to the next edition of the IECC.
    \3\ https://www.energyplus.gov/.
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    Code changes affecting a particular climate zone would be simulated 
in a weather location representative of that zone. Where a code change 
affects multiple climate zones, DOE intends to produce an aggregate 
(national) energy impact estimate based on simulation results from 
weather locations representative of each zone, weighted to account for 
estimated housing starts by zone and other factors representing the 
fraction of homes that would be affected by the code change (building 
types, foundation types, fuel/equipment types). These methodologies, 
weighting factors, and other assumptions are described in the sections 
that follow.

Building Energy Use Simulation Assumptions and Methodology

    The energy performance of most energy-efficiency measures in the 
scope of building energy codes can be estimated by computer simulation. 
In estimating the energy performance of pre- and post-revision codes, 
two prototype buildings would be analyzed--one that exactly complies 
with the pre-revision code and an otherwise identical building that 
exactly complies with the revised code under analysis.\4\ These two 
buildings would be simulated in a variety of locations to estimate the 
overall (national average) energy impact of the new code. The inputs 
and assumptions used in those simulations are discussed in the 
following sections.
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    \4\ ``Exactly complies'' means that the prototype complies with 
the primary prescriptive manifestation of the code's requirements. 
DOE will address codes without such primary requirements (e.g., a 
purely performance code) on a case by case bais.
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Energy Simulation Tool

    DOE intends to use an hour-by-hour simulation tool to calculate 
annual energy consumption for relevant end uses. For most situations, 
the EnergyPlus software, developed by DOE, would be the tool of choice. 
EnergyPlus provides for detailed hour-by-hour simulation of a home's 
energy consumption throughout a full year, based on typical weather 
data for a location. It covers almost all aspects of residential 
envelopes, HVAC equipment and systems, water heating equipment and 
systems, and lighting systems. Depending on how building energy codes 
evolve, it may be necessary to identify additional tools to estimate 
the impacts of some changes.

Prototypes

    Separate simulations would be conducted for single-family and 
multifamily buildings. The prototypes used in the simulations are 
intended to represent a typical new one- or two-family home or 
townhouse and a low-rise multifamily building (apartment, cooperative, 
or condominium). Five foundation types would be examined for single-
family homes: Vented crawlspace, unvented (conditioned) crawlspace, 
slab-on-grade, heated basement with wall insulation, and unheated 
basement with insulation in the floor above the basement. Table 1 shows 
the characteristics DOE intends to assume for the single-family 
prototype. Note that any of these characteristics may be modified if a 
code change impacts it.

[[Page 56415]]



            Table 1--Single-Family Prototype Characteristics
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          Parameter                Assumption               Notes
------------------------------------------------------------------------
Conditioned floor area......  2400 ft\2\..........  Characteristics of
                                                     New Housing, U.S.
                                                     Census Bureau.
Footprint and height........  30 ft by 40 ft, two-
                               story, 8.5 ft high
                               ceilings.
Area above unconditioned      1200 ft\2\..........  Over a vented
 space.                                              crawlspace or
                                                     unconditioned
                                                     basement.
Area below roof/ceilings....  1200 ft\2\, 70% with
                               attic, 30%
                               cathedral.
Perimeter length............  140 ft..............
Gross wall area.............  2380 ft\2\..........
Window area (relative to      15%.................
 gross wall area).
Door area...................  42 ft\2\............
Internal gains..............  91,436 Btu/day......  2006 IECC, Section
                                                     404.
Heating system..............  Natural gas furnace.  Efficiency will be
                                                     based on prevailing
                                                     federal minimum
                                                     manufacturing
                                                     standards. Where
                                                     relevant code
                                                     changes impact
                                                     different heating
                                                     system types
                                                     differently,
                                                     additional types
                                                     will be simulated
                                                     (see below for
                                                     equipment type
                                                     weightings).
Cooling system..............  Central electric air  Minimum
                               conditioning (AC).    manufacturing
                                                     standards.
Water heating...............  Natural gas.........
------------------------------------------------------------------------

    For the multifamily building prototype, U.S. Census data (2006) \5\ 
show that the size and number of dwelling units per building in new 
construction varies greatly. The median number of dwelling units per 
building is in the range of 20 to 29 with the median floor area per 
unit in the range of 1000 to 1199 ft\2\. The multifamily prototype 
characteristics intended to be used for DOE's analyses are:
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    \5\ U.S. Census Bureau. 2006 Characteristics of New Housing. 
https://www.census.gov/const/www/charindex.html.
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     A rectangular two-story building containing dwelling units 
with 1200 ft\2\ of conditioned floor area.
     600 ft\2\ floor area and roof/ceiling area per dwelling 
unit.
     The average exterior wall perimeter per dwelling unit is 
43 ft, which is set to a 20 by 23 ft rectangle in the simulations. With 
8.5 ft ceilings, the wall area is 731 ft\2\ per dwelling unit. The 43 
ft perimeter is based on assuming a 20-unit building that is 30-ft wide 
and 400-ft long, yielding an 860-ft perimeter, which averages 43 ft per 
dwelling unit. (The dimensions used here represent average values of 
both middle and end units, yielding a hypothetical dwelling unit with 
dimensions that do not exactly match the conditioned floor area.).
     42 ft\2\ of exterior door area per dwelling unit.
     54668 Btu/day internal gains per dwelling unit (2006 
IECC).
     Window area is estimated at 14% of the conditioned floor 
area.
    The heating, cooling, and water heating system characteristics are 
the same as for the single-family prototype (each dwelling unit is 
assumed to have its own separate heating and cooling equipment).

