Energy Conservation Program: Energy Conservation Standards Program Design, 56181-56186 [2017-25663]
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56181
Proposed Rules
Federal Register
Vol. 82, No. 227
Tuesday, November 28, 2017
This section of the FEDERAL REGISTER
contains notices to the public of the proposed
issuance of rules and regulations. The
purpose of these notices is to give interested
persons an opportunity to participate in the
rule making prior to the adoption of the final
rules.
DEPARTMENT OF ENERGY
10 CFR Part 430
[EERE–2017–BT–STD–0059]
RIN 1904–AE11
Energy Conservation Program: Energy
Conservation Standards Program
Design
Office of Energy Efficiency and
Renewable Energy, Department of
Energy.
ACTION: Request for information (RFI).
AGENCY:
The U.S. Department of
Energy (DOE) is evaluating the potential
advantages and disadvantages of
additional flexibilities in the U.S.
Appliance and Equipment Energy
Conservation Standards (ECS) program.
Flexibilities could include market-based
approaches such as those used to set
average efficiency standards, feebate
programs, or other approaches that may
reduce compliance costs and/or increase
consumer choice while preserving or
enhancing appliance efficiency. This
RFI discusses key issues and requests
feedback on the possible design of such
a program. DOE additionally requests
feedback on possible economic
efficiency gains, impacts on consumer
and manufacturer costs and on energy
savings, and suggestions for a pilot
product category and/or phase-in of
revisions across the ECS program. DOE
also requests feedback on any potential
challenges associated with designing
and implementing any of these flexible
program approaches as well as possible
solutions.
DATES: Written comments and
information are requested on or before
February 26, 2018.
ADDRESSES: Any comments submitted
must identify the RFI for Energy
Conservation Standards Program
Design, and provide docket number
EERE–2017–BT–STD–0059 and/or
regulatory information number (RIN)
number 1904–AE11. Comments may be
submitted using any of the following
methods:
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SUMMARY:
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• Federal eRulemaking Portal: https://
www.regulations.gov. Follow the
instructions for submitting comments.
• Email:
ProgramDesign2017STD0059@
ee.doe.gov. Include docket number
EERE–2017–BT–STD–0059 in the
subject line of the message. Submit
electronic comments in WordPerfect,
Microsoft Word, PDF, or ASCII file
format, and avoid the use of special
characters or any form of encryption.
• Mail: Appliance and Equipment
Standards Program, U.S. Department of
Energy, Building Technologies Office,
Mailstop EE–5B, 1000 Independence
Avenue SW., Washington, DC 20585–
0121. If possible, please submit all items
on a compact disc (CD), in which case
it is not necessary to include printed
copies.
• Hand Delivery/Courier: Appliance
and Equipment Standards Program, U.S.
Department of Energy, Building
Technologies Office, 950 L’Enfant Plaza,
SW., 6th Floor, Washington, DC 20024.
Telephone: (202) 287–1445. If possible,
please submit all items on a CD, in
which case it is not necessary to include
printed copies.
Instructions: All submissions received
must include the agency name and
docket number and/or RIN. No
telefacsimiles (faxes) will be accepted.
Docket: The docket is available for
review at https://www.regulations.gov/
docket?D=EERE-2017-BT-STD-0059,
including Federal Register notices,
comments, and other supporting
documents/materials. 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.
A link to the docket Web page can be
found at https://www.regulations.gov/
docket?D=EERE-2017-BT-STD-0059.
This Web page contains a link to the
docket for this notice at https://
www.regulations.gov. The https://
www.regulations.gov Web page contains
simple instructions on how to access all
documents, including public comments,
in the docket.
For information about how to submit
a comment or review other public
comments in the docket, send an email
to ApplianceStandardsQuestions@
ee.doe.gov.
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FOR FURTHER INFORMATION CONTACT:
Appliance and Equipment Standards
Program Staff, U.S. Department of
Energy, Office of Energy Efficiency and
Renewable Energy, Building
Technologies Program, EE–5B, 1000
Independence Avenue SW.,
Washington, DC 20585–0121.
Telephone: (202) 287–1445. Email:
ProgramDesign2017STD0059@
ee.doe.gov.
For further information on how to
submit a comment, review other public
comments and the docket, contact the
Appliance and Equipment Standards
Program staff at (202) 287–1445 or by
email: ApplianceStandardsQuestions@
ee.doe.gov.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Introduction
A. Background
B. Background on Market-Based
Mechanisms in the Context of
Environment Regulation
II. Key Issues
A. Translation to Energy Conservation
Standards
B. Scope of Standards
C. Normalizing Across Energy Sources
D. Distributional Impacts Across
Consumers and Manufacturers
E. Enforcement
F. Potential Challenges
G. Potential Pilot Program and Assessment
III. Public Participation
I. Introduction
A. Background
The purpose of this Request for
Information (RFI) is to outline and
request feedback on the design, value,
and solutions to potential challenges of
revising the U.S. Appliance and
Equipment Energy Conservation
Standards (ECS) program to include
additional compliance flexibilities, with
the goal of reducing compliance costs,
enhancing consumer choice and
maintaining or increasing energy
savings. Of particular interest are
designs that would use market-based
policy mechanisms such as averaging,
credit trading, or feebates. Market-based
policy mechanisms are potentially less
burdensome alternatives as they use
markets, price, and other economic
variables to provide incentives for
regulated entities to reduce or eliminate
negative environmental externalities in
the least cost way. These policy
mechanisms recognize that compliance
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costs may vary significantly across the
regulated sector and allows individual
parties to choose the most cost effective
compliance option.
An example, discussed further below,
of a market-based regulatory program
that uses averaging, banking, and
trading of credits is the Corporate
Average Fuel Economy (CAFE)
standards program for light-duty
vehicles. The CAFE standards program
specifies a fleet-based average fuel
efficiency standard that allows
manufacturers to trade credits across
vehicle classes and manufacturers. This
is only one example of how a regulatory
program can include some market-based
mechanism allowing for more flexibility
in compliance. Other examples of
market-based mechanisms used in a
number of other U.S. energy and
environmental programs include
standards to which gasoline refineries
were subject during the leaded gasoline
phase-down,1 the use of credits, or RINs
(Renewable Fuel Identification
Numbers) in the U.S. EPA Renewable
Fuel Standards program,2 fuel efficiency
standards for heavy duty engines and
vehicles, various versions of state-level
Renewable Portfolio Standard programs,
including those allowing for the use of
Tradable Renewable Certificates
(TRCs),3 and several power plant
emissions control programs including
California’s Cap and Trade program.4
DOE requests feedback on possible
revisions to the ECS to adopt some type
of market-based approach and/or other
program flexibilities. DOE additionally
requests feedback on possible impacts
on consumer and manufacturer costs,
estimated benefits of the program such
as energy savings, design and
implementation of such a program, and
suggestions for a pilot product category
and/or phase-in of revisions across ECS.
DOE encourages the public to provide
input on measures DOE could take to
lower the cost of its regulations
consistent with the requirements of
EPCA.
Economic theory suggests that the
introduction of credit trading into a
mandatory regulatory program such as
ECS would likely improve economic
1 Newell, R.G., & Rogers, K. (2003). The U.S.
experience with the phasedown of lead in gasoline.
Resources for the Future, Washington, DC, 2.
2 https://www.epa.gov/renewable-fuel-standardprogram/overview-renewable-fuel-standard.
3 Wiser, R., Porter, K., & Grace, R. (2005).
Evaluating experience with renewables portfolio
standards in the United States. Mitigation and
Adaptation Strategies for Global Change, 10(2),
237–263.
4 https://www.arb.ca.gov/cc/capandtrade/
capandtrade.htm.
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efficiency (see Coase (1960),5 Crocker
(1966),6 Dales (1968a, 1968b),7 and
Montgomery (1972) 8) and subsequent
discussions such as Ellerman (2005) 9).
Credit trading, for example, either
within a single manufacturer or between
manufacturers, would allow a level of
flexibility for compliance, and could
thereby reduce compliance costs
associated with production, and
establish a market mechanism to reveal
the ‘‘shadow value’’ 10 of the efficiency
standard through the value of credits on
the credit trading market. In principle,
the same aggregate level of energy
savings could be obtained with reduced
compliance cost, because manufacturers
with a lower marginal cost of providing
efficiency improvements could increase
the efficiency of the products they sell
even more, and sell credits from their
over-compliance to manufacturers with
a higher marginal cost of providing
efficiency, thereby allowing them to
produce products with efficiency levels
below the standard. This could reduce
the overall manufacturer cost associated
with producing the same aggregate level
of energy savings. Such a program
would allow a degree of flexibility that
could accommodate increased consumer
choice as well. For example, if there is
a small market segment of consumers
with a very high willingness to pay for
a product that, for whatever reason,
cannot be produced to meet a given
energy conservation standard level,
under a mandatory standard they could
not obtain this product. However, under
a trading, averaging, or other marketbased scheme a manufacturer could
choose to produce that product by
purchasing credits in the credit market.