Weather Locations

    Simulations (and other analyses as appropriate) would be conducted 
in one weather location per climate zone in the code, including a 
separate location for each moisture regime, for a total of 15 climate 
locations.\6\ Simulation results from the climate zones would be 
weighted based on new residential building permit data obtained from 
the U.S. Census Bureau. Table 2 shows the shares of national 
construction by IECC primary climate zone based on year-2000 Census 
data. More than 90% of the construction occurred in climate zones 2 
through 5. Climate zones 7 and 8 are combined here, because zone 8 
(northern Alaska) represents only a small fraction of the national 
construction activity.
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    \6\ The IECC has eight temperature-oriented climate zones 
crossed with three moisture regimes, for a theoretical total of 24 
distinct climate zones. However, only 15 of the possible zones occur 
within the U.S.
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    Within a climate zone, simulation results from different moisture 
regimes would be weighted based on population densities estimated from 
USGS Populated Places data. Table 3 shows the climate locations, each 
of which is represented by a Typical Meteorological Year (TMY2) \7\ 
file. The final column shows the final weight intended to be applied to 
each TMY2 location, based on a combination of the within-zone weight of 
the previous column and the by-zone housing starts of Table 2.
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    \7\ See https://rredc.nrel.gov/solar/old_data/nsrdb/tmy2/.

              Table 2--Housing Start Shares by Climate Zone
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                                                         Percentage of
                     Climate zone                       building permits
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1....................................................                2
2....................................................               19
3....................................................               27
4....................................................               19
5....................................................               27
6....................................................                6
7 & 8................................................                0.3
------------------------------------------------------------------------


                           Table 3--Climate Locations Used in Energy Simulations With Climate Zone and Moisture Regime Weights
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                                                                       Representative location                            Regime weight      Overall
     Climate zone         Moisture regime   ----------------------------------------------------------------------------   within zone   location weight
                                                     State                 City             HDD(65) *      CDD(65) **       (percent)        (percent)
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1....................  Moist...............  Florida.............  Miami...............             139            4157             100              2
2....................  Dry.................  Arizona.............  Phoenix.............            1350            4162              17              3.2
                       Moist...............  Texas...............  Houston.............            1371            3012              83             15.8
3....................  Dry.................  Texas...............  El Paso.............            2708            2094              47             12.7

[[Page 56416]]

 
                       Marine..............  California..........  San Francisco.......            3005              65              13              3.5
                       Moist...............  Tennessee...........  Memphis.............            3082            2118              40             10.8
4....................  Dry.................  New Mexico..........  Albuquerque.........            4562             941               3              0.6
                       Marine..............  Oregon..............  Salem...............            4927             247              10              1.9
                       Moist...............  Maryland............  Baltimore...........            4068            1608              87             16.5
5....................  Dry.................  Idaho...............  Boise...............            5861             754              13              3.5
                       Moist...............  Illinois............  Chicago.............            5753             989              87             23.5
6....................  Dry.................  Montana.............  Helena..............            8031             386              11              0.7
                       Moist...............  Vermont.............  Burlington..........            7771             388              89              5.3
7....................  ....................  Minnesota...........  Duluth..............            9169             223             100              0.2
8....................  ....................  Alaska..............  Fairbanks...........           13697              44             100              0.1
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* HDD = heating degree-days, base 65F.
** CDD = cooling degree-days, base 65F.

    The locations in Table 3 were selected to be reasonably 
representative of their respective climate zones by Briggs et al. 
(2002).\8\
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    \8\ Briggs, R. S., R. G. Lucas, and Z. T. Taylor. 2002. Climate 
Classification for Building Energy Codes and Standards: Part 2--Zone 
Definitions, Maps, and Comparisons. ASHRAE Transactions, Vol. 109, 
Part 1. Atlanta, Georgia.
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    Note that the above assumes that the climate basis of the revised 
code is the same as that of the previous code. Revisions that change 
the climate zones or switch to a new climate basis would require 
development of a custom procedure to capture the impacts on residential 
energy efficiency.

Default Assumptions

    Input values for building components that do not differ between the 
two subject codes would be set to match a shared code requirement if 
one exists, to match standard reference design specifications from the 
code's performance path if the component has such specifications, or to 
match best estimates of typical practice otherwise. Because such 
component inputs are used in both pre- and post-revision simulations, 
their specific values are of secondary importance and it is important 
only that they be reasonably typical of the construction types being 
evaluated.

Weighting Factors

Building Types
    Building permit data for 2006 through 2010 indicate that 22% of new 
construction in terms of total dwelling units is multifamily (Census 
2011).\9\ However, only 60% of these dwelling units are ``low-rise'' 
units, the other 40% being in buildings of four stories or more in 
height and therefore falling under the IECC's nonresidential 
provisions.\10\ Therefore, about 13.2% (0.22 x 0.60) of all residential 
dwelling units are in multifamily buildings that fall under the purview 
of the residential requirements of the IECC. About 8.8% (0.22 x 0.4) of 
all residential dwelling units fall under the nonresidential IECC 
classification. Thus, low-rise multifamily dwelling units account for 
about 14.5% (0.132/(1 - 0.088)) of dwelling units classified as 
residential in the IECC. This figure would be used to aggregate results 
from DOE's single-family and multifamily simulation results.
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    \9\ https://www.census.gov/const/www/charindex.html.
    \10\ Ibid.

                 Table 4--Building Type Shares [Percent]
------------------------------------------------------------------------
                                                             Weighting
                      Building type                           factor
                                                             (percent)
------------------------------------------------------------------------
Single-Family...........................................              84
Multifamily.............................................              16
------------------------------------------------------------------------

Foundation Types
    Simulations would be based on a vented crawlspace foundation except 
in cases that deal explicitly with changes to requirements for other 
foundation types. In the latter cases, foundation-specific energy 
changes would be weighted by an estimate of foundation shares in each 
climate zone. These shares are estimated from the Census Bureau data 
for 2004 housing characteristics data (Census 2006) \11\ shown in Table 
5.
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    \11\ Ibid.

                            Table 5--Foundation Type Shares (percent) by Census Zone
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                              Zone                                   Basement          Slab         Crawlspace
----------------------------------------------------------------------------------------------------------------
Northeast.......................................................              84              13               3
Midwest.........................................................              76              17               6
South...........................................................              12              70              17
West............................................................              15              65              20
Total...........................................................              31              54              15
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    The data in Table 5 provide the fraction of new residences having 
basements, but do not distinguish conditioned from unconditioned 
basements. DOE estimates the shares of conditioned and unconditioned 
basements based on data from the DOE Residential Energy Consumption 
Survey (DOE 2005).\12\
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    \12\ U.S. DOE. 2005. Residential Energy Consumption Survey 
(Table HC5.2). https://www.eia.doe.gov/emeu/recs2005/hc2005 tables/
detailed tables2005.html.
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    Because foundation share data is available only for census zones, 
not

[[Page 56417]]

IECC climate zones, it is necessary to estimate the climate zone shares 
from census data and general knowledge about regional construction 
techniques (e.g., basements are almost never used in the far south). 
Table 6 shows the shares DOE intends to assume.

                       Table 6--Foundation Type Shares (percent) by 2006 IECC Climate Zone
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                                                      Heated                                         Unheated
                  Climate zone                       basement       Crawlspace     Slab-on-grade     basement
----------------------------------------------------------------------------------------------------------------
1...............................................               0               0             100               0
2...............................................               0               5              95               0
3...............................................              10              15              70               5
4...............................................              30              20              40              10
5...............................................              45              20              20              15
6...............................................              65              10               5              20
7 & 8...........................................              70               5               5              20
----------------------------------------------------------------------------------------------------------------

Equipment/Fuel Types and Energy Costs
    The impacts of code changes would be estimated for multiple fuel/
equipment types and the results weighted by equipment type shares 
derived from Census construction data for new houses. 55% of new 
single-family homes in 2010 used natural gas for heating, 39% used 
electric heat pumps, and 6% used electric resistance furnaces.\13\ For 
new multifamily dwellings, 36% used natural gas for heating, 49% used 
electric heat pumps, and 15% used electric resistance furnaces. Only 1% 
of new single-family and multifamily used oil, so this heating type 
would not be analyzed separately for national-average analyses as it 
does not have a significant share of the national market. These shares 
would be used to weight results for all residential buildings. Electric 
central air conditioning would be assumed in all climates.
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    \13\ https://www.census.gov/const/www/charindex.html.
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Provisions Requiring Special Consideration