Furthermore, market-based standards
further incentivize even the makers of
5 Coase, R.H. (1960). The problem of social cost.
The Journal of Law and Economics, 3, 1–44.
[republished as Coase, R.H. (2013). The problem of
social cost. The journal of Law and Economics,
56(4), 837–877.]
6 Crocker T.D.W.H. (1966). The structuring of
atmospheric pollution control systems. The
economics of air pollution: A symposium, New
York, W.W. Horton, pg. 61–86.
7 Dales J.H. (1968a) Land, water, and ownership.
Canadian Journal of Economics/Revue Canadienne
d’Economique, 1(4), 791–804. Dales, J.H. (1968b).
Pollution, property and prices. Toronto, University
of Toronto Press.
8 Montgomery, W.D. (1972). Markets in licenses
and efficient pollution control programs. Journal of
Economic Theory. 5(3), 395–418.
9 Ellerman, A.D. (2005). A note on tradeable
permits. Environmental and Resource Economics,
31(2), 123–131.
10 Shadow price or shadow value is a term in
economics. It refers to the marginal value of a
constraint, or the value of relaxing a given
constraint by one unit. In the case of a standard
with trading, theoretically the price of credits in the
credit market would reveal the shadow value of the
constraint imposed by the standard.
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the most efficient appliances to
continue to innovate and improve
efficiency, gains once the minimum
standard is met.11 DOE requests
comment on which flexible compliance
or market-based program scheme might
incentivize the most cost-effective
improvements in energy efficiency.
Increased flexibility, reduced
economic costs, and increased
incentives for manufacturers to innovate
and improve efficiency across a
spectrum of products (i.e., both high
efficiency products and products that
just meet the standard level) are all
possible benefits from introducing
average standards and/or market-based
approaches, or other compliance
flexibilities. These market-based
program options will differ from the
current DOE compliance structure
creating some uncertainty about
implementation, interaction with
voluntary programs such as ENERGY
STAR, certification, and enforcement for
both manufacturers and DOE. The scope
of a tradable standards program could
range from allowing averaging only
across each company’s appliances
within a product category (that is, no
trading across product categories or
between companies). For example,
considering the consumer refrigerator
and freezer product category,12 a
company could average the energy
efficiency of their products across all of
the product classes of equipment that
they produce or just average across
some of the various residential
refrigerator products in different
product classes that they produce, but
different companies would not be able
to average their energy efficiencies
between companies. Another program
design could allow companies to trade
credits across product categories and/or
between companies. A feebate program
could similarly vary in scope but would
have different implementation and
administrative requirements and costs.
As there are many program design
possibilities and potential program
flexibilities, DOE requests comment on
any potential benefits or costs that may
arise with the implementation of these
types of policy changes and any
11 Note that the voluntary ENERGY STAR
program currently provides a separate incentive for
increasing efficiency beyond the minimum
standards, in a different way than mandatory
market-based standards. ENERGY STAR criteria are
set above minimum standards to provide a separate
incentive to produce products above the minimum.
12 DOE’s current energy efficiency standards for
the consumer refrigerators, refrigerator-freezers, and
freezers product category are subdivided into fortytwo different product classes most of which have
unique energy efficiency standards. 76 FR 57516
(September 15, 2011).
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recommendations for how the program
could be successfully implemented.
B. Background on Market-Based
Mechanisms in the Context of
Environment Regulation
There are many examples of marketbased mechanisms incorporated into
environmental regulation. Broadly,
prominent examples in the United
States include emissions trading
systems (ETS, or cap and trade); and
performance-based standards with a
market-based mechanism or similar
allowance for some element of
flexibility in compliance. In the case of
an ETS, a particular cap, or limit, is
placed on the level of emissions. That
cap would generally be structured in the
form of emissions credits (e.g., a single
ton of emissions) allocated to each
entity subject to the policy. Several
allocation mechanisms are possible,
including grandfathering, lottery, or
auctioning. There are numerous other
examples of ETS policies at the state
and federal levels in the United States
and across the world.13
A successful example of an ETS is
EPA’s Acid Rain Program, where fossil
fuel-fired electric power plant emissions
of sulfur dioxide were capped
nationwide and power plant owners
could either install emissions control
technologies to reduce their sulfur
dioxide emissions allowing the owner to
earn credits for each ton of emissions
reduced or the owner could purchase
credits to offset their emissions. The
Acid Rain Program also included an
emissions averaging component for
nitrous oxide (NOX) emissions that
allowed owners to use company-wide
averaging to meet the emissions
standard.
An example of flexible performance
standards include the various
implementations of vehicle fuel
economy standards across the world.
Many of these vehicle fuel economy
programs incorporate some variation of
an average target, allowing flexibility in
compliance by enabling manufacturers
to sell models that are less efficient than
the target as long as they balance it out
with sales of models that are more
efficient.14 China is one of the
exceptions as they set minimum
standards that each vehicle model must
achieve. In addition, some programs
have also incorporated some degree of
flexible compliance or coordination in
13 E.T.S. China (2016). ‘‘Carbon Pricing Watch
2016,’’ World Bank Group. https://www.ecofys.com/
en/publications/carbon-pricing-watch-2016/.
14 An, F., & Sauer, A. (2004). Comparison of
passenger vehicle fuel economy and greenhouse gas
emission standards around the world. Pew Center
on Global Climate Change, 25.
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compliance across manufacturers. A
program already implemented in the
U.S., is the Department of
Transportation’s Corporate Average Fuel
Economy (CAFE) standards and EPA’s
greenhouse gas (GHG) standards for
passenger vehicles. CAFE standards
were first enacted by Congress in 1975.
Starting in 1978, each vehicle
manufacturer was required to meet a
fleet-wide, average fuel economy
standard: One for passenger cars and
another for light trucks. The Department
of Transportation’s National Highway
Traffic and Safety Administration
(NHTSA) administers the CAFE
standards, while the Environmental
Protection Agency (EPA) administers
the greenhouse gas emissions (GHG)
standards for passenger cars and lightduty trucks under section 202(a) of the
Clean Air Act (42 U.S.C. 7521(a)). The
two agencies work together, with the
California Air Resources Board, to set
CAFE and GHG standards for passenger
vehicles in part to harmonize their
standards to reduce compliance burdens
on manufacturers so manufacturers can
produce the same vehicle model across
the nation. The current CAFE standards
cover light-duty passenger vehicles for
model years out to 2021 while EPA’s
GHG standards go out to 2025 (77 FR
62623).
For all U.S. sales in a given model
year, the CAFE standards require each
manufacturer’s U.S. sales meet a
production-weighted harmonic mean
fuel economy/emissions target based on
vehicle footprint (the vehicle wheelbase
times its track width, or the area
between its tires). Thus, CAFE is a fleetbased standard, which allows each
manufacturer to trade off fuel economy
between its own models by altering its
product mix (i.e., ‘‘internal trading’’).
The standards are applied fleetwide for
a company so that domestically
produced vehicles 15 and imported
vehicles, are treated the same for
compliance purposes.
Beginning with the standards issued
in 2009 for model year 2011 vehicles,
the CAFE program allows for trading of
credits across manufacturers (74 FR
14195). Manufacturers who fail to meet
their fleet-level target may buy credits
from manufacturers who achieved
greater-than-required fleet-level fuel
economy; alternatively, manufacturers
failing to meet their fleet-level target
may pay a fine. Credits may also be used
within a manufacturer’s own product
mix, trading from passenger cars to light
trucks, or from domestic to foreign
production. Credits earned by exceeding
15 Vehicles produced with more than 75 percent
U.S., Canadian, or post-NAFTA Mexican content.
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the fuel economy standard may be
banked and used up to five years in the
future.
The CAFE calculation incorporates
many different complexities and
allowances for vehicle design features
(e.g., flex-fuel capability, air
conditioning, off-cycling technologies,
solar panels, engine start/stop, active
aerodynamics, etc.), which may or may
not have logical analogs in products
covered by ECS. It is important when
designing a credit program that there is
sufficient heterogeneity in the affected
product category to leverage the
advantages of a market-based approach.
For analysis of the impact and
effectiveness of credit trading within
CAFE, see, e.g., Leard and McConnell
(2015) 16 and Greenstone et al. (2017).17
Other passenger vehicle fuel economy
standards programs around the world
also provide some examples for
variations on this concept. For example,
Japan follows a similar model to the
United States, in that their vehicle
standards are mandatory and their fuel
economy targets are also based on
average vehicle fuel economy, where the
target is specific to weight classes.