    Some building components and/or energy conservation measures do not 
lend themselves to straightforward pre- and post-change simulation of 
energy consumption. For example, the use of hourly simulation was of 
dubious value in assessing the energy savings of duct testing required 
by the 2009 IECC because the prior edition of the IECC had no testing 
requirement from which a meaningful baseline leakage rate could be 
established. In this case, the majority of the uncertainty was in the 
decision of what pre-2009 leakage rate should be used as a baseline. 
This type of uncertainty arises from any code change that expands the 
scope of the code. Rather than comparing one code to another, a new 
code must be compared to an unstated prior condition.\14\
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    \14\ In DOE's proposal to add duct testing requirements to the 
2009 IECC energy savings was approximated based on findings from 
extant post-occupancy studies of duct leakage rather than by 
simulation. These studies include: Washington State University. 
2001. Washington State Energy Code Duct Leakage Study Report. 
WSUCEEP01105. Washington State University Cooperative Extension 
Energy Program, Olympia, Washington. Hales, D., A. Gordon, and M. 
Lubliner. 2003. 2003. Duct Leakage in New Washington State 
Residences: Findings and Conclusions. ASHRAE transactions. KC-2003-
1-3. Hammon, R. W., and M. P. Modera. 1999. ``Improving the 
Efficiency of Air Distribution Systems in New California Homes-
Updated Report.'' Consol. Stockton, California. Journal of Light 
Construction. April 2003. ``Pressure-Testing Ductwork.'' Michael 
Uniacke. Sherman et al. 2004. Instrumented HERS and Commissioning. 
Xenergy. 2001. Impact Analysis Of The Massachusetts 1998 Residential 
Energy Code Revisions. https://www.mass.gov/Eeops/docs/dps/inf/inf_bbrs_impact_analysis_final.pdf.
    Where better data on the distribution of actual leakage rates 
available, a more rigorous analysis might have been contemplated.
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    In the case of a scope expansion, it is sometimes inappropriate to 
compare a new code's requirement against an average or typical pre-code 
level, because doing so tends to understate the savings of the new 
requirement. Returning to the example of a new requirement for testing 
the duct leakage rate, consider Figure 1. The curve represents a 
hypothetical distribution of leakage rates prior to the code's 
regulation of leakage rates. Even if the new code requirement were set 
equal to or worse than the pre-change average rate, savings would 
accrue from houses that would have had higher leakage rates.\15\ DOE 
intends to evaluate scope expansions case by case to determine the most 
appropriate way to estimate energy savings. DOE seeks public input on 
this topic.
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    \15\ Although this is a hypothetical illustration, a similar 
issue did arise in DOE's proposal to add duct testing requirements 
to the 2009 IECC described in Footnote 14.

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[[Page 56418]]

[GRAPHIC] [TIFF OMITTED] TN13SE11.000

    A second situation requiring special consideration is accounting 
for code changes that induce additional, unwritten requirements. An 
example is an envelope air tightness requirement that results in 
leakage rates so low that a home would need supplemental mechanical 
ventilation to avoid moisture and other air quality problems. In such a 
case a proper cost effectiveness assessment might require accounting 
for the cost and energy penalty of the mechanical ventilation system 
even though the code didn't require it. DOE would evaluate such changes 
case by case to determine whether implied requirements must be assumed. 
DOE seeks public input on this topic.

Estimating the First Cost of Code Changes

    The second step in assessing the cost effectiveness of a proposed 
code change or a newly revised code is estimating the first cost of the 
changed provision(s). The ``first cost'' of a code change refers to the 
marginal cost of implementing one or more changed code provisions. For 
DOE's analyses, it refers to the retail cost (the cost to a home buyer) 
prior to amortizing the cost over multiple years through the home 
mortgage, and includes the full price paid by the home buyer, including 
materials, labor, overhead, and profit, minus any tax rebates or other 
incentives generally available to home buyers when the new code takes 
effect.
    DOE recognizes that estimating the cost of a code change can be 
challenging, and will attempt to identify credible cost estimates from 
multiple sources when possible. Judgment is often required to determine 
an appropriate cost for energy code analysis when multiple credible 
sources of construction cost data yield a range of first costs. Cost 
data would be obtained from existing sources such as cost estimating 
publications such as R.S. Means, industry sources such as Lowes or Home 
Depot, and other resources including journal articles and research 
studies. DOE has also issued a subcontract specifically to collect cost 
data for residential energy efficiency measures. DOE would utilize all 
of these resources to determine the most appropriate construction cost 
assumptions based on factors including the applicability and 
thoroughness of the data source.

Historical Approach to Cost Data Collection

    For code changes that impact many insulation and/or construction 
assembly elements of a home, DOE consults the national construction 
cost estimation publication RS Means Residential Cost Data,\16\ which 
provides a wide variety of construction cost data. This is appropriate 
for many code changes that impact the construction of the home (e.g., 
switching from 2x4 to 2x6 walls) such that both materials and labor 
differ. RS Means, however, covers only a portion of potential code 
changes. It does not, for example, have detailed costs on improved duct 
sealing or building envelope sealing, and its costs for fenestration 
products (windows, doors, and skylights) are focused on aesthetic 
features rather than energy efficiency.
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    \16\ https://www.rsmeans.com/.
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    When a code change impacts only the materials used in a home, 
without impacting labor, cost data can often be obtained from national 
home hardware suppliers, such as Home Depot and Lowe's Home 
Improvement. These sources can have the advantage of providing recent 
costs and the costs can

[[Page 56419]]

be localized if a state or local analysis is needed. However, these 
sources do not provide all the specific energy efficiency measure 
improvements that are typically needed for code improvement analyses.
    As needed, DOE conducts literature searches of specialized building 
science research publications that assess the costs of new or esoteric 
efficiency measures that are not covered in other data sources. 
Examples include reports from DOE's own Building America \17\ program, 
those generated from the Environmental Protection Agency's Energy Star 
\18\ program, and buildings-oriented research publications such as 
ASHRAE Transactions.
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    \17\ https://www.buildingamerica.gov/.
    \18\ https://www.energystar.gov/.
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A Plan for the Future

    DOE anticipates that as building energy codes advance and 
incorporate more energy features, the traditional cost sources will be 
less useful in estimating the first costs of code changes. To support 
analysis of codes going forward, DOE has tasked Pacific Northwest 
National Laboratory with placing a subcontract for professional cost-
estimating services to help populate a publicly available online 
database of building construction costs. A Request for Proposals (RFP) 
was issued in May 2011 and calls for the services of a professional 
cost-estimating firm to provide cost data for equipment and components 
related to building envelope systems, building lighting systems, 
building mechanical systems, and building renewable energy systems. The 
database would differentiate cost data to the extent practicable by 
building type, building location, and building size, and would provide 
both national-average and regional/local costs to the extent such are 
available.

Addressing Code Changes With Multiple Approaches to Compliance

    One of the challenges of estimating the costs of energy code 
changes is selecting an appropriate characterization of new code 
requirements. A requirement for an improved wall R-value, for example, 
might be met with higher-density insulation within the between-stud 
cavities, with standard-density insulation in a thicker wall (e.g., 
moving from 2x4 to 2x6 construction), adding a layer of insulating 
sheathing to the wall, or switching to an entirely different 
construction approach (e.g., straw bale). Each approach will have 
different costs and may be subject to differing constraints depending 
on the situation. Some construction approaches, for example, may be 
inappropriate in regions subject to high winds or high probabilities of 
seismic activity. Some approaches may open the possibility for new and 
less expensive construction approaches. A change that forces a move 
from 2x4 to 2x6 wall construction, for example, opens the possibility 
of placing wall studs on 24-inch centers rather than the more common 
16-inches. This can reduce both material and labor costs, but requires 
other changes that may exact additional costs or restrict designs, such 
as ``stack framing,'' in which ceiling joists/rafters are aligned 
directly over wall studs.
    It is difficult for DOE to anticipate either the types of code 
changes that will emerge in future building energy codes or the manner 
in which builders will choose to meet the new requirements. It is DOE's 
intent, however, to evaluate changes on a case by case basis and seek 
the least-first cost way to achieve compliance unless that approach is 
deemed inappropriate in a large percentage of new home situations. For 
code changes that touch on techniques with which there is recent 
research experience (e.g., through DOE's Building America program), DOE 
would consult the relevant publications for advice on appropriate 
construction assumptions. DOE is seeking public input on this matter.
    DOE anticipates that some new code provisions may have 
significantly different first costs depending on unrelated aesthetic 
choices. For example, a requirement for overhangs on south-facing 
windows might be more costly on a two-story home than on a one-story 
home. Limits on west-facing glazing might have substantial effect or no 
effect depending on the lot orientation. Again, DOE cannot anticipate 
all future changes, and will address each one individually. DOE is 
seeking public input on the proper approach to assessing the cost 
effectiveness of such changes.
    Finally, some new code provisions may come with no specific 
construction changes at all, but rather be expressed purely as a 
performance requirement. It has been suggested, for example, that a new 
IECC might require all homes to comply with the energy performance 
path, with a requirement that calculated energy consumption be shown to 
be some predetermined percentage below that implied by the prescriptive 
specifications. It is also conceivable that a code could be expressed 
simply as an energy use intensity (EUI), in which the requirement is a 
limit on energy use per square foot of conditioned floor area. DOE 
intends to evaluate any such code changes on a case by case basis and 
will search the research literature and/or conduct new analyses to 
determine the reasonable construction changes that could be expected to 
emerge in response to such new requirements. DOE is seeking public 
input on this issue.

Economies of Scale and Market Transformation Effects

    Construction costs often show substantial differences between 
regions, sometimes based primarily on local preferences and the 
associated economies of scale. Because new code changes may push 
building construction to new and potentially unfamiliar techniques in 
some locations, local cost estimates may overstate the long-term costs 
of implementing the change. Similar issues may arise where 
manufacturers produce large quantities of a product that just meets a 
current energy code requirement, giving that product a relatively low 
price in the market. Should the code requirement increase, it is likely 
that manufacturers will increase production of a conforming product, 
lowering its price relative to the current situation.
    DOE intends to evaluate new code changes case by case to determine 
whether it is appropriate to adjust current costs for anticipated 
market transformation after a new code takes effect. DOE intends to 
evaluate specific new or proposed code provisions to determine whether 
and how prices might be expected to follow an experience curve with the 
passage of time. See, for example, DOE's Notice of Data Availability 
published in the Federal Register on February 22, 2011 (76 FR 9696) 
(https://www1.eere.energy.gov/buildings/appliance_standards/pdfs/rf_noda_fr_notice.pdf) for information on projecting future costs in the 
manufacture of new refrigeration products. It is noted that site-built 
construction may involve several types of efficiency improvements. The 
real cost of code changes requiring new technologies may drop in the 
future as manufacturers learn to produce them more efficiently. The 
real cost of code changes that involve new techniques may likewise drop 
as builders and subcontractors learn to implement them in the field 
more efficiently and with less labor. Finally, code changes that simply 
require more of a currently used technology or technique may have 
relatively stable real costs, with prices generally following inflation 
over time. DOE is seeking public input on this issue.