Starting in 2001 the regulation was
revised to allow manufacturers to
transfer credits across weight classes
(see An & Sauer 2004).18
The European Union (E.U.) program
differs significantly from that used in
the United States. In the E.U. program
the average passenger vehicle fuel
economy across the entire industry is to
meet a certain target by the compliance
date (i.e., there are no manufacturerspecific targets). It is a voluntary
standard established through an
agreement between manufacturers and
the European Commission. Because the
target is not specific to each
manufacturer, manufacturers can
presumably coordinate to enable the
entire passenger vehicle fleet to meet
the target (An & Sauer 2004).
Another example of a performance
standard incorporating a level of
flexibility in compliance is a feebate.
Examples include the Swedish program
to incentivize power plant operators to
reduce nitrous oxide emissions, as well
as vehicle fuel economy programs in
16 Leard, B. and V. McConnell (2015). ‘‘New
Markets for Pollution and Energy Efficiency: Credit
Trading under Automobile Greenhouse Gas and
Fuel Economy Standards,’’ Resources for the
Future, RFF DP 15–16.
17 Greenstone, M. et al. (2017). ‘‘The Next
Generation of Transportation Policy,’’ The Hamilton
Project, Policy Proposal 2017–02.
18 An, F., & Sauer, A. (2004). Comparison of
passenger vehicle fuel economy and greenhouse gas
emission standards around the world. Pew Center
on Global Climate Change, 25.
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several countries.19 20 Under a feebate
program, an efficiency ‘‘pivot-point’’ is
set, below which manufacturers pay a
fee and above which manufacturers
receive a payment from the regulating
body or government entity. The fee or
payment is based on the efficiency of
products sold relative to the pivot point.
So, for example, the highest efficiency
products generate higher payments than
products also above the pivot point but
that are lower efficiency (see for
example Gillingham 2013 21). Feebates
may be easier to administer than
tradable standards because tracking of
permits is not required and credit
market liquidity is not a concern,
though other implementation challenges
may arise.22
Regardless of the specific program
design, the general concept with
existing programs is to establish a target
level, and allow manufacturers to have
the flexibility to meet that target in the
least cost way. That flexibility can
include a penalty or payment based on
if a manufacturer under- or overperforms relative to the target (i.e.,
feebate), a credit market (e.g., CAFE), or
allowing for other forms of collaboration
in compliance (e.g., E.U. vehicle
standard program). DOE seeks feedback
on what type of approach would best
serve the ECS program. In the remainder
of this document CAFE is used as an
example to discuss some of the specific
points on which DOE seeks feedback,
although DOE is interested in feedback
regarding any other potential policy
approaches.
II. Key Issues
A. Translation to Energy Conservation
Standards
jstallworth on DSKBBY8HB2PROD with PROPOSALS
The markets for consumer products
and commercial equipment covered by
the ECS program will inform the way a
market mechanism or allowance for
compliance flexibility could possibly be
established for ECS’s consumer
products and commercial equipment.
19 Johnson, K.C. (2006). Feebates: An effective
regulatory instrument for cost-constrained
environmental policy. Energy policy, 34(18), 3965–
3976.
20 German, J. and Dan Meszler (2010). Best
practices for feebate program design and
implementation. International Council on Clean
Transportation. https://www.theicct.org/sites/
default/files/publications/ICCT_feebates_
may2010.pdf.
21 Gillingham, K. (2013). The Economics of Fuel
Economy Standards versus Feebates. National
Energy Policy Institute (NEPI) Working Paper.
https://www.ourenergypolicy.org/wp-content/
uploads/2013/07/Gillingham-CAFE-Standards-vsFeebates-Apr-20131.pdf.
22 For example feebate programs may require tax
and subsidy authority and are not guaranteed to be
revenue neutral.
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First, the scope of the ECS program
covers a broad range of consumer
products and commercial equipment.
The ECS program currently covers more
than 60 types of products, each of which
have a number of product classes. For
this full scope of products, there are a
large number of manufacturers
controlling hundreds of brands across a
wide range of sectors and industries that
may facilitate averaging or trading
amongst manufacturers. The EPCA
definition of manufacturer applies not
only to original equipment
manufacturers, but also retailers,
distributors, installers, or importers,
some of which rebrand products
manufactured by other distributors. All
of these regulated entities would have to
submit sales data on covered models in
order to track compliance with such a
program. The current program of
mandatory energy conservation
standards for each model currently
requires that manufacturers certify and
report to DOE the efficiency level of all
covered models. Production or sales
data are not collected.
Careful consideration should be given
to the scope of additional program
flexibilities, for example the range of
product categories across which trading
under a tradable standard could occur.
One potential approach could be to
maintain a single standard level as is
currently the case for covered
appliances and commercial equipment.
The standard level would still be set
separately for each product category and
each class within that product category.
Trading could be allowed within a
single product class or across all
product classes within a particular
product category both for a given
manufacturer (they could sell some
models exceeding the standard as long
as they also have sufficient sales below
the standard to offset that difference)
and across manufacturers so that those
with excess credits could bank them or
sell them to those with a deficit for a
given year. As is the case for CAFE
standards, such a system incentivizes
manufacturers already producing
efficient models to continue improving
efficiency 23 Another potential approach
could be requiring both a minimum
efficiency level and an average standard
above the minimum efficiency level that
can be met through a more flexible
23 It should be noted that programs such as
ENERGY STAR and product rebates by utilities and
other program administrators incentivize efficiency
in consumer products and industrial equipment
outside of the ECS program. The interaction of
additional program flexibilities with other programs
such as ENERGY STAR is an important
consideration.
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approach, although that approach may
reduce the potential cost savings.24
While maintaining the same sets of
product classes would likely be
desirable in most cases, the introduction
of trading could allow a degree of
freedom and flexibility that could
potentially allow for simplification in
other dimensions of the program. For
example, some product classes could be
consolidated, or volume-based
standards, such as are established for
refrigerators currently, might be
simplified to no longer depend on
volume. Product classes were defined in
order to ensure preservation of
consumer choice and product utility/
functionality, effectively mandating a
degree of flexibility to the program. If
the trading introduced a market-driven
allowance for flexibility, some of the
mandated features may be redundant,
and further simplification might be
beneficial. This would have to be
carefully assessed.
B. Scope of Standards
As discussed above, defining the
products across which credit trading
would be allowed or a single feebate set
must be carefully considered. In the
case of a tradable standard, trading
could be allowed across product
categories using the same type of fuel.
For example, a manufacturer could
trade credits for room air conditioners
with electric clothes dryers, with the
common metric being kilowatt hours
saved over a product’s expected
lifetime. Alternatively, trading could be
allowed only across product classes for
a particular product category (e.g.,
across all room air conditioner product
classes), product classes could be
consolidated or eliminated for a single
product (e.g., a single standard for all
room air conditioners), or trading could
be allowed across product categories
using similar technologies (room air
conditioners and commercial air
conditioners, and perhaps consumer
refrigerators as well). One of the key
program design elements would be
ensuring a standardized definition of
credits across product classes to the
extent trading was allowed across
products with differing fuel sources,
requiring a normalization of energy
savings, though most covered products
use electricity. Program administration
and compliance costs, potential
efficiency gains, credit market liquidity,
and potential impacts on competition in
product markets are important
24 Retaining a minimum standard could be one
way to comply with the anti-backsliding provision
in current law.
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considerations in setting the scope of
the program.
As a final note, for one product
currently covered under the ECS
program (central air conditioners), the
standard level for this product varies
regionally. If this feature were present
for a product category included in the
scope of trading, trading would have to
reflect region-specific product sales as
well.
jstallworth on DSKBBY8HB2PROD with PROPOSALS
C. Normalizing Across Energy Sources
Credit trading across appliances with
different fuel sources (e.g., electric
versus natural gas dryers) would require
normalizing energy metrics across fuel
types. CAFE currently does this for
alternative fuel vehicles (including
those that run on electricity, natural gas,
hydrogen and other fuels) by generating
energy-equivalent fuel economy values.
So for instance a natural gas vehicle that
travels 30 miles on 100 cubic feet of
natural gas is given a gasoline-fuelequivalent miles per gallon value by
multiplying the natural gas fuel
economy by an energy content
conversion factor representing the
relative energy content of 100 cubic feet
of gas and one gallon of gasoline.
Appliance fuels could similarly be
converted into energy-equivalent values,
or trading could be restricted to
appliances of the same fuel type. DOE
seeks feedback on this point.
D. Distributional Impacts Across
Consumers and Manufacturers
Incorporating elements of a marketbased or flexible approach to the ECS
program in order to enable more flexible
compliance could have significant
benefits for consumer’s manufacturers,
such as providing manufacturers
flexibility to comply with the efficiency
target in the least cost way. However,
even if overall costs decline, the
distribution of costs among regulated
firms could change, and some firms
might face higher costs than under the
current program. Administrative costs
for firms may increase while overall
compliance costs may be reduced, for
instance as a result of reductions in
production costs or larger profits from
better targeting of consumer preferences.