[[Page 56420]]

Estimating the Cost Effectiveness of Code Changes

Economic Metrics To Be Calculated

    The last step in assessing the cost effectiveness of a proposed 
code change or a newly revised code is calculating the corresponding 
economic impacts of the changed provision(s). In evaluating code change 
proposals as part of the IECC consensus process, assessing new editions 
of the IECC published by the ICC, and participating in the development 
of other voluntary building energy codes, DOE intends to calculate 
three metrics.
     Life-cycle cost.
     Simple payback period.
     Cash flow.
    Life-cycle cost (LCC) is the primary metric DOE intends to use to 
evaluate whether a particular code change is cost effective. Any code 
change that results in a net LCC less than or equal to zero (i.e., 
monetary benefits exceed costs) will be considered cost effective. The 
payback period and cash flow analyses provide additional information 
DOE believes is helpful to other participants in code-change processes 
and to states and jurisdictions considering adoption of new codes. 
These metrics are discussed further below.

Life-Cycle Cost

    Life-cycle cost (LCC) is a robust cost-benefit metric that sums the 
costs and benefits of a code change over a specified time period. 
Sometimes referred to as net present value analysis or engineering 
economics, LCC is a well-known approach to assessing cost 
effectiveness. Because the key feature of LCC analysis is the summing 
of costs and benefits over multiple years, it requires that cash flows 
in different years be adjusted to a common year for comparison. This is 
done with a discount rate that accounts for the time value of money. 
Like most LCC implementations, DOE's sums cash flows in year-zero 
dollars, which allows the use of standard discounting formulas. Cash 
flows adjusted to year zero are termed present values. The procedure 
described herein combines concepts from two ASTM International standard 
practices, E917 \19\ and E1074.\20\ The resultant procedure is both 
straightforward and comprehensive and is in accord with the methodology 
recommended and used by the National Institute of Standards and 
Technology (NIST).\21\
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    \19\ ASTM International. ``Practice for Measuring Life-Cycle 
Costs of Buildings and Building Systems,'' E917, Annual Book of ASTM 
Standards: 2010, Vol. 4.11. West Conshohocken, PA: ASTM 
International.
    \20\ ASTM International. ``Practice for Measuring Net Benefits 
and Net Savings for Investments in Buildings and Building Systems,'' 
E1074, Annual Book of ASTM Standards: 2010, Vol. 4.11. West 
Conshohocken, PA: ASTM International.
    \21\ For a detailed discussion of LCC and related economic 
evaluation procedures specifically aimed at private sector analyses, 
see Ruegg and Petersen (Ruegg, Rosalie T., and Petersen, Stephen R. 
1987. Comprehensive Guide to Least-Cost Energy Decisions, NBS 
Special Publication 709. Gaithersburg, MD: National Bureau of 
Standards).
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    Present values can be calculated in either nominal or real terms. 
In a nominal analysis all compounding rates (discount rate, mortgage 
rate, fuel escalation rate, etc.) include the effect of inflation, 
while in a real analysis, inflation is removed from those rates. The 
two approaches are algebraically equivalent, but DOE intends to 
generally conduct economic analyses of residential energy codes in 
nominal terms because accounting for mortgage cash flows and associated 
income tax effects is more straightforward.
    LCC is defined formally as the present value of all costs and 
benefits summed over the period of analysis. Because it is defined in 
terms of costs, the LCC of a code change must be zero or negative for 
the change to be considered cost effective, as shown in Equation 1.
[GRAPHIC] [TIFF OMITTED] TN13SE11.001

    A future cash flow (positive or negative) is brought into the 
present by assuming a discount rate (D). The discount rate is an 
annually compounding rate \22\ by which future cash flows are 
discounted in value. It represents the minimum rate of return demanded 
of the investment in energy-saving measures. It is sometimes referred 
to as an alternative investment rate. Thus the present value, (PV) of a 
cash flow in year Y (CFy) is defined as
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    \22\ The analysis can be done for other periods of time (e.g., 
monthly), but for simplicity DOE uses annual periods for the subject 
analyses.
[GRAPHIC] [TIFF OMITTED] TN13SE11.002

    The present value of a stream of annual cash flows over the period 
of analysis, L years, is then the sum of all of those discrete cash 
flows:
[GRAPHIC] [TIFF OMITTED] TN13SE11.003

    For an annualized stream of cash flows A that is the same from year 
to year, such as a mortgage payment lasting L years, Equation (3) is 
equivalent to the following.
[GRAPHIC] [TIFF OMITTED] TN13SE11.004

    For an annualized stream of cash flows that is escalating with 
time, such as the energy cost savings ES that increases from year to 
year because of escalations in fuel prices, Equation (5)

[[Page 56421]]

can be used (EF--is the fuel price escalation rate):
[GRAPHIC] [TIFF OMITTED] TN13SE11.005

    Because DOE intends to compute and publish annual cash flow 
impacts, Equation (3) will generally be preferred to Equations (4) and 
(5) because it allows presentation and analysis of all the yearly cash 
flows during the LCC analysis. Equations (4) and (5) are algebraically 
equivalent and useful when year-by-year cash flows are not needed.
    There are seven primary cash flows that are relevant to LCC 
analysis of energy code changes, summarized in Table 7. The down 
payment cost associated with the code changes is the down payment rate 
(RD) multiplied by the total cost of the code changes (C) 
and is incurred at the onset (year 0). On top of the down payment is a 
mortgage fee, which is the cost of the code changes multiplied by the 
mortgage fee rate (RM). Property tax occurs every year, 
starting on year 1, and is the property tax rate (RP) 
multiplied by C, and further adjusted by a factor of 
(1+EH)\Y\ to take into account a compounding home price 
escalation rate (EH). This assumes that the tax assessment 
of the house increases exactly the amount of the code-related cost 
increase, and that the tax assessment increases in step with the home 
price. Energy savings occur every year, starting at year 1, and are 
equal to the modeled energy cost savings at year 0, adjusted by a 
factor of (1+EF)\Y\ to take into account a compounding fuel 
(electricity and natural gas) price escalation rate (EF). 
Mortgage payments occur every year of the term of the mortgage (ML), 
are constant payments, and is equal to 12 times the monthly payment, as 
calculated using the industry standard equation shown in Table 7. Tax 
deductions for mortgage interest payments and property tax payments 
begin in year 1 and continue through the end of the analysis period L. 
They are calculated as the marginal income tax rate (RI) 
multiplied by the sum of mortgage interest payments and property tax 
payments each year. Finally, the residual value, incurred at the end of 
the analysis period, is the cost of the code changes, adjusted for the 
home's price appreciation, multiplied by the fraction of the lifetime 
(i.e., value) of the code changes still remaining at resale 
(RR). This is a rough number, but is meant to encapsulate an 
average of the remaining lifetime of all of the components. DOE intends 
to assume RR is 50% at the end of 30 years, which would 
roughly correspond to straight-line depreciation of home features with 
a 60-year life.
    Additional rigor can be required to account for the shorter 
lifetimes of certain equipment (e.g., 12-15 years for water heaters, 
15-20 years for HVAC equipment). However, because the efficiencies of 
most residential equipment generally are preemptively regulated by 
federal rulemakings, DOE does not expect the IECC to impose specific 
equipment efficiency requirements. Nonetheless, high-efficiency 
equipment is likely to be a common alternative approach to energy code 
compliance, so the shorter lifetimes of equipment would be accounted 
for. While equipment will undoubtedly be replaced at the end of its 
useful life, there is no guarantee that it will be replaced with 
equipment of comparable efficiency. Because DOE cannot predict either 
minimum code requirements or homeowner preferences in the future, it 
will assume that replacement equipment efficiency will be unaffected by 
the initial efficiency of the equipment--that is, replacement equipment 
will be the same regardless of the initial efficiency. This implies 
that the energy savings resulting from high-efficiency equipment will 
accrue only for the life of the equipment, not the full 30-year period 
of analysis, and that there will be no equipment replacement costs at 
the end of its useful life. Thus, when estimating energy savings of 
high-efficiency equipment, a home would be simulated twice, once with 
and once without the high-efficiency equipment.

[[Page 56422]]

[GRAPHIC] [TIFF OMITTED] TN13SE11.006

Simple Payback Period

    The simple payback period is a straightforward metric that includes 
only the costs and benefits directly related to the implementation of 
the energy-saving measures associated with a code change. It represents 
the number of years required for the energy savings to pay for the cost 
of the measures, without regard for changes in fuel prices, tax 
effects, measure replacements, resale values, etc. The payback period 
P, which has units of years, is defined as the marginal cost of 
compliance with a new code (C, the ``first costs'' above and beyond the 
baseline code), divided by the annual marginal benefit from compliance 
(ES0, the energy cost savings in year 0), as shown in 
Equation 6.
[GRAPHIC] [TIFF OMITTED] TN13SE11.007


[[Page 56423]]


    The simple payback period is a metric useful for its simplicity and 
ubiquity. Because it focuses on the two primary characterizations of a 
code change--cost and energy performance--it allows an assessment of 
cost effectiveness that is easy to compare with other investment 
options and requires a minimum of input data. The simple payback period 
is used in many contexts, and is written into some state laws governing 
the adoption of new energy codes, hence DOE would calculate the payback 
period when it assesses the cost effectiveness of code changes. 
However, because it ignores many of the longer-term factors in the 
economic performance of an energy efficiency investment, DOE does not 
intend to use the payback period as a primary indicator of cost 
effectiveness for its own decision making purposes.

Cash Flow Analysis

    In the process of calculating LCC, year-by-year cash flows are 
computed. These can be useful in assessing a code change's impact on 
consumers and will be shown by DOE for the code changes it analyzes. 
The cash-flow analysis simply shows each year's net cash flow (costs 
minus benefits) separately (in nominal dollars), including any time-
zero cash flows such as a down payment. By publishing the net cash flow 
value for each year, reviewers will be able to calculate various 
metrics of interest, such as net cumulative cash flow, the year in 
which cumulative benefits exceed cumulative costs, etc. DOE believes 
this information will be useful to some stakeholders.