DOE seeks feedback on the potential for
distributional asymmetries in costs and
benefits that could be relevant. For
example, would a credit trading
mechanism significantly change
administrative costs associated with
complying with the ECS? Would these
cost changes disproportionately impact
some types and sizes of firms relative to
others (e.g., would some firms
potentially have a compliance
advantage, in that they may be better
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equipped to establish designated
personnel to manage participation in the
credit market)? How would different
approaches to program flexibility
impact those costs (e.g., credit trading
versus feebates?). What are the likely net
gains to consumers and manufacturers
of a more flexible approach?
E. Enforcement
The establishment of credit trading
would require additional data collection
and monitoring to set standards and
ensure compliance.25 As under the
current CAFE program, calculating
credit holdings would depend on
accurate sales data for every covered
model. In cases where standards vary
regionally, these data would also need
to be broken out by region. These data
would be necessary to support accurate
and consistent calculations for the
determination of appropriate energy
conservation standard levels as part of
the rulemaking, and would be essential
for enabling and monitoring the credit
market and ensuring compliance.
F. Potential Challenges
For several product markets,
particularly for large appliances, the set
of manufacturers is relatively small.
This level of concentration in the
product market, if replicated in the
credit market, implies manufacturers
may be able to exercise market power
(i.e., the market would not be perfectly
competitive).26 Competitive credit
markets are an important factor in
design of programs that include trading.
The extent to which market power
could be exercised in credit markets,
and the potential impact on appliance
program outcomes and on consumers,
would need to be carefully considered
in design of a program. In general,
liquid and competitive credit markets
would be more likely if trading was
allowed across many product
25 For the current ECS program, DOE has
published certification, compliance, and
enforcement regulations for covered products and
equipment in the Code of Federal Regulations (CFR)
at 10 CFR part 429. These regulations describe how
manufacturers must establish certified ratings based
on conducting DOE test procedures on a sample of
units of a given basic model and subsequently
apply DOE’s statistical sampling plans. The
regulations also describe how manufacturers must
submit certification reports to DOE, and how
manufacturers must maintain records underlying
the certification. Finally, the regulations describe
processes for DOE-initiated testing and enforcing
compliance with the certification provisions and
the energy and water conservation standards.
26 For a summary of recent work on this topic see:
Houde, S. and C.A. Spurlock (2016). ‘‘Minimum
Energy Efficiency Standards for Appliances: Old
and New Economic Rationales,’’ Economics of
Energy & Environmental Policy, 5(2).
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56185
categories.27 Approaches that do not
involve credit markets, such as a
feebate, would not generate the same
credit trading concerns. More broadly,
the interaction of standards and market
power in product markets is an
important consideration.28 For a
discussion of how market power has the
potential to impact a credit market in an
emissions trading context see Fowlie,
Reguant, and Ryan (2016).29
Second, as with the current appliance
program, the impact of special
provisions on program goals would have
to be carefully considered. For example,
CAFE standards allow a mpg benefit for
flex-fuel vehicles regardless of the
actual fuel used by the vehicles.30 The
resulting incentive to produce flex-fuel
vehicles that do not for the most part
actually use alternative fuels results in
smaller reductions in petroleum fuel
use. This provision is being phased out
as a result.
Third, introduction of efficiency
incentives like tradable performance
standards or feebates into the ECS
program would mean that
manufacturers that specialize in more
efficient products may experience
higher sales, while those that specialize
in lower efficiency products may have
added costs and lower sales. As noted
above, the impact on small firms must
be carefully considered.
G. Potential Pilot Program and
Assessment
DOE requests input on potential scope
for a market-based pilot. For example, is
there a product or equipment type that
would be appropriate for such a pilot?
Is there a particular industry with a
structure more amenable to a marketbased pilot than others? Are any
potential policy approaches identified
in this RFI more suitable to certain
industries or products than others?
Could this pilot be successfully applied
to an industry voluntary program (e.g.,
set-top boxes)?
27 For discussion in the context of emissions
trading markets, see, e.g., Godby, R. (2000). ‘‘Market
Power and Emissions Trading: Theory and
Laboratory Results,’’ Pacific Economic Review,
5(3):349–363.
28 See for example Carolyn Fischer, ‘‘Imperfect
Competition, Consumer Behavior, and the Provision
of Fuel Efficiency in Light-Duty Vehicles,’’
Resources for the Future Discussion Paper 10–60,
December 2010.
29 Fowlie, M., Reguant, M., & Ryan, S.P. (2016).
Market-based emissions regulation and industry
dynamics. Journal of Political Economy, 124(1),
249–302.
30 For discussion of the flex-fuel provision and
what its use can reveal about manufacturer costs,
see, e.g., Anderson, S. and J. Sallee (2011). ‘‘Using
Loopholes to Reveal the Marginal Cost of
Regulation: The Case of Fuel-Economy Standards,’’
American Economic Review, 101: 1375–1409.
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Federal Register / Vol. 82, No. 227 / Tuesday, November 28, 2017 / Proposed Rules
DOE also requests feedback on how to
assess pilot program results. In
particular, how could DOE identify the
counterfactual or control group for
comparison with the existing mandatory
ECS program? How could DOE best
conduct a retroactive assessment of
costs and benefits to manufacturers
under the existing ECS program and the
market-based pilot? How could DOE
identify distributional impacts across
manufacturers? How could DOE
determine if a broader or narrower
scope of trading, if allowed, would have
been more beneficial? DOE also requests
input on what data it would need to
collect to properly assess pilot program
results.
III. Public Participation
jstallworth on DSKBBY8HB2PROD with PROPOSALS
DOE invites all interested parties to
submit in writing by February 26, 2018,
comments and information on matters
addressed in this RFI and on other
matters relevant to DOE’s evaluation of
the potential advantages and
disadvantages of additional compliance
flexibilities in energy conservation
standards, such as tradable average
standards, feebates or other marketbased approaches. DOE requests
feedback on program design, possible
economic efficiency gains, impacts on
consumer and manufacturer costs and
on energy savings, and potential
challenges associated with designing
and implementing such a program,
including suggestions for a pilot and/or
phase-in of a revised ECS.
DOE considers public participation to
be a very important part of the process
for developing new and/or amended
energy conservation standards. DOE
actively encourages the participation
and interaction of the public during the
comment period. Interactions with and
between members of the public provide
a balanced discussion of the issues and
assist DOE. Anyone who wishes to be
added to the DOE mailing list to receive
future notices and information about
this RFI should contact Appliance and
Equipment Standards Program staff at
(202) 287–1445 or via email at
ApplianceStandardsQuestions@
ee.doe.gov.
Issued in Washington, DC, on November
21, 2017.
Daniel R Simmons,
Principal Deputy Assistant Secretary, Energy
Efficiency and Renewable Energy.
[FR Doc. 2017–25663 Filed 11–27–17; 8:45 am]
BILLING CODE 6450–01–P
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DEPARTMENT OF ENERGY
Federal Energy Regulatory
Commission
18 CFR Part 40
[Docket No. RM16–22–000]
Coordination of Protection Systems for
Performance During Faults and
Specific Training for Personnel
Reliability Standards
Federal Energy Regulatory
Commission, Department of Energy.
ACTION: Notice of proposed rulemaking.
AGENCY:
The Federal Energy
Regulatory Commission (Commission)
proposes to approve Reliability
Standards PRC–027–1 (Coordination of
Protection Systems for Performance
During Faults) and PER–006–1 (Specific
Training for Personnel) submitted by the
North American Electric Reliability
Corporation (NERC). The purpose of
proposed Reliability Standard PRC–
027–1 is to maintain the coordination of
protection systems installed to detect
and isolate faults on bulk electric
system elements, such that those
protection systems operate in the
intended sequence during faults. The
purpose of proposed Reliability
Standard PER–006–1 is to ensure that
personnel are trained on specific topics
essential to reliability to perform or
support real-time operations of the bulk
electric system. In addition, the
Commission proposes to direct NERC to
develop certain modifications to
proposed Reliability Standard PRC–
027–1.
DATES: Comments are due January 29,
2018.
SUMMARY:
Comments, identified by
docket number, may be filed in the
following ways:
• Electronic Filing through https://
www.ferc.gov. Documents created
electronically using word processing
software should be filed in native
applications or print-to-PDF format and
not in a scanned format.
• Mail/Hand Delivery: Those unable
to file electronically may mail or handdeliver comments to: Federal Energy
Regulatory Commission, Secretary of the
Commission, 888 First Street NE.,
Washington, DC 20426.
Instructions: For detailed instructions
on submitting comments and additional
information on the rulemaking process,
see the Comment Procedures Section of
this document.
FOR FURTHER INFORMATION CONTACT:
Juan Villar (Technical Information),
Office of Electric Reliability, Division
ADDRESSES:
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Frm 00006
Fmt 4702
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of Reliability Standards and Security,
888 First Street NE., Washington, DC
20426, Telephone: (772) 678–6496,
Juan.Villar@ferc.gov.
Alan Rukin (Legal Information), Office
of the General Counsel, Federal
Energy Regulatory Commission, 888
First Street NE., Washington, DC
20426, Telephone: (202) 502–8502,
Alan.Rukin@ferc.gov.
SUPPLEMENTARY INFORMATION:
1. Pursuant to section 215 of the
Federal Power Act (FPA), the
Commission proposes to approve
proposed Reliability Standards PRC–
027–1 (Coordination of Protection
Systems for Performance During Faults)
and PER–006–1 (Specific Training for
Personnel), which were submitted for
approval by the North American Electric
Reliability Corporation (NERC), the
Commission-certified Electric
Reliability Organization (ERO).1 As
discussed below, however, the
Commission also proposes to direct
NERC to modify proposed Reliability
Standard PRC–027–1 to require an
initial protection system coordination
study to ensure that applicable entities
will perform (or have performed), as a
baseline, a study demonstrating proper
coordination of its protection systems.
We propose to direct NERC to submit
the modified Reliability Standard for
Commission approval within 12 months
following the effective date of a final
rule in this proceeding.
2. The Commission also proposes to
approve the associated violation risk
factors, violation severity levels,
implementation plans, and effective
dates proposed by NERC for Reliability
Standards PRC–027–1 and PER–006–1.
The Commission further proposes to
approve the retirement of currentlyeffective Reliability Standard PRC–001–
1.1(ii) (System Protection
Coordination).2
3. In addition, the Commission
proposes to approve new and revised
definitions submitted by NERC for
incorporation in the NERC Glossary of
Terms Used in NERC Reliability
Standards (‘‘NERC Glossary’’) for the
following terms: (1) ‘‘protection system
coordination study;’’ (2) ‘‘operational
planning analysis;’’ and (3) ‘‘real-time
assessment.’’
1 16
U.S.C. 824o.
Commission approved Reliability Standard
PRC–001–1.1(ii) on May 29, 2015. North American
Electric Reliability Corporation, 151 FERC ¶ 61,186
(2015).
2 The
E:\FR\FM\28NOP1.SGM
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Agencies
[Federal Register Volume 82, Number 227 (Tuesday, November 28, 2017)]
[Proposed Rules]
[Pages 56181-56186]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-25663]
========================================================================
Proposed Rules
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.
========================================================================
Federal Register / Vol. 82, No. 227 / Tuesday, November 28, 2017 /
Proposed Rules
[[Page 56181]]
DEPARTMENT OF ENERGY
10 CFR Part 430
[EERE-2017-BT-STD-0059]
RIN 1904-AE11
Energy Conservation Program: Energy Conservation Standards
Program Design
AGENCY: Office of Energy Efficiency and Renewable Energy, Department of
Energy.
ACTION: Request for information (RFI).
-----------------------------------------------------------------------
SUMMARY: The U.S. Department of Energy (DOE) is evaluating the
potential advantages and disadvantages of additional flexibilities in
the U.S. Appliance and Equipment Energy Conservation Standards (ECS)
program. Flexibilities could include market-based approaches such as
those used to set average efficiency standards, feebate programs, or
other approaches that may reduce compliance costs and/or increase
consumer choice while preserving or enhancing appliance efficiency.
This RFI discusses key issues and requests feedback on the possible
design of such a program. DOE additionally requests feedback on
possible economic efficiency gains, impacts on consumer and
manufacturer costs and on energy savings, and suggestions for a pilot
product category and/or phase-in of revisions across the ECS program.
DOE also requests feedback on any potential challenges associated with
designing and implementing any of these flexible program approaches as
well as possible solutions.
DATES: Written comments and information are requested on or before
February 26, 2018.
ADDRESSES: Any comments submitted must identify the RFI for Energy
Conservation Standards Program Design, and provide docket number EERE-
2017-BT-STD-0059 and/or regulatory information number (RIN) number
1904-AE11. Comments may be submitted using any of the following
methods:
Federal eRulemaking Portal: https://www.regulations.gov.
Follow the instructions for submitting comments.
Email: ProgramDesign2017STD0059@ee.doe.gov. Include docket
number EERE-2017-BT-STD-0059 in the subject line of the message. Submit
electronic comments in WordPerfect, Microsoft Word, PDF, or ASCII file
format, and avoid the use of special characters or any form of
encryption.
Mail: Appliance and Equipment Standards Program, U.S.
Department of Energy, Building Technologies Office, Mailstop EE-5B,
1000 Independence Avenue SW., Washington, DC 20585-0121. If possible,
please submit all items on a compact disc (CD), in which case it is not
necessary to include printed copies.
Hand Delivery/Courier: Appliance and Equipment Standards
Program, U.S. Department of Energy, Building Technologies Office, 950
L'Enfant Plaza, SW., 6th Floor, Washington, DC 20024. Telephone: (202)
287-1445. If possible, please submit all items on a CD, in which case
it is not necessary to include printed copies.
Instructions: All submissions received must include the agency name
and docket number and/or RIN. No telefacsimiles (faxes) will be
accepted.
Docket: The docket is available for review at https://www.regulations.gov/docket?D=EERE-2017-BT-STD-0059, including Federal
Register notices, comments, and other supporting documents/materials.
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.
A link to the docket Web page can be found at https://www.regulations.gov/docket?D=EERE-2017-BT-STD-0059. This Web page
contains a link to the docket for this notice at https://www.regulations.gov. The https://www.regulations.gov Web page contains
simple instructions on how to access all documents, including public
comments, in the docket.
For information about how to submit a comment or review other
public comments in the docket, send an email to
ApplianceStandardsQuestions@ee.doe.gov.
FOR FURTHER INFORMATION CONTACT: Appliance and Equipment Standards
Program Staff, U.S. Department of Energy, Office of Energy Efficiency
and Renewable Energy, Building Technologies Program, EE-5B, 1000
Independence Avenue SW., Washington, DC 20585-0121. Telephone: (202)
287-1445. Email: ProgramDesign2017STD0059@ee.doe.gov.
For further information on how to submit a comment, review other
public comments and the docket, contact the Appliance and Equipment
Standards Program staff at (202) 287-1445 or by email:
ApplianceStandardsQuestions@ee.doe.gov.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Introduction
A. Background
B. Background on Market-Based Mechanisms in the Context of
Environment Regulation
II. Key Issues
A. Translation to Energy Conservation Standards
B. Scope of Standards
C. Normalizing Across Energy Sources
D. Distributional Impacts Across Consumers and Manufacturers
E. Enforcement
F. Potential Challenges
G. Potential Pilot Program and Assessment
III. Public Participation
I. Introduction
A. Background
The purpose of this Request for Information (RFI) is to outline and
request feedback on the design, value, and solutions to potential
challenges of revising the U.S. Appliance and Equipment Energy
Conservation Standards (ECS) program to include additional compliance
flexibilities, with the goal of reducing compliance costs, enhancing
consumer choice and maintaining or increasing energy savings. Of
particular interest are designs that would use market-based policy
mechanisms such as averaging, credit trading, or feebates. Market-based
policy mechanisms are potentially less burdensome alternatives as they
use markets, price, and other economic variables to provide incentives
for regulated entities to reduce or eliminate negative environmental
externalities in the least cost way. These policy mechanisms recognize
that compliance
[[Page 56182]]
costs may vary significantly across the regulated sector and allows
individual parties to choose the most cost effective compliance option.
An example, discussed further below, of a market-based regulatory
program that uses averaging, banking, and trading of credits is the
Corporate Average Fuel Economy (CAFE) standards program for light-duty
vehicles. The CAFE standards program specifies a fleet-based average
fuel efficiency standard that allows manufacturers to trade credits
across vehicle classes and manufacturers. This is only one example of
how a regulatory program can include some market-based mechanism
allowing for more flexibility in compliance. Other examples of market-
based mechanisms used in a number of other U.S. energy and
environmental programs include standards to which gasoline refineries
were subject during the leaded gasoline phase-down,\1\ the use of
credits, or RINs (Renewable Fuel Identification Numbers) in the U.S.
EPA Renewable Fuel Standards program,\2\ fuel efficiency standards for
heavy duty engines and vehicles, various versions of state-level
Renewable Portfolio Standard programs, including those allowing for the
use of Tradable Renewable Certificates (TRCs),\3\ and several power
plant emissions control programs including California's Cap and Trade
program.\4\
---------------------------------------------------------------------------
\1\ Newell, R.G., & Rogers, K. (2003). The U.S. experience with
the phasedown of lead in gasoline. Resources for the Future,
Washington, DC, 2.