Economic Parameters and Other Assumptions

    Calculating the metrics described above requires defining various 
economic parameters. Table 8 shows the primary parameters of interest 
and how they apply to the three metrics.

       Table 8--Economic Parameters for Cost Effectiveness Metrics
------------------------------------------------------------------------
                 Parameter                           Needed for
------------------------------------------------------------------------
First costs...............................  Payback.
Fuel prices...............................  Cash flow.
                                            LCC.
Fuel price escalation rates...............  Cash flow.
Mortgage parameters.......................  LCC.
Inflation rate............................
Tax rates (property, income)..............
Period of analysis........................
Residual value............................
Discount rate.............................  LCC.
------------------------------------------------------------------------

    These parameters are chosen to be representative of a typical home 
buyer who purchases a home with a 30-year mortgage. DOE intends to 
consult appropriate sources of information to establish assumptions for 
each financial, economic, and fuel price assumption. Whenever possible, 
economic assumptions will be taken from the published sources discussed 
below. DOE notes that most values vary across time, location, markets, 
institutions, circumstances, and individuals. Where multiple sources 
for any parameter are identified, DOE will prefer recent values from 
sources DOE deems best documented and reliable. DOE intends to update 
parameters for future analyses to account for changing conditions.

First Cost

    As discussed earlier, the first cost represents the full cost of 
code-related energy features to a home buyer. It represents the full 
(retail) cost of such features, including materials, labor, builder 
overhead and profit, etc., but excludes any future costs such as for 
maintenance.

Mortgage Parameters

    The majority of homes purchased are financed. Indeed, the 2010 
Characteristics of New Housing report from the Census Bureau reports 
that 91% of new homes were purchased using a loan while only 9% were 
purchased with cash. Accordingly, for purposes of the analysis of the 
economic benefits to the home buyer for improved energy efficiency, DOE 
intends to assume that a home is purchased using a loan.

Mortgage Interest Rate (i)

    DOE intends to use recent mortgage rates in cost/benefit analyses, 
and would consult Freddie Mac and the Federal Home Finance 
Administration to determine a representative rate for each analysis. 
Currently, Freddie Mac reports that conventional 30-year real estate 
loans have averaged about 5% since the beginning of 2009 (https://www.freddiemac.com/pmms/pmms30.htm) though historical rates have been 
higher. FHFA (https://www.fhfa.gov/Default.aspx?Page=252) reports 
similar rates. Thus DOE intends to use a mortgage rate of 5% for cost/
benefit analyses at this time.
    An alternative approach would be to evaluate historical mortgage 
rates and identify a real rate that approximates a long-term average, 
then use that rate in a real analysis or combine it with a recent (and 
anticipated future) inflation rate in a nominal analysis. DOE intends 
to use the former approach on the theory that recent rates are a better 
indicator of near-term future rates that will be in effect when a new 
code goes into effect.

Loan Term (ML)

    For real estate loans, 30 years is by far the most common term and 
is the value DOE intends to use in its analyses. According to the 2009 
American Housing Survey (U.S. Census), Table 3-15, approximately 75% of 
all home loans have a term between 28 and 32 years, with 30 being the 
median.

Down Payment (RD)

    The 2009 American Housing Survey reports a wide range of down 
payment amounts for loans for new homes (see Table 9). DOE intends to 
assume a down payment of 10%. Among the possible rates, this is low 
enough that it is likely to favor the experience of first-time and 
younger home buyers (who have little significant equity to bring 
forward from a previous home) and is among the more common rates (the 
6-10% block, at 13.6% of all mortgages, is the most populous block 
except for ``no down payment''). Almost half (47.1%) of all loans have 
a down payment at or below 10%.

     Table 9--Down Payment--2009 American Housing Survey, Table 3-14
------------------------------------------------------------------------
                                                             Percentage
                 Percent of purchase price                    of homes
------------------------------------------------------------------------
No down payment...........................................          16.3
Less than 3 percent.......................................           6.4
3-5 percent...............................................          10.8
6-10 percent..............................................          13.6
11-15 percent.............................................           4.7
16-20 percent.............................................          12.2
21-40 percent.............................................          10.4
41-99 percent.............................................           6.1
Bought outright...........................................           6.9
Not reported..............................................          12.6
------------------------------------------------------------------------

Points and Loan Fees (RM)

    Points represent an up-front payment to buy down the mortgage 
interest rate. As such they are tax deductible. DOE assumes all 
interest is accounted for by the mortgage rate, so the points are taken 
to be zero. The loan fee is likewise paid up front in addition to the 
down payment and varies from loan to loan. DOE assumes the loan fee to 
be 0.7% of the mortgage amount, based on recent data from Freddie Mac 
Weekly Primary Mortgage Market Survey: https://www.freddiemac.com/pmms/.

Discount Rate (D)

    The purpose of the discount rate is to reflect the time value of 
money. Be