\2\ https://www.epa.gov/renewable-fuel-standard-program/overview-renewable-fuel-standard.
\3\ Wiser, R., Porter, K., & Grace, R. (2005). Evaluating
experience with renewables portfolio standards in the United States.
Mitigation and Adaptation Strategies for Global Change, 10(2), 237-
263.
\4\ https://www.arb.ca.gov/cc/capandtrade/capandtrade.htm.
---------------------------------------------------------------------------
DOE requests feedback on possible revisions to the ECS to adopt
some type of market-based approach and/or other program flexibilities.
DOE additionally requests feedback on possible impacts on consumer and
manufacturer costs, estimated benefits of the program such as energy
savings, design and implementation of such a program, and suggestions
for a pilot product category and/or phase-in of revisions across ECS.
DOE encourages the public to provide input on measures DOE could take
to lower the cost of its regulations consistent with the requirements
of EPCA.
Economic theory suggests that the introduction of credit trading
into a mandatory regulatory program such as ECS would likely improve
economic efficiency (see Coase (1960),\5\ Crocker (1966),\6\ Dales
(1968a, 1968b),\7\ and Montgomery (1972) \8\) and subsequent
discussions such as Ellerman (2005) \9\). Credit trading, for example,
either within a single manufacturer or between manufacturers, would
allow a level of flexibility for compliance, and could thereby reduce
compliance costs associated with production, and establish a market
mechanism to reveal the ``shadow value'' \10\ of the efficiency
standard through the value of credits on the credit trading market. In
principle, the same aggregate level of energy savings could be obtained
with reduced compliance cost, because manufacturers with a lower
marginal cost of providing efficiency improvements could increase the
efficiency of the products they sell even more, and sell credits from
their over-compliance to manufacturers with a higher marginal cost of
providing efficiency, thereby allowing them to produce products with
efficiency levels below the standard. This could reduce the overall
manufacturer cost associated with producing the same aggregate level of
energy savings. Such a program would allow a degree of flexibility that
could accommodate increased consumer choice as well. For example, if
there is a small market segment of consumers with a very high
willingness to pay for a product that, for whatever reason, cannot be
produced to meet a given energy conservation standard level, under a
mandatory standard they could not obtain this product. However, under a
trading, averaging, or other market-based scheme a manufacturer could
choose to produce that product by purchasing credits in the credit
market. Furthermore, market-based standards further incentivize even
the makers of the most efficient appliances to continue to innovate and
improve efficiency, gains once the minimum standard is met.\11\ DOE
requests comment on which flexible compliance or market-based program
scheme might incentivize the most cost-effective improvements in energy
efficiency.
---------------------------------------------------------------------------
\5\ Coase, R.H. (1960). The problem of social cost. The Journal
of Law and Economics, 3, 1-44. [republished as Coase, R.H. (2013).
The problem of social cost. The journal of Law and Economics, 56(4),
837-877.]
\6\ Crocker T.D.W.H. (1966). The structuring of atmospheric
pollution control systems. The economics of air pollution: A
symposium, New York, W.W. Horton, pg. 61-86.
\7\ Dales J.H. (1968a) Land, water, and ownership. Canadian
Journal of Economics/Revue Canadienne d'Economique, 1(4), 791-804.
Dales, J.H. (1968b). Pollution, property and prices. Toronto,
University of Toronto Press.
\8\ Montgomery, W.D. (1972). Markets in licenses and efficient
pollution control programs. Journal of Economic Theory. 5(3), 395-
418.
\9\ Ellerman, A.D. (2005). A note on tradeable permits.
Environmental and Resource Economics, 31(2), 123-131.
\10\ Shadow price or shadow value is a term in economics. It
refers to the marginal value of a constraint, or the value of
relaxing a given constraint by one unit. In the case of a standard
with trading, theoretically the price of credits in the credit
market would reveal the shadow value of the constraint imposed by
the standard.
\11\ Note that the voluntary ENERGY STAR program currently
provides a separate incentive for increasing efficiency beyond the
minimum standards, in a different way than mandatory market-based
standards. ENERGY STAR criteria are set above minimum standards to
provide a separate incentive to produce products above the minimum.
---------------------------------------------------------------------------
Increased flexibility, reduced economic costs, and increased
incentives for manufacturers to innovate and improve efficiency across
a spectrum of products (i.e., both high efficiency products and
products that just meet the standard level) are all possible benefits
from introducing average standards and/or market-based approaches, or
other compliance flexibilities. These market-based program options will
differ from the current DOE compliance structure creating some
uncertainty about implementation, interaction with voluntary programs
such as ENERGY STAR, certification, and enforcement for both
manufacturers and DOE. The scope of a tradable standards program could
range from allowing averaging only across each company's appliances
within a product category (that is, no trading across product
categories or between companies). For example, considering the consumer
refrigerator and freezer product category,\12\ a company could average
the energy efficiency of their products across all of the product
classes of equipment that they produce or just average across some of
the various residential refrigerator products in different product
classes that they produce, but different companies would not be able to
average their energy efficiencies between companies. Another program
design could allow companies to trade credits across product categories
and/or between companies. A feebate program could similarly vary in
scope but would have different implementation and administrative
requirements and costs. As there are many program design possibilities
and potential program flexibilities, DOE requests comment on any
potential benefits or costs that may arise with the implementation of
these types of policy changes and any
[[Page 56183]]
recommendations for how the program could be successfully implemented.
---------------------------------------------------------------------------
\12\ DOE's current energy efficiency standards for the consumer
refrigerators, refrigerator-freezers, and freezers product category
are subdivided into forty-two different product classes most of
which have unique energy efficiency standards. 76 FR 57516
(September 15, 2011).
---------------------------------------------------------------------------
B. Background on Market-Based Mechanisms in the Context of Environment
Regulation
There are many examples of market-based mechanisms incorporated
into environmental regulation. Broadly, prominent examples in the
United States include emissions trading systems (ETS, or cap and
trade); and performance-based standards with a market-based mechanism
or similar allowance for some element of flexibility in compliance. In
the case of an ETS, a particular cap, or limit, is placed on the level
of emissions. That cap would generally be structured in the form of
emissions credits (e.g., a single ton of emissions) allocated to each
entity subject to the policy. Several allocation mechanisms are
possible, including grandfathering, lottery, or auctioning. There are
numerous other examples of ETS policies at the state and federal levels
in the United States and across the world.\13\
---------------------------------------------------------------------------
\13\ E.T.S. China (2016). ``Carbon Pricing Watch 2016,'' World
Bank Group. https://www.ecofys.com/en/publications/carbon-pricing-watch-2016/.
---------------------------------------------------------------------------
A successful example of an ETS is EPA's Acid Rain Program, where
fossil fuel-fired electric power plant emissions of sulfur dioxide were
capped nationwide and power plant owners could either install emissions
control technologies to reduce their sulfur dioxide emissions allowing
the owner to earn credits for each ton of emissions reduced or the
owner could purchase credits to offset their emissions. The Acid Rain
Program also included an emissions averaging component for nitrous
oxide (NOX) emissions that allowed owners to use company-
wide averaging to meet the emissions standard.
An example of flexible performance standards include the various
implementations of vehicle fuel economy standards across the world.
Many of these vehicle fuel economy programs incorporate some variation
of an average target, allowing flexibility in compliance by enabling
manufacturers to sell models that are less efficient than the target as
long as they balance it out with sales of models that are more
efficient.\14\ China is one of the exceptions as they set minimum
standards that each vehicle model must achieve. In addition, some
programs have also incorporated some degree of flexible compliance or
coordination in compliance across manufacturers. A program already
implemented in the U.S., is the Department of Transportation's
Corporate Average Fuel Economy (CAFE) standards and EPA's greenhouse
gas (GHG) standards for passenger vehicles. CAFE standards were first
enacted by Congress in 1975. Starting in 1978, each vehicle
manufacturer was required to meet a fleet-wide, average fuel economy
standard: One for passenger cars and another for light trucks. The
Department of Transportation's National Highway Traffic and Safety
Administration (NHTSA) administers the CAFE standards, while the
Environmental Protection Agency (EPA) administers the greenhouse gas
emissions (GHG) standards for passenger cars and light-duty trucks
under section 202(a) of the Clean Air Act (42 U.S.C. 7521(a)). The two
agencies work together, with the California Air Resources Board, to set
CAFE and GHG standards for passenger vehicles in part to harmonize
their standards to reduce compliance burdens on manufacturers so
manufacturers can produce the same vehicle model across the nation. The
current CAFE standards cover light-duty passenger vehicles for model
years out to 2021 while EPA's GHG standards go out to 2025 (77 FR
62623).
---------------------------------------------------------------------------
\14\ An, F., & Sauer, A. (2004). Comparison of passenger vehicle
fuel economy and greenhouse gas emission standards around the world.
Pew Center on Global Climate Change, 25.
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For all U.S. sales in a given model year, the CAFE standards
require each manufacturer's U.S. sales meet a production-weighted
harmonic mean fuel economy/emissions target based on vehicle footprint
(the vehicle wheelbase times its track width, or the area between its
tires). Thus, CAFE is a fleet-based standard, which allows each
manufacturer to trade off fuel economy between its own models by
altering its product mix (i.e., ``internal trading''). The standards
are applied fleetwide for a company so that domestically produced
vehicles \15\ and imported vehicles, are treated the same for
compliance purposes.
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\15\ Vehicles produced with more than 75 percent U.S., Canadian,
or post-NAFTA Mexican content.
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Beginning with the standards issued in 2009 for model year 2011
vehicles, the CAFE program allows for trading of credits across
manufacturers (74 FR 14195). Manufacturers who fail to meet their
fleet-level target may buy credits from manufacturers who achieved
greater-than-required fleet-level fuel economy; alternatively,
manufacturers failing to meet their fleet-level target may pay a fine.
Credits may also be used within a manufacturer's own product mix,
trading from passenger cars to light trucks, or from domestic to
foreign production. Credits earned by exceeding the fuel economy
standard may be banked and used up to five years in the future.
The CAFE calculation incorporates many different complexities and
allowances for vehicle design features (e.g., flex-fuel capability, air
conditioning, off-cycling technologies, solar panels, engine start/
stop, active aerodynamics, etc.), which may or may not have logical
analogs in products covered by ECS. It is important when designing a
credit program that there is sufficient heterogeneity in the affected
product category to leverage the advantages of a market-based approach.
For analysis of the impact and effectiveness of credit trading within
CAFE, see, e.g., Leard and McConnell (2015) \16\ and Greenstone et al.
(2017).\17\
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\16\ Leard, B. and V. McConnell (2015). ``New Markets for
Pollution and Energy Efficiency: Credit Trading under Automobile
Greenhouse Gas and Fuel Economy Standards,'' Resources for the
Future, RFF DP 15-16.
\17\ Greenstone, M. et al. (2017). ``The Next Generation of
Transportation Policy,'' The Hamilton Project, Policy Proposal 2017-
02.
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Other passenger vehicle fuel economy standards programs around the
world also provide some examples for variations on this concept. For
example, Japan follows a similar model to the United States, in that
their vehicle standards are mandatory and their fuel economy targets
are also based on average vehicle fuel economy, where the target is
specific to weight classes. Starting in 2001 the regulation was revised
to allow manufacturers to transfer credits across weight classes (see
An & Sauer 2004).\18\
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\18\ An, F., & Sauer, A. (2004). Comparison of passenger vehicle
fuel economy and greenhouse gas emission standards around the world.
Pew Center on Global Climate Change, 25.
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The European Union (E.U.) program differs significantly from that
used in the United States. In the E.U. program the average passenger
vehicle fuel economy across the entire industry is to meet a certain
target by the compliance date (i.e., there are no manufacturer-specific
targets). It is a voluntary standard established through an agreement
between manufacturers and the European Commission. Because the target
is not specific to each manufacturer, manufacturers can presumably
coordinate to enable the entire passenger vehicle fleet to meet the
target (An & Sauer 2004).
Another example of a performance standard incorporating a level of
flexibility in compliance is a feebate. Examples include the Swedish
program to incentivize power plant operators to reduce nitrous oxide
emissions, as well as vehicle fuel economy programs in
[[Page 56184]]
several countries.\19\ \20\ Under a feebate program, an efficiency
``pivot-point'' is set, below which manufacturers pay a fee and above
which manufacturers receive a payment from the regulating body or
government entity. The fee or payment is based on the efficiency of
products sold relative to the pivot point. So, for example, the highest
efficiency products generate higher payments than products also above
the pivot point but that are lower efficiency (see for example
Gillingham 2013 \21\). Feebates may be easier to administer than
tradable standards because tracking of permits is not required and
credit market liquidity is not a concern, though other implementation
challenges may arise.\22\
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\19\ Johnson, K.C. (2006). Feebates: An effective regulatory
instrument for cost-constrained environmental policy. Energy policy,
34(18), 3965-3976.
\20\ German, J. and Dan Meszler (2010). Best practices for
feebate program design and implementation. International Council on
Clean Transportation. https://www.theicct.org/sites/default/files/publications/ICCT_feebates_may2010.pdf.
\21\ Gillingham, K. (2013). The Economics of Fuel Economy
Standards versus Feebates. National Energy Policy Institute (NEPI)
Working Paper. https://www.ourenergypolicy.org/wp-content/uploads/2013/07/Gillingham-CAFE-Standards-vs-Feebates-Apr-20131.pdf.
\22\ For example feebate programs may require tax and subsidy
authority and are not guaranteed to be revenue neutral.
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Regardless of the specific program design, the general concept with
existing programs is to establish a target level, and allow
manufacturers to have the flexibility to meet that target in the least
cost way. That flexibility can include a penalty or payment based on if
a manufacturer under- or over-performs relative to the target (i.e.,
feebate), a credit market (e.g., CAFE), or allowing for other forms of
collaboration in compliance (e.g., E.U. vehicle standard program). DOE
seeks feedback on what type of approach would best serve the ECS
program. In the remainder of this document CAFE is used as an example
to discuss some of the specific points on which DOE seeks feedback,
although DOE is interested in feedback regarding any other potential
policy approaches.
II. Key Issues
A. Translation to Energy Conservation Standards
The markets for consumer products and commercial equipment covered
by the ECS program will inform the way a market mechanism or allowance
for compliance flexibility could possibly be established for ECS's
consumer products and commercial equipment.
First, the scope of the ECS program covers a broad range of
consumer products and commercial equipment. The ECS program currently
covers more than 60 types of products, each of which have a number of
product classes. For this full scope of products, there are a large
number of manufacturers controlling hundreds of brands across a wide
range of sectors and industries that may facilitate averaging or
trading amongst manufacturers. The EPCA definition of manufacturer
applies not only to original equipment manufacturers, but also
retailers, distributors, installers, or importers, some of which
rebrand products manufactured by other distributors. All of these
regulated entities would have to submit sales data on covered models in
order to track compliance with such a program. The current program of
mandatory energy conservation standards for each model currently
requires that manufacturers certify and report to DOE the efficiency
level of all covered models. Production or sales data are not
collected.
Careful consideration should be given to the scope of additional
program flexibilities, for example the range of product categories
across which trading under a tradable standard could occur. One
potential approach could be to maintain a single standard level as is
currently the case for covered appliances and commercial equipment. The
standard level would still be set separately for each product category
and each class within that product category. Trading could be allowed
within a single product class or across all product classes within a
particular product category both for a given manufacturer (they could
sell some models exceeding the standard as long as they also have
sufficient sales below the standard to offset that difference) and
across manufacturers so that those with excess credits could bank them
or sell them to those with a deficit for a given year. As is the case
for CAFE standards, such a system incentivizes manufacturers already
producing efficient models to continue improving efficiency \23\
Another potential approach could be requiring both a minimum efficiency
level and an average standard above the minimum efficiency level that
can be met through a more flexible approach, although that approach may
reduce the potential cost savings.\24\
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\23\ It should be noted that programs such as ENERGY STAR and
product rebates by utilities and other program administrators
incentivize efficiency in consumer products and industrial equipment
outside of the ECS program. The interaction of additional program
flexibilities with other programs such as ENERGY STAR is an
important consideration.
\24\ Retaining a minimum standard could be one way to comply
with the anti-backsliding provision in current law.
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While maintaining the same sets of product classes would likely be
desirable in most cases, the introduction of trading could allow a
degree of freedom and flexibility that could potentially allow for
simplification in other dimensions of the program. For example, some
product classes could be consolidated, or volume-based standards, such
as are established for refrigerators currently, might be simplified to
no longer depend on volume. Product classes were defined in order to
ensure preservation of consumer choice and product utility/
functionality, effectively mandating a degree of flexibility to the
program. If the trading introduced a market-driven allowance for
flexibility, some of the mandated features may be redundant, and
further simplification might be beneficial. This would have to be
carefully assessed.
B. Scope of Standards
As discussed above, defining the products across which credit
trading would be allowed or a single feebate set must be carefully
considered. In the case of a tradable standard, trading could be
allowed across product categories using the same type of fuel. For
example, a manufacturer could trade credits for room air conditioners
with electric clothes dryers, with the common metric being kilowatt
hours saved over a product's expected lifetime. Alternatively, trading
could be allowed only across product classes for a particular product
category (e.g., across all room air conditioner product classes),
product classes could be consolidated or eliminated for a single
product (e.g., a single standard for all room air conditioners), or
trading could be allowed across product categories using similar
technologies (room air conditioners and commercial air conditioners,
and perhaps consumer refrigerators as well). One of the key program
design elements would be ensuring a standardized definition of credits
across product classes to the extent trading was allowed across
products with differing fuel sources, requiring a normalization of
energy savings, though most covered products use electricity. Program
administration and compliance costs, potential efficiency gains, credit
market liquidity, and potential impacts on competition in product
markets are important
[[Page 56185]]
considerations in setting the scope of the program.
As a final note, for one product currently covered under the ECS
program (central air conditioners), the standard level for this product
varies regionally. If this feature were present for a product category
included in the scope of trading, trading would have to reflect region-
specific product sales as well.
C. Normalizing Across Energy Sources
Credit trading across appliances with different fuel sources (e.g.,
electric versus natural gas dryers) would require normalizing energy
metrics across fuel types. CAFE currently does this for alternative
fuel vehicles (including those that run on electricity, natural gas,
hydrogen and other fuels) by generating energy-equivalent fuel economy
values. So for instance a natural gas vehicle that travels 30 miles on
100 cubic feet of natural gas is given a gasoline-fuel-equivalent miles
per gallon value by multiplying the natural gas fuel economy by an
energy content conversion factor representing the relative energy
content of 100 cubic feet of gas and one gallon of gasoline. Appliance
fuels could similarly be converted into energy-equivalent values, or
trading could be restricted to appliances of the same fuel type. DOE
seeks feedback on this point.
D. Distributional Impacts Across Consumers and Manufacturers
Incorporating elements of a market-based or flexible approach to
the ECS program in order to enable more flexible compliance could have
significant benefits for consumer's manufacturers, such as providing
manufacturers flexibility to comply with the efficiency target in the
least cost way. However, even if overall costs decline, the
distribution of costs among regulated firms could change, and some
firms might face higher costs than under the current program.
Administrative costs for firms may increase while overall compliance
costs may be reduced, for instance as a result of reductions in
production costs or larger profits from better targeting of consumer
preferences. DOE seeks feedback on the potential for distributional
asymmetries in costs and benefits that could be relevant. For example,
would a credit trading mechanism significantly change administrative
costs associated with complying with the ECS? Would these cost changes
disproportionately impact some types and sizes of firms relative to
others (e.g., would some firms potentially have a compliance advantage,
in that they may be better equipped to establish designated personnel
to manage participation in the credit market)? How would different
approaches to program flexibility impact those costs (e.g., credit
trading versus feebates?). What are the likely net gains to consumers
and manufacturers of a more flexible approach?
E. Enforcement
The establishment of credit trading would require additional data
collection and monitoring to set standards and ensure compliance.\25\
As under the current CAFE program, calculating credit holdings would
depend on accurate sales data for every covered model. In cases where
standards vary regionally, these data would also need to be broken out
by region. These data would be necessary to support accurate and
consistent calculations for the determination of appropriate energy
conservation standard levels as part of the rulemaking, and would be
essential for enabling and monitoring the credit market and ensuring
compliance.
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\25\ For the current ECS program, DOE has published
certification, compliance, and enforcement regulations for covered
products and equipment in the Code of Federal Regulations (CFR) at
10 CFR part 429. These regulations describe how manufacturers must
establish certified ratings based on conducting DOE test procedures
on a sample of units of a given basic model and subsequently apply
DOE's statistical sampling plans. The regulations also describe how
manufacturers must submit certification reports to DOE, and how
manufacturers must maintain records underlying the certification.
Finally, the regulations describe processes for DOE-initiated
testing and enforcing compliance with the certification provisions
and the energy and water conservation standards.
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F. Potential Challenges
For several product markets, particularly for large appliances, the
set of manufacturers is relatively small. This level of concentration
in the product market, if replicated in the credit market, implies
manufacturers may be able to exercise market power (i.e., the market
would not be perfectly competitive).\26\ Competitive credit markets are
an important factor in design of programs that include trading. The
extent to which market power could be exercised in credit markets, and
the potential impact on appliance program outcomes and on consumers,
would need to be carefully considered in design of a program. In
general, liquid and competitive credit markets would be more likely if
trading was allowed across many product categories.\27\ Approaches that
do not involve credit markets, such as a feebate, would not generate
the same credit trading concerns. More broadly, the interaction of
standards and market power in product markets is an important
consideration.\28\ For a discussion of how market power has the
potential to impact a credit market in an emissions trading context see
Fowlie, Reguant, and Ryan (2016).\29\
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\26\ For a summary of recent work on this topic see: Houde, S.
and C.A. Spurlock (2016). ``Minimum Energy Efficiency Standards for
Appliances: Old and New Economic Rationales,'' Economics of Energy &
Environmental Policy, 5(2).
\27\ For discussion in the context of emissions trading markets,
see, e.g., Godby, R. (2000). ``Market Power and Emissions Trading:
Theory and Laboratory Results,'' Pacific Economic Review, 5(3):349-
363.
\28\ See for example Carolyn Fischer, ``Imperfect Competition,
Consumer Behavior, and the Provision of Fuel Efficiency in Light-
Duty Vehicles,'' Resources for the Future Discussion Paper 10-60,
December 2010.
\29\ Fowlie, M., Reguant, M., & Ryan, S.P. (2016). Market-based
emissions regulation and industry dynamics. Journal of Political
Economy, 124(1), 249-302.
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Second, as with the current appliance program, the impact of
special provisions on program goals would have to be carefully
considered. For example, CAFE standards allow a mpg benefit for flex-
fuel vehicles regardless of the actual fuel used by the vehicles.\30\
The resulting incentive to produce flex-fuel vehicles that do not for
the most part actually use alternative fuels results in smaller
reductions in petroleum fuel use. This provision is being phased out as
a result.
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\30\ For discussion of the flex-fuel provision and what its use
can reveal about manufacturer costs, see, e.g., Anderson, S. and J.
Sallee (2011). ``Using Loopholes to Reveal the Marginal Cost of
Regulation: The Case of Fuel-Economy Standards,'' American Economic
Review, 101: 1375-1409.
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Third, introduction of efficiency incentives like tradable
performance standards or feebates into the ECS program would mean that
manufacturers that specialize in more efficient products may experience
higher sales, while those that specialize in lower efficiency products
may have added costs and lower sales. As noted above, the impact on
small firms must be carefully considered.
G. Potential Pilot Program and Assessment
DOE requests input on potential scope for a market-based pilot. For
example, is there a product or equipment type that would be appropriate
for such a pilot? Is there a particular industry with a structure more
amenable to a market-based pilot than others? Are any potential policy
approaches identified in this RFI more suitable to certain industries
or products than others? Could this pilot be successfully applied to an
industry voluntary program (e.g., set-top boxes)?
[[Page 56186]]
DOE also requests feedback on how to assess pilot program results.
In particular, how could DOE identify the counterfactual or control
group for comparison with the existing mandatory ECS program? How could
DOE best conduct a retroactive assessment of costs and benefits to
manufacturers under the existing ECS program and the market-based
pilot? How could DOE identify distributional impacts across
manufacturers? How could DOE determine if a broader or narrower scope
of trading, if allowed, would have been more beneficial? DOE also
requests input on what data it would need to collect to properly assess
pilot program results.
III. Public Participation
DOE invites all interested parties to submit in writing by February
26, 2018, comments and information on matters addressed in this RFI and
on other matters relevant to DOE's evaluation of the potential
advantages and disadvantages of additional compliance flexibilities in
energy conservation standards, such as tradable average standards,
feebates or other market-based approaches. DOE requests feedback on
program design, possible economic efficiency gains, impacts on consumer
and manufacturer costs and on energy savings, and potential challenges
associated with designing and implementing such a program, including
suggestions for a pilot and/or phase-in of a revised ECS.
DOE considers public participation to be a very important part of
the process for developing new and/or amended energy conservation
standards. DOE actively encourages the participation and interaction of
the public during the comment period. Interactions with and between
members of the public provide a balanced discussion of the issues and
assist DOE. Anyone who wishes to be added to the DOE mailing list to
receive future notices and information about this RFI should contact
Appliance and Equipment Standards Program staff at (202) 287-1445 or
via email at ApplianceStandardsQuestions@ee.doe.gov.
Issued in Washington, DC, on November 21, 2017.
Daniel R Simmons,
Principal Deputy Assistant Secretary, Energy Efficiency and Renewable
Energy.
[FR Doc. 2017-25663 Filed 11-27-17; 8:45 am]
BILLING CODE 6450-01-P